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Kimball Construction Co., Inc. v. XL Specialty Insurance Co.

United States District Court, D. Maryland

October 18, 2016

Kimball Construction Co., Inc.
v.
XL Specialty Insurance Co.

          MEMORANDUM

          Catherine C. Blake United States District Judge

         Plaintiff Kimball Construction Company, Inc., (“Kimball”) brought this action in state court against XL Specialty Insurance Company (“XL Specialty”), seeking reimbursement for $588, 127.01 of payments that are at risk of being forfeited by Kimball as preference payments in a separate bankruptcy action pending in the Eastern District of Virginia. XL Specialty removed the action to federal court and moved to dismiss or, in the alternative, for summary judgment.

         Pending before the court is the defendant's motion to dismiss for failure to state a claim or, in the alternative, for summary judgment. (XL Specialty Mot. Dismiss, ECF No. 7). Kimball filed a response in opposition to the motion to dismiss (Kimball Opp'n Mot. Dismiss, ECF No. 10), to which XL Specialty replied. (XL Specialty Reply Opp'n Mot. Dismiss, ECF No. 11). The motions are fully briefed, and no oral argument is necessary. See Local Rule 105.6 (D. Md. 2016). For the reasons stated below, the defendant's motion for summary judgment will be granted.

         BACKGROUND

         Blumenthal Kahn Truland Electric, LLC (“Truland”) filed a Chapter 7 bankruptcy petition on July 23, 2014, in the Eastern District of Virginia. (Compl. ¶ 4, ECF No. 2). Prior to its bankruptcy filing, Truland served as a direct subcontractor for several construction projects at Fort Meade, Maryland. (Compl. ¶¶ 1, 17, 33). Kimball was an electrical subcontractor on three of those construction projects that are the subject of this action. (Id.). The general contractor for the projects was URS Energy & Construction (“URS”). (Compl. ¶¶ 2, 18, 34). Truland executed payment bonds with XL Specialty for the three construction projects involving Kimball, with Truland as the principal, XL Specialty as surety, and URS as obligee. (Compl., Ex. 1, Pro. 1 Subcontract, ECF No. 2-2; Compl., Ex. 7, Pro. 2 Subcontract, ECF No. 2-8; Compl., Ex. 9, Pro. 3 Subcontract, ECF No. 2-10).

         The first subcontract between Kimball and Truland concerned a project known as Building 9840 Substation Uninterruptible Power Supply with UMS Module Installation (Project 1) at Fort Meade. (Compl., Ex. 1, Pro. 1 Subcontract 1). XL Specialty issued a payment bond on behalf of Truland for Project 1, numbered “SUR7402648” (“Project 1 Bond”). (Compl., Ex. 2, Pro. 1 Bond, ECF No. 2-3). On December 2, 2014, XL Specialty paid Kimball $5, 233.75 in response to a claim submitted by Kimball against the Project 1 Bond. (Daily Aff. ¶ 3, ECF No. 7-1).

         The second subcontract between Kimball and Truland concerned a project known as Building 9800 Substation Uninterruptible Power Supply with UMS Module Installation (Project 2), also at Fort Meade. (Compl., Ex. 7, Pro. 2 Subcontract 1). XL Specialty issued a payment bond on behalf of Truland for Project 2, numbered “SUR7402653” (“Project 2 Bond”). (Compl., Ex. 8, Pro. 2 Bond, ECF No. 2-10). On December 2, 2014, XL Specialty paid Kimball $352, 218.89 in response to a claim submitted by Kimball against the Project 2 Bond. (Daily Aff. ¶ 4).

         The third and final subcontract between Kimball and Truland concerned another Fort Meade project, various construction activities on the South Vault Primary Switch (Project 3). (Compl., Ex. 9, Pro. 3 Subcontract 1). XL Specialty issued a payment bond on behalf of Truland for Project 3, numbered “SUR7402649” (Project 3 Bond). (Compl., Ex. 10, Pro. 3 Bond, ECF No. 2-11). On December 2, 2014, XL Specialty paid Kimball $22, 835.82 in response to a claim submitted by Kimball against the Project 3 Bond. (Daily Aff. ¶ 5).

         In return for the three XL Specialty payments dated December 2, 2014, Kimball executed a “Final Affidavit, Release, and Assignment” (“Release”) for the benefit of XL Specialty in connection with the Projects 1, 2, and 3 Bonds. (XL Specialty Mot. Dismiss, Ex. A, ECF No. 7-5; XL Specialty Mot. Dismiss, Ex. B, ECF No. 7-6; XL Specialty Mot. Dismiss, Ex. C, ECF No. 7-7). In the Releases, identical for each respective Bond, Kimball agreed to “release, acquit, exonerate and discharge Surety from all acts, suits, claims, damages and liabilities whatsoever which [Kimball] may have against Surety and Contractor covering the following contracts.” (XL Specialty Mot. Dismiss, Ex. A 1). The Releases were signed by Stephen Kimball, Kimball's Vice President, and notarized in the state of Maryland. (Id.).[1]

         On October 16, 2015, the Trustee in the Truland bankruptcy case filed a Complaint to Avoid Transfers and to Recover Property and for Related Relief. (Compl., Ex. 3, ECF 2-4). The Trustee claimed that payments of $588, 127.01 which Truland made to Kimball in May and June of 2014 were avoidable preferences pursuant to 11 U.S.C. § 547(b) and sought to avoid those transfers. (Id. at Attach. 1). Kimball denies liability and is defending against the Trustee's claims in the United States Bankruptcy Court for the Eastern District of Virginia. (Compl. ¶ 7).

         Kimball filed an action in the Circuit Court for Anne Arundel County on June 14, 2016, claiming that XL Specialty is ultimately liable under the Bonds for any amounts that Kimball may be compelled to pay the Trustee in the bankruptcy proceeding. Kimball also claims that XL Specialty would be unjustly enriched if Kimball were required to pay funds to the bankruptcy Trustee. XL Specialty filed a notice of removal in this court on July 29, 2016, pursuant to 28 U.S.C. §§ 1332 and 1441, and subsequently filed a motion to dismiss or for summary judgment.

         ANALYSIS

         I. Standard of Review

         This court has diversity jurisdiction over the case, 28 U.S.C. § 1332(a), because the parties are diverse and the amount in controversy exceeds $75, 000. The case was properly removed from the Circuit Court for Anne Arundel County, Maryland, pursuant to 28 U.S.C. § 1441(a). The defendants have moved to dismiss for failure to state a ...


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