Opinion
CIVIL ACTION NO. 2:20cv388
2021-04-20
ARCH INSURANCE COMPANY, Plaintiff, v. WATERMARK ENVIRONMENTAL, INC.; John J. Haley; Kristine J. Haley; Joseph G. Spangenberger; and Patricia M. Spangenberger, Defendants.
Counsel for Plaintiff: Richard Thomas Pledger, Thomas Joseph Moran, Wright, Constable & Skeen, LLP (VA), West Shore III Center, 301 Concourse Boulevard, Suite 120, Glen Allen, VA 23059. Counsel for Defendants: S. Sadiq Gill, Durrette Arkema Gerson & Gill PC, 1111 East Main Street, 16 Floor, Richmond, VA 23219.
Counsel for Plaintiff: Richard Thomas Pledger, Thomas Joseph Moran, Wright, Constable & Skeen, LLP (VA), West Shore III Center, 301 Concourse Boulevard, Suite 120, Glen Allen, VA 23059.
Counsel for Defendants: S. Sadiq Gill, Durrette Arkema Gerson & Gill PC, 1111 East Main Street, 16th Floor, Richmond, VA 23219.
MEMORANDUM FINAL ORDER
REBECCA BEACH SMITH, SENIOR UNITED STATES DISTRICT JUDGE
This matter comes before the court on the Motion for Summary Judgment ("Motion") and accompanying Memorandum in Support, filed by Plaintiff, Arch Insurance Company ("Arch"), on March 12, 2021. ECF Nos. 28, 29. Arch seeks to recover from Defendants Watermark Environmental, Inc. ("Watermark"), John and Kristine Haley, and Joseph and Patricia Spangenberger, pursuant to an indemnity agreement between the parties.
I.
On July 27, 2020, Arch filed a Complaint against Defendants alleging Breach of Contract and Breach of Fiduciary Duty for Defendants' failure to exonerate, indemnify, and collateralize Arch in accordance with a General Indemnity Agreement ("GIA"). ECF No. 1. On November 23, 2020, Arch filed an Amended Complaint, and Defendants filed an Answer on December 2, 2020. ECF Nos. 18, 19. Arch filed the instant Motion for Summary Judgment and Memorandum in Support on March 12, 2021. ECF Nos. 28, 29. On March 26, 2021, Defendants filed a Response opposing the Motion only as to two Defendants based on a matter of law. ECF No. 30. Arch filed a Reply on March 31, 2021. ECF No. 31. On April 5, 2021, Arch requested a hearing on the Motion, but after a full examination of the briefs and the record, the court has determined that a hearing is unnecessary because the facts and legal arguments are adequately presented, and the decisional process would not be aided significantly by oral argument. See Fed. R. Civ. P. 78(b) ; E.D. Va. Local Civ. R. 7 (J).
A.
Summary judgment is appropriate when the court, viewing the record as a whole and in the light most favorable to the nonmoving party, finds there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56 ; Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248–50, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A court should grant summary judgment if the nonmoving party has failed to establish, after adequate time for discovery, the existence of an essential element of that party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
To defeat a motion for summary judgment, the nonmoving party must present "evidence on which the [trier of fact] could reasonably find" for the nonmoving party. Anderson, 477 U.S. at 252, 106 S.Ct. 2505. The nonmoving party must go beyond the facts alleged in the pleadings, and rely instead on affidavits, depositions, or other evidence to show a genuine issue for trial. See Celotex, 477 U.S. at 324, 106 S.Ct. 2548 ; M & M Med. Supplies & Serv., Inc. v. Pleasant Valley Hosp., Inc., 981 F.2d 160, 163 (4th Cir. 1993).
B.
When a party fails to specifically respond to the facts alleged in a motion for summary judgment, it "leave[s] uncontroverted those facts established by the motion." Custer v. Pan Am. Life Ins. Co., 12 F.3d 410, 416 (4th Cir. 1993) ; see Fed. R. Civ. P. 56(c)(1) ; E.D. Va. Local Civ. R. 56 (B) ("In determining a motion for summary judgment, the Court may assume that facts identified by the moving party in its listing of material facts are admitted, unless such a fact is controverted in the statements of genuine issues filed in opposition to the motion."). Arch set forth undisputed material facts relevant to this matter in the Memorandum in Support of the Motion, and cited to the record in support of each of its factual contentions. See Mem. at 1-10, ECF No. 29. Defendants do not dispute the factual issues presented by Plaintiffs, but only argue that the motion should fail as a matter of law with respect to two defendants. See Defs.' Resp. at 1, ECF No. 30. Thus, Arch's factual assertions in the Memorandum in Support of the Motion for Summary Judgement are accepted as uncontroverted for the purposes of this Motion. They are also supported by the accompanying discovery materials submitted to the court. These facts are set forth below in Part II.
II.
This matter centers on a General Indemnity Agreement executed on October 9, 2015, in Middlesex County, Massachusetts, by Arch as surety, Watermark as principal and corporate indemnitor, and John Haley, Kristine Haley, Joseph Spangenberger, and Patricia Spangenberger as individual indemnitors. Mem. at 2; id., Ex. 5 (GIA). All parties to the GIA, including the individual indemnitors, signed the agreement. See GIA at 9. Defendants agreed, jointly and severally, to "exonerate, indemnify, and keep indemnified" Arch for all losses and expenses incurred by Arch as a result of executing any surety bonds on behalf of Watermark and recouping related expenses. GIA ¶ 3.
In reliance on the GIA, Arch issued contract payment and performance bonds for two federal projects (the "Projects") that Watermark had contracted with the United States Government to complete. Mem. at 5-6; id., Exs. 6A-6B (Bonds). One project was located in Virginia (the "Little Creek Project") and the other in Rhode Island (the "Newport Project"). Mem. at 5-6. The surety bonds ensured that subcontractors and other entities that supplied labor or materials in connection with the Projects could make claims against Arch and Watermark should Watermark default on its payment obligations. Mem. at 5.
Thereafter, Watermark defaulted on its obligations under the payment bond for the Little Creek Project by failing to pay subcontractors Power Electric Co. and Tindall Corp. for labor and materials. Mem. at 6-7. Those companies filed lawsuits against Arch and Watermark based on the payment bond, and Arch settled those claims by paying $406,000 to Power Electric and $105,000 to Tindall, as allowed by the GIA. Id., Exs. 7, 8 (Settlement Agreements); see GIA ¶ 8. Arch incurred a total of $6,727.50 in attorneys' fees, costs, and expenses in connection with the Tindall litigation. Mem. at 10. For the Power Electric litigation, as well as the instant litigation, Arch incurred a total of $70,641.76 through March 11, 2021, but that amount continues to increase as this litigation continues. Id.
In regard to the Newport Project, the subcontractor N&T Mechanical Contractors, Inc., filed a lawsuit against Watermark and Arch for claims under the payment bond for Watermark's alleged failure to pay for labor and materials. Mem. at 8. Arch investigated the claim and hired a law firm to defend its interest, but Watermark thereafter used its own funds to resolve the matter with N&T. Id., Ex. 9 (Release Agreement). Another subcontractor, North & South Construction Services, filed a payment bond claim against Arch that was ultimately withdrawn, but not without Arch incurring attorneys' fees, costs, and expenses. Mem. at 8. In all, Arch incurred $12,978 in attorneys' fees, costs, and expenses in connection with the claims by North & South Construction Services and N&T Mechanical Contractors. Mem. at 9.
On April 6, 2020, Arch sent a letter to Watermark demanding that the indemnitor Defendants provide $650,437.24 in collateral based on the conditions set forth in the GIA and the information then available to Arch. Mem. at 8-9; id., Ex. 10 (collateral demand letter). Defendants have not deposited cash or collateral with Arch, nor have they reimbursed Arch for the settlement payments to Power Electric and Tindall and the attorneys' fees, costs, and expenses incurred from investigating and litigating the surety bond claims. Mem. at 9.
III.
The only disputed issue in this matter is one of law, namely, whether Defendants Kristine Haley and Patricia Spangenberger--spouses of Defendants John Haley and Joseph Spangenberger--are liable under the GIA pursuant to the Federal Equal Credit Opportunity Act ("ECOA"), 15 U.S.C. §§ 1691 - 1691f. The ECOA prohibits discrimination in any credit transaction based on marital status. See id. § 1691(a)(1). Defendants do not dispute the material facts here, such as the validity and operability of the GIA's terms (except for the issue of law with respect to Kristine Haley and Patricia Spangenberger); the signatures of all parties on the GIA; Defendants' non-compliance with the GIA; the reasonableness of Arch's expenditures in connection with the surety bond claims; or the amount of damages that Arch argues it is entitled. Rather, Defendants "focus and respond solely" on whether the ECOA applies such that Kristine Haley and Patricia Spangenberger are not personal indemnitors of Arch under the GIA. Defs.' Resp. at 1.
The ECOA makes it "unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction ... on the basis of ... marital status." 15 U.S.C. § 1691(a)(1). By identifying "marital status" as a prohibited basis for discrimination, Congress at that time sought to prevent the practice of creditors not considering married women for credit apart from their husbands, even if a woman was independently creditworthy. See Capitol Indem. Corp. v. Aulakh, 313 F.3d 200, 202 (4th Cir. 2002). Therefore, under the ECOA, "a creditor shall not require the signature of an applicant's spouse or other person, other than a joint applicant, on any credit instrument if the applicant qualifies under the creditor's standards of creditworthiness for the amount and terms of the credit requested." 12 C.F.R. § 202.7(d)(1) (emphasis added).
A.
The threshold question here is whether the ECOA applies in the first instance. For it to apply, the surety bond and indemnity arrangement between the parties must constitute "a credit transaction," which is defined under the ECOA as "every aspect of an applicant's dealings with a creditor regarding an application for credit or an existing extension of credit." 12 C.F.R. § 202.2(m). The ECOA's definition of "credit" is "the right granted by a creditor to a debtor to defer payment of debt or to incur debts and defer its payment or to purchase property and services and defer payment therefor." 15 U.S.C. § 1691a(d). Thus, in order for the ECOA to apply, the contractual arrangement between the parties must involve Arch "grant[ing] a right" to Watermark "to defer payment of [a] debt or other obligation." Capitol Indem. Corp. v. Aulakh, 313 F.3d 200, 203 (4th Cir. 2002). The parties have entered no such arrangement.
The Fourth Circuit case Aulakh controls the outcome of this matter. 313 F.3d 200. In Aulakh, the Fourth Circuit examined an indemnity and surety bond arrangement that is directly analogous to the one at issue in this matter, and held that such arrangement is not a credit transaction as defined under the ECOA. Id. at 204. There, a surety company (Capitol) executed an indemnity agreement with a construction company (SMS) as well as the president of SMS and his wife (the Aulakhs). Id. at 201. That agreement, like the GIA in this matter, obligated SMS and the Aulakhs to indemnify Capitol for losses and expenses incurred by Capitol from providing surety bonds for SMS projects. Id. SMS defaulted on a series of contracts, which resulted in Capital paying out the applicable surety bonds. Id. at 201. However, when Capitol attempted to recover its losses in accordance with the indemnity agreement, the Aulakhs claimed that the indemnity agreement was unenforceable as to one or both of them because Capitol required Mrs. Aulakh's signature on the indemnity agreement, which, they argued, constituted credit discrimination under the ECOA. Id. at 202.
In affirming the district court's grant of summary judgment in favor of Capital, the Fourth Circuit denied the Aulakhs' contention that the surety bond arrangement between the parties, and surety bond issuances in general, constitute "credit transaction[s]" under the ECOA. Id. at 203. Specifically, the court found that "nothing in the surety bond transaction or the indemnity agreement entitle[d] anyone to defer payment of any debt or other obligation," and thus, the arrangement did not meet the definition of a "credit transaction" under the ECOA. Id. at 203. Other courts to consider the issue have concluded the same. See, e.g., Ulico Cas. Co. v. Superior Mgmt. Servs., Inc., 89 F. App'x 278, 279 (D.C. Cir. 2004) (affirming summary judgment after finding that a surety bond in conjunction with an indemnity agreement did not qualify as a "credit transaction" under the ECOA); Liberty Mut. Ins. Co. v. Marine Elec. Co., No. 3:11-CV-00562-H, 2012 WL 5207537, at *3 (W.D. Ky. Oct. 22, 2012) (holding that the issuance of surety bonds and enforcement of an indemnity agreement was not a "credit transaction" under the ECOA); SureTec Ins. Co. v. Nat'l Concrete Structures, Inc., No. 12-60051-CIV, 2012 WL 12860161, at *5 (S.D. Fla. July 3, 2012) ("[T]he execution of an indemnity agreement in consideration for a payment and performance bond does not qualify as a ‘credit transaction.’ "). In summary, this court likewise concludes that the ECOA is inapplicable to the case at bar.
B.
Defendants reject the foregoing conclusion and argue that the ECOA applies because the Fourth Circuit then qualified its holding by stating that Aulakh "should not be read to suggest that the issuance of surety bonds can never operate as a ‘credit transaction’ as defined in a different statute or as understood in a different set of circumstances." 313 F.3d at 204. The court did so because a blanket rule would not properly account for unique financial agreements that could operate both as debt and insurance arrangements. Id. at 204.
Defendants seem to argue that the instant matter involves a "different set of circumstances" that distinguishes Aulakh. Specifically, they argue that Arch's payments to subcontractor "creditors" of Watermark "without first securing any funding or repaying arrangement," and then expecting reimbursement with interest, constitutes a "credit transaction" because it involves "the collection of sums of money advanced with an expectation of future payment." Defts.' Resp. at 2. This attempt to recharacterize the relationships and financial arrangements at issue fails under scrutiny.
As in Aulakh, the parties entered a typical indemnity agreement as a condition of issuing surety bonds. When Watermark defaulted on its obligations to subcontractors, Arch was obligated to pay under the surety bonds. Those bonds "operated as insurance instrument[s]," not credit transactions, because they "allocat[ed] the default risk associated with various contractual obligations incurred by [Watermark] in the course of its ... business." Id. at 204. Defendants became liable to Arch under the indemnity agreement after Arch incurred expenses from the surety bond claims. The enforcement of the indemnity agreement and the issuance of surety bonds did not operate as "debt or credit instrument[s]" because there was no right granted to any party to defer payment. Aulakh, 313 F.3d at 203-04 ("[T]he "essence of the ‘credit’ relationship under [the ECOA] is one that provides a right to defer payment on a debt or other obligation."). Thus, the financial arrangement at issue here does not constitute a "credit transaction," and the ECOA is inapplicable. Defendants Kristine Haley and Patricia Spangenberger are therefore valid signatories to the GIA and liable to Arch.
IV. Conclusion
For the foregoing reasons, the Motion for Summary Judgment, ECF No. 28, is GRANTED in favor of Plaintiff and against all Defendants, jointly and severally, in the amount of $601,347.26, plus pre- and post-judgment interest as allowed by law and the GIA, as well as the amount of attorneys' fees, costs, and expenses associated with the instant litigation that have not yet been calculated. The Clerk is DIRECTED to enter final judgment in this case in accordance with this Memorandum Final Order and to remove the May 5, 2021, trial date from the court's calendar. The Clerk is further DIRECTED to send a copy of this Memorandum Final Order to counsel for the parties.