Transamerica Ins. Co. v. Avenell, 94-20618

• Citation: 66 F.3d 715
• Decision Date: 17 August 1995
• Docket Number: No. 94-20618,94-20618
• Parties: TRANSAMERICA INS. CO., Plaintiff-Appellee, v. Paul R. AVENELL and Gayle Avenell, Defendants-Appellants. Summary Calendar.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 715

66 F.3d 715

33 Fed.R.Serv.3d 481

TRANSAMERICA INS. CO., Plaintiff-Appellee, v. Paul R. AVENELL and Gayle Avenell, Defendants-Appellants.

No. 94-20618

Summary Calendar.

United States Court of Appeals, Fifth Circuit.

Aug. 17, 1995.

Eric G. Carter, Houston, TX, for appellants.

Chris E. Ryman, Clint E. Jones, Coats, Rose, Yale, Holm, Ryman and Lee, P.C., Houston, TX, for appellee.

Appeal from the United States District Court for the Southern District of Texas.

Before DUHE, WIENER and STEWART, Circuit Judges.

PER CURIAM:

This appeal arises from an indemnity dispute between Defendants-Appellants Gayle and Paul R. Avenell and Plaintiff-Appellee Transamerica Insurance Company (Transamerica). Transamerica filed suit and moved for summary judgment, contending that the Avenells had breached their obligations under an indemnity contract. The Avenells responded that (1) all conditions precedent to the contract had not been met, (2) the indemnity contract was unconscionable, and (3) the indemnity contract was void as against public policy. We find the Avenells contentions devoid of merit and affirm the district court.

I. FACTS AND PROCEEDINGS

The following facts are not in dispute. Mr. Avenell is the President and owner of Tacon Mechanical Contractors, Inc. (Tacon). Transamerica, acting as surety, provides payment and performance bonds to contractors and subcontractors in connection with construction projects. Tacon subcontracted to perform the heating, ventilating, and air conditioning work for Cahaba Construction Company (Cahaba) in the construction of New Caney High School (NCHS job). In turn, Tacon sub-subcontracted with Grant Sheet Metal, Inc. (Grant) for the fabrication and installation of the duct work on the NCHS job. Transamerica issued a performance bond and a labor and material payment bond to secure Tacon's obligations under its subcontract with Cahaba. As part of Transamerica's consideration for issuing these bonds on behalf of Tacon, Mr. Avenell executed an agreement (Indemnity Agreement) obligating both Tacon and the Avenells, personally, to indemnify Transamerica against any loss Transamerica might incur under the NCHS bond.

A dispute arose between Tacon and Grant over payment and performance at the NCHS job. Tacon dismissed Grant from the NCHS job and secured other contractors to complete the work. Grant filed suit (Grant litigation) against Tacon and Cahaba's surety, Seaboard Surety Company (Seaboard). In January 1993, the 55th Judicial District Court of Harris County, Texas entered final judgment on the jury verdict in favor of Grant, casting Tacon and Seaboard in judgment. In March 1993, Cahaba made demand on Tacon to pay the judgments. Tacon, however, had filed for bankruptcy and could not pay the judgment. Cahaba notified Transamerica Tacon and Seaboard appealed from the judgment in the Grant litigation. In September 1993, however, Cahaba and Seaboard decided to settle with Grant and secured dismissal of Seaboard from the appeal. ¹ Not interested in settlement, Tacon elected to continue the appeal alone and wrote to Transamerica demanding that it make no payments on any claims arising from the Grant litigation. But as Tacon neither requested Transamerica to conduct the appeal nor posted a security bond to obtain Transamerica's assistance in the appeal, Transamerica proceeded to settle with Cahaba and Seaboard, paying them $79,000.00 and $241,000.00, respectively.

that, as Tacon's surety, it was responsible for the judgment.

Having paid on the bonds, Transamerica looked to the Avenells for indemnification, but they refused to indemnify Transamerica. In September 1993, Transamerica filed this lawsuit against the Avenells in federal district court, basing jurisdiction on diversity and alleging breach of the Indemnity Agreement. In March 1994, Transamerica filed a motion for summary judgment on all claims, supporting its motion with proper affidavits and exhibits. The Avenells responded, contending that (1) all conditions precedent to the Indemnity Agreement had not been met, (2) the Indemnity Agreement was unconscionable, and (3) the Indemnity Agreement was void as against public policy. In support of their contentions, the Avenells presented the district court with (1) an affidavit by Paul Avenell, (2) a copy of their brief to the Texas Court of Appeals in the Grant litigation, and (3) a photocopy of the letter to Transamerica, demanding that it not pay any claims arising out of the Grant litigation.

In May 1994, the district court granted summary judgment in favor of Transamerica, concluding that the Avenells had failed to produce evidence that would allow a reasonable juror to find in favor of the Avenells. The Avenells timely appealed.

In December 1994, during the pendency of this appeal, the Texas Court of Appeals for the Fourteenth District affirmed the judgment in the Grant litigation, but declined Grant's request to assess the Avenells a frivolous appeal penalty. ² Tacon then filed an application for writ of error with the Texas Supreme Court. That court has ordered Grant to respond. As of this writing, the Texas Supreme Court has yet to act on this writ.

II. ANALYSIS

A. STANDARD OF REVIEW

We review the district court's grant of a motion for summary judgment de novo, applying the same standard as the district court applied. ³ Questions of law are decided just as they are outside of the summary judgment context: de novo. ⁴

B. BURDENS OF PROOF

When seeking summary judgment, the movant bears the initial responsibility of demonstrating the absence of a genuine issue of material fact with respect to those issues on which the movant bears the burden of proof at trial. ⁵ For any matter on which the non-movant would bear the burden of proof at trial, however, the movant may merely point to the absence of evidence and thereby shift to the non-movant the burden of demonstrating by competent summary judgment proof that there is an issue of material fact

                warranting trial. 6  Only when "there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party" is a full trial on the merits warranted. 7
                

C. BREACH OF CONTRACT

Despite its complex factual and procedural history, this case presents a straight-forward breach of contract claim. To prevail at the summary judgment stage, Transamerica's evidence must establish every element of its claim. Under the Texas law of indemnification, Transamerica must establish five elements: (1) a contractual indemnity agreement existed between the Avenells and Transamerica, (2) the agreement obligated the Avenells to indemnify Transamerica in the event claims were made on the bonds issued to Tacon, (3) claims were made on the bonds issued to Tacon, (4) all conditions precedent for recovery had occurred, been performed, waived, or excused, and (5) Transamerica has been damaged. ⁸

The Avenells contest only the fourth element, arguing that all conditions precedent have not occurred. In particular, the Avenells contend that a final judgment--no longer appealable and currently executory--in the Grant litigation is a condition precedent to Transamerica's recovery for breach of contract. According to the Avenells, until the Grant litigation is thus final and executory, Transamerica is premature in seeking to recover on the Indemnity Agreement. In addition to this basic premise, the Avenells advance two corollaries. ⁹ In the first, they contend that, as the finality of the Grant litigation was a condition precedent, Transamerica acted in bad faith by settling the Grant litigation. In the second, they reason that, as the Grant litigation precludes the instant action, the district court erred in not granting the Avenells' plea in abatement. We disagree with both the general premise and the corollaries derived therefrom.

1. Condition Precedent

Among its summary judgment exhibits, Transamerica submitted an authenticated copy of the Indemnity Agreement. Provision 13 of the Indemnity Agreement, entitled "Settlements," provides:

[Transamerica] shall have the right to adjust, settle or comprise any claim, demand, suit or judgment upon the Bonds, unless [Tacon] and the [Avenells] shall request [Transamerica] to litigate such a claim or demand, or defend such suit, or to appeal from such judgment, and shall deposit with [Transamerica], at the time of such request, cash or collateral satisfactory to [Transamerica] in kind and amount, to be used in paying any judgment or judgments rendered or that may be rendered, with interest, costs, expenses and attorneys' fees, including those of [Transamerica].

Under Provision 13, Transamerica had no duty to seek Tacon's or the Avenells' approval before paying claims on the bonds. ¹⁰ To the contrary, that provision imposes a two-prong condition precedent on the Avenells: If they wanted to preclude any such action by Transamerica, the Avenells had to (1) request litigation or defense, and (2) post security. They did neither.

The Avenells admit in their brief that they neither asked Transamerica to oppose the claims nor posted security to cover Transamerica's exposure. Although the Avenells demanded that Transamerica not settle the

case, absent compliance with their own conditions precedent--an affirmative request for defense and adequate security--that demand was legally ineffectual. The Indemnity Agreement does not obligate Transamerica to hear, much less honor, such a demand unless it is accompanied by security. Neither does it proscribe payment or settlement of claims if such claims are being litigated. Consequently, we hold that under the terms of the Indemnity Agreement, the finality of the Grant litigation was not a condition precedent to Transamerica's right to settle and, to the contrary, that a request for defense and the posting of security by Tacon were conditions precedent to its right to prevent Transamerica from settling. Thus Tacon's unaccompanied demand that Transamerica...