Selective Insurance Company of America v. Heritage Construction Companies, LLC

Background

Selective Insurance Company of America issued payment bonds for a construction project involving the renovation of a building for Minnesota Medical University, LLC (MMU). Heritage Construction Companies, LLC, JAC & Sons Investments, Andrew P. Christensen, and Jennifer A. Christensen entered into a general agreement of indemnity with Selective. That agreement required them to indemnify Selective for losses and provide collateral security upon demand.

The project’s financing depended in part on MMU’s progress toward pre-accreditation with the Commission on Osteopathic College Accreditation. Heritage alleged that MMU and its chief financial officer, Philip Keithahn, made statements and omissions about the availability of construction financing, including alleged assurances that $7 million had been set aside for construction through August 2019. After the financing became unavailable or limited, Heritage suspended and later terminated the construction contract. Selective paid Heritage’s subcontractors more than $3 million and sued Heritage to recover those amounts under the indemnity agreement.

Heritage filed third-party claims against MMU and Keithahn, including fraudulent or negligent misrepresentation, defense, indemnification, contribution, and promissory or equitable estoppel. The third-party defendants moved for partial summary judgment, seeking dismissal of the misrepresentation and defense/contribution claims against MMU and dismissal of all claims against Keithahn.

Court’s analysis

The court denied summary judgment on the fraudulent and negligent misrepresentation claims. It concluded that Heritage had provided enough detail under Federal Rule of Civil Procedure 9(b), which requires fraud allegations to identify the basic circumstances of the alleged fraud. The court also found genuine disputes of material fact about what Keithahn and MMU represented, what they omitted, what the parties knew about the financing conditions, whether the statements were misleading, and whether Heritage relied on them. Those credibility and factual questions were for a jury rather than the court to resolve on summary judgment.

The court also denied summary judgment on the misrepresentation claim against Keithahn personally. Although Keithahn was acting as MMU’s corporate representative, an officer may be personally liable for a tort in which the officer participated. Because the misrepresentation claim remained viable, the court held that Keithahn’s personal liability could not be resolved at this stage.

The court granted summary judgment on the duty-to-defend theory because Heritage identified no contract requiring MMU or Keithahn to defend it. The court also granted summary judgment on contribution. It explained that contribution requires parties to share liability to the same plaintiff for the same damages, but MMU and Keithahn were not liable to Selective under the indemnity agreement and could not have been sued by Selective instead of Heritage for that obligation.

The court denied summary judgment on the common-law indemnity claim against Keithahn. Because a genuine dispute remained about whether Keithahn committed the alleged tort, he could potentially owe indemnity for liability resulting from that tort. The court granted summary judgment on the promissory and equitable estoppel claims against Keithahn because the parties understood that he was acting for MMU, which was a fully disclosed principal. Under agency principles, Keithahn therefore was not personally liable on those contract-related obligations.

Disposition

The court ordered that the third-party defendants’ motion for partial summary judgment was granted in part and denied in part. It was granted in part on Count I, dismissing the claims for a duty to defend and contribution; granted as to Count III; and denied as to the remaining counts. The opinion does not identify Count III by name in the final order, but its analysis states that the promissory and equitable estoppel claims against Keithahn were granted summary judgment. Judge John R. Tunheim issued the order.