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Evergreen National Indemnity Company v. R&W Clark Construction

October 28, 2011


The opinion of the court was delivered by: Judge Virginia M. Kendall


Plaintiff Evergreen National Indemnity Company ("Evergreen") issued certain Bonds to R&W Clark Construction, Inc./Continental Construction, Inc., a joint venture ("the Joint Venture"), to secure work on a construction project that the Joint Venture was attempting to perform for the Hanover Park Park District. Construction of the project did not go according to plan, and when the Joint Venture eventually defaulted, Evergreen was required under one of the Bonds to step-in and complete the project. According to the General Indemnity Agreement entered into between Evergreen and the Joint Venture, the Joint Venture was required to indemnify Evergreen for any losses that Evergreen might incur as a result of being forced to take over construction and complete performance. Evergreen claims that it has incurred substantial losses from having to complete the construction project, but that the Joint Venture has not fulfilled its contractual obligation to indemnify Evergreen for these losses. Evergreen therefore commenced suit in this Court against the Joint Venture, the constituent corporations, and the various individuals who are the principals of these corporations (collectively, "Defendants") for breach of contract, specific performance, exoneration and common law reimbursement. For the reasons set forth below, Evergreen's motion for summary judgment (Doc. 50) is granted. This Court grants summary judgment in favor of Evergreen on Count I of its complaint, seeking relief for breach of the Indemnity Agreement and on Count II of its complaint for breach of the Completion Agreement. Defendants are ordered to indemnify Evergreen for breach of the Indemnity Agreement and the Completion Agreement and pay Evergreen for its losses, expenses and fees in an amount no less than $210,249.56.

I. Material Undisputed Facts

The material facts that give rise to this case are not in dispute. On or about August 28, 2006, the Joint Venture entered into a construction contract with the Hanover Park Park District to perform general contractor services for the construction of the Pedestrian Egress Alteration Project. (Def. 56.1 Resp. ¶ 9). In order to secure its obligations under the construction contract, the Joint Venture sought Performance and Payment Bonds from Evergreen. (Id.) On October 16, 2006, as a condition precedent to Evergreen issuing these Bonds for the benefit of the Joint Venture, Evergreen and the Joint Venture executed a General Indemnity Agreement naming the Joint Venture as the bonded principal. (Id. ¶ 10). As a further condition of issuing the Bonds, Evergreen required the Joint Venture to deposit funds as collateral security for performance of the Joint Venture's obligation under both the construction contract and the General Indemnity Agreement. (Doc. 51, Pl. Memorandum in Support of Motion for Summary Judgment Exhibit C, Miracle Aff. ¶ 8). These funds were to be held in accordance with the terms of the Indemnity Agreement. (Id.) As an additional condition, the Joint Venture agreed to direct the Park District to pay all of the contract funds into a special escrow account. (Miracle Aff. ¶ 7). This account was created for the purposes of issuing payments of all fees and expenses related to the performance of the construction contract, including payments to the Joint Venture and to the Joint Venture's subcontractors and suppliers. (Id.)

Under the terms of the Performance Bond, in the event that the Joint Venture defaulted and precipitated the termination of its contract with the Park District, Evergreen would step in and complete the contract. (Def 56.1 Resp. ¶ 12; Miracle Aff. ¶ 9). In October of 2007, the Park District, after thrice sending notices of default to Evergreen and the Joint Venture, notified Evergreen of the Joint Venture's default and the termination of the contract. (Def 56.1 Resp. ¶ 12; Def. 56.1 Additional Facts ¶¶ 1-3). The Park District asserted a claim under the Performance Bond and demanded that Evergreen complete the construction contract. (Def 56.1 Resp. ¶ 12). Evergreen investigated the default and determined it was proper. (Miracle Aff. ¶ 9). Subject to the Park District's approval, Evergreen offered the Joint Venture the opportunity to complete the now-defaulted contract under the direction of Evergreen. (Def. 56.1 Resp. ¶ 14; Miracle Aff. ¶ 9).

On November 19, 2007, Evergreen and the Park District executed a new contract titled "Memorandum of Understanding and Agreement," pursuant to which, and in furtherance of its obligations as surety, Evergreen would, among other things, take over completion of the construction contract and complete the construction in accordance with the terms and conditions of the construction contract with the Joint Venture. (Def. 56.1 Resp. ¶ 13). On the same date, Evergreen and the Joint Venture executed a Completion Agreement, pursuant to which the Joint Venture would complete the construction under the direction of Evergreen and in accordance with the new Completion Agreement. (Def. 56.1 Resp. ¶ 14).

Upon taking over the defaulted contract, Evergreen discovered that the remaining contract funds were insufficient to fund the cost of performing the work. (Miracle Aff. ¶ 12). Evergreen therefore was required to use the collateral, which it deposited into the special escrow account. (Id.) Even these funds were not enough to fund completion of the project, so Evergreen had to use its own funds to pay subcontractors and suppliers in order to complete performance of the construction contract. (Id. ¶ 13). Evergreen payed $39,705.78 to Crown Engineering Co., and $8,800.00 to European Iron Work. (Def. 56.1 Resp. ¶ 16). Evergreen has not been reimbursed for any of these payments. (Id.)

On or about February 18, 2010, having found the work by the Joint Venture under the Completion Agreement and the Indemnity Agreement to be deficient in multiple respects such that the Joint Venture's acts constituted a failure of performance, Evergreen terminated the Completion Agreement with the Joint Venture. (Miracle Aff. ¶ 14; Miracle Aff. Exhibit A, Resp. to Specific Interrogatories ¶¶ 5, 7). In May of 2010, Evergreen hired Madison Construction to complete the work remaining under the construction contract. (Miracle Aff. ¶ 15). Evergreen paid Madison Construction $29,937.00 for completing the project, which the Park District accepted as complete on July 30, 2010. (Def. 56.1 Resp ¶ 19d; Miracle Aff. ¶ 15).

The Park District continued to hold contract funds which it claimed were subject to back charges. (Miracle Aff. ¶ 16). After negotiations, Evergreen and the Park District agreed to a final contract balance of $61,613.01. (Id.) All of these funds were used to pay the Joint Venture and/or its subcontractors and suppliers. (Id.) In addition to the Park District's claim and demand for performance under the Performance Bond, Evergreen received several notices of non-payments and claims under the Payment Bond. (Def. 56.1 Resp. ¶ 15). These claims came from a variety of entities who claimed to have provided labor and/or materials under the contract or to the project. (Id. ¶ 15-16) Mason's Local No. 803 Funds submitted a claim for unpaid wages in the amount of $24,000.00. (Id. ¶ 15) The Joint Venture did not dispute the amount owed, and after negotiations, Evergreen was able to settle Local 803's claim and paid to it $11,500.00 in furtherance of its Payment Bond obligation. (Id.) Evergreen has not been reimbursed for its payment to Local 803. (Id.) In addition to these claims for payments under the Payment Bonds, Evergreen has substantial legal and consulting fees which it incurred in investigating and defending various Payment Bond claims, investigating the Park District's Performance Bond claims, and managing and overseeing the various contracts and agreements that Evergreen entered into over the course of these affairs. (Id. ¶ 17, 19). Evergreen claims that it has incurred a net loss of $210,249.56 as a result of the Joint Venture's failure to perform the construction contract and that it has never been reimbursed for these losses. (Id. 19).

Evergreen brought suit in this Court against the Joint Venture, against each corporation individually, as well as against Rick Clark, Maureen Clark, Thomas W. Andrews, and Elizabeth Andrews ("Defendants") for breach of contract, specific performance, exoneration and common law reimbursement. (Doc. 3, Complaint). The gravamen of Evergreen's suit is that the Defendants are liable to Evergreen for failing to reimburse it for its losses, fees and expenses under the Indemnity Agreement. Evergreen claims that it is entitled to recover its payments made under the takeover agreement to claimants on the project, and to fees and expenses incurred in investigating and resolving Bond claims on the Performance and Payment Bonds and in enforcing the terms of the General Indemnity Agreement. (Def. 56.1 Resp. ¶¶ 19-20). After conducting discovery, Evergreen moved for summary judgment, claiming that it is entitled as a matter of law to recover against the Defendants under the Indemnity Agreement. At this stage of the litigation, Evergreen limited briefing on its motion for summary judgment to its claims for indemnity based on the Joint Venture's breach of contracts. The Defendants do not dispute any of these material facts; they merely deny an obligation to pay Evergreen. (Def 56.1 Resp ¶ 21).*fn1 Furthermore, Defendants do not set forward any material undisputed facts of their own to demonstrate that there is any issue that must be resolved by a trial.*fn2 Defendants raise only a legal issue for summary adjudication; whether Evergreen brought a timely suit.

II. Choice of Law and the Standard of Review

Federal courts sitting in diversity apply state law to contract disputes and employ the choice-of-law principles used by the forum state. See United States Textiles, Inc. v. Anheuser-Busch Cos., 911 F.2d 1261, 1269 (7th Cir. 1990) (citing Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 496 (1943)). As the Seventh Circuit has stated, "Courts do not worry about conflicts of laws unless the parties disagree on which state's law applies." Auto-Owners Ins. Co., v. Webslov Computing, Inc., 580 F.3d 543, 547 (7th Cir. 2009). Although the parties do not seem to disagree over which state's law to apply, this case raises choice-of-law issues that must be resolved prior to proceeding.

Thus this Court looks to Illinois choice-of-law principles to determine which state's law to apply to the underlying dispute. Under Illinois choice-of-law principles, Federal courts apply the laws of the forum state to purely procedural issues, even if the substantive law is provided by the laws of another state. See Belleville Toyota v. Toyota Motor Sales, U.S.A., 199 Ill. 2d 325, 351 (2002) ("As to procedural matters, however, the law of the forum controls."). The General Indemnity Agreement, under which Evergreen brings its suit, states that it "shall be governed and interpreted by the laws of the State of Ohio." (Complaint Exhibit C, General Indemnity Agreement, VII(G)). Illinois courts routinely enforce contractual choice-of-law provision in contract disputes such as this one. See Belleville, 199 Ill 2d at 351. ("Generally, choice of law provisions will be honored."). Thus it is substantive Ohio contract law that governs Evergreen's claims for indemnification and breach of contract under the Indemnity Agreement and the Completion Agreement. Under Illinois law, however, statutes of limitations are considered purely procedural and therefore Illinois' applicable statute of limitations governs the timeliness of Evergreen's suit. See Id. ("Statutes of limitations are procedural, merely fixing the time in which the remedy for a wrong may be sought...Accordingly, Illinois law governs the timeliness of plaintiff's claim under [the contract]"). The parties do not seem to disagree over these choice-of-law issues. In their Reply to Evergreen's motion for summary judgment the Defendants invoke Illinois law as the basis for their statute of limitations defense. Evergreen does not dispute this choice of Illinois law--indeed, Evergreen claims that the relevant Illinois statute of limitations entitles them to summary judgment in their favor. Therefore, the Court applies Illinois law to the statute of limitations issue and applies Ohio contract law to the breach of contract claims.

Summary judgment is proper when "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). In determining whether a genuine issue of material fact exists, the Court must view the evidence and draw all reasonable inferences in favor of the party opposing the motion. See Bennington v. Caterpillar Inc., 275 F.3d 654, 658 (7th Cir. 2001); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). However, on summary judgment the Court will limits its analysis of the facts to that evidence that is supported by the parties' Local Rule 56.1 statements properly before the Court. Bordelon v. Chicago Sch. Reform Bd. of Tr., 233 F.3d 524, 529 (7th Cir. 2000). Where a proposed statement of fact is supported by the record and not adequately rebutted, for purposes of summary judgment the Court will accept that statement as true. An adequate rebuttal requires a citation to specific support in the record; an unsubstantiated denial is not adequate. See Albiero v. City of Kankakee, 246 F.3d 927, 933 (7th Cir. 2001); Drake ...

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