Article courtesy of Kevin Braun (Morgan Lewis)
Centerplan Constr. Co. LLC v. City of Hartford, 2023 WL 6121116 (Conn. Super. Ct. Sept. 11, 2023)
The City of Hartford (the “City”) entered into construction agreements (the “Construction Agreements”) with Centerplan Construction Company LLC (“Construction Co.”), as contractor, providing for the construction of the Dunkin Donuts Park, a minor league baseball stadium (the “Stadium”). Construction Co. required a surety bond for the project and in exchange for the surety bond provided by Arch Insurance Company (“Surety”), Construction Co. entered into surety/principal indemnity agreements with Surety, including the General Indemnity Agreement (the “Indemnity”). The Indemnity included an assignment by Construction Co. to Surety of all of its rights under all bonded contracts and “all claims and causes of action against any parties” in the event of a default under any bonded contract. Relying on the Indemnity, Surety issued payment and performance bonds for the Stadium, under which the City was an obligee.
The City terminated the Construction Agreements after notifying Construction Co. that it was in default for failing to meet the substantial completion deadline, and Construction Co. brought suit against the City. The City and Surety subsequently entered into a Takeover Agreement, which included an assumption by Surety of Construction Co.’s obligations to the City and a reservation of Construction Co.’s rights against the City. At trial, representatives of Surety testified that Surety negotiated the reservation of Construction Co.’s rights in order to preserve Construction Co.’s claims against the City. The City argued that Construction Co. lacked standing due to its assignment to Surety and therefore, the Court lacked subject matter jurisdiction. Construction Co. argued that (1) it had standing because the assignment was undertaken “as collateral or security for the payment of a debt” and therefore, Construction Co. retained a legal interest in its action against the City, and (2) Surety authorized Construction Co.’s suit against the City.
With respect to Construction Co.’s first argument, the Court agreed and found that the assignment to Surety was for collateral security and did not deprive Construction Co. of all of its rights. The Court distinguished between an absolute assignment, which transfers all of the assignor’s rights under a contract to the assignee, and an assignment for collateral security, which serves as security for an obligation without transferring all of the assignor’s rights under a contract to the assignee. It concluded that Construction Co.’s assignment to Surety was an assignment for collateral security because the assignment provision in the Indemnity was for security purposes, protecting Surety against the possibility that Construction Co. “may not in the future be able to live up to its promise to indemnify” Surety, which does not deprive the assignor of all of its rights under an indemnity agreement. The Indemnity afforded Surety several rights which the Court broadly characterized as collateral security, including, among other things, “an assignment of all of [Construction Co.’s] causes of action under any bonded contract or against any parties” and “the right to demand the posting of a cash collateral” by Construction Co.. For these reasons, the Court found that Construction Co. only assigned its interest in the suit as collateral security and therefore retained an interest in its suit against the City.
Regarding Construction Co.’s second argument, the Court analyzed whether Surety had authorized Construction Co. to assert its actions against the City. The City argued that the Takeover Agreement lacked an express grant of authority to pursue Construction Co.’s claim against the City. The Court rejected this argument, finding that while the Indemnity did not expressly grant Construction Co. the authority to pursue its action against the City, the testimony of Surety’s representatives evidenced Surety’s intent to allow Construction Co. to do so. Surety’s representatives testified that Surety wanted Construction Co. to preserve its day in Court and viewed that as “something worthwhile protecting”. Therefore, the Court held that since Surety authorized Construction Co.’s action against the City, Construction Co. had standing to bring its action against the City.
