Court: District Court, W.D. Texas; September 30, 2016; Federal District Court
The Court, presided over by Judge Xavier Rodriguez, has ruled on Plaintiff NGM Insurance Company's Motion for Summary Judgment and Defendant Bexar County's Cross Motion for Summary Judgment. The Court denied NGM’s Motion and granted Bexar County’s Motion.
The case centers on a contract established in December 2011 between Bexar County and American Cadastre, LLC (AmCad) for the development of an Integrated Justice System, valued at $18,962,100, with payments scheduled to coincide with annual project milestones. A key requirement of the contract mandated that AmCad obtain a performance bond for Bexar County, covering 100% of the annual compensation due under the agreement.
Specifically, the performance bond for the first year was set at $4,988,527, with subsequent annual amounts to be determined by mutual agreement. The bond, which AmCad was responsible for obtaining and paying premiums on, was to remain effective until Bexar County's final acceptance of the system. The annual compensation structure included various components such as deliverables, project management costs, and operational support, with specific provisions for software licensing fees in the first and third years.
The initial two years of the contract proceeded without incident, with both parties fulfilling their obligations.
AmCad secured a bond for the first year from Hanover Insurance Company and for the second year from NGM, amounting to $4,016,730 as determined by Bexar County. Before the second bond expired, NGM issued a continuation certificate extending coverage into the third year with a new bond amount of $3,800,000, effective from December 6, 2013, to December 6, 2014. AmCad ceased performance in June 2014, notifying Bexar County of its exit from the software solutions business. Subsequently, Bexar County issued a notice of breach, and in September 2014, AmCad filed for Chapter 11 bankruptcy and halted all performance.
The bond outlines NGM's obligations in the event of AmCad's default, allowing NGM to: (1) provide financial assistance to AmCad, (2) complete the contract via its agents or independent contractors, (3) determine and pay any amount owed to Bexar County, or (4) pay the full bond amount to Bexar County, thereby discharging its obligations. In case of conflict between the bond and the underlying contract, the bond provisions prevail.
Following AmCad's default, NGM initiated a lawsuit seeking a declaration that its obligations are limited to deliverables due in the third year and any overdue from the second year. Bexar County contests this interpretation, asserting the bond’s scope is broader and not confined to specific deliverables or timeframes. Both parties filed motions for summary judgment concerning the interpretation of the bond's language and its implications for NGM's liability, but they did not seek summary judgment on Bexar County's breach of contract counterclaim. NGM maintains that its responsibility is limited to the performance expected in the bond's effective period.
NGM contends that Article XIX of its agreement with AmCad limits the bond's coverage to the years in which they were purchased, arguing that its options in the event of AmCad's default reflect a restricted guarantee of performance. NGM emphasizes that among its four options, only one mandates full contract performance, implying Bexar County cannot demand it outside NGM’s discretion. Additionally, NGM asserts that the bond's effective dates restrict its obligations to work performed during that timeframe and explicitly states that it is not liable for work before or after the bond's validity. Citing two cases, NGM argues that performance bonds typically guarantee specific deliverables within a defined period, not general contract performance.
Conversely, Bexar County asserts that the bond guarantees comprehensive contract performance, limited only by the bond's penal sum of $3,800,000. Bexar County argues that performance bonds are intended to ensure complete project fulfillment, evidenced by a continuation certificate referencing the entire Integrated Justice System rather than a limited subset of deliverables. The County posits that NGM's discretionary option to correct AmCad's breach by delivering full performance supports the interpretation that the bond guarantees complete contract performance. Bexar County warns that if NGM's interpretation were accepted, the County's risk would escalate over time due to receiving incomplete deliverables. It maintains that while the bond's effective dates outline when NGM is bound, they do not limit the scope of NGM's obligations. Bexar County differentiates the cases cited by NGM, arguing they pertain to payment bonds rather than performance bonds, and contends that Article XIX does not define the bond's scope but instead addresses the bond's value calculation.
After completing their summary judgment motions, Bexar County filed a motion to supplement regarding judicial estoppel, which the Court granted, allowing NGM to respond.
In August 2014, NGM initiated a lawsuit against AmCad and its corporate indemnitors in the United States District Court for the Eastern District of Virginia regarding two performance bonds linked to AmCad projects in Texas—one for Rockwall County and another for Bexar County. NGM claimed that the indemnitors failed to provide necessary collateral following AmCad's default, constituting a breach of the indemnity agreement. NGM asserted exposure to liability exceeding $4.8 million, seeking collateral in this amount, and emphasized the bonds' purpose of guaranteeing AmCad's performance on the projects.
NGM's complaint specified that the Bexar County performance bond guaranteed AmCad's contract for justice software and associated services. NGM highlighted that it incurred substantial costs due to AmCad's failure to fulfill its obligations, with no stated limitations on the bond's scope. After the defendants defaulted, NGM sought a default judgment, supported by an affidavit from claims attorney Eli Cinq-Mars, who reiterated the need for $3.8 million in collateral to safeguard NGM's rights under the indemnity agreement. Magistrate Judge Ivan D. Davis recommended granting NGM's motion for specific performance of the indemnity agreement, requiring the indemnitors to provide collateral.
The defendants did not contest the recommendation, but a settlement was reached before any court action. Subsequently, in September 2014, AmCad filed for Chapter 11 bankruptcy. NGM filed an adversary complaint in December 2014 to enforce the indemnity agreement and claim funds related to AmCad's Texas projects, alleging exposure of at least $4 million due to AmCad's incomplete contract performance. AmCad acknowledged the Bexar bond's role in guaranteeing its contract with Bexar County. This adversary proceeding ultimately settled, with the Bankruptcy Court for the District of Delaware approving the settlement agreement.
Bexar County contends that NGM has taken contradictory positions regarding the performance bond in both indemnity and bankruptcy proceedings, initially asserting that the bond guarantees full performance of AmCad's obligations, but now seeking a declaration of limited coverage. The County argues that this inconsistency warrants the application of judicial estoppel to prevent NGM from altering its stance. In response, NGM argues that its positions are not inconsistent; it describes its previous claim as a general statement about the bond, while its current assertion specifies that the bond's guarantee applies only to work performed during its effective period. Additionally, NGM claims that judicial estoppel is inapplicable because its earlier position was never judicially accepted due to settlement outcomes in prior cases.
Regarding the standard of review for summary judgment, the court will grant it if there is no genuine dispute over material facts, and the movant is entitled to judgment as a matter of law. The movant must either provide evidence negating the non-moving party's claims or demonstrate that the non-movant lacks sufficient evidence to support its claims. If the movant successfully establishes this, the burden shifts to the non-movant to show that summary judgment is inappropriate. The court must ensure that no reasonable jury could find in favor of the non-movant based on the evidence presented.
The court ultimately concludes that judicial estoppel applies, preventing NGM from asserting its current position, thus eliminating any genuine issue of material fact regarding the bond's construction and coverage. Consequently, summary judgment is granted in favor of Bexar County. Judicial estoppel serves to uphold the integrity of the judicial process by barring parties from shifting positions for self-serving interests.
Judicial estoppel requires two conditions: (1) the party's current position must be clearly inconsistent with its previous position, and (2) the party must have convinced the court to accept the previous position. While some cases in the Fifth Circuit have considered whether the change in position was inadvertent, this is not a focal point in the current context. The application of judicial estoppel is flexible, informed by the specifics of each case.
The first element of clear inconsistency involves whether the positions relate to the same issue. Courts typically find inconsistency when two positions are diametrically opposed regarding the same matter. For example, a company may be found inconsistent if it argues for different interpretations of overlapping insurance policies in separate cases. In contrast, inconsistency is less likely where the positions pertain to different matters or where the inconsistency is implied rather than explicit.
In the present case, NGM asserts that its positions in separate cases regarding the bond's obligations are not inconsistent. Previously, NGM claimed liability for the full bond amount of $3,800,000, but now argues that its liability should be limited to certain deliverables under the contract. NGM contends that this change merely reflects a definition of the performance guarantee rather than a contradictory legal stance. However, the Court disagrees, concluding that NGM's positions are indeed clearly inconsistent.
NGM argues that AmCad's breach of contract exposes it to full liability for a $3,800,000 bond amount and claims entitlement to indemnification for this amount. NGM's argument hinges on its prior position that the bond guarantees full performance, which means indemnity for the full amount is valid. If NGM's position were that the bond ensures only limited performance, it could not seek full indemnification. NGM attempts to draw a parallel with the GlobeRanger case, where differing contractor positions did not create inconsistencies, but distinguishes that its positions concern the same bond's scope. The court finds NGM's prior and current positions inconsistent, as they relate to a single bond rather than different guarantees.
NGM contends that the scope of the bond was not contested in earlier indemnity and bankruptcy proceedings, but the court notes that judicial estoppel does not depend on whether an issue was contested. The court finds that NGM's prior claims regarding the bond's full coverage have indeed raised the issue of the bond's scope.
Regarding judicial estoppel, the second requirement is that the party must have persuaded the court to accept its previous position, which protects judicial integrity by preventing contradictory positions. The Fifth Circuit's interpretation of this requirement is uncertain. In Hall v. GE Plastic, the court suggested that a party could meet this requirement by intending to induce reliance, regardless of the outcome. However, subsequent rulings indicate a preference for actual acceptance by the court, whether preliminary or final. In ordinary civil cases, settlements do not necessitate judicial acceptance of positions, thus judicial estoppel may not apply in later proceedings.
The Fifth Circuit's decision in Prideaux established that a district court did not abuse its discretion by declining to apply judicial estoppel when a party took a conflicting position in later litigation following a settlement. The prior case had settled early, with only initial pleadings filed, no pre-trial motions presented, and no hearings or sworn testimony given, meaning the party had not successfully established any prior position, and there was no judicial acceptance. NGM contends that its positions were never judicially accepted because both the indemnity and bankruptcy cases settled. This claim is supported by undisputed facts: the indemnity proceeding settled after a magistrate judge's report indicated acceptance of NGM’s position, and the bankruptcy proceeding also settled with court approval.
The court determined that Judge Davis' report and recommendation did constitute judicial acceptance of NGM's earlier position, as acceptance by a magistrate judge is inherently judicial. This aligns with judicial estoppel's purpose of maintaining the integrity of the judicial process by preventing opportunistic behavior from parties. Recognizing a magistrate judge's findings as judicial acceptance discourages parties from altering their factual or legal stances for personal gain. The court contrasted this situation with Prideaux, where the case settled before significant legal proceedings, thus justifying the application of judicial estoppel here due to the advanced stage of litigation that included sworn testimony and a magistrate's report.
Additionally, the court found that the bankruptcy court accepted NGM's inconsistent position, also warranting judicial estoppel. Although the timing of the bankruptcy settlement approval was unclear, it occurred after AmCad filed its answer, and there is limited precedent in the Fifth Circuit regarding judicial acceptance through bankruptcy court settlements. Consequently, NGM is judicially estopped from claiming that the bond guarantee is limited, resulting in Bexar County being entitled to summary judgment.
The Sixth Circuit differentiates bankruptcy settlements from ordinary civil settlements due to the multitude of interests involved, particularly the necessity for bankruptcy courts to protect all creditors' interests. When a bankruptcy court approves a payment based on a party's position, this constitutes sufficient "judicial acceptance" to prevent that party from later adopting an inconsistent stance, as established in Reynolds v. C.I.R. Additionally, a Fifth Circuit court has similarly recognized that court-approved settlements imply judicial acceptance for estoppel purposes. In the current bankruptcy proceeding, the need for court approval safeguards the rights of absent parties, preventing manipulation of the judicial process by allowing conflicting positions during settlements. Consequently, the court applies judicial estoppel against NGM due to its positions in the bankruptcy case and the court's approval of the associated settlement.
As a result, Bexar County is granted summary judgment, declaring that the penal bond's scope is not limited by the deliverables under the Agreement or their timeframe, but solely by the penal sum of the bond. NGM's Motion for Summary Judgment is denied, and the case remains open for Bexar County’s counterclaim for breach of contract. The court will consider Bexar County's response and cross-motion for summary judgment together. Judge Davis mandated that approximately $3,800,000 in collateral be posted, considering NGM's settlements on the Rockwall Bond. NGM's claimed exposure under the Bexar Bond was $3,800,000, and it had settled the Rockwall claims for $273,248, asserting a total liability floor of $4,073,248 against AmCad for breaches. The Fifth Circuit's requirement for judicial estoppel applies when non-disclosure of a claim occurs in prior bankruptcy proceedings.
The parties' briefing only addresses the first two elements relevant to judicial estoppel, resulting in a waiver of the issue of inadvertence. Consequently, the court will focus solely on these two factors. Courts typically assert that mere implied inconsistencies do not warrant judicial estoppel, yet they have also recognized that implied positions can indicate inconsistency. In this case, the debtors had a duty to disclose their personal-injury claim to the bankruptcy court but failed to do so, implying they had no such claim. This significant inconsistency meets the first prong of the judicial estoppel test. Examples from case law include Trinity Marine Productions, which found no inconsistency in the differing strengths of plaintiffs' cases, and Phillips v. City of Dallas, which ruled that differences in the application of ethics codes did not create inconsistency. The Sixth Circuit’s interpretation of judicial acceptance has been favorably cited by the Fifth Circuit, while the Southern District of Mississippi's application of the Hall standard for judicial acceptance, though disfavored, provides useful distinctions between court-approved settlements and typical civil settlements.
