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The Cincinnati Insurance Company v. Ralston Brown

June 1, 2011

THE CINCINNATI INSURANCE COMPANY , PLAINTIFF,
v.
RALSTON BROWN, INC. , AND GREGORY R. BROWN , DEFENDANTS.



The opinion of the court was delivered by: Magistrate Judge Martin C. Ashman

MEMORANDUM OPINION AND ORDER

Plaintiff The Cincinnati Insurance Company ("CIC") sued Defendants Ralston Brown, Inc. ("Ralston Brown") and Gregory Brown ("Mr. Brown") (collectively, "the Defendants") for money allegedly owed to CIC under various indemnity agreements between the parties. CIC is a corporation with its principal place of business in Ohio; Gregory Brown is a resident of Wisconsin; and Ralston Brown, Inc. was an Illinois corporation at the time this suit was filed. Relying on the Court's jurisdiction under the diversity statute, 42 U.S.C. § 1332, CIC brought claims of breach of contract, exoneration, and specific performance against the Defendants, and asked the Court to issue a preliminary injunction requiring the Defendants to post funds sufficient to cover their obligations to CIC.*fn1

After the parties consented to have this Court conduct any and all proceedings in this case, including the entry of final judgment, CIC filed its motion for summary judgment.

Unfortunately, Defendants' counsel withdrew from this case after the instant motion was filed, and CIC asked the Court to enter default judgment against Ralston Brown. The Court did so on April 14, 2011 because the corporation did not attempt to obtain counsel by March 16, as the Court had ordered it to do after advising the parties that a corporation cannot appear in federal court on a pro se basis. Nocula v. UGS Corp., 520 F.3d 719, 725 (7th Cir. 2008). As the Court stated in its prior default judgment order, the motion for summary judgment is denied as moot insofar as it relates to Ralston Brown. For the reasons stated below, the Court finds that the motion is also denied as it relates to the individual Defendant, Gregory Brown, who appears pro se.

I. Background

Before it was dissolved in December, 2009, Ralston Brown was an Illinois corporation that performed heating, ventilation and air-conditioning ("HVAC") services, as well as sheet metal fabrication under the name of Larson Sheet Metal. Gregory Brown was the company's sole shareholder. In October, 2008, Ralston Brown was the low bidder for replacing HVAC equipment on two projects undertaken by the State of Illinois Tollway -- the Downers Grove Maintenance facility ("the M-14 project") and the Dekalb Maintenance facility ("the M-11 project"). Ralston Brown contracted to replace roof-top HVAC units on the M-14 project for a price of $189,744 and to replace unit heaters with infra-red heaters at the M-11 site for $269,099. Ralston Brown also entered a third contract in March, 2009 to replace unit heaters for a public construction project with the Schaumburg, Illinois Park District in the amount of $68,044 ("the Schaumburg project").

Each of the contracts Ralston Brown entered required the company to obtain payment and performance surety bonds in order to guarantee payment to the company's subcontractors and materialmen. Working through an insurance broker, Mr. Brown completed two contract bond applications with CIC on October 9, 2008 for the M-11 and M-14 projects. A similar contract bond application was filled out on March 23, 2009 for the Schaumburg project. The applications contained general indemnity agreements that required the signatures both of a principal acting on behalf of the corporation and of one or more individual indemnitors. The indemnity agreements provided that the principal and indemnitors would hold CIC harmless for all liabilities and disbursements made on behalf of Ralston Brown in relation to claims against the bonds the company was applying for. The agreements also obligated the principal and indemnitors to post collateral on demand by CIC if the insurance company received a payment claim on its performance or payment bonds.

Unfortunately, Ralston Brown was not able to carry out all of its contractual obligations to the Tollway or the Park District. The reasons for this are unclear from the current evidentiary record. Mr. Brown states that the company completed the M-14 project on time and that the work was accepted by the Illinois Tollway. Some portion of the amounts owed under Ralston Brown's contract, however, was not paid, and work on the M-11 project fell behind schedule. Mr. Brown also alleges that CIC interfered with his work on the Schaumburg project in ways that are not specified and prevented the Schaumburg Park District from paying Ralston Brown. For its own part, CIC states that it received claims in the amount of $291,974.32 against its payment bonds related to all three projects, as well claims on the performance bonds related to the M-11 and M-14 projects. (Plt's. Memo. at 1-3.) As a result, CIC now seeks, in relevant part, to enforce its rights against Gregory Brown under the indemnity agreements he signed as part of the bond contract applications for the M-11, M-14 and Schaumburg projects.

II. Legal Standard

Summary judgment is appropriate when the pleadings, depositions, answers to interrogatories, and affidavits show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); see Anderson v. Liberty Lobby, Inc.,477 U.S. 242, 247 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). The Court views all facts in the light most favorable to Mr. Brown and draws all justifiable inferences in his favor. Anderson, 477 U.S. at 255. Not all factual disputes will preclude summary judgment; rather, a genuine issue of material fact will exist only where there is evidence such that a jury "could reasonably find for the [nonmoving party]." Id. The parties may not rely on mere allegations or speculation in arguing for or against summary judgment. Argyropoulos v. City of Alton, 539 F.3d 724, 737 (7th Cir. 2008). At the summary judgment stage, both sides must support their factual assertions with "competent evidence of a type otherwise admissible at trial." Lewis v. City of Chicago, 496 F.3d 645, 651 (7th Cir. 2007). The burden of production is on the non-movant to "set forth specific facts showing a genuine issue for trial" or else face an entry of summary judgment. Fed. R. Civ. P. 56(e)(2); Warren v. Solo Cup Co., 516 F.3d 627, 629 (7th Cir. 2008).

While the Federal Rules of Civil Procedure provide the standard for summary judgment, this case involves a contractual dispute that comes within the Court's jurisdiction under the diversity statute. See 42 U.S.C. § 1332. Unless otherwise noted, therefore, the law of Illinois applies to the substantive matters at issue here. See Budinich v. Beckton Dickinson & Co., 486 U.S. 196, 198 (1988) ("[S]tate law generally supplies the rules of decision in federal diversity cases . . . ."); Grochocinski v. Mayer Brown Rowe & Maw LLP, 251 F.R.D. 316, 321 (N.D. Ill. 2008).

III. Discussion

The Illinois Public Construction Bond Act requires officials to obtain a payment bond from contractors who perform work for a political subdivision costing in excess of $5,000, or who undertake work for the State of Illinois costing more than $50,000. 30 ILCS 550/1. The purpose of the Act is to regulate claims against public bodies and to protect payment to contractors and materialmen, who do not have the right to place a mechanics' lien against a public body like the Illinois Tollway or the Schaumburg Park District. Aluma Sys., Inc. v. Frederick Quinn Corp., 206 Ill.App.3d 828, 853-54, 564 N.E.2d 1280 (Ill.App.Ct. 1990). Although they are statutory, rather than common law obligations, payment and performance bonds are considered to be written contracts under Illinois law.*fn2 Bd. of Educ. of Comm. High School Dist. No. 99 v. Hartford Accident and Indem. Co., 152 Ill.App.3d 745, 750, 504 N.E.2d 1000 (Ill.App.Ct. 1987).

Relying on Illinois law that indemnity agreements are to be construed like any other contract, CIC argues that this case is simple: Mr. Brown signed an indemnity agreement and is, without more, liable to CIC for payment under it. (Plt's. Mot. at 3.) Although admirably direct, this argument fails on several grounds. As an initial matter, CIC's reliance on Illinois law is misplaced because the company overlooks that the agreement CIC relies on, and which was drafted by CIC itself, contains a choice of law provision stating that "[t]his agreement shall be governed by the laws of the State of Ohio." (Complaint at Ex. D.) Ordinarily, Illinois courts rely on § 187(2) of the Restatement (Second) of Conflict of Laws to enforce a contractual choice of law provision, unless the chosen state has no substantial relationship to the parties or the transaction, or applying the law of the chosen state would violate a fundamental policy under Illinois law. See Hall v. Sprint Spectrum L.P., 376 Ill.App.3d 822, 825-26, 876 N.E.2d 1036 (Ill.App.Ct. 2007). As this Court is required to apply Illinois' choice of law rules, it assumes that Ohio law, not the law of Illinois, governs the terms of CIC's indemnity agreements. See Midwest Grain Prods. of Ill., Inc. v. Productization, Inc., 228 F.3d ...


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