* Pursuant to 5 TH C IR

. R. 47.5, the court has determined that this opinion should not be published

and is not precedent except under the limited circumstances set forth in 5 TH C IR

. R. 47.5.4. United States Court of Appeals

Fifth Circuit



## FILED

June 16, 2004

Charles R. Fulbruge III

Clerk IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 03-30979

GREAT AMERICAN INSURANCE COMPANY,

Plaintiff-Appellee,

versus

MCELWEE BROTHERS, INC. & TRI-STATE

DESIGN CONSTRUCTION COMPANY, INC.; ET AL.,

Defendants,

MELVIN M. MCELWEE, SR.; MCELWEE

BROTHERS, INC.; SYLVIA HURST,

Defendants-Appellants.

Appeals from the United States District Court

for the Eastern District of Louisiana

(03-CV-2793)

Before DeMOSS, STEWART, and PRADO Circuit Judges.

CARL E. STEWART, Circuit Judge: *

Melvin M. McElwee, Sr. (“Mr. McElwee”), McElwee Brothers, Inc. (“McElwee Brothers”),

and Sylvia Davis (collectively, “the indemnitors”) appeal the district court’s issuance of a preliminary

injunction prohibiting the indemnitors from interfering with the Great American Insurance Company

(“Great American”) pursuit of certain construction claims. The indemnitors challenge the district2

court’s determination that an agreement of indemnit y’s assignment clause is triggered by the issuance

of a termination for default. For the reasons that follow, we affirm.

FACTUAL AND PROCEDURAL BACKGROUND

On October 15, 1999, the United States Army Corps of Engineers (“C orps”) issued a bid

solicitation referr ed t o as, “Construction Solicitation and Specifications for a Southeast Louisiana

Project, Dwyer Road Drainage Pumping Stati on Improvements Dis charge Tubes and Canal,

Solicitation No. DACW29-00-B-005" (“Project”). The P ro ject required the successful bidder to

provide payment and performance bonds pursuant to the Miller Act, 40 U.S.C. §§ 270(a)-270(f).

McElwee Brothers, a small disadvantaged business seeking to submit a bid to work on the

Project but lacking the financial capacity to perform, signed a joint venture agreement with Tri -State

Design Construction Company, Inc. (“Tri-State”) to bid on, and if successful, perform and complete

the construction work for the Proj ect. On October 25, 1999, McElwee Brothers and Tri-State

entered into an “Agreement of Indemnity” (“the 1999 GAI”) with Great American requiring Great

American to issue the requisite bonds as the payment and performance bond surety, and on a later

date, signed the 2002 GAI (signed only by Tri -State and not McElwee Brothers or Mr. McElwee)

on an unrelated project.

By letter dated March 29, 2001, the Corps n o t ified the Joint Venture that its bid for the

Project was accepted. Accordingly, the Joint Venture entered into a contract with the Army for

construction of the Project. Great American issued payment and performance bonds, dated March

30, 2001, for the Project on behalf of the Joint Venture.

The Joint Venture performed work and provided labor/materials for the general construction

of the Project. As early as April 17, 2002, however, problems began to arise. The Corps notified the3

Joint Venture that its “Overall Performance” on the project had been “unsatisfactory” citing problems

with quality control, timely performance, and effectiveness of management. On June 24, 2003, the

Corps terminated the contract for default.

The Corps called upon Great American, as performance bond surety, to arrange for

completion of the Project, which Great American complied with. In all, Great American made

payments totaling in excess of $370,000 pursuant to its obligations under the Performance Bond and

made payments of approximately $1,100,000 in accordance with its Payment Bond obligations.

On July 23, 2003, McElwee Brothers and Mr. McElwee filed suit against Tri-State to seek

damages to reimburse Great American due to the default. Days later, Great American requested from

McElwee and Tri -State collateral security in the aggregate amount of $2,000,0 00 each. Tri -State

complied with Great American’s request to its satisfaction. On September 17, 2003, Mr. McElwee

as managing Joint Venturer, appealed the term inat ion for default to the Armed Services Board of

Contract Appeal (“ASBCA”) and Mr. McElwee filed six petitions with the ASBCA involv ing six

claims on the Project.

Great American filed for, inter alia

, injunctive relief to prevent the Joint Venture from seeking

a reversal of the termination for default. On October 16, 2003, the district court, in granting Great

American’s request for a preliminary injunction, found that the Joint Venture had assigned its interests

in and rights to pursue any claims to Great America. The district court, in interpreting the 1999 GAI,

determined that the term “breach” included the Corps issuance of the termi nat ion for default.

Additionally, the district court found that the failure of the indemnitors to comply with the request

fro m Great American to post $2,000,000 in collateral security also constituted a breach of the

indemnity agreement.4 STANDARDS OF REVIEW

Although the ultimate decision whether to grant or deny a preliminary injunction is reviewed

only for abuse of discretion, we review a decision grounded in erroneous legal principles de novo and

findings of fact are reviewed only for clear error. Women’s Medical Center of NW Houston, et al.

v. Bell , 248 F.3d 411,419 (5th Cir. 2001).

Our de novo review of legal questions includes the interpretation and application of indemnity

agreements. Liberty Mutual Ins. Co. v. Pine Bluff Sand & Gravel Co., Inc. , 89 F.3d 243, 246 (5th

Cir. 1996). The preliminary determination whether an agreement is ambiguous also constitutes a

question of law that is reviewed de novo. Id

.

DISCUSSION

I. Subject Matter Jurisdiction & Mr. McElwee’s Brief

We begin first with a preliminary mat t er concerning whether our exercise of jurisdiction is

proper. Mr. McElwee argues that under the Tucker and Contract Dispute Act, 28 U.S.C. § 1346,

we lack subject matter jurisdiction over claims decided by a contracting officer and pending before

the Armed Services Board of Contract Appeals. We disagree.

Under 28 U.S.C. § 1346, the U.S. Court of Federal Claims has concurrent jurisdiction over

“[a]ny other civil action or claim against the United States . . . .” 28 U.S.C. § 1346(a)(2) (emphasis

added). Here, the United States is not a party to this action. Therefore, we find that § 1346 clearly

does not apply.

However, the district court properly exercised jurisdiction under 28 U.S.C. § 1332 (diversity

jurisdiction), as Great American is a citizen of Ohio and McElwee & McElwee Brothers are citizens

of Louisiana. Also, the amount in controversy is $2,140,000. Furthermore, this court properly has5

jurisdiction of an appeal from an interlocutory order granting a preliminary injunction pursuant to 28

U.S.C. § 1292(a)(1). Here, the appeal centers around the district court’s grant of a preliminary

injunction (1) requiring McElwee and the McElwee Brothers to refrain from interfering with Great

American Insurance Company’s exercise of its rights under the general agreement of indemnity and

(2) prohibiting McElwee and the McElwee Brothers from taking any action as to the termination for

default. Therefore, pursuant to § 1292, we properly have jurisdiction.

As another preliminary matter, Mr. McElwee’s asserts a multitude of arguments under various

statutes and federal acts. Following a thorough review of the record, we find that this case does not

involve any of the claims mentioned in Mr. McElwee’s brief. Great American bro ught this action

solely to enforce a general indemnity agreement executed by the indemnitors in favor of Great

American. Therefore, we find McElwee’s arguments irrelevant to the present action.

II. The Merits: Breach of General Indemnity Agreement

Turning to the merits, the indemnitors do not contest the district court’s granting of t he

preliminary injunction based on findings that Great American would suffer irreparable injury, that the

threatened injury to Great American outweighed any harm that the injunction might cause the

indemnitors, or that the injunction would serve the public interest . Because such issues were not

raised on appeal, we find that the indemnitors waived those issues. L easehold Expense Recovery,

Inc. v. Mothers Work, Inc. , 331 F.3d 452, 463 (5th Cir. 2003) ( stating that “[f]ailure to raise an issue

on appeal constitutes a waiver of that argument”). The sole challenge of the preliminary injunction

by the indemnitors c o ncerns the substantial likelihood of success on the merits. Specifically, the

indemnitors challenge the district court’s determination that th e Corps issuance of a notice of

termination for default triggers the 1999 GAI assignment clause.6

Under Louisiana law, indemnity pro visions are construed in accordance with general rules

governing contract interpretation. L iberty Mutual

, 89 F.3d at 246; see also So vereign Ins. Co. v.

Tex as Pipe Line Co. , 488 So.2d 982, 984 (La. 1986). Interpretation of a contract is the

determination of the common intent of the parties. La. Civ. Code Ann. art. 2045. When the terms

of a contract are clear and explicit and lead to no absurd consequences, we interpret them as a matter

of law, and no further interpretation may be made in search o f t he parties’ intent. T exas Eastern

Transmission Corp. v. Amerada Hess Corp.

, 145 F.3d 73 7, 741 (5th Ci r. 1998); s ee also Liberty

Mutual , 89 F.3d at 246. On the other hand, ambiguity in the terms of a contract gives rise to a fact

question concerning the intent of the parties. Liberty Mutual , 89 F.3d at 246.

Here, the indemnity provision in paragraph 3 of the 1999 GAI specifies, in relevant part, that

the indemnitors will assign to Great American

as collateral, to secure the obligations in any and all o f the paragraphs of thi s

Agreement . . . but only in the event of (1) any abandonment, forfeiture or breach of

any contracts referred to in t he Bo nds o r of any breach of said bonds; or (2) of any

breach of the provisions of any paragraphs of this Agreement; . .

. : (a) All the rights

of the Contractor in and growing in any manner out of the Bonds;

. . . (e) Any and all

percentages retained and all sums that may be due or hereafter become due on account

of any and all [sic] contracts referred to in the Bonds and all other contracts whether

bonded or not in which Contractor has an interest.

The heart of this appeal therefore is a dispute over whether the term “breach” constitutes a notice of

a termination for default, thereby triggering an assignment of all rights to Great American.

The indemnitors contend that the district court erred by interpreting the 1999 GAI using its

own subjective interpretation of “breach” instead of the plain meaning of the term. The indemnitors

argue that an ambiguity exists, unde r t he 1999 GAI, as to whether a termination for default

constitutes a breach of contract or merely an allegation of breach of contract. We cannot agree.7

Paragraph 3 of the 1999 GAI states that a breach of any provision of any paragraph of that

agreement may trigger an assignment. Paragraph 2 of the 1999 GAI provides that the indemnitors:

shall exonerate, indemnify, and keep indemnified [ Great American] from a n d

against all liabilit

y for losses and/or expenses

. . . and from and against any and all

such losses and/or expenses which [Great American] may sustain and incur: (1) By

reason of having executed or procured the execution of the Bonds. (2) By reason of

the failure of [Indemnitors] to perform or comply with t he co venants of this

Agreement . . . . Payment by reason of the aforesaid causes shall be made to [Great

American] by [Indemnitors] as soon as liability exists or is asserted against [Great

American]

, whether or not [Great American] shall have made any payments therefor

. . . . (emphasis added). The plain meaning of paragraph 2 suggests that indemnity and exoneration are

owed to Great American, not only if there is a breach, but as soon as liability is asserted. Similarly,

a plain reading of the aforementioned paragraph 3 mandates that certain rights, including rights of the

Joint Venture in the contracts incorporated in the Bonds and all sums due or to become due on the

contracts referred to in the Bonds, are assigned to Great American as collateral.

Reading GAI paragraphs two and three together as a whole, we find that the Indemnitors’

indemnity/exoneration obligation arises “as soon as liability . . . is asserted” a nd the purpose of the

assignment clause is to assign the specified rights to Great American to secure any potential liabilit y.

In accord wit h t his plain meaning, we find that even an “allegation” of breach, forfeiture, or

abandonment triggers the assignment clause because that is an assertion of Great American’s liabilit y.

Because the meaning of the 1999 GA I is plain, and there is no ambiguity, we affirm the district

court’s ruling allowing the assignment of claims from McElwee Brothers to Great American.

Even assuming, arguendo

, that the plain meaning of t he 1999 GAI is not dispositive, the

preliminary injunction was proper because the issuance of the Termination for Default constitutes a

breach of the Performance and Payment Bonds. As Great American reminds us, we may affirm a8

judgment of the district court if the result is correct, even if its affirmance is upon grounds not relied

upon by the district court. Sugar Busters, LLC v. Brennan , 177 F.3d 258, 265 (5th Cir. 1999).

Upon default of obligations under a performance bond, “a surety is primarily and immediately

liable to the obligee for the performance of the co ntract.” H owell v. Commissioner of Internal

Revenue

, 69 F.2d 447 (8th Cir. 1934), cert denied

, 292 U.S. 654. Here, under the Performance

Bond, Great American was obligated to complete the contract if the Joint Venture failed to perform

and fulfill “all the undertakings, covenants, terms, conditions, and agreements of the [Proj ect].” The

indemnitors right to proceed under the contract was terminated by the Corps issuance of its notice

of termination for default. The Corps allowed the construction contract to be completed by Great

American, which was also held liable for any increased costs caused thereby. Thus, Great American’s

liabilit y was “asserte d” under paragraph 3 as Great American had to perform the Joint Venture’s

obligations u nder t he Project and was subjected to primary and immediate liability under the

Performance Bond.

Moreover, under the Payment Bond, Great American’s obligations are triggered if the Joint

Venture fails to promptly make “all payments to all persons having a direct relationship with the [Joint

Venture] or a subcontractor of the [Joint Vent ure]. . . .” The record shows that following the

Termination for Default, Great American made payments to various subcontractors for furnishing

labor a nd mat erials o n the Project. Thus, this court may find that the Joint Venture breached its

Payment Bond obligations, thereby triggering the assignment provision.

The indemnitors also challenge the distri ct co urt’s finding that each member of the Joint

Venture, McElwee Brothers and Tri -State, must post collateral to indemnify Great American, and

only the former failed to do so. The indemnitors argue that since t he indemnity agreement9

demonstrates the solidary nature of the obligation, Great American must request the entire collateral

security from the indemnitors as a group, without division. The 1999 GAI states:

NOW THEREFORE, in consideration of the premises the Contractor and Indemnitors

for themselves, their heirs, executors, administrators, successors, and assigns, jointly

and severally hereby covenant and agree with the Surety . . .

[emphasis added]. The heart of the indemnitors contention is that the phrase “joint and severally” is

ambi guo us, as to whether the indemnitors are liable as a whole or proportionately, and thus the

district court erred in failing to allow the use of extrinsic evidence to discern the parties intentions.

We are not persuaded.

The indemnitors solidary obligation argument is foreclosed by our precedent. We previously

stated, that we cannot conclude, absent an express written stipulation, that an indemnity agreement

expresses an intent of the parties to be solidarily bound. W

hilhit e v. Schendle

, 92 F.3d 372, 375 (5th

Cir. 1996); see also USX Corp v. B.J. Tanenbaum , 868 F.2d 1455, 1459 (5th Cir. 1989) (“[w]hile

the terms ‘in solido’ or ‘jointly and severally’ are not talismanic, [Louisiana] Civil Code article 2093

requires something more than the “tenor” of the agreement to create a solidary obligation”).

Moreover, we find the plain meaning of “joint and severally” placed the indemnitors on full

notice that Great American had the discretion to apporti on performance of the collateral separately

from either Tri-State or McElwee Brothers. S ee Black’s Law Dictionary (7th ed. 1999) (defining

the term “joint and several” to mean liabilit y “apportionable either among two or more parties or to

only one or a few select members of the group, at the adversary’s discretion). Because we find no

ambiguity of the term “joint and severally,” the district court did not err in rejecting the indemnitors

request to use extrinsic evidence nor in finding the indemnitors liable for the collateral security.

For the foregoing reasons, we AFFIRM the judgment of the district court.