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The Hanover Insurance Co. v. Engineered Systems Alliance, LLC

United States District Court, D. Maryland

March 1, 2019

THE HANOVER INSURANCE COMPANY, Plaintiff,
v.
ENGINEERED SYSTEMS ALLIANCE, LLC, et al., Defendants. HANKINS AND ANDERSON, INC., Third-Party Plaintiff,
v.
THERMO SYSTEMS, LLC, Third-Party Defendant. PIERCE ASSOCIATES, INC., Third-Party Plaintiff,
v.
CLEAVER-BROOKS, INC., et al., Third-Party Defendants.

          MEMORANDUM OPINION

          Paula Xinis United States District Judge.

         Pending in this complex construction case are the following dispositive motions filed by subcontractor Third-Party Defendants: (1) Elliott Co. I d/b/a Elliott Co. (“Elliott”), Cleaver-Brooks, Inc. (“Cleaver-Brooks”), IA Manufacturing, LLC d/b/a Industrial Steam (“Industrial Steam”), Rentech Boiler Systems, Inc. (“Rentech”), and Tate Engineering Systems, Inc. (“Tate”) moved to dismiss the third-party Complaints filed by Pierce Associates, Inc. (“Pierce”) (ECF Nos. 358, 359, 361, 362, 363)[1]; (2) ValvTechnologies, Inc. (“ValvTech”) moved for summary judgment against Pierce (ECF No. 360); (3) Elliott moved to dismiss the third-party Complaint filed by Engineered Systems Alliance, LLC (“ESA”) (ECF No. 357); and (4) Thermo Systems, LLC (“Thermo”) moved to dismiss part of the third-party Complaint filed by Hankins and Anderson, Inc. (“H&A”). ECF No. 244.[2] The motions are fully briefed, and no hearing is necessary. See Loc. R. 105.6. For the following reasons, the Court GRANTS Third-Party Defendants' motions. ECF Nos. 244, 357, 358, 359, 360, 361, 362, 363.

         I. Factual Background

         In 2010, the United States General Services Administration (“GSA”) entered into a contract with Honeywell International, Inc. (“Honeywell”) to design and build a central utility plant. ECF No. 283 ¶ 9. The central utility plant provides electricity, steam, and water to a federal facility in Maryland, in part through turbine generators. The failure of the G-9 and G-12 turbines and related equipment form the basis of this and other lawsuits. Id. ¶ 32.

         Honeywell hired ESA to provide “the design, construction, installation, and other services for the infrastructure” of the plant. Id. ¶ 10. In the Honeywell-ESA contract, the parties included a mutual indemnity clause for losses caused by the other's negligence, willful misconduct, or breach of contract. ECF No. 183-1, art. 11.1-11.2. ESA then contracted with Pierce, a member of ESA, for Pierce to provide the mechanical and plumbing systems for the project. ECF No. 283 ¶ 11. The Pierce-ESA subcontract stated that “the terms and conditions of ESA's contract with Honeywell Corporation are incorporated by reference as applicable to Pierce Associates [sic] scope of work.” ECF No. 382-2 at 1 (original in all capital letters).

         Pierce then procured equipment and services from Third-Party Defendants to design and build the G-12 and other machinery as follows: Elliott designed and furnished a steam turbine generator package that included a lube and control oil system, a trip and throttle valve to control steam flow, spare parts, labor, and support for a functional performance test. ECF No. 283 ¶ 12. The contract specifications required Elliott to provide data for the generator's routine maintenance and overhaul. Id. ¶ 18. ValvTech furnished valves, actuators, documentation, and labor for startup, training, and revision of a feed water connection. ECF No. 202 ¶ 12. Cleaver-Brooks designed and manufactured a fire tube boiler, valves, a surface blowdown system, and provided the labor to install, startup, and test a steam boiler. ECF No. 295 ¶ 13. Industrial Steam and Tate collaborated with ESA member, H&A, to design, build, install, and provide start up services for deaerators. ECF No. 341 ¶¶ 13, 14. Rentech designed and furnished the heat recovery steam generator systems, stacks and valves, and provided startup services and reworking for a superheater. ECF No. 330 ¶ 13. Several of these subcontractors claimed to have substantial training and experience in their respective roles. See ECF No. 283 ¶ 20 (Elliott attesting to “high-quality management standards, accreditations, licensures, and [an] ‘unwavering goal to achieve zero incidents of any kind'”); ECF No. 295 ¶ 17 (“Cleaver-Brooks' reputation and alleged experience and commitment to providing the most advanced, integrated engineered boiler room solutions”); ECF No. 330 ¶ 17 (averring “Rentech's reputation and alleged experience and leadership”).

         Work Flow Chart[3]

         (Image Omitted)

         Pierce's Purchase Orders for the above work formed the basis of the contracts between Pierce and Third-Party Defendants. These Purchase Orders incorporate by reference external documents, including job specifications. By the terms of the Purchase Orders, Third-Party Defendants agreed to perform in “strict accordance” with applicable specifications. ECF No. 283 ¶ 16; ECF No. 293 ¶ 18; ECF No. 202 ¶ 13; ECF No. 295 ¶ 14; ECF No. 330 ¶ 14; ECF No. 342 ¶ 29; ECF No. 341 ¶ 21.[4] External specifications for each Third-Party Defendant, except ValvTech, refer to the “[d]rawings and general provisions of the Contract, including General and Supplementary Conditions.” ECF No. 283 ¶ 16 (Elliott); ECF No. 295 ¶ 15 (Cleaver-Brooks); ECF No. 209-2 at 1 (Industrial Steam); ECF No. 208-2 at 1 (Tate); ECF No. 330 ¶ 15 (Rentech); see also ECF No. 330 ¶ 16 (Rentech) (averring, in addition, a reference to “the Contract, including General and Supplementary Conditions”). The Purchase Orders also require each to act in strict “accordance with applicable contract documents.” ECF No. 283-1 at 43 (Elliott); ECF No. 202-1 at 1 (ValvTech); ECF No. 330 ¶ 14 (Rentech); see also ECF No. 209-1 at 1 (Industrial Steam) (requiring strict compliance “with applicable contract plans and specifications”); ECF No. 208-1 at 1 (Tate) (same); ECF No. 200-1 at 1 (Cleaver-Brooks) (same). Finally, each Purchase Order included indemnification provisions for patent infringements but for no other wrongdoing or losses. ECF No. 202-1 at 2; ECF No. 361-2 at 2; ECF No. 208-1 at 2; ECF No. 209-1 at 2; ECF No. 204-1 at 2; ECF No. 206-1 at 3.

         After the work was substantially completed, Honeywell identified an array of design and construction defects of the high-pressure feed water system, the turbine bypass valve assembly, the cooling tower basin retaining wall, the G-12 Turbine system, and an underground pipe installation. ECF No. 141. The defective work, Honeywell contends, has forced the plant to run back-up generators to provide sufficient power and spinning reserve, which has led to Honeywell's “failure to meet performance guarantees that have been made to GSA.” Id. at ¶ 27.

         II. Procedural Background

         Although the current motions concern damages for a wide range of equipment, the original suit related solely to damages sustained to the G-9 turbine after the G-9 failed catastrophically in 2014. ECF No. 197 ¶ 19. On January 14, 2015, Plaintiff Hanover Insurance Company initiated suit, seeking a declaration as to the scope of insurance coverage related to claims on its policy for the G-9 damages. ECF No. 1. Honeywell, in turn, filed crossclaims against ESA as to liability for the G-9 damage (ECF No. 56), which prompted ESA to file a third-party Complaint against Thermo, seeking indemnity for any G-9 related damages (hereinafter “G-9 Litigation” or “G-9 Claims”). ECF No. 64.

         The Court issued a scheduling order for the G-9 Litigation, which required amendment of pleadings or joinder of additional parties by no later than February 6, 2017. ECF No. 90 at 3. Pursuant to that Order, Honeywell sought leave to amend its crossclaims against ESA, asserting claims for additional defective work performed in connection with the Honeywell-ESA contract. ECF No. 96. Honeywell's new claims covered a high pressure feed water system, deaerator tank valves and piping, steam vent valves, turbine bypass valve assembly, cooling tower basin retaining wall, underground pipe, and G-12 turbine system (altogether, and excluding the G-9 Claims, hereinafter “G-12 Litigation” or “G-12 Claims”). ECF No. 141 ¶ 24. Accordingly, the Court granted amendment to allow Honeywell to preserve the G-12 Claims against ESA, Pierce, and H&A. ECF Nos. 140-42. H&A, in response, filed a third-party Complaint against Thermo, asserting not only G-12 Claims but also claims related to the G-9 Litigation. ECF No. 197 ¶¶ 15-22, 32.

         As to the G-12 Claims, ESA and Pierce then filed third-party Complaints against Elliott, Cleaver-Brooks, Industrial Steam, Rentech, Tate, and ValvTech. ECF Nos. 202, 283, 293, 295, 330, 341, 342. In each third-party Complaint, ESA and Pierce contend that Third-Party Defendants must indemnify ESA and Pierce pursuant to their respective agreements for any liability arising from the G-12 claims. ESA also avers that Elliott owes contribution to ESA.

         Pending before the Court are Third-Party Defendant ValvTech's motion for summary judgment and the remaining Third-Party Defendants' motions to dismiss the indemnity and contribution claims against them. All essentially argue that ESA and Pierce do not retain any right to indemnification as a matter of law. Also pending is Thermo's motion to dismiss or strike H&A's G-9 Claims as untimely. ECF No. 244. The Court first addresses the sufficiency of the indemnity and contribution claims, then turns to Thermo's motion to dismiss.

         III. Standard of Review

         A motion to dismiss brought pursuant to Rule 12(b)(6) tests the sufficiency of the complaint. Presley v. City of Charlottesville, 464 F.3d 480, 483 (4th Cir. 2006). A complaint need only satisfy the standard of Rule 8(a), which requires a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). “Rule 8(a)(2) still requires a ‘showing,' rather than a blanket assertion, of entitlement to relief.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 n.3 (2007). That showing must consist of more than “a formulaic recitation of the elements of a cause of action” or “naked assertion[s] devoid of further factual enhancement.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks omitted) (quoting Twombly, 550 U.S. at 555).

         In ruling on a motion to dismiss, the well-pleaded allegations are accepted as true and viewed in the light most favorable to the party asserting the claim. Twombly, 550 U.S. at 555. The Court may also consider documents attached to the motion to dismiss when “integral to and explicitly relied on in the complaint, and when the [opposing parties] do not challenge the document[s'] authenticity.” Zak v. Chelsea Therapeutics, Int'l, Ltd., 780 F.3d 597, 606-07 (4th Cir. 2015) (quoting Am. Chiropractic Ass'n v. Trigon Healthcare, Inc., 367 F.3d 212, 234 (4th Cir. 2004)) (internal quotation marks omitted). However, “[f]actual allegations must be enough to raise a right to relief above a speculative level.” Twombly, 550 U.S. at 555. “[C]onclusory statements or a ‘formulaic recitation of the elements of a cause of action will not [suffice].'” EEOC v. Performance Food Grp., Inc., 16 F.Supp.3d 584, 588 (D. Md. 2014) (quoting Twombly, 550 U.S. at 555). “‘[N]aked assertions of wrongdoing necessitate some ‘factual enhancement' within the complaint to cross ‘the line between possibility and plausibility of entitlement to relief.'” Francis v. Giacomelli, 588 F.3d 186, 193 (4th Cir. 2009) (quoting Twombly, 550 U.S. at 557).

         As to ValvTech's summary judgment motion, the Court must view the evidence in the light most favorable to the non-moving party to determine whether any disputed issue of material fact precludes entering judgment in the movant's favor as a matter of law. See Fed. R. Civ. P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Emmett v. Johnson, 532 F.3d 291, 297 (4th Cir. 2008). “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) (quoting former Fed.R.Civ.P. 56(e)).

         IV. Analysis

         A. Express Indemnity

         Pierce argues that the motions must be denied because the Third-Party Defendants'[5]contract documents incorporate the indemnity provision in the Honeywell-ESA contract. ESA makes the same claim as to Elliott. When construing the contracts most favorably to non-movants, the Court cannot agree.

         Maryland common law governs the scope and validity of indemnity agreements. Atl. Contracting & Material Co. v. Ulico Cas. Co., 380 Md. 285, 300 (2004) (holding that express indemnity agreements “must be construed in accordance with our traditional rules of objective contract interpretation”); see also Sokolowski v. Flanzer, 769 F.2d 975, 977 (4th Cir. 1985) (noting that federal courts sitting in diversity must apply the conflict of laws rules of the forum state); Cunningham v. Feinberg, 441 Md. 310, 326 (2015) (noting that Maryland applies “the law of the jurisdiction where the contract was made” unless there is a choice of law provision in the contract). Under Maryland law, contracts are interpreted objectively “from the perspective of a reasonable person standing in the parties' shoes at the time of the contract's formation.” OceanPetroleum, Co. v. Yanek, 416 Md. 74, 86 (2010). The meaning of a contractual indemnity provision is “ordinarily a question of law for the court.” Wells v. Chevy Chase Bank, F.S.B., 363 Md. 232, 250 (2001). The court must “give effect to the plain meaning of an unambiguous term, ” Weichert Co. of Md., Inc. v. Faust, 419 Md. 306, 324 (2011), by looking to “the customary, ordinary, and accepted meaning of the language used.” Bainbridge St. Elmo BethesdaApartments, LLC v. White Flint Express Realty Grp. Ltd. P'ship, LLLP, 454 Md. 475, 485 (2017) (quoting Ulico, 380 Md. at 301) (internal quotation marks omitted). The court considers the “entire language of the agreement, not merely a portion ...


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