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Travelers Casualty and Surety Company of America v. Brown Mechanical Contractors Inc.

United States District Court, N.D. Alabama, Southern Division

April 17, 2019

TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA, Plaintiff,
v.
BROWN MECHANICAL CONTRACTORS, INC., et al., Defendants.

          MEMORANDUM OPINION

          R. DAVID PROCTOR UNITED STATES DISTRICT JUDGE.

         This case is before the court on Defendants' motion to dismiss. (Doc. # 9). For the reasons explained below, the motion is due to be denied.

         I. Background [1]

         This is a contract action between (1) Travelers Casualty and Surety Company of America (“Travelers”) and (2) several defendants who contractually agreed to indemnify Travelers against certain losses (the “Indemnitors”). The complaint alleges the Indemnitors breached their contract with Travelers by failing to reimburse Travelers for losses it incurred in connection with certain surety bonds it issued on the Indemnitors' behalf. (Doc. # 1 at ¶¶ 14-26). Travelers also claims the Indemnitors breached their contractual obligations by failing to provide Travelers with collateral sufficient to discharge the losses Travelers may incur in connection with one of the surety bonds. (Id. at ¶¶ 25, 37-38). The Indemnitors respond that this entire lawsuit should be dismissed or stayed under either Alabama's abatement statute or the Colorado River abstention doctrine. (Doc. # 9 at 3-9).

         Travelers is a surety company that issues payment and performance bonds on behalf of construction contractors. (Doc. # 1 at ¶ 8). One of the Indemnitor Defendants, Brown Mechanical Contractors, Inc., (“Brown”) is a contractor that performs construction projects. (Id. at ¶ 9-10). To secure contracts on various projects in Alabama and elsewhere, Brown obtained payment and performance bonds from Travelers. (Id. at ¶ 10). Through those bonds, Travelers agreed to stand as surety for Brown-i.e., to guarantee Brown's faithful performance of its construction contracts. (Id. at ¶ 8). Under the surety bonds, if Brown defaulted on one of its contracts, Travelers was required to either (1) finish performing the contract (or arrange for someone else to do so) or (2) reimburse Brown's contractual partner its reasonable costs to complete the contract work (up to a maximum amount known as the “penal amount” of the bond). (Doc. # 1-7 at 39).

         In 2011, years before Travelers issued the bonds relevant to this litigation, Brown and several other Indemnitors executed a General Agreement of Indemnity with Travelers. (Doc. # 1 at ¶ 11; Doc. # 1-1). Through the Indemnity Agreement, the Indemnitors made several promises to Travelers. Two are relevant here. First, the Indemnitors agreed to indemnify Travelers “from and against all Loss.” (Doc. # 1 at ¶ 12; Doc. # 1-1 at 1). The Indemnity Agreement defined the term “Loss” as “[a]ll loss and expense of any kind or nature, including attorneys' and other professional fees, which [Travelers] incurs in connection with any Bond or this Agreement.” (Doc. # 1-1 at 1). The term “Bond” as used in the Indemnity Agreement is further defined to mean “[a]ny and all bonds . . . issued for or on behalf of [the Indemnitors], whether executed or procured before, on, or after the execution of this Agreement.” (Id.). Second, the Indemnitors agreed “to deposit with [Travelers], upon demand, an amount as determined by [Travelers] sufficient to discharge any Loss or anticipated Loss.” (Id. at 2). As explained in more detail below, Travelers alleges the Indemnitors have breached both of these agreements.

         Sometime after executing the Indemnity Agreement, Travelers issued a bond on behalf of Brown in favor of the Birmingham Plumbers and Steamfitters Local 91 Health and Welfare Plan (the “Union”). (Doc. # 1 at ¶ 14). The penal amount of this bond (the “Union Bond”) was $50, 000. (Id.). In August 2017, the Union submitted a claim on the bond, asserting that Brown owed $76, 674.86 in unpaid contributions to the Union. (Id. at ¶ 15). When Travelers contacted Brown about the claim, Brown did not dispute the validity of the Union's claim. (Id. at ¶¶ 16-18). Instead, Brown told Travelers that it planned to pay the Union out of funds Brown expected to receive from another project. (Id. at ¶ 18). Because Brown did not dispute the Union's claim, Travelers paid the Union $50, 000 (the penal amount of the Union bond). (Id. at ¶ 19). Travelers thereby satisfied its obligations under the Union bond. (Id.). In this lawsuit, pursuant to the terms of the Indemnity Agreement, Travelers seeks indemnification from Brown and the other Indemnitors for the $50, 000 claim it paid on the Union bond.

         Travelers issued another bond on Brown's behalf in February 2016. (Id. at ¶ 20). The second bond was a subcontract performance bond guaranteeing Brown's performance of a subcontract for Hardy Corporation (“Hardy”). (Id. at ¶ 20). Hardy is a contractor that was performing certain work related to the construction of a new body shop at the Mercedes-Benz manufacturing facility in Vance, Alabama. (Doc. # 1-7 at 1-2). The penal sum of this bond (the “Hardy bond”) was $973, 440. (Doc. # 1 at ¶ 20).

         Disputes arose during the course of Brown's work for Hardy on the Mercedes-Benz project. (Id. at ¶ 21). Hardy alleges Brown failed to supply an adequate workforce to comply with the time constraints in their contract, and that as a result Hardy had to supplement Brown's work so the project could be completed in a timely manner. (Id.). Hardy claims that Brown's alleged default cost it several hundred thousand dollars in additional funds to complete the project on time. (Id. at ¶¶ 22-23). Hardy therefore sued Brown in the Circuit Court of Jefferson County, Alabama, seeking $661, 100.28 in damages for breach of contract. (Id. at ¶ 23; Doc. # 1-7). Hardy also named Travelers as a defendant in that lawsuit, seeking to recover the full amount of Brown's liability from Travelers, based on the surety bond Travelers had issued on Brown's behalf. (Doc. # 1-7 at 1, 17-19). As a result of the Hardy bond, Travelers is currently exposed to a potential judgment of $661, 100.28 in Hardy's state-court lawsuit.

         A few months after Hardy filed suit against Brown and Travelers, Travelers sent Brown and the other Indemnitors a demand letter seeking to enforce the Indemnity Agreement. (Doc. # 1 at ¶ 25). The letter demanded the Indemnitors tender payment to Travelers in the amount of $57, 574.50 to indemnify Travelers for its loss and expenses in connection with the two bonds issued on Brown's behalf-$50, 000 for Travelers' payment to the Union and $7, 574.50 for expenses Travelers had incurred defending the lawsuit against Hardy. (Doc. # 1-8 at 1-2). The letter also demanded the Indemnitors immediately deposit with Travelers a sum of $661, 100.28 (the amount sought by Hardy in the state-court lawsuit), in accordance with their agreement to “deposit with [Travelers], upon demand, an amount as determined by [Travelers] sufficient to discharge any . . . anticipated Loss.” (Id. at 2-3).

         The Indemnitors failed to comply with the demand letter, so Travelers filed this lawsuit. Travelers seeks both indemnification (i.e., money damages) and specific performance of the collateral security portion of the Indemnity Agreement. (Doc. # 1 at 9-12). In money damages, Travelers seeks (1) $50, 000 as reimbursement for the amount it paid under the Union bond and (2) an amount sufficient to compensate it for all loss and expenses (including costs and attorneys' fees) it has incurred as a result of executing the Hardy bond. Travelers also seeks an order of specific performance directing the Indemnitors to post collateral in an amount not less than $661, 100.28-the amount for which Travelers is potentially liable under the Hardy bond in Hardy's ongoing state-court lawsuit.

         II. Analysis

         In their motion to dismiss, the Indemnitors do not dispute the merits of Travelers' claims under the Indemnity Agreement. Instead, they ask the court to dismiss or stay this action under either Alabama's abatement statute or the Colorado River abstention doctrine. (Doc. # 9 at 3-9). But neither the abatement statute nor Colorado River provides a basis to dismiss or stay this lawsuit. The Indemnitors' motion is therefore due to be denied.

         A. Dismissal Is Not Warranted Under Alabama's ...


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