Great American Insurance Company v. Roadway Engineering Works, Inc.

Filing 51

MEMORANDUM AND ORDER signed by Senior Judge William B. Shubb on 9/20/2016 GRANTING 44 Motion for Summary Adjudication on its claims for breach of indemnity agreements in the amount of $2,876,633.39. CASE CLOSED. (Michel, G.)

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 ----oo0oo---- 11 12 13 GREAT AMERICAN INSURANCE COMPANY, an Ohio corporation, Plaintiff, 14 15 16 17 18 19 20 21 22 CIV NO.: 1:16-00070 WBS SKO MEMORANDUM AND ORDER RE: MOTION FOR SUMMARY JUDGMENT v. ROADWAY ENGINEERING WORKS, INC., a California corporation, individually and doing business as ROADWAY ELECTRICAL WORKS, INC.; DARLENE CODDINGTON, an individual; RANDY MORISOLI, an individual; MARLENE MCDEVITT, an individual; and ROBERT MCDEVITT, an individual, Defendants. 23 24 25 ----oo0oo---Plaintiff Great American Insurance Company (“Great 26 American”) brought this action, alleging that defendants Roadway 27 Engineering Works, Inc., doing business as Roadway Electrical 28 Works, Inc. (“Roadway”), Darlene Coddington, Randy Morisoli, and 1 1 Marlene and Robert McDevitt breached two separate indemnity 2 agreements.1 The McDevitts are the only remaining defendants in 3 this action. Great American now moves for summary judgment 4 against the McDevitts pursuant to Federal Rule of Civil Procedure 5 56 on its claims for breach of the indemnity agreements. 6 I. Factual and Procedural History 7 On August 30, 2006, and March 10, 2010, the parties 8 entered into two separate indemnity agreements (“Indemnity 9 Agreements”). (Ballinger Decl. ¶¶ 9-10, Exs. 1-2 (Docket No. 44- 10 7).) Both Indemnity Agreements begin by stating: “This Agreement 11 binds the undersigned . . . jointly, severally and/or 12 collectively, to Surety in connection with all Bond(s) heretofore 13 or hereafter executed, provided or procured by Surety.” 14 Exs. 1-2.) 15 (Id. The Indemnity Agreements require that the Undersigned-- 16 Roadway, Coddington, Morisoli, and the McDevitts--indemnify the 17 Surety, Great American, from any liability for bonds that Great 18 American issues on behalf of Roadway. 19 Morisoli, and the McDevitts signed both agreements in their 20 individual capacity. 21 specifically contain the following provisions in paragraphs two 22 and sixteen: 23 24 25 26 27 28 (Id.) (Id.) Coddington, The Indemnity Agreements The Undersigned, jointly and severally, shall exonerate, indemnify, hold harmless and keep the Surety indemnified from and against any and all liability for losses, costs, and/or expenses of whatsoever kind or 1 Plaintiff’s Complaint also includes claims for equitable indemnity, Quia Timet and injunctive relief, specific performance, fraud, and breach of fiduciary duty. (First Am. Compl. (Docket No. 6).) Such relief is not at issue in the instant motion. 2 1 nature (including, but not limited to, interest, court costs, consultant or expert fees, and counsel fees) and from and against any and all such losses and/or expenses which the Surety may sustain and incur: (1) By reason of being requested to execute or procure, or having executed or procured the execution of the Bonds on behalf of any of the Undersigned, (2) By reasons of the failure of the Undersigned to perform or comply with any of the covenants and conditions of this Agreement or (3) In enforcing any of the terms, covenants or conditions of this Agreement . . . . In the event of any payment of any kind by the Surety, the Undersigned further agree that in any accounting between the Surety and the Undersigned, the surety shall be entitled to charge for any and all disbursements made by the Surety in good faith in and about the matters herein contemplated by the Agreement under the belief that the Surety is or was liable for the sums and amounts so disbursed, or that it was necessary or expedient for the Surety to make such disbursements, whether or not such liability, necessity or expediency existed; and that the vouchers, invoices, an affidavit or other evidence of any such payments made by the Surety shall be prima facie evidence of the fact and amount of the Undersigned’s liability to the Surety. . . . 2 3 4 5 6 7 8 9 10 11 12 13 14 In the event that Surety shall file suit at law or equity to enforce the terms of this Agreement, Surety shall be entitled to recover its own attorney’s fees and expenses in connection with such suit. 15 16 17 18 (Id.) After the execution of each Indemnity Agreement, Great 19 American issued several surety bonds that held it secondarily 20 liable as the surety for performance or payment by the principal, 21 Roadway, in various construction projects. 22 Exs. 3A-3C, 4A-4H.) 23 (Id. ¶¶ 9, 11, 13-14, Later, suppliers, subcontractors, and bond obligees 24 alleged that Roadway defaulted or did not perform on several of 25 these bonds and filed claims with Great American. 26 Exs. 5-29.) 27 claims against the bonds. 28 (Docket No. 44-5).) (Id. ¶ 16, In total, these parties submitted thirty-three (See id. Exs. 5-29; Cabal Decl. Ex. B Pursuant to the terms of the Indemnity 3 1 Agreements, Great American requested that defendants reimburse, 2 exonerate, and indemnify Great American for these claims. 3 (Ballinger Decl. ¶¶ 18-20, Exs. 30-32.) 4 no response from defendants and paid the claimants several months 5 later. 6 Great American received (Id. ¶ 20.) Great American has provided an Accrued Interest 7 Calculation for each payment it made to claimants that are 8 covered by the Indemnity Agreements, detailing the payments made 9 and the interest rate of each payment. (Cabal Decl. ¶ 3, Ex. B.) 10 As of July 8, 2016, Great American has incurred $2,579,170.90 in 11 payments and $166,077.10 in expenses, excluding attorneys’ fees 12 and interest. 13 calculation of interest at 10 percent per annum, interest on the 14 payments is $131,285.39. 15 seeks a total of $2,876,633.39. 16 (Ballinger Decl. ¶ 23, Ex. 35.) (Cabal Decl. Ex. B.) Under a Great American Great American initiated this action, alleging 17 defendants failed to indemnify Great American as required by the 18 Indemnity Agreements. 19 defendants Roadway, Morisoli, and Coddington were dismissed from 20 this action. 21 After filing for Chapter 7 bankruptcy, (Docket Nos. 40, 43.) Pursuant to Federal Rule of Civil Procedure 56, Great 22 American moves for summary judgment on its two breach of contract 23 causes of action against the McDevitts for failure to indemnify 24 Great American. 25 II. 26 (Docket No. 44-1.) Legal Standard Summary judgment is proper “if the movant shows that 27 there is no genuine dispute as to any material fact and the 28 movant is entitled to judgment as a matter of law.” 4 Fed. R. Civ. 1 P. 56(a). 2 of the suit, and a genuine issue is one that could permit a 3 reasonable jury to enter a verdict in the non-moving party’s 4 favor. 5 (1986). 6 burden of establishing the absence of a genuine issue of material 7 fact and can satisfy this burden by presenting evidence that 8 negates an essential element of the non-moving party’s case. 9 Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). A material fact is one that could affect the outcome Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 The party moving for summary judgment bears the initial 10 Alternatively, the moving party can demonstrate that the non- 11 moving party cannot produce evidence to support an essential 12 element upon which it will bear the burden of proof at trial. 13 Id. 14 Once the moving party meets its initial burden, the 15 burden shifts to the non-moving party to “designate ‘specific 16 facts showing that there is a genuine issue for trial.’” 17 324 (quoting then-Fed. R. Civ. P. 56(e)). 18 must “do more than simply show that there is some metaphysical 19 doubt as to the material facts.” 20 Zenith Radio Corp., 475 U.S. 574, 586 (1986). 21 existence of a scintilla of evidence . . . will be insufficient; 22 there must be evidence on which the jury could reasonably find 23 for the [non-moving party].” Id. at The non-moving party Matsushita Elec. Indus. Co. v. “The mere Anderson, 477 U.S. at 252. 24 In deciding a summary judgment motion, the court must 25 view the evidence in the light most favorable to the non-moving 26 party and draw all justifiable inferences in its favor. 27 255. 28 and the drawing of legitimate inferences from the facts are jury Id. at “Credibility determinations, the weighing of the evidence, 5 1 functions, not those of a judge . . . ruling on a motion for 2 summary judgment . . . .” 3 III. Discussion 4 Id. California law has long recognized the right of a 5 surety, such as Great American, to receive indemnification under 6 the terms of a written indemnity agreement. 7 Deposit Co. of Md. v. Whitson, 187 Cal. App. 2d 751, 756 (2d 8 Dist. 1960). 9 according to the language and contents of the contract as well as See, e.g., Fid. & “An indemnity agreement is to be interpreted 10 the intention of the parties as indicated by the contract.” 11 Myers Bldg. Indus., Ltd. v. Interface Tech., Inc., 13 Cal. App. 12 4th 949, 968 (2d Dist. 1993). 13 In order to demonstrate a valid claim for breach of an 14 indemnity agreement under California law, a plaintiff must 15 demonstrate the existence of an indemnity agreement, the 16 plaintiff’s performance under the agreement, breach of the 17 agreement, and damages. 18 Cal. 2d 822, 830 (1968). 19 20 A. See Reichert v. Gen. Ins. Co. of Am., 68 Existence of Agreement and Plaintiff’s Performance It is undisputed that indemnity agreements exist here. 21 The Agreements contain clauses that indemnify Great American 22 “from and against any and all such losses and/or expenses which 23 [Great American] may sustain and incur [b]y reason of having 24 executed or procured the execution of Bonds on behalf of any of 25 the Undersigned . . . .” 26 American performed under the Indemnity Agreements by issuing 27 payment and performance bonds on behalf of Roadway, an 28 Undersigned. (Ballinger Decl. Exs. 1-2.) 6 Great 1 B. 2 Breach of Indemnity Agreement When a surety presents evidence of its payments 3 pursuant to a prima facie evidence clause, such as that provided 4 in the two Indemnity Agreements,2 the burden shifts to the 5 indemnitors to prove that the surety cannot recover the fees. 6 Travelers Cas. & Surety Co. of Am. v. Dunmore, No. Civ. 2:07-2493 7 LKK DAD, 2009 WL 1586936, at *10 (E.D. Cal. June 5, 2009) (citing 8 Fallon Elec. Co. v. Cincinnati Ins. Co., 121 F.3d 125, 128 (3d 9 Cir. 1997)); see also First Nat’l Ins. Co. of Am. v. Hunt, No. 10 Civ. 2:10-1339 WBS GGH, 2011 WL 2173765, at *3 (E.D. Cal. June 2, 11 2011). 12 vouchers and other evidence of payment shall be prima facie 13 evidence of the propriety thereof, have been upheld as not 14 against public policy and enforced by the courts.” 15 Ins. Co. v. Bloomfield, 401 F.2d 357, 362 (6th Cir. 1968). 16 “Provisions in indemnity agreements . . . providing that Transamerica A defendant does not need to indemnify a plaintiff if 17 the plaintiff breaches the contractual duty of good faith and 18 fair dealing. 19 Marine Ins. Co., 47 Cal. App. 4th 464, 482 (1st Dist. See Arntz Contracting Co. v. St. Paul Fire & 20 21 22 23 24 25 26 27 28 2 Paragraph Two of the Indemnity Agreements contain the prima facie evidence clause: In the event of any payment of any kind by [Great American], the [defendants] further agree that in any accounting between [Great American] and the [defendants], [Great American] shall be entitled to charge for any and all disbursements made by [Great American] in good faith . . . and that the vouchers, invoices, an affidavit or other evidence of any such payments made by [Great American[ shall be prima facie evidence of the fact and amount of the [defendant]’s liability to [Great American]. (Ballinger Decl. Exs. 1-2 (emphasis added).) 7 1 1996)(citing Carma Developers (Cal.), Inc. v. Marathon Dev. Cal., 2 Inc., 2 Cal. 4th 342, 371 (1992)); see Fid. & Deposit Co. of Md. 3 v. Bristol Steel & Iron Works, Inc., 722 F.2d 1160, 1163 (4th 4 Cir. 1983) (“The only exception . . . arises when the payment has 5 been made ‘through fraud or lack of good faith’ on the part of 6 the surety . . . .” (quoting Engbrock v. Fed. Ins. Co., 370 F.2d 7 784, 786 (5th Cir. 1967))). 8 evidence of the bonds and payments of claims under the prima 9 facie evidence clause, the burden thus shifts to the McDevitts to Since Great American provided 10 prove that Great American either acted fraudulently or did not 11 act in good faith. 12 See Fallon, 121 F.3d at 129. A plaintiff does not act in good faith if the plaintiff 13 attempts to recover for claims that are not properly covered by 14 the indemnity agreement. 15 But “absent an affirmative showing of fraud or bad faith, the 16 good faith of the plaintiff-surety [is] presumed.” 17 Surety Co. v. Szabo Contracting, Inc., 812 N.E.2d 90, 103 (Ill. 18 Ct. App. 2004) (citing U.S. Fid. & Guar. Co. v. Klein Corp., 558 19 N.E.2d 1047, 1047 (Ill. Ct. App. 1989)). 20 See Arntz, 47 Cal. App. 4th at 482. Mountbatten Under California law, “[a] bond shall be in writing 21 signed by the sureties under oath . . . .” 22 § 995.320(a). 23 indemnify Great American because the bonds were not signed under 24 oath and thus are not valid under § 995.320(a).3 25 26 27 28 3 Cal. Civ. Proc. Code According to defendants, they are not obligated to Great American Defendants also object to the court’s consideration of Exhibits 3A through 3C and 4A through 4H in the Ballinger Declaration, the bonds issued by Great American on Roadway’s behalf, on the grounds of insufficient foundation, lack of authentication, and hearsay. “An affidavit or declaration used to support or oppose a motion must be made on personal knowledge, 8 1 argues that defendants are precluded from this argument because 2 of admissions in their answer. 3 “Statements made in a pleading may be admitted against 4 the pleader as evidence in the form of judicial admissions . . . 5 .” 6 (9th Cir. 1977); see also Brooks v. Great Atlantic & Pac. Tea 7 Co., 92 F.2d 794, 796 (9th Cir. 1937) (“[A]dmissions in the 8 answer have the force of evidence . . . .”). 9 later “controvert these previously admitted facts,” including at Janich Bros., Inc. v. Am. Distilling Co., 570 F.2d 848, 860 Parties cannot 10 summary judgment. Yamaha Corp. of Am. v. ABC Int’l Traders, 11 Corp., 703 F. Supp. 1398, 1402 (C.D. Cal. 1988) (concluding 12 plaintiff’s admissions in a complaint could not later be 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 set out facts that would be admissible in evidence, and show that the affiant or declarant is competent to testify on the matters stated.” Fed. R. Civ. P. 56(c)(4). Mr. Ballinger is a bond claims representative who received, assembled, developed, and analyzed the documents and claims related to the bonds that Great American executed for Roadway. (Ballinger Decl. ¶ 4.) As the assigned representative on these bonds, Mr. Ballinger has personal knowledge about the bonds, laid the proper foundation for knowledge of the bonds, and properly authenticated the bonds. Further, the McDevitts’ Answer conceded that the bonds at issue were, in fact, valid. (McDevitt Answer ¶¶ 10, 12 (Docket No. 28).) Even if the non-moving party’s evidence is presented in a form that is currently inadmissible, such evidence may be evaluated on a motion for summary judgment so long as the moving party’s objections could be cured at trial. See Burch v. Regents of the Univ. of Cal., 433 F. Supp. 2d 1110, 1119–20 (E.D. Cal. 2006). Here, the exhibits fall within the exception to hearsay for records of a regularly conducted business activity. Fed. R. Evid. 803(6). Therefore, these objections are overruled. The McDevitts also raise fourteen other objections to evidence Great American submitted in support of its motion for summary judgment. (See Docket No. 47.) Because the court does not rely on any of the evidence objected to in the McDevitts’ remaining objections, the court overrules those objections as moot. 9 1 controverted when attempting to defeat defendant’s motion for 2 summary judgment). 3 binding on the party who made them.” 4 Lacelaw Corp., 861 F.2d 224, 226 (9th Cir. 1988). 5 Previously admitted facts are “conclusively Am. Title Ins. Co. v. In the First Amended Complaint, Great American alleges, 6 “In consideration of Defendants . . . executing Agreement 1, 7 [Great American] agreed to issue certain payment and performance 8 bonds on behalf of Roadway Electrical Works, Inc. as principal . 9 . . .” (First Am. Compl. ¶ 10 (Docket No. 6).) Great American 10 alleges the same for the second indemnity agreement. 11 In their answer, defendants admit “that [Great American] issued 12 the payment and performance bonds identified in paragraph 10(a) – 13 (c) of the Complaint” and “that [Great American] issued the 14 payment and performance bonds identified in paragraph 12(a) – (h) 15 of the Complaint.” 16 The copies of the bonds referred and attached to the First 17 Amended Complaint are the same bonds attached to the Ballinger 18 Declaration. 19 Decl. Exs. 3A-3C, 4A-4H.) 20 the McDevitts from contesting the issuance of the bonds, but not 21 the validity of the bonds under § 995.320. 22 (Id. ¶ 12.) (McDevitt Answer ¶¶ 10, 12 (Docket No. 28).) (Compare First Am. Compl. Ex. C, with Ballinger The admission in the answer prevents It is undisputed that “[Great American] agreed to issue 23 certain payment and performance bonds on behalf of Roadway . . . 24 .” 25 It is also undisputed that Great American issued these bonds as 26 early as November 2009, (Ballinger Decl. Ex. 3A); however, Great 27 American did not receive the first claim on these bonds until 28 July 2015, (id. Ex. 5.) (First Am. Compl. ¶¶ 10, 12; see McDevitt Answer ¶¶ 10, 12.) The time span between the issuance of 10 1 the bonds and the claims on those bonds supports the veracity of 2 the bonds because it indicates that the principal, Roadway, was 3 performing in reliance on the bonds for some period of time. 4 example, the obligee on the November 2009 bond submitted a claim 5 only once Roadway defaulted on its subcontractor obligations in 6 October 2015--five years and eleven months after Great American 7 issued the bond. 8 9 For (Id.) The parties have not provided, and the court is not aware of, any California case law that holds a bond is invalid if 10 the surety does not sign it under oath. 11 California Civil Procedure Code exists to protect the surety by 12 ensuring that a surety is not liable for a bond or the 13 principal’s actions unless the surety signed the bond under oath. 14 The defendants do not dispute the issuance of the bonds, do not 15 dispute the validity of the Indemnity Agreements, and have had 16 copies of these bonds since the commencement of this action. 17 Defendants presumably did not question the validity of the bonds 18 when Roadway performed work and paid subcontractors under them. 19 Now--years after plaintiff issued the bonds--it is disingenuous 20 for defendants to claim they are not valid only because plaintiff 21 did not sign them under oath. 22 Section 995.320 of the Defendants failed to show plaintiff acted in bad faith. 23 Because it is undisputed that plaintiff issued bonds under which 24 defendants agreed to indemnify plaintiff and defendants have not 25 cited any authority suggesting the bonds are invalid because 26 plaintiff did not sign them under oath, defendants have failed to 27 create a triable issue of fact with respect to their duty to 28 indemnify plaintiff. Accordingly, the court must grant 11 1 plaintiff’s motion for summary judgment on its breach of contract 2 claims. 3 C. 4 Damages The amount of damage is undisputed. The Indemnity 5 Agreements note that Great American can recover any losses, 6 interest, expenses, and attorneys’ fees incurred as a result of 7 an indemnity action under the Indemnity Agreements. 8 2.) 9 $166,077.10 in expenses. (Id. Exs. 1- Great American has paid $2,579,170.90 in losses and (Id. ¶ 23, Ex. 35.) These amounts are 10 supported by “vouchers, invoices, an affidavit or other 11 evidence,” namely the exhibits to the Ballinger Declaration. 12 (Id.) 13 “Provisions in indemnity agreements granting to the 14 indemnitor the right to compromise and settle claims . . . have 15 been upheld as not against public policy and enforced by the 16 courts.” 17 decision to settle the claims was within its purview under the 18 Indemnity Agreements, which grant Great American broad discretion 19 to review, evaluate, and pay claims. 20 Transamerica, 401 F.2d at 362. Great American’s (Ballinger Decl. Exs. 1-2.) Because the McDevitts have not presented any triable 21 issue of material fact on amount of damages, the statement of 22 losses and expenses provided by Great American is sufficient 23 evidence of the damages it incurred. 24 The Indemnity Agreements also provide that Great 25 American is entitled to interest on the payment of claims. 26 (Ballinger Decl. Exs. 1-2.) No interest rate was specified in 27 either Indemnity Agreement. Great American is thus entitled to 28 the statutory rate of 10 percent per annum. 12 See Cal. Civ. Code § 1 3289 (“If a contract entered into after January 1, 1986, does not 2 stipulate a legal rate of interest, the obligation shall bear 3 interest at a rate of 10 percent per annum after a breach.”). 4 The accrued interest on the payments of the claims is 5 $131,285.39. 6 7 D. (Cabal Decl. Ex. B.) Defense to Indemnity Agreement “The language of a contract is to govern its 8 interpretation, if the language is clear and explicit . . . .” 9 Cal. Civ. Code § 1638. The McDevitts argue in a short, one- 10 sentence paragraph at the end of their opposition to Great 11 American’s motion that they are not liable to Great American 12 because its suit against the individual indemnitors “is 13 effectively seeking to make the individual indemnitors liable 14 where they otherwise would not have had any liability by virtue 15 of the corporate veil.” (Docket No. 45.) 16 The McDevitts signed the Indemnity Agreements in their 17 individual capacities, and the Indemnity Agreements individually 18 list them as “Undersigned” who agree to “exonerate, indemnify, 19 hold harmless and keep [Great American] indemnified from . . . 20 all liability . . . .” 21 of the agreements, Robert McDevitt signed on a line that states 22 “Robert McDevitt, Individually” and Marlene McDevitt signed on a 23 line that states “Marlene McDevitt, Individually.” 24 Furthermore, Marlene McDevitt and Coddington signed the Indemnity 25 Agreements in their official capacities as officers of Roadway 26 and in their individual capacities, indicating the individual 27 defendants intended to be individually liable under the Indemnity 28 Agreements. (Ballinger Decl. Exs. 1-2.) (See Ballinger Decl. Exs. 1-2.) 13 At the end Id. 1 The Indemnity Agreements are clear and explicit, the 2 McDevitts signed in their individual capacities. 3 Int’l Inc. v. Peck, 195 Cal. App. 3d 803, 808-09 (2d Dist. 1987) 4 (holding corporate officer individually liable for a contract in 5 which he signed his own name, notwithstanding addition of 6 corporate title to personal signature line). 7 individually liable under the Indemnity Agreements. 8 9 See Sebastian The McDevitts are IT IS THEREFORE ORDERED that plaintiff’s motion for summary judgment on its claims for breach of indemnity agreements 10 in the amount of $2,876,633.39 be, and the same hereby is, 11 GRANTED. 12 Dated: September 20, 2016 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14

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