Town of Orland v. National Fire & Cas. Co.

• Decision Date: 11 April 2000
• Docket Number: No. 76A03-9904-CV-152.,76A03-9904-CV-152.
• Parties: TOWN OF ORLAND, Appellant-Plaintiff, v. NATIONAL FIRE & CASUALTY CO., Appellee-Defendant.
• Court: Indiana Appellate Court

726 N.E.2d 364

TOWN OF ORLAND, Appellant-Plaintiff, v. NATIONAL FIRE & CASUALTY CO., Appellee-Defendant.

No. 76A03-9904-CV-152.

Court of Appeals of Indiana.

April 11, 2000.

Rehearing Denied May 16, 2000.

D. Randall Brown, Gary C. Furst, Barnes & Thornburg, Fort Wayne, Indiana, Neal Lewis, Lewis & Associates, Orland, Indiana, Attorneys for Appellant.

Larry L. Barnard, Miller Carson Boxberger & Murphy, Fort Wayne, Indiana, Steven D. Pearson, Dawn M. Gonzalez, Meckler Bulger & Tilson, Chicago, Illinois, Attorneys for Appellee.

OPINION

BAKER, Judge

Appellant-plaintiff Town of Orland (Orland) appeals the trial court's grant of partial summary judgment in favor of appellee-defendant National Fire & Casualty Co. (National). Specifically, Orland argues that National had a duty to defend Orland in the lawsuit filed against it by Jones & Henry Engineers, LTD (Jones). Thus, Orland asserts that summary judgment should have been granted in its favor on the duty to defend issue.

FACTS

In 1993, Orland contracted with Jones, an engineering firm, to design a wastewater public works and an extension of Orland's drinking water system to a neighboring lake community. In late 1995, experts in the field of wastewater technology brought to Orland's attention questions with respect to Jones' technical design and cost projections. At this same time, citizens began to take a hard look at the engineering plans, as they had learned that Jones planned to pipe the discharged waste from sewage lagoons more than one-half mile around the DNR Fish Hatchery to a point downstream of the hatchery intakes.

Following a record-breaking turnout of over 90% of registered voters, a new Town Council (Council) was selected in November 1996. On January 1, 1997, the Council's first order of business was to evaluate its options and investigate the questions relating to Jones' design and cost estimates. Therefore, the Council directed Jones to suspend all activities on the water and sewage projects and then requested another engineering company to prepare a value engineering report, which is essentially a second opinion.

During this delay, Jones filed a complaint for declaratory judgment in federal court against Orland on April 23, 1996 and an amended complaint on a January 23, 1997. The amended complaint provided in relevant part as follows:

Statement of Facts

6. Plaintiff entered into a contract with the Town of Orland to provide engineering services for the design of a wastewater collection and treatment facility on or about October 11, 1993....

7. On April 8, 1994 Plaintiff and Defendant executed Addendum No. 1 to the Engineering Service Agreement in connection with the wastewater facility....

8. On March 10, 1994, Plaintiff entered into a contract with the Town of Orland to provide engineering services for the design of a water distribution system....

9. Plaintiff completed the preliminary engineering reports and designs for both projects which were approved by the Farmers Home Administration... and the Town of Orland.

10. In February 1995, some residents living in and around the Town of Orland filed a lawsuit against the Town to enjoin the planning, construction and permitting of the wastewater treatment facility.

11. On April 6, 1995, the trial court issued a preliminary injunction restraining the Town and its agents from going forward with the wastewater project.

12. On October 20, 1995, the preliminary injunction was vacated by the Indiana Supreme Court.

13. On November 7, 1995, a new town council was elected to govern the Town of Orland. In January 1996, the new town council members were installed in office.

14. Since January 1996, Defendant has told Jones & Henry that all work on the wastewater and water projects was being suspended while the Town reevaluated its various options.

15. Defendant has hired a different engineering firm to review and evaluate the preliminary engineering reports completed by Jones & Henry, as well as prepare additional documents within the scope of review set forth in the Jones & Henry agreements.

16. Defendant, by counsel, has requested that Plaintiff sign a mutual release discharging each party from any further obligations under the contracts and through its actions has indicated that it does not wish to continue working with Jones & Henry. The Town has asserted that it does not owe Plaintiff any additional payment for the engineering services rendered under the contracts.

17. Defendant currently owes Plaintiff approximately $278,560 for services rendered to date under the contracts.

18. As part of the permitting process for the water and wastewater projects the Indiana Department of Environmental Management ("IDEM") and the Indiana Department of Natural Resources ("IDNR") have requested responses to their inquiries about the projects. However, Jones & Henry is uncertain as to its current status under the contracts and whether it will be able to receive payment for its services.

19. Jones & Henry is willing and able to continue to perform under the contracts, but to their knowledge and belief are not being permitted to do so.

20. If Jones & Henry does not respond to the inquiries from IDEM and IDNR it runs the risk of having breached the contracts.

21. Jones & Henry is unable to continue to perform under the contracts without incurring additional expenses and fees, which the Town has refused to pay.

Count I—Declaratory Judgment

....

23. Plaintiff is uncertain as to its rights and obligations under the wastewater and water contracts due to the actions of the Defendant. Therefore, Plaintiff is entitled to a judgment declaring its rights, obligations, and legal relationship under the wastewater and water contracts pursuant to 28 U.S.C. § 2201.

24. By virtue of positions taken by the Town, and its agents and representatives, repudiating its agreements with Jones & Henry, demanding a release from liability, and refusing to honor obligations incurred, an actual controversy exists between the parties.

25. Plaintiff is entitled to payment for the engineering services it has rendered under the wastewater and water contracts in the amount of $278,560....

WHEREFORE, Jones & Henry Engineers, Ltd. respectfully requests that the Court declare that the contracts between Plaintiff and the Town of Orland are terminated, that Jones & Henry Engineers, Ltd. is released from all obligations to perform any further under the contracts and that Jones & Henry Engineers, Ltd. is entitled to payment in the amount of $278,560 for engineering fees and services which have been rendered to date, in addition to prejudgment interest on said amount and Jones & Henry's attorneys fees and costs. In the alternative, Jones & Henry asks the Court to declare that the Town of Orland is still obligated to continue working with Jones & Henry to complete the wastewater and water projects and is liable to Jones & Henry for the full contract price under the contracts.

Count II—Quantum Meruit

....

27. The Town has voluntarily abandoned the wastewater system and water distribution system designed by Jones & Henry, but has refused to pay Jones & Henry for its work.

28. By preparing the preliminary engineering report for the wastewater system and performing under the contract, Jones & Henry has conferred measurable benefits upon the Town, including the obligating of funds in the approximate amount of 4.3 million dollars as a combination of a loan and grant to the Town from the Farmers Home Administration for the completion of the wastewater collection and treatment facility.

29. By preparing the preliminary engineering report for the water distribution system and performing under the contract, Jones & Henry has conferred measurable benefits upon the Town, including the obligating of funds in the approximate amount of $1,352,100 as a combination of a loan and grant to the Town from the Farmers Home Administration for the completion of the water distribution system.

30. The new engineering firm hired by the Town will be able to use large portions of the Jones & Henry design and specifications, saving the Town additional engineering fees.

31. The Town's retention of the benefits conferred upon them without payment to Jones & Henry would be improper, and the Town would be unjustly enriched unless it pays for the work performed by Jones & Henry.

....

Count III—Abuse of Process

....

33. In its counterclaim against Jones & Henry and its opposition to Jones & Henry's claims, the Defendant has used process that is not proper in the normal prosecution of the case, including the improper pursuit of a motion to disqualify counsel for Jones & Henry and the maintenance of frivolous, groundless and unreasonable claims and defenses against Jones & Henry in both the main issues of this case as well as discovery disputes between the parties.

34. Defendant has ulterior motives in pursuing the Counterclaim and other actions set forth above, including the advancement of personal and political goals of the representatives of the Town, all of which have no legitimate place in the prosecution of this case.

35. As a direct and proximate result of Defendant's abuse of process, Jones & Henry has incurred substantial damages, including attorneys fees and costs.

....

Record at 152-59. Jones and Orland ultimately entered into a settlement agreement where Orland consented to an entry of judgment against it in the amount of $356,460. The Consent Judgment and Order of Dismissal entered by the federal court on August 11, 1997 further provided that the judgment shall constitute a special obligation of Orland, only to be satisfied from revenues of the future construction of and improvements of the water and sewage facilities.

At all times relevant to the federal lawsuit, Orland was the named insured under the terms and provisions of a Local Government General Liability Policy (the Policy), which contained Errors or Omissions Liability Insurance (the Errors or Omissions...