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The Guarantee Company of North America USA v. Ikhana, LLC

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

May 4, 2017

The Guarantee Company of North America USA, Plaintiff,
v.
Ikhana, LLC, et al. Defendants,
v.
Ed Lawrence Construction Company, Third-Party Defendant.

          MEMORANDUM OPINION

          Liam O'Grady United States District Judge.

         This matter comes before the Court on Defendant Ikhana, LLC's Motion to Stay the proceedings in this matter, Dkt. No. 24, and a Motion for Summary Judgment brought by the Plaintiff, The Guarantee Company of North America USA ("GCNA"). This matter arises out of a failed contract between Defendants and the United States Government (the "Government") to construct an access road and screening facility at the Pentagon in Arlington, Virginia. Defendant entered into an indemnity agreement with Plaintiff who acted as a surety on the Government contract. Third-Party Defendant Ed Lawrence Construction Company ("ELCCO") was a subcontractor for the Defendant. For the reasons set forth below, the Court GRANTS Defendant's Motion to Stay and DENIES Plaintiffs Motion for Summary Judgment. Plaintiff may renew its motion at die conclusion of the stay.

         I. Background

         On or about September 28, 2013, Defendant entered into a contract with the United States of America for the construction of a Secured Access Lane and Remote Screening Facility at the Pentagon in Arlington, Virginia (the "Project"). On or about February 12, 2014, ELCCO and Defendant entered into a subcontract agreement for the Project. Plaintiff issued Miller Act payment and performance bonds for the Project.

         In consideration of Plaintiff s issuance of the bonds, Defendant Ikhana, together with the other named Defendants, entered into the Indemnity Agreement with the Plaintiff The Indemnity Agreement provided that in the event Defendants[1] defaulted on their obligations as defined in the Agreement, Plaintiff could, among other actions:

[A]ssert and prosecute any right or claim hereby assigned, transferred or otherwise conveyed in the name of the [Defendant] and to compromise and settle any such right or claim on such terms as it considers reasonable under the circumstances in its sole and absolute discretion, subject only to the requirement that it act in good faith, which shall be defined as the absence of deliberate or willful malfeasance.

Dkt. No. 28, at 6, ¶ 16.

         The Project encountered substantial delays and slipped more than a year off schedule. In October 2015. Defendant submitted numerous claims to the Army Corps of Engineers ("COE") who oversaw the project on behalf of the United States Government. Following submission of the claims, the COE issued a Cure Notice to Defendant. The next month, the COE issued a Show Cause Notice to Defendant. Finally, in December 2015, the COE terminated Defendant's contract for default and made a claim on Plaintiffs performance bond. Due to Defendant's termination and pursuant to the Government's demand on the performance bond, Plaintiff accepted a bid from Turtle Associates, LLC to perform and complete the remaining scope of Defendant's work on the Project. Plaintiff also made payments to three bond claimants who were suppliers and subcontractors to Defendant.

         The termination of the contract spawned numerous legal challenges. On March 29, 2016, Defendant filed an appeal with the Armed Services Board of Contract Appeals. ASBCA Nos. 60462, 60463, 60464, and 60465. Dkt. No. 25, Exh. 1. The appeal alleges that the COE's termination of the contract for default was wrongful and should be construed as a termination for convenience. The ASBCA appeal is currently set to for a "trial"[2] on June 21, 2017.

         In addition, two bond claimants filed lawsuits against Plaintiff in this court. On March 15, 2016, suit was filed as United States of America f/u/o Long Fence Company, Inc. v. Guarantee Company of North America and Ikhana, LLC, Civil Action No. 1:16-CV-283. On October 14, 2016 suit was filed as United States of America f/u/o Ed Lawrence Construction Company v. Guarantee Company of North America and Ikhana, LLC, Civil Action No. 1:16-CV-1301. The Clerk's office entered a default judgment against Defendant Ikhana in Long Fence. l:i6-CV-283, Dkt. "No. 17, The Court subsequently vacated the default and dismissed the case with prejudice because the parties had resolved their issues. l:16-CV-283, Dkt.No. 21. The latter case, 1:16-CV-130I, is still pending before Judge Ellis. A scheduling order has been entered in the matter with a discovery cutoff of July 14, 2017. l:16-CV-1301, Dkt. No. 16.

         Approximately two and a half months after Defendant filed the ASBCA appeal. Plaintiff made a demand for collateral against Defendant pursuant to the Indemnity Agreement. Plaintiff did not comply with the demand. On September 30, 2016, Plaintiff invoked its powers under the Indemnity Agreement (articulated above) to enter into a settlement agreement with the Government and dismiss Defendant's ASBCA appeal. See Dkt. No. 28, at 6, ¶ 16.

         On November 30, 2016, Plaintiff filed a two-count Complaint in this Court for Indemnity (Count I) and Declaratory Judgment (Count II). Plaintiff seeks a declaration from the Court that it had the authority under the Indemnity Agreement to settle Defendant's dispute with the Government and dismiss the ASBCA appeal. Dkt. No. 1. Defendant filed an answer and a counterclaim for breach of the Indemnity Agreement. Dkt. No. 12. Defendant also filed a third-party complaint against ELCCO for breach of contract and indemnity. Dkt. No. 13. On April 11, 2017, Defendant moved to stay this action until the conclusion of the ASBCA proceedings. Dkt. No. 24. On April 14, 2017, Plaintiff moved for Summary Judgment on its declaratory judgment claim and Defendant's counterclaim. Dkt. No. 27.

         II. Legal Standard

         A. ...


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