Transdulles Centre Ltd. Partnership v. USX Corp.

• Decision Date: 11 April 1991
• Docket Number: Civ. A. No. 90-0928-A.
• Citation: 761 F. Supp. 430
• Parties: TRANSDULLES CENTRE LIMITED PARTNERSHIP, and TDC6 Limited Partnership, and Board of Supervisors of Loudoun County, Virginia, Plaintiffs, v. USX CORPORATION. FEDERAL INSURANCE COMPANY, Defendants/Third-Party Plaintiffs, v. GANNETT FLEMING CIVIL ENGINEERING, INC., Third-Party Defendant.
• Court: U.S. District Court — Eastern District of Virginia

761 F. Supp. 430

TRANSDULLES CENTRE LIMITED PARTNERSHIP, and TDC6 Limited Partnership, and Board of Supervisors of Loudoun County, Virginia, Plaintiffs, v. USX CORPORATION.

FEDERAL INSURANCE COMPANY, Defendants/Third-Party Plaintiffs, v. GANNETT FLEMING CIVIL ENGINEERING, INC., Third-Party Defendant.

Civ. A. No. 90-0928-A.

United States District Court, E.D. Virginia, Alexandria Division.

April 11, 1991.

Dexter Stetson Odin, Nelson Blitz, Odin, Feldman & Pettleman, P.C., Fairfax, Va., for Transdulles Centre Ltd. Partnership, TDC6 Ltd. Partnership and Bd. of Supervisors of Loudoun County, Va.

E. William Chapman, Hazel & Thomas, Leesburg, Va., for USX Corp. and Federal Ins. Co.

James F. Lee, Gregory L. Walsh, Carr, Goodson & Lee, P.C., Fairfax, Va., for Gannett Fleming Civ. Engineering, Inc.

MEMORANDUM OPINION

ELLIS, District Judge.

Defendants' summary judgment motion presents, inter alia, the question whether a Virginia county can validly assign to a developer its rights under a subdivision agreement and performance bond. In connection with the development of certain property in Loudoun County, the County entered into a subdivision agreement with the property owner defendant USX Corporation ("USX") and a performance bond with Federal Insurance Company ("Federal"). The contract and bond concerned the construction of certain improvements on the property, principally storm drainage structures. USX in turn contracted with third-party defendant Gannett Fleming Civil Engineering, Inc. ("Gannett") to design and supervise the work. Ultimately dissatisfied with the work, the County assigned its rights under the contract and the bond to the developer plaintiffs ("Transdulles") in consideration of Transdulles' undertaking to rectify the contract work. Transdulles now sues USX and Federal to recover the costs of repairing the allegedly deficient work. Among USX's defenses is the contention that the County's assignments are neither valid nor effective. This memorandum opinion records the Court's reasons for concluding otherwise.

BACKGROUND

This dispute grows out of the alleged failure of USX and Gannett properly to construct certain drainage improvements on a parcel of real property ("Section 5") near Dulles Airport in Loudoun County. USX formerly owned the property and sold it to a new owner who, in turn, leased it to Transdulles in November 1986.

Prior to the sale of the property, USX had commenced development of it. To this end, USX hired Gannett to design, engineer, and seek the County's approval for necessary structures such as roads, storm drainage, and sanitary sewers. Gannett's plans for storm drainage were submitted to the County in October 1985 and, after revision, were approved in March 1988.¹

In order to win the County's approval to commence construction of Gannett's design, USX entered into a "State Maintained Roads" agreement (the "Subdivision Agreement") with the County in May 1986. The Subdivision Agreement provides in relevant part:

WHEREAS, in consideration of the approval by the party of the second part the County of the plat, plans, and profiles of the subdivision known as Section 5, USS Industrial Park Sterling ... the parties of the first part ... agree to do the following work within 24 months from the date hereof:

1. To construct all physical improvements in accordance with said plat, plans, and profiles, and applicable provisions of the Subdivision and Zoning Ordinances, including, but not limited to, adequate storm drainage system both on the subdivided property and on adjacent properties as needed, the construction of streets and roads in accordance with current standards of the Department of Highways and Transportation, and the submission of as-built plans for all such public improvements.²

At the same time, the County accepted a performance bond issued by Federal in the amount of $1,370,000.00 securing the completion of the work described in the Subdivision Agreement.

Thereafter, work proceeded on the property. The County inspected and accepted the work, and on March 21, 1988, the Board of Supervisors approved a reduction of the bond amount to $274,000.00. Later in 1988, however, the County informed the current owner and USX that the storm drainage system designed for and built on Section 5, in the County's view, did not comply with the County subdivision ordinance and therefore violated the Subdivision Agreement.³ Specifically, the County alleged that USX's design for Section 5 and adjacent upstream property used runoff coefficients that were too low in light of the industrial development contemplated for the property and surrounding area under the County's Comprehensive Plan and zoning classifications. Accordingly, the County informed the new owner that it would not permit full development until certain changes and improvements were made to the drainage system. On October 18, 1989, the County entered into a Bond Agreement with Transdulles, pursuant to which Transdulles agreed to make some of the necessary improvements. The Bond Agreement states that execution by the County of an assignment agreement in favor of Transdulles is part of the consideration for Transdulles to complete the improvements. Subsequently, Transdulles and the County entered into an Assignment Agreement that provided Transdulles with "all right, title, interest and claims" of the County under the Subdivision Agreement and the performance bond. Transdulles, relying on this Assignment Agreement, and the County, in its own right,⁴ brought this diversity action in July 1990.

I

Defendants attack the validity of the County's assignment to Transdulles of its rights under (i) the contract and (ii) the performance bond. A trilogy of Virginia Supreme Court decisions conclusively rebuts the attack on the assignment of the County's bond rights. These decisions leave no doubt that a county in Virginia may assign its rights under a bond to a developer as consideration for completing the work guaranteed by the bond. See Board of County Supervisors v. Sie-Gray Developers, Inc., 230 Va. 24, 334 S.E.2d 542, 546 (1985); Board of Supervisors of Stafford County v. Safeco Ins. Co., 226 Va. 329, 310 S.E.2d 445 (1983); Board of Supervisors of Fairfax County v. Ecology One, Inc., 219 Va. 29, 245 S.E.2d 425 (1978).

While there is no Virginia decision specifically approving a county's assignment of its rights under a subdivision agreement, the trilogy of performance bond decisions persuasively supports the validity of subdivision agreement assignments. First, in Ecology One, the Supreme Court of Virginia reversed a trial court's determination that a county's assignment of its recovery under a performance bond was invalid. In that case Ecology, a subdivider-developer, entered into a subdivision contract with the county, but then later abandoned the work. Fairfax County subsequently issued permits to another entity, Rust, which agreed to complete the street and drainage improvements required by the county's contract with Ecology. Fairfax County also assigned to Rust any money, not to exceed the amount actually spent by Rust, received by the county in an action pending against Ecology and its surety under a performance bond. The Supreme Court of Virginia adopted as a "sound rule" the view that a municipality "may assign its rights under a bond where the assignment is for the purpose of obtaining a performance guaranteed by the bond and upon showing that the improvements have been made." Id. 245 S.E.2d at 428 (citing Clearwater Associates v. F.H. Bridge & Son, Contractors, 144 N.J.Super. 223, 365 A.2d 200 (1976) and County of Will v. Woodhill Enterprises, Inc., 4 Ill.App.3d 68, 274 N.E.2d 476 (1971)).⁵ Echoing this sensible rule, the Sie-Gray decision reiterated that a county "could properly contract with another developer for the performance required of the first developer and assign to the second developer its rights" under a performance bond. Finally, in Safeco, supra, the Supreme Court of Virginia seemingly modified an aspect of its ruling in Ecology One by holding that it was unnecessary for a county to prove financial loss as a prerequisite to recovery against a surety on a bond. "A performance bond is intended to guarantee completion of the improvements it covers. Thus, the obligee of such a bond need not incur any expense or do any work on the improvements before collecting on the bond." Id., 310 S.E.2d at 449. The court added the explanation that the rule set forth in Ecology One requiring that improvements have been made was appropriate in that case because "the face amount of the bond exceeded the cost of completing the improvements and the county had a duty to ascertain that the improvements had been made by the assignee before payment was made." Id. In the case at bar, by contrast, the face amount of the bond has been reduced to the point that it is substantially smaller than the estimated cost of completing the improvements. Consequently, there is no risk here that the County has assigned to Transdulles any extra money due the County under the bond.

All three decisions employ the general language of assignments and seem to rest on basic principles governing assignments. See generally 6 Am.Jur.2d, Assignments § 66 ("Ordinarily the assignability of contracts with state or local governments would seem to be governed by the same rules as the assignability of contracts generally."). Nothing in these decisions suggests that a different rule should prevail governing the validity of an assignment outside the context of a performance bond. Nor, on reflection, does any such reason suggest itself. There is, it seems, no sound reason in principle to approve a county's assignment of performance bond rights, but not an assignment of its contract rights pertaining to the same work.

Defendants advance essentially three arguments against the validity of the assignments in this case. First, defendants contend that the assignments...