Atlantic Refinishing & Restoration, Inc. v. Travelers Casualty and Surety Company of America

                            UNITED STATES DISTRICT COURT
                            FOR THE DISTRICT OF COLUMBIA

ATLANTIC REFINISHING &                        :
RESTORATION, INC.                             :
                                              :
                       Plaintiff,             :       Civil Action No.:       10-681 (RMU)
                                              :
                       v.                     :       Re Document No.:        6
                                              :
TRAVELERS CASUALTY AND                        :
SURETY COMPANY OF AMERICA,                    :
                                              :
                       Defendant.             :

                                    MEMORANDUM OPINION

                     GRANTING THE PETITIONER’S MOTION TO INTERVENE

                                      I. INTRODUCTION

       This matter is before the court on the motion of Desbuild, Inc. (“the petitioner”), to

intervene as a defendant. The petitioner was selected as the general contractor for the

government-funded restoration of a historical building in Washington, D.C. The plaintiff, one

of the petitioner’s subcontractors on this project, claims that it did not receive full compensation

under its contract and is suing the petitioner’s surety, Travelers Casualty and Surety Company of

America (“Travelers”). Because the petitioner has shown it has a right to intervene under

Federal Rule of Civil Procedure 24, the court grants the petitioner’s motion.


                     II. FACTUAL & PROCEDURAL BACKGROUND

       The petitioner entered into a contract with the General Services Administration (“GSA”)

to act as the prime contractor for the exterior masonry repair, repointing and cleaning of the

historic Sydney Yates Building in Washington, D.C. Compl. ¶ 5. The petitioner and the plaintiff

subsequently entered into a subcontract whereby the plaintiff, in exchange for payment, would
provide certain materials and services for the project. Id. ¶¶ 9-10. The petitioner asserts that the

subcontract also included a mandatory arbitration clause. Petr’s Mot., Ex. B at 2.

       On September 18, 2009, and again on September 29, 2009, the GSA terminated the

petitioner’s contract for cause. Id. ¶ 26. While working as a subcontractor, the plaintiff sent the

petitioner invoices totaling $197,344.25. Id. ¶¶ 27-33. The plaintiff alleges that to date,

$97,281.25 remains unpaid. Id. ¶¶ 34-35.

       As the prime contractor, the petitioner was required to issue a bond for the benefit of its

subcontractors and suppliers (“payment bond”). Compl. ¶ 6. The bond named the petitioner as

the principal and the defendant as the surety. Id. ¶ 7. According to the petitioner, the defendant

and the petitioner entered into a surety agreement whereby the defendant could seek

indemnification from the petitioner for a judgment entered against it due to the petitioner’s

actions. Petr’s Mot. ¶ 2.

       The plaintiff commenced this action on April 30, 2010, naming Travelers as the sole

defendant. See generally Compl. The plaintiff claims that that the petitioner refuses to remit the

remainder of the payment which it is entitled to and is therefore demanding payment from the

defendant, who the plaintiff maintains, is liable to the plaintiff for such costs. Id. ¶¶ 42-43. On

July 19, 2010, the petitioner filed the present motion to intervene as a defendant. See generally

Petr’s Mot. With this motion now ripe for adjudication, the court turns to the applicable legal

standard and the parties’ arguments.

                                         III. ANALYSIS

                            A. Legal Standard for a Motion to Intervene

       Federal Rule of Civil Procedure 24 sets forth the requirements for intervention as of right

and permissive intervention. FED. R. CIV. P. 24; Fund for Animals, Inc. v. Norton, 322 F.3d 728,



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731 (D.C. Cir. 2003). First, Rule 24(a) provides for intervention as of right, stating that

       [u]pon timely application anyone shall be permitted to intervene in an action . . .
       when a statute of the United States confers an unconditional right to intervene; or
       . . . when the applicant claims an interest relating to the property or transaction
       which is the subject of the action and the applicant is so situated that the
       disposition of the action may as a practical matter impair or impede the
       applicant’s ability to protect that interest, unless the applicant’s interest is
       adequately represented by existing parties.

Id. As paraphrased by this Circuit, the rule indicates that an applicant’s right to intervene

depends on “(1) the timeliness of the motion; (2) whether the applicant claims an interest relating

to the property or transaction which is the subject of the action; (3) whether the applicant is so

situated that the disposition of the action may as a practical matter impair or impede the

applicant’s ability to protect that interest; and (4) whether the applicant’s interest is adequately

represented by existing parties.” Fund for Animals, 322 F.3d at 731; see also Jones v. Prince

George’s Cnty, Md., 348 F.3d 1014, 1017 (D.C. Cir. 2003) (listing the four elements of Rule

24(a) as “timeliness, interest, impairment of interest, and adequacy of representation”). In

addition, an applicant must demonstrate that it has standing. Jones, 348 F.3d at 1017-18; Fund

for Animals, 322 F.3d at 731-32.

       Alternatively, Rule 24(b) authorizes permissive intervention for an applicant who timely

files a motion when a federal statute confers a conditional right to intervene or the applicant’s

claim or defense has a question of law or fact in common with the main action. FED. R. CIV. P.

24(b). In considering a motion for permissive intervention, a court must determine whether the

proposed intervention “will unduly delay or prejudice the adjudication of the rights of the

original parties.” Id.

                  B. The Court Grants the Petitioner’s Motion to Intervene

       The petitioner asserts that it should be permitted to intervene as a matter of right, or,



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alternatively, with the court’s permission because it has an interest in the litigation that will not

be adequately represented if the case proceeds without its participation. Petr’s Mot. at 1-2.

More specifically, the petitioner contends that as the principal of the payment bond, its interests

are directly implicated by this action because the defendant will seek indemnification from it if

judgment is awarded for the plaintiff. Id. at 2. The petitioner further asserts that without being

permitted to intervene, “its ability to directly protect its financial interests and avoid the

possibility of judgment against it will be materially impaired or impeded.” Id. Lastly, the

petitioner argues that its interests are not adequately represented by the defendant because the

petitioner “seeks to enforce the binding arbitration provision in the [s]ubcontract,” a defense

which the defendant has not exerted. Petr’s Reply at 3.

        The plaintiff responds that the petitioner lacks the requisite interest to intervene in this

matter, and that any interest the petitioner has will be adequately protected by the defendant.

Pl.’s Opp’n at 1-2. The plaintiff argues that the petitioner has no interest in the current litigation

because its purported interest is contingent on both the court entering judgment in favor of the

plaintiff and the defendant enforcing its indemnity agreement against the petitioner. Pl.’s Opp’n

at 3. The plaintiff further maintains that the petitioner’s interests are adequately protected by the

defendant because it is common practice for a bond principal to “end[] up in control of the

defense of the surety,” and because the parties have the same counsel. Id. at 6.

        Under Rule 24, the petitioner is entitled to intervene if it can demonstrate that it has

satisfied all of the requirements: timeliness, interest, impairment of interest, and adequacy of

representation. Jones, 348 F.3d at 1018. First, it is undisputed that the petitioner’s motion,

which was filed before the scheduling of an initial status hearing in this matter, is timely. See

generally Pl.’s Opp’n. Additionally, the petitioner, as the principal of the payment bond, has a



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clear interest in this litigation because if a judgment is granted against the defendant, the

defendant is likely to seek indemnification from the petitioner, pursuant to their surety

agreement. 1 United States ex rel. MPA Constr., Inc. v. XL Specialty Ins. Co., 349 F. Supp. 2d

934, 937 (D. Md. 2004) (holding that a petitioner seeking to intervene in a suit between its

subcontractor and surety “clearly has a ‘direct and substantial interest’ in the transaction because

[the surety], if held liable, will turn to [the petitioner] for indemnification”).

        Next, the court considers whether allowing this action to proceed without the petitioner

would impair its ability to protect its interest. “In determining whether a movant’s interests will

be impaired by an action, the courts in this circuit look to the ‘practical consequences’ to movant

of denying intervention.” Schoenborn v. Wash. Metro. Area Transit Auth., 247 F.R.D. 5, 7

(D.D.C. 2007) (quoting Am. Horse Prot. Ass’n, Inc. v. Veneman, 200 F.R.D. 153, 158 (D.D.C.

2001)). Here, if the petitioner was not allowed to intervene, it could nonetheless be forced to

indemnify the defendant for the debt claimed by the plaintiff without an opportunity to legally

dispute its liability. Thus, the practical consequence of denying intervention would be to deprive

the petitioner of an opportunity to raise arguments and defenses before the adjudication of its

own liability to the plaintiff. It is also insufficient that the petitioner may have additional

1
        The plaintiff relies solely on Indep. Petrochemical Corp. v. Aetna Cas. & Sur. Co., 105 F.R.D.
        106 (D.D.C. 1985) to argue that the petitioner’s contingent liability here does not create the sort
        of interest required for intervention as a matter of right. Petr’s Reply at 2. In Indep.
        Petrochemical Corp., a plaintiff chemical company sought a declaratory judgment against its
        insurer, obligating the insurance company to indemnify and defend actions brought against the
        plaintiff for injuries allegedly caused by chemical exposure that the plaintiff was supposedly
        responsible for. 105 F.R.D. at 110-11. The claimants in the various personal injury suits sought
        to intervene in the plaintiff’s declaratory judgment action, but were denied because their interest
        in the case were contingent on hypothetical judgments that had not yet been issued against the
        chemical company in separate cases. Id. In stark contrast, the petitioner’s interest is not triggered
        by a judgment in a wholly different case, but is instead directly and currently implicated in this
        case. Stated otherwise, the petitioner is interested right now in avoiding a determination in this
        proceeding of its liability to the plaintiff for the amount in question, even if the repercussions of
        that determination will only crystallize once the defendant seeks indemnification. Accordingly,
        Indep. Petrochemical Corp. is inapposite to the court’s determination that the petitioner has an
        interest under Rule 24.
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recourse in the future if it were to defend against an indemnification claim by the defendant. See

id. (observing that intervention was not improper solely because the petitioner had the

opportunity to later challenge the award in a suit for breach of fiduciary duty). Accordingly, the

petitioner’s ability to protect its interest would be impeded without intervention.

       Lastly, the petitioner must demonstrate the inadequacy of the defendant’s representation

in order to intervene as of right. Prior to Rule 24’s inadequacy of representation requirement, it

was clear that “a contractor which [had] agreed to indemnify its surety on a bond [could]

intervene as a party defendant as of right in suit on that bond against the surety.” XL Specialty

Ins. Co., 349 F. Supp. 2d at 937 (noting that the Second and Fifth Circuits had created a per se

right of intervention for a principal of a bond (citing United States ex rel. Foster Wheeler Corp.

v. American Sur. Co., 142 F.2d 726, 728 (2d Cir. 1944); Revere Copper & Brass, Inc. v. Aetna

Cas. & Sur. Co., 426 F.2d 709, 716 (5th Cir. 1970))). Under Rule 24, however, courts now

presume that the principal is adequately represented by its surety because they both have the

“same ultimate objective,” i.e., to avoid liability on the payment bond. See 6 FED. PRAC. 3 §

24.03 (noting that a presumption of adequate representative exists if both the movant and the

existing party have the same ultimate objective); XL Specialty Ins. Co., 349 F. Supp. 2d at 937

(observing that a per se right for principals “appears to conflict with Rule 24(a)(2)” because the

surety is required to provide a good faith defense for the principal). The petitioner may,

however, rebut the presumption of adequacy by showing the existence of “special

circumstances” that make the representation inadequate. Id.; Schoenborn, 247 F.R.D. at 9. For

instance, the petitioner may rebut the presumption by demonstrating that he intends to raise

claims or arguments that would not otherwise be raised. See Jones, 348 F.3d at 1019-20 (noting

that “an existing party who is . . . unwilling to raise claims or arguments that would benefit the



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putative intervenor may qualify as an inadequate representative in some cases”).

        The court is persuaded that special circumstances exist here due to the petitioner’s

intention to enforce the subcontract’s arbitration clause. 2 The petitioner has been candid about

its intention, if allowed to intervene, to move this court to require the plaintiff to arbitrate this

suit as purportedly required by their subcontract. Petr’s Mot., Ex. 1. Notably, the defendant has

not advanced this defense, despite putting forth thirteen other affirmative defenses in its answer.

See generally Answer. The petitioner should not be forced to rely on the defendant to raise

defenses in a case where its own liability is at stake. Because the petitioner has demonstrated

that special circumstances exist which make the defendant’s representation of the petitioner’s

interests inadequate, the court grants its motion to intervene. 3



                                         IV. CONCLUSION

        For the foregoing reasons, the court grants petitioner’s motion to intervene. An Order

consistent with this Memorandum Opinion is separately and contemporaneously issued this 21st

day of December, 2010.




2
        The plaintiff fails to provide any support for its notion that the retention of identical counsel by
        the petitioner and the defendant indicates that the petitioner is already receiving adequate
        representation by the defendant. See generally Pl.’s Opp’n. Although the court agrees that
        representation by the same counsel is evidence that, at least at this point, those parties have no
        conflicting arguments or defenses, it does not automatically follow that counsel would continue to
        represent the petitioner’s interests even if it were not allowed to proceed as a party in this case.
        As elaborated above, the petitioner may have defenses which are not in conflict with the
        defendant but which the defendant, for whatever reason, may not choose to advance.
3
        The court also determines that there is good reason to grant the petitioner permission to intervene
        under Rule 24(b). It is undisputed that the petitioner’s defense has a question of law or fact in
        common with the main action. FED. R. CIV. PROC. 24(b); see generally Pl.’s Opp’n.
        Additionally, the plaintiff does not argue nor does this court conclude that the timing of the
        petitioner’s motion to intervene, filed before the scheduling of the initial status hearing, has
        prejudiced its case. FED. R. CIV. PROC. 24(b).
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