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Danny's Construction Co., Inc. v. Travelers Casualty and Surety Co. of America

March 7, 2007

DANNY'S CONSTRUCTION COMPANY, INC.; CITY OF CHICAGO, EX REL DANNY'S CONSTRUCTION COMPANY, PLAINTIFF,
v.
TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA, DEFENDANT AND THIRD-PARTY PLAINTIFF,
v.
CARLO STEEL CORPORATION AND THE CITY OF CHICAGO, THIRD-PARTY DEFENDANTS.



The opinion of the court was delivered by: Hon. Harry D. Leinenweber

MEMORANDUM OPINION AND ORDER

This case arises out of a construction project known as the O'Hare Terminal Facade and Circulation Enhancement Project (the "Project"). Plaintiff Danny's Construction Company, Inc. (hereinafter, "Danny's") sued Travelers Casualty and Surety Company of America (hereinafter, "Travelers") for payment on a performance and payment bond ("the Bond") issued in conjunction with the Project. Before the Court is Third-Party Defendant the City of Chicago's ("the City") Motion to Dismiss pursuant to Federal Rules of Civil Procedure 12(b)(6) or 12(b)(3). For the reasons stated herein, the City's Motion to Dismiss under Rule 12(b)(6) is granted.

I. BACKGROUND

Walsh Construction Company (hereinafter, "Walsh") entered into a contract with the City on January 13, 2003, (the "Contract") to provide materials and equipment and to perform services in connection with the Project. Walsh, as principal, and Travelers, as surety, furnished the Bond to the City pursuant to the Illinois Public Construction Bond Act (the "Act").

Walsh subcontracted a portion of the Project's steel fabrication and erection work to Carlo Steel Corporation (hereinafter, "Carlo"). Carlo, in turn, subcontracted with Danny's. As the Project progressed, Carlo continually failed to pay Danny's for extra work items, was delinquent in its payment for the base contract work, and eventually ceased making any payments to Danny's.

Danny's sued Travelers in Federal Court on August 19, 2005, for payment under the Bond of the amounts owed to Danny's by Carlo. Travelers in turn filed third-party claims against the City and Carlo. The City has now moved to dismiss the claims against it under Rule 12(b)(6), or in the event that motion is denied, under Rule 12(b)(3).

II. ANALYSIS

The purpose of a motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6) is to test the sufficiency of the complaint, not to decide the merits of the case. Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990) (citation omitted). On a 12(b)(6) motion, the Court accepts all well-pleaded allegations in the plaintiff's complaint as true, views the allegations in the light most favorable to the plaintiff, drawing all reasonable inferences in the plaintiff's favor. Bontkowski v. First Nat. Bank of Cicero, 998 F.2d 459, 461 (7th Cir. 1993). A court should not dismiss a complaint "unless it appears beyond all reasonable doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957).

Travelers' third-party complaint against the City alleges that the City provided defective design plans and specifications for the Project, which caused delays and extra work that enlarged Travelers's exposure under the Bond. Travelers contends that these alleged circumstances give it the right to seek funds from the City in the event that it is found liable to Danny's, both under implied indemnification theories and an unjust enrichment theory.

The City argues that suretyship law does not recognize any claim by a surety on an owner/obligee's funds and that, in any case, Travelers has failed to allege facts necessary to state claims for implied indemnity and unjust enrichment. Although this Court declines to hold that a surety can never recover funds from its obligee, this Court agrees with the City that Travelers's implied indemnity and unjust enrichment claims are legally defective.

A. Implied Indemnity

In Counts II and III of Travelers's Amended Third-Party Complaint, Travelers seeks implied indemnity from the City for any funds it pays to Danny's on the Bond. Count II claims a right of indemnity based on the City's alleged breach of its implied warranty of design adequacy. Count III pursues indemnity based on the City's alleged negligence in furnishing defective plans.

As an initial matter, the City contends that Counts II and III articulate different causes of action -- that Count II is for implied indemnity based on quasi-contract principles, while Count III is really for "active-passive" indemnity. Travelers insists that both Counts sound in implied indemnity based on quasi-contract principles. This Court agrees with Travelers that Counts II and III both sound in implied indemnity based on quasi-contract principles. The "active-passive" indemnity cause of action that the City argues Count III represents only applies where the would-be indemnitor and indemnitee are alleged joint tortfeasors. See Kerschner v. Weiss & Co., 282 Ill. App. 3d 497, 505 (1st Dist. 1996). Here, there is no allegation that the City and Travelers are jointly liable in tort. Thus, since both Counts II and III allege facts under implied indemnity based on quasi-contract principles, this Court will address their adequacy together.

Under implied indemnity based on quasi-contract principles, "a promise to indemnify will be implied by law where a blameless party (the indemnitee) is derivatively liable to the plaintiff based upon the party's legal relationship with the one who actually caused the plaintiff's injury (the indemnitor)." Schulson v. D'Ancona and Pflaum LLC, 354 Ill. App. 3d 572, 576 (1st Dist. 2004). A third-party plaintiff invoking this cause of action must allege (1) a "pre-tort" relationship between the third-party plaintiff and the third-party defendant and (2) a ...


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