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International Fidelity Insurance Co. v. La Porte Construction

United States District Court, D. Utah

March 2, 2017

INTERNATIONAL FIDELITY INSURANCE COMPANY, a New Jersey corporation, Plaintiff,
v.
LA PORTE CONSTRUCTION, INC., et al., Defendants.

         MEMORANDUM DECISION AND ORDER GRANTING THE AMBERLEY DEFENDANTS' MOTION FOR SUMMARY JUDGMENT; GRANTING THE JOINING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT; GRANTING BARCELONA'S MOTION FOR SUMMARY JUDGMENT; AND DENYING FIDELITY'S WRITTEN RULE 56(D) MOTION

          Jill N. Parrish United States District Court Judge.

         INTRODUCTION

         Plaintiff International Fidelity Insurance Company (“Fidelity”) filed a Complaint for Indemnity, Specific Performance, and Quia Timet Relief. Fidelity's claims arise from an Agreement of Indemnity (the “Indemnity Agreement”) under which Fidelity issued performance and payments bonds to Defendant La Porte Construction, Inc. (“La Porte”) in connection with La Porte's construction of a high-density mixed-use residential and commercial project known as The Plaza at State Street in Salt Lake City, Utah (the “Plaza Development”).

         Defendants Amberley Properties I, LLC, Amberley Properties II, LLC, Bracken Properties, L.L.C., Dundee Properties, L.L.C., Edinburgh Properties, L.L.C., Farquhar Properties, L.L.C., Glenfinnan Properties, L.L.C., and Inverness Properties, L.L.C. (the “Amberley Defendants”) filed a Motion to Dismiss the Complaint under Federal Rule of Civil Procedure 12(b)(6) (alternatively to be treated as a motion for summary judgment) (the “Motion”). (Dkt. 15). The Amberley Defendants contend that Fidelity cannot state a claim under the Indemnity Agreement because the individual who signed it, Benjamin Logue, was not authorized to sign it on their behalf. Defendants Andalucia Properties, L.L.C., Jameson Commercial Properties, L.L.C., Jameson Properties, L.L.C., Kilmarnock Properties, L.L.C., McGregor Properties, L.L.C., Oban Properties, L.L.C., Portree Properties, L.L.C., and Raasay Properties, L.L.C. (the “Joining Defendants” and together with the Amberley Defendants, the “Movants”) filed a Notice of Joining in Co-Defendants' Motion to Dismiss (the “Joinder”). (Dkt. 27). The Joining Defendants similarly argue that Mr. Logue, who likewise signed the Indemnity Agreement purportedly on behalf of the Joining Defendants, did not have authority to sign on their behalf.

         The court held a hearing on the Movants' motions on October 17, 2016. At the hearing, Fidelity made a speaking motion pursuant to Fed.R.Civ.P. 56(d)[1] for discovery.[2] Specifically, Fidelity requested that it be granted opportunity to depose Mr. Logue regarding certain representations contained in the Indemnity Agreement and Resolutions, and his authorization to sign the Indemnity Agreement. The court granted Fidelity's oral Rule 56(d) motion, but limited discovery to Mr. Logue's testimony regarding his authority to sign the Indemnity Agreement and the Resolutions on behalf of the Movants. Because Mr. Logue was present with his attorney at the hearing, the court determined that it would be most convenient and cost-effective to allow Fidelity to examine Mr. Logue at the hearing. Acting pursuant to the discretion granted to it under Fed.R.Civ.P. 56(d)(3), the court, over Fidelity's objection, ordered the examination of Mr. Logue at the hearing. At the conclusion of Mr. Logue's examination, the court inquired whether the parties desired to submit supplemental briefing for the court's consideration. Fidelity requested that it be allowed to submit a supplemental memorandum. The court ordered Fidelity to submit its supplemental memorandum within seven days and ordered the Movants to submit their response, if any, within five days thereafter.[3]

         A week after the hearing, Defendant Barcelona Properties, LLC (“Barcelona”), whose counsel had been present at the October 17 hearing, filed a Notice of Joining in Co-Defendants' Motion to Dismiss or, in the Alternative, Motion for Summary Judgment (the “Barcelona Motion”) (Dkt. 35). Because of the similarity of issues presented and the prior briefing on many of the issues, as well as the hearing held on the previous motions, the court finds that oral argument on the Barcelona Motion would not further assist the court in its decision and will rule on Barcelona's motion on the basis of the written memoranda. See DUCivR 7-1(f).

         Because evidence outside the pleadings was presented by the parties and will not be excluded by the court, the Movant's motions and the Barcelona Motion must be treated as motions for summary judgment under Fed.R.Civ.P. 56. See Fed. R. Civ. P. 12(d). Indeed, none of the parties objected to treating the motions as motions for summary judgment when the court indicated at the outset of the October 17 hearing that it was inclined to treat them as such. After considering all of the parties' written submissions, the oral arguments, and the evidence before it, the court issues this Memorandum Decision and Order Granting the Amberley Defendants' Motion for Summary Judgment; Granting the Joining Defendants' Motion for Summary Judgment; Granting Barcelona's Motion for Summary Judgment; and Denying Fidelity's written Rule 56(d) Motion.

         FACTUAL BACKGROUND

         I. The Indemnity Agreement

         This case arises out of the development and construction of a high-density mixed-use residential and commercial project in downtown Salt Lake City known as the Plaza at State Street. Defendant La Porte was hired as the general contractor for the Plaza Development. At all times relevant to this case, La Porte conducted its business through its principal, Mr. Benjamin Logue. In connection with an application to Fidelity for contractor performance and payment bonds, Mr. J. David Wittwer, a representative of Fidelity, presented Mr. Logue with the Indemnity Agreement and asked him to execute and deliver it to Fidelity. The Indemnity Agreement listed all named defendants in this action-including the Movants and Barcelona-as “Indemnitors, ” and named International Fidelity Insurance Company and/or Allegheny Casualty Company as “Surety.”

         The Indemnity Agreement required all those listed as Indemnitors to indemnify Fidelity “against all losses, costs, expenses, and exposure” related to its bonds and the construction of the Plaza Development by La Porte. The Indemnity Agreement also contained the following provision under the heading “Representations”:

The undersigned represent to [Fidelity] that they have carefully read the entire [Indemnity] Agreement and that there are no other agreements or understandings which in any way lessen or modify the obligations set forth herein. The undersigned further warrant and represent to [Fidelity] that all necessary action has been taken by them to authorize the execution and delivery of this [Indemnity] Agreement.

         The Indemnity Agreement was executed on March 30, 2012 on behalf of each of the Movants and Barcelona by Mr. Logue, who signed as the Managing Member of each of the Movants and Barcelona. Accompanying each signature is an Acknowledgment by a notary public that Mr. Logue Dated: behalf of each of the Movants and Barcelona.

         II. The Resolutions

         Along with the Indemnity Agreement, Mr. Wittwer also presented Mr. Logue with Resolutions Authorizing Execution of Indemnity Agreement (the “Resolutions” or individually “Resolution”) that corresponded to each of the Movants and Barcelona. The Resolutions, which were prepared by Fidelity, each contained the following provisions:

At a Special meeting of the Members of the [e.g., Amberley Properties II, LLC] . . . duly called and held on the 30 day of March, 2012 a quorum being present, the following Preamble and Resolution were adopted: WHEREAS this LLC has a financial material and beneficial interest in transactions in which LaPorte Contruction, Inc. [is involved] . . . RESOLVED, that the Managing Member(s) authorized to execute documents on behalf of the LLC, be and they are hereby authorized and empowered to execute any indemnity agreement or agreements required by [Fidelity] . . . RESOLVED FURTHER, that the Member be and they are hereby authorized and empowered to execute such indemnity agreement or agreements and to any and all amendments to said indemnity agreement or agreements and to any other or further agreements.

         The Resolutions each concluded with a provision intended to identify by name the “Managing Members” authorized to execute the Indemnity Agreement on behalf of each of the Movants and Barcelona, but no names or entities were listed. Each of the Resolutions bears the sole signature of “Benjamin Logue, Managing Member.”

         Although the Resolutions state that they were adopted in a “Special meeting of the Members” of each of the Movants and Barcelona, no such meetings actually took place.

         III. The Movants

         Each of the Movants is a single purpose Utah limited liability company. Each of the Movants was individually formed for a specific purpose, i.e., to invest in, develop, and maintain its own specific real estate “Project.” By way of example, Amberley Properties II, LLC's Operating Agreement defined its “Project” as “the property . . . in Ogden, Utah and the 32-unit multifamily rental housing development and other improvements to be rehabilitated, owned and operated thereon by the Company, and to be known as Fairview Apartments.” None of the Movants' “Projects” are in any way related to the Plaza Development. Further, none of the Movants have any financial, material or beneficial interest in the Plaza Development. The only connection between the Movants and the Plaza Development is that the Plaza Development's contractor, La Porte, had also acted as the contractor in constructing or renovating the various “Projects” owned by the Movants.[4]

         With the exception of Andalucia Properties, L.L.C. (“Andalucia”), Mr. Logue was not the Managing Member of any of the Movants. The Movants' Operating Agreements, except for that of Andalucia, are identical for purposes of this matter. Each provides that the membership of each Movant consists of two members: an Investor Member (who in every case was an institutional investor and not Mr. Logue) and a Managing Member.[5] Although Mr. Logue signed the Indemnity Agreement as the “Managing Member” of each of the Movants, he was not the Managing Member of any of them. Rather, each of the Movants' Operating Agreements (except for Andalucia's) identifies the Managing Member as a Managing LLC.[6]

         Andalucia differs from the other Movants because Andalucia was set up to be manager managed and had no Investor Member and no Managing Member. Rather, the Andalucia Operating Agreement identifies Benjamin Logue and Lisa Logue as its Members-Mr. Logue owning a 51% membership interest and Lisa Logue owning a 49% membership interest-and Benjamin Logue as its Manager.[7] Like the other Movants, Andalucia was created to accomplish a single delineated purpose. Andalucia was “formed for the purposes of owning, developing, and managing real property in Price City, Utah and other activities directly related to that property.” Like the other Movants, Andalucia has no financial, material or beneficial interest in the Plaza Development and its only connection to the Plaza Development is its hiring of La Porte for the development of its real property in Price City, Utah.

         None of the Movants ever authorized Mr. Logue to sign the Indemnity Agreement or the Resolutions on their behalf. Rather, Mr. Logue testified that Fidelity's representative presented him with the Indemnity Agreement and Resolutions and asked him to sign them. Although Mr. Logue purported to execute the Indemnity Agreement and Resolutions on behalf of the Movants, he was not authorized to do so and had believed that he was pledging only his own individual ownership interest-an interest in the Managing LLCs which each owned only a .01% or .1% interest in the Movants.

         IV. Barcelona

         Unlike the Movants, Barcelona was set up as a sole-member LLC, the sole member being Benjamin Logue. Barcelona was organized as a manager-managed LLC with Benjamin Logue identified as the company's Manager. At the time the Indemnity Agreement was signed, Mr. Logue served as both the sole member and Manager of Barcelona. Barcelona's Operating Agreement provided that Barcelona was formed for the purpose of “engag[ing] in the business of owning, operating, managing[, ] developing and selling real property, and to conduct such other business as is designated by [its] Manager.” The Barcelona Operating Agreement also provided that “management of [Barcelona] is vested exclusively in the Manager. No Member, acting solely in its capacity as a Member, may be an agent of [Barcelona], nor may any Member, in that capacity, bind or execute any instrument on behalf of [Barcelona] without the prior written consent of the Manager.” Like the Movants, Barcelona has no financial, material or beneficial interest in the Plaza Development.

         V. Demand Made on the Bonds

         Due to difficulties in completing the Plaza Development, the construction lender for the project served La Porte with a Notice of Default and Termination, and made demand on the bonds issued by Fidelity. Fidelity brought this action to enforce its rights under the Indemnity Agreement.

         LEGAL STANDARD

         Although the Movants and Barcelona characterize their motions as motions to dismiss for failure to state a claim pursuant to Rule 12(b)(6), the Movants and Barcelona have attached affidavits and the Operating Agreements for the court's consideration. Fidelity also attached affidavits to its memoranda in opposition to these motions. In ruling on a Rule 12(b)(6) motion, the court is limited to considering the contents of the complaint. Berneike v. CitiMortgage, Inc., 708 F.3d 1141, 1146 (10th Cir. 2013).[8] Under Fed.R.Civ.P. 12(d), if “matters outside the pleadings are presented to and not excluded by the court, the motion must be treated as one for summary judgment.” Therefore, the court can convert the motions to dismiss into motions for summary judgment, or the court can treat the motions under Rule 12(b)(6), considering only the complaint and related documents. See Ordonez v. Canyons Sch. Dist., No. 2:13-CV-245-DAK-EJF, 2016 WL 5415663, at *2 (D. Utah Sept. 28, 2016) (“The court may simply disregard the exhibits filed and rule on the motion to dismiss based solely on the pleadings.”); PayoutOne v. Coral Mortg. Bankers, 602 F.Supp.2d 1219, 1227 (D. Colo. 2009) (“There is no requirement, however, that a court automatically convert a motion to dismiss to a motion for summary judgment simply because one or both parties file documents in connection with a motion to dismiss.”).

         Because evidence outside the pleadings has been presented by the parties and will not be excluded by the court, the motions will be treated as motions for summary judgment under Fed.R.Civ.P. 56. See Fed. R. Civ. P. 12(d). None of the parties object to converting the motions to motions for summary judgment under Fed.R.Civ.P. 12(d). When a 12(b)(6) motion is treated as one for summary judgment under Rule 56, “[a]ll parties must be given a reasonable opportunity to present all the material that is pertinent to the motion.” Fed.R.Civ.P. 12(d). In their motion, the Amberley Defendants stated that they do not object to the motion being converted into a motion for summary judgment. Likewise, the Joining Defendants do not object and urge the court to either dismiss the claims against them or to alternatively grant summary judgment in their favor. Barcelona also stated in its motion that it does not object to considering the motions under Rule 56. In responding to the motions, Fidelity treated the motions to dismiss as motions for summary judgment and conformed its responses to the requirements of DUCivR 56-1. The court also indicated at the outset of the hearing that it was inclined to treat the motions as motions for summary judgment, granted Fidelity's oral motion for discovery under Fed.R.Civ.P. 56(d), and then allowed the parties to file supplemental memoranda following the hearing. Therefore, all parties have been given a reasonable opportunity to present all the material pertinent to the motions.

         Under Federal Rule of Civil Procedure 56, “[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” “[A] party seeking summary judgment always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (internal quotation marks omitted). The court views ...


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