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Hanover Insurance Co. v. Dunbar Mechanical Contractors, LLC

United States District Court, E.D. Arkansas, Jonesboro Division

June 3, 2019



          James M. Moody Jr., United States District Judge

         Pending is the motion for summary judgment of Plaintiff Hanover Insurance Company (“Hanover”). The motion was converted by the Court from a motion for judgment on the pleadings. The parties were given notice of the conversion and filed supplemental pleadings. For the reasons stated below, the motion is granted.

         I. Undisputed Facts

         Defendant Dunbar Mechanical Contractors (“Dunbar”) bid on a U.S. Government Department of the Army Corp of Engineers contract to complete construction on Ditch 27 & Tributaries in Mississippi County, Arkansas (the “Ditch 27 Project”). The Ditch 27 Project is a Service Disabled Veteran Set-Aside project which has certain requirements. In order to be awarded the contract, the bidder must be a Service Disabled Veteran-Owned Business (“SDVOB”) and must agree that “it will not pay more than 85% of the amount paid by the government to it to firms that are not similarly situated.” 13 C.F.R. § 125.6(a)(3). In other words, an SDVOB must perform at least 15% of the work on the Ditch 27 Project itself.

         Dunbar, an SDVOB, was awarded the Ditch 27 Project W912EQ-14-B-003 at the price of $2, 047, 455.74. On the same day the Ditch 27 Project was awarded, Dunbar entered into a subcontract agreement (the “Subcontract”) with Harding Enterprises, LLC (“Harding”) to “[p]rovide all work that was provided in the proposal Contract Documents: The contract documents shall consist of the Plans & Specifications; Safety Attachment; the invitation to Bid, dated 10/07/13, and this Agreement.” (ECF No. 1-3). The project is named W912EQ-14-B-003 Ditch 27 & Tributaries Mississippi County, Arkansas. The Subcontract expressly states that Dunbar would pay Harding $1, 794, 136.00 as full compensation for all the work done. (ECF No. 1-3). This represents 87.6% of the Ditch 27 Project.

         Approximately one month later, Billy W. Dunbar of Dunbar Mechanical Contractors entered into a separate Employment Agreement with Gregg Harding, the sole member of Harding Enterprises, LLC. Gregg Harding was employed as the project manager for the Ditch 27 Project for $62, 000 in compensation. (ECF No. 1-4). Billy W. Dunbar and Joan Dunbar are the only members of Dunbar Mechanical Contractors. Neither Harding Enterprises, LLC nor Gregg Harding are SDVOBs.

         At the request of Harding, Hanover issued a Subcontract Performance Bond and a Subcontract Payment Bond in the penal sum amount of the Subcontract, $1, 794, 136.00 on behalf of Harding Enterprises, LLC as the Principal to Dunbar Mechanical Contractors as the Obligee (the “Bond”). The purpose of the Bond was to guarantee Harding Enterprise's performance of the Subcontract between Dunbar and Harding. In the event of Harding's default of the Subcontract, Hanover would be obligated under the Bond to a) complete the Subcontract, (b) obtain new contractors to complete the Subcontract, (c) pay Dunbar, or (d) deny liability. (ECF No. 1-5 at p. 2).

         On April 20, 2017, Dunbar advised Hanover that Dunbar intended to terminate the Subcontract with Harding and the employment contract with Gregg Harding based on Harding's alleged default. Dunbar demanded performance by Hanover under the Bond. During its investigation of the claim, Hanover discovered that Dunbar was allegedly in violation of its Ditch 27 Project contract with the Government because Dunbar had subcontracted with a non-SDVOB for more than 85% of the Ditch 27 Project price. Hanover denied Dunbar's claim pursuant to Paragraph 4.4 of the Bond. Hanover filed this suit for declaratory judgment seeking a declaration that Hanover has no obligations under the Bond to complete the Ditch 27 Project and no obligations under the Bond to Dunbar for payment of money or performance of the Subcontract. Hanover also seeks to rescind the Bond.

         II. Standard for Summary Judgment

         Summary judgment is appropriate only when there is no genuine issue of material fact, so that the dispute may be decided solely on legal grounds. Holloway v. Lockhart, 813 F.2d 874 (8th Cir. 1987); Fed.R.Civ.P. 56. The Supreme Court has established guidelines to assist trial courts in determining whether this standard has been met:

The inquiry performed is the threshold inquiry of determining whether there is a need for trial -- whether, in other words, there are genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party.

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986).

         The Eighth Circuit Court of Appeals has cautioned that summary judgment should be invoked carefully so that no person will be improperly deprived of a trial of disputed factual issues. Inland Oil & Transport Co. v. United States, 600 F.2d 725 (8th Cir. 1979), cert. denied, 444 U.S. 991 (1979). The Eighth Circuit set out the burden of the parties in connection with a summary judgment motion in Counts v. M.K. Ferguson Co., 862 F.2d 1338 (8th Cir. 1988):

[T]he burden on the moving party for summary judgment is only to demonstrate, i.e., D[to] point out to the District Court, D that the record does not disclose a genuine dispute on a material fact. It is enough for the movant to bring up the fact that the record does not contain such an issue and to identify that part of the record which bears out his assertion. Once this is done his burden is discharged, and, if the record in fact bears out the claim that no genuine dispute exists on any material fact, it is then the respondents burden to set forth affirmative evidence, ...

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