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United States for Use of D.D.S. Industries, Inc. v. Nauset Construction Corp.

United States District Court, D. Massachusetts

October 25, 2018

UNITED STATES for the use of D.D.S. INDUSTRIES, INC., Plaintiff,
v.
NAUSET CONSTRUCTION CORPORATION, TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA, and BENHAM DESIGN, LLC, Defendants. BENHAM DESIGN, LLC, Third-Party Plaintiff,
v.
LEIDOS ENGINEERING, LLC, Third-Party Defendant.

          MEMORANDUM & ORDER

          NATHANIEL M. GORTON UNITED STATES DISTRICT JUDGE

         This case arises out of a Miller Act claim by the United States “for the use of D.D.S Industries, Inc.” (“D.D.S. Industries” or “plaintiff”) against a general contractor and its payment bond surety for services and materials provided on a federal construction project at the Camp Edwards Unit Training Equipment Site (“UTES”) in Sandwich, Massachusetts. Plaintiff also asserts claims for breach of implied warranty and misrepresentations against the engineer on the project as well as a claim for unfair or deceptive trade practices in violation of M.G.L. c. 93A against the general contractor and engineer. Before this Court is the third-party defendant's motion to dismiss the third-party complaint for improper service of process or, in the alternative, to sever and transfer the third-party claim to the United States District Court for the District of Delaware.

         I. Background

         A. Facts

         The government entered into a contract with defendant general contractor Nauset Construction Corporation (“Nauset”) for maintenance, repair and alteration at the Camp Edwards UTES. Nauset and defendant Travelers Casualty and Surety Company of America (“Travelers”), as surety, executed a bond as required by the Miller Act, 40 U.S.C. § 3131 to secure the payment of labor and materials used in the construction project. Third-party defendant Leidos Engineering LLC (“Leidos” or “third-party defendant”) was the project engineer and as such prepared certain specifications contained within the bid documents for the project. D.D.S. Industries is a heating, ventilation and air conditioning (“HVAC”) subcontractor that entered into a subcontract with Nauset to provide labor and material for the HVAC system on the project. D.D.S. Industries based its sub-bid on information provided by Leidos in the pre-bid project specifications.

         After beginning work on the project, D.D.S. Industries discovered that Leidos's pre-bid specifications were “insufficient, inconsistent and incomplete”. Those specifications required D.D.S. Industries to make significant revisions and modifications to the designs that led to project delays and additional costs. D.D.S. Industries claims that, on the basis of a novation agreement between Leidos and defendant/third-party plaintiff Benham Design, LLC (“Benham”), Benham is responsible for the project delays and additional costs caused by Leidos's faulty pre-bid specifications.

         D.D.S. Industries partially completed the subcontract work but Nauset has refused to pay for certain work performed. D.D.S. Industries maintains that Nauset owes it $137, 780 plus interest on late periodic and final payments and costs of collection. D.D.S. Industries also asserts various state law claims against Benham for breach of implied warranty, misrepresentation and unfair or deceptive trade practices stemming from Leidos's deficient pre-bid specifications upon which plaintiff relied.

         B. Procedural History

         In October, 2016, the government on behalf of D.D.S. Industries filed its original complaint against Nauset and Travelers. In January, 2018, plaintiff filed its second amended complaint adding claims against Leidos for alleged breach of implied warranty, misrepresentation and unfair or deceptive trade practices based on the pre-bid specifications. In February, 2018, Leidos notified plaintiff that Benham was the proper party to the lawsuit pursuant to the novation agreement between Leidos and Benham, whereupon, shortly thereafter, plaintiff filed its third amended complaint substituting Benham for Leidos and asserting the same state law claims.

         In May, 2018, Benham filed its answer to the third amended complaint and a third-party complaint against Leidos for indemnification. Benham claims that in March, 2016, the Haskell Company (“Haskell”) and Leidos and certain of its subsidiaries entered into two interrelated agreements in which Haskell acquired from Leidos its interest in the subsidiaries and certain assets. Under the terms of the first agreement, the equity purchase agreement, Leidos sold its interest in four subsidiaries, including Benham, to Haskell. In the second agreement, the asset purchase agreement, Haskell purchased certain assets, properties and rights from Leidos and agreed to assume certain, but not all, of Leidos's liabilities. Leidos submits that the latter agreement also contains a forum-selection clause.

         The asset purchase agreement identified the liabilities assumed by Haskell, which included not only those liabilities set forth on the closing balance sheet but also those to be performed after the closing under the assigned contracts or any breaches or violations of the assigned contracts before the closing. Benham submits that the claims asserted by D.D.S. Industries do not fall within either class of assumed liabilities because Leidos's misconduct with respect to the pre-bid specifications occurred before the agreements with Haskell. Benham submits that D.D.S. Industries's claims are not therefore assumed liabilities but rather are excluded liabilities under the terms of the purchase agreement.

         Benham further argues that the equity purchase agreement provides that Leidos will defend, indemnify and hold harmless Haskell, its affiliates and their respective representatives from and against any losses resulting from or arising out of any excluded liability. Under the terms of the equity purchase agreement, “an affiliate” includes an entity that is controlled by Haskell and “a loss” includes judgments against Haskell or its affiliates. Benham is an entity controlled by Haskell. On the basis of the equity purchase and asset purchase agreements Benham maintains that Leidos must, therefore, indemnify Benham against any judgment resulting from D.D.S. Industries's claims. Benham also submits that Leidos has refused to indemnify Benham and thus has breached its contractual obligation under the two agreements.

         In June, 2018, Leidos filed a motion to dismiss the third-party complaint for improper service of process or, in the alternative, to sever and transfer the third-party claim to the District of Delaware. That motion is the subject of this memorandum.

         II. Motion to Dismiss Third-Party Complaint for Improper Service of Process or, in the Alternative, to Sever ...


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