952 F. Supp. 2d 1259
D.N.M.2013Background
- GAIC issued payment and performance bonds for MV Industries on a Los Alamos federal project under the Miller Act.
- MVI and indemnitors (Flinchum, the Vigils) signed an Indemnity Agreement allowing GAIC to investigate claims and to require collateral.
- CGI sued MVI and GAIC under the Miller Act for unpaid labor and materials, prompting GAIC to bring third-party indemnity and related claims.
- The Vigils counterclaimed GAIC for breach of implied covenant, UIPA, UPA, tortious interference with contractual relations, and prima facie tort.
- The court analyzes whether the Vigils’ counterclaims survive Rule 12(b)(6) dismissal, distinguishing contract vs. tort theories and whether NM law permits certain tort claims against a surety.
- Court grants GAIC’s motion to dismiss most counterclaims but allows a contract-based breach of implied covenant claim to survive.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Vigils’ covenant claim sounds in contract or tort | Vigils allege good faith breach via bad faith conduct directed at subcontractors. | Indemnity Agreement allows GAIC broad discretion; no bad faith in contract. | Contract claim viable; tort portion dismissed. |
| Whether UIPA applies to GAIC as a surety | GAIC is an insurer/surety and subject to UIPA. | Surety–principal relation is distinct from insurance; not subject to UIPA. | UIPA claim dismissed. |
| Whether NM Unfair Practices Act (UPA) applies to GAIC | GAIC violated unfair practices by inadequate service/claims handling. | No false or misleading statements; UPA targets consumer-oriented misrepresentations. | UPA claim dismissed. |
| Whether tortious interference and prima facie tort survive | GAIC interfered with subcontractor relations and misrepresented to coerce payment. | Economic losses stem from contract; no independent duty or bargain disruption. | Dismissed; economic-loss rule bars these tort claims. |
| Whether leave to amend should be granted | Amendment should be allowed if deficiencies exist. | Amendment is premature at this stage. | Leave to amend denied without prejudice. |
Key Cases Cited
- F.D. Rich Co. v. United States for use of Industrial Lumber Co., 417 U.S. 116 (1974) (Miller Act provides alternative remedy for suppliers on government projects)
- Watson Truck & Supply Co., Inc. v. Males, 111 N.M. 57, 801 P.2d 639 (1990) (contract implied good faith and fair dealing applies to performance/enforcement)
- Bourgeons v. Horizon Healthcare Corp., 117 N.M. 434, 872 P.2d 852 (1994) (breach of good faith and fair dealing recognized in non-at-will contracts)
- Heimann v. Kinder-Morgan CO2 Co., 140 N.M. 552, 144 P.3d 111 (Ct.App.2006) (insurer-insured special relationship for tort on bad faith claims)
- City of Raton v. Arkansas River Power Auth., 611 F.Supp.2d 1190 (D.N.M.2008) (issues related to contract and duty in NM law)
- Masterclean, Inc. v. Star Ins. Co., 347 S.C. 405, 556 S.E.2d 371 (2001) (principal/surety tort bad faith not allowed in some jurisdictions)
- Stevenson v. Louis Dreyfus Corp., 112 N.M. 97, 811 P.2d 1308 (1991) (knowingly false or misleading statements standard for UPA knowledge requirement)
- Lohman v. Daimler-Chrysler Corp., 2007-NMCA-100, 142 N.M. 437, 166 P.3d 1091 (NMCA 2007) (UPA consumer focus; general principles of deception)
- Kreischer v. Armijo, Ct.App.1994 (1994) (NM contract/tort distinctions and damages)
- In re Consol. Vista Hills Retaining Wall Litig., 119 N.M. 542, 893 P.2d 438 (1995) (economic loss doctrine in NM)