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Universal Bonding Insurance Co. v. Midstate Construction

February 23, 2007

UNIVERSAL BONDING INSURANCE COMPANY, PLAINTIFF,
v.
MIDSTATE CONSTRUCTION, LLC, JERRY W. PARDUE, SR., AND LINDA J. PARDUE, DEFENDANTS/CROSS-DEFENDANTS/CROSS-CLAIMANTS, AND MIDWEST INSERT COMPOSITE MOLDING AND ASSEMBLY, INC., PRETI CORPORATION, INC., D/B/A QUALITY INNS, GOVINDIAL L. PATEL, AND VANITA G. PATEL, DEFENDANTS/CROSS-CLAIMANTS/CROSS-DEFENDANTS.



The opinion of the court was delivered by: C. Clifford Shirley, Jr. United States Magistrate Judge

(SHIRLEY)

MEMORANDUM AND ORDER

This case is before the undersigned pursuant to 28 U.S.C. § 636(c), Rule 73(b) of the Federal Rules of Civil Procedure, and the consent of the parties, for all further proceedings, including entry of judgment. [Doc. 59].

On January 8, 2007, the parties appeared before the Court for a motion hearing on all pending motions, including: Plaintiff Universal Bonding Insurance Company's ("Universal") Motion for Summary Judgment [Doc. 67]; Defendant Midstate Construction, LLC, ("Midstate") Jerry. W. Pardue, Sr., ("Jerry Pardue") and Linda J. Pardue's ("Linda Pardue") (collectively referred to as "Collective Defendant Midstate") Motion to Dismiss Universal's Motion for Summary Judgment [Doc. 89]; Defendant Midwest Insert Composite Molding and Assembly, Inc. ("Midwest Insert"), Preti Corporation, Inc., d/b/a Quality Inns ("Preti"), Govindial L. Patel ("Govindial Patel"), and Vanita G. Patel's ("Vanita Patel") (collectively referred to as "Collective Defendant Preti") Motion for Partial Summary Judgment [Doc. 73], and Defendant Midstate's Motion to Dismiss Preti's Motion for Partial Summary Judgment [Doc. 91]. Attorney Philip Robertson appeared on behalf of Plaintiff Universal. Attorney Robert Vogel appeared on behalf of Collective Defendant Midstate, and Attorney John Cleveland appeared on behalf of Collective Defendant Preti.

I. BACKGROUND

Midstate contracted with Preti to build a hotel in Tennessee. Bonds were required for the project to guarantee the obligations of Midstate under the Construction Contract [Doc. 10, Attachment A]. Plaintiff Universal secured, procured, or issued the bonds, including a performance bond and a payment bond. [Doc. 1, Exhibit B]. Midstate, Jerry Pardue, Linda Pardue, Midwest Insert, Preti, Govindial Patel, and Vanita Patel executed a General Indemnity Agreement ("Agreement") [Doc. 1, Exhibit A] in favor of Universal to induce Universal to issue, secure, or procure these bonds. Midstate was the principal on the Agreement, but all defendants signed as indemnitors or guarantors and all warranted that each of them was "specifically and beneficially interested in the obtaining of each bond." [¶ 9(C)]. Each defendant obligated themselves jointly and severally for the obligations under the Agreement. [¶ 9(A)]. No defendants have claimed they did not sign the Agreement.

At some point, subcontractors and suppliers were not being paid by Collective Defendants Midstate or Preti. Ultimately, these individuals made claims against the bonds, which Universal was obligated to pay and paid. Collective Defendants Midstate and Preti have failed to indemnify Universal for these payments. In addition, the Construction Contract was terminated by a Termination Agreement, signed by Midstate, Jerry Pardue, Preti, and Govindial Patel. [Doc. 94-2]. A Release Agreement was also signed by Midstate, Jerry Pardue, Preti, and Govindial Patel, containing language that is part of the present dispute. Ultimately, this litigation ensued.

II. PLAINTIFF UNIVERSAL'S MOTION FOR SUMMARY JUDGMENT

Plaintiff Universal filed a motion for summary judgment [Doc. 67] on September 27, 2006. seeking the money they had paid out on claims ($111,508.37), costs incurred for attorneys and consultants ($58,035.16), and for an amount to be held for existing potential claims ($88,133.80). Collective Defendant Preti never filed a response to Plaintiff's motion. Collective Defendant Midstate responded on November 29, 2006, with its Motion to Dismiss Universal's Motion for Summary Judgment [Doc. 89]. Plaintiff Universal replied [Doc. 100] to Collective Defendant Midstate's motion on December 12, 2006.

On January 8, 2007, at the hearing, Collective Defendant Midstate orally withdrew its Motion to Dismiss [Doc. 89], conceding their obligation to Plaintiff Universal. As such, Collective Defendant Midstate's Motion to Dismiss [Doc. 89] is DENIED as moot. Collective Defendant Preti orally asserted that it generally had no objection to Plaintiff Universal's summary judgment motion, regarding their obligations for the amounts already paid. However, both Collective Defendants objected to the money requested to be held for potential future claims. Finding that none of the defendants object to Universal's Motion for Summary Judgment regarding Universal's entitlement to the amounts paid to date, the Court GRANTS Plaintiff Universal's Motion for Summary Judgment [Doc. 67], to the extent outlined below.

All parties agreed and the Court finds and holds Plaintiff Universal is entitled to the following damages, as outlined in its motion and accompanying memorandum [Docs. 67, 68]:

Funds paid to satisfy claims against the bond: $111,508.37 Fees for Attorneys and Consultants: $58,035.16 Total award: $169,543.16 Accordingly, Collective Defendant Midstate and Collective Defendant Preti are to be jointly and severally liable for a damage award in the amount of $169,543.16. However, a further dispute exists as to whether this joint and several liability is to be allocated between the two collective defendants or between all seven individual defendants. This will be discussed below in Section II, B.

A. The Reserve Fund

In its motion and accompanying memorandum [Docs. 67, 68], Plaintiff Universal also asserted its right to have $88,133.80 placed in a reserve fund. These funds ostensibly will protect Universal from further potential claims against the bond. All parties agreed that Plaintiff was entitled to some form of collateralization in the form of a reserve fund, per the terms of the ...


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