Kudsk v. Bara Inforware Inc.

          ORDER GRANTING MOTION TO TRANSFER VENUE AND DENYING AS MOOT MOTION TO DISMISS OR FOR JUDGMENT ON THE PLEADINGS RE: DKT. NOS. 52, 53

          SUSAN ILLSTON UNITED STATES DISTRICT JUDGE.

         This case is before the Court on two motions filed by use-plaintiff and counter-defendant Larry D. Kudsk, doing business as Kudsk Construction Services (“Kudsk”). The first is a motion for dismissal of counterclaims and/or for judgment on the pleadings. Dkt. No. 52. The second is a motion to dismiss counterclaims or transfer for improper venue or, in the alternative, to transfer for convenience. Dkt. No. 53. These motions came on for hearing on June 28, 2019.

         BACKGROUND

         On September 15, 2017, Kudsk filed suit in this district against defendants Bara Infoware, Inc. (“Bara”)^[1] and Fidelity and Deposit Company of Maryland (“F&D”). Dkt. No. 1. Kudsk amended the complaint the following day, bringing two claims for relief: (1) breach of written contract against Bara, and (2) action upon Miller Act payment bond against Bara and F&D. Dkt. No. 5. Kudsk alleged that on October 13, 2015, the Air Force National Guard awarded Bara a prime contract to replace the roof at Building 681 at Moffett Field in Santa Clara County, California. Id.

         ¶ 7. F&D acted as surety under the Miller Act, 40 U.S.C. § 3133, “whereby F&D guaranteed the payment to all entities supplying the labor, services and material in the prosecution of the work provided for in the Contract for the Project and all duly requested and/or authorized modifications thereto.” Id. ¶ 8. On March 27, 2016, Bara and Kudsk entered into a written subcontract agreement in which Kudsk agreed to perform the roofing work for $375, 000.00. Id. ¶ 9. Kudsk alleges “that during construction of the Project, BARA directed KUDSK to perform additional roofing work . . . and issued Change Orders to the Subcontract Agreement increasing the final amount to the sum of $443, 000.00.” Id. ¶ 10. Kudsk further alleges that Bara has since paid a portion of the total sum to Kudsk and a portion to his suppliers, but “that an unpaid subcontract balance of $93, 190.50 remains unpaid.” Id. This is the amount over which Kudsk is suing Bara and F&D.

         F&D answered the amended complaint on November 10, 2017. Dkt. No. 11. On November 29, 2017, the Court Clerk entered default against Bara. Dkt. No. 23. At the initial case management conference before this Court in January 2018, the parties indicated that the case may settle prior to trial. Dkt. No. 30. The Court then approved several requests to extend the deadline to conduct early neutral evaluation, as the parties indicated they were waiting on documents from the United States Department of Labor (“DOL”) that were not yet available and that were material to the case. Dkt. Nos. 34, 39. On June 4, 2018, upon notification that the parties had settled, the Court entered an order conditionally dismissing the case and giving the parties ninety days to inform the Court if settlement had not in fact occurred. Dkt. Nos. 41, 42. On August 30, 2018, counsel for Kudsk filed a certification that settlement had not occurred because, according to Kudsk, “Use-Plaintiff has been unable to resolve the unrelated United States Department of Labor claim, and therefore the condition precedent upon which the settled [sic] was based has not occurred, ” and asked the Court to restore this matter to its docket. Dkt. No. 43 ¶ 9.

         The Court set a case management conference for September 28, 2018. In the joint case management statement, F&D indicated that it intended to seek the Court's leave “to file a Counter-Claim against KUDSK based upon the DOL claim against KUDSK . . . . Use-Plaintiff KUDSK does not oppose this request.” Dkt. No. 45 at 2. The parties further stated, “While counsel has not yet been provided a draft copy of the proposed Counter-Claim, Use-Plaintiff KUDSK will not oppose a Motion for Leave to file a Counter-Claim based upon the DOL's wage claim against KUDSK.” Id. At the case management conference, the Court granted F&D leave to file its counterclaim, ordered that the parties complete early neutral evaluation in February 2019, and set dates for the dispositive motion hearing (June 28, 2019) and for the bench trial (August 19, 2019). Dkt. No. 46.

         On October 9, 2018, F&D filed an answer to the amended complaint and filed its counterclaim. Dkt. No. 48. That counterclaim is now the subject of the present motions to dismiss. In the counterclaim, F&D alleges the following. “Third-party Federal Solutions Group, Inc. (‘FSG') was awarded . . . six federal construction projects by the United States Air Force to be performed at Vandenberg Air Force Base” located in Santa Barbara County, California. Counterclaim ¶ 5. These included contracts to repair the entire HVAC system in Building 91-90 and to repair the fire detection system at the Temporary Living Facility (“TLF”). Id. “FSG as principal and F&D as surety executed and delivered to the United States Air Force separate Performance and Payment Bonds for each of the Vandenberg Projects, in accordance with the requirements of the Miller Act (40 U.S.C. §3131-3134).” Id. ¶ 6. In November 2017, FSG issued Letters of Voluntary Default notifying the United States that it was unable to perform or complete its work on the projects, and the United States thereafter made demand upon F&D to perform and complete performance of the construction work on the projects. Id. ¶¶ 7-8. F&D states that “[a]s completing surety, F&D will be entitled to the contract funds earmarked for the Vandenberg Projects . . . .” Id. ¶ 10. “F&D has arranged for the completion or performance of the bonded work on the Vandenberg projects through The Vertex Companies, Inc. (‘Vertex')” and Vertex “retained Kudsk to complete the work on all of the Vandenberg Projects. The HVAC Project must be completed by November 5, 2018[, ]” or in slightly less than one month from the filing of F&D's counterclaim. See Id. ¶¶ 9, 11.

         F&D alleges that Kudsk began work on the HVAC Project in May 2018 and that the agreement between Vertex and Kudsk required Kudsk to complete work on the HVAC Project by August 16, 2018. Id. ¶ 12. F&D alleges that “[b]eginning in or about July 2018, Kudsk failed to supply sufficient manpower to meet project milestones causing the project to fall behind schedule and Kudsk failed to meet the August 16, 2018 completion date on the HVAC Project.” Id. ¶ 13.

         “F&D is informed and believes that it may incur damages to the extent the HVAC Project is not delivered to the United States Air Force by November 5, 2018.” Id. ¶ 14.

         The counterclaim also raises allegations related to a contract awarded to FSG by the Federal Bureau of Prisons to re-roof buildings at the Federal Correctional Institute in Dublin, California. See Id. ¶ 15. “FSG entered into a subcontract with Kudsk, or a company controlled by Kudsk, . . . to perform work on the BOP Project[, ]” and the counterclaim alleges that Kudsk did perform such work. Id. ¶ 16. Following this work, the DOL conducted an investigation into Kudsk's compliance with prevailing wage and fringe benefit obligations related to the BOP Project and determined that Kudsk failed to pay the required prevailing wages, resulting in approximately $111, 000 in back wages owed. Id. ¶¶ 18-19. “F&D is informed and believes that Kudsk has not agreed to pay the back wages and, as a result, the DOL has issued a Withhold Request Letter requested [sic] the Contracting Officer for the United States Air Force to withhold approximately $111, 000 from payments due on the” contract for repair of the fire detection system at TLF that is part of the Vandenberg Projects. See Id. ¶ 22. As a result, the counterclaim alleges, “money that would otherwise be paid to F&D will not be available to offset the costs of completing” the contract for repair of the fire detection system at TLF. Id. ¶ 23. Moreover, “F&D is informed and believes that with the exception of the HVAC Project, Kudsk's problems with the DOL have delayed the commencement of the remaining work on the Vandenberg Projects potentially increasing F&D's completion costs to complete these projects.” Id. ¶ 24.

         F&D brings two claims for relief: (1) declaratory relief, seeking a declaration that “F&D is entitled to an offset from any amounts Kudsk proves he is owed on the Amended Complaint [in] an amount equivalent to the monies deducted from the contract funds earmarked for the Vandenberg Projects as a result of . . . the DOL withhold request” and an offset in “an amount equivalent to any damages [F&D] sustains in completing the Vandenberg Projects . . . as a result of Kudsk's failure to fulfill its obligations in completing the work on the HVAC Project;” and (2) equitable indemnity “[f]or an amount equal to any monies deducted from F&D out of the contract funds earmarked for the Vandenberg Projects as a resulting [sic] of Kudsk's labor issues and the DOL withhold request” and “[f]or any damages incurred by F&D in completing the Vandenberg Project as a resulting [sic] of Kudsk's labor issues and the DOL withhold request and its failure to fulfill its obligations in completing the work on the HVAC Project[.]” Id. at 14-15.

         On October 30, 2018, Kudsk answered the counter-complaint, alleging, among other things, that because the counterclaim contains allegations regarding the HVAC Project based in Santa Barbara County, “venue for KUDSK's Counter-Claim against Counter-Claimant FIDELITY AND DEPOSIT COMPANY OF MARYLAND . . . upon the Miller Act bond issued for the HVAC Project would be vested in the United States District Court, Southern District of California pursuant to Title 40, U.S.C. §3133(b)(3), not within the Northern District of California. To the extent F&D intends to withhold funds from KUDSK based upon these allegations, it is KUDSK's intention to file suit on the Miller Act bond in the United States District Court, Southern District of California.” Dkt. No. 50 ¶ 2.^[2]

         In the meantime, on January 17, 2019, Kudsk filed a separate action in the Central District of California, alleging breach of written subcontract against FSG, breach of the ratification agreement and action upon Miller Act payment bond against F&D, and breach of written subcontract against Vertex, all related to the Vandenberg HVAC Project. Kudsk v. Fed. Sols. Grp., No. 19-cv-00389-SVW-RAO (C.D. Cal. Jan. 17, 2019). On March 13, 2019, F&D filed a counterclaim for equitable indemnity and declaratory relief also related to construction projects at Vandenberg. According to Kudsk, the parties met and conferred regarding Kudsk's intent to file a Rule 12(b)(6) motion to dismiss, and on April 30, 2019, F&D filed an amended counterclaim. See Dkt. No. 53 at 7. In the amended counterclaim in that case, F&D ...