Citations
- 368 F. Supp. 3d 350
Full opinion text
Hon. Vanessa L. Bryant, United States District Judge
This is a suit brought by Arch Insurance Company ("Arch" or "Plaintiff") to enforce certain indemnity agreements issued by Centerplan Construction Company, LLC ("Centerplan"), Center Earth, LLC ("Center Earth") and certain affiliates (collectively "Defendants"). The indemnity agreements were issued in consideration for Arch's issuance of certain surety bonds. The bonds were issued to assure Defendants' payment and performance obligations as a condition precedent to the award of the contract to Center plan to construct the minor league baseball stadium in Hartford, Connecticut ("Hartford Stadium Project" or "Project") and other construction projects undertaken by Defendants (collectively, "Bonded Projects"). Upon receiving and paying claims on a number of the bonds, including the Hartford Stadium Project bonds, Arch demanded Defendants honor the indemnity agreements. Arch believes that Defendants have breached their obligations under the indemnity agreements by failing to comply with these demands, while Defendants dispute their and Arch's liability under the bonds and claim that Arch is not entitled to indemnification or collateral security because Arch has acted in bad faith.
On November 16, 2016, Arch filed a complaint against Defendants seeking contractual indemnification, common law indemnification, contractual collateral security, common law exoneration, quia timet , and disclosure of financial information. See [Dkt. 1 (Compl.) ]. Presently pending before this Court are two motions by Arch for summary judgment-a Motion for Summary Judgment on Counts I and II (contractual and common law indemnification) and a second Motion for Summary Judgment on Counts III, IV, V, and VI (contractual collateral security, common law exoneration, quia timet , and disclosure of financial information). Defendants oppose each motion. The Court addresses both of these motions in this opinion and order. For the reasons explained below, this Court finds that Arch is entitled to summary judgment on Counts I, III, and VI.
Background
Arch is a Missouri corporation with its principal place of business in New Jersey, and it is authorized to write surety bonds in Connecticut. [Dkt. 1 (Compl.) ¶ 3]. The Defendants comprise various companies-Centerplan; Center Earth; Centerplan Development Company, LLC ("Centerplan Development"); RAL Investments, LLC ("RAL Investments"); Walnut Hill Chase, LLC ("Walnut Hill"); Tinker House, LLC ("Tinker House"); GH Development, Inc. ("GH Development"); and Centerplan Communities, LLC ("Centerplan Communities")-and Robert and Kelly Landino (the "Landinos"). See id. ¶¶ 4-13. Robert Landino is the owner of all Defendant companies and is the chief executive officer of Centerplan and Centerplan Development. See id. Kelly Landino is his spouse. Id. ¶ 6.
Defendants Centerplan and Center Earth engage in the construction business and, as a result, require a surety to bond their construction projects and contracts from time to time. [Dkt. 82-1 (Pl.'s Rule 56(a)(1) Statement) at ¶ 1]. Centerplan and Center Earth called on Arch to issue bonds on their behalf for a number of projects. Id. In consideration for Arch's issuance of the surety bonds, Centerplan and Center Earth, along with each of the additional defendants, executed General Indemnity Agreements in favor of Arch dated July 10, 2010, October 15, 2010, and January 26, 2016 (the "Indemnity Agreements" or "Agreements"). [Dkt. 90 (Defs.' Resp. to Pl.'s Rule 56(a)(1) Statement) at ¶ 2; Dkt. 82-5 (July 2010 Indemnity Agreement); Dkt. 82-6 (Oct. 2010 Indemnity Agreement); Dkt. 82-7 (Jan. 2016 Indemnity Agreement) ]. Each defendant is a party to at least one of the three Indemnity Agreements as Principal/Indemnitor.
Each of the Indemnity Agreements includes a provision obligating the indemnitors to indemnify Arch for any losses and expenses sustained by reason of having executed the bonds. [Dkt. 82-5 at ¶ 1; Dkt. 82-6 at ¶ 1; Dkt. 82-7 at ¶ 3]. The indemnity provisions also establish that the indemnitors will accept vouchers or other evidence of payments by Arch as prima facie evidence of the fact and extent of liability of the indemnitors to Arch. Id. Further, each indemnity agreement has a provision granting Arch the exclusive right to decide how to handle claims asserted under the bonds, including "the exclusive right to decide and determine whether any claim, liability, suit or judgment made or brought ... shall or shall not be paid, compromised, resisted, defended, tried or appealed." [Dkt. 82-5 at ¶ 5; Dkt. 82-6 at ¶ 5; Dkt. 82-7 at ¶ 8].
In reliance on the Indemnity Agreements, Arch issued a large number of bonds between 2010 and 2016 with Centerplan or Center Earth as principal. [Dkt. 82-1 at ¶¶ 7, 12; Dkt. 90 at ¶ 12 Resp.]. These included a performance bond and a payment bond for the Hartford Stadium Project, as well as bonds for a number of other Bonded Projects, including the Storrs Center Phase 2 project, the Asnuntuk Community College Technology Center project, the Hawleyville Sewer Extension project, the Hammonassett Beach State Park Utility Replacement project, the Orchard Hill Elementary School project, the 39 Front Street - Sitework and Site Improvements project, the Harding High School project, and the Trumbull and Pleasant Streets Realignment project. [Dkt. 82-1 at ¶¶ 9, 13].
The penal sum of each of the two Hartford Stadium Project bonds (the "Bonds") was $ 47,050,000. Id. at ¶ 10. The performance bond was conditioned on the faithful performance of Centerplan's Design-Build Agreement ("DBA"), the bonded contract. [Dkt. 90 at ¶ 10 Resp.]. The payment bond was conditioned on the payment of all those who provided labor and materials in furtherance of the DBA and the Hartford Stadium Project. [Dkt. 82-1 at ¶ 10; Dkt. 90 at ¶ 10 Resp.]. A Multiple Obligee Rider was executed and attached to the Hartford Stadium Project Bonds naming the City of Hartford (the "City") and the Hartford Stadium Authority ("HSA") as Obligees, in addition to DoNo Hartford, LLC ("DoNo"), the Owner of the bonded contract. [Dkt. 82-1 at ¶ 11; Dkt. 90 at ¶ 10 n.2, ¶ 11 Resp.].
On February 6, 2015, Centerplan entered into the DBA with DoNo-the developer of the Hartford Stadium Project pursuant to a Development Services Agreement ("DSA") between it and the City-as Owner, and Centerplan as Design Builder agreeing to construct the Hartford Stadium Project. [Dkt. 82-10 (DBA); Dkt. 82-9 (DSA) ]. Under the DBA, Centerplan was obligated to achieve substantial completion of the work no later than March 11, 2016, and was to keep the cost of the Hartford Stadium Project at no more than $ 53,550,000. [Dkt. 82-10 at §§ 3.3, 4.4.3].
Centerplan, DoNo, and the City entered into the "Direct Agreement" on February 4, 2015, allowing the City to assume DoNo's position under the DBA "but only upon an event that would cause or provide Design Builder with cause to terminate the same or termination of the Development Services Agreement by City for a Developer Default thereunder." [Dkt. 82-11 (Direct Agreement) at § 8(a) ].
The substantial completion date and cost of the Hartford Stadium Project in the DBA were amended by way of the "Term Sheet" on January 19, 2016. [Dkt. 90 at Add'l Fact ¶ 11]. The substantial completion date was extended to May 17, 2016, and the maximum cost was increased by over $ 10,300,000 to account for a December 2015 change order. Id.
From fall of 2015 through 2017, Arch received claims on a number of payment bonds it had issued on behalf of Centerplan and Center Earth on various Bonded Projects. [Dkt. 82-1 at ¶ 14]. These included claims from subcontractors and suppliers on the Hartford Stadium Project, the Storrs Center Phase 2 project, the Asnuntuk Community College Technology Center project, the Hawleyville Sewer Extension project, the Hammonassett Beach State Park Utility Replacement project, the Orchard Hill Elementary School project, the 39 Front Street project, the Harding High School project, and the Trumbull and Pleasant Streets Realignment project. Id. at ¶ 15. Additionally, Arch received payment bond claims and union wage and fringe benefit bond claims from labor unions which provided labor on the Bonded Projects. Id. at ¶ 16. As of December 7, 2017, Arch had paid out a total of $ 20,500,963.60 in satisfaction of the payment bond claims. Id. at ¶ 21.
On May 19, 2016, Howard Rifkin, Corporation Counsel for the City of Hartford, notified DoNo, Centerplan, and Jeffrey M. Donofrio, Esq., on behalf of the City and HSA, that DoNo failed to meet the substantial completion deadline and that DoNo was in default pursuant to the DSA and the Term Sheet Agreement from January 19, 2016. [Dkt. 70 (PJR Hr'g Pl. Ex. 9, Default Letter) at 1]. The letter indicated the City and HSA were entitled to immediate payment of $ 50,000 and $ 15,000 per day for each day thereafter until the Project reached substantial completion. Id. Arch was copied to the letter. Id. at 2. On the same day, the City declared DoNo to be in default of the DSA citing its failure to meet the extended May 17, 2016, substantial completion deadline and demanded payment of liquidated delay damages from DoNo and Centerplan. [Dkt. 82-1 at ¶¶ 28, 29; Dkt. 90 at ¶ 28 Resp.]. Soon after, by letter dated May 27, 2016, the City and HSA provided Arch with "formal notice that [its] principal under the Performance Bond ..., [Centerplan] is in default of its Design Build Agreement for the Minor League Ballpark," citing Centerplan's failure to reach substantial completion by May 17, 2016, failure to pay liquidated damages, failure to post a letter of credit regarding said liquidated damages, and numerous construction deficiencies and code violations on the Project. [Dkt. 89-7 (May 27, 2016 Letter) ].
Thereafter, on May 31, 2016, Arch attended a meeting at the City's office to discuss the default. See [Dkt. 89-7; Dkt. 117 (11.6.2017 PJR Hr'g Tr.) at 112:7-113:23]. Joel Beach, Arch's Assistant Vice President in the surety bond claim department, testified that representatives of DoNo, the City, and Centerplan were in attendance. Id. The City requested that Arch become involved in the Project, to which Centerplan objected. [Dkt. 117 at 120:4-7]. Mr. Beach responded that Centerplan was the contractor of record, remained the contractor of record, and that Arch was not going to retain a consultant to oversee Centerplan's work on the job. Id. at 122:6-11. Mr. Beach testified that he did not tell anyone that the City had to terminate Centerplan. Id. at 122:12-15.
By letter dated June 6, 2016, the City terminated the DBA claiming "continued defaults" by Centerplan. [Dkt. 82-1 at ¶ 30; Dkt. 90 at ¶ 30 Resp.; Dkt. 82-15 (June 6, 2016 City DBA Termination Letter) ]. By letter dated June 9, 2016, the City made formal demand on the Hartford Stadium Project performance bond to Arch. [Dkt. 82-16 (June 9, 2016 City Demand Letter) ].
Immediately after Centerplan's termination, Arch began an investigation into the Hartford Stadium Project regarding the allegations of default, which lasted from June through September. [Dkt. 134 (1.29.2018 PJR Hr'g Tr.) at 152:20-158:23; Dkt. 89-12 (Arch Rog. Resps.) at Rog. 14 Resp.]. Arch employed construction consultant Cashin, Spinelli and Ferretti, LLC ("CSF") to assist in its investigation of the claims. [Dkt. 82-1 at ¶¶ 32-34; Dkt. 89-12 at Rog. 7 Resp.; Dkt. 90 at ¶¶ 32-34]. In addition to CSF, Arch retained Attorney Matthew Horowitz to advise it on legal matters. [Dkt. 89-12 at Rog. 9 Resp.].
As a general matter, CSF was charged with investigating and assessing the claims, including reviewing the status of work (i.e., whether the work was performed in compliance with contract documents, what it would cost to finish, and how long it would take to finish). [Dkt. 134 at 152:20-158:23; Dkt. 89-12 at Rog. 7 Resp.]. CSF's investigation was extensive. See [Dkt. 134 at 152:20-158:23; 187:7-23]. They did numerous walk-throughs of the Project site, evaluating room by room what work Centerplan had completed and what it had not. See [Dkt. 134 at 155:5-15, 182:16-184:15]. CSF held meetings with representatives of the City, DoNo, and Centerplan both at the stadium and off-site. See id. at 158:24-163:1, 164:9-167:8. They also inspected voluminous documents throughout the course of the investigation, including plans, specifications, requisitions, change orders, change directives, subcontracts, accounts payable, and correspondence. Id. at 152:20-158:23, 163:2-187:22; see also [Dkt. 89-12 at Rog. 13 Resp.].
Near the end, but before completing its investigation and submitting its report to Arch, CSF asked DoNo and Centerplan for their input. Both refused to assist CSF assess the claims on the Bonds made by the City and Project subcontractors. [Dkt. 134 at 187:9-22]. Although they were present during parts of the investigation, with one exception, neither DoNo or Centerplan challenged the claims. Centerplan objected to Arch paying a payment bond claim, arguing the "pay if paid" provision precluded it; Arch looked into the applicability and determined the "pay if paid" clause did not provide a defense for Arch. Id. at 79:17-83:11, 85:13-87:19. With the exception of this one instance, there is no evidence that Centerplan or DoNo asked Arch not to pay, compromise, resist, defend, litigate or otherwise challenge the claims; nor is there any evidence that Centerplan or DoNo posted collateral to secure any amount which may be due if Arch unsuccessfully challenged any claim.
CSF also conducted a careful review of the state of the Project financials, including the value of work completed and payments made by the City for that work. Id. The DBA and DSA established that Centerplan would submit monthly Applications for Payment, or Requisitions, to DoNo for review and approval, and ultimately submission in the form of a Draw Request to the City. [Dkt. 82-10 (DBA) at § 5.1; Dkt. 82-9 (DSA) at 7-8, § 3(e)(1) ]. Upon submission, HSA and the City would review and approve the Draw Request and pay DoNo the approved amount. [Dkt. 82-9 at 7, § 3(e)(1) ]. DoNo would then pay Centerplan usually within 30 days of submission of the Requisition. See [Dkt. 82-10 at § 5.1.3].
The parties agree, and the evidence shows, that Requisition 16, encompassing work done on the Project in April, as well as all prior requisitions submitted, were paid for by the City. See [Dkt. 134 at 64:13-21, 67:7-15, 188:7-18; Dkt. 117 at 138:9-17; Dkt. 118 at 65:2-4]. The parties further agree that Requisition 17, for work done in May, was not submitted to DoNo or the City. Id. ; [Dkt. 118 at 65:2-4]. The only version of Requisition 17 that Arch knew of during the investigation in 2016 was an unsigned, unsubmitted draft. See [Dkt. 134 at 100:18-20, 101:22-25, 220:13-16]. All the information and documentation available to Arch at the time, and in the record before the Court, establish the City paid all requisitions submitted, and thus amounts due on the Project; and there is no evidence the City received and failed to pay any requisition.
On October 17, 2016, Arch entered into the "Takeover Agreement" with the City and HSA, agreeing to the complete construction of the Hartford Stadium Project. [Dkt. 82-17 (Oct. 17, 2016 Takeover Agreement) ]. As of December 7, 2017, Arch had made $ 16,269,435.81 in payments to complete work on the Hartford Stadium Project. [Dkt. 82-1 at ¶ 37; Dkt. 90 at ¶ 37 Resp.]. Arch provided copies of the vouchers and other evidence of these payments to Defendants. [Dkt. 82-1 at ¶ 40-42; Dkt. 90 at ¶ 41 Resp.].
In multiple letters dated August 5, 2016, Arch gave notice to Defendants of the claims on the Bonds and made demand upon Defendants to procure Arch's discharge from the Bonds issued on the Bonded Projects and hold harmless and indemnify Arch for its losses incurred and to be incurred as a result of having issued the Bonds. [Dkt. 81-22 (Aug. 5, 2016 Arch Demand Letters) ]. Additionally, in multiple letters dated August 19, 2016, Arch demanded collateral security in the amount of $ 18,807,737.47-Arch's estimated pending exposure under the Bonds issued to secure payment and performance on Bonded Projects-from Defendants under the Indemnity Agreements. [Dkt. 81-23 (Aug. 19, 2016 Arch Demand Letters) ]. Arch updated the demand on Defendants for collateral security-with Arch's pending exposure under the Bonds then estimated at $ 38,313,100.82-by letter dated October 13, 2017. [Dkt. 81-24 (Oct. 13, 2017 Arch Demand Letter) ]. Defendants argue that Arch has not incurred losses as a result of having issued the Bonds because Arch volunteered to settle claims and perform work for which they were not liable. Defendants have not provided collateral security or indemnified Arch as demanded.
Arch filed its complaint against Defendants on November 16, 2016, seeking contractual indemnification (Count I), common law indemnification (Count II), contractual collateral security (Count III), common law exoneration (Count IV), quia timet (Count V), and disclosure of Defendants' financials under the Indemnity Agreements (Count VI). See [Dkt. 1 (Compl.) ]. Defendants claim multiple defenses to Arch's demands for indemnification and collateral security, and brought counterclaims against Arch alleging breach of contract, breach of the implied covenant of good faith and fair dealing, surety bad faith, tortious interference with contractual relations, and a violation of the Connecticut Unfair Trade Practices Act, Conn. Gen. Stat. § 42-110a, et seq. [Dkt. 77 (Second Am. Answer) ].
Arch now seeks summary judgment on all of its claims against Defendants.
Legal Standard
Summary judgment should be granted "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The moving party bears the burden of proving that no genuine factual disputes exist. See Vivenzio v. City of Syracuse , 611 F.3d 98, 106 (2d Cir. 2010). "In determining whether that burden has been met, the court is required to resolve all ambiguities and credit all factual inferences that could be drawn in favor of the party against whom summary judgment is sought." Id. (citing Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ; Matsushita Electric Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) ). This means that "although the court should review the record as a whole, it must disregard all evidence favorable to the moving party that the jury is not required to believe." Reeves v. Sanderson Plumbing Prods., Inc. , 530 U.S. 133, 151, 120 S.Ct. 2097, 147 L.Ed.2d 105 (2000) ; see Welch-Rubin v. Sandals Corp. , No. 3:03-cv-00481, 2004 WL 2472280, at *14 (D. Conn. Oct. 20, 2004) ("At the summary judgment stage of the proceeding, [the moving party is] required to present admissible evidence in support of their allegations; allegations alone, without evidence to back them up, are not sufficient.") (citing Gottlieb v. Cnty. of Orange , 84 F.3d 511, 518 (2d Cir. 1996) ); Martinez v. Conn. State Library , 817 F.Supp.2d 28, 37 (D. Conn. 2011). Put another way, "[i]f there is any evidence in the record that could reasonably support a jury's verdict for the nonmoving party, summary judgment must be denied." Am. Home Assurance Co. v. Hapag Lloyd Container Linie, GmbH , 446 F.3d 313, 315-16 (2d Cir. 2006) (internal quotation marks and citation omitted).
However, a party who opposes summary judgment "cannot defeat the motion by relying on the allegations in his pleading, ... or on conclusory statements, or on mere assertions that affidavits supporting the motion are not credible." Gottlieb , 84 F.3d at 518 (citations omitted). Nor will "conclusory statements, conjecture, or speculation by the party resisting the motion" defeat summary judgment. Kulak v. City of New York , 88 F.3d 63, 71 (2d Cir. 1996). Where there is no evidence upon which a jury could properly proceed to find a verdict for the party producing it and upon whom the onus of proof is imposed, such as where the evidence offered consists of conclusory assertions without further support in the record, summary judgment may lie. Fincher v. Depository Trust & Clearing Corp. , 604 F.3d 712, 726-27 (2d Cir. 2010).
Furthermore, summary judgment is an appropriate method of resolving disputes concerning indemnification agreements. Gundle Lining Constr. Corp. v. Adams Cnty. Asphalt, Inc. , 85 F.3d 201 (5th Cir. 1996) ; Commercial Ins. Co. of Newark v. Pacific-Peru Constr. Corp. , 558 F.2d 948 (9th Cir. 1977) ; Cont'l Cas. Co. v. Am. Sec. Corp. , 443 F.2d 649 (D.C. Cir. 1970).
Analysis
I. Indemnification (Counts I and II)
"[A]n action for indemnification is one in which one party seeks reimbursement from another party for losses incurred in connection with the first party's liability to a third party." Amoco Oil Co. v. Liberty Auto and Elec. Co. , 262 Conn. 142, 148, 810 A.2d 259, 263 (2002) ; see Danbury Bldgs., Inc. v. Union Carbide Corp. , 963 F.Supp.2d 96, 103 (D. Conn. 2013).
Arch's Count II is a claim for common law indemnification. In the absence of a contract to indemnify, a party is entitled to indemnification "only upon proving that the party against whom indemnification is sought either dishonored a contractual provision or engaged in some tortious conduct." Burkert v. Petrol Plus of Naugatuck, Inc. , 216 Conn. 65, 74, 579 A.2d 26, 31 (1990) (citing Kaplan v. Merberg Wrecking Corp. , 152 Conn. 405, 411, 207 A.2d 732 (1965) ). If a claim of indemnification is grounded in tort, "reimbursement is warranted only upon proof that the injury resulted from the 'active or primary negligence' of the party against whom reimbursement is sought." Id. (quoting Kaplan , at 415, 207 A.2d 732 ). Plaintiff makes no arguments in its motion for summary judgment regarding its entitlement to judgment on its common law indemnification claim. See [Dkt. 82-2 (arguing for judgment only based on its right to contractual indemnification) ]. Thus, Arch's motion for summary judgment on Count II is DENIED. However, as discussed extensively below, the Court holds that Arch is entitled to summary judgment on Count I for contractual indemnification. Because Count II is an alternative theory of liability to Count I and seeks the same relief the Court grants Plaintiff via Count I, Count II is DISMISSED. See Wickham Contracting Co., Inc. v. Bd. of Educ. of City of New York , 715 F.2d 21, 28 (2d Cir. 1983) (a party seeking recovery under multiple theories of liability may only recover once).
Under Connecticut law, a party may seek indemnification based on the terms of an indemnity agreement and the express or implied contractual right to indemnification. See Danbury Bldgs. , 963 F.Supp.2d at 103 (citing DeCarlo & Doll, Inc. v. Town of Chester , No. CV075003058, 2008 WL 4416073, at *2 (Conn. Super. Ct. Sept. 17, 2008) ). When a party seeks to enforce an indemnity agreement, the court is to apply Connecticut's "well established principles of contract interpretation." PSE Consulting, Inc. v. Frank Mercede & Sons, Inc. , 267 Conn. 279, 838 A.2d 135, 144 (2004). This means that the contract "must be construed to effectuate the intent of the parties, which is determined from the language used interpreted in the light of the situation of the parties and the circumstances connected with the transaction." Id. at 145 (quoting Poole v. Waterbury , 266 Conn. 68, 831 A.2d 211, 223-24 (2003) ). The court must discern the parties' intent "by a fair and reasonable construction of the written words" and it must give the language "its common, natural, and ordinary meaning and usage where it can be sensibly applied to the subject matter of the contract." Id. "Where the language of the contract is clear and unambiguous, the contract is to be given effect according to its terms." Id. While the question of the parties' intent is typically a question of fact, "[w]here there is definitive contract language, the determination of what the parties intended by their contractual commitments is a question of law." Id.
The 2010 indemnity agreements contain the following indemnification provision:
Indemnitors agree to indemnify and hold harmless Surety for any and all Loss sustained or incurred by reason of having executed any and all Bonds ... In the event of payments by Surety, Indemnitors agree to accept the voucher or other evidence of such payments as prima facie evidence of the fact and extent of the liability of Indemnitors to Surety in any demand, claim or suit by Surety against Indemnitors ..."
[Dkt. 82-5 at ¶ 1; Dkt. 82-6 at ¶ 1]. The January 2016 indemnity agreement has a slightly different indemnity provision. It states:
The Indemnitors shall exonerate, Indemnify, and keep indemnified the Surety from and against any and all liability for losses and/or expenses of whatsoever kind or nature (including, but not limited to, pre- and post-judgment interest, court costs and counsel fees, and accounting, engineering and consulting fees, and from and against any and all such losses and/or expenses which the Surety may sustain and incur: (1) By reason of having executed or procured the execution of the Bonds, whether such Bond or Bonds were issued prior to or after the date of this Agreement (2) By reason of the failure of the Indemnitors to perform or comply with the covenants and conditions of this Agreement or (3) In enforcing any of the covenants and conditions of this Agreement or Other Agreements. In the event of any payment by the Surety the Indemnitors further agree that in any accounting between the Surety and the Indemnitors, the Surety shall be entitled to charge for any and all disbursements made by it in good faith in and about the matters herein contemplated by this Agreement under the belief that it is or was liable for the sums and amounts so disbursed, or that it was necessary or expedient to make such disbursements, whether or not such liability, necessity or expediency existed; and that the vouchers or other evidence of any such payments made by the Surety shall be prima facie evidence of the fact and amount of the liability to the Surety. As used in this paragraph, "good faith" means honesty in fact and the absence of malice or fraud).
[Dkt. 82-7 at ¶ 4]. Further, the 2010 Indemnity Agreements contain the following provision regarding the Surety's rights to settle claims:
Surety shall have the exclusive right to decide and determine whether any claim, liability, suit or judgment made or brought against Surety on any Bond shall or shall not be paid, compromised, resisted, defended, tried or appealed, and Surety's decision thereon shall be final and binding upon the Indemnitors.... [I]f Principal or Indemnitors desire that the Surety litigate such claim or demand, or defend such suit or appeal from such judgment, they shall deposit with the Surety, at the time of such request, cash or collateral satisfactory to the Surety in kind and amount to be used in paying any judgment or judgments rendered, or which might be rendered, against the Surety, together with interest, costs and attorneys [sic] fees.
[Dkt. 82-5 at 3; Dkt. 82-6 at 3]. The 2016 Indemnity Agreement includes the exact same provision, except it specifies that only the surety has the right to decide how to handle claims. [Dkt. 82-7 at 5 ("Surety shall have the sole and exclusive right ...") (emphasis added) ]. The 2016 Indemnity Agreement was entered into around the time the DBA was amended by the "Term Sheet" to extend the substantial completion date and increase the cost of the Hartford Stadium Project beyond the date and amount originally agreed.
Based on these provisions, Arch argues that it is entitled, as a matter of law, to indemnification for any and all disbursements made in good faith regardless of the actual liability of Arch or the principal, and that the evidence it has provided proves the fact and amount of Defendants' liability under the express terms of the 2016 Indemnity Agreement. [Dkt. 82-2 (Mem. to Mot. Summ. J. Counts I & II) at 20].
Defendants do not argue that the contractual provisions are ambiguous. Rather, they argue that the Indemnity Agreements must be construed in connection with the Bonds (and any incorporated contracts) to which they relate. See [Dkt. 89 (Opp'n Mot. Summ. J. Counts I & II) at 11]. Defendants contend that Arch must be held to the terms of the Bonds it issued, and further argue that the Bonds incorporate the DBA such that the terms of the DBA are at play as well. Id. at 12-13. They suggest that the interplay of the Bonds, the Indemnity Agreements, and the DBA created a complex and contradictory set of rights and obligations which, had Arch bothered to look, would show that the City and certain subcontractors were not entitled to make claims on the Bonds, and therefore, Arch should not have made payments or performed on the Bonds. [Dkt. 89 at 13-15].
In particular, Defendants invoke the Multiple Obligee Rider, which was executed and attached to the Bonds on February 4, 2015, and which states: "there shall be no liability on the part of the Principal or Surety under this Bond to the Obligees ... unless the Obligees ... shall make payments ... and shall perform all the other obligations required to be performed under said Contract at the time and in the manner therein set forth." [Dkt. 82-12 (Hartford Stadium Performance and Payment Bonds and Dual Obligee Rider) at 8]. Defendants argue that the City failed to pay Centerplan for work completed in May 2016 as required by the DBA, or at least failed to assure Defendants that it would be able to pay, and, as a result, neither Centerplan nor Arch were liable to the City under the Multiple Obligee Rider. [Dkt. 89 at 14].
But the terms of the Bonds do not govern Arch's right to indemnification; the Indemnity Agreements do, and specifically the latest Indemnity Agreement. This is because the parties entered into express contracts with clear and unambiguous terms governing indemnification, with the latest being executed on February 1, 2016. "[W]hen the parties have deliberately put their engagements into writing, in such terms as import a legal obligation, without any uncertainty as to the object or extent of such engagement, it is conclusively presumed, that the whole engagement of the parties, and the extent and manner of their understanding, was reduced to writing." Tallmadge Bros. v. Iroquois Gas Transmission Sys., L.P. , 252 Conn. 479, 746 A.2d 1277, 1290 (2000) (quoting Tie Commc'ns, Inc. v. Kopp , 218 Conn. 281, 589 A.2d 329, 333 (1991) ). None of the Indemnity Agreements, including the 2016 Agreement, incorporate the terms of the Bonds, nor do they incorporate the terms of the DBA or DSA. As such, Arch's right to indemnification under the Agreements is unaffected by the terms of the Bonds, the DBA, and the DSA.
Even if the Bonds, along with the attached Multiple Obligee Rider, had been incorporated into the 2010 Indemnity Agreements, the 2016 Indemnity Agreement supersedes the terms of the Multiple Obligee Rider. See Ryder v. Washington Mut. Bank, F.A. , 501 F.Supp.2d 311, 318-19 (D. Conn. 2007) (explaining that, under Connecticut law, the test for whether a later agreement substitutes an earlier contract "looks to the terms of the second contract[;] [i]f it contains terms inconsistent with the former contract, so that the two cannot stand together it [exhibits] characteristics indicating a substitute contract") (quoting Bushnell Plaza Dev. Corp. v. Fazzano , 38 Conn.Supp. 683, 460 A.2d 1311, 1314 (1983) ) (internal quotations and brackets omitted). The 2016 Indemnity Agreement was executed after the Multiple Obligee Rider, evidencing the parties' latest intentions with respect to Arch's right to indemnification. The clear terms of the 2016 Agreement grant Arch the right to indemnification for payments made "in good faith ... under the belief that it is or was liable for the sums and amounts so disbursed, or that it was necessary or expedient to make such disbursements, whether or not such liability, necessity or expediency existed. " [Dkt. 82-7 at 3 (emphasis added) ]. Any conflicting terms in the earlier Multiple Obligee Rider are of no consequence here. See Ryder , 501 F.Supp.2d at 1314-15.
The two cases cited by Defendants in support of their legal proposition that the Bonds and other contracts must be considered are distinguishable.
In General Insurance Co. of America v. K. Capolino Construction Corp. (hereinafter " K. Capolino "), the court held that material issues of fact as to whether the owner was in default under the bonded contract and whether the surety completed the bonded contract in good faith precluded summary judgment on the surety's claim of contractual indemnification under New York law. 903 F.Supp. 623, 627-28 (S.D.N.Y. 1995). In the initial opinion, which Defendants do not cite, the court explained that New York law prohibits recovery if a party was not obligated to pay or perform and therefore acted as a volunteer. Id. at 626. Accordingly, the court reasoned that the surety "may not recover from Capolino unless, under the terms of the performance bonds that [the surety] issued on Capolino's behalf, [the surety] was obligated to complete the ... projects." Id.
The issues at bar are not governed by New York law and there is no Connecticut law that requires the Court to look outside the express terms of the Indemnity Agreements. On the contrary, the Connecticut Supreme Court has explained that "under an indemnity agreement, it is not essential that a principal be liable for the claims upon which the surety seeks to be indemnified," PSE Consulting , 838 A.2d at 157 n.15, further confirming the inapplicability of the Bond terms here. So too have numerous other courts concluded that actual liability is not a precursor to indemnification under an indemnity agreement. See e.g., Fid. & Deposit Co. v. Bristol Steel , 722 F.2d 1160, 1163 (6th Cir. 1983) (under the letter of the contract, surety had the right to reimbursement for payments made in good faith, whether or not the principal had defaulted and liability existed); Pacific-Peru , 558 F.2d at 952 (ruling that the argument that surety suffered no actual liability under its bond is no defense to indemnification under express language of surety agreement); Frontier Ins. Co. v. Int'l Inc. , 124 F.Supp.2d 1211, 1215 (N.D. Ala. 2000) (holding that a principal's actual liability is not a prerequisite to surety's right to reimbursement under indemnity contract); United States Fid. & Guar. Co. v. Feibus , 15 F.Supp.2d 579, 583 (M.D. Pa. 1998) (holding that the terms of the indemnity agreement governed and its language "does not require that payments be made only in the face of actual liability under the bonds"); Gen. Acc. Ins. Co. of Am. v. Merritt-Meridian Constr. Corp. , 975 F.Supp. 511, 517 n.4 (S.D.N.Y. 1997) (concluding surety had right to indemnification for claims it reasonably determined it was liable for, regardless of actual liability); Emp'rs Ins. Wausau v. Able Green, Inc. , 749 F.Supp. 1100, 1102-03 (S.D. Fla. 1990) (explaining "this case involves interpretation of language contained within a General Indemnity Agreement" and finding surety entitled to reimbursement for payments made in good faith, regardless of whether any liability actually existed);
Fireman's Fund Ins. Co. v. Nizdil , 709 F.Supp. 975, 976-77 (D. Or. 1989) ("Any claim asserted against the surety, regardless if it is valid or outside the scope of the bond triggers the obligation to indemnify the surety."); U.S. Use Int'l Bhd. Elec. Workers v. United Pac. Ins. Co. , 697 F.Supp. 378, 381 (D. Id. 1988) (holding that, "upon the express terms of the Agreement, the Indemnitors are liable to indemnify [Surety] no matter what the legal defenses or other avenues of resolution may have been"). Because actual liability is not required under the Indemnity Agreements, any "volunteer" argument by Defendants fails.
Defendants, though, focus on the K. Capolino Court's decision on the motion to reconsider, in which the court "[held] the surety to the terms of both of the agreements it negotiated." 908 F.Supp. 197, 200 (S.D.N.Y. 1995). The court distinguished its finding from those of many other courts declining to consider the terms of related bonds based on the fact that the other decisions "consider only the issue of contractor default ... They do not address allegations of owner default." Id. at 199. This Court does not discern a difference between evidence of owner/obligee default versus contractor/principal default such that a departure from the express terms of the Indemnity Agreements, as well as from case law, is warranted based on the distinguishable facts here. Either way, Defendants executed express Indemnity Agreements in favor of Arch obligating them to provide indemnification when Arch settled claims in good faith. In the beginning of 2016, when it was becoming clear that Centerplan would not meet the terms of the DBA, as evidenced by the need for the Term Sheet, Arch had seven of the Indemnitor Defendants execute the 2016 Indemnity Agreement with even stronger and more clear language as to Arch's right to indemnification. That there is an argument as to potential owner/obligee default on the bonded contract does not impact Defendants' obligations, or Arch's rights, under the Indemnity Agreements.
The Court does not find Lumbermens Mutual Casualty Insurance v. Dinow , No. 06-cv-3881, 2012 WL 4498827 (Sept. 28, 2012 E.D.N.Y.), persuasive either. In that case, also governed by New York law, the court found that there were outstanding issues of fact surrounding the settlement of the obligees' lawsuits against the surety, including whether the obligee had satisfied the conditions of the dual obligee rider and whether the surety settled the claims in good faith. Id. at *6. In a follow-up opinion on a motion to reconsider, the Dinow Court distinguished the facts from precedent because "in those cases, the surety did not make statements in another proceeding that, if true, amount to a defense, as indeed they were so used in the state court proceeding." No. 06-cv-3881, 2014 WL 869595, at *2, 2014 U.S. Dist. LEXIS 28459, at *3-4 (E.D.N.Y. Feb. 27, 2014). In light of the surety's claims in its statement of undisputed material facts in the earlier lawsuits, the court concluded that reasonable minds could differ as to whether the surety should have settled the lawsuit and whether doing so was in bad faith. Id. at 2, 2014 U.S. Dist. LEXIS 28459, at 4. In this case, there is no evidence in the record that the City did not satisfy conditions precedent and that Arch therefore was not liable. Even more important, as the majority of courts have explained, defenses to actual liability do not impact a surety's right to indemnification under an indemnity agreement other than as a consideration of whether the surety acted in bad faith. The Court discusses the issue of bad faith supra at Section I.B.
In contrast, the parties entered into the Indemnity Agreements, which grant Arch the exclusive right to determine how to handle claims on the Bonds, obligate Defendants to indemnify Arch for losses resulting from its issuance of the Bonds, and establish that evidence of payments provided by Arch are prima facie evidence of the fact and amount of liability to Arch. [Dkt. 82-5 at 3; Dkt. 82-6 at 3; Dkt. 82-7 at 3-4]. Under the Agreements, Arch's right to indemnification is not conditioned on actual liability. And the 2016 Indemnity Agreement expressly states that the surety is entitled to indemnification for disbursements made "under the belief that it is or was liable ... or that it was necessary or expedient to make such disbursements, whether or not such liability, necessity or expediency existed. " [Dkt. 82-7 at ¶ 3 (emphasis added) ]. Indemnity and right-to-settle provisions such as these are typical of indemnity agreements in the surety industry and courts have routinely upheld the validity of similar or identical provisions. PSE Consulting , 838 A.2d at 145 (surveying relevant case law and finding that such provisions are typical in the industry and routinely upheld by courts); see also Bristol Steel , 722 F.2d at 1163 (finding that such provisions "while strict, are common in contracts of indemnification executed by contractors and others to induce the execution of performance bonds by compensated sureties, and they have been uniformly sustained and upheld"); Transamerica Ins. v. Bloomfield , 401 F.2d 357, 362 (6th Cir. 1968) ("Provisions in indemnity agreements granting to the indemnitors the right to compromise and settle claims, and providing that vouchers and other evidence of payment shall be prima facie evidence of the propriety thereof, have been upheld as not against public policy and enforced by courts.").
The Indemnity Agreements expressly state that Arch's submission of "vouchers or other evidence" of payments shall be "prima facie evidence of the fact and amount" of liability. [Dkt. 82-5 at 3; Dkt. 82-6 at 3; Dkt. 82-7 at 3-4.] Arch has submitted the affidavit of Joel Beach, the claims attorney principally tasked with handling claims on the Bonds, and summary charts of the many checks and wire transfers made as payments to resolve the claims on the Bonds. [Dkt. 82-2 at 25-26; Dkt. 82-4 (Aff. of Joel Beach) at ¶¶ 51-63, 83-90; 91-103]. The documents establish that Arch has made $ 15,238,593.02 in payments to address claims made on the Hartford Stadium payment bond, $ 5,262,370.58 in payments to address claims made under the other payment bonds and wage and fringe benefit bonds, $ 16,269,435.81 in payments related to the Hartford Stadium performance bond, and $ 2,336,935.06 in payments for attorney's fees, consultant fees, and expenses incurred under the bond claims and in this action. [Dkt. 82-13 (Ex. K Summary List of Losses incurred under payment bond claims); Dkt. 82-18 (Ex. P Summary List of Losses incurred under Hartford Stadium Performance Bond Claim); Dkt. 82-19 (Ex. Q Summary List of fees and expenses) ].
Arch introduced unrefuted evidence in support of its contention that these payments were made "in good faith and under the belief that it was liable under the Bonds for the amounts paid or that it was necessary or expedient to make such payments." [Dkt. 82-4 at ¶¶ 63, 90, 103]. In testimony before the Court at the prejudgment remedy hearing Mr. Beach explained the exhaustive process Arch used to fully investigate the status of the Hartford Stadium Project and the Bond claims. [Dkt. 82-4 at ¶¶ 51, 73] Arch conducted the investigation with the assistance of construction consultant CSF whose representative testified as well. Id. The testimony and other evidence demonstrate that CSF's investigation was extensive. See [Dkt. 134 at 152:20-158:23; 187:7-23]. CSF walked-through the Project site numerous times with representatives of HSA, the City, DoNo, Centerplan, the Architect, and others to assess what work Centerplan had completed and what work remained to be completed. See [Dkt. 134 at 155:5-15, 182:16-184:15]. In addition, CSF met with representatives of the City, DoNo, and Centerplan off-site to evaluate the status of the Project. See id. at 158:24-163:1, 164:9-167:8. They also reviewed countless documents throughout the course of the investigation, including plans, specifications, requisitions, agreements, change orders, change directives, correspondence, subcontracts to requisitions, accounts payable, and the cost to complete. Id. at 152:20-158:23, 163:2-187:22; see also [Dkt. 89-12 at Rog. 13 Resp.]. CSF solicited Defendants' input, but Defendants refused to assist. Id. at 79:17-83:11, 85:13-87:19. Demand letters sent by Arch to Defendants further represent that Arch undertook investigations before settling claims on the bonds. See [Dkt. 81-23 (Ex. U, Aug. 19, 2016 Demand Letter) at 4]. This evidence constitutes prima facie showing that Arch made good faith investigation and is also prima facie evidence of the Defendants' liability under the Indemnity Agreements.
Once a surety has provided prima facie evidence that it has made good faith payments upon the bonds, the burden under Rule 56 shifts to the principal/indemnitors to prove that the surety did not act in good faith such that there is a genuine issue of material fact for trial. PSE Consulting , 838 A.2d at 146 (finding that courts "routinely have concluded that, upon a finding that a surety has made a payment to a claimant upon a bond, the burden of proof shifts to the indemnitors to prove that the surety had not made the payment in good faith").
The burden is now on Defendants to present facts creating a genuine issue of material fact that Arch did not act in good faith. Gundle Lining Constr. Corp. v. Adams County Asphalt , 85 F.3d 201, 211 (5th Cir. 1996) (granting summary judgment where surety had offered prima facie evidence of payments under the bond and the defendant had failed to present a genuine issue of material fact that would controvert evidence that the payments were made in good faith); U.S. Fid. & Guar. v. Neri Constr., LLC , No. 3:02-cv-524, 2006 WL 2792882, at *4, 2006 U.S. Dist. LEXIS 70210, at *12 (D. Conn. Sept. 28, 2006) (Once vouchers were presented, "[plaintiff] established liability of defendants, and with respect to the amount of liability, the burden shifted to the defendants to prove that fees/costs are excessive."); Feibus , 15 F.Supp.2d at 582 (finding that "courts have routinely held that once a surety has submitted the required documentation of payments, the burden under Rule 56 shifts to the principal to prove the existence of a genuine issue of material fact for trial").
Here, the 2016 Indemnity Agreement explicitly limits Arch's "entitle[ment] to charge" to those "disbursements made by it in good faith." [Dkt. 82-7 at ¶ 3]. As for the 2010 Indemnity Agreements, the Connecticut Supreme Court has held that this good faith limitation is inherent in every contract even when not specifically stated in the contract. PSE Consulting , 838 A.2d at 150 ("[J]urisdictions that recognize the existence of an implied covenant of good faith and fair dealing in every contract have concluded that a surety owes a duty of good faith to its principal irrespective of whether the indemnity agreement expressly imposes that duty."). The only exception to Arch's right to indemnification under the Indemnity Agreements arises if Arch made payments in bad faith.
In their opposition memorandum, Defendants argue that Arch acted in bad faith in settling claims on the performance and payment bonds for the Hartford Stadium Project. They did not, however, argue that Arch acted in bad faith in settling claims on the other bonds.
A. Undisputed Bond Claims
Arch is entitled to summary judgment on the undisputed bond claims because Arch has provided prima facie evidence of the fact and extent of liability based on payments it made in good faith and Defendants do not argue that said payments were made in bad faith.
Arch has submitted a summary chart of all the Losses incurred for payment bonds it issued on behalf of Defendants Centerplan and Center Earth. See [Dkt. 82-13 (Mot. Summ J. Ex. K, Summ. Chart Payment Bond Claims) ]. Exhibit K indicates that Arch made the following payments on non-Hartford Stadium projects:
• Wage/Welfare Bond - IBEW Local 90 Trust Funds: $ 36,739.70
• Wage/Welfare Bond - IBEW Local 35 Trust Funds: $ 150,000.00
• Storrs Phase II: $ 2,050,000.00
• Trumbull, Windsor, Pleasant - Roads Relocation: $ 14,751.82
• Warren G. Harding HS: $ 957,535.17
• UConn Hartford - 39 Front Street: $ 92,390.49
• Orchard Hill Elementary School: $ 162,645.18
• Hammonassett Beach State Park: $ 1,112,022.28
• Hawleyville Sewer Extension: $ 680,001.91
• Asnuntuk Community College: $ 6,284.03
These payments total $ 5,262,370.58. Absent defenses or counterclaims, the Court concludes the payments made on all projects not related to the Hartford Stadium constitute undisputed evidence of the Indemnitors' liability; therefore, Arch is entitled to indemnification on these payments for a total of $ 5,262,370.58.
B. Hartford Stadium Project - Application of the Bad Faith Standard
A close analysis of the record evidence of the facts and circumstances surrounding Arch's payment and performance is essential to determine whether it acted in bad faith as Defendants claim. PSE Consulting , 838 A.2d at 160. Bad faith requires more than negligence; it requires action taken with improper motive or dishonest purpose. Id. at 152-53. The Connecticut Supreme Court has explained that "this standard preserves a proper balance between affording the surety the wide discretion to settle that it requires, while ensuring that the principal is protected against serious and willful transgression." Id. at 153.
While "good faith" does not mean "reasonableness," a court may consider the reasonableness of a surety's actions in analyzing bad faith. Id. Specifically, "[u]nreasonable conduct can be evidence of improper motive and is a proper consideration where parties are bound by a contract that gives unmitigated discretion to one party." Id. Further, "[b]ad faith in general implies both actual or constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake as to one's rights or duties, but by some interested or sinister motive." De La Concha of Hartford, Inc. v. Aetna Life Ins. Co., 269 Conn. 424, 432-33, 849 A.2d 382 (2004) (internal citations and quotation marks omitted).
i. Settling subcontractor's payment bond claims
First, Defendants argue that Arch "acted in bad faith when it paid subcontractors on payment bond claims without regard to Centerplan's rights and defenses under its subcontracts." [Dkt. 89 at 21]. Defendants specifically take issue with Arch having made payments on claims of subcontractors who had accepted the risk of nonpayment by the City via the pay if paid clauses in the subcontract agreements. Id. at 22. Defendants argue that the City had not paid Centerplan and, consequently, Centerplan was not obligated to pay the subcontractors under the pay if paid provisions such that Arch was not obligated to make payments to the subcontractors for their claims on the payment bond. Id. This argument, though, is not about Arch's good or bad faith payments, but about the fact of the principal's liability.
Defendants cite two cases in support of their argument, both of which concern the subcontractor's right to collect payment from the contractor and/or surety when the subcontract includes a pay if paid provision and neither of which discuss bad faith implications. See [Dkt. 89 at 22-23] (citing Lindade Constr. v. Cont'l Cas. Co. , No. X10UWYCV5008768S, 2009 WL 765501, at *4 (Conn. Super. Ct. Feb. 25, 2009) ) (holding the subcontractor was statutorily entitled to file a mechanics lien before the contractor's liability accrued to the subcontractor because date of cessation of work, not date of payment of the amount owed for the work, determined the deadline to file mechanics lien and the issue presented was whether a pay for pay provision provides a valid defense to an action on the payment bond or whether it is void pursuant to the Connecticut mechanics lien statute, General Statutes § 42-158l ); Suntech of Conn., Inc. v. Lawrence Brunoli, Inc. , 143 Conn.App. 581, 72 A.3d 1113, 1118 (2013) (holding that the subcontract's pay-when-paid provision only required the general contractor to pay the subcontractor for work already performed within a certain time after the owner had paid for the work where subcontractor agreed owner had authority to determine the work for which payment would be made). These cases are inapposite because the Indemnity Agreements gave Arch the discretion to compromise and determine when to pay claims. Indeed, this discretion was the dispositive fact in Suntech . See Suntech , 72 A.3d at 1118. Neither case held a surety with authority to compromise claims was obligated to reject claims where reason dictated the claims be paid. Thus, the issue is whether Arch paid the claims in good faith.
Here, Arch presented ample evidence to suggest that it settled the payment bond claims in good faith. See [Dkt. 134 at 247:2-22, 249:2-250:2]. Mr. Beach and Michael Spinelli, of CSF, both testified at the PJR hearing that Arch and CSF investigated the impact of the pay if paid provisions and concluded that they were not a viable defense to liability. Id. at 79:21-86:19, 247:2-22, 249:2-250:2. Part of this assessment was based on the fact that, while the City had paid Centerplan for Requisition 16, Centerplan had not used that money to fully compensate its subcontractors for the Requisition 16 work. Id. at 81:15-85:24. Thus, for some work, the City paid Centerplan, but Centerplan did not pay its subcontractors, eliminating the viability of the pay if paid defense.
Additionally, they found that the best way to finish the project was to pay, and then continue using, the existing contractors. Id. at 70:19-71:8, 247:2-250:2. Arch reached this conclusion because of the inchoate state of work. See id. at 182:23-184:15. Subcontractor work was not only incomplete, but also concealed behind walls and other building elements such that only the subcontractors could quickly and accurately assess the work remaining to be done. Id. In addition, Arch had no authority to demand or leverage to induce subcontractors which Defendants had not paid to continue working on the Stadium Project unless it agreed to pay them. Id. at 247:7-248:25, 249:16-250:2. Arch concluded the safest and most expedient course was to keep the existing subcontractors on the Stadium Project, even at a marginally greater cost. Id. Thus, the evidence suggests that Arch exercised its discretion under the 2016 Indemnity Agreement to compromise claims to avoid construction defects and mitigate the damage of further delay in the completion of the Project.
Defendants offer and there is no other evidence on the record suggesting Arch had an impermissible motive. Defendants neither allege or present evidence to so little as suggest Arch derived or was promised any benefit from paying the subcontractors, aside from mitigating the risk of further delay and construction defects.
Defendants claim to have notified Arch on numerous occasions that Arch should not pay subcontractors' claims because the City had not yet paid Centerplan and Arch's decision to go ahead and settle those claims evidences bad faith. See [Dkt. 89-2 ¶ 114; Dkt. 89-10 (Oct. 3, 2016 Letter from Centerplan to Arch) ]. First, Mr. Landino's affidavit asserts legal conclusions not facts; and, critically, Defendants do not provide any evidence to show that they requested Arch litigate these claims. See [Dkt. 82-5 ¶ 5; Dkt. 82-6 ¶ 5; Dkt. 82-7 ¶ 8]. Moreover, they failed to post the collateral to cover the cost of any judgment that might result from that litigation as required by the Indemnity Agreements to transfer the discretion to compromise claims from Arch to Defendants. Id.
The Indemnity Agreements state, "if Principal or Indemnitors desire that the Surety litigate such claim or demand, or defend such suit, or appeal from such judgment, they shall deposit with the Surety, at the time of such request, cash or collateral satisfactory to the Surety in kind and amount to be used in paying any judgment or judgments rendered, or which might be rendered, against the Surety, together with interest, costs and attorneys [sic] fees." [Dkt. 82-5 at 3; Dkt. 82-6 at 3; Dkt. 82-7 at 5]. Defendants do not claim to have told Arch to challenge the subcontractors' claims. Nor do they claim to have posted cash or collateral for the cost and potential judgment associated with making such a challenge, as required by the Indemnity Agreements' right to settle claims provisions. Thus, Defendant's protests do not oblige Arch to defer to their judgment.
Courts have found that this weighs against, and can even defeat, a claim that the fact of a surety's settlement evidences bad faith. Feibus , 15 F.Supp.2d at 586 ("Courts have held that a principal's failure to deposit collateral security, in violation of a surety agreement, weighs against a finding that the surety acted in bad faith in settling claims."); Merritt-Meridian , 975 F.Supp. at 517-18 (holding surety entitled to summary judgment because defendant did not deposit collateral security and request surety defend against claims and because there was no evidence of bad faith); Able Green , 749 F.Supp. at 1103 (concluding that argument that payments on claims made in order to forego litigation evidenced bad faith could not withstand indemnitor's failure to request that surety litigate or defend against claim and post collateral for expenses and potential losses). The argument that Arch's settlement of the subcontractors' payment bond claims despite the pay if paid clauses was in bad faith is defeated by Defendants' own failure to request and support such a fight.
Even further, courts have held that a surety is not acting in bad faith by settling a claim even where the principal objected and raised colorable defenses. Transamerica Ins. Co. v. Avenell , 66 F.3d 715, 718, 721 (5th Cir. 1995) (finding surety's settlement of litigation over principal's objections not bad faith); Merritt-Meridian , 975 F.Supp. at 518 (finding no bad faith wherein surety settled claims despite possible defenses by principal). This is because actual liability is not a prerequisite to indemnity of a surety. See PSE Consulting , 838 A.2d at 157 n.15. As such, the fact that Arch made a payment where a potential defense existed is not evidence of bad faith on its own.
While Centerplan claims to have had viable defenses to liability on the contractors' payment bond claims, it does not allege, and there is nothing on the record to indicate, that they raised with Arch those defenses in a manner and at a time which rendered Arch's act of settling those claims in bad faith. The fact that they may have had defenses does not mean that Arch's payments were in bad faith, especially in light of the evidence to the contrary and Defendants' failure to produce evidence beyond the payments themselves. Thus, Defendants have failed to raise an issue of material fact as to whether Arch acted in bad faith in settling claims on the payment bonds due to the pay if paid provisions.
ii. Alleged self-interested actions
Next, Defendants argue that evidence of alleged self-interested actions established a factual basis upon which a reasonable jury could conclude Arch acted in bad faith. In support, they argue that Arch's admission that settling certain payment bond claims was "expedient" evidences self-interested settlement and bad faith. [Dkt. 89 at 24]. Additionally, Defendants argue that Arch's refusal to take any action pursuant to the performance bond until the City terminated Centerplan and its subsequent engagement in the Takeover Agreement to complete performance of the DBA were in bad faith. [Dkt. 89 at 25-27].
Notably, as the Connecticut Supreme Court explained in PSE Consulting , "even though motives of self-interest may constitute bad faith under some circumstances, it does not follow that the self-interested exercise of rights under a contract necessarily constitutes a per se violation of the implied covenant of good faith and fair dealing." PSE Consulting , 838 A.2d at 159 (emphasis in original). This must be the case because, due to the tripartite relationship among surety, principal, and claimant, a surety would otherwise subject itself to claims of bad faith simply by choosing either side-defending the principal and refusing to settle a bond claim or making a payment to settle a bon