Associated Construction / AP Construction, LLC v. Hanover Insurance Co.

          RULING ON MOTION FOR SUMMARY JUDGMENT

          Michael P. Shea, U.S.D.J.

         I. Introduction

         This lawsuit arises out of surety bonds issued for a construction project in Stamford, Connecticut. Associated Construction / A.P. Construction, LLC (“Associated Construction”), a construction contractor, alleges that the issuer of the bonds, Hanover Insurance Company (“Hanover” or the “Surety”), and its alleged agents, Scott Adams, Avalon Risk, LLC (“Avalon”), and Lighthouse Management, LLC (“Lighthouse”), failed to perform under the bonds and other related contracts and made misrepresentations in connection with the project. Defendants Adams and Lighthouse filed cross-complaints against Hanover for its alleged role in the issuance of the bonds, seeking indemnification, or in the alternative, contribution on a proportionate basis with regard to all claims brought against them by Associated Construction. Now before me is a motion for summary judgment brought by Hanover against Adams and Lighthouse. (ECF No. 156). For the reasons that follow, the motion is GRANTED IN PART AND DENIED IN PART. The motion is granted with respect to Adams's and Lighthouse's indemnification and “comparative indemnity” claims. Further, for the reasons explained below, within 14 days of this ruling, Adams and Lighthouse shall show cause why I should not grant summary judgment as to the contribution claims on the ground that the Court has yet to issue a judgment against them.

         II. Background

         A. The Performance Bonds

         The following facts, which are taken from the parties' Local Rule 56(a) Statements and the exhibits, are undisputed unless otherwise indicated. Associated Construction “served as construction manager for a residential housing project located in Stamford, Connecticut known as Park Square West Phase II (“the Project”). (ECF No. 158, Hanover's Local Rule 56(a)1 Statement (“Def.'s L.R. 56(a)1 Stmt.”) ¶ 1); ECF No. 179-1, Adams's^[1] Local Rule 56(a)2 Statement (“Pl.'s L.R. 56(a)2 Stmt.”) ¶ 1.) “Intext Building System, LLC (“Intext”) was a subcontractor engaged by [Associated Construction] to perform work on the Project.” (Def.'s L.R. 56(a)1 Stmt. at ¶ 2; Pl.'s L.R. 56(a)2 Stmt. at ¶ 2.) Associated Construction informed “Intext that it would subcontract with Intext if Intext could secure payment and performance bond for the proposed subcontract.” (Def.'s L.R. 56(a)1 Stmt. at ¶ 4; Pl.'s L.R. 56(a)2 Stmt. at ¶ 4.)^[2] Associated Construction “referred Intext to an insurance agent who introduced Intext to Defendant Adams, a principal and president of Avalon Risk, LLC (‘Avalon').” (Def.'s L.R. 56(a)1 Stmt. at ¶ 7; Pl.'s L.R. 56(a)2 Stmt. at ¶ 7.)

         Avalon “was an agent of Hanover” and “had discretionary authority to issue surety bonds for the Surety within defined limits.” (Def.'s L.R. 56(a)1 Stmt. at ¶ 8; Pl.'s L.R. 56(a)2 Stmt. at ¶ 8.) Adams advised Intext that Avalon lacked authority to issue a bond to Intext for a subcontract in excess of $2 million. (Def.'s L.R. 56(a)1 Stmt. at ¶ 9; Pl.'s L.R. 56(a)2 Stmt. at ¶ 9.) Associated Construction “drafted three Subcontracts, each in an amount less than $2 million that were intended [to] encompass the Original Scope: a ‘Framing Subcontract' in the amount of $1, 987, 000 for interior and exterior metal stud framing; a ‘Drywall Subcontract' in the amount of $1, 881, 000 for multiple tasks, including but not limited to drywall installation, fire-stopping, carpentry, and coordination among the three subcontracts; and a ‘Materials Subcontract' in the amount of $642, 000 for the purchase of drywall materials.” (Def.'s L.R. 56(a)1 Stmt. at ¶ 11; Pl.'s L.R. 56(a)2 Stmt. at ¶ 11.) Associated Construction and Intext executed the Drywall and Framing Subcontracts, while Associated Construction and IBS Contracting, LLC (“IBS”) executed the Materials Subcontract. (Def.'s L.R. 56(a)1 Stmt. at ¶¶ 12-13; Pl.'s L.R. 56(a)2 Stmt. at ¶¶ 12-13.)^[3]

         Avalon “underwrote and issued payment and performance bonds for each of the Subcontracts, each with a maximum amount of less than $2 million.” (Def.'s L.R. 56(a)1 Stmt. at ¶ 15; Pl.'s L.R. 56(a)2 Stmt. at ¶ 15.) The parties diverge regarding whether the Surety had prior notice of the issuance of the bonds or was involved in their underwriting or issuance. (Compare Def.'s L.R. 56(a)1 Stmt. at ¶ 19 (“The Surety did not have actual prior notice of and was not involved in the underwriting or issuance of the Bonds.”) with Pl.'s L.R. 56(a)2 Stmt. at ¶ 19 (“The Surety approved the Bonds once they were submitted to the Surety's computer system . . . .”).) Intext and Lighthouse also executed three Disbursement Control Agreements (“DCAs”) for each of the Subcontracts. (Def.'s L.R. 56(a)1 Stmt. at ¶ 20; Pl.'s L.R. 56(a)2 Stmt. at ¶ 20.) Under the DCAs, Lighthouse “served as ‘Disbursement Agent' for Intext . . ., which included paying bills for Intext to the extent that funds were received by Lighthouse from [Associated Construction] under the Framing Subcontract and Drywall Subcontract.” (Def.'s L.R. 56(a)1 Stmt. at ¶ 22; Pl.'s L.R. 56(a)2 Stmt. at ¶ 22.) Adams is the president of Lighthouse. (ECF No. 179-9, Deposition of Scott M. Adams, at 10:16-20.)

         Adams did not contact the Surety regarding performance issues on the Project prior to June 2, 2014. (Def.'s L.R. 56(a)1 Stmt. at ¶ 24; Pl.'s L.R. 56(a)2 Stmt. at ¶ 24.) On June 12, 2014, Thomas Walsh, a senior executive with Associated Construction, called Joseph Brenstrom, the Surety's Vice President for Surety Claims, concerning “performance issues regarding the Bonds.” (Def.'s L.R. 56(a)1 Stmt. at ¶ 25; Pl.'s L.R. 56(a)2 Stmt. at ¶ 25.) By June 12, 2014, Associated Construction has issued default notices to Intext on all of the Subcontracts. (Def.'s L.R. 56(a)1 Stmt. at ¶¶ 29-31; Pl.'s L.R. 56(a)2 Stmt. at ¶¶ 29-31.) “On July 15, 2014, [Associated Construction] terminated Intext on the Framing an[d] Drywall Subcontracts.” (Def.'s L.R. 56(a)1 Stmt. at ¶ 33; Pl.'s L.R. 56(a)2 Stmt. at ¶ 33.) “In response to [Associated Construction's] claims on the Performance Bonds, the Surety [paid] $1, 881, 000 to [Associated Construction] under the Drywall Performance Bond and $475, 739.27 under the Framing Performance Bond.” (Def.'s L.R. 56(a)1 Stmt. at ¶ 34; Pl.'s L.R. 56(a)2 Stmt. at ¶ 34.)

         B. Associated Construction's Claim Against Lighthouse and Adams

         Associated Construction's CUTPA claim against Adams^[4] centers on several alleged misrepresentations made by him. The first of these misrepresentations allegedly took place at a meeting between Associated Construction management, Adams, and various others on October 9, 2013. (See ECF No. 43 (“Complaint”) at ¶ 19.) Adams allegedly misrepresented at that meeting that the three performance bonds “would perform exactly as if a single performance bond had been issued for all the work.” (Id.) The second of these misrepresentations purportedly took place at another meeting between Associated Construction and Adams on May 8, 2014. (Id. at ¶ 32.) Adams allegedly misrepresented at that meeting that Intext's “cash flow was not a problem” and that Hanover would support Intext so as to enable it to complete the Sheetrock Work on time. (Id. at ¶¶ 32, 62(j)) The parties agree that Hanover was not aware of either of these meetings and that it did not authorize Adams to make any representations. (Def.'s L.R. 56(a)2 Stmt. at ¶¶ 38-48; Pl.'s L.R. 56(a)2 Stmt. at ¶¶ 38-48).^[5]

         Associated Construction's claims against Lighthouse center on the company's “failure to determine whether there were adequate funds in the funds control account when considered with the balance of the Contract Account, ” Adam's representations “that there were adequate funds to complete the Project, ” and Lighthouse's disbursal of “funds from the funds control account when it knew or should have known there were not enough funds available considering the balance to be paid under the Subcontract to complete the Sheetrock Work.” (Id. at ¶ 62(k-l).) Associated Construction also claims that Lighthouse “took fees and other money over which [it] had control under the DCA[s] that was not used or available to pay for Work on the Project” and that it “failed to reconcile its fee after Intext was defaulted and terminated.” (Id. at ¶ 62(n-o).) In its complaint, Associated Construction alleges that all of this conduct was intentional. (See Complaint at ¶ 67 (“The conduct alleged [within its CUTPA count against Adams and Lighthouse] was intentional.”).)

         C. Cross-Complaints

         After Associated Construction brought suit, Adams filed a cross-complaint against Hanover. (See ECF No. 106.) In his cross-complaint, Adams alleges that Hanover was “negligent, misrepresented certain facts, breached fiduciary duties, and breached contracts and/or agreement[s], and that such aforementioned acts were the proximate cause of [Associated Construction's] alleged damages and/or losses.” (Id. at 11-12.) The complaint goes on to note that any liability Adams might have to Associated Construction would “be the direct and proximate result of active and affirmative conduct on the part of Hanover.” (Id. at ¶ 20) As such, Adams brings claims against Hanover for “indemnity, ” “comparative indemnity, ” and “contribution.” (Id. at 11-13.) He also seeks a declaratory judgment as to “the rights, responsibilities and obligations of [Hanover] as to [Adams].”^[6] (Id. at 13.) Lighthouse brings nearly a carbon copy of Adams's cross-complaint against Hanover. It alleges that Hanover “was negligent, misrepresented certain facts, breached fiduciary duties, and breached contracts and/or agreements operative to this claim, and that such aforementioned acts were the proximate cause of [Associated Construction's] alleged damages and/or losses.” (ECF No. 114 at 10-11.) It also alleges claims for indemnity, comparative indemnity, contribution, and for declaratory relief.^[7](Id. at 10-13.)

         III. Standard of Review

         Summary judgment is appropriate only when the moving party “shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). “In making that determination, a court must view the evidence in the light most favorable to the opposing party.” Tolan v. Cotton,134 S.Ct. 1861, 1866 (2014) (internal quotation marks omitted). “A fact is material if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 202 (2d Cir. 2007) (internal quotation marks omitted). The moving party bears the burden “of showing that no genuine factual dispute exists . . ., and in assessing the record to determine whether there is a genuine issue ...