Bond Safeguard Insurance Company v. Diane Elizabeth Ward, James Robert Ward

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[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 11-12646
________________________
D. C. Docket No. 6:09-cv-01504-GAP-GJK
BOND SAFEGUARD INSURANCE COMPANY,
Plaintiff-Appellee,
versus
DIANE ELIZABETH WARD, et al.,
Defendants,
JAMES ROBERT WARD,
Defendant-Appellant.
________________________
Appeal from the United States District Court
for the Middle District of Florida
________________________
(July 17, 2012)
Before DUBINA, Chief Judge, JORDAN and ALARCÓN,* Circuit Judges.
*
Honorable Arthur L. Alarcón, United States Circuit Judge for the Ninth Circuit, sitting by
designation.
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PER CURIAM:
Defendant-Appellant, Robert Ward (“Ward”), appeals the district court’s
grant of partial summary judgment in favor of Plaintiff-Appellee, Bond Safeguard
Insurance Company (“Safeguard”), on certain indemnification claims. The partial
summary judgment did not dispose of all claims against Ward, but the district court
later granted, over Ward’s objection, Safeguard’s voluntary motion to dismiss its
remaining claims without prejudice. For the reasons that follow, we reverse.
I.
Procedural History
On September 1, 2009, Safeguard filed a complaint alleging that it agreed to
issue construction bonds on behalf of real estate companies owned by Ward.
Safeguard asserted that it and Ward entered into an indemnification agreement in
which Ward agreed to indemnify Safeguard for any losses it suffered in connection
with the bonds. Safeguard alleged in Count I of its complaint that it had been
required to pay $7,542,371.94 based on claims made against bonds related to two
real estate projects, the Villages of Norris Lake (“Norris Lake”) and LR Riversea,
LLC (“Riversea”). Safeguard claimed that Ward’s companies failed to complete
these two projects and sought indemnification for those monies. Safeguard also
sought compensation for any additional damages that Safeguard might suffer in the
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future if Ward’s companies defaulted on bonds for other real estate projects (Count
I). Safeguard alleged a claim for quia timet / exoneration (Count II). Safeguard
stated that it was reasonably likely that the other bond principals had defaulted or
would default on their obligations, and Safeguard sought equitable relief “for those
debts which are to become due and exoneration for those debts which have been
demanded.” Safeguard also sued Diane Elizabeth Ward, the Sarah Caitlin Ward
Irrevocable Trust, and the Mallory Elizabeth Ward Irrevocable Trust in an effort to
recover for allegedly fraudulent transfers and for the imposition of an equitable lien
as a result of the fraudulent transfers (Counts III and IV). Safeguard further
asserted a claim for tortious interference with a contract against Robert Ward
(Count V).
Safeguard filed a motion for partial summary judgment. Ward filed a motion
for continuance for additional time to conduct discovery, and the district court
granted his motion. Subsequently, Ward filed a memorandum of law in opposition
to Safeguard’s motion. He argued that the General Agreement of Indemnity
(“GAI”) contained an explicit condition precedent requiring certain consultation
which Safeguard failed to meet, that the failure to meet the condition precedent
precluded liability for indemnity under Georgia law, and that genuine issues of
material fact existed precluding the entry of summary judgment. Safeguard then
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filed a reply arguing that it complied with all material conditions and that any
requirement to consult was not a material term. Safeguard argued, and the district
court agreed, that the phrase “after consultation with the Principal” neither
contained any words of condition nor expressly created a condition precedent.
On November 10, 2010, the district court entered an order granting in part
Safeguard’s motion for partial summary judgment on the issue of Ward’s liability
under the GAI with regard to the bond defaults on the Norris Lake and Riversea
projects. The court stated that to the extent Safeguard sought a partial final money
judgment against Ward for $542,371.94 and $7,000,000 paid in connection with
the bonds, the court could not grant such relief. The court noted that Safeguard
indicated that it intended to seek indemnification for payments “expected to be
made in regard to bonds issued for a project in Rutherford County, North
Carolina.” The court found that it could not grant summary judgment as to Ward’s
liability for the $7,542,371 in payments made on the two bonds because that would
amount to judgment on part of a claim, which would be improper. However, it did
determine that Safeguard was entitled to an order determining that the amounts
paid in connection with the two real estate projects were not in dispute and the
district court stated that Ward’s liability under the GAI for the Riversea and Norris
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Lake projects was fixed in the amount of $7,542,371.94 and would be deemed
established at trial.
On March 14, 2011, the district court issued an order stating that the parties
had settled, on the eve of trial, the fraudulent transfer, equitable lien, and tortious
interference claims (Counts III, IV, and V). During a pretrial conference,
Safeguard stated that $8,550,000 had been liquidated on certain bonds associated
with a Jekyll Island project, and Safeguard had advised the district court it was
seeking liquidation on that amount. The court noted that it advised Safeguard the
court could try that claim. The court also informed the parties that any claims
relevant to bond payments that Safeguard expected to have in the future would be
bifurcated for trial at a later date, stating that most of the upcoming trial would
involve the fraudulent transfers. When Safeguard sought a continuance on the trial
of the $8.5 million Jekyll Island claim, the court dismissed with prejudice that
portion of Count I in which Safeguard sought indemnification in regard to the
Jekyll Island claim. The court advised the parties to inform the court regarding any
remaining claims, their amounts, and when they may be tried. Ward responded that
the only claims left that needed to be tried were those claims against Ward under
Counts I and II of the complaint associated with the Rutherford County bond, the
Stillwater Coves Subdivision bond, the Campbell County Regional Planning
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bonds, the City of St. Mary bonds, and the Douglas County bonds. He based this
list of outstanding claims on the joint pretrial statement. He stated that because the
claims appeared to have developed after discovery, he would probably need
another 120 days to conduct depositions.
Safeguard then moved to dismiss any remaining unliquidated bond claims
without prejudice and for the district court to enter final judgment on the Norris
Lake and Riversea claims for which the court had already found Ward liable for
approximately $7.5 million. Safeguard further argued that dismissal without
prejudice was appropriate because an essential element of Ward’s liability on the
unliquidated claims, namely Safeguard’s payment on those claims, may or may not
occur. Also, although payment would be necessary to find indemnity liability
against Ward on the unliquidated bond claims, Safeguard would be entitled to a
finding of liability against Ward regarding the unliquidated bond claims based on
the quia timet theory pled in Count II. Safeguard further stated that if a dismissal
without prejudice was not granted as to the unliquidated bond claims, then the
remaining bond claims included: (1) $26,404,348 for Grey Rock (Rutherford
County); (2) $1,929,718 for Cumberland Harbor (City of St. Mary’s); and (3)
$3,480,000 for Stillwater Coves/Clarks Hill. It stated that if the court granted the
voluntary motion to dismiss without prejudice as to the unliquidated bond claims,
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then there would be no further claims left for adjudication and the court should
enter final judgment in the amount of $7,542,371.94 in favor of Safeguard. The
district court granted the dismissal.
On May 11, 2011, the district court clerk entered judgment in favor of
Safeguard and against Ward in the amount of $7,542,371.94, per the direction of
the district court.
Facts
Land Resource LLC (“LRC”) was a developer of second-home and luxury
developments until October 2008, when market conditions caused it to file
bankruptcy under Chapter 11. Ward was the chairman and CEO of LRC. In 2003,
Safeguard, a bonding company, agreed to issue construction bonds on behalf of
LRC. Safeguard issued bonds in two high-end developments, Riversea and Norris
Lake. In August 2003, Ward executed the GAI in favor of Safeguard under which
Ward agreed to indemnify and hold Safeguard harmless from any and all losses
associated with any bonds issued on behalf of LRC and its subsidiaries and
affiliates. Paragraphs 3 and 5 of the GAI present the crux of the issue in this case:
3. If the Company, after consultation with the Principal, shall set
up a reserve to cover any claim, suit or judgment under any
such bond, the Indemnitors will, immediately upon demand,
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deposit with the Company a sum of money equal to such
reserve, such sum to be held by the Company as collateral
security on such bond, and such sum and any other money or
property which shall have been, or shall hereafter be, pledged
as collateral security on any such bond shall, unless otherwise
agreed in writing by the Company, be available, in the
discretion of the Company, as collateral security on any other
or all bonds coming within the scope of this agreement.
(emphasis added).
5. The Company, after consultation with the Principal, shall
have the exclusive right to determine for itself and the
Indemnitors whether any claim or suit brought against the
Company or the Principal upon any such bond shall be settled
or defended and its decision shall be binding and conclusive
upon the Indemnitors. (emphasis added).
The phrase “after consultation with the Principal” was added to paragraphs 3
and 5 as a typewritten change to the contract.
By summer 2008, Safeguard received notices of default from both
developments and demanded indemnification from Ward. Safeguard met with
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Ward on several occasions to discuss the various bond defaults. Notably, Ward
testified that these discussions were not consultations as required under the GAI
and that they did not include a discussion of whether any specific bond claims
should be defended or settled. However, in an affidavit filed in support of his Rule
54(f) motion, Ward stated that in those meetings he did not have the personal assets
with which to indemnify Safeguard and would not do so.
After investigating the claims made on the Norris Lake and Riversea
projects, Safeguard paid $7,000,000 to settle the Norris Lake bond claims and
$542,371.94 to settle the Riversea bond claims. To date, Ward has not indemnified
Safeguard for the amounts it paid to settle the Norris Lake and Riversea bond
claims.
II.
We review a district court’s grant of summary judgment de novo applying
the same standards as the district court. Harris v. H&W Contracting Co., 102 F.3d
516, 518 (11th Cir. 1996).
A district court’s contract interpretation is a question of law and is subject to
de novo review. American Cas. Co. of Reading, Pa. v. Etowah Bank, 288 F.3d
1282, 1285 (11th Cir. 2002).
III.
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The parties agree that Georgia law applies to the construction and
interpretation of the GAI. The purpose of contract interpretation under Georgia
law is to ascertain the intention of the parties. Page v. Baylard, 281 Ga.586, 587,
642 S.E.2d 14, 16 (Ga. 2007) (quoting Hall v. Day, 273 Ga. 838, 839–40, 546
S.E.2d 469, 471 (Ga. 2001)). “Where the terms of the contract are clear and
unambiguous, the court looks only to the contract to find the parties’ intent.”
Quality Foods, Inc. v. Smithberg, 288 Ga. App. 47, 51, 653 S.E.2d 486, 491 (Ga.
2007) (internal quotations and citations omitted). A contract should be construed
by examining the agreement in its entirety, not by only looking at isolated clauses
and provisions. Jones v. Destiny Indus., Inc., 226 Ga. App. 6, 6, 485 S.E.2d 225,
226 (Ga. Ct. App. 1997). A condition precedent requires an occurrence or
performance by one party before the other party will be bound to perform. Mut.
Benefit Health & Accident Ass’n v. Hulme, 57 Ga. App. 876, 876, 197 S.E. 85, 89
(Ga. Ct. App. 1938). Under Georgia law, a condition precedent must be indicated
by the words “on condition that,” “if,” “provided,” or “other words of conditions”
or by an express statement to the effect that a condition is to be construed as a
condition precedent. Self v. Smith, 216 Ga. 151, 153, 115 S.E.2d 355, 358 (Ga.
1960).
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The district court relied upon General Steel, Inc. v. Delta Building Systems
Inc., 297 Ga. App. 136, 676 S.E.2d 451 (Ga. Ct. App. 2009) in determining that the
phrase “after consultation with the Principal” was not a condition precedent. In
General Steel, Delta Building Systems, Inc. (“Delta”) established a credit account
with General Steel for the purchase of construction supplies. Id. at 452. Eichholz,
the personal guarantor for Delta, like Ward, signed a personal guaranty of Delta’s
indebtedness. Id. Similar to the GAI in this case, the parties in General Steel
added the following handwritten provision to the guaranty: “[t]his guarantee shall
be limited to the amount of $30,000 outstanding at any time. I will receive all
billings reelect charges and payments on a monts [sic] basis.” Id. Delta did not
fulfill its obligation to pay General Steel, so General Steel sued to enforce the
personal guaranty. Id. at 453. General Steel did not provide Eichholz with
monthly billing statements. Id. Eichholz argued that he was not obligated to pay
General Steel because it failed to comply with the condition precedent of providing
monthly billing statements. Id. The Georgia Court of Appeals found that the
handwritten provision stating that Eichholz would receive monthly billing was not
a condition precedent because the provision “employed no explicit words of
condition, and there [were] no expressions in the entirety of the guaranty to the
effect that the cited provision [was] to be construed as a condition precedent.” Id.11
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at 454. The court held that a court cannot construe a contract to create a condition
precedent when the clear and unambiguous language of the contract does not create
one. Id.Ward argues that General Steel is distinguishable from the facts here because
there, the requirement to provide monthly billings is “directory” and the provision
contained no words of condition. The district court read the phrase “after
consultation with the Principal” and concluded that the phrase does not create a
condition precedent in this case. Ward argues that the district court’s interpretation
renders the phrase meaningless.
In this case, we conclude that the requirement of indemnification is
conditioned on consultation. It was clearly the intent of the parties to create a
condition precedent because the phrase, “after consultation with the principal” was
added to the GAI before it was signed, indicating the importance of the
consultation. Indeed, the importance of this phrase is supported by the significant
right – providing Safeguard the exclusive right to decide whether to settle or
defend a claim, which is then binding on Ward – being contracted to. Our
conclusion that the phrase “after consultation with the principal” is a condition
precedent under Georgia law is supported by the Georgia Supreme Court’s decision
in Page, 642 S.E.2d at 15-16. Although Page involved the interpretation of a
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phrase in a divorce settlement agreement, its reasoning and holding is instructive
here. In Page, the Georgia Supreme Court held that the phrase “[i]n the event that
a major expenditure is to be incurred, husband will be consulted prior to services
rendered, except in an emergency situation” created a condition precedent. See id.
at 16. Like the provision in Page, the GAI in this case required one party to be
consulted before its obligation to pay became obligatory.
Safeguard alternatively argues that if it should have consulted with Ward, he
waived the consultation by his admission that he did not have the personal assets to
indemnify Safeguard. This may be a plausible argument but it, along with the
remaining issues presented in this case, is for the factfinder to determine in the first
instance.
IV.
For the foregoing reasons, we conclude that the district court’s grant of
Safeguard’s motion for partial summary judgment is hereby reversed and the case
is remanded for further proceedings consistent with this opinion.
REVERSED AND REMANDED.
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