M.T.I., INC. v. ALEXANDRIA VILLAGE LIMITED PARTNERSHIP AND CUMBERLAND SURETY INSURANCE COMPANY, INC.
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RENDERED:
SEPTEMBER 1, 2000; 10:00 a.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
1999-CA-000619-MR
M.T.I., INC.
APPELLANT
APPEAL FROM CAMPBELL CIRCUIT COURT
HONORABLE LEONARD L. KOPOWSKI, JUDGE
ACTION NO. 94-CI-00105
v.
ALEXANDRIA VILLAGE LIMITED PARTNERSHIP
AND CUMBERLAND SURETY INSURANCE
COMPANY, INC.
APPELLEES
OPINION
REVERSING AND REMANDING
** ** ** ** **
BEFORE:
BARBER, DYCHE, AND GUIDUGLI, JUDGES.
DYCHE, JUDGE.
M.T.I., Inc., brings this interlocutory appeal
from an order of the Campbell Circuit Court denying MTI's motion
to intervene in a lawsuit between Alexandria Village Limited
Partnership and Cumberland Surety Insurance Company, Inc.
We
reverse.
This case has a lengthy and somewhat tortured
procedural history.
Because all parties to this litigation are
thoroughly familiar with the course it has taken, we will merely
sketch the outline of that litigation in this opinion.
On
October 8, 1991, AVLP and J.F. Cox & Company, Inc., contracted
for Cox to develop the Alexandria Village Green Shopping Center.
MTI subcontracted with Cox to perform site work and excavation
for the project.
On November 18, 1991, Cox and MTI, as
principals, entered into two performance and payment bonds with
Cumberland Surety, each bond in the amount of $800,000.00.1
Cox
and MTI also entered into an indemnity agreement with Cumberland,
wherein Cox and MTI agreed to indemnify and hold harmless
Cumberland if the surety were required to perform on any of the
bonds.
Cox claimed that AVLP was repeatedly late with
payments, and Cox ceased work on the project on July 8, 1992.
AVLP terminated the contract with Cox for cause the following day
and assumed the role of general contractor.
On December 23,
1992, Cumberland issued a notice that AVLP had made a claim
against all three performance bonds.
On September 8, 1993, MTI filed a demand for
arbitration against AVLP, citing an ongoing pattern of late
payments.
AVLP answered and counterclaimed for an excess of
$261,761.77.
proceeding.
Cumberland elected not to participate in this
On January 31, 1994, AVLP filed its original
complaint in this action against Cumberland, alleging that Cox
and MTI had failed to perform and that AVLP was entitled to
collect on the bonds.
1
Cox entered into a third performance bond with Cumberland
in the amount of $711,802.00, on which MTI is not a principal.
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On May 18, 1994, MTI and AVLP settled their dispute
prior to the arbitration hearing.
In the agreement, the parties
mutually agreed to release the other from any and all claims
arising from the project; however, both parties indicated that
this release was not a waiver of any claims either party might
have against a third party.
AVLP continued pursuing relief from Cumberland under
the performance bonds, including the two bonds on which MTI was a
principal.
Consequently, on August 27, 1996, Cumberland filed a
separate civil action in Fayette Circuit Court seeking
indemnification from MTI.
On October 30, 1996, MTI filed a
third-party complaint against AVLP in Fayette Circuit Court,2
claiming that AVLP's suit against Cumberland was a breach of the
settlement agreement reached between MTI and AVLP because the
natural result of that suit was Cumberland's action seeking
indemnification from MTI.
AVLP was granted an extension of time
to file an answer because it was involved in mediation talks with
Cumberland and hoped to settle that mediation without becoming
involved in this companion action.
On February 7, 1997, MTI learned that the mediation talks
between AVLP and Cumberland had failed and were not to be
resumed.
On February 10, 1997, MTI filed the motion to intervene
which is the subject of this appeal.
On March 21, 1997, the
Campbell Circuit Court granted the motion, stating the following
in its order:
2
This action was transferred by the Fayette Circuit Court
to the Campbell Circuit Court on June 4, 1997.
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The claims of Alexandria Village Limited
Partnership against Cumberland Surety are
derivative of Alexandria Village's claims
against MTI, Inc. If there is no claim or
legal obligation against MTI, Inc., then
Cumberland Surety has no financial
obligation. On the other hand, if MTI, Inc.
was found to have breached its contract with
Alexandria Village then Cumberland Surety
could be required to pay Alexandria Village
as much as 2.5 million [sic] pursuant to the
bonds on which MTI, Inc. is either the
principal or guarantor. . . . MTI, Inc. is
not presently a party to this case. CR 24.01
gives MTI, Inc. a right of intervention since
the allegations by Alexandria Village are
basically a breach of contract by MTI, Inc.
The record is clear that whatever
liability is ultimately determined against
Cumberland Surety as a result of Alexandria
Village's claims in this case, Cumberland
Surety will seek complete indemnity from MTI,
Inc. with respect to such liability. Under
the circumstances, particularly in light of
the potential economic loss which could
result in this litigation against MTI, Inc.,
MTI Inc.'s application must be adjudged
timely.
MTI and AVLP each filed motions for summary judgment in
the companion case, styled Cumberland Surety Insurance Company,
Inc. v. MTI, Inc., Civil Action No. 97-CI-00702 (2nd Division).
On September 29, 1998, the court found that AVLP had reserved the
right to seek performance from Cumberland under the performance
bonds in the settlement agreement with MTI, and that the
settlement agreement in no way barred AVLP's claims against
Cumberland.
The court denied MTI's motion for summary judgment
in that case, and granted AVLP's motion for summary judgment.
The court also dismissed MTI's claims against AVLP recited in
MTI's third-party complaint.
Subsequently, AVLP filed a motion for the court to
reconsider its order allowing MTI to intervene.
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On January 6,
1999, the court reconsidered its ruling of twenty-two months
prior and vacated that order, thus denying MTI's motion to
intervene.
In contrast to the detailed explanation in its
original order granting intervention, the second order merely
stated that the court had reviewed the record and had been
sufficiently advised of the facts.
MTI's motion to reconsider
was denied, and this appeal related solely to the issue of
intervention ensued.
CR 24.01 governs intervention as of right.
That rule
states as follows:
(1) Upon timely application anyone shall be
permitted to intervene in an action (a) when
a statute confers an unconditional right to
intervene, or (b) when the applicant claims
an interest relating to the property or
transaction which is the subject of the
action and 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 that
interest is adequately represented by
existing parties.
(2) Anyone possessing a statutory right of
intervention under (1)(a) above, may move the
court to intervene in a pending action and,
on failure of a party to file an objection
within ten (10) days to the intervention and
a notice of hearing on the objection, have an
order allowing the intervention without
appearing in court for a hearing.
Thus there are four factors to be considered in a
motion to intervene:
(1) whether the motion is timely; (2)
whether the applicant has an interest in the property or
transaction that is in dispute; (3) whether the applicant's
ability to protect that interest will be impaired by the
disposition of the action absent the party's participation; and
(4) whether the applicant's interests are adequately represented
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by existing parties.
The rule is to be liberally construed "in
order to effect the purpose of intervention."
Yocom v. Hi-Flame
Coals, Inc., Ky. App., 568 S.W.2d 757, 759 (1978).
An appellate
court will affirm a trial court's denial of a motion to intervene
as of right unless the denial was erroneous.
Ashland Public
Library Board of Trustees v. Scott, Ky., 610 S.W.2d 895, 896
(1981).
The rule places no time limitation on the right to
intervene.
Timeliness is a question of fact, and its
determination is ordinarily left to the discretion of the trial
court.
Ambassador College v. Combs, Ky., 636 S.W.2d 305, 307
(1982).
In the order precipitating this appeal, however, the
trial court made no finding with regard to timeliness.
We are
therefore left to determine timeliness based on the totality of
the circumstances.
See Schultz v. Connery, 863 F.3d 551, 553
(7th Cir. 1988)(citing NAACP v. New York, 413 U.S. 345, 93 S. Ct.
2591, 37 L. Ed. 2d 648 (1973)(interpreting Fed. R. Civ. P. 24).
We believe the trial court was correct in its initial
assessment that the motion to intervene was timely.
While MTI
was aware of the litigation pending between AVLP and Cumberland,
it elected not to file a motion to intervene while mediation
talks were progressing.
We do not fault them for exercising
reasonable restraint in litigation.
Immediately after learning
that the mediation talks had failed, MTI sought to intervene.
light of all the circumstances, including the substantial
In
liability which MTI could incur as a result of this lawsuit and
the absence of the court's reasons for vacating its original
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grant of intervention, the trial court's initial determination
that the motion was timely will stand.
MTI also has an interest in the transaction that is the
subject of the dispute.
As the trial court noted, Cumberland
will only be liable on the bonds if MTI is determined to have
breached its contract with AVLP.
Pursuant to the indemnity
agreement, MTI might then be responsible to Cumberland.
Both
parties cite Gayner v. Packaging Service Corporation of Kentucky,
Ky. App., 636 S.W.2d 658 (1982), but that case aids the cause of
MTI.
In Gayner, Bernard Chapnick and Packaging Service entered
into a stock option purchase agreement.
Packaging Service
advised Chapnick that it wanted to sell its shares, and Chapnick
indicated that he wanted to purchase them.
A dispute arose, and
Packaging Service sued Chapnick seeking a declaration of rights.
Gayner, a prospective financial backer for Chapnick, sued
Packaging Service and sought to intervene in the Packaging
Service/Chapnick suit.
The Court denied intervention because
"Gayner was a total stranger to the employment contract . . .
which contained the stock option purchase."
The Court ruled that
Gayner was not a third party beneficiary of that employment
agreement.
Id. at 659-60.
The relationships between the parties in the present
case are much more intertwined than those in Gayner.
MTI was a
subcontractor in AVLP's proposed development, and MTI was a
principal on two bonds for which Cumberland was surety.
not situated as a total stranger to the AVLP/Cumberland
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MTI is
litigation, as Gayner was.
Therefore, MTI has an interest in the
transaction that is the subject of this litigation.
Similarly, MTI's ability to protect that interest will
be impaired if the motion to intervene is denied.
AVLP contends
that MTI's interest is merely contingent or speculative.
Generally, however, "[t]he liability of a surety arises only upon
the nonperformance of the underlying promise by the principal and
is, therefore, secondary in nature."
Taylor Building Corporation
v. Boutcher, Ky. App., 836 S.W.2d 455, 457 (1992).
In order for
AVLP to succeed against Cumberland, it must show that MTI
breached its contractual obligation to AVLP.
To suggest that
MTI's resultant interest in the litigation between AVLP and
Cumberland is remote or contingent strains credulity.
Preventing
MTI from participating in the litigation that will determine
whether it breached its contract would significantly impair or
impede MTI's interest.
The only remaining question is whether MTI's interests
are adequately represented by existing parties.
MTI contends
that its interests are similar, but not identical, to
Cumberland's, and that the divergence of interests is sufficient
to justify granting the motion to intervene.
AVLP counters that
since Cumberland and MTI are seeking the same outcome — namely,
to avoid paying on the bonds — then MTI's interests are already
fully represented in the litigation.
The question of who bears the burden of showing that
there is adequate representation of a party's interests has not
been directly addressed by courts in the Commonwealth.
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The
United States Supreme Court, examining Fed. R. Civ. P. 24, stated
that "[t]he requirement of the Rule is satisfied if the applicant
shows that representation of his interest 'may be' inadequate;
and the burden of making that showing should be minimal."
Trbovich v. United Mine Workers of America, 404 U.S. 528, 538
n.10, 30 L. Ed. 2d 686, 694, 92 S. Ct. 630, 636 (1972).
In light
of this statement, and of the proposition that the rule is to be
liberally construed in order to effect intervention, Yocom,
supra, we believe that applicants for intervention need only show
the potential for inadequate representation.
See Grutter v.
Bollinger, 188 F.3d 394, 400 (6th Cir. 1999).
MTI contends that its interests are not adequately
represented by Cumberland in that Cumberland will be defending
the action so as to position itself to recover from MTI under the
indemnity agreement.
MTI also asserts that it is in its
interests to have recovery limited to the one bond on which it is
not a principal, while Cumberland has no similar interest in
determining the bonds on which AVLP might be entitled to recover.
As such, MTI has shown a sufficient potential for inadequate
representation to allow intervention.
AVLP cites Rosenbalm v. Commercial Bank of Middlesboro,
Ky. App., 838 S.W.2d 423 (1992), and Pearman v. Schlaak, Ky., 575
S.W.2d 462 (1978), as cases which require a proposed intervenor
show that its interests are not represented by existing parties,
as opposed to the more relaxed standard that the interests may
not be represented.
Those cases are inapposite to this action.
In Rosenbalm, this Court reversed a circuit court decision that
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the intervenors' interests were adequately represented by a
receiver, noting that a receiver represents no party in
litigation, but is merely a representative of the appointing
court.
838 S.W.2d at 429.
Pearman dealt with post-judgment
intervention (which requires a special burden in excusing the
lack of timeliness), and whether a party was required to appeal
from an adverse judgment in order to adequately represent the
interests of a non-party.
575 S.W.2d at 463.
Finally, AVLP argues that MTI failed to file a pleading
setting forth the claim or defense for which it sought
intervention.
MTI did file a pleading as an attachment to its
motion to alter, amend, or vacate the trial court's January 6,
1999, order.
Further, MTI's pleadings throughout the nearly two
years it was a party to this litigation provided ample notice to
AVLP of the nature of MTI's claims.
AVLP has not demonstrated, and we have been unable to
discern, any possible prejudice to AVLP by allowing MTI to
intervene.
The trial court erred in vacating its order allowing
intervention and removing MTI as an intervening party after
twenty-two months of participation.
The judgment of the Campbell Circuit Court is reversed,
and this case is remanded for further proceedings consistent with
this opinion.
ALL CONCUR.
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BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE
ALEXANDRIA VILLAGE LIMITED
PARTNERSHIP:
Richard M. Sullivan
Edward F. Busch
Louisville, Kentucky
Joseph L. Trauth, Jr.
W. Keith Noel
Daniel E. Izenson
Cincinnati, Ohio
ORAL ARGUMENT FOR APPELLANT:
Richard M. Sullivan
Louisville, Kentucky
ORAL ARGUMENT FOR APPELLEE
ALEXANDRIA VILLAGE LIMITED
PARTNERSHIP:
Daniel E. Izenson
Cincinnati, Ohio
BRIEF FOR APPELLEE
CUMBERLAND SURETY INSURANCE
COMPANY:
Harry D. Rankin
Jerrold R. Perchik
Covington, Kentucky
ORAL ARGUMENT FOR APPELLEE
CUMBERLAND SURETY INSURANCE
COMPANY:
Harry D. Rankin
Covington, Kentucky
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