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U.S. v. AMERICIAN HOME ASSURANCE CO.

May 14, 2004.

UNITED STATES OF AMERICA for the Use and Benefit of JAMES CAPE & SONS COMPANY, a Wisconsin Corporation, Plaintiff, V. AMERICAN HOME ASSURANCE CO., a New York corporation, et al., Defendants and Third Party Plaintiff


The opinion of the court was delivered by: JOAN H. LEFKOW, District Judge

MEMORANDUM DECISION AND ORDER

Plaintiff/third-party defendant, James Cape & Sons Company ("Cape"), seeks leave to file an Amended Complaint against American Home Assurance Company ("American Home") and leave to file Consolidated and Amended Affirmative Defenses to American Home's Third Party Complaint. For the reasons stated below, the motion is granted in part and denied in part.

BACKGROUND

  On or about July 22, 1999, Bowles Construction Services, Inc. ("Bowles") entered into a contract with the United States Army Corps of Engineers ("Army") to perform certain construction improvements on a project commonly referred to as the Chicago Shoreline Improvements in Chicago, Illinois (the "Project"). Pursuant to its contract with the Army and the Miller Act, 40 U.S.C. § 3131, Bowles was required to obtain a performance bond guaranteeing its performance of its obligations under the contract and a payment bond guaranteeing Bowies' payments to persons or entities providing labor or materials to the project. On or about August 25, 1999, Bowles and Cape entered into a written subcontract whereby Cape agreed to perform certain work on the Project. To assist Bowles in obtaining the payment bond for the Project, Cape requested that American Home issue the payment bond on behalf of Bowles. To secure issuance of the payment bond, Cape, Curkeet Services, Inc., Cape Brothers Realty & Equipment Co., Christopher C. Cape, W. Robert Cape, William R. Cape, and Amy Cape (collectively, the "Cape Indemnitors") executed a General Contract of Indemnity ("Indemnity Agreement") for the benefit of American Home. American Home then executed and provided a payment bond pursuant to the Miller Act, 40 U.S.C. § 270(a)-(d), in the amount of $2,500,000 (the "Payment Bond").

  Beginning in or around August, 2000, Bowles ceased to pay Cape for its labor or materials, except for two miscellaneous fund transfers. Despite not paying Cape, Bowles continued to submit pay applications to the Army for reimbursement and continued to receive payment for Cape's work. Cape notified American Home of Bowies' failure to pay. American Home then contacted the Army to notify it of Bowies' failure and to "request that [the Army] take such actions as necessary to prevent prejudice to either American Home or to Cape, its indemnitor." (Def. Group Ex. 7.)

  On February 21, 2001, Cape filed against Bowles a Demand for Arbitration with the American Arbitration Association to resolve the dispute arising out of Bowies' failure to pay Cape. The arbitrators found in favor of Cape and awarded compensatory damages, equitable remedies, and attorneys' fees in the amount of $2,560,279.62. On June 21, 2002, the Circuit Court of Cook County, Illinois confirmed the arbitration award, which was subsequently modified in other respects on October 21, 2002. To date, Bowles has failed to pay. On March 15, 2002, while the matter between Cape and Bowles was pending in state court, Cape filed its initial Complaint against American Home seeking payment for its work on the Project under the Payment Bond. Between April 24, 2002, and November 26, 2002, several other subcontractors filed claims against the Payment Bond. Since the total sum of the pending claims against the Payment Bond exceeded the total limit of American Home's exposure of $2,500,000, American Home consolidated several of the suits and filed a counterclaim against all known Bond claimants seeking a determination of each claimant's rights, if any, against the Payment Bond. In addition, American Home filed a Third Party Complaint against the Cape Indemnitors seeking an order requiring the Cape Indemnitors to indemnify American Home from all claims against the Payment Bond. On September 17, 2002, Cape filed its answer and affirmative defenses to American Home's indemnity complaint.

  By virtue of the assertion of liability under the Indemnity Agreement, Cape entered into settlement agreements with the four of the subcontractors seeking payment under the Payment Bond (the "subcontractor claimants"). Cape settled these claims between October 3, 2002, and October 2, 2003. The subcontractor claimants' suits against American Home were subsequently dismissed with prejudice. Cape has also agreed in principle to settle another of the claims against the Payment Bond.

  On May 14, 2003, Cape submitted its first discovery request to American Home. American Home failed to produce any documents. On January 15, 2004, this court ordered American Home to respond to Cape's discovery requests by January 30, 2004. On February 4, 2004, Cape received from American Home certain discovery materials that Cape alleges demonstrate that American Home breached the Indemnity Agreement by failing to take action to rectify Bowies' nonpayment.

  Cape now seeks leave to amend its Complaint against American Home to include a subrogation count for the four claims that Cape settled with the subcontractor claimants and to include counts alleging that American Home breached its contractual and legal duty to exercise good faith and fair dealing by failing to take action to rectify Bowies' failure to pay Cape. Cape also seeks to amend its affirmative defenses to American Home's indemnity action to include the defenses that American Home breached the indemnity contract and that American Home acted in bad faith.

  DISCUSSION

  Rule 15(a) of the Federal Rules of Civil Procedure provides that leave to amend a pleading "shall be freely given when justice so requires." The Seventh Circuit has held that leave to amend pleadings should be liberally granted unless (1) the movant unduly delayed filing its motion for leave to amend; (2) the opposing party would suffer undue prejudice; or (3) the amended pleading would be futile. Campania Management Co. v. Rooks, Pitts & Poust, 290 F.3d 843, 849 (7th Cir. 2002)(citing Forman v. Davis, 371 U.S. 178, 182 (1962)). Undue prejudice "is the most important factor in determining whether to allow an amendment to a complaint." Ameritech Mobile Communications, Inc. v. Computer Sys. Solutions, Inc., 188 F.R.D. 280, 283 (N.D. Ill. 1999).

 I. Undue Delay

  Cape did not unduly delay filing its motion. On May 14, 2003, Cape submitted its first discovery request to American Home. American Home failed to produce any documents to Cape until February 4, 2004. According to Cape, the documents produced on February 4 contain information that it believes demonstrate that American Home breached the indemnity agreement and acted in bad faith. Cape promptly sought to add these claims to its complaint, filing its motion for leave to amend on February 17, 2004. Furthermore, during the period from October, 2002, to October, 2003, Cape settled four outstanding bond claims and thus became subrogated to the rights of those claimants. The combination of Cape's successful year-long effort to settle the bond claims and the fact ...


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