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Developers Surety and Indemnity Co. v. Belcher

United States District Court, D. Maryland

March 7, 2017

DEVELOPERS SURETY AND INDEMNITY COMPANY Plaintiff,
v.
LESTER J. BELCHER, JR., et al . Defendants.

          MEMORANDUM OPINION

          STEPHANIE A. GALLAGHER UNITED STATES MAGISTRATE JUDGE.

         On April 15, 2016, Plaintiff Developers Surety and Indemnity Company (“Developers”) sued the Defendants Lester J. Belcher, Jr., Edward A. Brown, and Margaret A. Brown (collectively, “the Defendants”) seeking indemnification for losses, costs, and expenses incurred by Developers in connection with surety bonds. [ECF No. 1]. This Court has reviewed Developers's pending Motion for Summary Judgment, and the oppositions and reply thereto. [ECF Nos. 25');">25');">25');">25, 28');">28');">28');">28');">28');">28');">28');">28');">28');">28');">28');">28');">28');">28');">28');">28, 29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29, 30');">30');">30');">30]. No hearing is necessary. See Local Rule 105.6 (D. Md. 2016). For the reasons set forth below, Developers's Motion for Summary Judgment, [ECF No. 25');">25');">25');">25], will be GRANTED.

         I. BACKGROUND

         On September 21, 2005, Developers issued several subdivision surety bonds to Lester J. Belcher, III and Deborah A. Belcher (the “Principals”) in connection with a residential subdivision project (the “subdivision”) in Anne Arundel County, Maryland (the “County”). [ECF No. 1, pp. 5');">p. 5-6]; see [ECF No. 25');">25');">25');">25, Ex. F]. In order to induce Developers to issue these bonds, the Defendants executed an indemnity agreement in the event that the Principals did not fulfill their obligations under the subdivision agreement with the County. [ECF No. 1, Ex. A]. Under the terms of the indemnity agreement, the Defendants agreed to, inter alia, be jointly and severally liable, 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[.]

Id. Specifically, the Defendants agreed to indemnify Developers from:

1.2 Liability incurred or amounts paid in satisfaction or settlement of any or all claims, demands, damages, costs, losses, suits, proceedings or judgments relating to Principal's nonperformance of an Obligation or any other matter covered by a Bond.
1.3 Liability incurred or expenses paid in connection with claims, suits or judgments relating to an Obligation or a Bond, including, without limitation, attorneys' fees and all legal expenses, and all fees and costs for investigation, accounting, or engineering services related to the adjustment of claims and losses.
1.4 Liability incurred or expenses paid in procuring or attempting to procure a release of liability under or exoneration of a Bond.
1.5 Liability incurred or expenses paid in recovering or attempting to recover losses or expenses paid or incurred in connection with this Agreement, an Obligation or a Bond.

Id. The Defendants also agreed, in connection with the exercise of any of Developers's rights under the agreement, that:

2.1 Surety shall have the right in its sole and absolute discretion to determine whether any claims under a Bond shall be paid, compromised, defended, prosecuted or appealed.
2.2 Surety shall have the right to incur such expenses in handling a claim as it shall deem necessary, including but not limited to, expenses for investigative, accounting, engineering and legal services.
***
2.5 Surety shall have the right to reimbursement of its expenses and attorneys' fees incurred hereunder, irrespective of whether any Bond loss payment has been made by Surety. In any suit on this Agreement, Surety may recover its further expenses and reasonable attorneys' fees incurred in such suit.

Id. The Defendants further agreed that they would be in default of the indemnity agreement upon, in relevant part, “[a]ny default in the performance of an Obligation by Principal, ” or “breach of [the] agreement by Principal or Indemnitor.” Id. Subsequent to the parties' agreement, Developers issued three subdivision surety bonds guaranteeing the completion of certain public improvement and grading work in the subdivision. [ECF No. 1, pp. 5');">p. 5-6]; see [ECF No. 25');">25');">25');">25, Ex. F].

         In July 2008, the County declared default on the Principals' obligations covered by the subdivision bonds. See [ECF No. 25');">25');">25');">25, pp. 8-16]. Specifically, the County alleged that the Principals “failed to perform or complete the work authorized” under the parties' agreement. [ECF No. 25');">25');">25');">25, Ex. R]. Over the next two years, Developers made several attempts to cooperate with the Defendants and the Principals to procure completion of the outstanding bonded obligations. [ECF No. 25');">25');">25');">25, pp. 8-11]. Although the Defendants failed to respond to several written notices issued by Developers, the Principals assured Developers that they would “address all outstanding issues at the Subdivision.” Id. at p. 10');">p. 10; [ECF No. 29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29');">29, p. 5');">p. 5] (admitting same). However, on June 1, 2010, the County advised Developers that, although the Principals worked “for a short period of time” to remedy the outstanding obligations, all “cooperation ha[d] ceased[.]” [ECF No. 25');">25');">25');">25, p. 10');">p. 10] (internal citations and quotation marks omitted).

         Accordingly, on June 8, 2010, the County filed suit against Developers and the Principals. [ECF No. 25');">25');">25');">25, p. 11');">p. 11] (citing [ECF No. 25');">25');">25');">25, Ex. R]). On October 7, 2010, the County advised Developers that the Principals and the Defendants had still failed to complete the outstanding bonded obligations, and the County would “move forward against Developers.” Id. at 12 (citing [ECF No. 25');">25');">25');">25, Ex. W]). On October 28');">28');">28');">28');">28');">28');">28');">28');">28');">28');">28');">28');">28');">28');">28');">28, 2010, Defendant Belcher, Jr. assured Developers that he “would do whatever is necessary to resolve the matter with [the County].” Id. (citing [ECF No. 25');">25');">25');">25, Ex. X]). However, two years later, by December 5, 2012, significant work remained at the subdivision. Id. at p. 13; see [ECF No. 25');">25');">25');">25, Ex. Z]. Developers notified the Principals and the Defendants on three separate occasions that “if the remaining bonded obligations were not completed…Developers would be forced to exercise its right under the Indemnity Agreement to complete the outstanding bonded obligations at the Subdivision[.]” Id. at pp. 13-14. On September 6, 2013, following the Principals' continued failure to complete the outstanding bonded obligations, Developers exercised its right under the indemnity agreement to reach a settlement with the County. Id. at p. 14. Under the terms of the settlement, Developers agreed to complete the remaining outstanding bonded obligations at the subdivision on or before December 2, 2013. Id. at pp. 14-15. On October 16, 2013, Developers issued a termination notice to the Defendants and the Principals. Id. at p. 15. On October 21, 2013, the County issued a stop work order that barred the Principals and the Defendants from the subdivision and limited access to Developers's completion contractor. Id. at pp. 15-16. In late October, 2013, Developers's completion contractor finished the outstanding bonded obligations at the subdivision. Id. at p. 16.

         Subsequently, on April 15, 2016, Developers filed suit against the Defendants seeking damages under the terms of the indemnity agreement. Id. at p. 2; see [ECF No. 1]. Specifically, Developers alleged that, “[a]s a result of the default on its bonds, Developers has incurred losses of $324, 214.02 to respond to the demands on its bonds, procure the release of its bonds, and recover its losses, for which the Defendants are jointly and severally liable to Developers.” Id. However, Developers recovered $87, 978.75 from the Principals' bankruptcy estate, and $12, 000 from a settlement with NVR, Inc. (“NVR”). Id. at p. 18. Accordingly, the balance of Developers's losses for which it now seeks judgment totals $224, 235.27. Id. On November 16, 2016, Developers moved for summary judgment. [ECF No. 25');">25');">25');">25].

         II. LEGAL STANDARD

         Federal Rule of Civil Procedure 56(a) provides that summary judgment should be granted “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). A material fact is one “that might affect the outcome of the suit under governing law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 25');">25');">25');">2505, 91 L.Ed.2d 202 (1986). A dispute regarding a material fact is genuine if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson, 477 U.S. at 248. A party seeking summary judgment bears the burden of showing that there is no evidence to support the non-moving party's case, and must only show an absence of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 325');">25');">25');">25, 106 S.Ct. 25');">25');">25');">2548, 91 L.Ed.2d 265 (1986). In response, the non-moving party must show that there is a genuine issue for trial. Id.

         When considering a motion for summary judgment, the court “must view the evidence in the light most favorable to the nonmoving party, and draw all reasonable inferences in favor of the nonmovant.” McLean v. Ray, 488 F. App'x 677, 682 (4th Cir. 2012) (citations and internal quotation marks omitted). The court's role is to determine whether there is a genuine issue for trial, not “to weigh the evidence and determine the truth of the matter.” Anderson, 477 U.S. at 249. “When faced with cross-motions for summary judgment, the court must review each motion separately on its own merits to determine whether either of the parties deserves judgment as a matter of law.” Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir. 2003) (internal quotations marks omitted).

         III. DISCUSSION

         As an initial matter, 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 ...

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