Arch Insurance Co. v. Centerplan Construction Co., LLC

          MEMORANDUM OF DECISION GRANTING PLAINTIFF'S MOTION TO DISMISS DEFENDANTS' THIRD AMENDED COUNTERCLAIM [DKT. 160]

          Hon. Vanessa L. Bryant, United States District Judge

         Before the Court is Plaintiff / Counterclaim Defendant Arch Insurance Company's (“Arch” or “Plaintiff”) Motion to Dismiss the Third Amended Counterclaim (“TACC”) of Defendants / Counterclaimants Centerplan Construction Company, LLC (“Centerplan”); Center Earth, LLC; Centerplan Development Company, LLC; RAL Investments, LLC; Walnut Hill Chase, LLC; Tinker House, LLC; GH Development, Inc.; Centerplan Communities, LLC; and Robert and Kelly Landino (collectively, “Defendants”) for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). [Dkt. 160 (Mot. to Dismiss Third Am. Countercl.)]. For the following reasons, the Court GRANTS Arch's Motion to Dismiss.

         Background

         I. Factual Background

         In its previous Memorandum Decision and Order Granting Arch's Motion to Dismiss Defendants' Second Amended Counterclaim, [Dkt. 156], this Court set out in detail the underlying facts of this case. To briefly summarize, Arch brought this action against Defendants seeking collateral security and indemnification for costs incurred as a result of Arch's settlement of claims made on the payment and performance bonds issued by Arch on behalf of Centerplan and Center Earth. Primarily at issue are the payment and performance bonds (the “Bonds”) issued by Arch on behalf of Centerplan as principal and in favor of DoNo Hartford, LLC (“DoNo”), the City of Hartford (the “City”), and the Hartford Stadium Authority (“HSA”) bonding the Design-Build Agreement (“DBA”) for design and construction of the Hartford Minor League Baseball Stadium (the “Hartford Stadium Project”).

         On January 26, 2015, the City and Connecticut Double Play, LLC (the “Ball Club”), the owner of all rights, title and interest in the Class AA Minor League Baseball franchise in the area, executed the Ballpark Development Agreement (“BDA”) contemplating the design, development, and construction of the new ballpark in downtown Hartford, Connecticut. [Dkt. 159 at ¶ 25]. Shortly thereafter, the City entered into a Development Services Agreement (“DSA”) with DoNo, as Developer, to design, develop, and construct the Hartford Stadium Project. Id. at ¶ 26; [Dkt. 82-9 (DSA)]. Pursuant to the DSA, on February 6, 2015, DoNo, as Owner, and Centerplan, as Design-Builder, entered into the DBA for the construction of the Hartford Stadium Project. [Dkt. 159 at ¶ 27, 29-30; Dkt. 82-10 (DBA)]. The DBA established a Substantial Completion Date of March 11, 2016 and guaranteed maximum price (“GMP”) of $53, 550, 000 for the Hartford Stadium Project. [Dkt 159 at ¶ 31; Dkt. 82-10 at § 3.3]. The City, DoNo, and Centerplan also executed the Direct Agreement, which allowed the City to step into the position of DoNo upon the City's termination of the DSA for default. [Dkt. 159 at ¶ 36; Dkt. 82-11 (Direct Agreement)].

         In order to receive the contract, Centerplan requested that Arch issue the Bonds guaranteeing Centerplan's performance to the owners of the DBA and payment to subcontractors and suppliers under various construction contracts. [Dkt. 159 ¶ 14, 28]. Arch issued the Bonds, dated February 4, 2015, each with a penal sum of $47, 050, 000. [Dkt. 82-12]. The Bonds included a Multiple Obligee Rider which established:

[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 obligations required to be performed under said Contract at the time and in the manner therein set forth.

Id.

         In return, Arch required Centerplan and the other Defendants to execute three General Indemnity Agreements (“GIAs”) in its favor. The GIAs established, among other things, Arch's unfettered rights to compromise and settle claims on the Bonds following a declaration of default on the part of Centerplan and Defendants' obligation to indemnify Arch for any losses incurred as a result of having issued the Bonds. See [Dkt. 82-7 (2016 GIA); Dkt. 82-5 (July 2010 GIA); Dkt. 82-6 (Oct. 2010 GIA)].

         Construction of the Hartford Stadium Project commenced quickly in February 2015. [Dkt. 159 at ¶ 39]. The Project experienced issues over control of the design and changes to the work. Id. at ¶¶ 37-38, 41-44. The City, the Ball Club, DoNo, and Centerplan executed a term sheet on January 16, 2016 (the “Term Sheet”) to resolve some of the disputes surrounding changes ordered by the City and the Ball Club, extending the Substantial Completion Date to May 17, 2016 and increasing the GMP by approximately $10, 300, 000. Id. at ¶¶ 49-51; [Dkt. 89-4 (Term Sheet)]. The City agreed to cover approximately $5, 500, 000 of that cost, as well as an additional $2, 000, 000 in the event the Ball Club could not provide that amount. [Dkt. 159 at ¶¶ 53-54; Dkt. 89-4]. Following this agreement, the City and the Ball Club directed additional changes be made to the Project designs via Change Orders and six Construction Change Directives (CCDs) issued in April, May, and June 2016. [Dkt. 159 at ¶¶ 55-56].

         Defendants allege that the City was required under the DSA and BDA to set aside funds to pay for the additional work. Id. at ¶¶ 58-59. Defendants further allege that the City did not set aside those funds or even have the funds to cover the changes, but ordered Centerplan to execute the work anyway. Id. at ¶¶ 60, 65-67.

         Defendants allege that, due to these changes, Centerplan was unable to meet the amended Substantial Completion Date of May 17, 2016. Id. at ¶ 68. The City reported Centerplan's defaults to Arch by letters in May and June 2016 and served formal notice of Centerplan's default and its claim on the Performance Bond by letter dated May 27, 2016. Id. at ¶ 69. The City terminated the DSA and DBA on June 6, 2016. Id. at ¶ 72. Defendants allege that the City owed Centerplan an extension of the Substantial Completion Date as a result of the additional work ordered and that the DSA required the City to provide Centerplan to the opportunity to remedy any default and mediate any disputes. Id. at ¶¶ 68-70, 73. Defendants further allege that, when the City declared Centerplan in default, the City itself was in default under the various contracts because “it ordered additional work for which it could not pay.” Id. at ¶ 69.

         On October 17, 2016, the City, HSA, and Arch entered into a Takeover Agreement for Arch to step into Centerplan's place and complete the Hartford Stadium Project using a completion contractor. Id. at ¶ 75. Defendants allege that “Arch had a duty under the Bond to the indemnitors and Principal to not pay claims under the Bond if the Owner has failed to strictly perform under the contracts, or any amount that should be covered by professional malpractice insurance.” Id. at ¶ 76, 77. Defendants allege that entering into the Takeover Agreement and Arch's subsequent actions to complete the Project constitute breach under the Bond because, not only was Centerplan was not in default, but the City was in default due to its inability to pay and failure put up funds for the additional work it ordered. Id. at ¶ 74, 76, 83.

         II. Procedural Background

         On November 16, 2016, Arch filed its Complaint against Defendants to enforce its rights to collateral security and indemnification for losses incurred by Arch as a result of issuing bonds on behalf of Defendants Centerplan and Center Earth and subsequently settling claims on those bonds upon Defendants' asserted default on the bonded contracts. See [Dkt. 1 (Compl.)]. On February 16, 2017, Defendants filed their Answer and Counterclaim. See [Dkt. 19 (Answer & Countercl.)]. Arch filed a motion to dismiss the Counterclaim and the parties subsequently stipulated to Defendants' voluntary dismissal of the Counterclaim without prejudice. See [Dkt. 32 (Countercl. Dismissal Stipulation)].

         Pursuant to the stipulation, Defendants filed their Amended Answer and Counterclaim on July 14, 2017. See [Dkt. 37 (First Am. Answer & Countercl.)]. The First Amended Counterclaim alleged breach of contract, breach of implied covenant of good faith and fair dealing, surety bad faith, tortious interference with contractual relations, and violation of Connecticut Unfair Trade Practices Act (“CUTPA”). Id. Arch moved to dismiss all counts of the First Amended Counterclaim on July 27, 2017. See [Dkt. 39 (Mot. to Dismiss First Am. Countercl.)]. On November 8, 2017, the Court granted Arch's motion, dismissing the Counterclaim in its entirety for failure to plead sufficient facts which state a plausible claim to relief. See [Dkt. 74 (11.08.2017 Order on Mot. to Dismiss)]. The Court granted Defendants leave to replead their Counterclaim, requiring it “state with the requisite specificity all claims and defenses, giving the factual basis in support.” Id. at 2.

         On November 22, 2017, Defendants timely filed their Second Amended Answer and Counterclaim. See [Dkt. 77 (Second Am. Answer & Countercl.)]. Arch moved to dismiss on December 29, 2017. See [Dkt. 85 (Mot. to Dismiss Second Am. Countercl.)]. The Court's Memorandum of Decision on the Motion to Dismiss the Second Amended Counterclaim thoroughly lays out the factual background of the case, including the provisions of the Indemnity Agreements and Bonds implicated in the Counterclaim. See [Dkt. 156 (Mem. of Decision on Mot. to Dismiss. Second. Am. Countercl.) at 2-8]. The Court concluded that Defendants had failed to plead facts alleging plausible claims, including a claim that Arch had breached its contractual duties to Defendants under the Bonds' Multiple Obligee Rider based on the City's failure to provide assurance of payment for change orders and CCDs after the January Agreement. Id. at 10-19. The Court's dismissal with respect to that breach of contract claim was “without prejudice to filing an amended complaint asserting that claim, but pleading facts, as opposed to legal conclusions, establishing a specific contractual obligation to provide the specific assurance requested and a breach of that specific duty.” Id. at 19-20. Thus, the Court allowed Defendants to replead their breach of contract claim to the extent they could provide factual support for their assertion that the City had a contractual obligation to assure Arch and Defendants that it would be able to pay future amounts due on the Project, which it breached, triggering the Multiple Obligee Rider exculpatory clause.

         On January 9, 2019, Defendants filed a Third Amended Counterclaim. See [Dkt. 159 (Third Am. Countercl.)]. Defendants' Third Amended Counterclaim reasserts their breach of contract claim, again alleging Arch breached the Bond by performing when the City had failed to pay or put up funds for work on the Project. It also alleges other breaches by Arch under the Bond, beyond the specific allowance of the Court. Arch moved to dismiss the Third Amended Counterclaim, arguing that Defendants failed to allege (1) that Arch owes any contractual obligations to Defendants under the Bonds such that they have a claim for money damages for breach and (2) that Arch acted as a volunteer based on the City's breach of a specific relevant contractual duty. [Dkt. 160-6 (Mem. re Mot. to Dismiss Third Am. Countercl.)].

         On February 13, 2019, the Court granted Arch summary judgment on its indemnification, collateral security, and financial disclosure claims. [Dkt. 171 (Order on Summ. J.)]. The Court concluded that the GIAs executed in Arch's favor by Defendants entitled Arch to indemnity for the full extent of claimed loss resulting from its issuance of the Bonds, irrespective of Centerplan and Arch's actual liability on the Bond claims. The Court further found that Defendants had failed to provide any evidence that Arch's performance and settlement of claims on the ...