Frontier Insurance Company in Rehabilitation v. RLM CONSTRUCTION COMPANY and ROBERT L. McAULIFFE

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 12a0287n.06
No. 10-5780
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
FRONTIER INSURANCE COMPANY IN
REHABILITATION,
Plaintiff-Appellee,
v.
RLM CONSTRUCTION COMPANY and
ROBERT L. McAULIFFE,
Defendants-Appellants,
v.
BROOK SMITH,
Defendant-Appellee.
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ON APPEAL FROM THE UNITED
STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF KENTUCKY
Before: MARTIN, SUTTON and BALDOCK, Circuit Judges.*
SUTTON, Circuit Judge. The facts of this case are complicated, but the relevant law is not.
The district court issued two pertinent rulings: (1) It found Robert McAuliffe and his company,
RLM Construction, liable to Frontier Insurance under an indemnification agreement; and (2) it
rejected McAuliffe’s counterclaim for fraud against Frontier and its agent, Brook Smith, as a matter
of law. McAuliffe’s challenge to the indemnification ruling is moot because a later settlement
The Honorable Bobby R. Baldock, United States Court of Appeals for the Tenth Circuit,*
sitting by designation.

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between Frontier and a third party released McAuliffe from any liability. McAuliffe’s fraud claim
is barred by Kentucky’s statute of limitations. We affirm.
I.
When you sign a contract, it is a good idea to know what you are signing, as this case
illustrates. McAuliffe and a business acquaintance, Mark Campisano, are general contractors.
McAuliffe owns one company (RLM Construction) and Campisano owns two (MC Construction and
MC Management). Like other contractors, McAuliffe and Campisano often obtain project-related
payment and performance bonds, which guarantee compensation to subcontractors and to the
property owner if the general contractor fails to live up to its obligations. To convince insurance
companies to issue the bonds, contractors often sign indemnification agreements, allowing the
insurance companies to recover money from the contractors in their personal capacities in the event
the contractors’ companies default.
In 1992, MC Construction, along with Campisano, McAuliffe and their spouses, signed an
indemnification agreement with Frontier. In 1995, the same parties (except for McAuliffe’s wife),
joined by RLM Construction and MC Management, signed a similar indemnification agreement with
Frontier. The 1995 agreement obligated the parties to “indemnify and save [Frontier] harmless from
and against every claim, demand, liability, cost, charge, suit, judgment and expense which [Frontier]
may pay or incur in consequence of having executed, or procured the execution of” payment and
performance bonds for any project. R.65-10 ¶ 2. The final paragraph of the 1995 agreement
specified (in all capital letters) that:
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The indemnitors hereby acknowledge that this agreement is intended to cover any
bonds . . . heretofore or hereafter executed by [Frontier] on behalf of the indemnitors,
or any one of them, from time to time, and over an indefinite period of years, until
this agreement shall be canceled in accordance with the terms hereof.
R.65-10 ¶ 19. The agreement gave the indemnitors the right to terminate their involvement in the
agreement at any time upon ten days’ written notice to Frontier. R.65-10 ¶ 12. It also made clear
that Frontier did not need to give notice to any of the indemnitors when one of them executed bonds
covered by the agreement. R.65-10 ¶ 7. In a nutshell, the agreement put Campisano, McAuliffe and
their companies on the hook for any losses resulting from bonds executed by any of them on any
project with or without notice.
It did not take long for the flaws in this arrangement to come to light. In 1999, MC
Management agreed to serve as the general contractor at Haverford Place, an apartment project in
Georgetown, Kentucky. The contract with the property owner required MC Management to obtain
payment and performance bonds, prompting Campisano to contact Brook Smith, his insurance agent,
who arranged for Frontier to issue the bonds. Around the same time, Frontier drafted a new
indemnity agreement—one that did not include RLM or McAuliffe as indemnitors—and presented
it to Campisano. Campisano never signed the agreement, however.
The Haverford Place project encountered problems, and in December 2000 subcontractors
and suppliers complained to Frontier that they were not being paid. Frontier settled the claims for
$137,500 and sought indemnification under the 1995 agreement from MC Construction and RLM
Construction, as well as McAuliffe and Campisano and his wife. McAuliffe protested that he and
his company were not indemnitors for these bonds and had no connection to the project. Smith told
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McAuliffe that the situation “would work itself out,” R.89 at 7, but the project was never completed
and Frontier met its obligations under the bonds. In 2002, Campisano and McAuliffe signed a
separate agreement in which Campisano agreed to “indemnify and hold harmless [McAuliffe] and
any of his related entities . . . from any and all losses, expenses, damages, or costs, including
reasonable attorney fees,” stemming from the Haverford Place project. R.145 at 2.
In November 2006, Frontier sued McAuliffe, Campisano and their companies, seeking
damages under the 1995 agreement. McAuliffe filed a counterclaim against Frontier and a third-
party complaint against Smith, asserting fraud and demanding that Smith indemnify him for any
losses under the 1995 agreement. McAuliffe also sought indemnification from Campisano under
their 2002 agreement. After discovery, the district court granted summary judgment to Frontier on
its indemnification claim. It reasoned that the 1995 agreement remained in effect, that it made
McAuliffe and RLM indemnitors and that none of Kentucky law’s equitable contract defenses
applied. The district court also rejected McAuliffe’s fraud counterclaim against Frontier and Smith
on the merits.
Campisano and Frontier settled, with Frontier agreeing to release its claims against all
defendants, including McAuliffe and RLM. The district court granted McAuliffe summary judgment
on his indemnification claim against Campisano and ordered Campisano to reimburse McAuliffe
more than $96,000 for attorney’s fees McAuliffe had incurred defending himself against Frontier’s
suit. The court concluded that Campisano was not responsible for attorney’s fees McAuliffe
incurred as a result of his counterclaim.
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II.
On appeal, McAuliffe argues that the district court should not have granted summary
judgment to Frontier on its indemnification claim. But the settlement between Frontier and
Campisano renders that issue moot. Article III requires “a justiciable case or controversy” to exist
“at all stages of review, not merely at the time the complaint is filed.” United States v. Juvenile
Male, 564 U.S. ___, 131 S. Ct. 2860, 2864 (2011) (per curiam). Even on appeal, if circumstances
change such that the party seeking relief no longer can benefit from a decision in his favor, the case
must be dismissed as moot. See North Carolina v. Rice, 404 U.S. 244, 246 (1971) (per curiam).
Just so here. McAuliffe has nothing to gain from appealing the indemnification decision.
After the settlement with Campisano, Frontier released all its claims, foreswearing any effort to
collect money from RLM or McAuliffe. Even if we did what McAuliffe asks and reversed the
district court’s liability finding, he would be no better off. Cf. United States v. Carroll, 667 F.3d
742, 745–46 (6th Cir. 2012). The same goes for his appeal seeking indemnification from Smith.
Because RLM and McAuliffe owe nothing to Frontier, there is nothing for Smith to indemnify. See
Thompson v. Budd Co., 199 F.3d 799, 807 (6th Cir. 1999).
The fraud counterclaim against Frontier and Smith founders on a different shoal: Kentucky’s
statute of limitations. It requires plaintiffs to bring fraud claims within five years of accrual, Ky.
Rev. Stat. § 413.120(12), a timing prerequisite McAuliffe has not met.
A cause of action accrues when the plaintiff discovers (or with reasonable diligence should
have discovered) the factual basis for his claim. Fluke Corp. v. LeMaster, 306 S.W.3d 55, 60 (Ky.
2010). McAuliffe knew of the basis for his fraud claim—Frontier’s attempt to enforce the 1995
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indemnification agreement against him—no later than September 2001, when an attorney he had
retained wrote a letter to Frontier informing the company that McAuliffe intended to “file suit . . .
for Declaratory Judgment and damages he has sustained” as a result of Frontier’s conduct. R.78-6
at 1–2; see also R.78-7 at 2. Yet McAuliffe waited more than five years, until December 2006, to
file his claim.
Even if he waited too long to file his claim, McAuliffe responds, equitable estoppel bars
Frontier and Smith from invoking the statute of limitations. But that doctrine applies only when the
defendant has acted in a manner “calculated to mislead or deceive and to induce inaction by the
injured party.” Adams v. Ison, 249 S.W.2d 791, 793 (Ky. 1952); see also Ky. Rev. Stat.
§ 413.190(2). Frontier and Smith did no such thing. The only allegedly deceptive act McAuliffe
points to is Smith’s statement that the situation would “work itself out.” R.65-34 at 102. That
vague and isolated statement, expressing confidence that the matter would be resolved and nothing
more, cannot excuse McAuliffe’s delay in filing a claim. See Gailor v. Alsabi, 990 S.W.2d 597,
602–03 (Ky. 1999). That is especially true here given that nine months after Smith made the
statement, McAuliffe threatened to sue—a recognition that the situation would not simply resolve
itself. The statute of limitations bars the counterclaim.
III.
For these reasons, we lack jurisdiction to consider McAuliffe’s appeal except insofar as it
concerns his fraud counterclaim, and on that issue we affirm.
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