Walsh Constr. Co. v. U.S. Sur. Co.
Walsh Constr. Co. v. U.S. Sur. Co.
Opinion of the Court
Two parties to a construction bond each claim that the other breached the bond first and thus should be liable for costs and damages. Plaintiff Walsh Construction Company II, LLC ("Walsh") is a general contractor that was hired in 2015 to construct a hotel in the District of Columbia. Defendants United States Surety Company and U.S. Specialty Insurance Company (together, "the Surety") jointly issued a performance bond to one of Walsh's subcontractors, Mid-Atlantic Air, Inc. ("MAA"), which guaranteed completion of the subcontract work.
The underlying controversy arose when Walsh declared MAA to be in default on the subcontract. Initially, the Surety financed the performance of MAA's subcontract work, but after investigating Walsh's declaration of default the Surety denied liability and stopped performing under the bond. Walsh then sued the Surety, and the Surety counterclaimed, alleging that Walsh had breached both the bond and the underlying subcontract. See Answer & Countercl. ("Countercl.") [ECF No. 12]. Walsh now moves to dismiss the counterclaim. See Walsh Constr. Co. II, LLC's Mem. in Supp. of Its Mot. to Dismiss Countercl. ("Walsh's Mot.") [ECF No. 14]. For the following reasons, Walsh's motion will be granted in part and denied in part.
*287BACKGROUND
In 2015, a company called Adams Morgan Hotel Owner, LLC (the "Owner") hired Walsh to construct the Adams Morgan Historic Hotel in northwestern Washington, D.C. See Countercl. ¶ 4.
MAA performed its obligations under the subcontract until April 6, 2017, when MAA notified Walsh in writing that it would not complete any further change-order or overtime work because of several unpaid change-order invoices totaling more than $2 million. See Ex. B. to Countercl. [ECF No. 12].
After declaring MAA to be in default, Walsh issued a demand to the Surety under the performance bond. See id. at 1. The Surety began investigating Walsh's claim of default, and the Surety later exercised its option to extend its deadline to respond to Walsh's claim by financing performance of the subcontract during the extension period. Countercl. ¶ 44. The Surety financed performance from May 5, 2017 through July 28, 2017 ("the financing period") and retained a replacement subcontractor for MAA during that time. Countercl. ¶¶ 45, 54. During this period, the Surety alleges that it spent more than $6.2 million on the project: over $4 million to finance the subcontract work itself, and an additional $2.2 million to compensate MAA's subcontractors and suppliers for work and materials tendered before Walsh's declaration of default. See Countercl. ¶ 93. On July 28, the Surety completed its investigation, denied liability under the bond, and ceased financing the subcontract work. Countercl. ¶ 92; see Ex. O to Countercl.
Following the Surety's denial of liability, Walsh filed a complaint against the Surety seeking damages for its alleged breach of the performance bond. See Compl. ¶¶ 36-44.
*288The Surety answered Walsh's complaint, see Countercl. at 1-11, and filed a ten-count counterclaim, id. at 11-38. The Surety's counterclaim alleges that if MAA's work was delayed at all, such delays were attributable to design defects and Walsh's poor administration of the project. See Countercl. ¶¶ 28-32; U.S. Surety Co.'s & U.S. Specialty Ins. Co.'s Opp'n to Mot. to Dismiss ("Surety's Opp'n") [ECF No. 16] at 4. The Surety further alleges that Walsh failed to pay MAA on time, so any delays-as well as MAA's ultimate refusal to continue performing change orders and overtime work-were justified. See Countercl. ¶ 35. Additionally, the Surety claims that Walsh intentionally obstructed the Surety's investigation of Walsh's claim by failing timely and accurately to respond to requests for information, see Surety's Opp'n at 6-7 (citing Countercl. ¶¶ 47, 55-61, 77), and by failing timely to provide its estimate of the subcontract balance, see id. at 7-8 (citing Countercl. ¶¶ 85-86, 88-89, 92).
The Surety's counterclaim initially asserted ten counts, although the Surety later withdrew two.
Counts Six and Seven also allege that Walsh materially breached the subcontract. The Surety seeks to recover approximately $2.6 million that Walsh allegedly owes MAA under the subcontract, as well as the $2.2 million that the Surety claims it paid to MAA's subcontractors and suppliers following Walsh's declaration of default. See id. ¶¶ 130-39, 140-152. Count Six claims that the Surety is eligible to recover these sums because of an indemnity agreement that assigned to the Surety all of MAA's rights against Walsh under both bonds. See id. ¶¶ 137-39. Count Seven claims that the Surety is entitled to recover under the doctrine of equitable subrogation, see id. ¶¶ 147-152, which allows a party to recover in equity when it has "paid the debt of another," Nat'l Union Fire Ins. Co. of Pittsburgh v. Riggs Nat'l Bank of Wash., D.C.,
Counts Two, Nine, and Ten allege various other breaches of the performance bond. Specifically, Count Two alleges that Walsh failed to cooperate with the Surety's investigation, see id. ¶¶ 103-108; Count Nine alleges that Walsh repudiated the bond by refusing to disclose its estimate of the subcontract balance, see id. ¶¶ 157-162; and Count Ten alleges several breaches of the covenant of good faith and fair dealing, see id. ¶¶ 163-165. Finally, Count *289Eight alleges that the Surety is entitled to recover the sums it paid during the financing period under the doctrines of promissory estoppel and unjust enrichment. See id. ¶¶ 153-156.
Walsh has moved to dismiss each count of the Surety's counterclaim on grounds that are explained more fully below. Walsh's motion to dismiss is now fully briefed and ripe for decision.
LEGAL STANDARD
To survive a Rule 12(b)(6) motion to dismiss for failure to state a claim, a "complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.' " Ashcroft v. Iqbal,
ANALYSIS
I. Claims Alleging a Breach of Paragraph 8 of the Performance Bond
In Counts One and Four of its counterclaim, the Surety seeks to recover under Paragraph 8 of the performance bond more than $4 million that it spent during the financing period. See Ex. 2 to Compl. ("Bond") [ECF No. 2-2] ¶ 8. That paragraph states: "If it is determined that [Walsh's] declaration of [MAA's] default was not justified under the Subcontract, [Walsh] shall pay Surety an amount equal to Surety's losses, expenses and reasonable attorneys' fees in performing under this Bond."
To state a claim for breach of contract
Walsh first raises a threshold argument on the issue of breach that applies to both Count One and Count Four. See Walsh's Mot. at 11. Walsh argues that any recovery under Paragraph 8 is barred by Paragraph 4(e) of the bond, which provides that if the Surety elects to extend its response deadline by financing the subcontract work for a period of time (as the Surety did here), Walsh "shall have no obligation to reimburse Surety or otherwise pay for the work performed until Surety has committed to remedy the default ... and then only from funds earned under the Subcontract." Here, Walsh argues, the Surety never "committed to remedy [MAA's] default" because it ultimately denied Walsh's claim. Walsh's Mot. at 11. Thus, under Paragraph 4(e), Walsh need not "reimburse Surety or otherwise pay for the work [it] performed" during the financing period.
But this reasoning is flawed. Read in context, this sentence of Paragraph 4(e) simply specifies that Walsh need not reimburse the Surety for its expenditures until after the Surety's investigation is concluded; it does not bar the Surety from recovering those sums entirely if the Surety ultimately denies Walsh's claim. Indeed, Walsh's reading would render Paragraph 8 a nullity: Paragraph 8 applies only where Walsh's declaration of default is "not justified," and Walsh does not explain why the Surety would ever "commit[ ] to remedy" a nonexistent default. Bond ¶ 8; see Hunt Const. Group, Inc. v. Natl. Wrecking Corp.,
A. Count One: The Surety's Claim That Walsh Breached the Subcontract First by Failing to Pay MAA
Count One asserts that Walsh's declaration of MAA's default was unjustified *291because Walsh's previous failure to pay MAA approximately $2.6 million for subcontract and change-order work had released MAA from its obligations under the subcontract. See Countercl. ¶¶ 23-24, 94-102; Surety's Opp'n at 14. In its motion to dismiss, Walsh does not challenge the sufficiency of the Surety's allegations that it failed to pay MAA; rather, it relies on the subcontract's "pay-when-paid" clause to argue that its duty to pay MAA never matured because it never received payment for MAA's invoices from the Owner. See Walsh's Mot. at 12; Subcontract Agreement ¶ 3.6 (stating, in relevant part, that "if, and only if, Owner pays [Walsh], which is an express condition precedent to [Walsh's] duty to pay [MAA], Progress Payments shall be due to [MAA] no later than fifteen (15) days after receipt of payment from Owner"). The Surety responds by alleging that Walsh wrongfully delayed in seeking payment from the Owner, see Countercl. ¶ 35, and that these delays negated the Owner's payments as a condition precedent to Walsh's duty to pay MAA under the so-called "prevention doctrine." Surety's Opp'n at 14-17.
The prevention doctrine provides that "if a promisor is himself the cause of the failure of ... a condition upon which his own liability depends, he cannot take advantage of the failure." Aronoff v. Lenkin Co.,
Here, the Surety alleges that Walsh "unreasonably and unjustifiably failed ... to seek payment" from the Owner in a timely fashion. Countercl. ¶ 10. For example, the Surety alleges that while Walsh "approved" one monthly invoice on February 2, 2017-the invoice for work done that January-it did not submit that invoice to the Owner until after April 4. Id. ¶¶ 11-12, 14-15. By Walsh's own admission, the Surety alleges, this delay was abnormal: "[i]n a letter dated August 7, 2017 ... Walsh admitted[ ] [that] 'a pay application for January work would, at its best, be funded by the owner and payable to a subcontractor sometime in late February, but more likely payable to the subcontractor in March.' " Id. ¶ 13. The Surety further alleges that Walsh never paid MAA for subcontract work done in January, February, and March 2017, id. ¶ 23, and that as of that April, Walsh had not paid for change-order work from as early as October 2015, id. ¶¶ 18, 20.
Contrary to Walsh's assertions, see Walsh's Mot. at 13-14, these allegations are sufficient to survive Walsh's motion to dismiss. While the counterclaim's conclusory allegation that Walsh "unreasonably and unjustifiably failed and delayed to seek payment from the Owner," Countercl. ¶ 10, is "not entitled to the assumption of truth," Iqbal,
Hence, assuming the Surety's factual allegations to be true-as the Court must at this stage, see Sickle, 884 F.3d at 345-the Surety has stated a claim that Walsh's delay negated the Owner's payments to Walsh as a condition precedent to Walsh's duty to pay MAA. See Ne. Drilling, Inc. v. Inner Space Servs., Inc.,
B. Count Four: The Surety's Alternative Claim that Walsh Breached the Subcontract Even if MAA's Delays Were Unjustified
Count Four alleges that even if MAA were responsible for delaying the project, its delays still could not justify Walsh's declaration of default because Walsh did not object to them until a week before it issued its declaration. See Surety's Opp'n at 19-20; Countercl. ¶¶ 115-123. Walsh responds that this claim is barred by two contractual provisions: an anti-waiver clause in the subcontract and a provision of the performance bond whereby the Surety waived its right to object to any changes in the schedule of the subcontract work. See Walsh's Mot. at 16-17.
Paragraph 2 of the performance bond states, in relevant part: "The Surety agrees that no ... extension of time ... or other modification of the terms of ... the ... Subcontract [between Walsh and MAA] ..., or in the ... work to be performed [thereunder], ... or in the plans shall in any[ ] [way] affect its obligations [under] this Bond." Bond ¶ 2. According to Walsh, this provision shows that the Surety "waived any right to object to scheduling changes." Walsh's Mot. at 16. But as the Surety explains, Count Four does not allege "that Walsh extended MAA's time to perform or otherwise changed any of the terms of MAA's Subcontract"; indeed, according to the Surety, "it does not appear that Walsh ever formally extended MAA's time of performance or otherwise modified its Subcontract as it relates to the time of completion." Surety's Opp'n at 20. Hence, because the Surety's counterclaim does not allege any modification of the subcontract-either as to the timing of the subcontract work or otherwise-Paragraph 2 of the performance bond is inapposite.
*293Next, Walsh relies on Paragraph 13.2 of the subcontract, which states: "The failure of either party hereto to insist, in any one or more instances, upon the performance of any of the terms, covenants, or conditions of this Agreement, or exercise any right herein, shall not be construed as a waiver or relinquishment of such term, covenant, condition, or right as respects further performance." Walsh's Mot. at 17 (citation omitted). According to Walsh, this provision means that Walsh could not have waived its right to insist on timely performance on April 20 even if, as the Surety alleges, it had not asserted that right prior to April 13. For its part, the Surety does not meaningfully dispute that Paragraph 13.2 "permits Walsh to enforce a previously waived obligation as it relates to future performance." Surety's Opp'n at 21; see Nat'l R.R. Passenger Corp. v. Expresstrak, LLC, No. 02-1773,
The Surety's reading of Paragraph 13.2 is correct. Although Paragraph 13.2 plainly authorized Walsh to insist on future performances that it had not previously demanded, nothing in that provision speaks to whether or when Walsh may rely on past instances of nonperformance to terminate the subcontract. But it does not necessarily follow from this conclusion that Walsh's declaration of default was improper. Rather, a different provision of the subcontract governs when Walsh may declare MAA to be in default. Paragraph 8.1 states: "If [Walsh] determines at its sole discretion that [MAA] has .... refused or failed to ... maintain the Schedule of Work ... [MAA] shall be in default of this [subcontract]." Subcontract Agreement ¶ 8.1. Then, if MAA "fails within seventy-two (72) hours after receipt of written notice [of its default] ... to commence and continue satisfactory correction of such default ..., [MAA] shall have materially breached the [subcontract],"
So long as the Court assumes-as it must as to Count Four-that MAA delayed the project, see Countercl. ¶ 116, the Surety has failed to plead that Walsh's declaration of default and subsequent termination of the subcontract were improper. Paragraph 8.1 expressly identifies MAA's failure to "maintain the Schedule of Work" as a ground for declaring MAA to be in default, Subcontract Agreement ¶ 8.1, and Count Four does not allege that MAA made any attempt to cure its defective performance during the seventy-two-hour grace period following Walsh's declaration. Thus, pursuant to Paragraph 8.2 of the subcontract, Walsh's termination of the contract was proper. And although the Surety claims that Walsh was estopped from relying on MAA's delays because Walsh issued its declaration of default a mere seven days after it first raised those delays with MAA, see Countercl. ¶¶ 119-121, it cites no legal authority for this theory of estoppel.
II. Claims Alleging a Breach of the Subcontract on MAA's Behalf
In Counts Six and Seven, the Surety seeks to recover the $2.6 million that Walsh allegedly owes MAA under the subcontract, as well as the $2.2 million that the Surety allegedly paid to MAA's subcontractors and suppliers under the payment bond.
A. Count Six: Assignment
Count Six argues that MAA assigned to the Surety "all claims, demands, and causes of action relating to the subcontract [and the payment bond]" in an indemnity agreement. Countercl. ¶ 137; see id. ¶ 139 ("The Surety, as assignee of MAA, is entitled to recover ... reimbursement for all amounts paid by the Surety in connection with the Subcontract[ ] ... [and] the Payment Bond ...."); Ex. P to Countercl. ("Indemnity Agreement") ¶¶ I.A, II (indemnifying the Surety on "any Bond" between the Surety and MAA). According to Walsh, this assignment violated Section 7.1 of the subcontract, which states that MAA "shall not assign this Agreement or its proceeds or subcontract the whole or any part of [MAA's] Work without [Walsh's] prior approval." See Walsh's Mot. at 20 (quoting Subcontract Agreement ¶ 7.1). The Surety responds that Paragraph 7.1 only "reserves to [Walsh] the right ... to decline the services of a party ... who may not appear qualified to satisfactorily perform the Subcontract Work" and does not "preclude an assignment of a cause of action for *295breach of the Subcontract." Surety's Opp'n at 23. The Surety is correct.
"District of Columbia law evinces a policy of free assignability of claims." Lannan Found. v. Gingold,
Although the Court is unaware of any District of Columbia authorities addressing this precise issue, Handex of Maryland, Inc. v. Waste Management Disposal Services of Maryland,
Applying this framework, the court first observed that "as a matter of routine practice and tradition in the construction industry, corporate sureties do not issue bonds making themselves liable for a contractor without indemnity agreements in place."
Though not binding on this Court, Handex's reasoning is persuasive here. As in Handex, it appears that the parties here intended the anti-assignment clause to prohibit MAA from assigning funds or subcontract work to another subcontractor or material supplier without Walsh's approval, not to prohibit an assignment of MAA's cause of action for breach of the subcontract. See Subcontract Agreement ¶ 7.1 (providing that MAA "shall not assign this Agreement or its proceeds [ ]or subcontract the whole or any part of [MAA']s Work without [Walsh's] prior approval" (emphasis added) ). And like the owner in Handex, Walsh is a sophisticated party in the industry, see Compl. ¶ 1, and therefore should have been "keenly aware" of the likelihood that MAA would assign its rights against Walsh to the Surety in a separate indemnity agreement. Hence, this Court concludes that the subcontract's anti-assignment clause does not invalidate MAA's assignment of its rights against Walsh to the Surety. Walsh's motion to dismiss Count Six will therefore be denied.
B. Count Seven: Equitable Subrogation
In Count Seven, the Surety contends that it can recover on MAA's behalf under the doctrine of equitable subrogation, see Countercl. ¶¶ 140-152, which provides that "where one party has paid the debt of another, justice requires that the payor be able to recover his loss from the one who should have paid it, to prevent unjust enrichment," Nat'l Union Fire Ins.,
The Surety argues that it is subrogated to MAA in two respects. First, the Surety asserts that it is equitably subrogated to MAA's rights "relating to Walsh's breaches of the Subcontract." Countercl. at 35. Walsh's motion does not address this contention, see Walsh's Mot. at 21-22, and at least one other court has held that where, as here, a contractor is a "frequent player in the construction industry" and hence should be "cognizant of the fact that the surety relationship includes a conditional assignment of the [sub]contractor's rights to the surety," it would "fl[y] in the face of equity" to allow the contractor to pursue its claims against the surety while blocking the surety from asserting the subcontractor's claims against the contractor. Handex,
Second, the Surety claims that it can recover approximately $2.2 million that it paid to MAA's subcontractors and suppliers under the payment bond. See Surety's Opp'n at 26-27. Walsh responds that it "had no duty to pay MAA's subcontractors," so the Surety did not pay "the debt of [Walsh]" when it made payments under that bond. Walsh's Mot. at 21. While it is true that the subcontract contemplated that MAA would be responsible for paying its own subcontractors and suppliers, the subcontract also contemplated that the *297funds used to make those payments would be drawn from Walsh's payments to MAA. See Subcontract Agreement ¶ 3.9 ("All payments received by [MAA] shall first be used to satisfy any indebtedness owed by [MAA] to persons or other entities furnishing labor or materials for use in performing or incorporation into [MAA's] Work."); id. ¶ 3.11 (authorizing Walsh to send MAA's payments to its subcontractors and suppliers directly if Walsh had reason to believe that MAA was not keeping up with its payments to those third parties). And the Surety alleges that when Walsh stopped making payments to MAA, it began paying MAA's subcontractors and suppliers on MAA's behalf. If true, this allegation would be sufficient to permit the Surety to recover those funds from Walsh in equitable subrogation. See U.S. Fidelity & Guar. Co. v. United States,
III. Claims Alleging Other Breaches of the Performance Bond
Counts Two, Nine, and Ten assert that Walsh breached the performance bond in various ways and seek damages as a result of each breach. The Court will address each claim in turn.
A. Count Two: Failure to Cooperate with the Investigation
In Count Two, the Surety claims that Walsh "materially breached the Performance Bond by failing to cooperate with the Surety's investigation," thereby excusing the Surety from any obligations under the bond. Countercl. ¶¶ 107-08. Walsh responds that it had no duty to cooperate in the investigation because the Surety was obligated to make "an independent investigation of the facts and circumstances of the alleged default." Walsh's Mot. at 14-15. "Additionally," Walsh argues, "even if Walsh breached some unwritten duty to cooperate in the investigation, the Surety fails to assert how it has been damaged by that breach." Walsh's Reply to Surety's Opp'n ("Walsh's Reply") [ECF No. 17] at 7.
Count Two will be dismissed because, as Walsh correctly points out, that count no longer seeks any relief. See Fed. R. Civ. P. 8(a) ("A pleading that states a claim for relief must contain ... a demand for the relief sought ...."). Aside from attorney's fees and costs, Count Two initially sought only declaratory relief: specifically, a declaration that Walsh breached the performance bond. Countercl. at 28-29. In its opposition brief, however, the Surety "consent[ed] to withdraw from Counts 1 through 5 any reference to the Declaratory Judgment Act,
B. Count Nine: Repudiation of the Performance Bond
In Count Nine, the Surety seeks damages for Walsh's alleged repudiation of the performance bond. Countercl. ¶ 161; Surety's Opp'n at 29. In a June 21, 2017 letter to Walsh, the Surety sought reasonable assurances that, if it were to accept liability under the bond and either complete the subcontract work itself or hire a replacement subcontractor, Walsh would "pay the balance of the Subcontract Price to the Surety or its completion contractor," as the performance bond required. Countercl. ¶ 85. The Surety had a reasonable apprehension that Walsh would refuse to do so, the letter explained, because Walsh had not yet provided its "calculation of the balance of the Subcontract Price" to the Surety and otherwise had failed to respond to the Surety's requests for information.
Before a party has the right to recover for a repudiation of a contract, "the repudiating party must have communicated, by word or conduct, unequivocally and positively its intention not to perform." EastBanc, Inc. v. Georgetown Park Assocs. II, L.P.,
C. Count Ten: The Covenant of Good Faith and Fair Dealing
The Surety claims that Walsh "breached the covenant of good faith and fair dealing ... by: (a) refusing to pay the Surety the balance of the Subcontract price; (b) hindering the Surety's investigation of the alleged default; and/or (c) willfully overstating its alleged damages and setoffs." Countercl. ¶ 164. Walsh responds that the Surety never triggered Walsh's obligation to pay the balance of the subcontract price by electing to complete the subcontract work under Paragraph 4 (as already discussed as to Counts One and Four), that Walsh had no duty to assist the Surety with its independent investigation (as already discussed as to Count Two), and that the Surety's claim of overstated damages and setoffs is meritless. See Walsh's Mot. at 26.
*299Every contract contains an implied covenant of good faith and fair dealing. Window Specialists, Inc. v. Forney Enters., Inc.,
The Surety's allegations in Count Ten are insufficient to suggest plausibly a breach of the covenant of good faith and fair dealing. As to part (a), the Surety does not allege that Walsh withheld the balance of the subcontract price for any improper purpose. On the contrary, the documents attached to the Surety's own counterclaim suggest that Walsh withheld those funds based on a good-faith belief that Walsh was owed money on the subcontract. See Ex. N to Countercl. (letter from Walsh to the Surety stating that Walsh was withholding payment based on "damages and set-offs" that rendered the contract balance negative). And although the Surety's contention that Walsh inflated its "damages and setoffs" could in theory support a good-faith-and-fair-dealing claim, the only fact alleged in support of this contention is that Walsh failed to provide the Surety with any supporting documentation concerning its alleged damages. Countercl. ¶ 89. Even accepting this allegation as true, Walsh's mere failure to provide supporting documentation does not plausibly suggest that its estimation of the subcontract balance was intentionally inflated. Part (c) of Count Ten therefore fails as well.
The Surety's allegation in part (b) of Count 10 that Walsh "hinder[ed] the Surety's investigation of the alleged default"-which essentially reprises the Surety's allegations in Count Two-also fails because it does not plausibly allege that Walsh's delays "destroyed or injured [the Surety's] right to receive the fruits of the contract." Magee,
IV. Claims for Promissory Estoppel and Unjust Enrichment
In Count Eight, the Surety seeks to recover more than $4 million that it allegedly spent during the financing period under theories of unjust enrichment and promissory estoppel. See Surety's Opp'n at 27. Walsh responds that the performance bond, as an express contract governing the parties' conduct, displaces both claims. See Walsh's Mot. at 22.
"Because both promissory estoppel and unjust enrichment presuppose that an express, enforceable contract is absent, District of Columbia courts generally prohibit litigants from asserting these claims when there is an express contract that governs the parties' conduct." Plesha v. Ferguson,
The Surety's unjust enrichment and promissory estoppel claims for work "beyond the scope of the subcontract" also fail because the subcontract expressly contemplates that Walsh might order MAA to perform additional work. See Subcontract Agreement ¶¶ 4.1, 4.2. The Surety argues that certain work it financed in July 2017 may have fallen outside the "general scope of the [subcontract]," Subcontract Agreement ¶ 4.1, and therefore may be recoverable in unjust enrichment or promissory estoppel. Countercl. ¶¶ 67-76. But the Surety does not allege why it believes the extra work to have been beyond the scope of the subcontract; rather, it asserts that "it is simply too soon to determine whether ... [e]xtra Work that Walsh directed the Surety to perform, must be regarded as within the scope of the parties' written agreements." Surety's Opp'n at 28. At the motion-to-dismiss stage, however, it is the *301pleader's responsibility to allege facts that, when assumed to be true, "raise a right to relief above the speculative level." Twombly,
CONCLUSION
For the foregoing reasons, Walsh's motion to dismiss the counterclaim will be denied as to the Surety's claim that Walsh breached the performance bond by failing to reimburse the Surety for its outlays during the financing period (Count One) and its claim that Walsh breached the underlying subcontract with MAA, both as MAA's assignee (Count Six) and subrogee (Count Seven).
Unless otherwise noted, the facts presented here reflect the allegations of the Surety's counterclaim. Sickle v. Torres Advanced Enter. Sols., LLC,
Because the Surety's answer and counterclaims appear in one filing, the paragraph numbers of that filing are non-consecutive. The paragraph numbers cited in this Opinion refer to the counterclaim portion of the filing, see Countercl. at 11-38, not the answer, see id. at 1-11.
The exhibits to Walsh's counterclaim appear in the same filing as the answer and counterclaim. See generally Countercl. at 40-109. Where feasible, the Court will cite the paragraph or page numbers of the exhibits.
The Surety originally sought declaratory relief in Counts One through Five. See Countercl. at 26-32. In response to Walsh's motion to dismiss, however, the Surety conceded that monetary relief alone would "resolve the parties' dispute." Surety's Opp'n at 10. Accordingly, the Surety withdrew any reference to declaratory relief, and because Counts Three and Five sought only declaratory relief it withdrew those counts entirely. See id. at 10-11.
The Surety styles Counts One and Four as claims for declaratory relief, not for breach of contract. See Countercl. at 26 (asserting a claim for "Declaratory and Monetary Relief Pursuant to
D.C. law governs here pursuant to an express provision of the subcontract. See Subcontract ¶ 11.1.
Instead, the Surety's opposition focuses on its primary allegations that "MAA did not materially delay the Project[ ] and that Walsh began blaming MAA for delays only after MAA complained of Walsh's failure to process months-old [payment] requests." Surety's Opp'n at 20 (citations omitted). But Count Four clearly states that "[t]his Count is pled in the alternative in the event it is determined at trial that MAA delayed the Project," Countercl. ¶ 116, and the Surety "may not amend its [counterclaim] through briefs in opposition to a motion to dismiss," Tatneft v. Ukraine,
Counts Six and Seven also seek damages for the Surety's " 'losses, expenses[,] and reasonable attorneys' fees' pursuant to Paragraph 8 of the Bond." Id. at 33, 35. But as Walsh points out, financing the project during the financing period was "a primary obligation of the Surety which may allow the Surety to assert a [direct] claim under the Performance Bond" but not a derivative claim on MAA's behalf. Walsh's Mot. at 21; see Bond ¶ 8 (stating that, in the event of an unjustified declaration of default, Walsh "shall pay Surety an amount equal to Surety's losses, expenses and reasonable attorneys' fees" and making no mention of MAA (emphasis added) ). Hence, to the extent that Counts Six and Seven seek damages under Paragraph 8, they will be dismissed.
Again, Walsh raises a threshold argument: that the Surety lacks Article III standing to bring claims on behalf of MAA because the Surety "can only assert his own right and 'cannot rest his claim to relief on the legal rights or interests of third parties.' " Walsh's Mot. at 19 (citing Warth v. Seldin,
Because "D.C. imported the common law of Maryland as of 1801," District of Columbia courts "have 'customarily[ ] looked to post-1801 decisions of the Court of Appeals of Maryland for assistance in interpreting the law.' " See Hensel Phelps Constr. Co. v. Cooper Carry Inc.,
Even if it did, the Surety does not explain how Walsh's alleged breach of Paragraph 4 of the bond-the provision that authorizes the Surety to investigate Walsh's claims-would support the Surety's claim to relief under Paragraph 8, which entitles the Surety to its "losses" and "expenses" only if "it is determined that [Walsh's] declaration of [MAA's] default was not justified under the Subcontract." Bond ¶ 8 (emphasis added).
"[T]he District of Columbia Court of Appeals has recognized that, in the narrow circumstance '[w]hen an express contract has been repudiated or materially breached by the defendant, restitution for the value of the non-breaching party's performance is available as an alternative to an action for damages on the contract.' " Am. Civ. Constr.,
As explained above, however, Counts Six and Seven will be dismissed to the extent that they seek to recover under Paragraph 8 of the performance bond.
Reference
- Full Case Name
- WALSH CONSTRUCTION COMPANY II, LLC v. UNITED STATES SURETY COMPANY
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