Fidelity and Deposit Company of Maryland v. C.E. Hall Construction, Inc.

Case: 14-14698 Date Filed: 09/22/2015 Page: 1 of 8
[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
__________________________
No. 14-14698
__________________________
D.C. Docket No. 4:11-cv-00102-WTM-GRS
FIDELITY AND DEPOSIT COMPANY OF MARYLAND,
Plaintiff – Appellee,
versus
C.E. HALL CONSTRUCTION, INC., et al.,
Defendants – Appellants.
________________________
Appeal from the United States District Court
for the Southern District of Georgia
________________________
(September 22, 2015)
Before ROSENBAUM and FAY, Circuit Judges, and MIDDLEBROOKS, *
District Judge.
PER CURIAM:
*
The Honorable Donald M. Middlebrooks, United States District Judge for the Southern District
of Florida, sitting by designation.
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Appellant C.E. Hall Construction (“Hall Construction”) obtained payment
and performance bonds from Appellee Fidelity and Deposit Company of Maryland
(“F&D”) in connection with its contract to construct the Southside Baptist Church
(the “Church”) Community Outreach Center (the “Project”) in Savannah, Georgia.
In return, Appellants Hall Construction, Charles E. Hall, and C.E. Hall, Inc.
(collectively, the “Halls”) promised to indemnify F&D against loss on the bonds
(the “Indemnity Agreement”).
Problems arose between the Church and Hall Construction soon after
construction began. The Church refused to pay Hall Construction the entire
amount sought under a pay request and, as a result, Hall Construction was unable
to pay its subcontractors in full. The City of Savannah also placed a hold on the
building permit due to revisions to the original construction plans. Construction on
the Project ceased thereafter. The Church terminated its contract with Hall
Construction and formally demanded that F&D perform under the performance
bond. F&D also received claims against the payment bond from three
subcontractors.
The Halls requested that F&D not pay the claims. F&D asked the Halls to
post collateral but the Halls declined to do so. F&D settled the subcontractors’
claims under the payment bond and the Church’s claim under the performance
bond. F&D sought indemnity from the Halls, but the Halls refused to indemnify
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F&D. As a result of the Halls’ refusal, F&D filed this action in the Southern
District of Georgia.
The district court initially denied F&D’s motion for summary judgment. On
motion to reconsider, the district court granted F&D’s motion for summary
judgment, concluding there were no genuine issues of material fact as to whether
F&D acted in good faith in settling the claims and F&D was, thus, entitled to
indemnity. The Halls appeal the district court’s judgment.
I.
We review de novo a district court’s grant of summary judgment. McCullum
v. Orlando Reg’l Healthcare Sys., Inc., 768 F.3d 1135, 1141 (11th Cir. 2014).
II.
The Halls argue that the district court erred in granting summary judgment
in favor of F&D. The Halls raise three issues, which are addressed below.
First, the Halls argue the district court ignored genuine issues of material
fact as to whether F&D acted in good faith. We disagree.
The Indemnity Agreement requires the Halls to jointly and severally
indemnify F&D against
liability for losses and/or expense of whatsoever kind or nature
(including, but not limited to, interests, court costs and counsel fees)
and from and against any and all such losses and/or expenses which
the Surety may sustain and incur: (1) By reason of having executed or
procured the execution of the Bonds, (2) By reason of the failure of
the [Halls] to perform or comply with the covenants and conditions of
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this Agreement or (3) In enforcing any of the covenants and
conditions of this Agreement.
“In the event of any payment” by F&D, F&D may
charge for . . . disbursements made by it in good faith in and about the
matters herein contemplated by this Agreement under the belief that it
is or was liable for the sums and amounts so disbursed, or that it was
necessary or expedient to make such disbursements, whether or not
such liability, necessity or expediency existed.
Paragraph 13 of the Indemnity Agreement also gives F&D the right to settle claims
against the bonds:1
The Surety shall have the right to adjust, settle or compromise any
claim, demand, suit or judgment upon the Bonds, unless the [Halls]
shall request the Surety to litigate such claim or demand, or to defend
such suit, or to appeal from such judgment, and shall deposit with the
Surety, at the time of such request, cash or collateral satisfactory to
the Surety in kind and amount, to be used in paying any judgment or
judgments rendered or that may be rendered, with interest, costs,
expenses and attorneys’ fees, including those of the Surety.
As provided above, F&D’s right to settle is limited only if the Halls request that
F&D litigate the claim and deposit collateral with F&D.
The Halls do not dispute they did not post collateral. Thus, F&D is entitled
to indemnity on disbursements for claims settled in good faith.
The Halls rely heavily on the district court’s initial order denying summary
judgment. In that order, the district court identified factual disputes concerning the
adequacy of F&D’s investigation, which the court found relevant to the issue of
1
Should F&D settle a claim, “vouchers or other evidence of any such payments . . . shall be
prima facie evidence of the fact and amount of the liability.”
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whether F&D settled in good faith. The court also identified factual disputes as to
whether Hall Construction defaulted on the contract with the Church and whether
there were reasons outside of Hall Construction’s control that prevented it from
paying its subcontractors.
However, on reconsideration, the district court found that “[the Halls] have
not identified anything in the record to suggest that [F&D] acted unreasonably by
settling the performance bond and payment bond claims . . . .” It also noted that
the exercise of a contractual right, without more, cannot form the basis for bad
faith.
On appeal, the Halls rely on their defenses to the claims in support of their
contention that F&D settled in bad faith. The Indemnity Agreement, however,
provides that F&D may settle claims “under the belief that it is or was liable . . . or
that it was necessary or expedient to make such disbursements, whether or not such
liability, necessity or expediency existed.” Even if F&D determined that the Halls’
defenses were valid, F&D had the contractual right to settle claims where it
determined it was necessary or expedient to do so. Exercise of a contractual right
is not evidence of bad faith.
The Halls also rely on the alleged inadequacy of F&D’s investigation of the
claims to show lack of good faith. “[W]here a decision is left to the discretion of a
designated entity, the question is not whether it was in fact erroneous, but whether
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it was in bad faith, arbitrary or capricious so as to amount to an abuse of that
discretion.” MacDougald Constr. Co. v. State Highway Dep’t, 188 S.E.2d 405,
406 (Ga. Ct. App. 1972). “Bad faith is not simply bad judgment or negligence, but
it imports a dishonest purpose or some moral obliquity, and it implies conscious
doing of wrong, and means breach of known duty through some motive of interest
or ill will.” Nguyen v. Lumbermens Mut. Cas. Co., 583 S.E.2d 220, 223 (Ga. Ct.
App. 2003) (internal quotation marks omitted). F&D conducted an investigation
into the claims but the Halls disagree with the results of the investigation.
Disagreement with an investigation is not evidence of bad faith. See Fidelity and
Deposit Co. of Maryland v. Douglas Asphalt Co., 338 F. App’x 886, 887 (11th Cir.
2009). 2 The district court, therefore, did not err in concluding there was no
evidence of bad faith.
Second, the Halls correctly argue that the district court erred in finding that
they failed to request that F&D contest the default. However, it is undisputed that
the Halls did not post collateral. Absent a request to litigate and the posting of
collateral, F&D had the contractual right to settle claims so long as they were
settled in good faith. Therefore, the district court’s error was harmless.
2
See also Auto-Owners Ins. Co. v. Southeast Floating Docks, Inc., 571 F.3d 1143, 1146 (11th
Cir. 2009) (an inadequate investigation “must be accompanied by other evidence of improper
motive, such as a self-interested settlement,” to show bad faith under Florida law).
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Finally, the Halls argue that the district court erred in concluding that F&D
owed no fiduciary duty to them. The Halls cite to McLendon v. Hartford Acc. &
Indem. Co., in which the Georgia Court of Appeals found that “the [surety] held a
fiduciary relationship with [the principal] and was required to act in good faith and
with loyalty.” 167 S.E.2d 725, 726 (Ga. Ct. App. 1969). That determination,
however, was based on contractual language, which the court interpreted made the
surety the agent of the principal because it gave the surety the right “to decide and
determine whether any claim, demand, liability, suit, action, judgment or
adjudication, made, brought, or entered against the surety or principal . . . shall, or
shall not, be defended, tried, appealed, or settled . . . .” Id.The Halls rely on an attorney-in-fact provision in the Indemnity Agreement
to impose a fiduciary duty:
Contractor and Indemnitors hereby irrevocably nominate, constitute,
appoint and designate the Surety as their attorney-in-fact with the
right, but not the obligation, to exercise all of the rights of the
Contractor and Indemnitors assigned, transferred and set over to the
Surety in this Agreement, and in the name of the Contractor and
Indemnitors to make, execute, and deliver any and all additional or
other assignments, documents or papers deemed necessary and proper
by the Surety in order to give full effect not only to the intent and
meaning of the within assignments, but also to the full protection
intended to be herein given to the Surety under all other provisions of
this Agreement.
This provision merely designates F&D as the attorney-in-fact for the purpose of
exercising the Halls’ rights to provide protection to F&D. In settling the claims
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against the bonds, F&D exercised its rights under Paragraph 13 of the Indemnity
Agreement, not the Halls’ rights under the attorney-in-fact provision. Thus, the
district court did not err in determining F&D did not owe a fiduciary duty to the
Halls under the Indemnity Agreement.
III.
We affirm the district court’s grant of summary judgment in favor of F&D.
AFFIRMED.
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