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Ohio Farmers Insurance Company v. Graham

May 3, 2012

OHIO FARMERS INSURANCE COMPANY, PLAINTIFF AND COUNTER-DEFENDANT,
v.
GRAHAM CONSTRUCTION SERVICES, INC. DEFENDANT AND CROSS-DEFENDANT,
v.
ADVENTURE DIVERS, INC. DEFENDANT, CROSS-CLAIMANT, AND COUNTER-CLAIMANT.



The opinion of the court was delivered by: Daniel L. Hovland, District Judge United States District Court

ORDER DENYING GRAHAM CONSTRUCTION SERVICES' MOTION TO DISMISS AND STAYING ALL FURTHER FEDERAL COURT PROCEEDINGS

Before the Court is Graham Construction Services, Inc.'s ("Graham Construction") "Motion to Dismiss Complaint of Ohio Farmers Insurance Company and Cross Claim of Adventure Divers, Inc." filed on November 15, 2011. See Docket No. 16. For the reasons set forth below, the Court denies Graham Construction's motion, abstains from exercising jurisdiction in this dispute under the Federal Declaration Judgment Act, and stays all further proceedings in federal court until a final resolution of the parallel state court proceedings in Minnesota has occurred.

I. BACKGROUND

Graham Construction Services, Inc. is a construction company with its principal place of business in Eagan, Minnesota. See Docket No. 1, p. 1. Ohio Farmers Insurance Company is a commercial surety company with its principal place of business in Westfield, Ohio. Adventure Divers, Inc. ("ADI") is a North Dakota corporation engaged in the business of underwater contracting, with its principal place of business in Minot, North Dakota.

On or about November 7, 2008, Graham Construction entered into a contract with the Standing Rock Sioux Tribe for the construction of a fresh water intake structure known as the Indian Memorial Intake Phase 1, in Mobridge, South Dakota. Graham Construction entered into a subcontract with ADI in which ADI agreed to perform underwater work on the Mobridge project. The contract between Graham Construction and ADI contains the following choice of law and forum selection clauses:

This Subcontract shall be governed by the laws of the State in which contractor is incorporated. Contractor shall have the exclusive and unilateral right, at its option, to require that the venue for any legal action under this Subcontract be in the State of its incorporation Superior Court of its choosing, or in the county that the Project is located, and Subcontractor expressly agrees to Contractor's exercise of such option. See Docket Nos. 18-1 and 18-2.

The contract between Graham Construction and ADI requires ADI to obtain and deliver a performance bond which named Graham Construction as the obligee. ADI obtained a performance bond from Ohio Farmers Insurance. The bond contains a choice of law and forum selection clause which provides that "[a]ny proceeding, legal or equitable, under this bond may be instituted in any court of competent jurisdiction in the location in which the work or part of this work is located . . . ." See Docket No. 18-4. Thus, the contract provides that Minnesota law governs the contracts and grants Graham Construction the exclusive right to select the forum for any litigation under the contracts.

On or about October 1, 2009, Graham Construction entered into a contract to construct a fresh water intake structure for the City of Parshall, North Dakota. On or about December 2, 2009, Graham Construction entered into a subcontract agreement with ADI. See Docket No. 18-3. An identical choice of law and forum selection clause as appears in the Mobridge contract also appears in the Parshall contract. See Docket No. 18-3. ADI was required in the Parshall contract to obtain and deliver a performance bond which named Graham Construction as the obligee. ADI again obtained a performance bond from Ohio Farmers Insurance. See Docket No. 18-5. The bond contains an identical forum selection clause as the Mobridge project bond agreement. See Docket No. 18-5.

Problems arose during the work conducted at both the Mobridge and Parshall projects which gave rise to this action. This dispute arises out of the two contracts entered into between Graham Construction and ADI.

The record reveals that Ohio Farmers Insurance claims that ADI was required to dredge 50-square feet of a lake bed and attach a water intake screen in the Mobridge contract. See Docket No. 1, p. 3. ADI discovered that, unlike the conditions described in the project plan which claimed the lake bed was primarily silt and loose mud, the lake bed was composed of hard clay. ADI notified Graham Construction of the unexpected conditions and sought to review alternative plans with Graham Construction and the Standing Rock Sioux Tribe, the owners of the Mobridge project. The parties did not reach an agreeable resolution. ADI completed the work nonetheless. Ohio Farmers Insurance contends that Graham Construction owes ADI at least $662,306.90 for work completed on the Mobridge project. As to the Parshall project, Ohio Farmers Insurance contends that ADI was obligated to assist with the drilling of two pipe lines, supply and install an intake screen structure, and supply and install a waste outlet structure. See Docket No. 1, p. 5. Graham Construction allegedly delayed ADI's access to the project site from the summer of 2010 to the winter of 2010-2011, which ADI claims was a substantial change considering the additional work and precautions required for winter underwater diving. Graham Construction allegedly requested that ADI complete work in addition to the obligations set forth in the contract. Ohio Farmers Insurance alleges that Graham Construction failed to pay ADI for any work performed on the Parshall project. In addition to the failure to pay, Ohio Farmers Insurance contends that Graham Construction interfered with ADI's performance by failing to coordinate, supervise, or direct the subcontractors working on the Parshall project.

Graham Construction contends that ADI failed to timely and properly complete the contracted work on the Mobridge project. See Docket No. 17, p. 3-4. In late November 2010, ADI notified Graham Construction and the Standing Rock Sioux Tribe that ADI believed it had completed the work. However, the work apparently did not meet the contract specifications and ADI's work failed inspection. The Standing Rock Sioux Tribe provided an extension of time to complete the project, but ADI's work allegedly failed to meet the specifications a second time. Graham Construction terminated ADI from the Mobridge project and hired a replacement contractor to complete the project. As to the Parshall project, Graham Construction claims that the contract required ADI to complete its work by the fall of 2010. See Docket No. 17, p. 5. Graham Construction granted a time extension to ADI to complete the work by March 31, 2011, "pursuant to a revised schedule." Graham Construction terminated ADI from the Parshall project after ADI failed to complete its work by May 2011, and hired a replacement contractor to complete the project.

On October 11, 2011, Ohio Farmers Insurance filed a declaratory judgment action in federal court in North Dakota. See Docket No. 1. Ohio Farmers Insurance claims that ADI met its obligations under the contracts for the Parshall and Mobridge projects, and requests the Court declare that (1) it owes nothing to Graham Construction under the performance bonds, or (2) in the alternative, that Ohio Farmer Insurance's aggregate liability to Graham Construction is limited to the penal sum of the bond agreements and any amount owed to Graham Construction is subject to a set-off from what Graham Construction may owe ADI.

On November 9, 2011, ADI filed a "Separate Answer of Adventure Divers, Inc., to Complaint, Counterclaim Against Ohio Farmers Insurance Company, and Cross Claim Against Graham Construction, Inc." See Docket No. 15. ADI's cross-claim alleges that Graham Construction breached the contracts.

On November 14, 2011, Graham Construction filed an action in Minnesota state court against ADI and Ohio Farmers Insurance. See Docket No. 18-9. Graham Construction alleges that ADI breached the contracts and Ohio ...


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