Opinion
98 Civ. 3099 (THK)
November 18, 2003
MEMORANDUM OPINION AND ORDER
United States Fidelity Guaranty Company ("USFG") and American Home Assurance Company ("AHAC") (collectively, "Plaintiffs" or the "Sureties"), bring this motion under Rule 56 of the Federal Rules of Civil Procedure against Sequip Participacoes, S.A. ("Sequip"), Industrias Verolme-Ishibras, S.A. ("IVI"), IVI International, Ltd., S.A., Sade Vigesa, S.A., and S.V. Engenharia, S.A. (collectively, "Defendants"), seeking summary judgment on indemnification claims pursuant to two indemnity agreements executed by Defendants or their affiliates in favor of the Sureties. Judgments have been entered against the Sureties on three bonds they issued as co-sureties on behalf of Defendants or their affiliates to secure contracts involving the construction of oil and gas production facilities, known as the P-19 and P-31 Projects. On a fourth bond issued by USFG in favor of Sade Corporation of America ("Sade America") to secure a contract for the construction of container cranes in the Port of New Orleans, USFG has satisfied an American Arbitration Association award rendered against it and incurred losses on other claims lodged against it.
The parties have consented to trial before me, pursuant to 28 U.S.C. § 636 (c). For the reasons that follow, Plaintiffs' motion for summary judgment is granted.
BACKGROUND
The Court assumes familiarity with the complex history and factual background leading to the Sureties' liability under the various bonds, which is described in detail in a decision by the Honorable John G. Koeltl, United States District Judge for the Southern District of New York. See United States Fid. Guar. Co. v. Braspetro Oil Servs. Co., 219 F. Supp.2d 403 (S.D.N.Y. 2002). Therefore, I will reiterate only those facts, which are largely undisputed, most pertinent to the issues on summary judgment.
I. The Performance and Payment Bonds
Plaintiffs' indemnification claims pertain to four bonds issued in favor of Defendants or their affiliates to guaranty various construction projects.
A. The P-19 and P-31 Performance Bonds
In 1995, a consortium comprised of IVI and Sade Vigesa (the "P-19 Consortium") entered into a construction contract with Braspetro Oil Services Company ("Brasoil") for the conversion of a semi-submersible oil and natural gas exploration platform into a deep-water oil and natural gas production unit, known as the P-19 Project. Another consortium, consisting of IVI, Sade Vigesa, and Internacional de Engenharia, S.A. (the "P-31 Consortium"), entered into a contract with Brasoil for the conversion of a tanker ship into a floating production, storage, and off-loading facility, known as the P-31 Project. These contracts required the P-19 and P-31 Consortia to obtain surety bonding. In connection with the P-19 Project, USFG and AHAC, as co-sureties, issued a performance bond on behalf of the P-19 Consortium as principals, in favor of Brasoil, the obligee, in the amount of $110,512,660. With respect to the P-31 Project, co-sureties USFG and AHAC issued a performance bond on behalf of the P-31 Consortium as principals, in favor of Brasoil, the obligee, in the penal sum of $163,000,021.
In 1997, Brasoil declared the P-19 and P-31 Consortia in default of their contracts and asserted claims against the Sureties under the P-19 and P-31 performance bonds. After conducting an investigation, the Sureties concluded that the P-19 and P-31 Consortia had not defaulted, and denied Brasoil payment under the bonds. The Sureties then commenced a Declaratory Action in the Southern District of New York against Brasoil and Japanese lending institutions which had been made co-obligees of the P-19 bond, seeking a declaration of their rights under the P-19 and P-31 performance bonds. Brasoil and the Japanese banks asserted counterclaims against the Sureties seeking payment in accordance with the P-19 bond, and Brasoil filed counterclaims against the Sureties seeking payment in accordance with the P-31 bond.
Additionally, Brasoil commenced two parallel actions in Brazil asserting claims against the Sureties under the P-19 and P-31 bonds. In September 1997, Brasoil instituted an action in the 7th Circuit Court of Rio de Janeiro against the Sureties under the P-19 performance bond. In October 1997, Brasoil commenced a separate action in the 42d Circuit Court of Rio de Janeiro against the Sureties under the P-31 performance bond. Both actions are still pending.
After a lengthy bench trial before Judge Koeltl, the Court found, inter alia, that the P-19 and P-31 Consortia defaulted on their contracts with Brasoil, and thus held that the Sureties were obligated to perform under the P-19 and P-31 performance bonds. See United States Fid. Guar. Co., 219 F. Supp.2d at 478. On September 30, 2002, the Court entered a judgment against the Sureties in favor of Brasoil and the Japanese banks under the P-19 bond, in the amount of $149,440,499, and in the amount of $220,567,710 under the P-31 bond (hereinafter "the Judgment"). See United States Fid. Guar. Co. v. Braspetro Oil Servs. Co., 226 F. Supp.2d 459, 469-70 (S.D.N.Y. 2002); see also Pls.' Statement of Undisputed Material Facts ("Pls.' Stmt.") Ex. 5. Thus, under the P-19 and P-31 bonds, the Sureties are liable for $370,008,209, with post-judgment interest accruing from September 30, 2002 at the rate of 1.68% per annum.
Plaintiffs maintain that the P-19 and P-31 Consortia did not default on their contracts and have appealed the Judgment to the Second Circuit Court of Appeals. Nevertheless, by way of the instant summary judgment motion, Plaintiffs seek indemnification from Defendants against all liability, including losses, expenses, and attorneys' fees, incurred under the P-19 and P-31 bonds.
B. The MAC Payment Bond
On behalf of the P-19 Consortium, Plaintiffs also issued a payment bond in the penal sum of $38,000,000 in favor of Brasoil, as owner, to secure the financing of labor, materials, and equipment provided by Marubeni America Corporation ("MAC") under the P-19 contract. MAC was named a claimant under the bond. In September 1997, MAC commenced an action against the Sureties in the Supreme Court of the State of New York, County of New York, for payment under the bond, alleging that the P-19 Consortium defaulted on its payments. On January 14, 2000, the New York Supreme Court entered a judgment against the Sureties in the amount of $12,886,263.54. (See Pls.' Stmt., Ex. 6.)
After unsuccessful appeals, the Sureties satisfied this judgment — USFG having paid $7,216,836.86 and AHAC having paid $7,226,369.19. (See Pls.' Stmt. ¶ 16; Decl. of Christine T. Alexander (" Alexander Decl.") ¶¶ 12, 14 Ex. C; Decl. of Dominque Sena ("Sena Decl.") ¶ 10 Ex. A.) Plaintiffs now seek indemnification from Defendants for their losses and expenses relating to the MAC payment bond.
C. The Port of New Orleans Performance Bond
In May 1995, Sade America, a subsidiary of Sade Vigesa, entered into a contract with Paceco Corporation for the assembly, transport, construction, and testing of container cranes which Paceco was obligated to design, engineer, construct, deliver, and erect: under its contract with the Board of Commissioners of the Port of New Orleans. In connection with this project, USFG issued a performance bond on behalf of principal Sade America, in favor of Paceco as obligee, in the penal sum of $9,815,200. (Pls.1 Stmt. ¶ 20; Alexander Decl. ¶ 23 Ex. G.) Subsequently, Sade America entered into a subcontract with Boh Brothers Construction Co. ("Boh Brothers") for the subcontractor to assemble and test the container cranes. (Alexander Decl. ¶¶ 29, 33; Pls.' Stmt. ¶ 19.)
In February 1998, USFG received notice that Boh Brothers filed a statement of claim in the mortgage records of Louisiana's Orleans Parish against Paceco, Paceco's surety, and the Port of New Orleans. (Pls.' Stmt. ¶ 24.) To lift the lien, Sade America requested that USFG issue a Release of Lien Bond in favor of Boh Brothers, in the penal sum of $2,005,421, in the event that Boh Brothers succeeded on it lien claim. (Alexander Decl. ¶ 25 Ex. H.) Approximately six months thereafter, Boh Brothers asserted a claim against Sade America and USFG under the Release of Lien Bond. Pursuant to an agreement between them, Sade America and Boh Brothers brought their dispute before the American Arbitration Association ("AAA"). On September 24, 2002, the AAA entered an award against USFG in the full amount of the Release of Lien Bond, $2,005,421, plus pre-and post-award interest, as well as 50% of the arbitrators' compensation, fees, and expenses. (See AAA Award, dated 9/24/02, attached as Ex. J to Alexander Decl.) USFG has paid the full amount of the award, $2,652,995.93, as well as $450,394.29 in fees and expenses. (See Pls.' Stmt. ¶ 28; Alexander Decl, ¶ 33 Ex. I.)
Separate from Boh Brothers's claim against it, Paceco brought suit against Sade America and USFG for alleged defects in the container cranes and shortcomings in Sade America's performance under the contract. (Pls.' Stmt. ¶ 27.) In response to Paceco's claim, USFG sustained losses of $410,465.23, and incurred $238,043.27 in related expenses. (Pls.' Stmt. ¶ 29; Alexander Decl. ¶¶ 29-30 Ex. I.)
USFG seeks indemnification from its losses and expenses under the bonds issued in connection with the Port of New Orleans project.
II. The Agreements of Indemnification
As a condition of providing surety bonding, USFG and AHAC required Defendants to execute indemnity agreements in their favor. On August 19, 1994, Sade Vigesa, Sade America, and Sade Vigesa (Chile), S.A., entered into an indemnity agreement (the "1994 Agreement") in favor of USFG, with an indemnity limit of $200,000,000. (See 1994 Agreement, Ex. A to Alexander Decl.) The 1994 Agreement required Sade Vigesa, Sade America, Sade Vigesa (Chile), and "any and all present or future affiliates or subsidiaries either owned or controlled by any of" these companies to assume "the obligations of Principals . . . with respect to any surety bond . . . issued, before or after this Agreement," by USFG "on behalf of such Principals. . . ." (1994 Agreement, lines 8-11.) The 1994 Agreement also required its principals to jointly and severally "assume the obligations of Indemnitors . . . with respect to any and all Bonds issued by the Surety on behalf of any and all Principals." (1994 Agreement, lines 11-12.) Pursuant to Paragraph Twelve, the terms and conditions of the 1994 Agreement extend to USFG's co-sureties.
A second indemnity agreement was executed on February 17, 1995 (the "1995 Agreement") by Sequip, IVI, and Sade Vigesa, as principals and indemnitors, in favor of USFG and AHAC, as co-sureties, with an indemnity limit of $500,000,000. (See 1995 Agreement, Ex. B to Alexander Decl.) Sequip also undertook the 1995 Agreement on behalf of "any present or future, directly or indirectly, majority-owned or controlled subsidiaries, affiliates, or associated companies or corporations existing or hereafter created or acquired, whether operating solely or in joint venture with others not named" in the Agreement. (1995 Agreement, lines 2-4.) Like the 1994 Agreement, the 1995 Agreement obligated the principals to jointly and severally "assume the obligations of Indemnitors . . . with respect to any surety bond . . . issued before or after the date of this Agreement." (1995 Agreement, lines 9-10.)
The 1994 and 1995 Agreements contain identical indemnification and exoneration provisions. Under each agreement,
The Principals and Indemnitors shall exonerate, indemnify, and keep indemnified the Suret[ies] from and against any and all liability for losses and/or expenses of whatsoever kind or nature (including, but not limited to, interest, court costs, and counsel fees) and from and against any and all such losses and/or expenses which the Suret[ies] may sustain and incur: (1) By reason of having executed or procured the execution of the Bonds, (2) By reason of the failure of the Principals or Indemnitors to perform or comply with the covenants and conditions of this Agreement, or (3) In enforcing any of the covenants and conditions of this Agreement.
(1994 Agreement ¶ 2, lines 24-27; 1995 Agreement ¶ 2, lines 26-29.) Both Agreements further provide that the Principals and Indemnitors are obligated to indemnify the Sureties "as soon as liability exists or is asserted against the Suret[ies]." (1994 Agreement ¶ 2, line 28; 1995 Agreement ¶ 2, line 30 (emphasis added).) Regarding any payments made by the Sureties, both Agreements state that,
the Suret[ies] shall be entitled to charge for any and all disbursements made by [them] in good faith in and about the matters herein contemplated by this Agreement under the belief that [they] [are] or [were] liable for the sums and amounts so disbursed, or that it was necessary or expedient to make such disbursements, whether or not such liability, necessity, or expediency existed, and that the vouchers or other evidence of any such payments made by the Suret[ies] shall be prima facie evidence of the fact and amount of the liability to the Suret[ies].
(1994 Agreement ¶ 2, lines 30-32; 1995 Agreement ¶ 2, lines 33-36.) The last significant feature of both Agreements is a New York choice of law clause. (1994 Agreement ¶ 19, line 109; 1995 Agreement ¶ 19, line 123 ("This Agreement shall be interpreted under the laws of the State of New York, U.S.A.").)
DISCUSSION
I. Summary Judgment standard
Summary judgment is appropriate only when the submissions of the parties, taken together, "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). In deciding a motion for summary judgment, the Court must "view the evidence in a light most favorable to the non-moving party and draw all reasonable inferences in its favor."American Cas. Co. of Reading, Pa. v. Nordic Leasing, Inc., 42 F.3d 725, 728 (2d Cir. 1994).
On a motion for summary judgment, a court "`cannot try issues of fact; it can only determine whether there are issues to be tried.'" Donahue v. Windsor Locks Bd. of Fire Comm'rs, 834 F.2d 54, 58 (2d Cir. 1987) (quoting Heyman v. Commerce Indus. Ins. Co., 524 F.2d 1317, 1319-20 (2d Cir. 1975)); see also LaFond v. General Physics Servs. Corp., 50 F.3d 165, 171 (2d Cir. 1995); Cronin v. Aetna Life Ins. Co., 46 F.3d 196, 203 (2d Cir. 1995); Gallo v. Prudential Residential Servs., Ltd., 22 F.3d 1219, `1224 (2d Cir. 1995). "If, as to the issue on which summary judgment is sought, there is any evidence in the record from any source from which a reasonable inference could be drawn in favor of the nonmoving party, summary judgment is improper." Cronin, 46 F.3d at 203.
Nevertheless, to defeat a motion for summary judgment the opposing party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co., Ltd, v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356 (1986). A party opposing a motion for summary judgment "may not rest on the pleadings, but must further set forth specific facts in the affidavits, depositions, answers to interrogatories, or admissions showing a genuine issue exists for trial." Cifarelli v. Village of Babylon. 93 F.3d 47, 51 (2d Cir. 1996); see also Fed.R.Civ.P. 56(c), (e); Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 2553 (1986).
II. Controlling Law
Pursuant to both Agreements of Indemnification, New York law is controlling on the issues before the Court.
New York law has long recognized the validity of indemnity agreements.See, e.g., Continental Cas. Co. v. Nat'l Slovak Sokol, Inc., 269 N.Y. 283, 288-90 (1936); Chace v. Hinman, 8 Wend. 452 (N.Y.Sup.Ct. 1832). "[P]arties are free to fashion the terms of their own [indemnity] agreement," Lori-Kay Golf. Inc. v. Lassner, 61 N.Y.2d 722, 723, 472 N.Y.S.2d 612, 613-14 (1984), and "in the absence of bad faith, the `indemnity agreement governs the relationship between . . . contractor and . . . surety.'" Gen. Ins. Co. of Am. v. K. Capolino Constr. Corp., 903 F. Supp. 623, 626 (S.D.N.Y. 1995) (quoting Bib Constr. Co. v. Fireman's Ins, Co., 214 A.D.2d 521, 523, 625 N.Y.S.2d 550, 553 (1st Dep't 1995)); see also Gen. Accident Ins. Co. of Am. v. Merritt-Meridian Constr. Corp., 975 F. Supp. 511, 515-16 (S.D.N.Y. 1997) (When a "general contractor has expressly agreed to indemnify the surety . . . the indemnity agreement governs the relationship between the surety and the contractor").
New York law distinguishes agreements that indemnify against losses from those that indemnify against liability. See Hutton Constr. Co., Inc. v. County of Rockland, Nos. 93 Civ. 2465 (LAP), 87 Civ. 4027 (LAP), 1993 WL 535012, *8 (S.D.N.Y. 1993). According to the well-settled rule, "[a] contract to indemnify against liability is breached the moment the liability is imposed and a cause of action arises because of the fact of the breach." 755 Seventh Ave. Corp. v. Carroll, 266 N.Y. 157, 161 (1935). Thus, the obligation "to indemnify arises as soon as the liability is incurred even though no loss has as yet been sustained [by the surety] by actual payment." Maryland Cas. Co. v. Straubinger, 19 A.D.2d 26, 28, 240 N.Y.S.2d 228, 230 (4th Dep't 1963); see, e.g., Goodridge v. Harvey Group, Inc., 788 F. Supp. 115, 133 (S.D.N.Y. 1991) ("It is established under New York law that agreements to indemnify against liability become enforceable when the liability is fixed, rather than solely upon the indemnified party's satisfaction of that liability.").
Along this vein, pending litigation to determine whether a contractor defaulted on its contract "is irrelevant to whether the [surety] properly complied with its obligations as a surety" to the bond's obligee. Bib Constr. Co. v. Fireman's Ins. Co. of Newark, N.J., 214 A.D.2d 521, 524, 625 N.Y.S.2d 550, 553 (1st Dep't 1995). Thus, while a contractor might ultimately be found to not have defaulted on the guaranteed contract, such a finding would not affect that contractor's obligations under an agreement to indemnify the surety against liability. See Lori-Kay Golf, 61 N.Y.2d at 723, 472 N.Y.S.2d at 614 ("As a general rule, a surety is equitably entitled to full indemnity against the consequences of a principal obligor's default. This includes the right to reimbursement for legal fees incurred in defending an action brought against the principal even though it may be groundless."); Int'l Fid. Ins. Co. v. Spadafina, 192 A.D.2d 637, 639, 596 N.Y.S.2d 453, 454 (2d Dep't 1993) (liability under the bonded contract is irrelevant to the contractor's obligation to indemnify the surety).
III. The Sureties' Indemnification Claims
A. The P-19 and P-31 Performance Bonds
The Judgment entered against the Sureties on the P-19 and P-31 performance bonds in favor of Brasoil and the Japanese banks, in the amount of $370,008,209, see United States Fid. Guar., 226 F. Supp.2d at 469-70, clearly triggers Defendants' obligation to indemnify the Sureties under their 1994 and 1995 Agreements. See, e.g., 755 Seventh Ave. Corp., 266 N.Y. at 161. Indeed, Defendants do riot dispute their liability under these Agreements. Rather, Defendants raise two arguments in an attempt to avoid summary judgment on their liability under the P-19 and P-31 bonds. First, Defendants argue that the Court should refrain from awarding Plaintiffs summary judgment because such an award would be "premature" given that Plaintiffs' appeal from the Judgment is pending before the Second Circuit Court of Appeals. (See Defs.' Mem., in Opp'n ("Defs.' Mem.") at 9.) Second, Defendants contend that: it would be unjust to hold them liable to the Sureties because Defendants have not yet been able to fully litigate their claims against Brasoil, as Judge Koeltl held that the Brazilian courts were the proper fora for litigating those claims. (See id.) Both arguments are meritless.
The 1994 and 1995 Agreements require indemnification "as soon as liability exists or is asserted against the Suret[ies]," regardless of whether the Sureties have satisfied any claims under the bonds. (1994 Agreement ¶ 2, line 28; 1995 Agreement ¶ 2, line 30.) Agreements to indemnify against liability, such as the ones at issue here, "become enforceable when the liability is fixed" against the surety, not when the surety actually satisfies the judgment against it. Goodridge, 788 F. Supp. at 133; see also Hutton Constr. Co., 1993 WL 535012, *8 ("a claim for indemnification against liability accrues once the indemnitee's liability to others has been fixed and established by a judgment obtained against the indemnitee"). Thus, the possibility, however remote, that the Sureties might ultimately be relieved of their liability under the P-19 and P-31 bonds is inconsequential to Defendants' present obligation under the 1994 and 1995 Agreements.
For this same reason, there is no merit to Defendants' argument that "[j]ustice requires that [they] be allowed to fully litigate [their] claims in Brazil against Brasoil/Petrobras prior to incurring any liability to the Sureties." (Defs.' Mem. at 9.) Defendants have already incurred liability under the Agreements by virtue of the Judgment against the Sureties on the P-19 and P-31 bonds. Defendants' indemnification obligation is clear, and not surprisingly, they have failed to present any legal authority to support an argument to the contrary.
Defendants raise no factual questions whatsoever concerning their obligation to indemnify the Sureties under the 1994 "and 1995 Agreements. Accordingly, Plaintiffs are entitled to summary judgment on their indemnification claims with respect to the Judgment entered against them on the P-19 and P-31 bonds, plus post-judgment interest that has been accruing at 1.68% per annum. See, e.g., Northwestern Nat'l Ins. Co. of Milwaukee. WI v. Alberts, 822 F. Supp. 1079, 1081 (S.D.N.Y. 1993) (awarding summary judgment to surety where indemnitor's liability under agreement was not in dispute).
In addition to indemnification for the total Judgment amount, including post-judgment interest, the Sureties seek summary judgment on their indemnification claim for expenses and legal fees incurred and paid in connection with the P-19 and P-31 bonds. As discussed, the indemnity agreements entitle the Sureties to reimbursement for "any and all disbursements made by [them] in good faith. . . ." (1994 Agreement ¶ 2, line 30; 1995 Agreement ¶ 2, line 33.) According to USFG Senior Surety Attorney Christine T. Alexander, and the computer-generated summaries of invoices paid by USFG on the P-19 and P-31 performance bonds, USFG has paid $18,323,990.25 in connection with the claims asserted against these bonds. (See Alexander Decl. ¶¶ 15-17 Exs. D, E, F.) According to Dominique Sena, the Bond Claims Manager who oversaw claims asserted against AHAC, and the computer-generated lists of invoices paid by AHAC on the P-19 and P-31 performance bonds, AHAC's total incurred expenses, including attorneys' fees, in connection with claims asserted on these bonds is $20,178,515.09. (See Sena Decl. ¶¶ 11-13 Exs. A, B.)
The paid invoices are as of November 21, 2002. (See Pls.' Mem. at 16.)
The paid invoices are as of January 3, 2003. (See id. at 17.)
In their Statement of Disputed Material Fact, Defendants assert that, on the record before the Court, "there is a question of material fact as to whether the attorneys' fees and expenses sought by the Plaintiffs are reasonable." (Defs.' Stmt. ¶ 1.) They do not argue, however, that the fees and expenses are unreasonable. Nor do they challenge any specific expenditure, or seek discovery on these matters, pursuant to Rule 56(f) of the Federal Rules of Civil Procedure. Rather, they merely contend that more backup information is necessary to support Plaintiffs' claim. (See Defs.' Mem. at 10.)
The parties both agree that a surety seeking indemnification for losses and expenses incurred while discharging its obligations under a bond must show that it acted reasonably and in good faith. (See id.; Pls.' Reply at 3); see also Frontier Ins. Co. v. Lubiam USA, Inc., No. 97 Civ. 3480 (DC), 1998 WL 265016, *2 (S.D.N.Y. 1998) (reasonableness requirement satisfied where surety's payment to obligee was not; North Am. Specialty Ins. Co. v. Schuler, 291 A.D.2d 924, 925, 737 N.Y.S.2d 741, 742 (2d Dep't 2002) (surety "is entitled to indemnification if it acted in good faith and the amount paid [to settle the claim] was reasonable"). The reasonableness requirement imposed on sureties relates to the conditions under which the surety made payments. See, e.g., St. Paul Fire Marine Ins. Co. v. Pepsico, 160 F.R.D. 464, 466 (S.D.N.Y. 1995) (surety is obligated "to reasonably and in good faith defend all claims under [the bond]" and "defaulted on this duty [because it] blindly paid on bonds without investigating or defending claims and, therefore, did not act reasonably and in good faith"). Defendants do not contest the reasonableness of the Sureties' conduct in seeking to achieve a declaration that the P-19 and P-31 Consortia were not wrongdoers under their contracts with Brasoil. Nor do Defendants take issue with the Sureties' efforts to defend against Brasoil's claims that the Consortia defaulted on their contracts. Absent a claim that a surety acted unreasonably or in bad faith, there is no requirement that a surety's expenditures in defending a claim be "scrutinized" by the court. While forty million dollars in fees and expenses is a substantial figure, these expenses and fees were incurred over the course of several years, during which time the Sureties actively investigated in Brazil and elsewhere, and litigated in New York, complex claims arising under the performance bonds. This Court has some familiarity with the extensive efforts undertaken by the Sureties, as it supervised much of the pretrial activity in this action. As a frame of reference, as part of the Judgment in Brasoil's favor under the P-19 and P-31 bonds, Brasoil was awarded nearly thirty-seven million dollars in attorneys' fees and expenses against the Sureties. United States Fid. Guar. Co., 226 F. Supp.2d at 470. Indeed, as Judge Koeltl's opinion makes clear, Brasoil's attorneys' fees and expenses were substantially in excess of thirty-seven million dollars, but its right to recovery was limited by the terms of the performance bonds. See id. at 467-68. Therefore, in the context of this litigation, the amount of attorneys' fees and expenses incurred by the Sureties does not come as a great surprise.
Unlike when awarding statutory attorneys' fees, it is not the Court's role to determine what an award of "reasonable" attorneys' fees should be based upon its scrutiny of the hours and the hourly rates of the attorneys.
According to Ms. Alexander, "USFG carefully maintained records of all such expenses it incurred" in connection with each bond (Alexander Decl. ¶ 13), and paid each invoice in good faith. (Id. ¶ 19.) USFG's computer-generated history of each invoice paid in connection with the P-19 and P-31 bonds clearly identifies the payee, date of payment, and the purpose and amount of each payment. (See id. Exs. D E.) Similarly, Ms. Sena attests on behalf of AHAC that the Surety "carefully maintained records of all such expenses it incurred" (Sena Decl. ¶ 9), reviewed each invoice before payment, and paid each invoice in good faith. (See id. ¶¶ 8, 14, 15.) AHAC's computer-generated history of each invoice paid in connection with the P-19 and P-31 bonds clearly indicates the invoice number, check number, payee, and date and amount of each payment. (See id. Exs. B D.) Plaintiffs have adequately documented the disbursements made in relation to their obligations under the performance bonds, and Defendants have failed to articulate any ground upon which to infer that Plaintiffs acted unreasonably or in bad faith. See Am. Home Assurance Co. v. Gemma Constr. Co., 275 A.D.2d 616, 620, 713 N.Y.S.2d 48, 52 (1st Dep't 2000) ("By submitting the indemnity agreements, along with a sworn itemized statement of loss and expense of $7,129,638.96, further supported by copies of payment drafts in that same amount, [surety] demonstrated its prima facie entitlement to recovery thereupon."); Int'l Fid. Ins. Co. v. Spadafina, 192 A.D.2d at 639, 596 N.Y.S.2d at 454 (surety "stated a prima facie case under the [indemnity] contract by submitting proper documentation of payment of the settlement to [the obligee] as well as the fees and costs incurred in making a settlement and, as [the indemnitor's] conclusory affidavits are insufficient to raise a triable issue as to either the bona fides of the settlement or as to the reasonableness of its amount, summary judgment is granted in favor of" the surety).
Accordingly, the Sureties are entitled to summary judgment on their indemnification claims for their expenses, including attorneys' fees, incurred in connection with the P-19 and P-31 performance bonds.
B. The MAC Payment Bond
On January, 14, 2000, the Supreme Court of the State of New York: entered a judgment against the Sureties on the MAC payment bond, in the total amount of $12,886,263.54 (the "State Court Judgment"). (See Pls.' Stmt., Ex. 6.) By May 2001, the Sureties had satisfied the State Court Judgment in favor of MAC, with USFG paying $7,216,836.86, and AHAC paying $7,226,369.19. (See Pls.' Stmt. ¶ 16; Alexander Decl. ¶ 14 Ex. C; Sena Decl. ¶ 8 Ex. A.)
Defendants attempt to avert summary judgment by arguing that MAC and Petrobras (the parent company of Brasoil) "fraudulently engineered" a claim against the Sureties on the MAC bond. (See Pinho Decl. ¶ 33, 37.) As Defendants are well aware, however, the Sureties vigorously litigated that claim in the New York courts, which considered and rejected the possibility of fraud. See Marubeni Am. Corp. v. United States Fid. Guar. Co., 280 A.D.2d 269, 269-70, 721 N.Y.S.2d 6, 6-7 (1st Dep't 2001) (the "sureties' theory of a conspiracy between [MAC] . . . and [Petrobras] is refuted by" ample evidence to the contrary). In any event, whether fraud precipitated MAC'S action under the payment bond is irrelevant to the instant summary judgment motion. Defendants do not argue that the Sureties acted fraudulently, and the fact remains that the Sureties incurred the liability of a judgment entered against them. Their right to indemnification arose upon the attachment of this liability. See Goodridge, 788 F. Supp. at 133; Staubinger, 19 A.D.2d at 28, 240 N.Y.S.2d at 230; 755 Seventh Ave., 266 N.Y. at 161. Having satisfied the State Court Judgment, both Sureties are entitled to immediate indemnification.
Accordingly, the Sureties are entitled to summary judgment for indemnification against the amounts paid to satisfy the MAC judgment against them. The Sureties are also entitled to indemnification for their expenses and attorneys' fees incurred in connection with their obligations under the MAC payment bond.
USFG has paid $1,049,856.11 in attorneys' fees and expenses in connection with the MAC payment bond. (See Alexander Decl. ¶ 14 Ex. C.) AHAC has paid $714,939.67 in attorneys' fees and other expenses in connection with the MAC payment bond. (See Sena Decl. ¶ 10 Ex. A.) Pursuant to the Agreements of Indemnification, the Sureties are entitled to indemnification for these payments. Ample evidence demonstrates that the payments for which the Sureties seek to be indemnified were made in connection with their obligations under the MAC payment bond. (See Alexander Decl. ¶ 14, 18-19 Ex. C; Sena Decl. ¶¶ 10, 14 Ex. A.) Moreover, Defendants have failed to raise any question of fact as to the reasonableness of the Sureties' expenditures. See Spadafina, 192 A.D.2d at 639, 596 N.Y.S.2d at 454-55.
C. The Port of New Orleans Performance Bond
USFG was the sole surety on the performance bond issued on behalf of Sade America in connection with the Port of New Orleans project. USFG has paid $2,652,995.93 in favor of Boh Brothers to satisfy the AAA award rendered against it, and incurred $450,394.29 in related expenses and attorneys' fees. (See Pls.' Mem. at 11; Pls.' Stmt. ¶¶ 28-30; Alexander Decl. ¶¶ 29-30, 33 Exs. I, J.) In regard to Paceco's claims against USFG under the performance bond, the Surety has paid $410,465.23 in losses, and $238,043.27 in expenses. (See Pls.' Mem. at 11; Pls.' Stmt. ¶ 29; Alexander Decl. ¶¶ 29-31 Ex. I.) USFG argues that the 1994 and 1995 Agreements apply to the Port of New Orleans performance bond, and thus, Defendants must indemnify it for its losses and expenses.
In their response to this motion, Defendants voiced no objection to the Surety's contention that both Agreements of Indemnification apply to the Port of New Orleans bond. However, by way of a letter addressed to the Court dated May 21, 2003, subsequent to the submission of their response to the motion, Defendants raised two arguments. First, Defendants argue that the 1994 Agreement does not "impose liability upon Sequip or IVI (referred to here singularly, not jointly) for the Port of New Orleans losses." (Ernstrom Dreste Letter, dated May 21, 2003, at 2.) Second, Defendants argue that the 1995 Agreement does not cover any bond issued on behalf of Sade Vigesa's subsidiary, Sade America. (Id. at 2-3.) Although Defendants' arguments are untimely, since USFG has submitted a reply letter (Wolf, Block Letter, dated May 28, 2003), the Court will address the arguments raised in both letters on the merits.
USFG asserts that it issued the Port of New Orleans performance bond "in reliance, inter alia, upon IVI/Sade Vigesa and Sade America having executed the . . . Agreements of Indemnity." (Pls.' Mem. at 9-10 n. 7.) The 1994 Agreement explicitly identifies both Sade America and Sade Vigesa as principals and indemnitors, and holds them jointly and severally liable for any surety bonds issued on behalf of either of them. Clearly, USFG is entitled to summary judgment against Sade Vigesa for its losses and expenses under the Port of New Orleans bond, pursuant to the 1994 Agreement, and Defendants do not argue otherwise. Rather, Defendants assert that the 1994 Agreement does not bind Sequip or IVI. The parties apparently agree on this point. In their motion papers, as well as their response letter, Plaintiffs do not argue that the 1994 Agreement applies to Sequip or IVI.
USFG has already been awarded summary judgment against Sade America on its Port of New Orleans claims. (See Pls.' Mem. at 4 n. 2.)
Accordingly, pursuant to the 1994 Agreement, USFG is entitled to summary judgment against Sade Vigesa for indemnification against its liability, losses, and expenses, including attorneys' fees, incurred in connection with the Port of New Orleans performance bond.
USFG and Defendants dispute whether the 1995 Agreement applies to Sequip and IVI. The 1995 Agreement identifies the principals and indemnitors as follows:
Sequip Participacoes, S.A., including any present or future directly or indirectly majority-owned or controlled subsidiaries, affiliates, or associated companies or corporations now existing or hereafter created or acquired whether operating solely or in joint venture with others not named herein;
Industrias Verolme-Ishibras, S.A. — IVI;
Sade Vigesa, S.A.
(1995 Agreement, lines 2-6.) In Defendants' view, the 1995 Agreement "does not extend to Sade Vigesa's subsidiaries, affiliates, and associated companies," and since Sade America is the subsidiary of Sade Vigesa — not the subsidiary of Sequip — this Agreement does not extend to a bond issued on behalf of Sade America. (Ernstrom Dreste Letter, at 3.) USFG counters that Sequip controls Sade Vigesa, which, in turn, is the parent of Sade America, and thus, the 1995 Agreement applies to a bond issued on behalf of Sade America. (Wolf, Block Letter, at 2; see also Pls.' Mem. at 10 n. 7.) The Court agrees with USFG's reading of the 1995 Agreement.
The 1995 Agreement includes as principals and indemnitors those entities that are or were indirectly controlled by Sequip. It is undisputed that Sequip controls Sade Vigesa, which in turn is the parent of Sade America. (See, e.g., Wolf, Block Letter, Attach, (trial testimony of former IVI and Sade Vigesa President, David Fischel, describing the relationship between Sequip and Sade Vigesa).) It follows, a fortiori, that this Agreement applies to bonds issued on behalf of Sade America.
As USFG has sufficiently documented its losses and expenses, and Defendants have raised no issue of fact as to the bona fides or reasonableness of USFG's payments related to the claims asserted against it on the Port of New Orleans performance bond, USFG is entitled to summary judgment on its indemnification claims.
CONCLUSION
For the foregoing reasons, Plaintiffs are granted summary judgment on their indemnification claims. As a matter of law, Plaintiffs are entitled to indemnification against the liability, losses, expenses, and attorneys' fees incurred in relation to the surety bonds issued in favor of Defendants or their affiliates.
The Clerk shall enter Judgment in favor of the Sureties against Defendants, jointly and severally, as follows:
1. In favor of the Sureties for the full amount of the Declaratory Action Judgment on the P-19 and P-31 performance bonds, $370,008,209, plus 1.68% interest per annum from September 30, 2002 until the entry of judgment.
2. In favor of USFG for the full amount paid to satisfy the State Court Judgment on the MAC payment bond, in the amount of $7,216,836.86.
3. In favor of AHAC for the full amount paid to satisfy the State Court Judgment on the MAC payment bond, in the amount of $7,226,369.19.
4. In favor of USFG for the full amount of attorneys' fees and expenses incurred in connection with the investigation, prosecution, and defense of claims and lawsuits arising from the P-19 and P-31 performance bonds, the MAC payment bond, and this indemnity action, in the amount of $19,373,846.36.
5. In favor of AHAC for the full amount of attorneys' fees and expenses incurred in connection with the investigation, prosecution, and defense of claims and lawsuits arising from the P-19 and P-31 performance bonds, the MAC payment bond, and this indemnity action, in the amount of $20,893,454.76.
6. In favor of USFG for loss payments, attorneys' fees, and other expenses incurred in connection with claims and lawsuits arising from the bonds issued by USFG relating to the Port of New Orleans project, in the amount of $3,751,898.72.
SO ORDERED.