author: ROGERS, Circuit Judge.

text:
    Johnny H. FRAZIER; Reuben K. Salter; William A. Melhorn, Jr.; James G. Gaston, Plaintiffs-Appellants, v. CITY OF CHATTANOOGA, TENNESSEE; Chattanooga Fire and Police Pension Fund, Defendants-Appellees.
    No. 15-6405
    United States Court of Appeals, Sixth Circuit.
    Argued: September 27, 2016
    Decided and Filed: November 3, 2016

      ARGUED: Michael E. Richardson, Tid-well, Izell & Richardson, Chattanooga, Tennessee, for Appellants. Zachary H, Greene, Miller & Martin PLLC, Chattanooga, Tennessee, for Appellees. ON BRIEF: Michael E. Richardson, • Tidwell, Izell & Richardson, Chattanooga, Tennessee, for Appellants. Zachary H. Greene, W. Scott Parrish, David M. Barnes, Miller & Martin PLLC, Chattanooga, Tennessee, for Appellee City of Chattanooga. Cameron S. Hill, William E. Robinson, Caldwell & Berkowitz, PC, Chattanooga, Tennessee, for Appellee Chattanooga Fire and Police Pension Fund.
    Before: ROGERS, SUTTON,, and COOK, Circuit Judges.
   OPINION

ROGERS, Circuit Judge.

The City of Chattanooga amended the cost-of-living adjustment in its Fire and Police Pension Fund in 2000 to create a fixed three-percent annual increase in retirement benefits. The city amended the COLA again in 2014 to a lower, variable annual increase. Four Fund participants— Johnny Frazier, Reuben ■ Salter, • William Melhorn, Jr., and Janies Gaston—chal-lenged the 2014 amendment under the Contract Clause of the United States Constitution, claiming a right to the fixed three-percent COLA. The district court held that the- retirees have no such right and granted the defendants’—the City’s and the Fund’s—motion for summary judgment. The district court correctly concluded that there is no unmistakable evidence of the city’s intent to be bound to the fixed COLA, because the COLA is neither vested nor accrued within the meaning of the City Code.

Chattanooga created the Fire and Police Pension Fund (the Fund) in 1949. S.B. 346, 1949 Leg. (Tenn, 1949). The pension plan is codified in §§ 2-400 to 2-425 of the Chattanooga City Code. Chattanooga, Tenn., Code §§ 2-400 to 425 (2016) [hereinafter Code]. The plan is structured so that a participant’s interest, in future benefits vests after ten years of service. Id. § 2-415. At that point, the participant has the right either to a full refund of her contributions or to a deferred vested retirement benefit upon turning fifty-five. Id. Then, after twenty-five years of service, the participant becomes entitled to an annual service retirement pension, calculated under § 2-411. Id. § 2-411, Frazier retired in -1999, Gaston in 2012, Melhorn in 2008, and Salter in 2000.

The city , added a cost-of-living adjustment (COLA) to the pension plan in 1980. Chattanooga, Tenn., Ordinance 7714- (Aug. 19, 1980). The original COLA was tied to the Consumer Price Index (CPI), with a zero-percent minimum and a three-percent maximum annual increase. Id, Since 1980, the city has amended the COLA four times—in 1986, 1992, 2000, and 2014. This case involves the 2000 and 2014 amendments. In 2000, the city created a fixed three-percent COLA. Id. Ordinance 11012 (May 9, 20Ó0). The COLA was codified in § 2-417: “The benefits payable to retired members or any of their survivors or beneficiaries shall be increased each January 1, following the first twelve (12) months of benefit, by three percent (3%).” Code § 2-417 (2013). The retirees claim that they; as plan participants, are entitled to this fixed three-percent COLA.

In 2014, the city adopted Ordinance 12813 in response to a massive funding crisis. See Chattanooga, Tenn., Ordinance 12813 (Mar. 11, 2014). The Ordinance created a lower, variable COLA. Id. When the Fund is less than eighty-percent funded, the COLA will increase benefits annually, on average, one-and-a-half percent, with those receiving higher pension benefits getting a lower increase and a one-percent minimum, and those receiving lower pension benefits getting a higher increase and a two-percent maximum. Id. When the Fund is at least eighty-percent funded, the COLA is tied to the CPI with a three-percent maximum increase, as it was before the 2000 amendment. Id.

The retirees sued the City and the Fund in state court, seeking a declaratory judgment and a permanent injunction against Ordinance 12813’s COLA amendment. The complaint asserted various constitutional claims, including the Contract Clause claim that is at issue on this appeal. After the defendants removed the case to federal court, they moved for summary judgment. The district court granted the motions for summary judgment, holding that the Contract Clause claim failed on the merits and that the retirees had abandoned the other claims. Frazier v. City of Chattanooga, 151 F.Supp.3d 830, 838 (E.D. Tenn. 2015). On the Contract Clause claim, the court held that the retirees had no contractual right to the fixed three-percent COLA. Id. The court recognized that the City Code only expresses an intent to be bound to vested, accrued financial benefits and concluded that the fixed COLA was neither vested nor accrued. Id. at 836-37. The retirees challenge that conclusion on this appeal.

The retirees do not have a contractual right to the fixed three-percent COLA, because the City Code does not bind the Fund to the fixed COLA. The Contract Clause prohibits states from passing any law impairing contract obligations. U.S. Const, art. I, § 10. Contract Clause analysis begins by asking whether a contractual relationship exists, Gen. Motors Corp. v. Romein, 503 U.S. 181, 186, 112 S.Ct. 1105, 117 L.Ed.2d 328 (1992), which in the employee-benefit context means a contractual agreement regarding the specific terms at issue. The retirees’ challenge does not survive beyond this first element. Generally, a statute merely expresses current government policy, and future legislatures are free to change that policy. Nat’l R.R. Passenger Corp. v. Atchison Topeka & Santa Fe Ry. Co., 470 U.S. 451, 465-66, 105 S.Ct. 1441, 84 L.Ed.2d 432 (1985). “[Ajbsent some clear indication that the legislature intends to bind itself contractually,” a statute does not create a contractual relationship. Id. Thus, the retirees “have the burden of showing that the [City Code] contains an unmistakable promise precluding the [city] from exercising its sovereign power to reduce the extent of their future COLA increases.” Puckett v. Lexington-Fayette Urban Cty. Gov’t, 833 F.3d 590, 601 (6th Cir. 2016) (emphasis added).

The City Code does not unmistakably bind the Fund to the fixed three-percent COLA. Under § 2^411(d), the city may amend the pension plan, “provided that such amendment shall not in any way decrease any vested financial benefits accrued by any participant or beneficiary.” Code § 2-411(d) (2016). Through § 2-411(d), the city expresses an intent to be bound only to vested, accrued financial benefits. Otherwise, subject only to § 2-411(d)’s other limitations, the city may freely amend the pension provisions. The retirees do not have a contractual entitlement to the fixed COLA, even assuming it is a financial benefit within the meaning of the City Code, because the COLA is neither vested nor accrued.

The COLA is not a vested financial benefit, because the city did not include it in the pension plan’s vesting provision. In Puckett v. Lexington-Fayette Urban County Government, a recent Contract Clause case, we evaluated whether retirees have a contractual right to a particular COLA under Kentucky’s public • pension plan. See Puckett, 833 F.3d 590. In rejecting the Contract Clause claim, we noted that the only mention of a vested interest in Kentucky’s pension scheme did not include the COLA. Id. at 601. Similarly here, the City Code contains one vesting provision, § 2-415. After ten years of service, § 2-415 gives a participant the right either to a full refund of her contributions or to retirement benefits upon turning fifty-five. Code § 2-415 (2016). As in Puckett, § 2-415 does not mention the COLA, and no other City Code language makes the COLA a vested interest. In particular, the mandatory “shall be increased” in § 2-417 does not mean the COLA is vested. See id. § 2-417 (2013). We have previously recognized that, in this context, “shall” only imposes a duty on government officials to apply the COLA each year until the legislature amends it. Duncan v. Muzyn, 833 F.3d 567, 583 (6th Cir. 2016). “Shall” therefore removed the Fund’s discretion in applying the thrée-percent COLA, but did not remove the City Council’s power to amend the COLA. There is thus no evidence in the City Code, let alone unmistakable evidence, that the fixed three-percent COLA is a vested benefit.

Furthermore, the COLA is not an accrued financial benefit. “Accrue” can mean: “[t]o come to one as a gain, addition, or increment”; “[t]o increase, accumulate, or come about as a result of growth”; or “[t]o come into existence as a claim that is legally enforceable.” American Heritage Dictionary of the English Language 12 (4th ed. 2000). The district court essentially adopted the last definition, which is the most common and natural use of the term, see Gabelli v. SEC, — U.S. -, 133 S.Ct. 1216, 1220-21, 185 L.Ed.2d 297 (2013). The COLA is not an enforceable right until January 1 of each year, when § 2-417 instructs city officials to increase pension benefits. See Code § 2-417 (2013). Thus, future increases pursuant to the fixed COLA had not “accrued” as of July 1, 2014, when Ordinance 12813 took effect. The retirees therefore cannot claim a contractual right to these future adjustments.

The retirees’ alternative definition of accrued, as “a fixed and calculable amount payable in future,” comports with no recognized definition of “accrue.” The fact that the city, in evaluating the financial burden of the COLA, hired a consultant who was able to calculate the financial cost of the three-percent annual COLAs once they accrue obviously does not mean that the COLAs have accrued, Simply being able to calculate the present value of future benefits can hardly mean that the benefits have accrued. If it did, then virtually all future benefits, if unchanged and calculable, have “accrued.” Such a definition would give no content whatsoever to the “accrued” requirement in this ease. More particularly, under the retirees’ definition, § 2-411(d) removes the city’s power to amend the COLA from fixed to variable, as it did in 2014, but allows the city to amend the COLA from variable to fixed, as it did in 2000. Under this interpretation, once the city enacted the three-percent COLA, it set the fixed rate in stone. However, as we have previously recognized, this interpretation reduces the COLA’s effectiveness: “Because a COLA is meant to minimize the effect of inflation, it does not make sense that the legislature would bind itself to a fixed COLA.... It makes more sense that the legislature be.able to adjust the COLA rate based on changes in inflation over time.” Puckett, 833 F.3d at 604. Reading “accrued” to mean “enforceable” thus comports with the word’s plain meaning, avoids redundancy, and furthers the COLA’s purpose within the pension scheme.

-Under the City Code’s plain language, the retirees are not entitled to the fixed three-percent COLA, because the COLA is neither vested nor accrued. Blackwell v. Quarterly County Court of Shelby County, 622 S.W.2d 535 (Tenn. 1981), does not change this result. In Blackwell, the Tennessee Supreme Court established that a “public employer [may] make reasonable modifications in an existing [pension] plan if necessary to create or safeguard actuarial stability, provided that no then accrued or vested rights of members or beneficiaries are thereby impaired.” Id. at 541. The court held that a reduction in plan participants’ base benefits cannot constitutionally be applied to employees whose interests have vested after ten years of creditable service. See id. at 543. Though a state supreme court’s interpretation of a local pension plan can be instructive to a federal court’s Contract Clause analysis, Romein, 503 U.S. at 187, 112 S.Ct. 1105, Blackwell is unhelpful here because it does not address whether a COLA is a vested benefit under Tennessee law. Furthermore, even if the case were controlling, the Tennessee Supreme Court’s holding in Blackwell does not support the retirees’ Contract Clause claim. Blackwell holds that a public employee remains entitled to pension benefits as- they stood when the employee’s interests vested. However, the retirees in this case do not claim they are entitled to the COLA as it - existed when their interests vested. Assuming each retiree’s interests vested ten years after he became employed by the city—pursuant to § 2-415— each vested before the 2000 amendment created a fixed three-percent COLA. Blackwell is silent on participants’ right to an adjustment to base benefits enacted after their interests vested. The ease is therefore distinguishable.

Furthermore, the retirees’ arguments gain little from the explicitly nonbinding nature of an entirely different provision. Under the Fund’s Deferred Retirement Option Provision (DROP), a participant may elect to receive a single lump-sum retirement benefit as an alternative to periodic payments. Code § 2-422 (2016). Section 2^422(e) provides that “[t]he DROP may be discontinued or modified at any time.” Id. The fact that § 2-417 does not include a similar modification clause for the COLA does not indicate by negative inference that the city intended to create a contractual right when it enacted the fixed three-percent COLA in 2000. Indeed, the fact that the city had previously amended the COLA to plan beneficiaries’ detriment twice before the 2000 amendment weighs against this argument. The original, 1980 COLA provision did not contain a specific amendment clause. Ordinance 7714. Thus, the city amended the COLA in 1986 and 1992 without relying on such a clause. These previous amendments indicate that the city did not intend, merely by leaving out a specific amendment clause, to bind itself to the fixed COLA. Additionally, this court rejected a similar negative-inference argument in Puckett as inconsistent with the unmistakability doctrine. See 833 F.3d at 602-03. Thus, even if this negative inference were evidence of the city’s intent to be bound, it would not be enough to unmistakably demonstrate that § 2-417 creates a contractual relationship.

The fact that the Fund described the fixed three-percent COLA as “guaranteed” when enacting the 2000 amendment also does not prove that the city intended to be bound to the fixed COLA. A pamphlet from the Fund entitled “Explanation. of changes” stated: “A guaranteed annual 3% cost-of-living adjustment (COLA) will be given to all retirees and beneficiaries, regardless of age.” This languagé 'could be interpreted as merely guaranteeing a three-percent COLA—rather than a variable or discretionary COLA—to pension participants only while the fixed COLA was in place. Additionally,, this lone extrinsic evidence of legislative intent does not overcome the unambiguous Code language, under which the fixed COLA is not a contractual right because it is not a vested, accrued financial benefit within the meaning of § 2-411(d).- : . '

The judgment of the district court is affirmed.

      . Section 2-411(d) also provides that amendments must be "[ ]consistent with sound actuarial principles, methods, and actuarial assumptions.” Code § 2-411(d) (2016). On appeal, the retirees do not challenge Ordinance 12813 as actuarially unsound.

      . Frazier began his public employment in 1974, Gaston in 1987, Melhorn in 1980, and Salter in 1971.

      . The 1986 amendment restricted the COLA to participants over fifty-five. Chattanooga, Tenn., Ordinance 8688 (Aug. 19, 1986). The 1992 amendment added a one-year waiting period after retirement before the COLA took effect. Id, Ordinance 9778 (Aug. 18, 1992).


source: Caselaw Access Project

author: JANE B. STRANCH, Circuit Judge.

license: Public Domain

text:
    GREAT AMERICAN INSURANCE COMPANY, Plaintiff-Appellee, v. E.L. BAILEY & COMPANY, INC.; Edward L. Bailey, Defendants-Appellants.
    No. 15-2149
    United States Court of Appeals, Sixth Circuit.
    Argued: September 28, 2016
    Decided and Filed: November 7, 2016

      ARGUED: Thomas D. Noonan, Stronger & Noonan, Bloomfield Hills, Michigan, for Appellants. Lawrence R. Moelmann, Hinshaw & Culbertson LLP, Chicago, Illinois, for Appellee. ON BRIEF: Thomas D. Noonan, Stronger & Noonan, Bloomfield Hills, Michigan, Michael F. Smith, The Smith Appellate Law Firm, Washington, D.C., for Appellants. Lawrence R. Moel-mann, Stephen R. Swofford, Hinshaw & Culbertson LLP, Chicago, Illinois, for Ap-pellee.
    Before: GILMAN, GIBBONS, and STRANCH, Circuit Judges.
   OPINION

JANE B. STRANCH, Circuit Judge.

The State of Michigan contracted with E.L. Bailey & Company, Inc., a general contractor, to construct a prison kitchen. After delays, Bailey and the State sued each other for breach of contract in the Michigan Court of Claims. As required by Michigan law, Bailey had obtained surety bonds guaranteeing its performance from Groat American Insurance Company (GAIC) in exchange for which Bailey agreed to assign GAIC the right to settle claims related to the construction project if Bailey allegedly breached the. construction contract. Exercising this right, GAIC negotiated with the State to settle Bailey’s claims ■without Bailey’s knowledge. GAIC then sought a declaratory judgment from the district court recognizing its right to settle. The district court granted summary judgment to GAIC. On appeal, Bailey’s sole argument is that GAIC settled Bailey’s claims against the State in bad faith. Because Bailey presented insufficient evidence of bad faith, we AFFIRM.

I. BACKGROUND

A. Factual History

Bailey and GAIC entered into a surety agreement (the Agreement) in 2006 under which GAIC would issue surety bonds on behalf of Bailey, as required by Michigan law for Bailey to contract with the State of Michigan. In this three-way surety relationship, Bailey,' the ' “principal,” paid GAIC, the “surety,” to provide bonds guaranteeing contract performance to -the State, the “obligee” or “owner.” In September 2009, Bailey entered into a nearly $6,000,000 contract with the State to serve as the general contractor for the construction of a prison kitchen at the Huron Valley Women’s Correctional Facility in Ypsilanti, Michigan (the Project). In connection with this construction contract, GAIC provided a performance bond, guaranteeing performance of the contract work, and a payment bond, guaranteeing payments to subcontractors and suppliers. Under the Agreement, Bailey • agreed to indemnify GAIC for all payments or other expenses GAIC incurred due to either bond, and to pay upon demand collateral in an amount to be determined by GAIC. In the event of an alleged breach of Bailey’s contract with the State, its contracts with its subcontractors, or the Agreement itself, the Agreement assigned to GAIC all Bailey’s rights “growing in any manner out of’ its contract with the State, as well as all its claims “against any party” and the resulting proceeds. The Agreement further granted GAIC the right to settle any claim in connection with any related contract.

Under Bailey’s contract with the State, if different stages of Project work were not complete after set numbers of days, the contract permitted the State to withhold liquidated damages of $1,000 per day. Bailey and the State have disputed the Project’s due dates, but the latest due date for what the contract referred to as “substantial completion” was April 2, 2011 (after multiple extensions agreed to by the State). The contract required “final completion” sixty days later, which would have been June 1, 2011. The State alleged in the Michigan Court of Claims that Bailey achieved substantial completion on April 4, 2012, and had not achieved final completion as of January 1, 2013. Bailey argued that it achieved substantial completion on December 15, 2011. Bailey never finalized completion, and GAIC later reached an agreement with the State to have another contractor complete the Project.

A State-appointed mediator reviewed the evidence submitted by both parties in August 2012 and found that substantial completion occurred on April 4, 2012, 368 days after the April 2, 2011 due date. The mediator apportioned 278.5 days of this delay to Bailey and 89.5 days to the State. In addition, the mediator noted that prior to this due date Bailey had requested a fourteen-week extension, but the State granted Bailey only an eight-week extension and did not pay Bailey for the additional six weeks. The record and briefs contain no specific identification of the number of days for which the State withheld liquidated damages or for which Bailey was unpaid, except that Bailey agreed at .the mediation hearing that it had been compensated through November 16, 2010. It appears that the State withheld $1,000 per day for both the 368 days following the due date and for the six weeks (42 days) of ungranted extension time prior to the due date, for a total of 410 days. This number nearly matches the $411,000 amount that the State, in email negotiations with GAIC, said it had withheld.

Bailey blames the Project’s delays on the State and its architect/engineer, Byce & Associates. Bailey alleges that Byce’s design plans contained numerous defects that prevented construction progress until the State and Byce provided Bailey with viable alternative designs. As its primary example, Bailey alleges that Byce’s original design for the main power source for the new food service building was impossible to construct, and that after Bailey notified Byce about the defects it took Byce and the State 344 days to provide a viable alternative. According to an expert consultant retained by Bailey to calculate its claims against the State, this redesign may have ultimately delayed the Project by 42 days.-The State acknowledged in an email that the original design for the power source represented a “serious design flaw.”

B. Litigation History

The procedural history of this case includes litigation before three courts, of which we recite only the details relevant to this decision. First, Bailey and the State brought claims against each, other in the Michigan Court of Claims in October 2011. The Court of Claims stayed the case pending mediation, and in August 2012 the mediator recommended that the State offer Bailey $220,400.75 to resolve all claims. The State rejected the mediator’s recommendation. The claims between Bailey and the State were later transferred to another mediation-like method of alternative dispute resolution called facilitation, scheduled for September 12, 2013. On September 11, GAIC’s counsel informed Bailey’s counsel that GAIC had agreed to a proposed settlement with the State, releasing Bailey’s claims against the State with prejudice in exchange for the State paying GAIC $358,000, representing Anal payment under the construction contract. The State did not attend the following day’s facilitation. Bailey alleges that GAIC had secretly negotiated with the State since February 2013, and that.Bailey was urn-aware of the negotiations until the agreement had already been reached.

Second, some of Bailey’s subcontractors brought claims in Washtenaw County Circuit Court against Bailey' and against GAIC under the payment -bond for amounts due for Project work. In' April 2012, GAIC demanded $1.4 million in collateral from Bailey for these subcontractor claims. Bailey offered to pledge as collateral its accounts receivable, including its claims against the State, which GAIC rejected. In November 2013, GAIC reduced its demand for collateral to $653,998. Bailey never provided' any collateral in response to either demand. GAIC ultimately settled the subcontractors’ claims, paying out $645,287.55 and incurring over $260,000 in expenses and attorney’s fees.

Third, GAIC brought this case in federal court in July 2012, seeking indemnification for Bailey’s alleged breach of the Agreement by failing to provide collateral for the subcontractor claims. GAIC amended its complaint in December 2014 to add a declaratory judgment claim regarding GAIC’s right to settle Bailey’s claims against the State. Bailey’s answer asserted bad faith as an affirmative defense, GAIC moved for summary judgment on the declaratory judgment and indemnification claims, and Bailey responded by contesting GAIC’s right to settle Bailey’s claims against the State. Although Bailey’s .response discussed its allegation that GAIC settled in bad faith, it argued that the bad faith issue was not ripe for review until the court determined whether GAIC had a right to settle Bailey’s claims. The district court granted summary judgment to GAIC, finding that GAIC had that right under the Agreement and awarding damages for the indemnification claim. Despite Bailey’s position that a bad faith defense was not yet ripe, the court considered and rejected Bailey’s bad faith argument; finding that Bailey’s argument was based only on its disagreement with the settlement amount. Bailey timely appealed, contesting only the bad faith finding.

II. ANALYSIS

We review grants of summary judgment de novo. V & M Star Steel v. Centimark Corp., 678 F.3d 459, 465 (6th Cir. 2012). “Summary judgment is appropriate only when the evidence, taken in the light most favorable to the nonmoving party, establishes that theré is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law.” Id. (citing Fed. R. Civ. P. 56(c)).

As a federal court hearing a breach of contract claim based upon diversity jurisdiction, we apply the choice of law rules of the forum state, Michigan, NILAC Int’l Mktg. Grp. v. Ameritech Servs., Inc., 362 F.3d 354, 358 (6th Cir. 2004). The contract at issue here, the Agreement, has no choice-of-law provision, so Michigan courts would apply Michigan law unless an exception applied. Id. Since no exception applies, Michigan law governs the interpretation of the Agreement.

A. Waiver

As a threshold matter, we must determine whether Bailey waived its bad faith argument. “[0]rdinarily an appellate court does not give consideration to issues not raised below.” Smoot v. United Transp. Union, 246 F.3d 633, 648 n.7 (6th Cir. 2001) (quoting Hormel v. Helvering, 312 U.S. 552, 556, 61 S.Ct. 719, 85 L.Ed. 1037 (1941)). The two main purposes of the waiver rule are to ease appellate review by ensuring that district courts consider issues first, and to prevent surprise to litigants. See Scottsdale Ins. Co. v. Flowers, 513 F.3d 546, 552 (6th Cir. 2008).

Waiver is a close question in this case, because neither party fully developed the facts or law on bad faith in the district court, and because Bailey expressly disclaimed the relevance of its bad faith argument to the district court’s .decision. Nonetheless, GAIC had notice of Bailey’s bad faith argument, and the district court considered it from the bench. Bailey asserted bad faith in its affirmative defenses, and GAIC referenced Bailey’s bad faith argument in its .own summary judgment motion. Although Bailey’s response to the summary judgment motion argued that it was not yet appropriate to address the issue, Bailey put the court and GAIC on notice of its argument. At the summary judgment hearing, the district court expressly considered bad faith, giving Bailey’s counsel the opportunity to argue bad faith and GAIC’s counsel an opportunity to respond with argument about its investigation into Bailey’s claims. The transcript thus shows that Bailey raised and argued, and GAIC had the opportunity to contest, Bailey’s allegation that GAIC had settled in bad faith. The issue is therefore appropriate for appellate review.

B. Bad Faith

1. Proper Forum for Bailey’s Bad Faith Argument

Bailey’s confusion about the proper forum for its bad faith argument was reasonable given this case’s unusual posture. Fairness dictates that Bailey should have an opportunity to litigate its bad faith argument somewhere. Exactly where and when bad faith can be raised by a party in Bailey’s position involves two questions that are unanswered under Michigan law.

First, can bad faith be raised as a defense in a surety’s declaratory judgment action regarding its right to settle claims involving the principal? Or must the principal wait until the surety brings an indemnification claim to recover its payout from the disputed settlement? Bailey relied on decisions from other jurisdictions to argue in the district court that it could not yet raise bad faith as a defense to GAIC’s declaratory judgment claim. See Bell BCI Co. v. Old Dominion Demolition Corp., 294 F.Supp.2d 807, 815 (E.D. Va. 2003) (holding that a declaratory judgment action was “not the proper forum for [the principal] to make its ‘bad faith’ argument,” which instead “is properly asserted as a defense to the Surety’s claim against [the principal] for indemnification”); accord Safeco Ins. Co. of Am. v. M.E.S., Inc., No. 09-CV-3312 (ARR)(ALC), 2010 WL 5437208, at *14 (E.D.N.Y. Dec. 17, 2010) (citing Bell), aff'd sub nom. Safeco Ins. Co. of Am. v, Hirani/MES, JV, 480 Fed. Appx. 606, 608-09 (2d Cir. 2012). In both Bell and Safeco, the alleged bad faith of particular settlements was irrelevant to determining whether the surety agreements authorized the sureties to settle, and therefore those courts held off adjudication of bad faith until the sureties brought indemnification claims to recover the settlement payments.

This procedure makes sense in most cases challenging surety settlements, where the disputed settlement requires the surety to make a payment on the principal’s behalf, for which the surety then seeks indemnification. The principal can argue bad faith as an affirmative defense in the follow-up indemnity action. In contrast, GAIC’s settlement requires the State to pay GAIC, making a follow-up indemnity action by GAIC unnecessary with regard to the State’s claim, potentially denying Bailey a forum to assert bad faith as an affirmative defense. Thus, Bell and SafeCo have limited applicability to this case.

Further complicating matters, GAIC did bring an indemnification claim here, and Bailey did raise bad faith as an affirmative defense. GAIC’s indemnification claim, however, was for payments made to settle the subcontractors’ claims, not Bailey’s controversy with the State. This case thus presents the second open question of whether a court may adjudicate the bad faith of one settlement as a defense to an indemnity claim for payment of a separate settlement. In limited caselaw from other jurisdictions, courts have found it proper to adjudicate such bad faith allegations, at least if the two settlements arise from the same surety agreement. See Gen. Ins. Co. of Am. v. Mezzacappa Bros., No. 01-CV-7394 (FB), 2003 WL 22244964, at *1, *4, *5 (E.D.N.Y. Oct. 1, 2003) (adjudicating whether the surety settled the principal’s claims in bad faith, raised as a defense to a separate indemnification claim arising from the same construction project), aff'd, 110 Fed.Appx. 183 (2d Cir. 2004); cf. John Wm. Brown Co. v. State Emps.’ Credit Union, 231 N.C.App. 264, 752 S.E.2d 185, 187-88, 189 & n.3 (2013) (instructing the principal to raise allegations that the surety settled the principal’s claims in bad faith as a defense in the surety’s federal court indemnity action seeking payments made under separate but related settlements with subcontractors). Simultaneously adjudicating issues surrounding separate settlements arising from the same construction project and governed by the same surety agreement is logical because the facts relate and.payments.may offset.one another.

Ultimately, whether a principal can raise bad faith should depend on fairness: if there is not another, more appropriate forum where the principal can raise the ■issue, then the court should consider it in a declaratory judgment action. Adjudicating bad faith is especially appropriate in a case like Bailey’s, -where the declaratory judgment claim is already joined with an indemnification claim against the same principal, because payments might well offset one another. See Liberty Mut. Ins. Co. v. Aventura Eng’g & Constr. Corp., 534 F.Supp.2d 1290, 1316-17, 1318-20 (S.D. Fla. 2008) (adjudicating bad faith in a surety’s action seeking both indemnification and a declaratory judgment regarding the right to release the principal’s claims). In this case, in fact, the district court made the amount of the damages award for GAIC’s indemnification claim explicitly dependent on the final value of GAIC’s settlement with the State. Given this analysis and the limited easelaw available, Bailey’s bad faith argument was not premature and the district court did not err by considering it.

2. Surety’s Duty of Good Faith . under Michigan Law

“Michigan law infers a duty of good faith in every contract, which a party may breach by performing in bad faith.” Travelers Cas. & Sur. Co. of Am. v. J.O.A. Constr. Co., 479 Fed.Appx. 684, 689-90 (6th Cir. 2012). “But, as an affirmative defense, Appellants bore the burden of pleading and substantiating the issue to place it in dispute.” Id. at 690 (citing State Auto. Mut. Ins. Co. v. Reschke, No. 2:06-cv-15410, 2008 WL 4937971, at *6 (E.D. Mich. Nov. 14, 2008)). As in Travelers and Reschke, it was Bailey’s burden to substantiate its affirmative defense' of bad faith, not GAIC’s burden to substantiate its good faith.

GAIC does not dispute that its settlement of Bailey’s claims had to be done in good faith, but the parties do dispute the standard for establishing a' surety’s bad faith under Michigan law. The Agreement does not define the term “good faith,” and “[ujnless otherwise defined, contractual language is given its plain and ordinary meaning.” Premier Ctr. of Canton, L.L.C. v. N. Am. Specialty Ins. Co., No. 297799, 2011 WL 5964611, at *4 (Mich. Ct. App. Nov. 29, 2011) (reviewing Michigan courts’ definitions of “good faith” to interpret a good faith requirement in a surety agreement).

In interpreting a' criminal statute, the Michigan Supreme Court noted that the term “ ‘[g]ood faith’ consistently has been deemed a standard measuring the state of mind and perception of the defendant—a measure of honest belief and intention.” People v. Downes, 394 Mich. 17, 228 N.W.2d 212, 217 (1975); see also Miller v. Riverwood Recreation Ctr., Inc., 215 Mich. App. 561, 546 N.W.2d 684, 689 (1996) (“ ‘Good faith’ has been defined as a standard measuring the state of mind, perceptions, honest beliefs, and intentions of the parties,”).

Bailey relies most heavily on a Michigan Supreme Court opinion defining bad faith in the insurance context, Commercial Union Insurance Co. v. Liberty Mutual Insurance Co., 426 Mich. 127, 393 N.W.2d 161 (1986), where an insurance company was sued for rejecting a settlement, offer allegedly in bad faith. Commercial Union defined bad faith as more than negligence but less than fraud, and provided the following definition for jury instructions in insurance cases: “arbitrary, reckless, indifferent, or intentional disregard.of the interests of the person owed a duty.” Id. at 164. Commercial Union continued:

Good-faith denials, offers of compromise, or other honest errors of judgment are not sufficient to establish bad faith. Further, claims of bad faith cannot be based upon negligence or bad judgment, so long as the actions were made honestly and without concealment. However, because bad faith is a state of mind, there can be bad faith without actual dishonesty or fraud. If the insurer is motivated by selfish purpose or by a desire to protect its own interests at the expense of its insured’s interest, bad faith exists, even though the insurer’s actions were not actually dishonest or fraudulent.

Id. (footnote omitted). Ip addition, Commercial Union listed twelve factors that trial courts may choose in their discretion to include in jury instructions on. insurers’ bad faith. Id. at 166-66.

Commercial Union discussed good faith in .the context of an insurer-insured relationship, and its applicability to sureties is not clear. Although the Michigan Court of Appeals cited Commercial Union’s, good faith standards in Premier Center of Canton, No. 297799, 2011 WL 5964611, at *4, a surety case, insurance, is not identical to suretyship. ■Unlike the two-way relationship of insurance, suretyship is a three-way relationship where the principal contracts with the -surety to provide bonds that protect the dbligee (the owner of the project), not the principal. It is the obligee of a surety, not the principal, who is analogous to the insured of an insurer. Therefore, the Southern District of Ohio held that “while a surety owes a duty of good faith to-the obligee, a. surety owes no such duty to the principal.” Int’l Fid. Ins. Co. v. Vimas Painting Co., No. 2:07-CV-298, 2008 WL 926577, at *5- (S.D. Ohio Apr. 3, 2008) (collecting cases on sureties owing a duty to obligees rather than principals). Even though surety agreements in Michigan do carry an implied duty of good faith, that duty of good faith may not incorporate all of the duties implied by Commercial Union’s language due to the differences between insurers’ duties to them insured and sureties’ duties to principals. ' '

To the extent Commercial Union does apply to sureties, it does not deviate from the definitions in Downes and Miller. Like those cases, Commercial Union stated that “bad faith is a state of mind.” 393 N.W.2d at 164. Although “there can be bad faith without actual dishonesty, or fraud,” such as when “the insurer is motivated by selfish purpose or by a desire to protect its own interests at the expense of its insured’s interest,” “offers of compromise” or “honest errors of judgment are not sufficient to establish bad faith.” Id,

3. Evidence of GAIC’s State of Mind

Bailey, provided neither evidence about GAIC’s state of mind nor any reason why GAIC’s interest in settling would differ from Bailey’s. There is no evidence that GAIC’s settlement of Bailey’s claims was undertaken with selfish purpose at Bailey’s expense; rather, GAIC and Bailey share an interest in. securing the highest settlement possible from the State. Even if GAIC misunderstood Michigan law, leading it to miscalculate its liability and accept a lower settlement, “honest errors of judgment are not sufficient to establish bad faith.” Id. .

Furthermore, some evidence suggests that GAIC negotiated in good faith. The emails between GAIC and the State portray a genuinely adversarial negotiation, in which GAIC pushed for multiple settlement terms with which the State “strenuously,” “strongly,” and “adamantly disagree]®.” This negotiation secured $358,000, well ^ more than the mediator’s recommendation of $220,000. Without evidence of GAIC’s state of mind or intentions, Bailey failed to establish the essence of the definition of bad faith in Michigan.

4. Concealment

■ Bailey argues that GAIC acted in bad faith by concealing it's negotiations with the State until the latter two reached an agreement on the eve of the facilitation. GAIC does not admit but also does not contest that-it did not communicate with Bailey about its negotiations before they were complete. .A surety’s concealment of its settlement negotiations does raise concerns. Settling a .party’s claim in secret, even when that claim has been assigned away by contract, deprives that party of the time to prepare objections and the opportunity to consider its options appropriately. By not informing Bailey until -the day before its facilitation with the State, GAIC wasted Bailey’s and its counsel’s time and resources preparing for the facilitation. An unpublished Michigan appellate decision suggests that concealment is a factor to be considered in determining whether a surety settled -in bad faith: “A claim of bad faith cannot be based upon negligence or bad judgment ‘if the actions were made honestly and without concealment,’” Premier Ctr. of Canton, No. 297799, 2011 WL 5964611, at *4 (brackets omitted) (quoting Miller, 546 N.W.2d at 689 (quoting Commercial Union, 393 N.W.2d at 164)). Of the twelve factors Commercial Union listed for determining bad faith in the insurance context, the first factor (the only one that might apply to GAIC’s conduct) is “failure to keep the insured fully informed of all developments in the claim or suit that could reasonably affect the interests of the insured.” Commercial Union, 393 N.W.2d at 165. Depending on the facts, concealment might combine with other factors to establish a surety’s bad faith.

Here, Bailey’s only evidence regarding concealment is the date on which GAIC informed it of the settlement; no evidence substantiates its claim that GAIC had been in negotiations with the State for months. The emails between GAIC and the State show communication only during the week prior to reaching the agreement and GAIC’s informing Bailey, At oral argument, GAIC’s counsel stated that settlement negotiations did not begin earlier, as earlier discussions with the State had addressed nothing more than finding a replacement contractor for the Project. Bailey has. presented no evidence to the contrary.. These facts are not sufficient evidence of concealment to establish bad faith.

Even if Bailey did not know of GAIC’s negotiations with the State until they were complete, Bailey had warning that GAIC might take control of these claims, just as GAIC had settled and paid the subcontractor claims. Bailey also had the opportunity to regain control of its claims by providing the collateral requested by GAIC. After initially demanding $1.4 million in collateral in April 2012, GAIC reduced its demand to $653,998 in November 2013, based on the expense GAIC had incurred as of that date. If Bailey had provided the requested collateral in the years before summary judgment in May 2015, it would have regained the capacity to negotiate for a higher settlement amount than GAIC reached. Bailey thus had both the notice and the opportunity to prevent an undesirable settlement, which undermines its argument that GAIC’s alleged concealment constitutes bad faith.

5. GAIC’s Alleged Failure to Investigate Michigan Law on Liquidated Damages

Bailey also argues that GAIC’s failure to adequately investigate Bailey’s claims against the State constitutes bad faith. Bailey has provided no direct evidence of GAIC’s alleged failure to investigate, such as evidence regarding the investigatory steps GAIC took. Conclusory statements are not sufficient evidence to create an issue of fact precluding summary judgment. See, e.g., Int’l Fid. Ins. Co. v. Podlucky, No. 07-0235, 2008 WL 1829904, at *3 (W.D. Pa. Apr. 23, 2008) (indemnitors’ statements of “belief’ that the surety failed to properly investigate the claims and thus acted in bad faith were insufficient to raise an issue of material fact).

Bailey’s argument that GAIC failed to sufficiently investigate stems from its interpretation of Michigan law on liquidated damages. In Bailey’s view, liquidated damages provisions are entirely unenforceable under Michigan law if the parties are mutually responsible for project delays. Since the mediator attributed some delay to the State, Bailey argues that the State’s withholding of any liquidated damages was improper, and thus Bailey had an unquestionable claim to $425,000 for wrongfully withheld liquidated damages. GAIC questions the policy behind such a strict rule against apportioning liquidated damages, noting that one party’s responsibility for one day of delay could nullify the other party’s responsibility for unlimited delay.

' Despite the potential unfairness of this rule, á series of century-old rulings by the Michigan Supreme Court clearly establish that “where the delay is due to the fault of both parties the court will not attempt to apportion [liquidated] damages.” Bd. of Educ. v. Chaussee, 211 Mich. 61, 177 N.W. 975, 977 (1920) (citing Early v. Tussing, 182 Mich. 314, 148 N.W. 678, 683 (1914)). The Michigan Court of Appeals has continued to apply this non-apportionment rule. See Grand Rapids Asphalt Paving Co. v. City of Wyoming, 29 Mich.App. 474, 185 N.W.2d 591, 594-95 (1971) (citing Chaussee and Early); see also Davey Tree Expert Co. v. Site Dev. Inc., No. 313971, 2014 WL 2600566, at *4 (Mich. Ct. App. June 10, 2014) (citing Grand Rapids and rejecting liquidated damages without evidence that the other party was the sole cause of delay).

Both federal and other state courts, however, have been shifting away from the strict application of this rule. One federal court in Michigan did not follow the rule when delay could be apportioned and liquidated damages were per diem, as they are under Bailey’s contract with the State. In re Constr. Diversification, Inc., 36 B.R. 434, 437 (E.D. Mich. 1983) (holding that Michigan’s non-apportionment rule does not apply where responsibility for discrete days can be apportioned under a per diem liquidated damages provision). More recently, the Tenth Circuit reviewed the history of Kansas’s non-apportionment rule and similar rules nationwide and held that it did not apply in circumstances similar to the present case, because “during the past 30 years” “a strong majority” of courts have adopted the “modem view and allow liquidated damages to be apportioned when faced with dámages that are in fact divisible.” Hutton Contracting Co., Inc. v. City of Coffeyville, 487 F.3d 772, 785 (10th Cir. 2007).

In applying Michigan law, this court must follow the decisions of the Michigan Supreme Court, not federal courts that are applying Michigan law. See Savedoff v. Access Grp., Inc., 524 F.3d 754, 762 (6th Cir. 2008). It is unclear, however, whether the Michigan Supreme Court, if faced with the issue today, would maintain the strict non-apportionment rule in light of the modern view documented by the Tenth Circuit.

Even assuming that the Michigan Supreme Court would uphold the non-apportionment rule, however, Bailey’s argument does not succeed. Bailey’s argument about Michigan law is ultimately an argument that the settlement ¿mount should have been higher. While a baseless settlement amount might be one indicator of bad faith in some circumstances, the district court was correct that simple disagreement with the monetary amount , reached by settlement is generally insufficient to establish bad faith on its own. See Premier Ctr. of Canton, 2011 WL 5964611, at *5 (“[D]is-agreement with the settlement decision does not establish that [the surety] acted in bad faith.”). Bad faith primarily concerns a party’s state of mind during the settlement process, not its results.

Another weakness of Bailey’s liquidated damages claim is that it considers the Project delays only until the time of substantial completion (the time period analyzed by the mediator). But Bailey’s contract with the State has two separate liquidated damages provisions: one for failure to achieve substantial completion on time, and another for failure to achieve final completion on time. Bailey never achieved final completion of the Project. The record contains no apportionment of delays after substantial completion on April 4, 2012. If Bailey were deemed fully responsible for delays after substantial completion, or if the Michigan Supreme Court permitted apportionment of damages, Bailey and GAIC would remain liable for ongoing liquidated damages for each day that GAIC did not settle. Bailey fails to account for this additional potential liability and its implications for the reasonableness of GAIC’s settlement. Moreover, regardless of whether it is accurate, Bailey’s proposed figure represents the total value of its claim for wrongfully withheld liquidated damages, and thus does not necessarily account for the benefits of entering settlement such as avoiding the time, expense, and uncertainty of further litigation.

Given all these factors, the settlement amount reached by GAIC does not indicate a failure to investigate Bailey’s claims. In summary, Bailey did not provide sufficient evidence of bad faith to preclude summary judgment, either due to concealment or the failure to investigate Michigan law.

III. CONCLUSION

Bailey may be correct that it was treated poorly by the State during its work on the Project. This case, however, is governed by the rights Bailey assigned to GAIC to settle its claims, and the district court properly ruled that GAIC had the right to settle Bailey’s claims against the State. Although GAIC’s failure to inform Bailey of the. settlement until the day before the facilitation is concerning, this fact alone does not defeat summary judgment, especially when GAIC shared Bailey’s interest in securing the highest settlement possible and ultimately settled for more than the mediator recommended. Bailey’s other arguments are unavailing. Therefore, the district court’s grant of summary judgment is AFFIRMED.

      . Both E.L. Bailey & Company, Inc. and Edward L. Bailey, its president, are defendants. When referring to the defendants’ positions in court, this opinion refers to the defendants jointly as "Bailey.” In discussions of the factual history of this case, "Bailey” refers to E.L. Bailey & Company, Inc.

      . Bailey also argues that the Agreement expressly imposes a duty of good faith, but this argument misreads the Agreement. The Agreement permits GAIC to charge Bailey only for "disbursements made by the Surety in good faith,” but that term applies only to payments like those GAIC made to Bailey's subcontractors, not to GAIC’s decisions about settlement. Baileydoes not challenge the good faith of those payments.


author: BAUER, Circuit Judge.

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Pawel W. WROBEL and Marek Stanislawczyk, Defendants-Appellants.
    Nos. 15-2511 and 15-3106
    United States Court of Appeals, Seventh Circuit.
    Argued September 20, 2016
    Decided October 28, 2016

      Debra Riggs Bonamici, Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Chicago, IL, for Plaintiff-Ap-pellee.
    Mark H. Kusatzky, Attorney, KAPLAN & GREENSWAG, Northfíeld, IL, for Defendant-Appellant Pawel W. Wrobel (Case No. 15-2511).
    Gareth G. Morris, Attorney, GARETH MORRIS LAW OFFICES, Chicago, IL, for Defendant-Appellant Marek Stanislaw-czyk (Case No. 15-3106).
    Before BAUER, POSNER, and EASTERBROOK, Circuit Judges.
   BAUER, Circuit Judge.

On August 14, 2012, Slawomir Wieckow-icz, a confidential informant, alerted FBI agents of a phone call he had with Zbig-niew Oziemski, in which Oziemski solicited Wieckowicz’s help in planned robberies that were to occur in New York. Wieckow-icz told the FBI agents of Oziemski’s plan to travel from Poland to New York, and then to Chicago. In Chicago, Oziemski would meet with Marek Stanislawczyk, and then they would travel to New York to commit the robberies.

On August 15, 2012, Wieckowicz told agents that Stanislawczyk was in New York, but he would return to Chicago and then travel from Chicago to New York with Oziemski and a third person (later identified as Pawel Wladyslaw Wrobel) to commit the robberies. Stanislawczyk detailed Oziemski’s travel plans to Wieckow-icz, and explained that they would travel all together from Chicago to New York. Stanislawczyk asked Wieckowicz to rent a van under a false name.

On August 16, 2012, Wieckowicz, Wro-bel, and Stanislawczyk met at Stanislaw-czyk’s apartment in Elk Grove Village, Illinois. Oziemski participated via Skype. Wieckowicz recorded the conversations. During this meeting, Wrobel and Stanis-lawczyk told Wieckowicz that they would travel to New York with Oziemski to rob a particular individual, Jacob Reichman, a diamond merchant, at his residence in Brooklyn, New York. Wrobel said that Reichman would be so frightened that he would “turn [the diamonds] over just like that. Those people are fucking scared ... you won’t fucking have to do anything to him. He’ll just turn it over by himself and that’s it.” Stanislawczyk described how a van would be most preferable and efficient for conducting the robbery: “We drive up, the doors are open; we throw the Jew [ie., the diamond merchant] inside ... we take the diamonds, the easiest job. He has the diamonds on him .... [H]e has it on him, and we fucking taking it.”

Assuming a successful robbery, Wrobel and Stanislawczyk expected to sell the stolen diamonds to an individual Wrobel knew as “Alex,” purportedly a former business partner of Reichman. They predicted that the robbery would net between one to three million dollars.

On August 18, 2012, Oziemski, Stanis-lawczyk, Wrobel, and Wieckowicz met at Stanislawczyk’s apartment again. Wieck-owicz again recorded the conversations. Wrobel informed the others that Reichman was an Orthodox Jew in his late sixties who supplied diamonds to retail outlets. Stanislawczyk expressed confidence that Reichman was certain to be carrying gems of substantial value: “He has a minimum of two [million dollars’ worth of diamonds] on his person .... He’s the kind of Jew that receives a phone call that there’s a need for a fucking so-and-so carat diamond in a color like this ... and he fucking has it.” Wrobel and Stanislawczyk had a specific address and displayed the location of Reichman’s home on an iPad using Google Maps. They also described the area based on their observations from having visited the location the previous week. The group agreed to rent a van equipped with New York license plates to avoid unwanted attention from law enforcement.

Under the supervision of the FBI, Wieckowicz rented a van equipped with both New York license.plates and a sliding door. The FBI also equipped the rental van with a recording device.

On August 20, 2012, Wrobel, Stanislaw-czyk, Oziemski, and Wieckowicz began their travel from Elk Grove Village to New York. Wrobel forgot “the bag with the tools ■ ... and gloves” inside Stanislaw-czyk’s apartment, so the group went back to the apartment. Stanislawczyk retrieved the bag containing a pry bar and three pairs of gloves.

Ón August 21, 2012, the group checked into a Comfort Inn near Linden, New Jersey, at approximately 6:30 a.m. Shortly thereafter, Stanislawczyk, Wrobel, and the two others (including the confidential informant) were arrested by the FBI. The FBI agents found hooded sweatshirts and a black hat in Wrobel and Stanislawczyk’s luggage, brought for the purpose of disguising and concealing their identities. The FBI searched the rental van and found a shopping bag containing three pairs of gloves and a pry bar.

On November 6, 2012, Wrobel, Stanis-lawczyk, and Oziemski were charged in an indictment with conspiring to obstruct, delay, and affect commerce by robbery of diamonds and other valuables, in violation of the Hobbs Act, 18 U.S.C. § 1951(a) (Count 1); and, attempting to obstruct, delay, and affect commerce by robbery in violation of § 1951(a) (Count 2). On October 8, 2013, a Superseding Indictment added third count, and extortion allegations to Counts 1 and 2'. Prior to the case going to the jury, the government dismissed the extortion allegations from Counts 1 and 2, and Count 3 in its entirety.

Prior to trial, on October 17, 2013, the government gave notice of its intent to introduce expert testimony from Donald Strzepek regarding the diamond business. Strzepek would testify that all diamonds are mined outside the United States, and that diamond dealers frequently carry diamonds from place to place on their persons. The government sought to introduce Strzepek’s testimony to establish a nexus between the charged offense and interstate commerce, and also to rebut arguments that Wrobel, Stanislawcyzk, • and Oziemski’s statements regarding robbing a diamond merchant were mere fantasy. On October 22, 2013, Oziemski filed a motion in limine to suppress this testimony as irrelevant and prejudicial. The district court denied the motion, and subsequently overruled a similar objection at trial.

On November 8,2013, the jury convicted Wrobel, Stanislawczyk, and Oziemski on two Hobbs Act counts. On July. 15, 2015, the district court ruled on a “plethora” of motions for post-trial relief, including motions for judgment of acquittal pursuant to Federal Rule of Criminal Procedure 29(c), and, alternatively, motions for a new trial. All post-trial motions for relief were denied..

On September 2, 2015, Stanislawczyk appeared pro se at his sentencing hearing having dismissed three separate appointed attorneys during the course of his case. At the beginning of the hearing, the district court warned Stanislawczyk of the disadvantages of refusing counsel and choosing to represent himself. After the government provided its argument to the court, the district court spoke directly to Stanislaw-czyk, stating: “Mr. Stanislawczyk, you are welcome to make a statement as well before your sentence is imposed.” Stanislaw-czyk covered a variety of topics while exercising his right of allocution.

On July 6, 2015, the district court sentenced Wrobel to 60 months’ imprisonment on each of his two convictions, the sentences to run concurrently. On September 2, 2015, the district court sentenced Stanis-lawczyk to 61 months’ imprisonment on the two counts, the sentences to run concurrently. Wrobel and Stanislawczyk timely appealed.

Wrobel and Stanislawczyk claim that there was insufficient evidence to establish the required nexus between the crime and interstate commerce under the Hobbs Act, 18 U.S.C. § 1951(a); they also argued that the district court improperly admitted testimony by the government’s expert witness. And last, Stanislawczyk argues that the district court failed to provide him an adequate opportunity for allocution.

A. The Sufficiency of the Evidence

We will overturn a jury’s verdict only if, “after viewing the evidence in the light most favorable to the government, the record is devoid of evidence from which a reasonable jury could find guilt beyond a reasonable doubt.” United States v. Campbell, 770 F.3d 556, 571-72 (7th Cir. 2014) (citation omitted). Since Wrobel and Stanislawczyk failed to properly raise this challenge before the district court, we review for plain error only. United States v. Mitov, 460 F.3d 901, 907 (7th Cir. 2006). As a result, Wrobel and Stanislawczyk can only obtain a reversal if they demonstrate a “manifest miscarriage of justice.” Id. Regardless, Wrobel and Stanislawczyk’s challenge fails under either standard.

The Hobbs Act makes it a crime for a person to “obstruct[], delay[], or affect[ ] commerce or the movement of any article or commodity in commerce, by robbery ... or attempt! ] or conspire! ] so to do_”18 U.S.C. § 1951(a). Because the Hobbs Act also criminalizes attempts, the government does not need to prove that the defendant’s actions. actually. affected interstate commerce, but “only that there exists a ‘realistic probability1 of an effect on commerce.” United States v. Bailey, 227 F.3d 792, 797 (7th Cir. 2000) (citation omitted). To prove an. attempt, the government must have shown only that Wrobel and Stanislawczyk acted with specific intent to commit the underlying offense, and took a substantial step towards its completion. See id.

The jury heard the following evidence: Wrobel and Stanislawczyk traveled across state lines for the purpose of robbing diamonds from a diamond merchant whose diamonds were invariably obtained via foreign commerce, i.e., “commerce between any point 'in a State ... and any point outside thereof ,... ” 18 U.S.C. § 1951(b)(3). While Wrobel-and Stanislaw-czyk objected to testimony of the government’s expert witness, they did not—and still do not—challenge the expert’s claim that diamonds are not mined in the United States. The market for diamonds in the United States implicates foreign commerce. Thus, Wrobel and Stanislawczyk’s conspiracy and attempted robbery of a diamond merchant had a “realistic probability^ of an effect on interstate commerce.

Moreover, the government was able to show an effect on interstate commerce under the “depletion of assets” theory. Under this theory, “commerce is affected when an enterprise, which either is actively engaged in interstate commerce or customarily purchases items in interstate commerce, has its assets depleted through [robbery], thereby curtailing the victim’s potential as a purchaser of such goods.” United States v. Harty, 930 F.2d 1257, 1261 (7th Cir. 1991) (alteration in original) (quoting United States v. Elders, 569 F.2d 1020, 1025 (7th Cir. 1978)); accord United States v. Muratovic, 719 F.3d 809, 813 (7th Cir. 2013).

Wrobel and Stanislawczyk planned and intended to rob Reichman because they believed he was a diamond merchant with an abundant supply of diamonds. Wrobel and Stanislawczyk’s belief that Reichman was actively engaged in the business of buying and selling diamonds is evidenced, among- other things, by hours of recorded conversations. For example, Stanislawczyk stated: “[Reichman] has a minimum of two [million dollars’ worth of diamonds] on his person .... He’s the kind of Jew that receives a phone call that there’s a need for a fucking so-and-so carat diamond in a color like this ,.. and he fucking has it.” Wrobel and Stanislawczyk’s intent to sell the stolen diamonds to Reichman’s former business partner also evidences their belief that Reichman conducted himself in some form of a business entity. Had the robbery occurred as planned, Wrobel and Stanis-lawczyk would have not only depleted the diamond merchant’s assets, but also curtailed the diamond merchant’s potential as purchaser and seller of diamonds having moved through interstate commerce. Therefore, the government provided sufficient evidence for a reasonable jury to find that the interstate commerce element was satisfied .under the “depletion of assets” theory.

In response, Wrobel and Stanislawczyk’s main argument largely relies on this court’s decision in United States v. Matt- son, 671 F.2d 1020 (7th Cir. 1982). They argue that the attempted robbery could not have affected interstate commerce because the government failed to present evidence that Reichman was actually engaged in conducting business as a diamond merchant at the time of the offense. They contend that had they successfully robbed Reichman, they would have only robbed an individual, which would not have affected interstate commerce.

• Wrobel and Stanislawczyk’s reliance on Mattson is misplaced. • They believe that Mattson precludes us from finding that the government satisfied the interstate commerce element because Reichman, like the victim in Mattson, is an individual not engaged in interstate commerce. This argument overlooks a crucial distinction based on well-established law. Unlike the extortion conviction reversed in Mattson, Wrobel and Stanislawczyk’s convictions were for an attempted Hobbs Act robbery. Factual impossibility and mistake of fact are not defenses to an attempt crime. Mitov, 460 F.3d at 908 (citing Bailey, 227 F.3d at 797); Muratovic, 719 F.3d at 814 (noting that the “inability to complete the crime ‘does not diminish the sincerity of any efforts to accomplish that end’ ” (quoting United States v. Cotts, 14 F.3d 300, 307 (7th Cir. 1994))). It does not matter whether or not Reichman was actually a diamond merchant engaged in interstate commerce. What matters is that the evidence demonstrated that Wrobel and Stanislawczyk acted with the specific intent to rob a diamond merchant and took a substantial step toward robbing diamonds from someone whom they believed to be a diamond merchant. The government presented sufficient evidence to establish the required nexus between the offense and interstate commerce.

B. Improperly Admitted Evidence

Wrobel and Stanislawczyk do not object to Strzepek’s quálifications as an expert, nor do they contend that the district court improperly applied the Federal Rule of Evidence 702 and Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993), analysis. Instead, Wrobel and Stanislawczyk argue that the district court abused its discretion by admitting Strzepek’s expert testimony because it was not relevant under Federal Rule of Evidence 401; or, even if relevant, it was unfairly prejudicial under Federal Rule of Evidence 403.

Prior to trial, the government gave Wro-bel and. Stanislawczyk notice of its intent to introduce Strzepek’s testimony regarding the diamond business. Strzepek, a certified gemologist with over thirty years of experience in the diamond industry, would testify that all diamonds are mined outside of the United States, and that diamond dealers frequently carry diamonds from place to place on their persons as a means of transportation. In response, the defendants argued that the testimony would be irrelevant and prejudicial. The district court disagreed and denied the motion. The district court overruled a similar objection at trial, and stated:

First of all, that is the subject of expert testimony makes sense to me because— I mean, let’s just use sort of a rough- and-ready test. Is this something the average person knows? I’m an average person. I don’t know how diamond dealers carry diamonds. I have never seen anything like this. It’s completely unfamiliar to me.
So somebody that has experience and exposure to the diamond-dealing practices would be someone who I would characterize as having specialized knowledge of this issue. And the other concern, that-he obviously didn’t see the victim wearing this vest or doesn’t even know the victim, is all material that’s subject to cross-examination.
I think it does go to rebut the notion that it’s fantastical to expect that a diamond dealer would leave his house carrying diamonds on his body. Again, this is something I am personally completely unfamiliar with. And I do think jurors may very well have no idea how this is done or whether it is indeed fantastical or not fantastical.

We find that the district court did not abuse its discretion in admitting this evidence, nor do we find the evidence unfairly prejudicial. We consider each argument in turn.

1. Relevance

In determining the materiality and relevancy of evidence, the district court has been accorded “wide discretion.” United States v. Hall, 165 F.3d 1095, 1117 (7th Cir. 1999). Wrobel and Stanislawczyk contend that the district court abused its discretion by admitting Strzepek’s testimony because it is not relevant. To support this argument, Wrobel and Stanislawczyk revert to similar claims that they made regarding the sufficiency of the evidence, and claims better fashioned as Rule 403 arguments. They argue that only an individual would have been robbed, not a diamond merchant; and, that the government cannot establish the jurisdictional element “by using Strzepek’s testimony because the defendants were not planning on robbing Strzepek.” But, these claims do not address whether the evidence at issue is relevant or not.

Strzepek’s testimony regarding his “specialized knowledge” of the diamond industry is relevant because it could assist the jury in understanding the evidence or in determining a fact at issue. Because diamonds are not mined in :the United States, Strzepek’s testimony is relevant to the interstate commerce element of the Hobbs Act.

In addition, Strzepek’s testimony was also relevant as a rebuttal to Wrobel and Stanislawczyk’s defense. Wrobel and Stanislawczyk claimed that they only spoke in fantastical terms, and therefore did not exhibit an actual intent to rob Reichman; Strzepek testified that diamond merchants frequently carried diamonds on their persons from place to place as a means of transporting diamonds. This testimony tended to show that Wrobel and Stanislawczyk reasonably believed Reich-man would actually have millions of dollars’ worth of diamonds on his person, and that this belief was reasonable.

The district court did not abuse its discretion in finding Strzepek’s testimony relevant.

2. Prejudice Under Rule 403

Wrobel and Stanislawczyk contend that even if Strzepek’s testimony was relevant, the district court should have excluded it because its probative value was substantially outweighed by its prejudicial effect.

Wrobel and Stanislawczyk assert that Strzepek’s testimony created an impermissible inference that Reichman was a diamond merchant. But, .Strzepek’s testimony did not imply that Reichman was a diamond dealer, and the district court made sure of this. Prior to Strzepek’s testimony, the district court made sure the government was “not going to suggest that [Strzepek] saw the victim wearing [a diamond merchant’s vest or wallet] or anything of the kind.” At trial, the government did not ask Strzepek if Reichman was a diamond dealer. In fact, Strzepek was asked this question and gave this answer in front of the jury:

Q: It would be fair to say, wouldn’t it, that you don’t know anything about the particular facts of this particular case?
A: No, I don’t.

Strzepek’s testimony was not intended to mislead the jury into believing Reich-man was a diamond merchant. Instead, Strzepek’s testimony was intended to support the government’s position that Wro-bel and Stanislawczyk actually , believed that, as a person in the business of buying and selling diamonds, Reichman was likely to be in possession of diamonds, either on his person or at his home, and that their belief was reasonable.

. Wrobel and Stanislawczyk argue that the district court did not balance the evidence’s probative value against its prejudicial effect. However, the district court considered whether Strzepek’s testimony had the potential to mislead the jury. To prevent this danger, the district court instructed the government to ask Strzepek questions regarding his specialized knowledge only.

The district court did not abuse its discretion when admitting Strzepek’s testimony.

C. Right of Allocution

Stanislawczyk separately contends that the district court did not adequately comply with Federal Rule of Criminal Procedure 32 and denied him his right of a meaningful allocution. Rule 32 provides that, “[b]efore imposing sentence, the court must ... address the defendant personally in order to permit the defendant to speak or present any information to mitigate the sentence _” Fed. R. Crim. P. 32(i)(4)(A)(ii). We recognize that the right of allocution is an important right that the district courts must construe liberally. United States v. Covington, 681 F.3d 908, 910 (7th Cir. 2012) (citing United States v. Barnes, 948 F.2d 325, 328-30 (7th Cir. 1991)). But, the right of allocution is not without limits. United States v. Alden, 527 F.3d 653, 663 (7th Cir. 2008) (collecting cases describing limits on the right to allo-cute). Rule 32 “does not purport to set out a script that the district courts must follow when advising defendants of their right to allocution.” United States v. Williams, 258 F.3d 669, 674 (7th Cir. 2001). Instead, we look to the “substance of what occurred.” Id.

In considering Stanislawezyk’s arguments, we will follow the same analysis utilized by this Court in Williams. See id. at 674-75. First, the district court satisfied the first part of Rule 32 when it personally addressed Stanislawczyk—“Mr. Stanislawczyk, you are welcome to make a statement as well before your sentence is imposed.” In Williams, we held that the district court’s question to the defendant—“Mr. Williams, is there anything you would like to say?”—satisfied Rule 32’s requirement that the district court address the defendant personally. Id. at 675. The unambiguous manner in which the district court personally addressed the defendant in Williams is sufficiently similar to the way the district court addressed Stanislawczyk. The district court satisfied the requirement that it personally address Stanislawczyk.

Second, the district court permitted Stanislawczyk to speak or present any information to mitigate the sentence. Although we do not know the duration of Stanislawczyk’s allocution, it extended for more than nine pages in the transcript. Stanislawczyk elected to use his allocution time to cover a vast array of topics, including: (1) inadequacies in the government’s case; (2) ineffectiveness of his trial counsel; (3) the United States Constitution; and, (4) family problems in Europe. In concluding his allocution, Stanislawczyk stated that the “only thing [he] ask[s]” for is that “yóur Honor to use your gavel as a magic wand and kick me out of this county, make me return to my country to Poland.” The record as a whole shows that the district court satisfied its obligation under Rule 32 and that Stanislawczyk’s right to allocution was not denied.

Stanislawczyk’s argument essentially requests us to adopt an expansive and unprecedented interpretation of Rule 32. Rule 32 provides the defendant two opportunities to persuade the court-:as to the appropriate sentence: once by. the defendant’s attorney, Rule 32(i)(4)(A)(i), and the other by the defendant, Rule 32(i) (4) (A) (ii). Stanislawczyk contends that when a defendant proceeds pro se, his inability to exercise his right to have an attorney speak on his behalf “penalize^] a pro se defendant.” Stanislawczyk argues that the district court therefore has a duty to “clarify! ] the two separate procedural rights” to a pro se defendant and explain to the pro se defendant of “his right to speak in mitigation.”

This argument is flawed. Stanislawczyk erroneously believes that Rule 32 requires the district court to treat a defendant proceeding pro se as two separate entities: the defendant as the defendant’s attorney, and the defendant as the defendant. Unsurprisingly, Stanislawczyk does not cite to any authority in support of this argument, and we do not believe any reasonable reading of Rule 32 would support it. Thus, when the district court personally addressed Stanislawczyk, it was only as a defendant. There was no error in this procedure.

Furthermore, Stanislawczyk cannot claim he was “penalize[d]” by not having an attorney at sentencing when he insisted on proceeding without counsel. When asked by the district court as to whether he would proceed without counsel, Stanis-lawczyk stated: “Yes. I would like your Honor to be done and over with, with this case today, yes.”

Reviewing the sentencing transcript in its entirety, it- reveals that the district court advised Stanislawczyk of the concerns and disadvantages in proceeding pro se pursuant to Faretta, 422 U.S. 806, 95 S.Ct. 2525, 45 L.Ed.2d 562. The district court not only advised Stanislawczyk just before sentencing began, but had conducted an extensive colloquy in earlier proceedings. See March 9, 2015, Order. Stan-islawczyk does not contend otherwise.

In a last attempt, Stanislawczyk argues that the record, consisting of over nine pages of transcript, shows that he did not understand that his allocution time was meant to cover topics such as remorse or present arguments in mitigation. Stanis-lawczyk points out that this confusion is further highlighted by the fact that he set out two arguments in mitigation—sentence disparity and criminal history—only after the district court had already imposed his sentence.

These claims are unpersuasive. First, the transcript shows that Stanislawczyk talked about remorse. In fact, Stanislaw-czyk claimed “[t]here is nobody [he] could apologize to,” except to his family. Second, Stanislawczyk could , not have offered an argument based on, sentence disparity—as compared to his co-defendants’ sentences—prior to the district court’s imposition of his sentence. Stanislawczyk was the last of the three co-defendants to be sentenced, and he had the lowest sentencing Guidelines range.

The transcript shows that the district court gave Stanislawczyk what seemed like free-range to talk about whatever he pleased. The district court did not commit procedural error when it permitted Stanis-lawczyk to speak or present any information to mitigate his sentence.

CONCLUSION

For the foregoing reasons, we AFFIRM Wrobel and Stanislawczyk’s convictions, and AFFIRM Stanislawczyk’s sentence.

      . At oral argument, defense counsel admitted that "zero” diamonds were mined in the United States, .and stated; “We are not disputing that a diamond merchant is interstate commerce.”