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Travelers Casualty and Surety Company of America v. Dirtworks, Inc.

United States District Court, S.D. Mississippi, Northern Division

March 22, 2019

TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA PLAINTIFF
v.
DIRTWORKS, INC. OF VICKSBURG; HHG, LLC; and HARRY G. GILLILAND, JR. DEFENDANTS

          MEMORANDUM OPINION AND ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS

          LOUIS GUIROLA, JR., UNITED STATES DISTRICT JUDGE.

         BEFORE THE COURT is the [49] Motion to Dismiss filed by Defendants Dirtworks, Inc. of Vicksburg (“Dirtworks”); HHG, LLC; and Harry H. Gilliland, Jr. Defendants' Motion seeks dismissal of all claims against HHG, dismissal of the fraud claim against Gilliland, and dismissal of the request for specific performance of the collateral demand by Plaintiff Travelers Casualty and Surety Company of America (“Travelers”). The motion is fully briefed. Having considered the submissions of the parties, the record, and relevant law, the Court determines that Defendants' Motion to Dismiss should be granted in part and denied in part. The Motion will be granted insofar as it seeks dismissal of Plaintiff's fraud claim against Gilliland and will otherwise be denied.

         I. BACKGROUND

         This case arises out of a series of performance bonds and related indemnity agreements involving Dirtworks, HHG, Gilliland, and Travelers. Dirtworks is a general contractor in the business of construction work. Gilliland is the CEO of Dirtworks and the sole member of HHG, a Mississippi limited liability company. Travelers is a surety company that issues payment and performance bonds.

         On October 5, 2004, Travelers, Dirtworks, and Gilliland executed a General Agreement of Indemnity (“GAI”), by which Dirtworks and Gilliland agreed to indemnify Travelers against all anticipated and real losses and expenses incurred in connection with Travelers' issuance of surety bonds related to construction projects undertaken by Dirtworks. An Additional Indemnitor Rider (“the Rider”), which purported to add HHG as an indemnitor under the GAI, was signed by Gilliland on behalf of HHG on August 17, 2015. Travelers contends that the Rider was properly executed even though Travelers never signed it. HHG says the absence of Travelers' signature renders the Rider void.

         On October 2, 2017, Gilliland contacted Travelers to request financial assistance because Dirtworks had insufficient funds to continue its operations, including the completion of outstanding bonded projects. Dirtworks refused Travelers' demand to review Dirtworks' books, which Travelers required before it would consider advancing additional funds to Dirtworks, and which the GAI provided Dirtworks must do upon Travelers' demand. Travelers has received payment claims totaling at least $1, 926, 972.26 from unpaid subcontractors and suppliers on the various bonded projects headed by Dirtworks. Travelers anticipates that it faces exposure to claims and losses that will total $3, 397, 751.70 and has demanded the same from Defendants as posted collateral under the GAI.[1]To date, Defendants have failed to satisfy this collateral demand in whole or in part.

         Travelers filed its initial Complaint on November 8, 2017. The operative complaint, and the subject of the instant Motion to Dismiss, is Travelers' [48] Third Amended Complaint. Travelers asserts claims against all defendants for breach of contract, quia timet, and contractual indemnity, and a fraud claim against Gilliland. Travelers seeks specific performance of the GAI's collateral security obligations, damages, and indemnification.

         On January 28, 2019, Defendants filed the instant Motion to Dismiss. The Motion argues that HHG should be dismissed as a defendant because (1) the Rider is not signed by Travelers and (2) no valid consideration is alleged to have existed for the execution of the Rider. The Motion also argues that Travelers has failed to state a claim for fraud against Gilliland and that Travelers is not entitled to the specific performance or injunctive relief it seeks.

         II. DISCUSSION

         a. Motion to Dismiss Standard

         To survive a motion to dismiss pursuant to Rule 12(b)(6), “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.

         In deciding a Rule 12(b)(6) motion to dismiss, the Court accepts all well pleaded facts as true and views them in the light most favorable to Plaintiff. New Orleans City v. Ambac Assur. Corp., 815 F.3d 196, 199 (5th Cir. 2016). But “the complaint must allege more than labels and conclusions, a formulaic recitation of the elements of a cause of action will not do, and factual allegations must be enough to raise a right to relief above the speculative level.” Jabaco, Inc. v. Harrah's Operating Co., Inc., 587 F.3d 314, 318 (5th Cir. 2009). “While legal conclusions can provide the complaint's framework, they must be supported by factual allegations.” Iqbal, 556 U.S. at 664. “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. at 678.

         b. The Rider is Not a Binding Contract Because Travelers Did Not Sign It, But Claims Against HHG Will Not Be Dismissed

         Paragraph 16 of the GAI states that “[t]he rights and remedies afforded to [Travelers] by the terms of this Agreement can only be modified by a written rider to this Agreement signed by an authorized representative of [Travelers].” (Compl. Ex. 1, at 3, ECF No. 1-3.) Because Travelers never signed the Rider, Defendants maintain that HHG was never an indemnitor under the GAI and therefore must be dismissed. Travelers makes several arguments against dismissal of HHG: (1) no signature by Travelers was required because the Rider did not modify Travelers' right or remedies under the GAI, (2) the Rider is valid because Travelers manifested its acceptance by ...


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