Free Redacted Document - District Court of Delaware - Delaware

Case 1 :04-cv-00360-JJF Document 236-7 Filed 09/ 1 3/2006 Page 1 of 3
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TRAVELERS CASUALTY AND SURIZTY COMPANY OF AMERICA, INC., Plaintiff v.
JADUM CONSTRUCTION, INC., ANDREW R. LEVENBAUM, and ANDREA R.
LEVENBAUM, Defendants
CIVIL ACTION NO. B2·—10S81-·GA0
UNITED STATES DISTRICT COURT FOR THE EISTRICT OF MASSACHUSETTS
2003 [LS. Dist. LEXIS 11861
July 11, 2003, Decided
DISPOSITION: [*1} Plaintiffs motion for summary LexisNexis(R) Hcadnetes
judgment on damages granted.
CASE SUMMARY: Contracts Law > Types of Comfmcts > Guarumjy
i Contracts
i ‘ [HN1] The test for the lack of good faith (or bad faith) is
. PROCEDURAL POSTURE: Plaintiff insurer sued de- whether the surety acted with a dishonest purpose, con-
fendant insured te recover, pursuant tc an indemnity scicus doing of wrong, or breach of duty through motive y
agreement, the cosis ofccmpieting a construction project ef sch"—i11terest or ill wiil. A showing of "bad judgment,
the insured had contracted to build. The court had al- negkigerzce or insufficient zeal" is not sufficient.
ready determined that the insurcd‘s voluntary termination
of performance of the proéect triggered its obiigation to Contracts Law > Types of Contracts > Guaremqw
compensate the insurer under the agreement. The insurer Contracts
moved for smmuary §udgment on the amount of costs the [HN2} The fact that payments made by a surety may have
` insured was liable for. been unnecessary does not demonstrate iack ofgood faith.
Bad faith requires the conscious doing of a wrong because
i OVERVIEW: The insurer moved for summary judgment of dishonest purpose or morai cbliquity.
on the only remaining issue-whether the insured was li~
able for the fuil amount of costs the insurer paid to com» Contracts Law > Types cf Cantmcrs > Guaranty
plete the project. The insmer made out a prima facie case Contracts
ofthe costs it incurred, so the insured was obligated to pay [HN3] Even " gross z1eg1igcnce" by a surety does not meet
mcse costs unless it established that some or ali of them the standard cf had faith because it does nos demonstrate
were incurred in bad faith. The insured had contracted improper motive. ‘
to complete the project for $8 million. The insurer spent
over $9 million to finish the project. The insured argued COUNSEL: For Travelers Casualty & Surety Company
that the insurer incurred the excess costs in isad faith. The of America, PLAINTIFF: Philip M Cronin, Peabody &
` court disagreed. The test fer bad faith was whether the in- Arnold LLP, Boston, MA USA.
surer acted with a dishonest purpose, conscious doing of
wrong, or breach ofduty through motive o‘Z`se1f—§ntercst or For Jaiclum Construction Company Inc, Andrew
il] will. A showing ofbad judgment, negligence or i11suf» Levenbaum, Andrea Levenbaum, DEFENDANTS: Bruce
ficient zeal was not sufficient. While excessive payment D Levin, Peter B McGlyrm, Bemkcpi Goodman &
may have been negligent er even reckless, overpayment Basemzm, Boston, MA USA.
by itself did not evincc any ill will by the insurer. The
insurer's arguments were eased only on its information SUDGES: George A. O'T0ole, Er., DISTRICT JUDGE.
and belief of some conflicts of interest. At this stage of
the proceedings, after discovery had occurred, that was OPINIONBY: George A. O"'I`oole, Jr.
insuflicient to raise a viable issue of fact.
OPINION:
OUTCOIYIE: The court: granted the insurers motion for MEMORANDUM AND ORDER
summary judgment on the issue of damages.

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2003 U.S. Dist. LEXIS ll861, *l
July E 1, 2003 judgment, attorney’s fee, and expense which
the Company incurs in consequence of hav»
O‘TOOLE, 1).5. ing executed, or procured the execution of
Travelers Casualty and Surety Company of America, Such E0ndS` E"p"“S? Includes me cost of
_ I ,, ,, . . . . . . proeurmg or atternptmg to procure release
I ne.( Travelers )smt:ated this proceeding agamst Jadum {mm Habm or in brim in Suit to Bnfomc
Construction, Inc., Andrew R. Levenbaum, and Andrea this A wmtgiu 3 ainst ai ildamnkor
R. Levenbau1n(coElectively "Jadum"), to recover the costs gr g Y '
of completing a construction project that Jadum had eon— .
treated to buss. me com hw many determined sat A C*?““ S.°“l"‘“°‘“Tl‘° C°F“”*‘Y Smhtvc
. . . the right, rn its sole diseretron, to detennsne
.Fadum's obhgation to compensate Travelers under their . .
. . for xtseif and the lndernnrtor whether any
Generai Agreement of Indemnity was trsggered when . . .
. . . ciaxm or surt brought against the Company or
Jadum voluntarily temnnated performance ofthe project. .
. the Indemmtor upon any such Bond shatl be
Travelers new moves for summary judgment on the only aid com mmiscd Scmcd dcfcndgd or 3 _
remaining issue: whether Jadum is Eiabie for the full P ’ p . .’. ’ . . P
. peeled, and rts deessron snail be bzndsng and
amount of the costs Travelers incurred. For the reasons . . _ . .
. . eonekusxve upon the Indemnztoa. An rtennzed
discussed beéow, the Court determines that Jadurn must
a B . . statement thereof sworn to by an employee
pay all { 2} of the costs Travelers incurred 1n excess of f f h
\ me commu amount o the Company or a copy o t e voucher of
g ' payment shail be prima faeze evidence ofthe
propriety [*4§ and existence of Inriemnitors
A` S“‘“‘“““’ of FMS iramray. The Company shall be entitled to re—
Iadum is a New York construction company that imbursement for any and all payments made
conducts business in Massachusetts. In December 1997, by it under the belief it was necessary or ex-
Natraj Hospitality LLC. ("Natraj") hired Jadum to eon— pedient to make such payments.
struct a note? in Cambridge, Massachusetts for $8 mil-
, lion. In February 1998, Jadum entered into a General Compl.,E><.A. As required in the second paragraph(P4),
l Agreement of indemnity ("Indemnity Agreement") with Travelers has produced an "itemized statement" of costs,
Travelers. Under the indemnity Agreement, Travelers sworn to by an empioyee, thereby establishing a prima
agreed to issue bonds guaranteeing Jadu1n's performance facie ease for repayment. See Carlson Aff (docket no.
I of its contract with Natraj. In return, ladurn promised that 27).
itwould1ndernn1fy Travelers for any claims that Traveiers The parties agree that Gmc Travelers has made Such
manned as a Consequence of tht hondx On AWE M’ a nina facie case Jadum must re a the fall amount un-
1998, Travelers satisfied its obligations by issuing a per~ I P . bl? h h p {E { y
fmmancc and apaymcmbmd less at can esta ts- t at some or a o the costs were
' incurred rn bad farth. Both Travelers and Iadum cite
In August 2001, Jadznn voluntarily terminated its Har;f0rdAccident and Indem. Co. u Millis R00_H11cmd
obligation to construct Natraj's hotel and Travelers as- SheetMet¤l, Inc., 11 Mass. App. C!. 998, 4}8 N.E.2d 645
sumed responsibility for the compietlon of the project. (Mass, App. Ct. 1981) for the proposition that "itwas only
l Ultimately, Travelers spent $9,141,059 to finish the con- necessary that the bonding company have acted in good
struction. Subtracting from that sum the amount rema§n— faith" when it made payments to complete the project.
ing on the contract when Jadum left the project and the Id. at 64 7. [HN1} The test for the lack of good faith (or
= value of the change orders by the owner, the total amount bad faith) is whether the surety acted with "a dishonest
Travelers seeks to recover from Iadum [*3] is $6,860,021. purpose, conscious doing of wrong, or breach of duty
through motive of self-interest or ill wil§.“ Id. A showing
B. Discussion of"badjudg1nent, [*5] negiigence or insuiiicient zeal" is
. . not sufficient. Id. See also American Empl0yers*Ins. C0.
'i`ravelers' rzght to repayment from Jadum is estab-
. . . it Horton, 35 Mass. App. Ct. 921, 622 N.E.2d 283, 284-
lished by the Indemnity Agreement. The two key provr-
. 85 (Mess. App. Cz. 1993) {HN2} (fact that payments made
sions of that agreement read as foliows: b .
y surety may have been unnecessary dtd not demonstrate
3. Inéemnmcation and HG1 d Hmmlcss The lack of good faith); Biaek s'Law I?1ct:ona1y 139 (6th ed.
. y . 1990) (bad fasth requzres conscious doing of a wrong
: Indcmmm? Mum] Shan €x0ncmw’ mdmw because of dishonest purpose or moral obliquity").
j nify and save the Company [Traveiers] harm-
‘ less from and against every claim, loss, dam- Jadum argues that the sizeabie costs Travelers in—
age, demand, liabiiity, cost, charge, suit, curred beyond the original $8 million that ladum had

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2003 U.S. Dist. LEXIS 11861, *5 i
set as the contract price for the hotel is evidence of had to oppose a motion for suininary judgment "shall be made
faith. However, while excessive payment may have been on personal knowledge, shall set forth such facts as would
negligent or even reckless, overpayment by itself does not be admissible in evidence, and shall show aiiirmatively `
evince any ill will by Travelers. See also UnitedStates Hol that the amant is competent to testify to the matters stated
dt Guaranty Co. it Feibus, 15 F Supp. 2d 5 7 9, 585 (MD. therein"). Moreover, Travelers counters Jadunrs asser-
p Pa. 1998) [HN3] (even "gross negligence" by surety does tions with evidence that the granite work was performed
not meet standard of had faith because it does not demon- by several different contractors, and that it did solicit bids
strate improper motive). The same is true of Jadum's evi- for the work. On the whole, there is no evidence that
dence that Travelers allowed deviations from the originai Travelers [*7] acted in bad faith after it assumed Jadu1n‘s
contract such as the use of I-l/4 inch granite pavers in- contract.
stead of 3f4 inch pavers, the use of granite instead ot` plas-
tic laminate, the [*6] hiring of a separate £re—·stopping C. Conclusion
subcontractor, and copious additional electrical work. Since Imam has not proffered adequate evidence Of
The only evidence Jadurn oliers to show that bad faith, Travelers motion for summary judgment on
Travelers acted with improper motive is the assertion in damages is GRANTED. Judgment shall enterin Travelers
Levenbatirrrs affidavit that the granite contractorTravelers favor in the amount of $6,860,02l .
hired "is a personal friend" of one of the Travelers project . g
overseers, and that the granite contractor was hired "with- It is SO ORDERED
out the normal competitive hidding process.*' Levenbaum july 1 1 2003
* Aff. P 10, at 4 (docket no. 35). These assertions are made DATE ’
purely on "information and belief." id. P 1. At this stage,
after discovery is cotnpiete, such bald assertions are not George A. O’Toole, Jr.
enough to raise a genuine issue of fact as to Travelers
motives. See also Fed. R. Civ. R 56(rz) (affidavits offered DISTRICT JUDGE
i

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