Liberty Mutual Insurance Company v. Applegate et al

Filing 59

ORDER granting 39 Plaintiff's Motion for Partial Summary Judgment. Plaintiff is awarded damages in the amount of $3,449,729.83, and Defendants shall deposit collateral in the amount of $4,111,469.29. Signed by Magistrate Judge Howard R. Lloyd on 8/20/2014. (hrllc1S, COURT STAFF) (Filed on 8/20/2014)

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*E-Filed: August 20, 2014*

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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For the Northern District of California

NOT FOR CITATION

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United States District Court

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SAN JOSE DIVISION

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LIBERTY MUTUAL INSURANCE
COMPANY,

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Plaintiff,
v.

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JIM APPLEGATE, ET AL.,

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No. C13-04495 HRL
ORDER GRANTING PLAINTIFF’S
MOTION FOR PARTIAL SUMMARY
JUDGMENT

Defendants.
____________________________________/

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[Re: Docket No. 39]

Liberty Mutual Insurance Company (“Liberty”) sues eight individuals and three companies 1

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(“Defendants”) for breach of contract, specific performance, and related claims arising from
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Defendants’ failure to indemnify Liberty for losses and/or deposit collateral in connection with
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various surety bonds issued for the benefit of Applegate Johnston, Inc. (“AJI”). Liberty moves for
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partial summary judgment as to Defendants’ liability to indemnify Liberty for known losses and to
post collateral to cover future losses. Defendants do not dispute their liability under the agreement;

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they only dispute the amount of damages and request further discovery before damages are awarded.
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At the hearing on May 6, 2014, the Court ordered Liberty to provide additional documentation
supporting its alleged current and estimated future damages. The Court also gave Defendants an

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opportunity to oppose Liberty’s supplemental submissions as well as to provide additional argument
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as to why a partial damages award was procedurally improper. The parties have expressly
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Defendants are Jim, Heather, Richard, and Shannon Applegate; John and Monica Bergman;
Rebecca and Timothy Johnston; JABA Investments LLC; Old Growth Properties LLC; and 233
Tully Road LLC.

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consented to having all matters decided by the undersigned. See 28 U.S.C. § 636(c); Fed. R. Civ. P.

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73. Upon consideration of the moving and responding papers, the arguments of counsel at the

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hearing, and the parties’ post-hearing submissions, the Court GRANTS Liberty’s motion for partial

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summary judgment.
BACKGROUND 2

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Defendants and Liberty executed an Indemnity Agreement (“Agreement”) whereby

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Defendants and AJI agreed to indemnify Liberty for all losses sustained in connection with

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Liberty’s issuing of any bonds on behalf Defendants and/or AJI. Under the Agreement, Liberty may

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charge the indemnitors for reimbursement for any payments Liberty makes in good faith in

For the Northern District of California

United States District Court

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connection with the bonds. “[V]ouchers or other evidence of any such payments made by the

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Surety shall be prima facie evidence of the fact and amount of the liability to the Surety.”

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Agreement at 2, Decl. of Christine Bartholdt, Exhibit A, Dkt. No. 39-1. The Agreement also

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provides that the indemnitors must deposit collateral on demand by Liberty, in an amount to be

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determined by Liberty, for anticipated losses, even if no losses have yet been sustained.
Liberty furnished subcontract payment and performance bonds for various construction

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projects, including the San Jose Environmental Innovation Center Project (“SJ Project”), as well as

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numerous stop notice release bonds (collectively, “Bonds”), on behalf of AJI. Between March 2012

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and March 2013, numerous subcontractors and suppliers on the projects asserted that AJI failed to

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pay, and the City of San Jose (“City”) received at least twenty-four stop notice claims totaling over

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$2 million. In July 2013, AJI notified Liberty that it had defaulted on the contract for the SJ Project,

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and AJI acknowledged its obligations under the indemnity agreement. In August, Liberty advised

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Defendants of AJI’s default and demanded that Defendants deposit collateral of $7 million pursuant

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to the Agreement.
In September, pursuant to its obligations on the SJ Project bonds, Liberty entered into a

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takeover agreement with the City under which it arranged for RJT Construction (“RJT”) to consult

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and complete construction on the project. Liberty directed RJT to prepare an estimated budget of

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the cost to complete the project. Based in part on that estimate, Quantum Financial Consulting,

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The following facts are undisputed, unless otherwise noted.
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LLC (“Quantum”) projected the total anticipated losses, costs and expenses as of September 30,

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2013, to be $7,561,092.00. Liberty also directed RJT review and analyze the validity of each of the

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payment bond claims and stop notice claims filed on the SJ Project. Relying on the

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recommendations of RJT, Liberty denied or settled the claims.

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According to Liberty, its losses arising out of its performance to complete the project and its

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payment to claimants on the bonds totaled $2,693,891.88 as of March 4, 2014. Liberty also claims

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to have incurred expenses in the amount of $755,729.83, for a total of $3,449,662.71. In support of

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these figures, Liberty’s Surety Claims Counsel Christine Bartholdt attached an accounting to her

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declaration detailing payments received from the City of San Jose, expenses paid, payments to

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claimants, and payments to RJT for performance. See Supp. Decl. Christine Bartholdt, Exhibit C,

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Dkt. No. 52-3. Liberty moves for an award of damages in the amount of $3,449,662.71, as well as a

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collateral deposit of $4,111,469.29, which amount represents the September 2013 estimate less the

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requested damages.

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As an initial matter, Defendants assert that there is no legal authority allowing a plaintiff to

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move for summary judgment on a portion of its damages and seek specific performance to deposit

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collateral for the remainder. Defendants also assert that Liberty has failed to account for various

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payments and credits made by San Jose. Accordingly, Defendants argue that the amount of

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damages is in genuine dispute, or alternatively that the Court should defer ruling on summary

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judgment until the parties have engaged in sufficient discovery.

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LEGAL STANDARD

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A motion for summary judgment should be granted if there is no genuine dispute of material

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fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a); Anderson

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v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). The moving party bears the initial burden of

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informing the court of the basis for the motion, and identifying portions of the pleadings,

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depositions, answers to interrogatories, admissions, or affidavits which demonstrate the absence of a

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triable issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). In order to meet

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its burden, “the moving party must either produce evidence negating an essential element of the

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nonmoving party’s claim or defense or show that the nonmoving party does not have enough

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evidence of an essential element to carry its ultimate burden of persuasion at trial.” Nissan Fire &

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Marine Ins. Co., Ltd. v. Fritz Companies, Inc., 210 F.3d 1099, 1102 (9th Cir. 2000).

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If the moving party meets its initial burden, the burden shifts to the non-moving party to

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produce evidence supporting its claims or defenses. See Nissan Fire & Marine Ins. Co., Ltd., 210

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F.3d at 1102. The non-moving party may not rest upon mere allegations or denials of the adverse

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party’s evidence, but instead must produce admissible evidence that shows there is a genuine issue

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of material fact for trial. See id. A genuine issue of fact is one that could reasonably be resolved in

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favor of either party. A dispute is “material” only if it could affect the outcome of the suit under the

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governing law. Anderson, 477 U.S. at 248-49.

For the Northern District of California

United States District Court

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“When the nonmoving party has the burden of proof at trial, the moving party need only

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point out ‘that there is an absence of evidence to support the nonmoving party’s case.’” Devereaux

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v. Abbey, 263 F.3d 1070, 1076 (9th Cir. 2001) (quoting Celotex Corp., 477 U.S. at 325). Once the

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moving party meets this burden, the nonmoving party may not rest upon mere allegations or denials,

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but must present evidence sufficient to demonstrate that there is a genuine issue for trial. Id.

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DISCUSSION
As an initial matter, the Court rejects Defendants argument that Liberty’s motion seeking

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part damages and part specific performance is procedurally improper. Federal Rule of Civil

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Procedure 56(a) expressly allows a party to move for summary judgment on a “part of [a] claim or

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defense,” and multiple district courts in the Ninth Circuit have ordered damages for current losses

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and specific performance of collateral security provisions for anticipated losses in similar cases

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involving sureties. See Ins. Co. of the West v. Kuenzi Commc’ns., LLC, No. 09-6102-AA, 2009 WL

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2731349 (D. Or. Aug. 26, 2009) (granting summary judgment on claim for damages and specific

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performance of collateral security); Hartford Fire Ins. Co. v. Univ. Import, LLC, No. 3:08-cv-

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00271-LRH-RAM, 2009 WL 4042699 (D. Nev. Nov. 20, 2009) (ordering defendant to indemnify

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plaintiff surety for $50,000 already paid as well as specific performance of the collateral security

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provision by posting an additional $50,000 for an anticipated payment). On the other hand,

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Defendants have offered no authority for their position that a plaintiff must wait until all its losses

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are liquidated before moving for summary judgment. Accordingly, the Court will consider

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Liberty’s request for current damages as well as specific enforcement of the collateral security

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provision to cover anticipated losses.

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A. Damages
“In the event of any payment by the Surety, the Indemnitors . . . agree that in any accounting

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between the Surety and [the Indemnitors] . . . the Surety shall be entitled to charge for any and all

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disbursements made by it in good faith . . . and that the vouchers or other evidence of any such

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payments made by the Surety shall be prima facie evidence of the fact and amount of the liability to

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the Surety.” Agreement at 2.

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Here, Liberty has produced such an accounting detailing each payment received by the City

For the Northern District of California

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of San Jose, each expense incurred, each payment made to a claimant, and each payment made to

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RJT for performance on the San Jose Project, indicating that Defendants are liable for total of

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$3,449,621.71. Moreover, it provided a copy of the cancelled check for each transaction.

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Accordingly, Liberty has satisfied its initial burden to demonstrate that Defendants are liable for

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those losses.

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Defendants assert that Liberty has failed to incorporate payments it received from the City of

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San Jose into its damages calculation. First, Defendants merely refer to the attached Takeover

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Agreement and generally suggest that “[a]s the Court can see, [the agreement] has provisions

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regarding payments and credits to plaintiff that are not addressed in plaintiff’s moving papers.”

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Second Supp. Struck Decl. at ¶ 15. However, Defendants fail to identify a specific payment or

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credit that Liberty failed to address, and on the contrary, the Court can see that Liberty did include

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the payments described in paragraphs four, five, and six of the Takeover Agreement. In any case,

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Defendants fail to explain why any unidentified payment or credit should offset the amount

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Defendants owe Liberty for the payments it undisputedly made in good faith. Additionally, in a

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late-filed supplement, Defendants attempt to raise a genuine dispute with a March 31, 2014 payment

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application and wire transfer confirmation which indicates that the City of San Jose has paid Liberty

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over $12 million, which Defendants believe has not been accounted for in Liberty’s papers. Liberty

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objects to the late-filed submission but notes that, as evidenced by the Takeover Agreement, over $8

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million of that money was actually paid to AJI, not to Liberty. Again, Defendants merely refer to a

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document generally without identifying a specific payment or explaining its relevance. Such vague

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references to unaccounted for payments are insufficient to raise a genuine dispute of material fact.

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Accordingly, Liberty is entitled to summary judgment as to Defendants’ liability for damages in the

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amount of $3,449,622.71. See Continental Cas. Co. v. American Sec. Corp., 443 F.2d 649, 650-51

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(finding affidavit from officer of surety company and supporting documentation, including itemized

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list of claims and cancelled checks, was sufficient to support summary judgment where opposing

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party did not attempt to contradict any single claim of payment).

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B. Specific Performance

For the Northern District of California

“If the Surety determines, in its sole judgment, that potential liability exists . . . the

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United States District Court

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Indemnitors . . . shall deposit with the Surety, promptly upon demand, a sum of money equal to an

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amount determined by the Surety or collateral security of a type and value satisfactory to the Surety,

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to cover that liability.” Agreement at 1.

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Liberty hired RJT’s constructing consulting services to determine the cost of completion of

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the SJ Project. Based in part on this estimate, Quantum estimated Liberty’s total anticipated losses,

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costs and expenses as of September 30, 2013 to be $7,561,092.00. Liberty requests specific

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performance of the collateral security provision requiring Defendants to deposit collateral in this

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amount, less the damages award above, for a total of $4,111,469.29. Based on the supporting

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declarations of Rod Tompkins, Sr., president, owner and qualified managing officer of RJT, as well

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as Mary Lyynn Kotansky, formerly sole proprietor of Quantum, Liberty produced sufficient

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evidence demonstrating that it reasonably determined that potential liability existed such that

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Defendants were required to deposit collateral upon demand pursuant to the agreement.

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Defendants do not make any specific arguments in opposition to Liberty’s request for

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specific performance of the collateral security provision. Accordingly, they have not raised a

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genuine dispute of material fact, and Liberty is entitled to summary judgment on its claim for

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specific performance.

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CONCLUSION

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Liberty is awarded damages in the amount of $3,449,729.83, and Defendants shall deposit

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collateral in the amount of $4,111,469.29. Accordingly, Liberty’s motion for partial summary

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judgment is GRANTED.

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IT IS SO ORDERED.
Dated: August 20, 2014
HOWARD R. LLOYD
UNITED STATES MAGISTRATE JUDGE

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For the Northern District of California

United States District Court

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C14-04495 HRL Notice will be electronically mailed to:

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Amanda Leighann Marutzky

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Andrew Joel Van Ornum
[e-mail]

[e-mail], [e-mail]

[e-mail], [e-mail],

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James Dale Struck

[e-mail], [e-mail]

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Robert Curtis Niesley , Esq

[e-mail], [e-mail]

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Counsel are responsible for distributing copies of this document to co-counsel who have not
registered for e-filing under the court’s CM/ECF program.

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For the Northern District of California

United States District Court

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