U.S. Fidelity & Guaranty Company v. E.L. Habetz Builders, Inc.
| Decision Date | 11 July 2007 |
| Docket Number | Civil Action No. 06-895. |
| Citation | 642 F.Supp.2d 560 |
| Parties | UNITED STATES FIDELITY & GUARANTY COMPANY v. E.L. HABETZ BUILDERS, INC., et al. |
| Court | U.S. District Court — Western District of Louisiana |
David J. Krebs, Alona Rae Croteau, Krebs Farley & Pelleteri, New Orleans, LA, Harvey Sylvanous Bartlett, Krebs Farley & Pelleteri, Jackson, MS, for United States Fidelity & Guaranty Company.
Randal P. McCann, Broussard & Kay, Lafayette, LA, for E.L. Habetz Builders, Inc.
MEMORANDUM RULING ON RE-URGED RULE 12(B)(6) MOTION TO DISMISS THIRD-PARTY COMPLAINT
Pending before this Court is a Re-Urged Rule 12(b)(6) Motion to Dismiss Third-Party Complaint [Doc. 36], filed on behalf of the plaintiff, United States Fidelity & Guaranty Company (USFG). The motion is opposed.1 For the following reasons, USFG's Re-Urged Rule 12(b)(6) Motion is GRANTED.
A review of the pleadings in this matter reveals the following uncontested facts. On May 31, 2006, USFG filed a petition against defendants, E.L. Habetz Builders, Inc. (Builders), a Louisiana Corporation and its principals, Louisiana residents, Edmund L. Habetz (Edmund) and Cheryl A. Habetz (Cheryl). Builders is actively involved in commercial construction projects, and it attracts jobs by submitting bids to architects and owners based upon specific plans and criteria. If a bid is accepted, Builders is required to provide either a performance bond and/or a payment bond. In 1991, Builders, Edmund, and Cheryl, executed a Master Surety Agreement (MSA) with USFG, a foreign company.
Under the MSA: (1) Builders, Edmund, and Cheryl are designated as "undersigned;" (2) "principal" is defined as one or more undersigned or any partnership, association corporation, or other legal or commercial entity in which undersigned have a substantial material and/or beneficial interest ...; (3) "bond" is defined as a "contract of suretyship, guaranty, or indemnity" or "the continuation, extension, alteration, renewal or substitution of such conflict"; and (4) USFG is identified as "surety." The MSA provides the following indemnity provisions:
I (A) This AGREEMENT binds UNDERSIGNED and heirs, personal representatives, successors and assigns thereof, jointly and severally, to SURETY in connection with all BOND(S) heretofore or hereafter executed, provided or procured by SURETY in behalf of PRINCIPAL in any penal sum and in favor of any obligee(s):
* * *
III (A) UNDERSIGNED shall exonerate, indemnify, and keep indemnified SURETY from and against any and all liabilities, losses and expenses of whatsoever kind or nature (including but not limited to, interest, court costs and counsel fees) imposed upon, sustained, or incurred by SURETY by reason of: (1) SURETY having executed, provided or procured BOND(S) in behalf of PRINCIPAL, or (2) UNDERSIGNED'S failure to perform or comply with any of the provisions of this AGREEMENT;
(B) In order to exonerate or indemnify SURETY, UNDERSIGNED shall upon demand of SURETY, place SURETY in funds before SURETY makes any payment; such funds shall be, at SURETY'S option, money or property, or liens or security interests in property. (The amount of such money or property or the value of the property to become subject to liens or security interests, hall be determined by SURETY.)
IV (A) The liability of the UNDERSIGNED hereunder shall extend to and include all amounts paid by SURETY in good faith under the belief that: (1) SURETY was or might be liable therefore: (2) such payments were necessary or advisable to protect any of SURETY'S rights or to avoid or lessen SURETY'S liability or alleged liability;
(B) the liability of UNDERSIGNED to SURETY shall include interest from date of SURETY'S payments at the maximum rate permitted in the jurisdiction in which this AGREEMENT is enforced, or is enforceable;
(C) the voucher(s) or other evidence of such payment(s) or an itemized statement of payment(s) sworn to by an officer of SURETY shall be prima facie evidence of the fact and extent of the liability of UNDERSIGNED to SURETY.
MSA, at ¶¶ 1-4. The MSA further provides, "This AGREEMENT shall be liberally construed so as to protect, exonerate, and indemnify SURETY." MSA at ¶ 9 (emphasis in original).
Pursuant to the MSA, Builders commenced numerous projects over the years; however, two projects, the Eunice Nursing Home and a St. Martinville School project, developed problems that required legal intervention. Specifically, four legal claims were filed against Builders and USFG.
The first claim against Builders and USFG was brought by Eunice Nursing Home, which filed a claim in arbitration for allegedly defective work by Builders. Upon notification of the claim and pursuant to the MSA, Builders hired Louisiana attorney William Melancon and Melancon and Associates (collectively, "Melancon") to defend Builders and USFG. After a mediation was set in the matter, USFG retained another Louisiana attorney, Alberta Adams, of the Krebs, Farley, and Pelleteri law firm (the Krebs firm), to represent the sole interests of USFG.2 After Ms. Adams came to believe certain affirmative defenses had not been pled by Melancon on behalf of USFG, she became fully involved with the matter, presented the affirmative defenses on behalf of USFG, and ultimately prevailed in extracting USFG from the matter. The Krebs firm billed USFG approximately $156,000.00 for services as to this claim.
The second claim against Builders and USFG was related to a demand by "Brown's Drywall," a Builders sub-contractor, for payment for work allegedly done by Brown's Drywall at the St. Martinville School. Builders again hired Melancon to defend USFG and Builders pursuant to the MSA; however, as noted by Builders, Edmund and Cheryl in their opposition, "something went awry" and USFG was "defaulted and a judgment obtained." Upon USFG's notice of default judgment, USFG again hired attorney Adams to represent the sole interests of USFG.3 Ms. Adams successfully reversed the default judgment and negotiated a settlement of the plaintiffs claims against USFG. The Krebs firm billed USFG approximately $7,010.00 for services on this claim.
The third claim against Builders and USFG related a demand brought by "Swepco," another Builders sub-contractor, for payment for work allegedly done at the St. Martinville school. USFG again hired Ms. Adams to litigate USFG's sole interests in the matter.4 The Krebs firm has billed USFG approximately $1,464.00 for services on the claim, which was still outstanding as of the date USFG filed its May 2006 complaint.
The fourth claim against Builders and USFG involved a lawsuit by the St. Martin Parish School Board seeking performance on the Payment and Performance Bond. USFG again retained Ms. Adams to represent only the interests of USFG, who timely filed exceptions and obtained dismissal of the claims against USFG in favor of arbitration.5 Krebs billed USFG approximately $6,500.00 for services as to this claim.
In September 2005, the Krebs firm, on behalf of USFG, sent a letter to Builders, Edmund, and Cheryl, seeking the repayment of approximately $120,000.00, representing the reimbursement of certain defense expenses incurred by USFG. Shortly thereafter, Builders discharged Melancon, and Builders, Edmund and Cheryl filed a legal malpractice claim in state court against Melancon for damages. In the malpractice complaint, Builders, Edmund, and Cheryl alleged the Krebs firm's involvement would not have been necessary but for Melancon's alleged malpractice. Accordingly, builders, Edmund, and Cheryl argued USFG would not be seeking reimbursement from them for legal fees and expenses had Melancon performed his function as counsel for Builders and USFG.
On May 31, 2006, USFG filed this complaint [Doc. 1] in U.S. District Court against Builders, Edmund and Cheryl, seeking approximately $172,882.33 for attorneys fees expended throughout the course of the legal history and enuring to USFG's benefit, based on the MSA executed by defendants in favor of USFG. On August 8, 2006, Builders, Edmund and Cheryl filed an Answer and Third-Party Demands [Doc. 12] against Melancon and against the Krebs Firm.
In their Answer, Builders, Edmund, and Cheryl admitted liability for "reasonable costs and expenses including attorney's fees," asserting the defense that "the amount of $172,882.33 is not reasonable under the circumstances." Builders, Edmund and Cheryl allege in their Third-Party Demand against Alberta Adams and the Krebs firm, that Adams and Krebs were in a fiduciary position as to Builders, Edmund and Cheryl, with respect to the amount of attorney fees charged to USFG. Accordingly, they contend they may "only be liable for what is reasonable under the circumstances."
On October 4, 2006, USFG filed a Motion to Dismiss Defendants' Third-Party Demand [Doc. 19] against Ms. Adams and the Krebs firm, generally asserting the Third-Party Demand was in essence an affirmative defense which had been pled in the Answer filed by Builders, Edmund and Cheryl. USFG argued Builders, Edmund and Cheryl have no claim against Ms. Adams and the Krebs firm for alleged over-billing of USFG in the matters at issue, because such a claim is a personal one to USFG and thus, cannot be raised by defendants. Additionally, USFG argues Builders, Edmund and Cheryl have no privity of contract with the Krebs firm, whose attorney-client relationship extends only to USFG. Accordingly, USFG urges this Court to dismiss the Third-Party Demand against Krebs for failure to state a claim upon which relief can be granted.6
In opposition, Builders, Edmund, and Cheryl argue the Krebs firm owes them a fiduciary obligation by way of the indemnity agreement in the MSA between Builders, Edmund, Cheryl and USFG. Specifically, Builders, Edmund, and Cheryl argue all parties were aware Builders, Edmund and Cheryl were obligated to...
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