United States District Court, D. Connecticut
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 ...