United States District Court, W.D. Missouri, Central Division
BERKLEY INSURANCE COMPANY, and BERKLEY REGIONAL INSURANCE COMPANY, Plaintiffs,
HAWTHORN BANK, Defendant.
NANETTE K. LAUGHREY, UNITED STATES DISTRICT JUDGE.
Berkley Insurance and Berkley Regional Insurance are surety
companies that issued payment and performance bonds
on behalf of Jefferson City Industries (JCI), a construction
contractor. Berkley entered into an Indemnity Agreement with
JCI, requiring JCI to repay Berkley if Berkley had to pay on
the bonds. Defendant Hawthorn Bank was JCI's bank, and
made loans to JCI.
began having financial difficulties. After JCI failed to pay
subcontractors and suppliers, or finish construction
projects, Berkley paid claims under the bonds. Prior to that
time, to satisfy some of JCI's unpaid loan debts due to
Hawthorn Bank, Hawthorn Bank applied funds from JCI's
accounts, including some progress payments that JCI received
for its work on bonded contracts.
lawsuit, Berkley alleges that it is entitled to recover, from
Hawthorn, the amount of the progress payments received by
JCI, deposited into JCI's bank account, and then applied
by Hawthorn to JCI's loan debts. Hawthorn moves for
summary judgment. Doc. 38. Having considered the briefing and
exhibits, and the oral arguments presented by the parties,
the motion is granted.
is a surety company and in the business of issuing surety
bonds to contractors. Among other types of banking
activities, Hawthorn Bank provides financial lending services
February 2013, Berkley and non-parties Jefferson City
Industries (JCI), United HRB General Contractors, Jeff-Cole
Holdings, Raidan Equipment, Anthony R. Adrian, and Onnimaria
Adrian (collectively, Indemnitors) entered into a General
Agreement of Indemnity related to any bonds that Berkley may
issue to JCI. The Agreement provided for the assignment of
bonds and contracts, and granted Berkley a general lien and
continuing security interest in the Indemnitors'
collateral, which included contracts, subcontracts, accounts,
machinery and equipment, general intangibles, inventory, etc.
The Agreement also provided that any funds due under any
contract covered by a bond were trust funds. Berkley did not
file UCC statements regarding the Agreement. Hawthorn Bank
was not a party to the Agreement.
subsequently issued, as surety, payment and performance bonds
with effective dates ranging from February 2013 to August
2014 for 20 mid-Missouri construction projects on behalf of
JCI as bond principal. Despite receiving payments from
obligees, JCI failed to pay numerous subcontractors and
Bank provided financial lending services to JCI and filed UCC
financing statements with the Missouri Secretary of State.
JCI received progress payments on its contract work and
deposited payments in its Hawthorn Bank, direct deposit
accounts. Hawthorn applied some progress payments to the loan
obligations that JCI owed Hawthorn.
January 20, 2015, Hawthorn received Berkley's written
demand for “possession of” progress payments,
along with a copy of the General Agreement of Indemnity.
January 7, 2015 and February 5, 2015, Berkley sent
correspondence to JCI vendors and subcontractors in which
Berkley acknowledged its receipt of their proofs of claim,
stating that the vendors and subcontractors would be
contacted in due course regarding Berkley's investigation
of their allegations, and stating that “this
letter…should not be construed as an admission of
liability or a promise to pay[.]” Doc. 39-2. Hawthorn
Bank was not copied on or referenced in the correspondence.
Berkley made its first payment under a payment or performance
bond on February 10, 2015.
alleges that as JCI's surety, it has incurred losses in
excess of $2, 500, 000 in paying for completion of the work,
and resolving claims of the bonded project owners and
obligees, and unpaid subcontractors and suppliers.
sues Hawthorn Bank under six counts: conversion, tortious
interference with business expectancy, equitable lien,
constructive trust, implied indemnity, and unjust enrichment.
Doc. 11, pp. 18-26. For the reasons discussed below, Hawthorn
is entitled to summary judgment on all counts.
Court will address two evidentiary matters before addressing
each of the counts.
The date of the last progress payment applied to a JCI loan
states that January 16, 2015 was the date that the last
progress payment from any of the 20 project owners was
deposited into a JCI direct deposit account by JCI, or
applied to a JCI loan by Hawthorn. Doc. 39, p. 6 of 23
(Hawthorn's Statements of Fact, para. 6, citing Doc.
39-1, Affidavit of Jason Schwartz, Senior Vice President of
Hawthorn Bank, p. 2).
“object[s]” to Hawthorn's Statement of Fact,
para. 6, Doc. 42, p. 3 (citing Doc. 43-2, Exhibit A-4,
Schwartz deposition), and argues that the Court should defer
ruling on this issue because of a discovery dispute. First,
Berkley has not shown good cause for failing to timely raise
the discovery dispute, as required under the Scheduling
Order, Doc. 17, p. 2 (requiring discovery motions to be filed
by 3/22/2017, and discovery disputes to be resolved by
4/21/2017). See Fed. R. Civ. P. 16(b)(4)
(modification of scheduling order requires a showing of good
cause and the court's consent). Nor did Berkley file an
affidavit showing why it could not “present facts
essential to justify its opposition, ” as required
under Fed.R.Civ.P. 56(d). See Willmar Poultry Co. v.
Morton-Norwich Prod., Inc., 520 F.2d 289, 297
(8th Cir. 1975). The Court will not defer ruling.
Berkley's exhibits do not show that any progress payments
were deposited into JCI's accounts after January 16, 2015
or applied to a JCI loan by Hawthorn after that date. While
Berkley submits in its Statement of Additional Material
Facts, para. 35, that after January 16, 2015, Hawthorn used
“indemnitors' funds” to pay down debts they
owed to Hawthorn, it cites no evidence to support that
statement. Specifically, Berkley's evidence does not
distinguish between the indemnitors' funds from contract
owners on the bonded projects which are the funds relevant to
this lawsuit, and funds that Hawthorn recovered from a Small
Business Administration guaranty or other collateral which
are not. See also Doc. 46-3, Deposition of Ellen
Cavallaro, Berkley's corporate representative, p. 6 of 17
(testifying that Berkley sought only to recover proceeds from
JCI's bonded contracts and not, for example, proceeds
paid over from the Small Business Administration loans).
Thus, whether some unspecified indemnitor funds were applied
to a loan after January 16, 2015, Berkley has failed to
genuinely dispute, by “citing to particular parts of
materials in the record, ” Fed.R.Civ.P. 56(c)(1)(A),
Jason Schwartz's statement that January 16, 2015 was the
date that the last progress payment from any of the 20
project owners was applied to a JCI loan by Hawthorn.
knowledge of the Indemnity Agreement
states that it did not have actual knowledge of the Indemnity
Agreement until receiving it on January 20, 2015. Doc. 39, p.
6 of 23, para. 13 (citing Doc. 39-1, Schwartz Affidavit, p.
3). The statement is not genuinely disputed, for the reasons
states that Hawthorn's Statement of Fact, para. 13, is
controverted because Hawthorn may be charged with
“constructive knowledge” that the contracts were
bonded and that the surety had an equitable right of
subrogation upon the contractor's default. Doc. 44, p. 5
(citing First State Bank v. Reorganized Sch. Dist. R-3,
Bunker, 495 S.W.2d 471');">495 S.W.2d 471, 478 (Mo. App. 1973), and
Hawthorn's UCC filings, including an attached
construction contract that by its terms required payment and
performance bonds). “Constructive knowledge” is
not a matter of fact but a matter of law, and the
parties' legal arguments about equitable subrogation,
First State Bank, and UCC filings are addressed in
Section II.B.1.-.2, below. Furthermore, whether Hawthorn had
any sort of knowledge that the contracts were bonded does not
address Hawthorn's knowledge of the Indemnity Agreement
or its contents, including the trust provision.
Count I, Conversion
is the unauthorized assumption of the right of ownership over
the personal property of another to the exclusion of the
owner's rights.” Herron v. Barnard, 390
S.W.3d 901, 908-09 (Mo. App. 2013) (citation omitted). To
establish conversion, a plaintiff must show that: (1) it
owned the property or was entitled to possess it; (2) the
defendant took possession of the property with the intent to
exercise some control over it; and (3) the defendant thereby
deprived the plaintiff of the right to possession.
Id. Berkley alleges that it was entitled to
possession of the progress payments “through contract
assignment and equitable subrogation, ” and ...