HomeMy WebLinkAboutAgenda Report - July 5, 2006 E-09AGENDA ITEM EA
CITY OF LODI
COUNCIL COMMUNICATION
TM
AGENDA TITLE: Authorize the City Manager to execute a Settlement Agreement in the matter of
Michels Corporation d1b/a Michels Pipeline (Gelco Services ...) v. Crutchfield
Construction Company, et al., San Joaquin County Superior Court Case No.
CV 028006, regarding the City's Water and Wastewater Main Replacement
Program, Project No. 2.
MEETING DATE: July 5, 2006
PREPARED BY: Janice D. Magdich, Deputy City Attorney
RECOMMENDED ACTION: Authorize the City Manager to execute a Settlement Agreement in the
matter of Michels Corporation d/b/a Michels Pipeline (Gelco Services ...) v.
Crutchfield Construction Company, et al., San Joaquin County Superior
Court Case No. CV 028006, regarding the City's Water and Wastewater
Main Replacement Program, Project No. 2.
BACKGROUND INFORMATION: Michels Corporation d/b/a Michels Pipeline (Gelco Services . . .)
brought an action in San Joaquin County Superior Court (the Action) against Crutchfield Construction
Company, its bonding companies and the City based on a Stop Notice filed by Michels (a sub -contractor
of Crutchfield) concerning the City's Water and Wastewater Main Replacement Program, Project No. 2
(the Project).
A settlement of the Action has been reached by the parties in which Michels will be paid under the
Project payment bonds in consideration for the dismissal with prejudice of the pending Action. Under the
terms of the settlement, City will pay the balance owing under the Project contract to Fidelity and
Guaranty Insurance Company (FGIC) (Crutchfield's bonding company), based in part on securing
releases for all but one Project stop notice. As to the remaining Project stop notice, all but the sum of
$1,164.59 has been paid by FGIC to A. Teichert & Sons. A dispute exists between FGIC and A. Teichert
& Sons as to the remaining balance. In consideration for City's payment of the contract balance to FGIC,
FGIC, under the terms of the Settlement Agreement, shall defend and indemnify the City from and
against any claims, demands, suits, or damages arising out of such payment. This office is of the opinion
that a suit by Teichert for additional payment under its stop notice is unlikely.
Execution of the Settlement Agreement, a copy of which is attached, will resolve the pending Action.
FUNDING: Norte, over and above the balance owing under the previously approved Project contract.
k
ce D. agdichC
Attorney
Attachment - Proposed Settlement Agreement
City/Cou nCOM/Misc/CrutchfieldM ichaels$ettlement.doc
APPROVED:
Blair Kiny, City Manager
SETTLEMENT AGREEMENT
1. DATE Of AGREEMENT: The effective date of this agreement ("Agreement")
is May 3, 2406.
2. PARTIEa TO AGREEMENT: This Agreement is made by and between the
following parties (collectively, the "Parties"):
A. MICHELS CORPORATION, [d/b/a MICHELS PIPELINE
CONSTRUCTION (telco Services, a Division of ...)] ("MICHELS")
Plaintiff is the Action
Michels Corporation
Michels Pipeline Construction
817 W. Main Street
Brownsville, WI. 53006
With a copy to MICHELS' attorneys:
Pamela A. Lewis, Esq.
Cook Brown, LLP
555 Capitol Mall, Suite 425
Sacramento, California 95814
A. David Stegeman
Chief Legal Officer
Michels Corporation
817 Brownsville, WI. 53006
B. CRUTCHFIELD CONSTRUCTION COMPANY ("CRUTCHFIELD")
Defendant in the Action
Harold Crutchfield
Crutchfield Construction Company
2655 E. Miner
Stockton, California 95205
With a copy to CRUTCHFIELD's attorney:
Michael E. Babitzke, Esq.
6 South El Dorado Street, Suite 305
Stockton, California 95202
C. FIDELITY AND GUARANTY INSURANCE COMPANY ("FGIC") and
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
("USFGC") Defendants in the Action
Pete Fjellstad and Sherri Cooper
St. Paul Travelers Bond
31919 First Avenue South, Suite 100
Federal Way, Washington 98003
Revised Settlement Agreement 5-3-06
Settlement Agreement
with copy to FGIC's and USFGC's attorney:
Jonathan J. Dunn, Esq.
Michael E. Fox, Esq.
Sedgwick, Detert, Moran & Arnold LLP
3 Park Plaza, 17th Floor
Irvine, California 42614
D. CITY OF LODI
Defendant in the Action
Janice D. Magdich
Deputy City Attorney
City of Lodi
333 E. Pine Street
Lodi, California 95240
3. PURPOSE OF AGREEMENT: The purpose of this Agreement is to record the
terms of the Parties' agreement to settle MICHELS' claims against CRUTCHFIELD, LODI,
FGIC, and USFGC set forth in the complaint filed in the Superior Court of the State of
California, County of San Joaquin, Case No. CV028006 (the "Action"). Attached herewith as
Exhibit "1," and incorporated herein by this reference, is a true and correct copy of MICHELS'
complaint.
4. ACKNOWLEDGMENTS: The Parties acknowledge that none of the Parties
have been induced to execute this Agreement by any representations, agreements, or
understandings not expressly contained in this Agreement. For example, but without limitation,
each of the Parties acknowledge and affirm that no inconsistent or conflicting understanding,
agreement, or representation has been made by, or on behalf of, any of the other Parties with
respect to the following: (a) the Agreement's payment provisions; (b) further accommodations
for any of the Parties; (c) any modifications or alterations to this Agreement; or (d) this
Agreement's enforceability, terms, and/or conditions. Furthermore, the Parties hereby
acknowledge and affirm that the recitals herein are contractual and not merely recital.
RECITALS
1. CITY OF LODI and CRUTCHFIELD entered into a written agreement (the
"Prime Contract") for a public work of improvement known as "City of Lodi's Water and
Wastewater Main Replacement Program, Project No. 2" (the "Project").
2. CRUTCHFIELD signed a General Agreement of Indemnity ("Indemnity
Agreement") as a partial inducement for FGIC to issue construction bonds on CRUTCHFIELD's
behalf.
3. FGIC issued a payment bond ("Payment Bond") on behalf of its principal,
CRUTCHFIELD, related to the Project.
Revised Settlement Agreement 5 -3-06 2
Settlement Agreement
4. Pursuant to the Indemnity Agreement, CRUTCHFIELD assigned FGIC all of its
rights, titles, and interests to all monies on FGIC bonded projects, including, but not limited to,
the Project.
5. MICHELS' alleges that MICHELS is, and at all relevant times was, a corporation
(a) duly organized and existing under and by virtue of the laws of the State of Wisconsin, (b)
authorized to do business in the State of California, and (c) properly licensed as a construction
contractor in the State of California.
6. MICHELS' further alleges that on or about August 24, 2004, it entered into a
written subcontract agreement ("Subcontract") with CRUTCHFIELD to perform construction
services at the Project.
7. MICHELS' further alleges that MICHELS assumed and obtained all rights to the
Gelco Services, Inc.'s May 12, 2004 proposal and any subsequent subcontract relationship with
CRUTCHFIELD related to the Project when MICHELS purchased the assets of Gelco Services,
Inc. in July 2004 at which time the Gelco Services assets purchased became owned and operated
by MICHELS.
8. MICHELS' further alleges that MICHELS furnished labor, services, equipment
and/or materials related to the installation of pipe and sewer laterals at the Project, inter alga.
9. MICHELS' further alleges that CRUTCHFIELD agreed to pay MICHELS for its
work at the Project.
10. MICHELS' further alleges that CRUTCHFIELD issued various change/extra
work orders to MICHELS and MICHELS performed same.
11. MICHELS' further alleges that MICHELS has performed all conditions,
covenants and promises under the Subcontract
12. MICHELS' further alleges that the reasonable value of all labor, services
equipment and/or materials, including all alleged change/extra work orders, that MICHELS
provided to the Project is $433,678.13.
13. MICHELS' further alleges that MICHELS was paid $123,388.67 by
CRUTCHFIELD and no more relaxed to MICHELS' work and materials supplied to the Project.
14. MICHELS' further alleges that CRUTCHFIELD breached the Subcontract by
failing to make payment due to it for work performed and materials supplied by MICHELS to
the Project.
15. MICHELS' further alleges that MICHELS has been damaged in the principal sum
of $310,289.46, plus interest, statutory prompt payment penalties, attorney fees, and costs.
16. MICHELS' further alleges that MICHELS properly served a stop notice ("Stop
Notice"), totaling $238,252.01, and complied with all statutory and procedural requirements
related to stop notices.
Revised Settiement Agreement 5 -3-06 3
Settlement Agreement
17. MICHELS' further alleges that FGIC issued the Payment Bond to provide for the
payment of MICHELS' claims against the payment bond for materials and labor supplied to the
Project by MICHELS and for such statutory prompt payment penalties, interest, attorney's fees
and costs as the payment bond surety may be obligated to pay pursuant to law and that
MICHELS complied with all statutory requirements for recovery under said payment bond.
18. MICHELS further alleges that USFGC issued a contractor license bond ("License
Bond"), subjecting USFGC to liability for CRUTCHFIELD's alleged violations of various
provisions of California Business and Professions Code §7000 et. seq., and that USFGC is liable
for CRUTCHFIELD's alleged violations of same.
19. Defendants CRUTCHFIELD, FGIC and USFGC filed an answer denying Plaintiff
MICHELS' claims as stated in the Action.
20. FGIC made the following payments, totaling $75,951.62, to the following
CRUTCHFIELD subcontractors and suppliers on the Project: (a) $58,355.47 to Edward S.
Walsh Co.; (b) $6,277.50 to Johnson Concrete Sawing; (c) $7,009.21 to Teichert Aggregates; (d)
$4,309.44 to Trench Plate Rental Co. In exchange for said payments, FGIC received
unconditional waivers and releases from Edward S. Walsh Co. and Trench Plate Rental Co.
FGIC also received a conditional waiver from Johnson Concrete Sawing & Demo, Inc., totaling
$6,277.50. FGIC did not receive any waiver and/or release from Teichert Aggregates. Attached
herewith as Exhibit "2," and incorporated herein by this reference, are true and correct copies of
the previously mentioned checks, waivers, and releases.
21. Due to the uncertainty and expense of litigation, the parties desire to settle,
compromise, resolve, the claims except as noted herein below.
NOW THEREFORE, in consideration of the mutual promises provided herein, and for
other good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Parties agree as follows:
A. PAYMEM TO NUCHELS: FGIC or USFGC shall pay MICHELS Three
Hundred Forty -Eight Thousand Dollars ($348,000.00) ("Settlement Payment") on or before May
25, 2006, or the date of this Agreement, whichever is sooner. Counsel for Michels shall hold
such payment in trust pending all parties' signature of this Agreement.
B. PAYMENT TO FDIC: The CITY OF LODI represents, and FGIC relies
thereon, that as of the date of this Agreement: (a) the amount of the Prime Contract, including all
approved change orders, is the sum of $2,260,983.71; (b) the CITY OF LODI has previously
paid CRUTCHFIELD the amount of $1,870,686.70; (c) the CITY OF LODI is holding as
retainage on account of stop notices the sum of $391,528.18; and (d) the CITY OF LODI is
holding the sum of $19,450.83 as Progress Payment No. 11, pursuant to the terms of the Prime
Contract and applicable law. Thus, the "Contract Balance" is $410,979.01 (amount of Prime
Contract including change orders, less amounts previously paid), which should equal all amounts
withheld. The CITY OF LODI shall pay to FGIC the Contract Balance within thirty days from
the date of this Agreement. CRUTCHFIELD hereby consents to the CITY OF LODI's payment
of all Contract Balance to FGIC.
Revised Settlement Agreement 5 -3-46 4
Settlement Agreement
C. FGIC'S CEMENT TO REEEND AND INL!EMNIEY: In exchange for
the CITY OF LODI's payment of all Contract Balance to FGIC, FGIC shall defend and
indemnify the CITY OF LODI from and against any claims, demands, suits, or damages arising
out of the CITY OF LODI's payment to FGIC by stop notice claimants Johnson Concrete
Sawing and A. Teichert & Sons. The CITY OF LODI hereby consents to joint representation in
the event defense of such claims is needed, and will reasonably waive any conflicts of interested
requested from joint counsel of FGIC's selection related to such defense.
D. DI MISS OF CTION WITH PREJ C : Within five (S) days of the
successful negotiation of the Settlement Payment, MICHELS shall file a dismissal with prejudice
of the entire Action and supply endorsed copies of said document to counsel for each party.
E. AUTHOINTY: Each of the Parties represents that it is authorized to consent to,
to execute, and to perform this Agreement.
F. NO ASSIGNMENTS: Each of the Parties represents that it is the sole and lawful
owner of all rights, title, and interest in, and to, all rights and claims released or assigned by this
Agreement, and that it has not assigned, or transferred, any rights, title, and/or interest to any
other person or entity. Further, each of the Parties to this Agreement represents that its
obligations under this Agreement do not violate any agreement with any third party to which it is
bound.
G. RELEASES:
1. MICHELE' RELEASE: Immediately upon successful negotiation of the check
for the settlement payment described above, MICHELS and its heirs, legal successors, assigns,
subsidiaries, divisions or affiliates, grantees, agents, and/or representatives, with the exceptions
noted in K, below, does hereby release and discharge the CITY OF LODI, CRUTCHFIELD,
FGIC, and USFGC, including any and all of their respective agents, servants, subsidiaries,
divisions, or affiliates, employees, attorneys, representatives, predecessors, successors, assigns
and assignors from any and all claims, demands, actions, causes of action, obligations, costs,
expenses, attorneys' fees, expert witness or consultant fees, damages, penalties, interest, losses
and liabilities of whatsoever kind, nature or character, known or unknown, suspected or
unsuspected, matured or contingent, which in any way concern or relate to the Subcontract or
work and materials supplied thereunder, the Payment Bond, the License Bond, the Stop Notice,
and the Action.
2. CRUTCHIIELD'SRELEASE: With the exceptions noted in K, below,
CRUTCHFIELD, and its heirs, legal successors, assigns, subsidiaries, divisions or affiliates,
grantees, agents, insurers, sureties and/or representatives, does hereby release and discharge
MICHELS including any and all of its respective agents, servants, subsidiaries, divisions, or
affiliates, employees, attorneys, representatives, predecessors, successors, assigns and assignors
from any and all claims, demands, actions, causes of action, obligations, costs, expenses,
attorneys' fees, expert witness or consultant fees, damages, penalties, interest, losses and
liabilities of whatsoever kind, nature or character, known or unknown, suspected or unsuspected,
matured or contingent, which in any way concern or relate to the Subcontract or work and
Revised settlement Agreement 5 -3-04 5
Settlement Agreement
materials supplied thereunder, the Payment Bond, the License Bond, the Stop Notice, and the
Action.
H. CIVIL CARE §37&2 RELEASES AND STOP NOTICE: Immediately upon
receipt of the payment described above, MICHELS will execute and deliver to FGIC and
USFGC's counsel, a "Conditional Waiver and Release Upon Payment" and shall execute and
deliver a California Civil Code §3262 "Unconditional Release Upon Final Payment"related to
the amount of the settlement payment upon successful negotiation of the settlement payment.
1. ASSIGNIgNT OF S LOP NOTICES: MICHELS assigns all rights in its Stop
Notice to FGIC and USFGC. MICHELS shall provide the CITY OF LODIwith an executed
"Conditional Waiver and Release" regarding the Stop Notice, and/or an Unconditional Waiver
and Release "on condition that any unconditional release be held in trust by the CITY OF LODI
and is not effective until and unless MICHELS receives and successfully negotiates the
settlement payment from FGIC and USFGC. FGIC and USFGC will only pursue assigned rights
in their own names.
J. CIVIL CODE 1542: MICHELS, CRUTCHFIELD, FGIC AND USFGC
acknowledge that they are familiar with California Civil Code § 1542, which provides as follows:
A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him, must have
materially affected his settlement with the debtor.
MICHELS, CRU'TCHFIELD, FGIC AND USFGC waive, release, and otherwise
relinquish any and all rights and benefits which they may have thereunder, or which may be
conferred upon them by the provisions of §1542, against each other, other than those limitations
on releases and/or reserved claims noted in K, herein below.
K. LIMITAJUONS ON RELEASESIRESERVED CLAIMS: The Parties do not
intend, and this Agreement should not be construed, to release, discharge, or extinguish any
obligations arising by statute, contract, equity, or otherwise which CRUTCHFIELD may owe to
FDIC, USFGC, and/or their related companies, or the CITY OF LODI. Any and all such
obligations are reserved by this Agreement. Additionally, the Parties do not intend, and this
Agreement should not be construed, to release, discharge, or extinguish any rights arising from
statute, contract, equity, or otherwise which FGIC, USFGC, and/or their related companies, or
the CITY OF LODI, have against CRUTCHFIELD. Any and all such rights are reserved and
affirmed by this Agreement. Finally, no party releases any claims related to claims for or arising
out of any latent deficiencies in the work performed or materials supplied to the Project or claims
related to any third party claims for property damage or personal injury but acknowledge and
represent that they presently are unaware of any such claims.
L. CONDITJONAL COVENANTS: Each Parties' obligations, covenants, and
promises under this Agreement are expressly conditioned upon the performance of the other
Parties' obligations, covenants, and promises.
Revised Settlement Agreement 5 -3-Q6 6
Settlement Agreement
A BINDING AGREEMENT: This Agreement shall be binding upon, and shall
inure to, the Parties and their heirs, executors, administrators, representatives, successors,
assigns, agents, servants, employees, attorneys, and predecessors.
N. CQNTINIJED J S ICTION: The Parties agree to request that the court
retain jurisdiction over them to enforce the settlement until performance in full of the settlement
terms pursuant to Cal. Code of Civ. Pro. Section 664.6.
O. GOVERMG LAW: This Agreement shall be interpreted, construed, and
enforced in accordance with, and governed by, the provisions and laws of the State of California.
P. PREVAILING PA&TY ENTITLED TO ATTORNEY'S FEFS_ The
prevailing party or parties in any dispute relating to the interpretation or enforcement of this
Agreement shall be entitled to reasonable attorney's fees from the other party or parties.
Q. FAIR AN1 REASONABLE TERMS: The Parties acknowledge that this
Agreement is fair and reasonable, and they represent that they consulted with legal counsel
before executing this Agreement.
R. NO THIN? P&RTY BENEFICIARIES_ The Parties do not intend to create
any third party beneficiaries to this Agreement. Accordingly, neither this Agreement nor any
course of conduct by any of the Parties should be construed to establish rights in any person or
entity not a Party to this Agreement.
S. COUNTERPARTS: This Agreement may be executed in counterparts.
T. ATTOMLY FEJES RELATED TO ACI N: Except as otherwise limited by
this paragraph, each of the Parties shall bear its own attorney's fees and costs in connection with
the Action. FGIC and USFGC do not waive their respective rights to recover attorney fees and
costs from CRUTCHFIELD.
U. FACSIM&E SIGNATURE: The Parties agree that facsimile copies of
signatures to this Agreement shall be treated as original signatures, binding each of the Parties to
their respective rights and obligations under this Agreement to the same extent as if such
facsimile signatures were original signatures.
V. NOTICE: Any notice required to be sent hereunder shall be sent to the
respective Parties at the addresses listed above.
W. SEVE ARLITY: In the event that one or more provisions of this Agreement
shall be declared to be invalid, illegal, or unenforceable in any respect, unless such invalidity,
illegality, or unenforceability shall be tantamount to a failure of consideration, the validity,
legality, and enforceability of the remaining provisions contained in this Agreement shall not in
any way be affected or impaired thereby.
Revised Settlement Agreement 5 -3-06 7
Settlement Agreement
X. ENTIREAGREE 'IST: This Agreement represents the whole and complete
agreement by and between the Parties and shall not be changed, modified, or abridged, except by
a subsequent written agreement executed by the Parties. The parties agree that this document
consists of negotiated language and that therefore any legal rules or provisions that provide that
ambiguities are to be construed against the drafter, are not to be enforced.
IN WITNESS WHEREOF, the Parties execute this Settlement Agreement as of the date
last written below.
DATED: May , 2006 MICHELS CORPORATION, d/b/s MICHELS
PIPELINE CONSTRUCTION (Gelco Services a
Division of ... }
By:
DATED: May , 2006
DATED: May , 2006
DATED: May , 2006
DATED: May , 2006
CRUTCHFIELD CONSTRUCTION
COMPANY
FIDELITY AND GUARANTY INSURANCE
COMPANY
THE UNITED STATES FIDELITY AND
GUARANTY COMPANY
In
CITY OF LODI, a Municipal corporation
Lo
Blair King, City Manager
Revised settlement Agreeniettt 5 -3-06 8