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Nasdi Holdings, LLC v. North American Leasing, Inc.

Court of Chancery of Delaware

April 8, 2019

NASDI HOLDINGS, LLC, a Delaware limited liability company, and GREAT LAKES DREDGE AND DOCK CORPORATION, a Delaware Corporation, Plaintiffs,
NORTH AMERICAN LEASING, INC., a Michigan corporation, DORE & ASSOCIATES CONTRACTING, INC., an Indiana corporation, NASDI, LLC, a Delaware limited liability Company, and YANKEE ENVIRONMENTAL SERVICES, LLC, a Delaware limited liability Company, ARTHUR P. DORE, an individual, ARTHUR M. DORE, an individual, and RIVER FRONT, LLC, Defendants.

          Submitted: January 15, 2019

          Brian C. Ralston, Mathew A. Golden, POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; Michael Dockterman, STEPTOE & JOHNSON, LLP, Chicago, Illinois; Attorneys for Plaintiffs NASDI Holdings, LLC and Great Lakes Dredge and Dock Corporation.

          Joseph B. Cicero, Paul D. Brown, Stephanie H. Dallaire, CHIPMAN BROWN CICERO & COLE, LLP, Wilmington, Delaware; Mark L. McAlpine, Douglas W. Eyre, MCALPINE PC, Auburn Hills, Michigan; Attorneys for Defendants North American Leasing, Inc., Dore & Associates Contracting, Inc., NASDI, LLC, Yankee Environmental Services, LLC, Arthur P. Dore, Arthur M. Dore, and River Front LLC.


          McCORMICK, V.C.

         In 2014, North American Leasing, Inc. acquired NASDI, LLC ("NASDI"), a demolition and site-redevelopment business. As part of the sale, the purchaser took control of NASDI's ongoing construction projects, including work under a $20 million subcontract on the Bayonne Bridge between New York and New Jersey. NASDI was required to obtain performance and payment bonds for the Bayonne Bridge subcontract. Post-closing, the purchase agreement obligated the seller and its corporate parent to maintain those bonds, secured by a letter of credit. In exchange, the purchaser and certain affiliates agreed to indemnify the seller for any losses incurred in connection with the bonds or the letter of credit.

         In 2017, NASDI walked off the Bayonne Bridge job. As a result, the surety drew more than $20 million on the letter of credit. The seller demanded indemnification under the purchase agreement for this loss. The purchaser refused. This litigation ensued.

         The plaintiffs, the seller and its corporate parent, have moved for summary judgment on their claim that the defendants breached the purchase agreement's indemnification provisions. In response, the defendants point to a notice provision in the purchase agreement, which they say obligated the plaintiffs to notice any claims for indemnification relating to the letter of credit by March 16, 2016-before the plaintiffs incurred the losses. The language on which the defendants rely, however, does not apply to claims for indemnification relating to the letter of credit; it only applies to claims concerning representations and warranties. Accordingly, the plaintiffs prevail under the plain language of the purchase agreement.

         The plaintiffs have also moved for summary judgment on two affirmative defenses. The defendants argue that the plaintiffs failed to mitigate damages when they refused to cover a $5 million shortfall before NASDI walked off the project. Although the duty to mitigate generally arises after a breach has occurred, the defendants rely on events that occurred before the relevant breach. The plaintiffs are therefore entitled to summary judgment on the failure-to-mitigate defense. The defendants also assert that the plaintiffs acted with unclean hands because of alleged accounting misrepresentations in the purchase agreement. Because the equitable doctrine of unclean hands may not supply a defense to a purely legal claim, the unclean-hands defense also fails.


         The facts are drawn from the parties' affidavits and exhibits attached thereto.

         A. The Purchase Agreement

         Prior to April 23, 2014, NASDI Holdings, LLC ("Seller") owned and operated two companies: NASDI and Yankee Environmental Services, LLC ("Yankee"). NASDI provided demolition and site-redevelopment services on projects throughout the United States.[1] On April 23, 2014, Seller sold NASDI and Yankee to North American Leasing, Inc. ("Purchaser") pursuant to an Ownership Interest Purchase Agreement (the "Purchase Agreement").[2] Purchaser is part of a family of entities affiliated with Arthur P. Dore and his son, Arthur M. Dore.[3]

         Purchaser took control of NASDI's ongoing construction projects. Section 7.7(a) of the agreement, however, obligated Seller's corporate parent, Great Lakes Dredge and Dock Corporation ("Great Lakes"), to maintain existing performance and payment bonds and letters of credit for the ongoing projects.[4]

         Section 9.2(e) of the Purchase Agreement provides indemnification to Seller and Great Lakes for all losses "arising out of or relating to or incurred in connection with" the bonds and letters of credit addressed in § 7.7(a).[5] Section 9.3 of the Purchase Agreement sets out the notice requirements in the event of a claim for indemnification.[6]

         In addition to Purchaser, certain of its affiliates executed the Purchase Agreement and owe indemnification obligations under Section 9.2(e): NASDI, Yankee, the Dores, and Dore & Associates Contracting, Inc. ("Dore Inc.") (the "Indemnifying Defendants").[7]

         B. Plaintiffs' Indemnification Claims

         1. The Bayonne Bridge Claim

         One of NASDI's ongoing construction projects transferred under the Purchase Agreement involved the Bayonne Bridge. Prior to the Purchase Agreement, the Port Authority of New York and New Jersey had hired Skanska Koch Kiewit Infrastructure Co. (JV) ("Skanska") to replace the main span roadway and approach structures of the Bayonne Bridge.[8] Skanska subcontracted NASDI to perform demolition for a total price of $20, 359, 375 (the "Subcontract").[9] The Subcontract required NASDI to furnish separate performance and payment bonds in an amount equal to the Subcontract price (the "Bonds").[10] NASDI initially procured those Bonds from Fidelity and Deposit Company of Maryland and Zurich American Insurance Company ("Zurich").[11] As part of the sale of NASDI, however, Zurich and the parties to the Purchase Agreement negotiated a new contractual arrangement concerning the Bonds, which resulted in Great Lakes executing a $20 million letter of credit in favor of Zurich (the "Letter of Credit").[12] Later, that amount was increased to $30 million.[13] The Bonds and the Letter of Credit are included among those obligations that Section 7.7(a) of the Purchase Agreement required Great Lakes to maintain post-closing.[14]

         On February 13, 2017, NASDI notified Skanska of its intent to demobilize from the Bayonne Bridge site immediately.[15]

         On February 14, 2017, Seller notified Purchaser that NASDI's failure to perform under the Subcontract could result in losses for which the Indemnifying Defendants, and potentially the Dores, would be obligated to indemnify Plaintiffs.[16]

         On February 23, 2017, Skanska declared NASDI in default and terminated the Subcontract, notified Zurich of NASDI's default, and made a demand on Zurich for performance under the performance bond.[17]

         On February 24, 2017, Zurich notified Great Lakes that Zurich would look to Great Lakes for indemnity relating to all loss, cost, or expense that Zurich had incurred or expended, or may in the future incur or expend, by reason of the Bonds.[18]

         2. The Siefert Associates Claim

         Siefert Associates LLC ("Siefert") was a subcontractor to NASDI on the Bayonne Bridge project.[19] On March 2, 2017, Siefert filed a proof of claim under the payment bond, alleging that NASDI failed to pay $328, 554 for labor and materials provided by Siefert.[20]

         On April 5, 2017, Seller gave notice to Purchaser that the Siefert claim could result in losses for which the Indemnifying Defendants would be obligated to indemnify Plaintiffs.[21]

         3. Plaintiffs Incur Losses

         As of May 11, 2017, Zurich had begun drawing down on the Letter of Credit.[22] The Verified Complaint alleges that by May 22, 2017, Zurich had completed that process, drawing a total of $20, 881, 824.00 plus $52, 204.56 for bank fees (the "2017 Losses").[23]

         C. This Litigation

         On May 26, 2017, Plaintiffs commenced this litigation. The Verified Complaint asserts three causes of action: breach of the Purchase Agreement, equitable subrogation, and declaratory judgment. The Indemnifying Defendants moved to dismiss or stay the case. [24] After a hearing on December 1, 2017, the Court denied the motion.[25] The Indemnifying Defendants filed their answer to the Verified Complaint on January 19, 2018, [26] and Plaintiffs moved for summary judgment on their claim for breach of contract on March 9, 2018.[27] After briefing concluded, [28]the Court heard oral arguments on January 15, 2019.[29]

         II. ANALYSIS

         Through their motion for partial summary judgment, Plaintiffs seek a ruling that Section 9.2(e) of the Purchase Agreement obligates the Indemnifying Defendants to indemnify Plaintiffs for the 2017 Losses. Plaintiffs have also moved for summary judgment on the Third and ...

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