Court Opinion

ID: 4673151
Source: CourtListenerOpinion
Date Created: 2021-03-31 15:00:36.141316+00
Date Added: 2024-06-11T08:03:11.694103
License: Public Domain

19-2622-cv
    Arch Ins. Co. v. Centerplan Constr. Co., LLC

                          UNITED STATES COURT OF APPEALS
                              FOR THE SECOND CIRCUIT

                                      SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY
ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF
APPELLATE PROCEDURE 32.1 AND THIS COURT=S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER
IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN
ELECTRONIC DATABASE (WITH THE NOTATION ASUMMARY ORDER@). A PARTY CITING TO A SUMMARY
ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

                  At a stated term of the United States Court of Appeals for the Second Circuit,
    held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of
    New York, on the 31st day of March, two thousand twenty-one.

    PRESENT:
                     BARRINGTON D. PARKER,
                     GERARD E. LYNCH,
                     JOSEPH F. BIANCO,
                          Circuit Judges.
    ------------------------------------------------------------------
    ARCH INSURANCE COMPANY,

                              Plaintiff-Counter-Defendant-Appellee,

                     v.                                                   19-2622-cv

    CENTERPLAN CONSTRUCTION CO., LLC,
    ROBERT LANDINO, KELLY
    LANDINO, CENTERPLAN DEVELOPMENT
    CO., LLC, RAL INVESTMENTS, LLC,
    WALNUT HILL CHASE, LLC, TINKER HOUSE,
    LLC, CENTER EARTH, LLC,
    CENTERPLAN COMMUNITIES, LLC, and GH
    DEVELOPMENT, LLC,

                              Defendants-Counter-Claimants-Appellants.

    ------------------------------------------------------------------
FOR PLAINTIFF-COUNTER-DEFENDANT-APPELLEE:

                                            WILLIAM JAMES TAYLOR, White and Williams LLP,
                                            Philadelphia, Pennsylvania (Wolf, Horowitz, &
                                            Etlinger, LLC, Hartford, Connecticut, on the brief).

FOR DEFENDANT-COUNTER-CLAIMANTS APPELLANTS:

                                            RAYMOND A. GARCIA, (Allan P. Hillman, on the
                                            brief), Garcia & Milas, P.C., New Haven,
                                            Connecticut.

       Appeal from two decisions and a judgment of the United States District Court for the

District of Connecticut (Bryant, J.).

       UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND

DECREED that the decisions and judgment of the district court are AFFIRMED.

       Defendants-Counter-Claimants-Appellants       Centerplan     Construction    Co.,    LLC

(“Centerplan”), Center Earth, LLC (“Center Earth”), Centerplan Development Co., LLC

(“Centerplan Development”), RAL Investments, LLC (“RAL Investments”), Walnut Hill Chase,

LLC (“Walnut Hill”), Tinker House, LLC (“Tinker”), GH Development, Inc. (“GH

Development”), Centerplan Communities, LLC (“Centerplan Communities”), and Robert and

Kelly Landino (the “Landinos”) (collectively “appellants”) appeal from (1) the district court’s

memorandum decision granting summary judgment in favor of Plaintiff-Counter-Defendant-

Appellee Arch Insurance Company (“Arch”) on Arch’s contractual indemnification, contractual

collateral security, and disclosure of financial information claims, and dismissing Arch’s common

law indemnification, common law exoneration, and quia timet claims; (2) the district court’s

memorandum decision granting Arch’s motion to dismiss appellants’ Third Amended

                                               2
Counterclaim for failure to state a claim; and (3) the district court’s judgment in favor of Arch in

the amount of $39,107,334.47. On appeal, appellants argue that the district court erred in granting

summary judgment in favor of Arch in the amount that it awarded because the performance bond

at issue was incorporated by reference into the indemnity agreements between Arch and appellants,

and the performance bond expressly excluded indemnification for any damages covered by

professional liability insurance. Therefore, according to appellants, Arch could not receive

indemnification for any damages of that type. Appellants also contend that the district court

improperly dismissed its Third Amended Counterclaim because the counterclaim plausibly alleged

that Arch breached its duties under the bonds at issue by performing when it had no obligation to

perform because the City of Hartford (the “City”) and the Hartford Stadium Authority (“HSA”)

(collectively “Hartford”) were in default, and Centerplan was not. We assume the parties’

familiarity with the underlying facts, procedural history, and issues on appeal, which we reference

only as necessary to explain our decision to affirm.

                                        BACKGROUND

       Arch’s claims arise out of three indemnity agreements – one dated July 10, 2010 between

Centerplan, Centerplan Development, RAL Investments, the Landinos, and Arch; one dated

October 15, 2010 between Walnut Hill, Tinker, GH Development, Centerplan, the Landinos, and

Arch (together, the “2010 Indemnity Agreements”); and one dated January 26, 2016 between

Centerplan, Centerplan Development, Center Earth, Centerplan Communities, RAL Investments,

the Landinos, and Arch (the “2016 Indemnity Agreement”) (collectively, the “Indemnity

Agreements”). The parties executed the Indemnity Agreements as consideration for Arch’s

issuance of approximately fifty bonds as surety. Among those bonds, and at issue in this action,

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are the payment and performance bonds issued as condition precedent to the award of the contract

to Centerplan to construct a minor league baseball stadium in Hartford, Connecticut (the “Hartford

Stadium Project”).

       A series of related agreements were executed in early 2015 in connection with the Hartford

Stadium Project: On January 26, 2015, the City and Connecticut Double Play LLC formed a joint

venture to develop a ballpark as memorialized by the Ballpark Development Agreement (the

“BDA”). On February 4, 2015, the City and DoNo Hartford, LLC (“DoNo”) executed the

Development Services Agreement (the “DSA”) to design, develop, and construct the Hartford

Stadium Project. Anticipating the need for a design builder, that contract obligated DoNo to

provide payment and performance bonds – either directly or from the design builder, and if the

latter, then the parties would need to execute a Multiple Obligee Rider. As owner of the DSA,

DoNo entered into a Design-Build Agreement (the “DBA”) with Centerplan, which agreed to

construct the Hartford Stadium Project. Centerplan, DoNo, and the City also entered into a “Direct

Agreement” formalizing the City’s right under the DSA to step into DoNo’s role under the DBA

in the event of a default by DoNo. See App’x at 541–42 (expressly disclaiming the City’s rights

under the DBA and duty to Centerplan). The performance bond, issued by Arch as surety on

behalf of Centerplan as principal in favor of DoNo and Hartford as obligees, was conditioned on

Centerplan’s faithful performance under the DBA (the “Performance Bond”), and the payment

bond was conditioned on the payment of all those who provided labor and materials in furtherance

of the DBA and the Hartford Stadium Project (the “Payment Bond”) (collectively, the “Bonds”).

The parties also executed a Multiple Obligee Rider to the Bonds exculpating Arch and Centerplan

in the event the obligees failed to make the required payments under the DBA.

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       The DBA required Centerplan to achieve “substantial completion” no later than March 11,

2016 and keep costs to $53,550,000; but in January 2016, the parties extended the substantial

completion date and increased the maximum costs to accommodate a December 2015 change

order. The City issued additional change orders and construction change directives which

prevented Centerplan from being able to complete the Project by May 2016. On May 19, 2016,

Hartford notified DoNo that it failed to meet the substantial completion deadline, and on May 27,

2016, notified Centerplan that it was in violation of the DBA. At a May 31, 2016 meeting (between

Arch, the City, DoNo, and Centerplan), the City requested, over Centerplan’s objections, that Arch

become involved. One week later, the City terminated the DSA with DoNo and the DBA with

Centerplan because of “continued defaults” by DoNo and Centerplan. On June 9, 2016, the City

demanded Arch satisfy the Performance Bond. Arch commenced a thorough investigation through

September 2016. On August 5, 2016, Arch gave notice to Centerplan of the claims on the Bonds

and made a demand upon Centerplan to procure Arch’s discharge from the Bonds and hold

harmless and indemnify Arch for its losses incurred, and to be incurred, as a result of having issued

the Bonds. This action followed.

                                          DISCUSSION

  I.   Grant of Summary Judgment in Arch’s Favor

       After careful evaluation of the text of the Indemnity Agreements, the district court

determined that, under their unambiguous provisions, Arch was entitled to indemnification as a

matter of law. In reaching this determination, the district court rejected appellants’ contention that

the DBA, Multiple Obligee Rider, and the Bonds create a complex and contradictory set of rights

and obligations. Instead, the district court held that the Indemnity Agreements, and not the Bonds,

                                                  5
govern Arch’s right of indemnification. The district court further concluded that, because actual

liability is not required under the Indemnity Agreements, such liability was “not a precursor to

indemnification under [the] indemnity agreement,” Special App’x at 21, and appellants “executed

express Indemnity Agreements in favor of Arch obligating them to provide indemnification when

Arch settled claims in good faith,” Special App’x at 22. With respect to the issue of bad faith, the

district court held that “[d]efendants have failed to provide evidence from which a jury could

reasonably conclude that Arch acted on the Hartford Stadium payment and performance bonds in

bad faith.” Special App’x at 50. Therefore, the district court granted summary judgment on Arch’s

contractual indemnification claim in the amount of $39,107,334.47.

       We review a grant of summary judgment de novo. Gorman v. Rensselaer County, 910 F.3d

40, 44 (2d Cir. 2018). In doing so, we “constru[e] the evidence in the light most favorable to the

nonmoving party and draw[] all reasonable inferences in that party’s favor.” Kuebel v. Black &

Decker Inc., 643 F.3d 352, 358 (2d Cir. 2011). Summary judgment is appropriate where “the

movant shows that there is no genuine dispute as to any material fact and . . . is entitled to judgment

as a matter of law.” Fed. R. Civ. P. 56(a).

       On appeal, appellants argue that the district court erred in granting summary judgment to

Arch because the Bonds were incorporated by reference into the Indemnity Agreements and, based

upon the professional liability insurance exclusion in the Performance Bond, appellants would be

entitled to deduct the money Arch paid that was covered by that insurance. As set forth below, we

agree with the district court’s well-reasoned analysis and conclude that summary judgment on

Arch’s claim was properly granted.

                                                  6
       The Indemnity Agreements undisputedly cover the claims at issue and provide that Arch

is entitled to indemnity from appellants, and thus, the only question on appeal is whether

appellants’ indemnity liability is determined by the terms of the Bonds. We conclude that it is not.

       The Bonds were not incorporated by reference because the contracts were not all part of a

single transaction under Connecticut law. A contract may incorporate other documents either

expressly or by reference. See Randolph Constr. Co. v. Kings East Corp., 334 A.2d 464, 467

(Conn. 1973). “When there are multiple writings regarding the same transaction, the writings

should be considered together to determine the intent of the parties.” Mongillo v. Comm’r of

Transp., 571 A.2d 112, 115 (Conn. 1990).

       The Connecticut Supreme Court has observed that “the determination that the documents

constitute a single agreement must be made on a case-by-case basis.” Gold v. Rowland, 156 A.3d

477, 486 (Conn. 2017). In order to determine whether a series of contracts is part of the “same

transaction,” Connecticut courts evaluate, inter alia, the identities of the parties, the simultaneity

or temporal proximity of execution, the similarity of the subject matter, and any cross-referencing

or interdependency between the contracts. See, e.g., Frantz v. Romaine, 889 A.2d 865, 872 (Conn.

App. Ct. 2006) (“Here, the parties executed the note, the mortgage, the restrictive covenant and

the purchase option on the same day. All of the instruments concern the same real property.

Furthermore, each of the four instruments involve the plaintiff’s $1.8 million loan to the

defendants. The several documents also cross-referenced one another. The purchase option, for

instance, specifically referred to the promissory note, the obligations of the defendants under it

and the mortgage. Finally, all of the instruments involve the same parties. We conclude that the

four instruments should be considered together in order to interpret the terms of the contract as to

                                                  7
the intent of the parties.”); Webster Fin. Corp. v. Levine, No. X06CV074016194S, 2009 WL

1056564, at *1 (Conn. Super. Ct. Mar. 24, 2009) (“The NSA, the stock purchase agreement and

the employment agreement were not only all executed on the same day as part of the sales

transaction, but they also refer to each other.”). Where the contracts involve different parties,

courts must exercise caution. See Gold, 156 A.3d at 486–87 (collecting cases).

       Although appellants argue that this issue should not be decided on summary judgment, the

Connecticut Supreme Court has made clear that, where the language in the agreements is clear and

definitive, the “determination of the extent to which the indemnity agreement was incorporated, if

at all” presents a “question[] of law” that may be resolved on summary judgment. Allstate Life

Ins. Co. v. BFA Ltd. P’ship., 948 A.2d 318, 324 (Conn. 2008). Moreover, “in determining the

intent of the parties to these contracts, we are limited to the express contractual language and the

parties’ intent as they expressed it in the agreements.” Id. at 323. Here, it is clear and definitive

that the Indemnity Agreements did not incorporate by reference the terms of the Bonds, the DBA,

or the DSA.

       First, the Indemnity Agreements do not involve identical parties to the Bonds, the DSA

and the DBA: The Bonds were issued by Arch to Centerplan as principal with DoNo and the City

as obligees; the DSA was between the City and DoNo; the DBA was between DoNo and

Centerplan; and the Indemnity Agreements were between Arch, Centerplan, the Landinos, and

other appellants. Second, the Indemnity Agreements can hardly be characterized as signed with

temporal proximity to the other contracts.        The Bonds, DSA, and DBA were executed

simultaneously, but the 2010 Indemnity Agreements were executed almost five years earlier and

the 2016 Indemnity Agreement was executed one year later. Third, the Indemnity Agreements

                                                 8
refer generally to bonds to be issued by Arch in favor of Centerplan; indeed, almost 50 such bonds

were issued related to a wide array of projects. However, none of the Indemnity Agreements

specifically reference the Hartford Stadium Project or the Bonds issued in connection therewith.

The fact that the DSA and DBA required the Payment and Performance Bonds, and that those

Bonds were issued pursuant to the Indemnity Agreements, does not change the analysis. There is

nothing in the terms or structure of the documents at issue that would reasonably support a finding

that indemnity liability would be determined by the terms of the Bonds, rather than the express

terms of the Indemnity Agreements. In short, the district court correctly determined that the

Indemnity Agreements did not incorporate the Bonds, DBA, or DSA by reference.

       Applying the terms of the Indemnity Agreements to the circumstances here, the Indemnity

Agreements only exempt payments made by Arch in bad faith. The 2010 Indemnity Agreements

have identical provisions which provide that “Indemnitors agree to indemnify and hold harmless

Surety for any and all Loss sustained or incurred by reason of having executed any and all Bonds.”

App’x at 65, 73 (emphasis added). Loss broadly includes “[a]ny and all liability, losses, costs,

expenses, and fees of whatever kind or nature, that Surety may sustain or incur as a result of

executing any Bond or as a result of the failure of Principal or Indemnitors to perform or comply

with this Agreement.” App’x at 65, 73. Under the 2016 Indemnity Agreement, “the Surety shall

be entitled to charge for any and all disbursements made by it in good faith in and about the matters

herein contemplated by this Agreement under the belief that it is or was liable for the sums and

amounts so disbursed, or that it was necessary or expedient to make such disbursements, whether

or not such liability, necessity or expediency existed.” App’x at 82 (emphasis added). The terms

                                                 9
of the Indemnity Agreements create no exception for situations where there is no actual liability

under the Bonds.

       To the extent appellants attempt to challenge the district court’s conclusion regarding the

absence of any evidence of bad faith, we find such arguments unpersuasive. If an indemnity

agreement, like the ones at issue here, makes clear that any evidence of payment provides “prima

facie evidence of the fact and amount of the liability to the surety,” App’x at 82–83; see also App’x

at 65, 73 (obligating the Indemnitors to accept “voucher[s] or other evidence of such payments as

prima facie evidence of the fact and extent of the liability of Indemnitors to Surety in any demand,

claim or suit by Surety against Indemnitors”), then the burden switches to appellants to prove the

surety’s payments were made in bad faith. See PSE Consulting, Inc. v. Frank Mercede & Sons,

Inc., 838 A.2d 135, 144 (Conn. 2004). In attempting to meet this burden, appellants simply take

their argument regarding incorporation of documents and re-cast it in the language of bad faith –

that is, appellants argue that Arch acted in bad faith because it refused to return or credit the money

that was paid in violation of the professional liability insurance exclusion in the Performance Bond.

However, because the terms of the Bonds were not incorporated into the Indemnity Agreements

and actual liability was irrelevant to payment under those Agreements, Arch did not act in bad

faith in failing to recognize a “carve-out” for money paid that would be covered (according to

appellants) under the professional liability insurance in the performance bond. Given the absence

of any other evidence (or even argument) of bad faith by Arch in investigating the numerous bond

                                                  10
claims and determining its bond liability, Arch was entitled to the full amount of the indemnity

liability for all the bond payments it had made. 1

          Accordingly, the district court properly granted summary judgment in Arch’s favor in the

amount of $39,107,334.47.

    II.   Dismissal of the Third Amended Counterclaim

          The Third Amended Counterclaim alleges that, because the City was in default under the

DSA by not putting aside in advance money to pay for additional work, Arch had no obligation to

pay on the Bonds under the Multiple Obligee Rider. According to appellants, given that Arch had

no duty to pay on the Bonds in light of the City’s breach, Arch thereby breached the terms of the

Performance Bond by doing so. As set forth below, the district court correctly determined that

Centerplan (as the principal on the Performance Bond) had no cause of action for breach of that

bond against its own surety, Arch.

          We review the grant of a motion to dismiss de novo, “accepting as true all factual

allegations in the complaint and drawing all reasonable inferences in favor of the non-moving

party.” City of Providence v. BATS Glob. Mkts., Inc., 878 F.3d 36, 48 (2d Cir. 2017). Additionally,

at the motion to dismiss stage, a complaint must plead “enough facts to state a claim to relief that

is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007); accord Ashcroft

1
  Following the summary judgment decision, in an abundance of caution, the district court allowed
appellants an opportunity to obtain additional documents from Arch in order to ensure that appellants had
the information necessary to lodge any specific objections to the indemnification amount awarded to Arch.
In their supplemental submission, appellants did not provide any evidence as to a computational error in
terms of the amount of the award based on the district court’s interpretation of the documents at issue, but
rather simply re-argued the other contentions that had already been rejected by the district court. Similarly,
on appeal, appellants have presented no evidence from which a factfinder could rationally conclude that
any of Arch’s specific bond payments were beyond the scope of the Performance Bond. Accordingly, there
is no basis to disturb the amount of the award.

                                                     11
v. Iqbal, 556 U.S. 662, 678 (2009) (“A claim has facial plausibility when the plaintiff pleads factual

content that allows the court to draw the reasonable inference that the defendant is liable for the

misconduct alleged.”).

       As a threshold matter, appellants lack the legal right to assert a breach of contract claim

against Arch because Arch owed no duty to appellants under the Bonds. A suretyship is a tripartite

relationship, where the surety undertakes to perform a contract to the obligee, if the principal fails

to do so. See Elm Haven Constr. Ltd. P’ship v. Neri Constr., LLC, 281 F. Supp. 2d 406, 412 (D.

Conn. 2003), aff’d., 376 F.3d 96 (2d Cir. 2004). “It is axiomatic that a performance bond runs to

the benefit of the obligee.” Town of Southington v. Comm. Union Ins. Co., 757 A.2d 549, 556

(Conn. 2000). There is no basis under Connecticut law for concluding that such a contract creates

liability by the surety to the principal such that the principal can assert a breach of contract claim

against the surety.

       Here, appellants’ Third Amended Counterclaim arises out of the Multiple Obligee Rider,

between Arch as “Surety” on behalf of Centerplan as “Principal,” in favor of DoNo and Hartford

as “Obligees.” App’x at 551. Under the terms of that contract,

               [T]here shall be no liability on the part of the Principal or Surety
               under this Bond to the Obligees, or any of them, unless the Obligees,
               or any of them, shall make payments to the Principal, or to the Surety
               in case it arranges for completion of the Contract upon default of the
               Principal, strictly in accordance with the terms of said Contract as
               to payments, and shall perform all the other obligations required to
               be performed under said Contract at the time and in the manner
               therein set forth.

App’x at 551. The Multiple Obligee Rider by its terms created conditions precedent that Hartford

and DoNo were required to satisfy, but it said nothing that would create an obligation stemming

                                                 12
from Arch to appellants. Appellants only cite one Connecticut case in which a principal brought

a breach of contract claim, albeit unsuccessfully, against a surety. 2 See PSE Consulting., 838 A.2d

at 143-44 (observing that the jury found that the surety had not breached the indemnity agreement,

but that it had breached the implied covenant of good faith and fair dealing). Importantly, that

action turned on good faith in connection with a provision of the bond which required the surety

to “pay only claims upon the payment bond that were undisputed.” Id. at 153. Arch had no such

obligation here, nor is there any evidence of bad faith, and the Multiple Obligee Rider created no

contractual duty from surety to principal in this case. In the absence of such a contractual duty, a

breach of contract claim by the appellants cannot lie against Arch, and the district court properly

dismissed the Third Amended Counterclaim on that ground.

       In any event, the district court also correctly concluded in the alternative that, even if a

duty existed, appellants failed to plead facts that could plausibly establish that the City breached

its contractual obligation. In particular, as noted above, appellants’ Third Amended Counterclaim

arises out of the Multiple Obligee Rider to the Bonds, and Arch concedes that the exculpatory

clause in the Multiple Obligee Rider “sets forth a condition precedent to Arch’s obligations under

the [Performance B]ond.” Appellee’s Br. at 52. However, the “said Contract” that was referenced

in the Performance Bond and in the Multiple Obligee Rider was the DBA between Centerplan and

DoNo, and no other contract. Therefore, only a term of the DBA, to which the City is not a party,

could trigger the condition precedent clause. In other words, any alleged breach by the City of the

2
 Although appellants also rely on Associated Constr. AP Constr., LLC v. Hanover Ins. Co., No. 3:15-cv-
1600 (MPS), 2018 WL 3998968, at *14 (D. Conn. Aug. 21, 2018), that case is inapposite because it
concerned a surety’s liability for breach of the bond to the obligee, not the principal.

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DSA was irrelevant to the exculpatory clause for the DBA and had no impact on Arch’s obligations

under the Bonds. Given that the Third Amended Counterclaim attempts to allege a breach by the

City of the DSA, it could not trigger the exculpatory clause related to the DBA and excuse Arch’s

performance under the Bonds. In short, the district court properly dismissed appellants’ Third

Amended Counterclaim for failure to plausibly allege a breach.

                         *                     *                      *

       We have considered appellants’ remaining arguments and find them to be without merit.

Accordingly, we AFFIRM the decisions and judgment of the district court.

                                            FOR THE COURT:
                                            Catherine O’Hagan Wolfe, Clerk of Court

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