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American Southern Insurance Co. v. DLM, LLC

United States District Court, D. Maryland

July 10, 2017

DLM, LLC, Defendants.


          George L. Russell, III United States District Judge

         THIS MATTER is before the Court on Defendants' Motion to Dismiss Amended Complaint (ECF No. 18). The Motion is fully briefed and ripe for disposition. No hearing is necessary. See Local Rule 105.6 (D.Md. 2016). For the reasons that follow, the Court will deny the Motion.

         I. BACKGROUND

         This action arises out of a surety arrangement between Plaintiff American Southern Insurance Company (“ASIC”) and Defendants. ASIC is a “national surety company engaged in the business of construction and surety bonding.” (Am. Compl. ¶ 1, ECF No. 15). ASIC requires indemnity from all parties seeking bonding. (Id. ¶ 10). In September 2004, Defendants William R. Luther, Jr., Sharon L. Babcock, and Brian E. Fromme (the “Original Indemnitors”) sought bonding from ASIC and executed a General Agreement of Indemnity in favor of ASIC (the “2004 GAI”) in exchange for ASIC issuing surety bonds on behalf of Defendant DLM, LLC (“DLM”). (Id.).

         In July 2005, DLM executed two public works agreements (the “Agreements”) with the Department of Public Works of Cecil County, Maryland (“Cecil County”). (Id. ¶¶ 11, 12). In the first, DLM agreed to build roads and storm drains for the Mendenhall Square development (the “Construction Agreement”). (Id. ¶ 11). In the second, DLM agreed to inspect and maintain storm water management facilities at Mendenhall Square (the “Inspection and Maintenance Agreement”). (Id. ¶ 12). To secure performance of the Agreements, ASIC issued two surety bonds (the “Bonds”) on behalf of DLM (the “principal”), naming Cecil County as the “obligee.”[1] (Id. ¶¶ 13- 15).

         In November 2008, in exchange for ASIC renewing and continuing the Bonds, Defendants Bluffs at Big Elk II, LLC, DLM, Vickie E. Luther, and the Original Indemnitors (collectively, the “Indemnitors” or “Defendants”) executed a separate indemnity agreement (the “2008 GAI”). (Id. ¶ 16). The terms of the 2008 GAI are identical to those of the 2004 GAI. (Id.); (compare ECF No. 1-5 at 2-6 with ECF No. 1-5 at 7-13). Both the 2004 and 2008 GAI (the “GAIs”) require the Indemnitors to “indemnify and save [ASIC] harmless from and against every claim, demand, liability, cost, charge, suit, judgment and expense which [ASIC] may pay or incur in consequence of having executed, or procured the execution of [the Bonds].” (ECF No. 1-5 at 2, 7). Under the GAIs, the Indemnitors agreed that if Cecil County asserted breach, delay, or default under the Agreements, ASIC had the right “to take possession of any part or all of the work under [the Agreements], and at the expense of the . . . Indemnitors to complete or arrange for the completion of the same.” (Id. at 4, 9). The Indemnitors further agreed that if ASIC completed or arranged for the completion of work under the Agreements, the Indemnitors would pay for ASIC's losses and expenses. (Id. at 4, 9).

         In November 2009, DLM and other related entities sought protection under Chapter 11 of the United States Bankruptcy Code. See In re Gemcraft Homes, Inc., No. 09-31696-NVA (Bankr.D.Md. closed June 30, 2011). In September 2010, the United States Bankruptcy Court for the District of Maryland (the “Bankruptcy Court”) confirmed DLM's Third Amended Joint Plan of Reorganization (the “Reorganization Plan”). (See ECF No. 18-2). The Reorganization Plan provided that with the exception of the liabilities under the contracts that DLM expressly agreed to assume, all liabilities that arose before the Bankruptcy Court confirmed the Reorganization Plan were deemed “fully satisfied, discharged, waived and released.” (Id. at 14, 22). DLM expressly agreed to assume continued liability for the Bonds and the Agreements -- but not the GAIs. (See ECF No. 18-3 at 5).

         In November 2014, Cecil County notified ASIC that DLM defaulted under the Agreements by failing to build roads and storm drains and inspect private storm water facilities at Mendenhall Square. (Am. Compl. ¶¶ 22, 23). In response, ASIC engaged a construction consultant and an attorney to investigate the outstanding construction work at Mendenhall Square. (Id. ¶ 26). Following the investigation, ASIC paid Cecil County $511, 265.80 in exchange for full release and exoneration of the Bonds. (Id. ¶ 27). ASIC then notified Defendants of the payment to Cecil County and demanded that Defendants indemnify ASIC. (Id. ¶ 28). Defendants failed to indemnify ASIC. (Id. ¶ 29).

         ASIC initiated this action on November 3, 2016, invoking the Court's diversity jurisdiction.[2] (ECF No. 1). In their original Complaint, ASIC brought only one claim against Defendants: contractual indemnity under the GAIs (the “Indemnity Claim”). (Compl. ¶¶ 33-39, ECF No. 1). On December 16, 2016, Defendants moved to dismiss the Complaint in its entirety, arguing that when the Bankruptcy Court confirmed the Reorganization Plan, it discharged DLM's indemnity obligations. (ECF No. 12-1 at 2). On January 6, 2017, before responding in opposition to Defendants' Motion, ASIC filed a timely First Amended Complaint. (ECF No. 15). In its amended pleading, ASIC removes DLM from the Indemnity Claim and adds a new claim against DLM only for breach of the Agreements (the “Subrogation Claim”). (See ECF No. 15-1). ASIC asserts that it “is equitably subrogated to the rights of Cecil County to assert its rights against DLM for DLM's breaches” of the Agreements. (Am. Compl. ¶ 46).[3]

         On February 3, 2017, Defendants filed the present Motion to Dismiss Amended Complaint. (ECF No. 18). ASIC responded on March 3, 2017 (ECF No. 20), and Defendants replied on March 17, 2017 (ECF No. 21).


         A. Standard of Review

          Defendants move to dismiss under Federal Rule of Civil Procedure 12(b)(6). “The purpose of a Rule 12(b)(6) motion is to test the sufficiency of a complaint, ” not to “resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses.” Edwards v. City of Goldsboro, 178 F.3d 231, 243-44 (4th Cir. 1999) (quoting Republican Party v. Martin, 980 F.2d 943, 952 (4th Cir. 1992)). A complaint fails to state a claim if it does not contain “a short and plain statement of the claim showing that the pleader is entitled to relief, ” Fed.R.Civ.P. 8(a)(2), or does not “state a claim to relief that is plausible on its face, ” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

         A claim is facially plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. (citing Twombly, 550 U.S. at 555). Though the plaintiff is not required to forecast evidence to prove the elements of the claim, the complaint must allege sufficient facts to establish each element. Goss v. Bank of Am., N.A., 917 F.Supp.2d 445, 449 (D.Md. 2013) (quoting Walters v. McMahen, 684 F.3d 435, 439 (4th Cir. 2012)), aff'd sub nom., Goss v. Bank of Am., NA, 546 F.App'x 165 (4th Cir. 2013).

         In considering a Rule 12(b)(6) motion, a court must examine the complaint as a whole, consider the factual allegations in the complaint as true, and construe the factual allegations in the light most favorable to the plaintiff. Albright v. Oliver, 510 U.S. 266, 268 (1994); Lambeth v. Bd. of Comm'rs of Davidson Cty., 407 F.3d 266, 268 (4th Cir. 2005) (citing Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)). But, the court need not accept unsupported or conclusory factual allegations devoid of any reference to actual events, United Black Firefighters v. Hirst, 604 F.2d 844, 847 (4th Cir. 1979), or legal conclusions couched as factual allegations, Iqbal, 556 U.S. at 678.

         Generally, a court may not consider extrinsic evidence when resolving a Rule 12(b)(6) motion. See Chesapeake Bay Found., Inc. v. Severstal Sparrows Point, LLC,794 F.Supp.2d 602, 611 (D.Md. 2011). But a court may consider documents attached to the complaint. See Fed.R.Civ.P. 10(c). If those attached documents conflict with the “bare allegations of the complaint, ” the attached documents ...

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