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Liberty Mutual Insurance Co. v. Sumo-Nan LLC

United States District Court, D. Hawaii

May 20, 2015

LIBERTY MUTUAL INSURANCE COMPANY, a Massachusetts corporation, Plaintiff,
v.
SUMO-NAN LLC, a Hawaii limited liability company; NAN, INC., a Hawaii corporation, et al. Defendants.

ORDER (1) GRANTING IN PART AND DENYING IN PART LIBERTY MUTUAL'S MOTION TO DISMISS COUNTERCLAIM AND MOTION TO STRIKE [DKT. NO. 36]; AND (2) DENYING SU-MO BUILDERS, INC., SU YONG YI, AND MAUREEN DEE YI'S MOTION FOR SUMMARY JUDGMENT [DKT. NO. 58]

DERRICK K. WATSON, District Judge.

INTRODUCTION

The parties dispute their obligations under a payment and performance bond issued by Plaintiff Liberty Mutual Insurance Company ("Liberty Mutual") relating to a construction project, as well as various indemnity agreements between Plaintiff and Defendants. Defendants and Counterclaimants Su-Mo Builders, Inc., Su Yong Yi, and Maureen D. Yi seek summary judgment on the claims asserted against them by Liberty Mutual. Liberty Mutual seeks dismissal of the counterclaims filed by Su-Mo Builders, Inc., Su Yong Yi, and Maureen D. Yi.[1] For the reasons set forth below, Liberty Mutual's motion is GRANTED in part and DENIED in part. Su-Mo Builders, Inc., Su Yong Yi, and Maureen D. Yi's motion for summary judgment is DENIED.

BACKGROUND

On November 11, 2014, Liberty Mutual filed its Complaint for (1) Breach of Contract of Indemnity; (2) Unjust Enrichment; and (3) Quia Timet against defendants Sumo-Nan LLC ("Sumo-Nan"); Nan, Inc.; Laumaka LLC; Patrick Shin, aka Nan Chul Shin ("Patrick Shin"); Mariko Kaneko Shin; Patrick Shin Trustee of the Patrick Shin Trust ("Shin Trust"); Su-Mo Builders, Inc. ("Sumo"); Su Yong Yi; and Maureen D. Yi. Liberty Mutual's claims arise from a Miller Act bond it issued on behalf of Sumo-Nan in connection with a construction project at Tripler Army Medical Center, Contract No. W9128A-11-C-0006 ("TAMC Project"). The Miller Act required Sumo-Nan to furnish to the government a performance and payment bond. See 40 U.S.C. § 3131 et seq .

Liberty Mutual alleges that, as partial consideration for its agreement to furnish bonds on behalf of Sumo-Nan, Liberty Mutual and all defendants executed General Agreements of Indemnity and certain Amendments (collectively, "GAI"). See Complaint ¶ 17 & Exs. A-1 to A-10 attached to Complaint (GAI). According to Liberty Mutual, under the GAI, each of the defendants, jointly and severally, agreed to indemnify Liberty Mutual against any liability for losses, fees, costs, and expenses that Liberty Mutual incurred as a consequence of issuing the bonds on behalf of Sumo-Nan or as a consequence of a breach of the GAI. Complaint ¶ 19. On or about May 26, 2011, Liberty Mutual, as surety, issued to Sumo-Nan, as principal, a Performance and Labor & Material Payment Bond No. 023-017-103 naming as obligee the United States of America, in the penal sum of $15, 996, 619.00. Complaint ¶ 20 & Ex. B attached to Complaint (Bond).

According to Liberty Mutual, Sumo-Nan was unable to meet its obligations on the TAMC Project, and as a result, Liberty Mutual received claims on the bond, including demands from subcontractors and suppliers of Sumo-Nan, in excess of $1, 638, 409.00. Complaint ¶¶ 25-27. Liberty Mutual made a demand to defendants to deposit cash or other property as collateral security, to protect Liberty Mutual from claims on the bond, but defendants have failed and/or refused to deposit collateral with Liberty Mutual. Complaint ¶¶ 29-30 & Ex. C attached to Complaint (10/2014 Demand Letter).

Liberty Mutual alleges that defendants failed to perform under the TAMC Project contract, the GAI, and the bond, whereas Liberty Mutual performed its obligations under the GAI and the bond. Complaint ¶¶ 33-36. It seeks damages for breach of contract (Count 1) and unjust enrichment (Count 2), and an injunction preventing defendants from transferring assets to circumvent their obligations to Liberty Mutual (Count 3).

Sumo, Su Yong Yi and Maureen D. Yi (collectively "Sumo Defendants") filed an Answer and Counterclaim against Liberty Mutual on December 2, 2014 ("Sumo Counterclaim"). Sumo Defendants allege that they had no dealings with Liberty Mutual or Nan as to the 2003 GAI. Counterclaim ¶¶ 2-4. Sumo and Nan entered into a Mentor/Protege Agreement on May 5, 2006, and thereafter created three different joint ventures. Counterclaim ¶¶ 7, 13-15 & Ex. C attached to Sumo Counterclaim (Mentor/Protege Agreement). The three joint ventures were awarded over $225, 000, 000 in government work and an accounting of profits is presently the subject of litigation between Nan and Sumo. Counterclaim ¶ 16.

According to Sumo Defendants, Nan contacted Liberty Mutual regarding bonding needs for the joint ventures. Counterclaim ¶ 12. Sumo Defendants allege that neither Liberty Mutual nor Nan asked Sumo Defendants to assume any liability for bonds issued on behalf of Sumo-Nan. Counterclaim ¶¶ 25-26. Sumo Defendants contend that they never signed any indemnity agreement covering bonds issued for Sumo-Nan. Counterclaim at 24, ¶ 1. The Sumo Counterclaim asserts the following claims against Liberty Mutual: breach of contract (Counterclaim 1); (2) fraud and misrepresentation (Counterclaim 2); and (3) punitive damages (Counterclaim 3).

Liberty Mutual asks the Court to dismiss the Sumo Counterclaim and strike exhibits thereto. Sumo Defendants seek summary judgment with respect to the Liberty Mutual complaint.

STANDARD OF REVIEW

I. Liberty Mutual's Motion to Dismiss and Motion to Strike

Federal Rule of Civil Procedure 12(b)(6) permits a motion to dismiss for failure to state a claim upon which relief can be granted. Pursuant to Ashcroft v. Iqbal, "[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'" 555 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 554, 570 (2007)). "[T]he tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions." Id. Accordingly, "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. (citing Twombly, 550 U.S. at 555). Rather, "[a] claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citing Twombly, 550 U.S. at 556). Factual allegations that only permit the court to infer "the mere possibility of misconduct" do not constitute a short and plain statement of the claim showing that the pleader is entitled to relief as required by Rule 8(a)(2). Id . at 679.

Under Rule 12(f), a court has discretion to strike "an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Fed.R.Civ.P. 12(f). "The function of a 12(f) motion to strike is to avoid the expenditure of time and money that must arise from litigating spurious issues by dispensing with those issues prior to trial." Whittlestone, Inc. v. Handi-Craft Co., 618 F.3d 970, 974 (9th Cir. 2010) (citation omitted).

II. Sumo Defendants' Motion for Summary Judgment

Pursuant to Federal Rule of Civil Procedure 56(a), a party is entitled to 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."

DISCUSSION

I. Liberty Mutual's Motion to Dismiss and Motion to Strike

Liberty Mutual seeks dismissal of the Sumo Counterclaim and asks the Court to strike references to matters prohibited by Federal Rule of Evidence 408. For the reasons set forth below, the motion is granted with respect to dismissal and denied with respect to the motion to strike, and Sumo Defendants are granted leave to file an amended counterclaim.

A. Counterclaim 1 (Breach of Contract)

A breach of contract claim must set forth (1) the contract at issue; (2) the parties to the contract; (3) whether plaintiff performed under the contract; (4) the particular provision of the contract allegedly violated by defendants; and (5) when and how defendants allegedly breached the contract. See Evergreen Eng'rg, Inc. v. Green Energy Team LLC, 884 F.Supp.2d 1049, 1059 (D. Haw. 2012); see also Otani v. State Farm Fire & Cas. Co., 927 F.Supp. 1330, 1335 (D. Haw. 1996) ("In breach of contract actions, however, the complaint must, at minimum, cite the contractual provision allegedly violated. Generalized allegations of a contractual breach are not sufficient... the complaint must specify what provisions of the contract have been breached to state a viable claim for relief under contract law.")).

Liberty Mutual argues that Sumo Defendants fail to satisfy the third, fourth, and fifth elements required to maintain their breach of contract claim. In opposition, Sumo Defendants argue that they are not indemnitors on the bond - rather, they are indemnitors only for bonds issued on behalf of Su-Mo/Nan JV and Sumo Builders, Inc., but not the bond issued to Sumo-Nan, LLC, which is the subject of this case. Sumo Defendants argue that they have performed their contractual obligations of indemnity, and sufficiently alleged performance to maintain a claim for breach of contract. See Mem. in Opp. to Liberty Mutual Motion at 17-18. The Court disagrees.

The Sumo Counterclaim alleges that Liberty Mutual is in breach of the GAI. Sumo Defendants, however, do not allege that they performed under the GAI, which particular provisions of the GAI that Liberty Mutual breached, or when and how Liberty Mutual breached the GAI and damaged Sumo Defendants. Rather, Sumo Defendants appear to allege that the filing of the Liberty Mutual complaint itself caused their damages, but does not specify how the filing of such complaint violated any provision of the GAI. See Sumo Counterclaim at 25-26, ¶¶ U.1.-2. ("As a result of this Complaint, the Sumo Defendants are subject to a claim in excess of $1, 000, 000.00. As a result of this Complaint, Sumo is in a situation where Liberty is seeking wrongfully to tie up the assets of the Sumo Defendants which now jeopardizes the bonding ability of Sumo and its ability to continue its business.").

Moreover, to the extent Sumo Defendants allege misconduct by Nan, it fails to state a claim for breach of contract against Liberty Mutual. For example, the Sumo Counterclaim alleges that Liberty Mutual negotiated the terms of the GAI and/or bond exclusively with Nan, and did not deal directly with Sumo Defendants or discuss documents with Sumo Defendants. See, e.g., Sumo Counterclaim at 3, ¶ C.3. ("Liberty at no time had any dealings with the Sumo Defendants as to the 2003 GAI of the 2003 GAI Amendments"). Such allegations, however, failure to identify any misconduct by Liberty Mutual with respect to any agreement between the parties, and fails to state a plausible claim for breach of contract.

To the extent Sumo Defendants claim that Liberty Mutual wrongfully accomplished amendments to the 2003 GAI without the agreement of Sumo Defendants, in violation of the 2003 GAI, they fail to account for the March 2, 2011 GAI executed by Sumo, Su Yong Yi and Maureen D. Yi ("2011 GAI"). The 2011 GAI states:

This General Agreement (hereinafter the "Agreement") is made and entered into by the following individuals, partnerships, corporations, and/or other business entities, as applicable, Su-Mo Builders, Inc.; Su Yong Yi; Maureen D. Yi (individually and collectively hereinafter called the "Indemnitors(s)") jointly and severally, in favor of Liberty Mutual Insurance Company and any other company that is part of or added to the Liberty Mutual Group, severally not jointly, and for which Liberty Mutual Surety underwrites surety business (individually and collectively hereinafter called the "Surety") with respect to any surety bond, undertaking, recognizance, instrument of guarantee or other surety obligations (hereinafter called the "Bond(s)") requested from and/or issued by the Surety before or after the date of this Agreement, for I) Su-Mo Builders, Inc.; Su Yong Yi; Maureen D. Yi; and any Indemnitor added hereto by Amendment; II) any of the Indemnitors of Principals' subsidiaries or affiliates, whether present or future, and whether directly or indirectly held; and III) any other entity or person ...

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