holding that “[t]he corporation, by accepting the benefits of the transaction intended to and did, in fact, ratify the agreement. It thereby became bound by the agreement”
How later courts described this case
- holding that “[t]he corporation, by accepting the benefits of the transaction intended to and did, in fact, ratify the agreement. It thereby became bound by the agreement”
Written by the judges who cited it.
The opinion
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
ASHEVILLE DIVISION
CIVIL CASE NO. 1:22-cv-00024-MR-WCM
FRANKENMUTH MUTUAL )
INSURANCE CO., )
)
Plaintiff, )
) MEMORANDUM OF
vs. ) DECISION AND ORDER
)
NATIONAL BRIDGE BUILDERS, LLC, )
WILLIAM H. WEST, III, WILLIAM H. )
WEST, IV, GEMINI III TRUST, and )
GEMINI IV TRUST, )
)
Defendants. )
________________________________ )
THIS MATTER is before the Court on the Plaintiff Frankenmuth Mutual
Insurance Company’s Motion for Summary Judgment [Doc. 117] and the
Defendant National Bridge Builders, LLC’s Motion for Partial Summary
Judgment [Doc. 119].
I. PROCEDURAL BACKGROUND
On February 10, 2022, the Plaintiff Frankenmuth Mutual Insurance
Company (“Frankenmuth”) initiated this action against the Defendant
National Bridge Builders, LLC (“National Bridge”) for claims arising from
National Bridge’s alleged breach of the parties’ purported General
Agreement of Indemnity (the “Indemnity Agreement”).1 [Doc. 1]. In its
Complaint, Frankenmuth asserts claims against National Bridge for specific
performance of various provisions of the Indemnity Agreement (Counts I, II,
and III); breach of contract (Count IV); conversion of trust funds (Count V);
and breach of fiduciary duty (Count VI). [Id.]. In its initial Answer, National
Bridge asserted Counterclaims against Frankenmuth for fraud in the
inducement (First Counterclaim) and unfair and deceptive trade practices
under N.C. Gen. Stat. § 75-1.1 (“Chapter 75”) (Second Counterclaim). In an
Amended Answer filed on January 11, 2023, National Bridge asserted
additional counterclaims of breach of contract (Third Counterclaim), breach
of implied covenant of good faith and fair dealing (Fourth Counterclaim),
tortious interference with contract (Fifth Counterclaim), and defamation
(Sixth Counterclaim).
On May 22, 2023, the Court entered a Preliminary Injunction directing
National Bridge to (1) deposit collateral security with Frankenmuth in the
1 Frankenmuth also named William H. West, III, William H. West, IV, Gemini III Trust, and
Gemini IV Trust as defendants in this action. [Doc. 1]. Frankenmuth subsequently
dismissed its claims against these defendants without prejudice [Doc. 34], leaving
National Bridge as the sole remaining defendant in this action.
2
amount of $15,910,811.76 and (2) furnish Frankenmuth with free access to
National Bridge’s books, records, and accounts.2 [Doc. 123].
This matter is now before the Court on the parties’ cross-motions for
partial summary judgment. [Docs. 117, 119]. Specifically, Frankenmuth
moves for partial summary judgment in its favor relative to its claims for
specific performance as stated in Counts I and II, its claim for breach of
contract as stated in Count IV, and National Bridge’s First, Second, Fifth, and
Sixth Counterclaims for fraudulent inducement, violations of Chapter 75,
tortious interference with contract, and defamation.3 [Doc. 117]. National
Bridge moves for partial summary judgment in its favor as to each of
Frankenmuth’s causes of action as well as National Bridge’s First, Fifth, and
Sixth Counterclaims.4 [Doc. 119].
Having been fully briefed, these motions are now ripe for disposition.
2 National Bridge has appealed the Court’s May 22, 2023 Order [Doc. 133], and that
appeal remains pending.
3 Frankenmuth does not move for summary judgment with respect to its specific
performance claim set forth in Count III, it claims for conversion of trust funds as stated
in Count V, or its claims for breach of fiduciary duty as stated in Count VI. Further,
Frankenmuth does not move for summary judgment with respect to National Bridge’s
Third and Fourth Counterclaims for breach of contract and breach of implied covenant of
good faith and fair dealing.
4 National Bridge does not seek summary judgment with respect to its counterclaims for
its Second Counterclaim for violations of Chapter 75, its Third Counterclaim for breach of
contract or its Fourth Counterclaim for breach of implied covenant of good faith and fair
dealing.
3
II. STANDARD OF REVIEW
Summary judgment is appropriate if the pleadings, depositions,
answers, admissions, stipulations, affidavits, and other materials on the
record show “that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a)&(c).
“As the Supreme Court has observed, ‘this standard provides that the mere
existence of some alleged factual dispute between the parties will not defeat
an otherwise properly supported motion for summary judgment; the
requirement is that there be no genuine issue of material fact.’” Bouchat v.
Baltimore Ravens Football Club, Inc., 346 F.3d 514, 519 (4th Cir. 2003)
(quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986)).
“Facts are material when they might affect the outcome of the case,
and a genuine issue exists when the evidence would allow a reasonable jury
to return a verdict for the nonmoving party.” Ballengee v. CBS Broad., Inc.,
968 F.3d 344, 349 (4th Cir. 2020) (quoting News & Observer Publ’g Co. v.
Raleigh-Durham Airport Auth., 597 F.3d 570, 576 (4th Cir. 2010)). The Court
does not make credibility determinations or weigh the evidence when ruling
on a motion for summary judgment. Guessous v. Fairview Prop. Invs., LLC,
828 F.3d 208, 216 (4th Cir. 2016). “Regardless of whether he may ultimately
be responsible for proof and persuasion, the party seeking summary
4
judgment bears an initial burden of demonstrating the absence of a genuine
issue of material fact.” Bouchat, 346 F.3d at 522. If this showing is made,
the burden then shifts to the nonmoving party who must convince the Court
that a triable issue does exist. Id.
Where, as here, the parties each move for summary judgment on the
same claim, the Court “must review each motion separately on its own merits
to determine whether either of the parties deserves judgment as a matter of
law.” Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir. 2003) (internal
quotation marks and citation omitted). In considering each of the motions for
summary judgment, the Court must view the pleadings and materials
presented in the light most favorable to the non-movant and must draw all
reasonable inferences in the non-movant’s favor as well. Adams v. UNC
Wilmington, 640 F.3d 550, 556 (4th Cir. 2011).
III. FACTUAL BACKGROUND
The following is a recitation of the relevant facts, which are undisputed
unless otherwise noted.
Frankenmuth is a corporation incorporated under the laws of Michigan,
and it has its principal place of business in Michigan. [Doc. 1 at ¶ 1]. National
Bridge is a limited liability company formed in 2017 under the laws of North
Carolina. [Id. at ¶¶ 2, 12]. National Bridge is engaged in the construction
5
contracting business, including construction activities on public projects in
North Carolina, South Carolina, and Virginia. [Id. at ¶ 12].
Gemini III Trust and Gemini IV Trust act as members of National
Bridge, and both trusts hold a fifty percent ownership interest in National
Bridge. [Doc. 121: West III Decl. at ¶¶ 7-8; Doc. 122: West IV Decl. at ¶¶ 7-
8]. William H. West, III is the sole Trustee of Gemini III Trust, and William H.
West, IV is the sole Trustee of Gemini IV Trust. [Doc. 121: West III Decl. at
¶ 9; Doc. 122: West IV Decl. at ¶ 9]. William H. West, III and William H.
West, IV (collectively, “the Wests”) are co-managers of National Bridge.
[Doc. 121: West III Decl. at ¶ 10; Doc. 122: West IV Decl. at ¶ 10]. According
to National Bridge’s Operating Agreement, “all decisions, elections,
determination, or other actions” (other than transactions involving less than
$10,000) require “the approval, consent, agreement, or ratification of” both
Managers. [Doc. 50-1: Operating Agreement at 8-9].
In 2018, National Bridge solicited surety bonds from Frankenmuth.
[Doc. 113: Fifth Maloney Decl. at ¶ 2]. On August 22, 2018, Dena Brown,
using the email address dena@nationalbridgebuilders.us, electronically
executed an Indemnity Agreement on behalf of National Bridge in favor of
Frankenmuth via DocuSign. [Id. at ¶ 6; Doc. 113-7 at 9]. Dena Brown signed
the Indemnity Agreement as “William H. West.” [Id.]. Dena Brown is the
6
sister of the Wests. [Doc. 53 at ¶ 2]. Neither of the Wests executed the
Indemnity Agreement, reviewed the Indemnity Agreement, or received a
DocuSign link to sign the Indemnity Agreement. [Doc. 121: West III Decl. at
¶¶ 1-3; Doc. 122: West IV Decl. at ¶¶ 1-3].
According to the Wests, prior to issuing the bonds, Frankenmuth “had
undergone underwriting of [National Bridge], including but not limited to,
upon information and belief, reviewing and/or receiving a copy of [National
Bridge’s] operating agreement and/or information concerning signing
authority for [National Bridge].” [Doc. 121; West III Decl. at ¶ 13; Doc. 122;
West, IV Decl. at ¶ 13]. Frankenmuth denies that it ever received and/or had
notice of the terms of National Bridge’s Operating Agreement. Further,
Frankenmuth asserts that National Bridge “never communicated any
limitations whatsoever on the authority of Dena Brown or any other
representative/agent to act on National Bridge’s behalf” until National Bridge
filed its response to Frankenmuth’s Second Motion for Preliminary Injunction
on November 28, 2022. [Doc. 53: Third Maloney Decl. at ¶ 3].
In the National Bridge’s 2018 Limited Liability Company Annual Report,
Dena Brown is listed as National Bridge’s Secretary, and she is the only
company official listed. [Doc. 53-1: 2018 Annual Report]. In August of 2018,
five days before executing the Indemnity Agreement, Dena Brown signed a
7
Letter of Intent to Perform as a Subcontractor to NCDOT on behalf of
National Bridge with a total commitment amount of $24,355.00, and she
indicated that she was a manager of National Bridge. [Doc. 53-2: Letter of
Intent].
Following the execution of the Indemnity Agreement, Frankenmuth
began issuing final bonds on behalf of National Bridge.5 [Doc. 132: Sixth
Maloney Decl. at ¶ 4]. On August 27, 2018, Frankenmuth issued Contract
Performance Bond SUR2001132 and Contract Payment Bond
SUR2001132, both in the amount of $889,301.50, on behalf of National
Bridge. [Doc. 132-2]. Dena Brown was National Bridge’s sole signatory on
Contract Performance Bond SUR2001132 and Contract Payment Bond
SUR2001132 in her capacity as “Authorized Agent” for National Bridge. [Id.].
On August 28, 2018, Frankenmuth issued Contract Performance Bond
SUR2001134 and Contract Payment Bond SUR2001134, both in the amount
5 Prior to the execution of the Indemnity Agreement, Frankenmuth had issued a bid bond
on behalf of National Bridge relative to the latter’s bid for NCDOT Contract DE00251. A
“bid bond” is a type of bond issued before a bonded contract is awarded/executed. The
penal sum of a bid bond is generally only a small percentage of the bid to which it relates;
thus, in the case of the bid bond for NCDOT Contract DE00251, the penal sum equaled
5% of National Bridge’s bid for the contract. By contrast, a “final bond” consists of a
performance bond or payment bond that is typically issued after a bonded contract is
awarded/executed. The penal sum of a performance bond or a payment bond generally
equals 100% of the initial price of the awarded/executed contract to which such final
bonds relate. [Doc. 132: Sixth Maloney Decl. at ¶ 2].
8
of $2,256,939.77, on behalf of National Bridge. [Doc. 132-1]. Dena Brown
was again the sole signatory on behalf of National Bridge, and she indicated
below her signature that she was a “manager.” [Id.].
On October 15, 2019, Frankenmuth’s Director of Surety Claims,
Kathleen Maloney (“Maloney”), sent written correspondence to William H.
West, IV and to National Bridge’s bonding agent, Clay Tresher, emphasizing
Frankenmuth’s rights under the Indemnity Agreement. [Doc. 132: Sixth
Maloney Decl. at ¶ 5]. Neither West nor Tresher challenged or objected to
the enforceability of the Indemnity Agreement, and they instead participated
in National Bridge’s subsequent solicitation of additional bonds from
Frankenmuth with penal sums totaling $44,350,240.00. [Id.].
In January of 2020, the Wests witnessed Dena Brown sign a
Performance and Indemnity Bond and a Payment Bond, both in the amount
of $2,797,679.47, with the South Carolina Department of Transportation
(“SCDOT”) as a manager of National Bridge. [Doc. 53-6: SCDOT Bond].
On April 2, 2020, a representative of Frankenmuth emailed a copy of
the DocuSigned Indemnity Agreement to Robert Coon, one of National
Bridge’s bonding agents. [Doc. 132: Sixth Maloney Decl. at ¶ 6]. Coon never
took any issue with the DocuSigned Indemnity Agreement and instead
participated in National Bridge’s solicitation and acceptance of eleven more
9
performance bonds, eleven more payment bonds, and one license bond with
aggregate penal sums totaling $31,654,273.66. [Id.].
In written correspondence dated May 5, 2020, Maloney emphasized
Frankenmuth’s rights as surety under the Indemnity Agreement to Coon and
William H. West, IV. [Doc. 132: Sixth Maloney Decl. at ¶ 7]. Neither Coon
nor West challenged or objected to the enforceability of the Indemnity
Agreement, and they instead participated in National Bridge’s subsequent
solicitation of additional bonds from Frankenmuth. [Id.].
In total, from April 27, 2018 through March 23, 2021, National Bridge’s
Bonding Agents executed 35 performance bonds, 35 payment bonds, and
one license bond with combined penal sums exceeding $108,000,000 at
National Bridge’s request. [Doc. 132: Sixth Maloney Decl. at ¶ 10]. These
bonds enabled National Bridge to, among other things, perform public
construction contracts (hereinafter “the Bonded Contracts”) with the North
Carolina Department of Transportation (“NCDOT”), the South Carolina
Department of Transportation (“SCDOT”), and the Virginia Department of
Transportation (“VDOT”). [Id.]. Without Frankenmuth’s surety bonding
program, National Bridge could not have bid on or even been considered for
any of those public construction contracts. [Id.]. National Bridge never once
questioned or objected to the enforceability of the Indemnity Agreement
10
against National Bridge until long after Frankenmuth initiated this action to
enforce the Indemnity Agreement. [Id. at ¶ 11].
The Indemnity Agreement requires National Bridge to indemnify
Frankenmuth from all “Loss”6 and grants Frankenmuth the right, in its sole
discretion, to settle any claim against any bond. [Doc. 1-1 at 3]. Paragraph
5 of the Indemnity Agreement further requires National Bridge to deposit
collateral with Frankenmuth. [Doc. 1-1 at 3]. On this point, the Indemnity
Agreement states as follows:
Indemnitors7 agree to deposit with [Frankenmuth],
upon demand, funds, other collateral security
acceptable to [Frankenmuth], in an amount as
determined by [Frankenmuth] sufficient to discharge
any Loss or anticipated Loss. Indemnitors further
agree to deposit with [Frankenmuth], upon demand,
an amount equal to the value of any assets or
Contract funds improperly diverted by any
Indemnitor. Sums deposited with [Frankenmuth]
pursuant to this paragraph may be used by
[Frankenmuth] to pay such claim or be held by [the
Plaintiff] as collateral security against any Loss or
6 Regarding “Loss,” the Indemnity Agreement provides, in part, that the “[i]ndemnitors’
liability to [Frankenmuth] includes all Loss, all payments made, and all actions taken by
[Frankenmuth] under the Good Faith belief that [Frankenmuth] is, would be or was liable
for the Loss, the amounts paid or the actions taken or that it was necessary or expedient
to incur such Loss, make such payments or take such actions, whether or not such
liability, necessity or expediency existed.” [Doc. 1-1 at 2].
7 The “Indemnitors” under the Indemnity Agreement included National Bridge, William H.
West, III, William H. West, IV, Gemini III Trust, and Gemini IV Trust. As noted supra,
Frankenmuth has dismissed its claims against William H. West, III, William H. West, IV,
Gemini III Trust, and Gemini IV Trust without prejudice.
11
unpaid premium on any Bond. [Frankenmuth] shall
have no duty to invest, or provide interest on the
collateral. Indemnitors agree that [Frankenmuth]
would suffer irreparable damage and would not have
an adequate remedy at law if Indemnitors fail to
comply with the provisions of this paragraph. Any
remaining funds held by [Frankenmuth] after
payment of all sums due to [Frankenmuth] under this
Agreement shall be returned upon the complete
release and/or discharge of [Frankenmuth’s] liability
under all Bonds. In addition to the foregoing,
Indemnitors shall promptly, on [Frankenmuth’s]
written demand, procure the full and complete
discharge of [Frankenmuth] from all Bonds
demanded by [Frankenmuth] and all liability in
connection with such Bonds. If indemnitors are
unable to obtain such discharge within the time
demanded, Indemnitors shall promptly deposit with
[Frankenmuth] an amount of money that
[Frankenmuth] determines is sufficient to
collateralize or pay any outstanding bonded
obligations, or otherwise make provisions acceptable
to [Frankenmuth] for the funding of the bonded
obligations.
[Id.].
Paragraph 12 of the Indemnity Agreement further requires National
Bridge to provide Frankenmuth access to National Bridge’s books and
records. [Id. at 4]. This provision states, in pertinent part, as follows:
Indemnitors shall furnish upon demand, and
[Frankenmuth] shall have the right of free access to,
at reasonable times, the records of Indemnitors
including, but not limited to, books, papers, records,
documents, contracts, reports, financial information,
12
accounts and electronically stored information, for
the purpose of examining and copying them.
[Id.]. Paragraph 25 of the Indemnity Agreement also provides that:
Indemnitor shall permit any of [Frankenmuth’s]
officers, employees, agents or other representatives
to visit and inspect upon reasonable notice during
business hours any of the locations of Indemnitor
(provided that, while a Default exists, [Frankenmuth]
may make such visits and inspections at any time
without prior notice), to examine and audit all of
Indemnitor’s Property, books of account, records,
reports and other papers, to make copies and
extracts therefrom and to discuss its affairs, finances
and accounts with its officers, employees and
independent certified public accountants.
Indemnitors shall incur expenses at the standard
rates charged by [Frankenmuth] for such activities
when an open claim or default exists. Should
[Frankenmuth] deem it necessary to visit and inspect
when no claim or default exists, it shall do so at its
own expense.
[Id. at 7].
“[A]s additional security to secure the obligations of [National Bridge],”
Paragraph 6 of the Indemnity Agreement also assigns Frankenmuth an
interest in various property, including, in part, “all monies due or to become
due to [National Bridge] as result of the [Bonded] Contract(s)” and “all
supplies, materials, tools, machinery, plant and equipment . . . that may . . .
be related to, or in, on or around the work or the work site covered by the
13
Bonds.” [Id. at 3]. In the event of a default8 under the Indemnity Agreement,
Paragraph 7 provides that:
[Frankenmuth] shall have the right, in its sole
discretion, and without limitation, to . . . (ii) take
immediate possession of Contract funds whether
earned or unearned, (iii) collect such sums as may
be due [National Bridge] and to endorse in the name
of [National Bridge], and (iv) collect any negotiable
instruments; (e) require any Obligee to withhold
payment of Contract funds unless and until
[Frankenmuth] consents to its release and/or to direct
the payment of said Contract funds to [Frankenmuth]
or to its designee . . . .”
[Id. at 3-4].
8 The Indemnity Agreement provides numerous circumstances under which National
Bridge can default of the Agreement, including, but not limited to, the following: “(a) a
declaration of Contract default by any Obligee; (b) the actual or alleged breach,
abandonment, refusal, or inability or failure to perform any Contract; (c) a breach of any
provision of this Agreement; (d) failure to make payment of a properly due and owing bill
in connection with any Contract; (e) if in the sole opinion of the [Plaintiff], the contract
funds to be paid are insufficient to pay the costs of completing any Contract or Contracts;
(f) diversion of Contract funds for any Indemnitor’s assets to the detriment of Contract
obligations or any of [the Plaintiff’s] right[s] under this Agreement or at law; (g) any
Indemnitor’s becoming the subject of any proceeding or agreement of bankruptcy,
receivership, insolvency, or creditor assignment, or actually becoming insolvent; . . . (j)
any failure of any Indemnitor to perform its obligations under this Agreement in
accordance with its terms; (k) if there is any change in any Indemnitor’s financial condition
which, in [Frankenmuth’s] opinion, has or would be reasonably likely to have a material
adverse effect with respect to the business, assets, properties, financial condition,
stockholders[’] equity, contingent liabilities, prospects, material agreements or results of
operations of any Indemnitor, Indemnitor’s ability to perform its obligations under any
Contracts and pay the obligations in accordance with the terms thereof, or the validity or
enforceability of this Agreement . . . .” [Doc. 1-1 at 1-2].
14
The Indemnity Agreement also requires National Bridge to “exonerate,
indemnify and save [Frankenmuth] harmless from and against all Loss.”
[Doc. 1-1 at ¶ 3]. The Agreement defines “Loss” as follows:
All loss, costs and expense of any kind or nature,
including attorneys' and other fees or costs, which
[Frankenmuth] incurs in connection with any Bond,
Contract or this Agreement, including but not limited
to all loss, cost and expense incurred by reason of:
(a) the underwriting or issuance of any Bond, (b)
making any investigation in connection with any
Bond; (c) any claim, which means any notice, claim,
demand, defense, counterclaim, setoff, lawsuit or
proceeding or circumstance which may constitute,
lead to or result in Loss, liability, or asserted liability
in connection with any Bond or this Agreement, (d)
any Indemnitor failing to timely and completely
perform under or comply with this Agreement, (e)
[Frankenmuth] enforcing this Agreement (f)
[Frankenmuth] prosecuting or defending any action
in connection with any Bond; (g) obtaining the
release of any Bond; (h) [Frankenmuth] recovering or
attempting to recover Property in connection with any
Bond or this Agreement (i) [Frankenmuth] enforcing
by litigation or otherwise any of the provisions of this
Agreement, (j) any act of [Frankenmuth] to protect or
procure any of [Frankenmuth’s] rights, protect or
preserve any of [Frankenmuth’s] interests, or to avoid
or lessen [Frankenmuth’s] liability or alleged liability,
and (k) all interest accruing on any such amounts at
the maximum legal rate. Indemnitors’ liability to
[Frankenmuth] includes all Loss, all payments made,
and all actions taken by [Frankenmuth] under the
Good Faith belief that [Frankenmuth] is, would be or
was liable for the Loss, the amounts paid or the
actions taken or that it was necessary or expedient
to incur such Loss, make such payments or take
15
such actions, whether or not such liability, necessity
or expediency existed. Good Faith means, with
respect to any act, exercise of discretion or omission
by [Frankenmuth], an absence of dishonesty, evil
intent and actual malice toward Indemnitors. An
itemized statement of Loss, sworn to by any officer
of [Frankenmuth], or vouchers, affidavits, or other
evidence of payment by [Frankenmuth], shall be
prima facie evidence of Indemnitors' liability for such
Loss.
[Id. at 2]. Moreover, “[a]ll rights and remedies of the [Frankenmuth] under
[the Indemnity Agreement] shall be cumulative, and the exercise of or failure
to exercise any right or remedy shall not be an election of or waiver of any
right or remedy.” [Id. at 6].
In 2019, Frankenmuth began receiving claims against the bonds and
notices of National Bridge’s alleged breaches under the Bonded Contracts.
[Doc. 39: Second Maloney Decl. at ¶ 3]. On April 12, 2019, the NCDOT
notified Frankenmuth that National Bridge had made “unsatisfactory”
progress under a Bonded Contract covered by Bond No. SUR 2001132. [Id.;
see also Doc. 113: Fifth Maloney Decl. at ¶ 12]. By January of 2020, National
Bridge’s subcontractors and suppliers had “asserted claims against
[Frankenmuth] under nine of the Bonds in an amount that exceeded
$1,000,000.” [Doc. 113: Fifth Maloney Decl. at ¶ 12]. On July 2, 2020, the
NCDOT again notified Frankenmuth that National Bridge had made
16
“unsatisfactory” progress under a Bonded Contract covered by Bond No.
SUR 0002256. [Id.; see also Doc. 39-3: Letter of Concern]. On November
23, 2020, the NCDOT declared National Bridge to be in “material breach”
under a Bonded Contract covered by Bond No. SUR 2001135, and National
Bridge was subsequently removed from the NCDOT’s prequalified bidder’s
list in August of 2021 for withholding payment from a subcontractor/supplier
related to a Bonded Contract covered by Bond No. SUR 2001150. [Doc. 39:
Second Maloney Decl. at ¶ 3; see also Doc. 39-4: NCDOT Notice; Doc. 39-
5: NCDOT Letter].
During an in-person meeting on September 1, 2021, the Wests and
Dena Brown confirmed the existence of various other instances of “Default”
within the meaning of the Indemnity Agreement. [Doc. 113: Fifth Maloney
Decl. at ¶ 13]. Specifically, Frankenmuth’s representatives learned that: (1)
National Bridge had failed to make payment of properly due and owing bills
in connection with Frankenmuth’s Bonded Contracts; (2) National Bridge
lacked the financial ability to pay amounts owed to its
subcontractors/suppliers for labor, material, equipment, etc. they had
furnished in relation to Frankenmuth’s Bonded Contracts; (3) National Bridge
lacked the financial ability to purchase materials needed to complete
Frankenmuth’s Bonded Contracts; and (4) National Bridge had utilized
17
Bonded Contract Proceeds for purposes other than paying obligations for
which Frankenmuth may be liable under the Bonds including, but not limited
to, National Bridge’s idle equipment and labor costs. [Id.]. National Bridge’s
admitted financial inability to complete Frankenmuth’s Bonded Contracts
and/or to resolve its subcontractors/suppliers’ claims against Frankenmuth’s
Bonds subjected Frankenmuth to significant “Loss” as defined by the
Indemnity Agreement. [Id. at ¶ 14].
Even though it had the contractual right, in its sole discretion, to take
over and cause the completion of the Bonded Contracts as of September 1,
2021 at the very latest, Frankenmuth loaned/advanced $750,000.00 to
National Bridge on September 15, 2021 and permitted it to continue
performing. [Id.]. Even after Frankenmuth loaned/advanced $750,000 to
National Bridge on September 15, 2021 in an effort to mitigate
Frankenmuth’s damages, Frankenmuth continued receiving notices from
NCDOT and SCDOT regarding National Bridge’s unsatisfactory
performance and failure to pay subcontractors/suppliers. [Id.]. In an email
dated November 2, 2021, William H. West, III claimed that National Bridge
had debts totaling $1,132,247.55 that “must be paid immediately to keep the
projects progressing”—which National Bridge could not pay. [Id.]. During a
November 22, 2021 meeting, National Bridge’s agents represented in writing
18
that National Bridge needed $2,366,722.25 just to order necessary materials
for some of the Bonded Contracts. [Id.]. The Wests also threatened to
proverbially “give Frankenmuth the keys to National Bridge” in terms of
completing the Bonded Contracts unless Frankenmuth loaned/advanced an
additional $1,500,000.00. [Id.]. That same day, NCDOT confirmed its
willingness to release Bonded Contract Proceeds directly to Frankenmuth,
but the Wests objected. [Id.].
On December 9, 2021, Maloney advised National Bridge in a letter that
Frankenmuth would consider advancing it an additional $750,000 (for a total
loan/advance of $1,500,000) if National Bridge, Gemini III Trust, and Gemini
IV Trust agreed to certain conditions. [Doc. 113: Fifth Maloney Decl. at ¶ 23;
Doc. 113-15: 12/09/21 Letter]. Specifically, Frankenmuth set the following
conditions:
Frankenmuth is immediately provided with the
outstanding financial information and is given full and
complete access to the Books and Records of
National Bridge, Gemini III Trust and Gemini IV Trust.
Frankenmuth is immediately provided with the
outstanding project information, is given full and
complete access to the records of the projects for
which it issued Bonds and will be given unfettered
access to the project sites and National Bridge’s
project management.
19
National Bridge will notify the Obligees on the
Frankenmuth-bonded projects that all contract
balances are to be deposited into a designated
account (the account information to be provided by
Frankenmuth).
[Doc. 113-15: 12/09/21 Letter at 2]. Frankenmuth further addressed National
Bridge’s obligation to provide Frankenmuth access to books and records,
stating that:
While Frankenmuth has made repeated requests to
National Bridge for its financial and project
information, only limited information has been
provided by National Bridge. During a recently
scheduled meeting at National Bridge’s office,
Frankenmuth was advised that the requested
information, which is an obligation of National Bridge
to provide, would not be produced until additional
funding was received from Frankenmuth.
[Id.]. As explained in further detail below, National Bridge did not satisfy the
conditions set forth by Frankenmuth. [Doc. 39: Second Maloney Decl. at ¶
6].
In a letter dated December 20, 2021, Frankenmuth informed National
Bridge that Frankenmuth had received claims from National Bridge’s
subcontractors and suppliers in excess of $1,137,528.91. [Id. at ¶ 7; Doc.
39-10: 12/20/21 Letter at 2]. Frankenmuth further reminded National Bridge
of its obligations under the Indemnity Agreement to deposit collateral and
provide access to books and records. [Doc. 39-10: 12/20/21 Letter at 2].
20
Frankenmuth demanded that National Bridge deposit collateral with
Frankenmuth and that National Bridge provide “full and complete access to
all of the financial information and records and the records of all of the
projects on which Frankenmuth issued Bonds.” [Id. at 2-3].
Frankenmuth further took steps to protect its own legal and equitable
interest in the Bonded Contract Proceeds by requesting that NCDOT,
SCDOT, and other obligees remit all unpaid Bonded Contract Proceeds to
Frankenmuth so it could insure they were used for their intended purpose of
satisfying obligations for which Frankenmuth may be liable under the Bonds.
[Doc. 113: Fifth Maloney Decl. at ¶ 15]. In that regard, Frankenmuth stated
the following to NCDOT and SCDOT regarding the payment of unpaid
Bonded Contract Proceeds to Frankenmuth in several letters dated
December 20, 2021:
As you know, Frankenmuth Mutual Insurance
Company is the surety for National Bridge Builders,
LLC in connection with the captioned project. As
surety, Frankenmuth is aware of incomplete work on
National Bridge’s contract, outstanding amounts
owed by National Bridge to its subcontractors and
suppliers, or both. As such, Frankenmuth is being
exposed to potential losses on its Performance and
Payment Bonds.
Frankenmuth will establish an account into which all
contract balances on this project are to be deposited
and will shortly provide to you the information on this
21
account. In the interim, Frankenmuth demands that
the [NCDOT/SCDOT] obtain Frankenmuth’s written
consent before it issues any further payments to, or
on behalf of, National Bridge.
[Id.]. NCDOT and SCDOT subsequently agreed to remit all unpaid Bonded
Contract Proceeds to Frankenmuth. [Doc. 113: Fifth Maloney Decl. at ¶ 16].
On December 23, 2021, while Frankenmuth was considering
advancing an additional $750,000 to National Bridge, Frankenmuth also sent
William H. West, IV a proposed Addendum to the Indemnity Agreement,9 a
copy of the Indemnity Agreement, and a DocuSign Certificate of Completion
for the Indemnity Agreement. [Doc. 53: Third Maloney Decl. at ¶ 7; see also
Doc. 53-10: 12/23/21 Email re: Copy of Indemnity Agreement; Doc. 53-11:
12/23/21 Email re: Proposed Addendum]. While West did not execute the
Addendum, he also did not question or challenge the fact that National
Bridge was bound by the initial Indemnity Agreement. [Doc. 53: Third
Maloney Decl. at ¶ 7]. Frankenmuth ultimately did not advance an additional
$750,000 to National Bridge. [Doc. 39: Second Maloney Decl. at ¶ 6].
On January 3, 2022, William H. West, IV emailed a representative of
Frankenmuth and asserted that Frankenmuth breached its agreement to
9 The Proposed Addendum would have added William H. West, IV as a personal
indemnitor on construction projects in Virginia. [Doc. 53-10].
22
advance $1.5 million to National Bridge. [Doc. 70-4: 01/07/22 Emails]. In a
letter dated January 7, 2022, Maloney asserted that Frankenmuth had no
obligation to advance additional funds to National Bridge. [Doc. 39-11:
01/07/22 Letter at 1].
Even though Frankenmuth loaned/advanced $750,000.00 to National
Bridge to use toward the completion of Frankenmuth’s Bonded Contracts
and the payment of National Bridge’s subcontractors/suppliers, National
Bridge’s unpaid debts to its subcontractors/suppliers substantially exceeded
the Bonded Contract Proceeds that National Bridge earned under the
Bonded Contracts. [Doc. 113: Fifth Maloney Decl. at ¶ 16]. For example, on
January 25, 2022, NCDOT remitted Bonded Contract Proceeds totaling
$632,063.26 to Frankenmuth for work National Bridge or its
subcontractors/suppliers had performed. [Id.]. By that point, Frankenmuth
had already paid nearly $425,000 to National Bridge’s
subcontractors/suppliers under Frankenmuth’s Bonded Contracts involving
NCDOT. [Id.]. By the time Frankenmuth received another penny from
NCDOT, Frankenmuth’s payments to National Bridge’s
subcontractors/suppliers exceeded those Bonded Contract Proceeds by
nearly $875,000.00. [Id.].
23
Despite Frankenmuth’s $750,000.00 loan/advancement to National
Bridge and Frankenmuth’s payments in excess of the Bonded Contract
Proceeds it had received, NCDOT defaulted National Bridge under several
of the NCDOT Bonded Contracts. [Id. at ¶ 17]. As memorialized through
various Takeover Agreements between Frankenmuth and NCDOT,
Frankenmuth has retained other contractors and is actively completing a
number of NCDOT Bonded Contracts under its corresponding Bonds. [Id.].
As reflected by a separate Takeover Agreement, NCDOT also
defaulted National Bridge under several other Bonded Contracts for failing
to furnish affidavits that either (1) confirmed “that all obligations and debts
arising from construction have been satisfied” or (2) listed “obligations not
satisfied.” [Id.]. Frankenmuth’s completion costs and payments to
subcontractors/suppliers on the Bonded Contracts involving NCDOT have
and will substantially exceed any Bonded Contract Proceeds that
Frankenmuth has or will receive from NCDOT. [Id.].
The same is true for the Bonded Contract Proceeds that Frankenmuth
has or may receive from SCDOT. For example, Frankenmuth’s payments to
subcontractors/suppliers under Payment Bond SUR0002257 exceed the
Bonded Contract Proceeds that Frankenmuth has received relative to
SCDOT Contract 17981 by more than $110,000.00. [Id. at ¶18]. Likewise,
24
Frankenmuth’s payments to and/or pending claims from
subcontractors/suppliers against Payment Bond SUR2001165 currently
exceed the Bonded Contract Proceeds that Frankenmuth has received
relative to SCDOT Contract 17843 by more than $160,000.00. [Id.]. In other
words, even though Frankenmuth permitted National Bridge to complete
SCDOT Contract 17843, National Bridge’s debts to Bond Claimants
significantly exceed the Bonded Contract Proceeds that National Bridge
earned under SCDOT Contract 17843, which exposes Frankenmuth to
additional loss under Payment Bond SUR2001165. [Id.].
In March of 2022, one of National Bridge’s subcontractors/suppliers,
Trinity Products, Inc. (“Trinity”), asserted a claim against one of
Frankenmuth’s Bonds. [Doc. 113: Fifth Maloney Decl. at ¶ 19]. After Trinity
produced unsigned quotes from National Bridge in support of its claim,
Maloney expressed Frankenmuth’s concerns about National Bridge’s
records in a letter dated March 23, 2022, which read, in pertinent part as
follows:
In your email, you attached two executed but
unsigned quotes from National Bridge.
Given National Bridge’s prior communications to its
subcontractors and suppliers, and given
Frankenmuth’s position that National Bridge, its
representatives and related entities have
25
misappropriated and misused contract funds, the
timing of National Bridge’s execution and submission
of signed quotes is suspect and concerning. Until
recently, neither National Bridge nor Trinity Products
were able to produce a signed contract or
agreement, despite your company indicating that it
supplied materials to the project over four months
ago. Frankenmuth will not accept a signed quote
from National Bridge at this juncture; rather
Frankenmuth is continuing with its independent
investigation of your company’s claim.
Once our investigation is complete, we will provide to
you our response.
[Doc. 68-7: 03/22/22 Letter] (emphasis added). Frankenmuth ultimately paid
$59,489.00 to settle Trinity’s bond claim and is seeking to recover that
settlement payment from National Bridge through its breach of contract
claim. [Doc. 113: Fifth Maloney Decl. at ¶ 19].
After accounting for proceeds under the Bonded Contracts,
Frankenmuth estimates that it will incur an anticipated “Loss” of more than
$15,910,811.76. [Doc. 39: Second Maloney Decl. at ¶ 8]. Frankenmuth has
already paid net “Loss” totaling $2,226,339.05 relative to the Bonded
Contracts, and Frankenmuth estimates that it will incur additional “Loss” of
$13,684,472.71.10 [Id.]. Despite multiple requests, National Bridge has not
10 Frankenmuth has also submitted a list of the Bonded Contracts under which
Frankenmuth has already paid net “Loss” totaling $2,226,339.05. [Doc. 39: Second
26
deposited any collateral with Frankenmuth, and it has continued to deny
Frankenmuth free access to its books and records. [Id. at ¶ 7; Doc. 53: Third
Maloney Decl. at ¶¶ 9, 10].
IV. DISCUSSION
A. Validity/Enforceability of Indemnity Agreement
The primary argument underpinning National Bridge’s Motion for
Partial Summary Judgment (as well as its opposition to Frankenmuth’s
Motion for Summary Judgment), is National Bridge’s contention that the
Indemnity Agreement is invalid and unenforceable. Specifically, National
Bridge asserts that the Indemnity Agreement is invalid because it was not
signed by both of National Bridge’s Managers, William H. West, III and
William H. West, IV—as is required by National Bridge’s Operating
Agreement—and therefore lacks mutual assent. [Docs. 120, 127].
Under North Carolina law, “a valid contract exists only where there has
been a meeting of the minds as to all essential terms of the agreement.”
Northington v. Michelotti, 121 N.C. App. 180, 184, 464 S.E.2d 711, 714
(1995). Moreover, a principal is bound to contracts made by its agents in
Maloney Decl. at ¶ 8]. Further, to estimate an additional, anticipated “Loss” of
$13,684,472.71, Frankenmuth has submitted a table itemizing the estimated costs of
completion, the remaining contract balances, and the resulting anticipated loss under
some of National Bridge’s Bonded Contracts with the NCDOT. [Id.].
27
three situations: “when the agent acts within the scope of his or her actual
authority; when the agent acts within the scope of his or her apparent
authority, and the third person is without notice that the agent is exceeding
actual authority; and when a contract, although unauthorized, has been
ratified.” Wachovia Bank of North Carolina, N.A. v. Bob Dunn Jaguar, Inc.,
117 N.C. App. 165, 170, 450 S.E.2d 527, 531 (1994).
Apparent authority exists where “the principal has held the agent out
as possessing” authority or the principal has “permitted the agent to
represent that he possesses” authority. Id. at 171, 450 S.E.2d at 531.
“Whether the agent acts within the apparent scope of his authority is
determined by what the principal does, not by the unauthorized acts and
contentions of the agent.” Id. at 172, 450 S.E.2d at 531-32.
Further, a principal ratifies the unauthorized acts of its agent where:
[T]he party claiming ratification [proves] (1) that at the
time of the act relied upon, the principal had full
knowledge of all material facts relative to the
unauthorized transaction . . . and (2) that the principal
had signified his assent or his intent to ratify by word
or by conduct which was inconsistent with an intent
not to ratify.
Id. at 173, 450 S.E.2d at 532. A principal “must ratify the whole of his agent’s
unauthorized act or not at all. He cannot accept its benefits and repudiate
its burdens.” Snyder v. Freeman, 300 N.C. 204, 213-14, 266 S.E.2d 593,
28
600 (1980) (holding that “[t]he corporation, by accepting the benefits of the
transaction intended to and did, in fact, ratify the agreement. It thereby
became bound by the agreement”).
Here, the undisputed forecast of evidence presented to the Court
establishes that the Indemnity Agreement was executed by Dena Brown,
who electronically signed the Indemnity Agreement as “William H. West.”
National Bridge’s Operating Agreement states that William H. West, III and
William H. West, IV shall serve as managers and that the consent of both
managers is needed to bind National Bridge to contracts involving amounts
over $10,000. Neither William H. West, III nor William H. West, IV executed,
reviewed, or received the Indemnity Agreement prior its execution by Dena
Brown. Accordingly, it appears that the Indemnity Agreement was not
executed on behalf of National Bridge by someone with actual authority.
The parties have presented conflicting forecasts of evidence as to
whether Frankenmuth received or had notice of the terms of National
Bridge’s Operating Agreement before November 28, 2022. However, it is
uncontroverted that the Indemnity Agreement was executed by Dena Brown,
and National Bridge has, until this litigation, regularly held her out as a
manager and as having the authority to bind National Bridge to contracts
involving amounts over $10,000. For example, in 2018, Defendant National
29
Bridge named Dena Brown as the corporate secretary and the only company
official in National Bridge’s Limited Liability Company Annual Report. Just
days before executing the Indemnity Agreement, Dena Brown, acting on
behalf of National Bridge, also executed a Letter of Intent to Perform as a
Subcontractor with a total commitment amount of $24,355.00. Six days after
executing the Indemnity Agreement, Dena Brown, again acting on behalf of
National Bridge, executed a Contract Performance Bond and a Contract
Payment Bond, both in the amount of $2,256,939.77, with the NCDOT.
When executing these documents, Dena Brown listed her title as “manager”
of National Bridge. [Docs. 53-2, 53-3]. Moreover, both William H. West, III
and William H. West, IV witnessed Dena Brown execute, as a manager, a
Performance and Indemnity Bond and a Payment Bond, both in the amount
of $2,797,679.47, with the SCDOT. As such, the undisputed forecast of
evidence shows that Dena Brown had at least apparent authority to execute
the Indemnity Agreement on behalf of National Bridge.
Further, even if Dena Brown lacked apparent authority to bind National
Bridge to the Indemnity Agreement, the undisputed forecast of evidence
demonstrates that National Bridge ratified the Indemnity Agreement. After
Dena Brown executed the Indemnity Agreement, Frankenmuth issued surety
bonds totaling $54,401,405.02 for Defendant National Bridge. On December
30
20, 2021, Frankenmuth set a letter to National Bridge stating that the parties
executed the Indemnity Agreement on August 22, 2018 and, under that
agreement, National Bridge was obligated to, upon demand, deposit
collateral and provide free access to books and records. Three days later,
while the parties were negotiating an advancement of additional funds to
National Bridge, Frankenmuth sent William H. West, IV a copy of the
Indemnity Agreement along with the certification showing its execution via
DocuSign. Having such full knowledge, no representative of National Bridge
disaffirmed the contract, or questioned its execution, until National Bridge
filed its Response in Opposition to Frankenmuth’s Second Motion for
Preliminary Injunction. Lastly, without the Indemnity Agreement, National
Bridge would not have been able to secure the bonds, and without the bonds,
National Bridge would not have been able to secure the construction
contracts.11 See N.C. Gen. Stat. § 44A-26 (requiring construction contracts
for any one project exceeding $300,000 to be bonded). Therefore, the
undisputed forecast of evidence demonstrates that National Bridge received
11 National Bridge contends that execution of the Indemnity Agreement was not essential
to the issuance of the surety bonds, noting that Frankenmuth had issued a number of
bonds prior to the Indemnity Agreement being executed. The bonds cited by National
Bridge, however, were all bid bonds [see Doc. 127-1 and footnote 5 supra], and it is
undisputed that Frankenmuth did not issue any final bonds until after the Indemnity
Agreement was signed on August 22, 2018.
31
the benefit of the Indemnity Agreement and thus ratified its execution, even
if such may have been technically defective.
Therefore, based on the undisputed forecast of evidence presented by
the parties the Court concludes that the parties entered into and are bound
by the Indemnity Agreement. To the extent that National Bridge seeks
summary judgment in its favor on the theory that the Indemnity Agreement
is invalid and unenforceable, such motion is denied.
B. Specific Performance/Breach of the Indemnity Agreement
Having determined that the undisputed forecast of evidence
demonstrates the existence of a valid contract, the Court now turns to the
question of whether Frankenmuth is entitled to summary judgment on its
claims for specific performance and for the breach of various provisions of
the Indemnity Agreement.
“An indemnity contract obligates the indemnitor to reimburse his
indemnitee for loss suffered or to save him harmless from liability.” Schenkel
& Shultz, Inc. v. Hermon F. Fox & Assocs., P.C., 362 N.C. 269, 273, 658
S.E.2d 918, 921 (2008) (citation and internal quotation marks omitted). “In
an indemnity contract, the agreement will be construed to cover all losses,
damages, and liabilities which reasonably appear to have been within the
contemplation of the parties[.]” New York Marine and Gen. Ins. Co. v. Beck
32
Elec. Co., No. 3:05CV 373-H, 2007 WL 160689, at *6 (W.D.N.C. Jan. 16,
2007), aff'd sub nom. New York Marine & Gen. Ins. Co. v. Becker, 254 F.
App'x 235 (4th Cir. 2007). “In interpreting a contract of indemnity, the Court's
function is to ascertain and give effect to the intention of the parties, and the
ordinary rules of contract construction apply.” Kirkpatrick & Assocs., Inc. v.
Wickes Corp., 53 N.C. App. 306, 308, 280 S.E.2d 632, 634 (1981). Where
the contract is plain and unambiguous on its face, the Court may interpret
the contract as a matter of law. Schenkel & Shultz, 362 N.C. 269 at 273, 658
S.E.2d at 921. If the contract contains some latent ambiguity and thus the
parties’ intention is unclear, the interpretation of the contract is for the jury.
Id.
The only defense to a valid indemnity agreement arises solely on a
claim of “fraud or lack of good faith on the part of the surety.” New York
Marine, 2007 WL 160689, at *7; accord Fidelity & Deposit Co. of Md. v.
Bristol Steel & Iron Works, Inc., 722 F.2d 1160, 1163 (4th Cir. 1983) (noting
that only defense to indemnity agreement “arises when the payment has
been made through fraud or lack of good faith on the part of the surety but
any challenge to such payment must be rested solely on that claim of bad
faith or fraud”). As Judge Mullen of this Court has explained:
33
Bad faith is not simply bad judgment or negligence,
but rather it implies the conscious doing of a wrong
because of dishonest purpose or moral obliquity.
Thus, a lack of diligence or negligence is not the
equivalent of bad faith, indeed even gross negligence
cannot support a finding of bad faith. Bad faith
requires a showing of recklessness or improper
motive such as self-interest or ill will.
Fid. & Guar. Ins. Co. v. Constr. Advantage, Inc., No. 1:08-CV-460-GCM,
2010 WL 726024, at *7 (W.D.N.C. Feb. 25, 2010).
Here, the provisions of the Indemnity Agreement at issue in Count I, II,
and IV of Frankenmuth’s Complaint (relating to the providing of collateral,
free access to records and books, and holding Frankenmuth harmless,
respectively) are all unambiguous.12 National Bridge has not presented a
forecast of evidence to support a finding of fraud or bad faith on the part of
Frankenmuth. Further, Frankenmuth has presented a forecast of evidence,
which National Bridge has not contested, that each of these provisions has
been breached and that Frankenmuth is entitled to specific performance
thereof. Accordingly, the Court concludes that Frankenmuth is entitled to
summary judgment with respect to National Bridge’s liability under the
12 Frankenmuth has not moved for summary judgment with respect to Count III of its
Complaint, which seeks specific performance of the provision of the Indemnity Agreement
requiring the deposit by National Bridge of proceeds from certain contracts in a trust
account created by Frankenmuth. [See Doc. 1 at ¶¶ 77-89; Doc. 1-1 at ¶ 11].
34
Indemnity Agreement to (1) deposit collateral with Frankenmuth in an
amount determined to be sufficient to discharge any “Loss” or anticipated
“Loss” pursuant to Paragraph 5 of the Indemnity Agreement; (2) furnish
Frankenmuth with free access to its books, records, accounts, etc. for
copying, examination, and/or auditing pursuant to Paragraphs 12 and 25 of
the Indemnity Agreement; and (3) exonerate, indemnify, and hold
Frankenmuth harmless from and against all Loss pursuant to Paragraph 3 of
the Indemnity Agreement. The amount of collateral security to be provided
and the amount of “Loss” for which National Bridge is responsible shall be
determined at the trial of this matter.
C. National Bridge’s Counterclaims for Fraudulent Inducement
and Chapter 75 Violation
Having disposed of the parties’ motions regarding Frankenmuth’s
claims and the enforceability of the Indemnity Agreement, the Court now
turns to National Bridge’s counterclaims. In its First Counterclaim, National
Bridge asserts a claim for fraud in the inducement. Notably, this claim does
not pertain to any alleged fraud with respect to the formation of the Indemnity
Agreement, but rather to an alleged subsequent promise by Frankenmuth to
pay National Bridge $1,500,000. National Bridge alleges that such promise
35
was false as Frankenmuth never intended to pay the full amount. [Doc. 63:
Am. Counterclaims at ¶¶ 51-69].
To recover for fraud in the inducement, a party must show “(1) false
representation or concealment of a material fact, (2) reasonably calculated
to deceive, (3) made with intent to deceive, (4) which does in fact deceive,
(5) resulting in damage to the injured party.” Ward v. Fogel, 237 N.C. App.
570, 581, 768 S.E.2d 292, 301 (2014)).
Here, National Bridge has failed to present a forecast of evidence from
which a reasonable jury could conclude that National Bridge was a victim of
any fraud on the part of Frankenmuth. First and foremost, a claim for
fraudulent inducement requires proof of a representation or concealment of
a material fact. A promise to perform, however, is not a representation of a
subsisting fact. See Glob. Hookah Distributors, Inc. v. Avior, Inc., 401 F.
Supp. 3d 653, 658 (W.D.N.C. 2019) (“The mere failure to carry out a promise
in contract . . . does not support a tort action for fraud.”). Further, at best,
National Bridge asserts that Frankenmuth offered a modification to the
parties’ existing contractual arrangement. It is unclear (and National Bridge
offers no forecast of evidence), however, what the consideration for such
modification might have been.
36
Contrary to National Bridge’s arguments, it is evident from the record
that Frankenmuth’s loan/advancement of the $750,000 was not pursuant to
the parties’ contract, but rather was a means by which Frankenmuth was
attempting to mitigate its own exposure under the Bonds. By assisting
National Bridge in completing its contractual obligations and avoiding default,
Frankenmuth was protecting its own interests. National Bridge has no legal
basis to rely on an expectation that Frankenmuth might make further
advancements in order to protect itself. Moreover, to the extent that National
Bridge contends that it acted in reliance on Frankenmuth’s promise to
loan/advance additional funds, National Bridge has failed to show that it did
anything that it was not already obligated to do under the parties’ agreement.
For all these reasons, National Bridge’s counterclaim for fraud in the
inducement must be dismissed.
Because National Bridge’s Chapter 75 claim is premised entirely upon
the same allegations giving rise to National Bridge’s claim for fraudulent
inducement claim [see Doc. 63: Am. Counterclaims at ¶¶ 70-77], the Court
concludes that Frankenmuth is entitled to summary judgment on this claim
as well.
37
D. National Bridge’s Counterclaim for Tortious Interference
To recover for tortious interference with contract, a party must show
the following:
(1) a valid contract between the plaintiff and a third
person which confers upon the plaintiff a contractual
right against a third person; (2) the defendant knows
of the contract; (3) the defendant intentionally
induces the third person not to perform the contract;
(4) and in doing so acts without justification; (5)
resulting in actual damage to the plaintiff.
United Labs, Inc. v. Kuykendall, 322 N.C. 643, 662, 370 S.E.2d 375, 387
(1988).
In its claim for tortious interference, National Bridge contends that
Frankenmuth wrongfully interfered with National Bridge’s contractual
relationships with project owners by directly requesting the payment of
proceeds of those contracts directly to Frankenmuth. [Doc. 63: Am.
Counterclaims at ¶¶ 89-99]. This contention is without merit. As the Court
noted in granting the preliminary injunction, if “the [Indemnity Agreement] is
valid [which the undisputed forecast of evidence shows] and that Agreement
grants [Frankenmuth] the right to take possession of contract payments,
[National Bridge] [cannot] succeed in showing that [Frankenmuth] acted
without justification in requesting that project owners submit contract
payments to [Frankenmuth].” [Doc. 123 at 50].
38
National Bridge appears to have abandoned its argument that
Frankenmuth tortiously interfered by requesting the proceeds of contracts.
National Bridge’s tortious interference claim now appears to be predicated
on a theory that Frankenmuth “push[ed] project owners to issue notices of
default.” [See Doc. 127 at 24]. Critically, however, National Bridge has not
presented any evidence that Frankenmuth coerced or otherwise solicited
any project owner to default National Bridge.13 To the contrary, the forecast
of evidence before the Court indicates that NCDOT had deemed National
Bridge’s progress to be “unsatisfactory” and/or had defaulted National Bridge
under a number of the Frankenmuth-bonded contracts before Frankenmuth
had any interaction with NCDOT. [Doc. 123 at 15]. Further, during a
September 1, 2021 meeting, Frankenmuth learned that National Bridge (1)
had failed to make payment of properly due and owing bills in connection
with the contracts; (2) lacked the financial ability to pay amounts owed to its
subcontractors/suppliers for labor, material, equipment, etc. they had
furnished in relation to the contracts; (3) lacked the financial ability to
purchase materials needed to complete the contracts; and (4) had utilized
the proceeds of the contracts for purposes other than paying obligations for
13 Moreover, National Bridge has not pointed to where it has pleaded such a claim.
39
which Frankenmuth may be liable under the Bonds including, but not limited
to, National Bridge’s idle equipment and labor costs.
Upon learning such information, Frankenmuth had the contractual right
under the Indemnity Agreement to take over and independently cause the
completion of the contracts. Nevertheless, Frankenmuth loaned/advanced
$750,000.00 to National Bridge on September 15, 2021 and permitted it to
continue performing in hopes the project owners would not default National
Bridge. Until January 7, 2022, Frankenmuth remained ready, willing, and
able to loan/advance additional funds if National Bridge would have complied
with Frankenmuth’s conditions for such loans/advances, whether or not
Frankenmuth had any contractual or legal obligation to do so.
As National Bridge has failed to present a forecast of evidence to
demonstrate that Frankenmuth interfered with any of its contracts without
justification, the Court concludes that Frankenmuth is entitled to summary
judgment on this counterclaim.
E. National Bridge’s Counterclaim for Defamation
To recover for defamation, a party must show “that the defendant made
false, defamatory statements of or concerning the plaintiff, which were
published to a third person, causing injury to the plaintiff’s reputation.” Boyce
40
& Isley, PLLC v. Cooper, 211 N.C. App. 469, 478, 710 S.E.2d 309, 317
(2011).
In its counterclaim for defamation, National Bridge cites to one written
communication14 which took place on March 23, 2022, between
Frankenmuth Director of Surety Claims Kathleen Maloney and Phyllis
MacConnell of Trinity Products, Inc. (“Trinity”), a subcontractor/supplier for
National Bridge projects. In that correspondence, Maloney stated that it was
“Frankenmuth’s position that National Bridge, its representatives and related
entities have misappropriated and misused contract funds.” [Doc. 68-7:
03/22/23 Letter].
Critically, however, National Bridge has failed to present a forecast of
evidence from which a reasonable jury could conclude that Maloney’s
statement regarding Frankenmuth’s “position” was, in fact, false.
Accordingly, the Court concludes that Frankenmuth is entitled to summary
judgment with respect to National Bridge’s counterclaim for defamation.
14 National Bridge also alleges “upon information and belief,” that this statement was
repeated to more than one Project owner, Project subcontractor, and/or Project supplier.
[Id. at ¶ 109]. However, National Bridge has failed to present a forecast of evidence that
this allegedly defamatory statement was repeated to any other project owner,
subcontractor, or supplier.
41
O R D E R
IT IS, THEREFORE, ORDERED that the Plaintiff’s Motion for
Summary Judgment [Doc. 117] is GRANTED as follows:
(1) Partial summary judgment is GRANTED in Frankenmuth’s favor
relative to National Bridge’s liability with respect to Count I of
Frankenmuth’s Complaint sounding in specific performance of
National Bridge’s duty to deposit collateral with Frankenmuth in
an amount determined to be determined at the trial of this matter;
(2) Partial summary judgment is GRANTED in Frankenmuth’s favor
relative to National Bridge’s liability with respect to Count II of
Frankenmuth’s Complaint sounding in specific performance of
National Bridge’s duty to furnish Frankenmuth with free access
to its books, records, accounts, etc. for copying, examination,
and auditing pursuant to Paragraphs 12 and 25 of the Indemnity
Agreement;
(3) Partial summary judgment is GRANTED in Frankenmuth’s favor
relative to National Bridge’s liability with respect to Count IV of
Frankenmuth’s Complaint sounding in breach of National
Bridge’s contractual obligation to exonerate, indemnify, and save
Frankenmuth harmless from and against all “Loss” pursuant to
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Paragraph 3 of the Indemnity Agreement, with the amount of
“Loss” to be determined at the trial of this matter;
(4) Summary judgment is GRANTED in Frankenmuth’s favor
relative to National Bridge’s First Counterclaim for relief sounding
in fraudulent inducement, and such counterclaim is DISMISSED
WITH PREJUDICE;
(5) Summary judgment is GRANTED in Frankenmuth’s favor
relative to National Bridge’s Second Counterclaim for relief
sounding in unfair and deceptive trade practices, and such
counterclaim is DISMISSED WITH PREJUDICE;
(6) Summary judgment is GRANTED in Frankenmuth’s favor
relative to National Bridge’s Fifth Counterclaim for relief sounding
in tortious interference with contract, and such counterclaim is
DISMISSED WITH PREJUDICE; and
(7) Summary judgment is GRANTED in Frankenmuth’s favor
relative to National Bridge’s Sixth Counterclaim for relief
sounding in defamation, and such counterclaim is DISMISSED
WITH PREJUDICE.
IT IS FURTHER ORDERED that the Defendant National Bridge
Builders, LLC’s Motion for Partial Summary Judgment [Doc. 119] is DENIED.
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IT IS SO ORDERED.
Signed: August 18, 2023
5 at.
£ Reidinger ay,
Chief United States District Judge ell
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