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Developers Surety and Indemnity Co. v. Brantly Development Group, Inc.

United States District Court, D. Maryland

October 6, 2016

DEVELOPERS SURETY AND INDEMNITY COMPANY
v.
BRANTLY DEVELOPMENT GROUP, INC., et al.

          MEMORANDUM

          J. FREDERICK MOTZ UNITED STATES DISTRICT JUDGE

         Plaintiff Developers Surety and Indemnity Company ("Developers") brings suit against defendants: (I) Brantly Development Group, Inc. ("Brantly"), (2) Marshalee Woods Limited Partnership ("Marshalee"), (3) Brantwood, LLC ("Brantwood"), (4) Bonnielass, LCC ("Bonnielass"), (5) Hugh F. Cole, Jr. ("Mr. Cole"), and (6) Glen Hannah Cole ("Mrs. Cole"), seeking indemnification for losses, costs, and expenses incurred by Developers in connection with the issuance of several surety bonds. On June 27, 2016, judgements of default were entered against Brantly, Marshalee, Brantwood, and Bonnielass. Now pending is remaining defendants Hugh F. Cole, Jr. and Glen Hannah Cole's motion for partial summary judgment on claims asserted against them (ECF No. 40), and Developers' cross-motion for summary judgment against the Coles. (ECF No. 41). The parties have fully briefed the motions, and no oral argument is necessary. See Local Rule 105.6. For the reasons set forth below, the Coles' motion is denied in part and granted in part, and Developers' cross-motion is granted in part and denied in part.

         BACKGROUND

         The parties' dispute arises out of Developers' losses incurred in connection with issuing nine subdivision surety bonds to defendants. Developers is a national surety company engaged in the business of construction and surety bonding. (ECF No. 1, ¶ 1;see also ECF No. 13, p. 1; ECF No. 14, p. 1). Mr. and Mrs. Cole ("the Coles") are husband and wife, and are citizens of the State of Maryland. (ECF No. 41, p.3; see also ECF No. 41, Ex. C, 72:8-10). Defendant Hugh F. Cole, Jr. is: "(1) a shareholder of Defendant Brantly Development Group, Incorporated, (2) a limited partner in Defendant Marshalee Woods Limited Partnership, (3) a member of Defendant Brantwood, LLC, and (4) a member of Defendant Bonnielass LLC." (ECF No. 20, p. 1). Mrs. Cole is or was a Vice President of Brantly (ECF No. 41, Ex. D, 33:1 -4), and collectively the Coles own or owned twenty-two percent (22%) of Marshalee Woods. (ECF No. 41, Ex. C, 35:22-36-7).

         Beginning around 1998, Developers started issuing subdivision surety bonds for several real estate development projects undertaken by defendants. (ECF No. 1, ¶ 11; see also ECF No. 41, Exs. J-R).[1] In order to induce Developers to issue these bonds, defendants executed two indemnity agreements: (1) Indemnity Agreement No. 13522-01 ("01"), dated December 7, 1999, and (2) Indemnity Agreement No. 13522-03 ("03"), dated November 6, 2003 (collectively the "Indemnity Agreements"). (ECF No. 1, Exs. A & B). Under the terms of the Indemnity Agreements, which are substantively identical, defendants agreed to, inter alia, be jointly and severally liable, [2] and to indemnify Developers:

[F]rom and against any and all liability, loss, claims, demands, costs, damages, attorneys' fees, and expenses of whatever kind or nature, together with interest thereon at the maximum rate allowed by law, which Surety may sustain or incur by reason of or in consequence of the execution and delivery by Surety of any Bond on behalf of Principal, whether or not Surety shall have paid any amount on account thereof[.]

(ECF No. 1, Ex. A, p. 1 & Ex. B, p. 1). Indemnity Agreement 01 contains a signature page listing indemnitors as: (I) "John F. Liparini" (a non-party to this case), (2) "Hugh F. Cole, Jr., " and (3) Brantly Development Group, Inc. (ECF No. 1, Ex. A, p. 9). The list of names is accompanied by signatures: Mr. Liparini signed for himself individually and on behalf of Brantly as its President, and Mr. Cole Dated: behalf of himself individually. Id. Indemnity Agreement 03 similarly contains a signature page listing five indemnitors including, inter alia, "Hugh F. Cole, Jr., Individually" and "(wife): Individually/' (ECF No. 1, Ex. B, p. 8). The list of names is accompanied by signatures, including Mr. Cole's signature above "Hugh F. Cole, Jr., Individually, " and a signature resembling "Glen Hannah Cole" above the text: "(wife); Individually." Id. Both Indemnity Agreements are followed by a "RESOLUTION - RATIFYING INDEMNITY" whereby Brantly formally adopted the Indemnity Agreements. (ECF No. 1, Ex. A, p. 12 & Ex. B, p. 11). These resolutions contain the text "Given under my hand the seal of the Company" and are signed by Mr. Cole in his capacity as Secretary of Brantly, Id.

         Brantly, Marshalee, Brantwood, and Bonnielass eventually defaulted on their obligations covered by the bonds by, inter alia: "(1) failing to complete the work secured by the Bonds; (2) failing to procure the release of the Bonds; and (3) failing to pay for all labor, materials, supplies, and equipment used in the development of the residential subdivisions secured by the Bonds." (ECF No. 1, ¶ 17). Developers filed suit against defendants on November 13, 2015, alleging losses in excess of $308, 987.25. Id. at ¶ 18. Counts I and II of the complaint alleged breach of contract regarding Indemnity Agreement 01 and 03, respectively. Id. at ¶¶ 22-35. Count III alleged a common law claim for exoneration. Id. at ¶¶ 36-39.

         On June 27, 2016, judgements of default were entered against defendants Brantly, Marshalee, Brantwood, and Bonnielass after they failed to file responsive pleadings. (ECF No. 39). Remaining defendants, the Coles, moved for partial summary judgment on all claims asserted against Mrs. Cole (Counts II and III) and against Mr. Cole (Counts I, II, and III). (ECF No. 40, pp. 26-27). Developers, in turn, filed a cross-motion for summary judgment against the Coles on all counts. (ECF No. 41).

         STANDARD

         Rule 56(a) of the Federal Rules of Civil Procedure provides the "court shall grant summary judgment if the movant 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). The Supreme Court has clarified this does not mean that any factual dispute will defeat the motion. "By its very terms, this standard provides that the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986) (emphasis in original). A genuine issue of material fact exists where, "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id. at 247. The party seeking summary judgment bears the initial burden of demonstrating the absence of a genuine dispute of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323(1986).

         "A party opposing a properly supported motion for summary judgment 'may not rest upon the mere allegations or denials of [his] pleadings, ' but rather must 'set forth specific facts showing that there is a genuine issue for trial.'" Bouchat v. Baltimore Ravens Football Club, Inc., 346 F.3d 514, 522 (4th Cir. 2003) (alteration in original) (quoting Fed.R.Civ.P. 56(e)). Indeed, the party opposing summary judgment must "do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986); see also In re Apex Express Corp., 190 F.3d 624, 633 (4th Cir. 1999). The court must "view the evidence in the light most favorable to ... the nonmovant, and draw all reasonable inferences in her favor without weighing the evidence or assessing the witnesses' credibility, " Dennis v. Columbia Colleton Med. Ctr. Inc., 290 F.3d 639, 645 (4th Cir. 2002), but the court also must abide by the "affirmative obligation of the trial judge to prevent factually unsupported claims and defenses from proceeding to trial." Bouchat, 346 F.3d at 526 (internal quotations omitted) (quoting Drewitt v. Pratt, 999 F.2d 774, 778-79 (4th Cir. 1993), and citing Celotex Corp. v. Catrett, Ml U.S. 317, 323-24 (1986)).

         ANALYSIS

         The Coles seek partial summary judgment on each of plaintiff Developers' three claims. Developers, in response, seeks summary judgment against the Coles on all claims and also seeks interest and attorneys' fees. I consider these claims in turn.

         I. Counts I and II: Breach of Indemnity Agreements 01 & 03

         Under Maryland law, "the fundamental principles governing surety bond and indemnification relationships" are as follows:

A surety bond is a three-party agreement between a principal obligor, an obligee, and a surety. In a performance bond context, the surety assures the obligee that if the principal fails to perform its contractual duties, the surety will discharge the duties itself, either by performing them or paying the obligee the excess costs of performance. In a payment bond, the surety guarantees the principal's duty to the obligee to pay its (the principal's) laborers, subcontractors, and suppliers.
. . . The surety is primarily or jointly liable with the principal and, therefore, is immediately responsible if the principal fails to perform. Ultimate liability, however, is with the principal, not the surety. Upon default of the principal, the surety may pay the money and proceed against the principal for indemnity. The bond is the measure of the surety's obligation. In the construction industry, it is standard practice for surety companies to require contractors for whom they write bonds to execute indemnity agreements by which principals and their individual backers agree to indemnify sureties against any loss they may incur as a result of writing bonds on behalf of principals.

All. Contracting & Material Co. v. Ulico Cos. Co., 844 A.2d 460, 468 (Md. 2004) (internal citations omitted).

         The Coles never dispute whether defendants breached the terms of Indemnity Agreements 01 and 03. (See generally ECF No. 40 & ECF No. 42) (opting to not dispute these facts). Rather, the Coles' two primary arguments are: (I) Mrs. Cole is exempt from all liability because she did not properly execute Indemnity Agreement 03; and (2) a majority of Developers' claims are time-barred by Maryland's three-year statute of limitations on civil actions. Id Developers, however, contends that: (1) the Coles are necessarily liable, regardless of any limitations issues, due to joint and several liability; (2) the applicable statute of limitations is twelve years and not three years because the agreements were executed "under seal"; (3) even if the agreements were not executed "under seal." all indemnification agreements related to surety bonds automatically qualify for a twelve-year limitations period; and (4) in the alternative, claims are not time-barred because the Coles "acknowledged" the debt. (ECF No. 41). In order. I will address: (A) whether Mrs. Cole executed Indemnity Agreement 03: (B) the limitations-related issues; and (C) liability and damages.

         A. Mrs. Cole's Execution of Indemnity Agreement 03

         Indemnity Agreement 03 states: "ALL SIGNATURES MUST BE ACKNOWLEDGED BY A NOTARY PUBLIC." (ECF No. 1, Ex. B, p. 8). The parties disagree over whether Mrs. Cole's signature on Indemnity Agreement 03 was properly notarized, and thus whether she can be held liable for breaching the agreement. Under Maryland law. "[a] certificate under the notarial seal of a notary shall be sufficient evidence of the notary having administered the oath as notary public." Md. Code Ann., State Gov't § 18-105 (emphasis added). It is undisputed that the original version of Indemnity Agreement 03 includes a raised or embossed notarial seal, although this seal is not discernable on photocopies. (ECF No. 1, Ex. B, p. 10; see also ECF No. 41, Ex. D, 36:4-37:3) (attesting that the notarial seal is present on Indemnity Agreement 03). Indemnity Agreement 03 also contains a signature-"Glen Hannah Cole"-on the designated signature page, and beneath the signature the following words appear: "(wife); Individually." (ECF No. 1, Ex. B, p. 8). This signature sequentially follows the undisputed signature of Mr, Cole. Id. The notarial page, which then follows the signature page, states the following individuals "PERSONALLY APPEARED: John F. Liparini; [Kathleen Liparini, redacted in original]; Hugh F. Cole, Jr.; (wife)." Id. at 10. The sequential order of "(wife)" after "Hugh F. Cole, Jr." on the notarial page matches the sequential order of "(wife); Individually" after "Hugh F. Cole, Jr.; Individually" on the signature page. Id. at 8, 10. While Developers argues that "(wife)" on the notarial page refers to Mrs. Cole (ECF No. 41, p. 20), the Cole's contend that "(wife)" instead refers to Kathleen Liparini, despite the fact Mrs. Liparini did not sign the signature page, and despite the fact Mrs. Liparini's name was redacted on the notarial page. Id. at 8.

         Mrs. Cole counters that she has "no recollection" of executing Indemnity Agreement 03, and she does "not believe that [she] ever executed this document." (ECF No. 40, pp. 1-2; ECF No. 26-5, ¶ 5). She further argues she could not have signed the document on January 6, 2004, the date of the notary public certification of signatures, because she was "very ill with influenza" at the time, and her health did not allow her to leave the house between January 1, 2004, and January 9, 2004. Id. This is supposedly supported by the declarations of Mr. Cole and Mr. Liparini, who claim that they have "never witnessed Glen Hannah Cole execute the Indemnity Agreement [03]." (ECF No. 26-3, ¶ 5; ECF No. 26-4, ¶ 6). However, Mr. Cole's statements to this effect were, in part, based upon a review of his wife's diary to prepare his answers to interrogatories. (ECF No. 41. Ex. C, p. 111:09-l 12:10). And evidently, Mrs. Cole is no longer in possession of any diary. (ECF No. 41, Ex. D, 50:16-19) ("I don't have [a diary anymore] .. . [i]t's all up here.").

         Susan H. Maxen ("Maxen"), the notary who notarized Indemnity Agreement 03, also expresses some doubt that Mrs. Cole executed the agreement because "[Mrs. Cole's] name does not appear anywhere on the notary public certification page." (ECF No. 40, Ex. Q, ¶ 6). Maxen further states her "notary public seal does not appear to be affixed to [Indemnity Agreement 03], " (ECF No. 40, Ex. Q, ¶ 6), but this is misleading: indeed, Maxen made this statement while viewing a photocopy where the seal was not discernable. (ECF No. 41, p. 21; see also ECF No. 41, Ex. D, 36:4-37:3 (attesting that the notarial seal is present on Indemnity Agreement 03)). The Coles also highlight that the "execution date" stated on the first page of Indemnity Agreement 03 is November 6, 2003, but the notary public certification page is dated January 6, 2004. (ECF No. 40, pp. 2-3). They further offer Maxen's statement that she "would not have notarized a document that was signed outside of [her] presence two months before.'' (ECF No. 40-19, Ex. Q, ¶ 10; ECF No. 40, p. 3).

         Despite all of the Coles' arguments, however, it is undisputed that Maxen's seal is present on Indemnity Agreement 03. (ECF No. 1, Ex. B. p. 10; see also ECF No. 41, Ex. D, 36:4-37:3 (attesting that the notarial seal is present on Indemnity Agreement 03)). And no reasonable factfinder could conclude that ("wife") on the notarial page refers to Mrs. Liparini instead of Mrs. Cole given Mrs. Liparini did not sign the agreement while Mrs. Cole did, Mrs. Liparini's name was redacted from the notarial page, and the sequential order of "(wife)" after Mr. Cole's name on the signature page matches the notarial page. Nothing the Coles have presented overcomes these facts. Therefore, 1 find no "genuine dispute of material fact" regarding Mrs. Cole's signature on Indemnity Agreement 03, Liberty Lobby, 477 U.S. at 247-48, and because "[a] certificate under the notarial seal of a notary shall be sufficient evidence of the notary having administered the oath as notary public, " Md. Code Ann., State Gov't § 18-105, 1 find Mrs. Cole properly executed Indemnity Agreement 03.

         B. Applicable Limitations Period

         Developers next asserts various arguments to overcome the default three-year statute of limitations baron civil actions in Maryland. Md. Code Ann., Cts. & Jud. Proc. § 5-101. These arguments are predominantly unsuccessful, and I assess them in turn.

         i. Joint and Several Liability

         Developers first argues the Coles are necessarily liable, regardless of any limitations issues, by virtue of joint and several liability. Although both Indemnity Agreements clearly state "[t]he obligations of Principal and Indemnitor... are joint and several;'' and "[s]urety may bring separate suits hereunder against any or all of the undersigned as causes of action may accrue, " (ECF No. 1, Ex. A, p. 7 & Ex. B, p. 6) (emphasis added), Developers' argument is incorrect. While it is true that, under Maryland law, "the words 'joint and several' are oft used and seemingly well understood" and have never "been interpreted so as to bar the liability of either obligor." President & Directors of Georgetown Coll. v. Madden, 505 F.Supp. 557, 598 (D. Md. 1980), affd in part, appeal dismissed in part, 660F.2d 91 (4th Cir. 1981), the Coles are not automatically liable simply because a default judgment has been issued against Brantly, Bonnielass. Marshalee, and Brantwood. (See ECF No. 41, p. 27). First, the default judgment entered against those co-parties is not final, but rather interlocutory in nature. "[A] final judgment cannot be entered on the default until the issue as to the other defendants is successfully disposed of." U.S. for Use of Hudson v. Peerless Ins. Co., 374 F.2d 942, 945 (4th Cir. 1967) (citing 49 C.J.S. Judgments § 191b(2), at 329 (1947)). More importantly, although the Westfield case cited by Developers stands for the proposition that defendants and indemnitors can be held jointly and severally liable when one party breaches an indemnity agreement, no party raised any defenses in that case. See Westfield Ins. Co. v. Site Maim., Inc., No. PWG-12-3145, 2013 WL 5964505, at *4 (D. Md. Nov. 6, 2013). Accordingly, the Coles are entitled to raise defenses not raised by defaulting co-parties, such as a statute of limitations defenses, and are not necessarily liable merely because the two indemnity agreements contain joint and several liability clauses.

         ii. Sealed Instruments

         Developers next argues the Indemnity Agreements are contracts "under seal" and are therefore subject to the twelve-year limitations period applicable to specialties. Md. Code Ann., Cts. & Jud. Proc. § 5- 102(a). The Coles, however, argue that contracts were not executed "under seal" and thus the standard three-year period of limitations for civil actions applies. Id. at § 5-101. Accordingly, the applicable limitations period depends on whether Indemnity Agreements 01 and 03 were executed "under seal."

         What is sufficient to constitute a seal under Maryland law depends on whether the signor is an individual or a corporation. See Mayor & Council of Federalsburg v. Allied Contractors, Inc., 338 A.2d 275, 279 (Md. 1975) (highlighting the difference between what constitutes a seal in the corporate and individual context). Indeed, when contracts are executed by individuals, the presence of the word "seal" on the signature page of the contract, or the presence of a seal itself. may be sufficient in and of itself to render the contract "under seal" for purposes of the special limitations period. Id.; see also Warfield v. Bait. Gas & Elec. Co., 512 A.2d 1044, 1044 (Md. 1986) (holding "that the inclusion of the word 'seal' in a pre-printed form executed by an individual is sufficient to make the instrument one under seal."). For such a contract, a "recital of the sealing or of the delivery of a written promise is not essential to its validity as a sealed contract." Federalsburg, 338 A.2d at 279 (citing Gen. Petroleum Corp. v. Seaboard Terminals Corp., 23 F.Supp. 137, 140 (D. Md. 1938)).

         In comparison, when the signor is signing on behalf of a corporation, it "requires more than the mere affixing of the corporate seal to transform a would-be simple contract into one under seal." Id. Such an agreement remains a simple contract "unless either the body of the contract itself indicates that the parties intended to establish an agreement under seal, or sufficient extrinsic evidence, in the nature of 'how and when and under what circumstances the corporate seal was affixed' establishes that the parties desired to create a specialty." Id. at 279 (quoting Gen. Petroleum Corp., 23 F.Supp. at 139).

         Indemnity Agreement 01 contains a signature page listing indemnitors as: (1) "John F. Liparini" (a non-party), (2) "Hugh F. Cole, Jr., " and (3) Brantly Development Group, Inc. (ECF No. I, Ex. A, p. 9). The list is accompanied by signatures: Mr. Liparini signed for himself individually and on behalf of Brantly as its President, and Mr. Cole signed on behalf of himself individually. Id. Mrs. Cole did not sign Indemnity Agreement 01. Id. The only signature containing the text "(Seal)" next to it was Mr. Liparini's on behalf of Brantly. Id. Notably, the signatures of Mr. Liparini and Mr. Cole, individually, are devoid of the "(Seal)" text. Id. Furthermore, there is no explicit language, such as "witness my hand and seal" or "signed and sealed, " in the text of Indemnity Agreement 03 to suggest this is a contract under seal. See, e.g., President & Directors of Georgetown Coll. v. Madden, 660 F.2d 91, 96 (4th Cir. 1981) (finding that a contract was not under seal, despite having the word "(Seal)" in two places and containing corporate seals because it did not contain familiar phrases indicating the contract was under seal to suggest the parties "intended to make the contract a sealed instrument").

         Despite this. Developers stresses Indemnity Agreement 01 is followed by a "RESOLUTION - RATIFYING INDEMNITY" whereby Brantly formally adopted the Indemnity Agreement. (ECF No. 1, Ex. A, p. 13). This Resolution, signed on the same day as Indemnity Agreement 01, contains the text: "Given under my hand the seal of the Company, " and is signed by Mr. Cole in his capacity as Secretary of Brantly. Id. Here, Mr. Cole's signature is accompanied by the text: "(Seal)." Id. The parties disagree over whether this ratification renders Indemnity Agreement 01 "under seal." But even if the ratification rises to the level of "extrinsic evidence" that would render Indemnity Agreement 01 under seal, see Federalsburg, 338 A.2d at 279, it would only be under seal with respect to Brantly, and not to the Coles. Indeed, "when a seal is attached to the signature of one of the parties but not to that of the other party, the contract as to the latter is a simple contract while as to the former it is a contract under seal." Id. at 279. Accordingly, even if the resolution ratifying indemnity renders Indemnity Agreement 01 under seal, an issue I do not decide here, it would have no bearing on whether the document is under seal with respect to the Coles.

         Indemnity Agreement 03, like Indemnity Agreement 01, also contains a signature page and lists five indemnitors, including "Hugh F. Cole, Jr., Individually" and "(wife); Individually." (ECF No. 1, Ex. B, p. 8). These signatures are not accompanied by any seal, nor are they accompanied by the text: "(Seal)." Id. Again, there is no explicit language, such as "witness my hand and seal" or "signed and sealed, " in the text of Indemnity Agreement 03 to suggest this is a contract under seal. Although the next page in the agreement contains the notarial seal of Maxen, acknowledging under her "hand and official seal" that the following persons "PERSONALLY APPEARED" and signed the indemnity agreement: "John F. Liparini; [Redacted: Kathleen Liparini]; Hugh F. Cole, Jr.; (wife), " id. at 10, this does not render the document "under seal" with respect to the Coles. Rather, Maxen's notarial seal merely confirms the specified individuals were present and signed the agreement.

         Like Indemnity Agreement 01, Indemnity Agreement 03 is also followed by a "RESOLUTION - RATIFYING INDEMNITY": this resolution also contains the text "Given under my hand the seal of the Company, " and is signed by Hugh F. Cole, Jr., as "(Secretary)" of Brantly. Id. at 11. As discussed, supra, even this ratification rises to the level of "extrinsic evidence" that would render Indemnity Agreement 03 under seal, Federalsburg, 338 A.2d at 279, it would only be under seal with respect to Brantly, and not to the Coles.

         Accordingly, I find neither Indemnity Agreement is a contract "under seal" and therefore the claims are subject to the standard three-year limitations ...


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