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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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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----oo0oo----

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GREAT AMERICAN INSURANCE
COMPANY, an Ohio corporation,
Plaintiff,

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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.

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----oo0oo---Plaintiff Great American Insurance Company (“Great

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American”) brought this action, alleging that defendants Roadway

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Engineering Works, Inc., doing business as Roadway Electrical

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Works, Inc. (“Roadway”), Darlene Coddington, Randy Morisoli, and
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Marlene and Robert McDevitt breached two separate indemnity

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agreements.1

The McDevitts are the only remaining defendants in

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this action.

Great American now moves for summary judgment

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against the McDevitts pursuant to Federal Rule of Civil Procedure

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56 on its claims for breach of the indemnity agreements.

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I.

Factual and Procedural History

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On August 30, 2006, and March 10, 2010, the parties

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entered into two separate indemnity agreements (“Indemnity

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Agreements”).

(Ballinger Decl. ¶¶ 9-10, Exs. 1-2 (Docket No. 44-

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7).)

Both Indemnity Agreements begin by stating: “This Agreement

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binds the undersigned . . . jointly, severally and/or

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collectively, to Surety in connection with all Bond(s) heretofore

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or hereafter executed, provided or procured by Surety.”

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Exs. 1-2.)

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(Id.

The Indemnity Agreements require that the Undersigned--

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Roadway, Coddington, Morisoli, and the McDevitts--indemnify the

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Surety, Great American, from any liability for bonds that Great

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American issues on behalf of Roadway.

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Morisoli, and the McDevitts signed both agreements in their

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individual capacity.

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specifically contain the following provisions in paragraphs two

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and sixteen:

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(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
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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.
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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. . . .

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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.

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(Id.)
After the execution of each Indemnity Agreement, Great

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American issued several surety bonds that held it secondarily

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liable as the surety for performance or payment by the principal,

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Roadway, in various construction projects.

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Exs. 3A-3C, 4A-4H.)

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(Id. ¶¶ 9, 11, 13-14,

Later, suppliers, subcontractors, and bond obligees

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alleged that Roadway defaulted or did not perform on several of

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these bonds and filed claims with Great American.

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Exs. 5-29.)

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claims against the bonds.

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(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
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Agreements, Great American requested that defendants reimburse,

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exonerate, and indemnify Great American for these claims.

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(Ballinger Decl. ¶¶ 18-20, Exs. 30-32.)

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no response from defendants and paid the claimants several months

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later.

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Great American received

(Id. ¶ 20.)
Great American has provided an Accrued Interest

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Calculation for each payment it made to claimants that are

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covered by the Indemnity Agreements, detailing the payments made

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and the interest rate of each payment.

(Cabal Decl. ¶ 3, Ex. B.)

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As of July 8, 2016, Great American has incurred $2,579,170.90 in

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payments and $166,077.10 in expenses, excluding attorneys’ fees

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and interest.

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calculation of interest at 10 percent per annum, interest on the

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payments is $131,285.39.

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seeks a total of $2,876,633.39.

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(Ballinger Decl. ¶ 23, Ex. 35.)

(Cabal Decl. Ex. B.)

Under a

Great American

Great American initiated this action, alleging

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defendants failed to indemnify Great American as required by the

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Indemnity Agreements.

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defendants Roadway, Morisoli, and Coddington were dismissed from

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this action.

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After filing for Chapter 7 bankruptcy,

(Docket Nos. 40, 43.)

Pursuant to Federal Rule of Civil Procedure 56, Great

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American moves for summary judgment on its two breach of contract

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causes of action against the McDevitts for failure to indemnify

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Great American.

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II.

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(Docket No. 44-1.)

Legal Standard
Summary judgment is proper “if the movant shows that

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there is no genuine dispute as to any material fact and the

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movant is entitled to judgment as a matter of law.”
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Fed. R. Civ.

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P. 56(a).

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of the suit, and a genuine issue is one that could permit a

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reasonable jury to enter a verdict in the non-moving party’s

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favor.

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(1986).

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burden of establishing the absence of a genuine issue of material

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fact and can satisfy this burden by presenting evidence that

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negates an essential element of the non-moving party’s case.

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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

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Alternatively, the moving party can demonstrate that the non-

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moving party cannot produce evidence to support an essential

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element upon which it will bear the burden of proof at trial.

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Id.

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Once the moving party meets its initial burden, the

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burden shifts to the non-moving party to “designate ‘specific

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facts showing that there is a genuine issue for trial.’”

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324 (quoting then-Fed. R. Civ. P. 56(e)).

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must “do more than simply show that there is some metaphysical

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doubt as to the material facts.”

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Zenith Radio Corp., 475 U.S. 574, 586 (1986).

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existence of a scintilla of evidence . . . will be insufficient;

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there must be evidence on which the jury could reasonably find

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for the [non-moving party].”

Id. at

The non-moving party

Matsushita Elec. Indus. Co. v.
“The mere

Anderson, 477 U.S. at 252.

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In deciding a summary judgment motion, the court must

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view the evidence in the light most favorable to the non-moving

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party and draw all justifiable inferences in its favor.

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255.

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and the drawing of legitimate inferences from the facts are jury

Id. at

“Credibility determinations, the weighing of the evidence,

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functions, not those of a judge . . . ruling on a motion for

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summary judgment . . . .”

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III. Discussion

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Id.

California law has long recognized the right of a

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surety, such as Great American, to receive indemnification under

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the terms of a written indemnity agreement.

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Deposit Co. of Md. v. Whitson, 187 Cal. App. 2d 751, 756 (2d

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Dist. 1960).

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according to the language and contents of the contract as well as

See, e.g., Fid. &

“An indemnity agreement is to be interpreted

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the intention of the parties as indicated by the contract.”

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Myers Bldg. Indus., Ltd. v. Interface Tech., Inc., 13 Cal. App.

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4th 949, 968 (2d Dist. 1993).

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In order to demonstrate a valid claim for breach of an

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indemnity agreement under California law, a plaintiff must

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demonstrate the existence of an indemnity agreement, the

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plaintiff’s performance under the agreement, breach of the

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agreement, and damages.

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Cal. 2d 822, 830 (1968).

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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.

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The Agreements contain clauses that indemnify Great American

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“from and against any and all such losses and/or expenses which

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[Great American] may sustain and incur [b]y reason of having

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executed or procured the execution of Bonds on behalf of any of

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the Undersigned . . . .”

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American performed under the Indemnity Agreements by issuing

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payment and performance bonds on behalf of Roadway, an

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Undersigned.

(Ballinger Decl. Exs. 1-2.)

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Great

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B.

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Breach of Indemnity Agreement
When a surety presents evidence of its payments

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pursuant to a prima facie evidence clause, such as that provided

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in the two Indemnity Agreements,2 the burden shifts to the

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indemnitors to prove that the surety cannot recover the fees.

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Travelers Cas. & Surety Co. of Am. v. Dunmore, No. Civ. 2:07-2493

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LKK DAD, 2009 WL 1586936, at *10 (E.D. Cal. June 5, 2009) (citing

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Fallon Elec. Co. v. Cincinnati Ins. Co., 121 F.3d 125, 128 (3d

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Cir. 1997)); see also First Nat’l Ins. Co. of Am. v. Hunt, No.

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Civ. 2:10-1339 WBS GGH, 2011 WL 2173765, at *3 (E.D. Cal. June 2,

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2011).

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vouchers and other evidence of payment shall be prima facie

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evidence of the propriety thereof, have been upheld as not

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against public policy and enforced by the courts.”

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Ins. Co. v. Bloomfield, 401 F.2d 357, 362 (6th Cir. 1968).

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“Provisions in indemnity agreements . . . providing that

Transamerica

A defendant does not need to indemnify a plaintiff if

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the plaintiff breaches the contractual duty of good faith and

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fair dealing.

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Marine Ins. Co., 47 Cal. App. 4th 464, 482 (1st Dist.

See Arntz Contracting Co. v. St. Paul Fire &

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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).)
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1996)(citing Carma Developers (Cal.), Inc. v. Marathon Dev. Cal.,

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Inc., 2 Cal. 4th 342, 371 (1992)); see Fid. & Deposit Co. of Md.

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v. Bristol Steel & Iron Works, Inc., 722 F.2d 1160, 1163 (4th

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Cir. 1983) (“The only exception . . . arises when the payment has

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been made ‘through fraud or lack of good faith’ on the part of

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the surety . . . .” (quoting Engbrock v. Fed. Ins. Co., 370 F.2d

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784, 786 (5th Cir. 1967))).

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evidence of the bonds and payments of claims under the prima

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facie evidence clause, the burden thus shifts to the McDevitts to

Since Great American provided

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prove that Great American either acted fraudulently or did not

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act in good faith.

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See Fallon, 121 F.3d at 129.

A plaintiff does not act in good faith if the plaintiff

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attempts to recover for claims that are not properly covered by

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the indemnity agreement.

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But “absent an affirmative showing of fraud or bad faith, the

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good faith of the plaintiff-surety [is] presumed.”

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Surety Co. v. Szabo Contracting, Inc., 812 N.E.2d 90, 103 (Ill.

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Ct. App. 2004) (citing U.S. Fid. & Guar. Co. v. Klein Corp., 558

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N.E.2d 1047, 1047 (Ill. Ct. App. 1989)).

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See Arntz, 47 Cal. App. 4th at 482.

Mountbatten

Under California law, “[a] bond shall be in writing

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signed by the sureties under oath . . . .”

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§ 995.320(a).

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indemnify Great American because the bonds were not signed under

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oath and thus are not valid under § 995.320(a).3

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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,
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argues that defendants are precluded from this argument because

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of admissions in their answer.

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“Statements made in a pleading may be admitted against

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the pleader as evidence in the form of judicial admissions . . .

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.”

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(9th Cir. 1977); see also Brooks v. Great Atlantic & Pac. Tea

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Co., 92 F.2d 794, 796 (9th Cir. 1937) (“[A]dmissions in the

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answer have the force of evidence . . . .”).

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later “controvert these previously admitted facts,” including at

Janich Bros., Inc. v. Am. Distilling Co., 570 F.2d 848, 860

Parties cannot

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summary judgment.

Yamaha Corp. of Am. v. ABC Int’l Traders,

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Corp., 703 F. Supp. 1398, 1402 (C.D. Cal. 1988) (concluding

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plaintiff’s admissions in a complaint could not later be

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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.
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controverted when attempting to defeat defendant’s motion for

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summary judgment).

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binding on the party who made them.”

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Lacelaw Corp., 861 F.2d 224, 226 (9th Cir. 1988).

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Previously admitted facts are “conclusively
Am. Title Ins. Co. v.

In the First Amended Complaint, Great American alleges,

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“In consideration of Defendants . . . executing Agreement 1,

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[Great American] agreed to issue certain payment and performance

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bonds on behalf of Roadway Electrical Works, Inc. as principal .

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. . .”

(First Am. Compl. ¶ 10 (Docket No. 6).)

Great American

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alleges the same for the second indemnity agreement.

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In their answer, defendants admit “that [Great American] issued

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the payment and performance bonds identified in paragraph 10(a) –

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(c) of the Complaint” and “that [Great American] issued the

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payment and performance bonds identified in paragraph 12(a) – (h)

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of the Complaint.”

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The copies of the bonds referred and attached to the First

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Amended Complaint are the same bonds attached to the Ballinger

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Declaration.

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Decl. Exs. 3A-3C, 4A-4H.)

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the McDevitts from contesting the issuance of the bonds, but not

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the validity of the bonds under § 995.320.

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(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

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certain payment and performance bonds on behalf of Roadway . . .

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.”

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It is also undisputed that Great American issued these bonds as

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early as November 2009, (Ballinger Decl. Ex. 3A); however, Great

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American did not receive the first claim on these bonds until

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July 2015, (id. Ex. 5.)

(First Am. Compl. ¶¶ 10, 12; see McDevitt Answer ¶¶ 10, 12.)

The time span between the issuance of
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the bonds and the claims on those bonds supports the veracity of

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the bonds because it indicates that the principal, Roadway, was

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performing in reliance on the bonds for some period of time.

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example, the obligee on the November 2009 bond submitted a claim

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only once Roadway defaulted on its subcontractor obligations in

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October 2015--five years and eleven months after Great American

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issued the bond.

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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

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the surety does not sign it under oath.

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California Civil Procedure Code exists to protect the surety by

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ensuring that a surety is not liable for a bond or the

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principal’s actions unless the surety signed the bond under oath.

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The defendants do not dispute the issuance of the bonds, do not

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dispute the validity of the Indemnity Agreements, and have had

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copies of these bonds since the commencement of this action.

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Defendants presumably did not question the validity of the bonds

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when Roadway performed work and paid subcontractors under them.

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Now--years after plaintiff issued the bonds--it is disingenuous

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for defendants to claim they are not valid only because plaintiff

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did not sign them under oath.

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Section 995.320 of the

Defendants failed to show plaintiff acted in bad faith.

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Because it is undisputed that plaintiff issued bonds under which

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defendants agreed to indemnify plaintiff and defendants have not

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cited any authority suggesting the bonds are invalid because

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plaintiff did not sign them under oath, defendants have failed to

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create a triable issue of fact with respect to their duty to

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indemnify plaintiff.

Accordingly, the court must grant
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plaintiff’s motion for summary judgment on its breach of contract

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claims.

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C.

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Damages
The amount of damage is undisputed.

The Indemnity

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Agreements note that Great American can recover any losses,

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interest, expenses, and attorneys’ fees incurred as a result of

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an indemnity action under the Indemnity Agreements.

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2.)

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$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

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supported by “vouchers, invoices, an affidavit or other

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evidence,” namely the exhibits to the Ballinger Declaration.

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(Id.)

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“Provisions in indemnity agreements granting to the

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indemnitor the right to compromise and settle claims . . . have

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been upheld as not against public policy and enforced by the

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courts.”

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decision to settle the claims was within its purview under the

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Indemnity Agreements, which grant Great American broad discretion

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to review, evaluate, and pay claims.

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Transamerica, 401 F.2d at 362.

Great American’s

(Ballinger Decl. Exs. 1-2.)

Because the McDevitts have not presented any triable

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issue of material fact on amount of damages, the statement of

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losses and expenses provided by Great American is sufficient

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evidence of the damages it incurred.

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The Indemnity Agreements also provide that Great

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American is entitled to interest on the payment of claims.

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(Ballinger Decl. Exs. 1-2.)

No interest rate was specified in

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either Indemnity Agreement.

Great American is thus entitled to

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the statutory rate of 10 percent per annum.
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See Cal. Civ. Code §

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3289 (“If a contract entered into after January 1, 1986, does not

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stipulate a legal rate of interest, the obligation shall bear

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interest at a rate of 10 percent per annum after a breach.”).

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The accrued interest on the payments of the claims is

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$131,285.39.

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D.

(Cabal Decl. Ex. B.)
Defense to Indemnity Agreement

“The language of a contract is to govern its

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interpretation, if the language is clear and explicit . . . .”

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Cal. Civ. Code § 1638.

The McDevitts argue in a short, one-

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sentence paragraph at the end of their opposition to Great

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American’s motion that they are not liable to Great American

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because its suit against the individual indemnitors “is

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effectively seeking to make the individual indemnitors liable

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where they otherwise would not have had any liability by virtue

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of the corporate veil.”

(Docket No. 45.)

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The McDevitts signed the Indemnity Agreements in their

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individual capacities, and the Indemnity Agreements individually

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list them as “Undersigned” who agree to “exonerate, indemnify,

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hold harmless and keep [Great American] indemnified from . . .

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all liability . . . .”

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of the agreements, Robert McDevitt signed on a line that states

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“Robert McDevitt, Individually” and Marlene McDevitt signed on a

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line that states “Marlene McDevitt, Individually.”

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Furthermore, Marlene McDevitt and Coddington signed the Indemnity

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Agreements in their official capacities as officers of Roadway

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and in their individual capacities, indicating the individual

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defendants intended to be individually liable under the Indemnity

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Agreements.

(Ballinger Decl. Exs. 1-2.)

(See Ballinger Decl. Exs. 1-2.)
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At the end

Id.

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The Indemnity Agreements are clear and explicit, the

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McDevitts signed in their individual capacities.

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Int’l Inc. v. Peck, 195 Cal. App. 3d 803, 808-09 (2d Dist. 1987)

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(holding corporate officer individually liable for a contract in

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which he signed his own name, notwithstanding addition of

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corporate title to personal signature line).

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individually liable under the Indemnity Agreements.

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See Sebastian

The McDevitts are

IT IS THEREFORE ORDERED that plaintiff’s motion for
summary judgment on its claims for breach of indemnity agreements

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in the amount of $2,876,633.39 be, and the same hereby is,

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GRANTED.

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Dated:

September 20, 2016

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