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Allied World Specialty Insurance Co. v. Design Build Mechanical Corp.

United States District Court, E.D. Virginia, Alexandria Division

July 21, 2016

ALLIED WORLD SPECIALTY INSURANCE COMPANY, et al., Plaintiffs,
v.
DESIGN BUILD MECHANICAL CORPORATION, VA, Defendant.

          Allied World Specialty Insurance Company, Plaintiff, represented by Edward Redfield Brown, Wiley Rein LLP.

          Allied World Reinsurance Company, Plaintiff, represented by Edward Redfield Brown, Wiley Rein LLP.

          Design Build Mechanical Corporation, VA, Defendant, Pro Se.

          REPORT AND RECOMMENDATION

          THERESA CARROLL BUCHANAN, Magistrate Judge.

         THIS MATTER comes before the Court on Plaintiffs' Motion for a Default Judgment (Dkt. 72). After a representative for defendant Design Build Mechanical Corporation, VA failed to respond to plaintiffs' Motion or to appear at the hearing before Judge Nachmanoff on June 10, 2016, the undersigned Magistrate Judge took this matter under advisement.[1]

         I. INTRODUCTION

         A. Background

         Plaintiff Allied World Specialty Insurance Company is a Delaware corporation with its principal place of business in Farmington, Connecticut, and plaintiff Allied World Reinsurance Company is a New Hampshire corporation with its principal place of business in New York, New York (collectively "plaintiffs"). (Compl. ¶¶ 7-8.) Defendant Design Build Mechanical Corporation, VA ("Design Build") is or was a Virginia corporation with its principal place of business in Reston, Virginia, and defendant Ryan N. Rhed was the Chief Financial Officer ("CFO") of Design Build from November 2012 to September 2014. (Id. at ¶¶ 9-10.)

         This action arises from surety bonds that plaintiffs, insurance companies, issued for Design Build, a large mechanical and plumbing contractor. (Id. at ¶¶ 1-2, 28.) Plaintiffs state that they issued these bonds in reliance on the information and financial statements provided by Design Build, which showed that the company was in a solid financial position and was on track to have a net income of several million dollars in 2013. (Id. at ¶ 2.) However, in late 2013, it emerged that Design Build had write-downs totaling more than $17 million, which rendered the company insolvent. (Id. at ¶¶ 3-4.) Plaintiffs then spent over $10 million fulfilling their bond obligations pursuant to the surety bonds issued for Design Build. (Id. at ¶¶ 6, 58.)

         On July 28, 2015, plaintiffs filed this action against Design Build and its CFO, Ryan Rhed, alleging breach of the Capital Retention Agreement by Design Build, negligent misrepresentation/constructive fraud and actual fraud by Design Build and Rhed, and breach of fiduciary duty by Rhed. (Compl. ¶¶ 64-86.) Plaintiffs assert that defendants provided materially false information in the financial statements given to plaintiffs, which defendants knew or should have known were materially false. (Id. at ¶¶ 71-74, 77-80.) Plaintiffs say they relied on this information and suffered millions of dollars in losses as a result. (Id. at ¶¶ 6, 28-34, 58.) Consequently, plaintiffs now seek their damages. (Mot. Default J. 1; Mem. Supp. Mot. Default J. 5-6.)

         B. Jurisdiction and Venue

         Before the Court can render default judgment, it must have both subject matter and personal jurisdiction over the defaulting party.

         This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1332, which provides that district courts shall have original jurisdiction over all civil actions where the matter in controversy exceeds $75, 000.00 and is between citizens of different states. See 28 U.S.C. § 1332(a)(1). Plaintiff Allied World Specialty Insurance Company is a Delaware corporation with its principal place of business in Connecticut, and plaintiff Allied World Reinsurance Company is a New Hampshire corporation with its principal place of business in New York. (Compl. ¶¶ 7-8.) Defendant Design Build is or was a Virginia corporation with its principal place of business in Virginia, and defendant Ryan Rhed is a citizen of Virginia. (Id. at ¶¶ 9-10.) Furthermore, plaintiffs in their Complaint sought at least $10, 989, 458.00 in damages. (Id. at 18.) Therefore, because there is complete diversity and a sufficient amount in controversy, this Court has subject matter jurisdiction over this dispute.

         This Court has personal jurisdiction over defendant Design Build because Design Build is or was a corporation organized under the laws of Virginia with its principal place of business in Reston, Virginia. (Compl. ¶ 9.) Pursuant to 28 U.S.C. § 1391(b), venue is proper in this judicial district because both defendants are residents of Virginia and defendant Design Build resides in this district, and because a substantial part of the events or omissions giving rise to the claim occurred in this district. (Compl. ¶ 15.)

         C. Service of Process

         As a general rule, a defendant must be served with the summons and complaint filed with the court. Fed.R.Civ.P. 4. On July 30, 2015, plaintiffs' private process server served defendant Design Build Mechanical Corporation, VA by serving Carl E. Williams, Jr. with a copy of the Summons and Complaint. (Dkt. 7.) Mr. Williams was authorized to accept on behalf of ...


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