American Motorists Insurance Company v. Club at Hokuli'a, Inc. (The) et al
Filing
533
ORDER DENYING OCD, LLC'S MOTION FOR SUMMARY JUDGMENT 355 ; 455 - Signed by CHIEF JUDGE SUSAN OKI MOLLWAY on 10/27/11. (emt, )CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
AMERICAN MOTORISTS INSURANCE
COMPANY,
Plaintiff,
vs.
THE CLUB AT HOKULI`A, INC., a
Hawaii nonprofit corporation;
HOKULI`A COMMUNITY
ASSOCIATION, INC., a Hawaii
nonprofit corporation; 1250
OCEANSIDE PARTNERS, a Hawaii
limited partnership; TEXTRON
FINANCIAL CORPORATION, a
Delaware corporation; RED
HILL 1250, INC., a Washington
corporation; and OCD, LLC, a
Hawaii limited liability
company,
Defendants.
_____________________________
OCD, LLC, a Hawaii limited
liability company,
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Cross-claimant,
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vs.
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1200 OCEANSIDE PARTNERS, a
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Hawaii limited partnership,
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Cross-defendants
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_____________________________ )
CIVIL NO. 10-00199 SOM/KSC
ORDER DENYING OCD, LLC’S
MOTION FOR SUMMARY JUDGMENT
ORDER DENYING OCD, LLC’S MOTION FOR SUMMARY JUDGEMENT
I.
INTRODUCTION.
Plaintiff American Motorists Insurance Company
(“AMICO”) is a surety on various performance bonds relating to a
luxury residential development on the Big Island of Hawaii.
When
the bonds’ principal, Defendant 1250 Oceanside Partners
(“Oceanside”), allegedly defaulted on its development
obligations, the bonds’ obligees, The Club at Hokuli`a, Inc.
(“The Club”) and Hokuli`a Community Association (“HCA”), made a
demand on AMICO.
This lawsuit followed.
Besides suing
Oceanside, The Club, and HCA, AMICO sues Defendant Textron
Financial Corporation (“Textron”), another bond obligee; a former
Oceanside general partner, OCD, LLC (“OCD”); and a present
Oceanside general partner, Red Hill 1250, Inc. (“Red Hill”).
OCD now moves for summary judgment with respect to all of AMICO’s
claims against it.
Those claims are for breach of indemnity
agreements, specific performance, quia timet, and declaratory
relief.
OCD argues that: (1) OCD cannot be held jointly and
severally liable by AMICO for Oceanside’s breach of its
indemnification agreements with AMICO because OCD was no longer
an Oceanside partner when Oceanside’s obligation to indemnify
AMICO accrued; (2) AMICO’s claims against OCD are time-barred;
and (3) OCD’s obligation to AMICO under the indemnification
2
agreements was discharged because, after OCD’s dissociation from
Oceanside, AMICO materially altered OCD’s obligation to AMICO.
Given material factual disputes, the court denies OCD’s motion.
II.
FACTUAL AND PROCEDURAL BACKGROUND.
A.
General Background.
Around 1990, Oceanside bought 1,550 acres of land on
the Big Island of Hawaii for a luxury residential community
development to be named “Hokuli`a.”
No. 210-1.
Aff. Stephen Beatty ¶ 6, ECF
Oceanside planned to develop various recreational
amenities for Hokuli`a homeowners, including a golf course, golf
maintenance facility, clubhouse, beach activity center, and
tennis courts.
Id. at ¶ 8.
Oceanside formed and organized HCA
as Hokuli`a’s homeowners’ association, and formed and organized
The Club to administer and manage Hokuli`a’s golf club.
Id. at
¶ 7.
In 1999 and 2001, Oceanside agreed to build facilities
and improvements at Hokuli`a for The Club and HCA.
See Decl.
Phil Edlund Supp. The Club & HCA’s Mot. Partial Summ. J. (“Edlund
Decl.”) Ex. A (“Club Improvements Agreement”), ECF No. 203-2;
Edlund Decl. Ex. B (“Amended Club Improvements Agreement”), ECF
No. 203-3; Edlund Decl. Ex. E (“Phase I Agreement”), ECF No. 2036; Edlund Decl. Ex. G (“Phase II Agreement”), ECF No. 203-8.
Oceanside also contracted with the County of Hawaii to develop
3
and construct improvements related to Hokuli`a.
See Pls. Second
Amended Compl. ¶ 22, ECF No. 144 (“Complaint”).
B.
Oceanside Partnership.
Oceanside is a limited liability partnership registered
in Hawaii.
See Declaration of Rex Y. Fujichaku (“Fujichaku
Decl.”) Ex. 14, ECF No. 446-16 (“Oceanside Formation Agreement”).
Oceanside’s founding general partners were Ocean Club Development
Company (“OCDC”) and Red Hill.
Id.
OCDC and Red Hill
established Oceanside in April 1990 for the sole purpose of
developing the Hokuli’a project.
See id. at 5.
In December 1999, OCDC assigned all of its partnership
interests in Oceanside to OCD.
No. 446-22.
Red Hill.
See Fujichaku Decl. Ex. 20, ECF
On May 22, 2002, OCD sold its partnership shares to
See Declaration of Masato Hasegawa at ¶ 4, ECF No.
357-1.
C.
Surety Bonds.
The original and Amended Club Improvements Agreements,
the Phase I Agreement, and the Phase II Agreement (collectively,
the “Development Agreements”) each required Oceanside to execute
a surety bond in favor of The Club or HCA.
See Club Improvements
Agreement at 3; Amended Club Improvements Agreement at 4; Phase I
Agreement at 3; Phase II Agreement at 2.
In addition, Oceanside
executed bonds in favor of the County for the contracted
development and construction.
See Complaint at ¶ 23.
4
From 1999
to 2001, AMICO issued nine bonds (“the Bonds”), with penal sums
totaling $118,846,694.00.
See Declaration of Steve Squatrito
(“Squatrito Decl.”) Exs. 1a-1h, ECF No. 446-2.
The Bonds issued
in favor of The Club and HCA required Oceanside to complete
construction by specific dates and bound AMICO to pay stated sums
if Oceanside did not satisfy its obligations.
See Squatrito
Decl. Ex. 1g, ECF No. 446-2 (“Phase I Bond”); Squatrito Decl. Ex.
1h, ECF No. 446-2 (“Club Improvements Bond”); Squatrito Decl. Ex.
1i, ECF No. 446-2 (“Phase II Bond”).
D.
Dual Obligee Riders.
On August 29, 2001, by way of separate bond riders,
Deere Credit Inc. (“Deere”), one of Oceanside’s lenders, was
added as a dual obligee to the Amended Club Improvements Bond,
the Phase I Bond, and the Phase II Bond.
Exs. 6a-c, ECF No. 446-7.
In 2005, Deere was deleted as a dual
obligee from the three Bonds.
No. 446-8.
See Squatrito Decl.
See Squatrito Decl. Exs. 7a-c, ECF
On June 27, 2006, Textron, another of Oceanside’s
lenders, was added as a dual obligee on all nine Bonds.
See
Squatrito Decl. Exs. 8a-i, ECF No. 446-9.
E.
Indemnity Agreements.
When AMICO issued the Bonds, Oceanside and its general
partners entered into two written agreements in which they agreed
to indemnify AMICO with respect to any losses AMICO might incur
as surety.
One of the agreements was entered into in 1999, one
5
in 2001.
See Squatrito Decl. Ex. 2, at 1, ECF No. 446-3 (“1999
Indemnity Agreement”); Squatrito Decl. Ex. 3, at 2, ECF No. 446-4
(“2001 Indemnity Agreement”).
Whether OCD is liable under either
indemnity agreement is the subject of this motion.
Oceanside entered into the 1999 Indemnity Agreement on
September 13, 1999.
See 1999 Indemnity Agreement.
Oceanside’s
general partners at the time (OCDC, Inc., and Red Hill) signed
the agreement.
Id.
In relevant part, the 1999 Indemnity
Agreement provides:
The Indemnitors will indemnify and save the
Company [AMICO] harmless from and against
every claim, demand, liability, cost, charge,
suit, judgment, attorneys’ fees and expense
which the Company may pay or incur by reason
of having executed or procured the execution
of, such bonds, or any renewals or
continuations thereof or substitutes thereof,
or by reason of the failure of the
Indemnitors to perform or comply with any of
the covenants or conditions of this
Agreement, in making any investigation on
account thereof, in prosecuting or defending
any action which may be brought in connection
with any bond, in obtaining a release from
liability and enforcing any of the agreements
herein contained.
OCD, while not an Oceanside general partner in September 1999,
acquired all of OCDC’s interests in Oceanside in December 1999.
Oceanside and AMICO entered into the 2001 Indemnity
Agreement on June 12, 2001, after OCDC had assigned its interests
to OCD.
See 2001 Indemnity Agreement.
Agreement provides in relevant part:
6
The 2001 Indemnity
Indemnitors agree to indemnify and hold
harmless Surety immediately upon remand for
any and all Loss sustained or incurred by
reason of having executed any and all Bonds.
The Indemnitors [sic] obligation to indemnify
the Surety shall also apply to any Bond
renewals, continuations or substitutes
therefore.
2001 Indemnity Agreement at 2, ¶ 1.
In the agreement, “Bonds”
refers to any bonds issued prior or subsequent to June 12, 2001.
Id. at 1.
F.
Alleged Default on the Bond Obligations.
AMICO says that some of the bonded work was not
completed by the completion dates delineated in the Bonds.
See,
e.g, Fujichaku Decl. Ex. 16, at 183:24 - 184:21 (“De Fries
Depo.”). On March 3, 2010, The Club and HCA notified Oceanside
that it was in default on the Development Agreements, and
Oceanside acknowledged that it was unable to complete
performance.
See Squatrito Decl. Ex. 10, ECF No. 446-11.
The
Club and HCA then demanded that AMICO perform its obligations
under the Bonds.
Id.
Two weeks later, on March 18, 2011, AMICO
sent Oceanside a written demand for indemnity under the 1999 and
2001 indemnity agreements.
446-13.
See Squatrito Decl. Ex. 12, ECF No.
Oceanside did not comply.
See Squatrito Decl. at ¶ 46.
AMICO filed this lawsuit on April 5, 2010, and filed
its Seconded Amended Complaint on May 11, 2011.
AMICO seeks,
among other things, to hold Oceanside, OCD, and Red Hill jointly
and severally liable for breaching the 1999 and 2001
7
indemnification agreements.
OCD now moves for summary judgment
on AMICO’s claims.
III.
EVIDENTIARY OBJECTIONS.
Both AMICO and OCD have also filed evidentiary
objections.
AMICO objects to many of the factual assertions in
OCD’s Concise Statement of Material Facts.
See Pls. Objections
to Defs. Separate Concise Statement of Material Facts in Supp. of
its Mot. for Summary Judgment, ECF No. 445 (“AMICO Objections”).
The court relies on only one fact challenged by AMICO:
that Textron was added to the Bonds as a dual obligee on June 27,
2006.
See AMICO Objections at 3.
OCD has submitted copies of
the dual obligee riders, which are dated June 27, 2006.
See
Declaration of Cheryl A. Nakamura (“Nakamura Decl.”) Ex. X, ECF
No. 357-26.
While AMICO argues that the court cannot consider
the exhibits because they are allegedly not properly
authenticated as required by Rule 56 of the Federal Rules of
Civil Procedure, AMICO does not identify any manner in which the
riders have been altered or otherwise rendered different from
their original state.
In any event, as the court is denying
OCD’s motion, AMICO is not prejudiced by the court’s
consideration of the date Textron became a dual obligee.
For its part, OCD objects to the exhibits that AMICO
attaches to the Declaration of Rex Y. Fujichaku and to portions
of the Declaration of Steve Squatrito.
8
See Defs. Evidentiary
Objections and Request to Strike the Exs. to the Fujichaku
Declaration Including the September 9, 2011 Expert Report of
Thomas Ueno and to Strike Portions of the Squatrito Decl., ECF.
No. 455 (“OCD Objections”).
The court need not rule on OCD’s
objections to the text of the Squatrito Declaration, as the court
does not here rely on the challenged statements in the Squatrito
Declaration.
The court relies only on some of the exhibits
attached to the Squatrito Declaration.
OCD complains that
Squatrito’s purported authentication of the exhibits is not based
on actual knowledge of that authenticity.
Id. at 9.
Instead,
OCD says, Squatrito can only attest that the exhibits are true
and correct copies of documents in AMICO’s files, or, in some
cases, true and correct copies of documents produced by a third
party during discovery.
See, e.g., id. at 12,16.
To the extent
exhibits are authenticated by others, Squatrito’s authentication
is superfluous.
Exhibit 5 to Squatrito’s Declaration is
apparently not authenticated by others.
purportedly from AMICO to Oceanside.
ECF No. 446-6.
It consists of invoices,
See Squatrito Decl. Ex. 5,
OCD does not claim that the documents are
fabricated or manipulated, even though the documents appear to be
items that OCD would have been in a position to recognize as
inauthentic.
Given that circumstance, the court overrules the
objection to Exhibit 5.
To the extent OCD is challenging Exhibit
4 to Squatrito’s Declaration on the same ground, the court’s
ruling is the same as for Exhibit 5.
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To the extent OCD objects to exhibits attached to the
Fujichaku Declaration that the court does not rely on, the court
need not address those objections.
Of the challenged Fujichaku
exhibits, the court relies on Exhibits 14, 16, 20, and 22.
Under
Rule 56(c)(2) of the Federal Rules of Civil Procedure, “[a] party
may object that the material cited to support or dispute a fact
cannot be presented in a form that would be admissible in
evidence.”
OCD objects to Exhibits 14 and 20 on the ground that
they are attached to the deposition of Masato Hasegawa, excerpts
of which, attached as Exhibit 15 to AMICO’s Concise Statement, do
not include Hasegawa’s oath or affirmation or that of the
interpreter who translated Hasegawa’s testimony from Japanese
into English.
See OCD Objections at 24.
Exhibit 14 is a copy of
Oceanside’s Amended and Restated Limited Partnership Agreement,
and Exhibit 20 is a copy of the Oceanside Assignment of
Partnership Interests, purportedly signed by OCD.
Decl. at ¶¶ 4, 10.
See Fujichaku
The court overrules OCD’s objections.
Even
if AMICO should have included the oaths in its deposition
excerpts, the court finds no prejudice to OCD.
In particular,
the court notes that, as Exhibit 14 appears to have been signed
by OCD’s predecessor, and Exhibit 20 appears to have been signed
by OCD itself, OCD could easily have determined whether the
documents were indeed what they appear to be.
OCD identifies no
specific alteration to either document rendering it an inaccurate
10
copy and offers no evidence that either document was not actually
signed.
Exhibit 16 is a copy of excerpts from the transcript of
the deposition of John De Fries.
See Fujichaku Decl. at ¶ 6.
OCD objects to the exhibit on the grounds that it (1) lacks an
oath or affirmation by De Fries, (2) neither indicates that De
Fries has personal knowledge of the matters testified to nor
otherwise establishes a foundation for his testimony, (3)
contains speculative testimony, and (4) contains hearsay and
lacks testimony establishing that De Fries is an Oceanside
employee, or stating what his position was, or whether he has
personal knowledge of the matters testified to.
See OCD
Objections at 25.
While the exhibit indeed lacks explicit statements
establishing that it is sworn testimony or indicating De Fries’s
position at Oceanside, the court overrules OCD’s objections.
First, the exhibit states that it is a deposition, and the
Fujichaku declaration states that Exhibit 16 is a true and
correct copy of the transcript of the De Fries deposition.
See
Fujichaku Decl. Ex 16, ECF No. 446-18 (“De Fries Depo.”);
Fujichaku Decl. at ¶ 6.
As a deposition is by definition given
under oath, the court is satisfied that De Fries’s statements
were made under oath.
Second, the deposition testimony itself
establishes that De Fries has personal knowledge of the matters
that the court relies on.
AMICO cites the deposition to
11
establish facts regarding the progress of the Phase I
developments.
See Opposition at 31-32.
De Fries testifies that
he was an HCA board member when Oceanside was supposed to have
completed the Phase I work in issue.
169:15-17.
See De Fries Depo. at
As an HCA board member, De Fries would have known
about the Phase I work, as it was the subject of contracts
between HCA and Oceanside.
See Phase I Agreement at 1.
Notably,
OCD does not actually dispute that De Fries was Oceanside’s
general manager.
Opposition at 31.
Third, the court overrules
OCD’s generalized hearsay and speculation objections, which
appear to assume a lack of personal knowledge.
Exhibit 22 is a copy of excerpts from the transcript of
the deposition of William Siwek.
See Fujichaku Decl. at ¶ 12.
OCD argues that Exhibit 22 does not establish what position Siwek
holds at what company, and whether he has personal knowledge of
the matters testified to.
See OCD Objections at 28-29.
OCD
objects to Exhibit 22 on the same grounds that it objects to
Exhibit 16; the court overrules those objections for the same
reasons.
First, a true and correct copy of a deposition is
assumed to contain sworn testimony.
See Fujichaku Decl. at ¶ 12.
Second, Siwek’s testimony indicates his personal knowledge of the
matters testified to.
Siwek testifies about the addition of
Textron as a dual obligee.
He refers to the party that entered
into a contract with Textron as “we,” suggesting his own
involvement.
See, e.g., Fujichaku Decl. Ex. 22 (“Siwek Depo.”),
12
at ¶ 49:12-25, ECF No. 446-24.
His admission that he does not
know what happened “post me leaving” suggests that he was
refraining from speculating.
Id. at 58:17.
OCD does not
actually deny that Siwek was the CFO of Red Hill (an Oceanside
general partner).
In summary, the court overrules OCD’s objections to
Exhibits 14, 16, 20, and 22.
IV.
STANDARD.
Rule 56 of the Federal Rules of Civil Procedure permits
a party to move for summary judgment on all or some claims or
defenses.
Fed. R. Civ. P. 56(a).
Summary judgment shall be
granted when “the movant shows that there is no genuine dispute
as to any material fact and the movant is entitled to judgment as
a matter of law.”
Fed. R. Civ. P. 56(a).
A moving party has
both the initial burden of production and the ultimate burden of
persuasion on a motion for summary judgment.
Nissan Fire &
Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099, 1102 (9th Cir.
2000).
The burden initially falls on the moving party to
identify for the court “the portions of the materials on file
that it believes demonstrate the absence of any genuine issue of
material fact.”
T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors
Ass’n, 809 F.2d 626, 630 (9th Cir. 1987) (citing Celotex Corp.
Catrett, 477 U.S. 317, 323 (1986)); accord Miller v. Glenn Miller
Prods., Inc., 454 F.3d 975, 987 (9th Cir. 2006).
13
“A fact is
material if it could affect the outcome of the suit under the
governing substantive law.”
Miller, 454 F.3d at 987.
When the
moving party bears the burden of proof at trial, that party must
satisfy its burden with respect to the motion for summary
judgment by coming forward with affirmative evidence that would
entitle it to a directed verdict if the evidence were
uncontroverted at trial.
Id. (quoting C.A.R. Transp. Brokerage
Co., Inc. v. Darden Restaurants, Inc., 213 F.3d 474, 480 (9th
Cir. 2000)).
By contrast, when the nonmoving party bears the
burden of proof on one or more issues at trial, the party moving
for summary judgment may satisfy its burden with respect to those
issues by pointing out to the court an absence of evidence from
the nonmoving party.
Miller, 454 F.3d at 987.
When the moving party meets its initial burden on a
summary judgment motion, “[t]he burden then shifts to the
nonmoving party to establish, beyond the pleadings, that there is
a genuine issue for trial.”
Id.
The court must not weigh the
evidence or determine the truth of the matter but only determine
whether there is a genuine issue for trial.
See Balint v. Carson
City, Nev., 180 F.3d 1047, 1054 (9th Cir. 1999).
On a summary
judgment motion, “the nonmoving party’s evidence is to be
believed, and all justifiable inferences are to be drawn in that
party’s favor.”
Miller, 454 F.3d at 988 (brackets omitted)
(quoting Hunt v. Cromartie, 526 U.S. 541, 552 (1999)).
14
V.
ANALYSIS.
OCD identifies three reasons it is entitled to summary
judgment.
First, OCD claims that it cannot be jointly and
severally liable under the indemnification agreements because
Oceanside’s obligation to indemnify AMICO did not accrue until
after OCD’s dissociation from Oceanside.
Second, OCD argues that
AMICO’s breach of contract claim is time-barred.
Third, OCD
argues that, even if Oceanside’s indemnification obligation
accrued before OCD’s dissociation, AMICO voided OCD’s obligation
by agreeing to material alterations of the Bonds after OCD’s
dissociation.
A.
The court rejects all three of OCD’s arguments.
There are Genuine Issues of Material Fact
Regarding Whether Oceanside’s Alleged Liability
Under the Indemnity Agreements Accrued While OCD
was an Oceanside General Partner.
1.
When it Became a General Partner, OCD Assumed
Personal Liability Under the Indemnity
Agreements.
As Oceanside is a Hawaii limited partnership, Hawaii
partnership law governs the obligations of the Oceanside
partnership and its partners.
Limited Partnership Act.
Hawaii has adopted the Uniform
See HRS § 425E-101 (“This chapter may
be cited as the “Uniform Limited Partnership Act.”).
OCD first argues that it is not bound by the indemnity
agreements as a separate entity because it was not a party to the
agreements.
OCD points out that it did not sign the 1999
Indemnity Agreement, as it was not yet an Oceanside partner, and
15
that it signed the 2001 Indemnity Agreement on behalf of
Oceanside, not on its own behalf.
Nevertheless, as an Oceanside
general partner, OCD was, by law, jointly and severally liable
for all of Oceanside’s obligations.
Under section 425E-404 of Hawaii Revised Statutes, “all
general partners are liable jointly and severally for all
obligations of the limited partnership unless otherwise agreed by
the claimant or provided by law.”
Neither AMICO nor OCD disputes
that Oceanside’s duty to indemnify AMICO is an obligation of the
Oceanside partnership.
Under section 425E-404, because OCD was a
general partner when Oceanside entered into the 2001 Indemnity
Agreement, there can be no dispute that OCD could be held jointly
and severally liable at least for the period it was a general
partner.
With regard to the 1999 Indemnity Agreement, OCD
appears to argue that, because it was not a partner when
Oceanside executed the agreement, it cannot be liable under that
agreement.
Indeed, under section 425E-404, “[a] person that
becomes a general partner of an existing limited partnership
shall not be personally liable for an obligation of a limited
partnership incurred before the person became a general partner.”
However, when OCD became an Oceanside general partner, it stepped
into OCDC’s shoes.
See Fireman’s Fund Ins. Co. v. AIG Hawaii
Ins. Co., Inc., 109 Hawaii 343, 349 (2006) (“An assignment
operates to place the assignee in the shoes of the assignor.”)
16
(citations omitted).
OCDC assigned all of its partnership
rights, title, and interest in Oceanside to OCD.
Decl. Ex. 20, ECF No. 446-22.
See Fujichaku
When OCD stepped into OCDC’s shoes
through the assignment, OCD inherited not only OCDC’s partnership
interests, but also OCDC’s joint and several liability under the
1999 Indemnity Agreement.
2.
There are Genuine Issues of Material Fact as
to Whether Oceanside’s Obligation Under the
Indemnity Agreement Accrued Before OCD’s
Dissociation.
A dissociated general partner’s liability for the debts
of its former partnership is governed by section 425E-607 of
Hawaii Revised Statutes, which states in relevant part:
(a) A person's dissociation as a general
partner shall not of itself discharge the
person's liability as a general partner for
an obligation of the limited partnership
incurred before dissociation. Except as
otherwise provided in subsections (b) and
(c),1 the person shall not be liable for a
limited partnership's obligation incurred
after disociation.
In other words, a dissociated general partner remains liable for
obligations incurred by the limited partnership before that
partner left the partnership.
The issue raised by OCD is whether Oceanside’s
obligation to indemnify AMICO is an obligation that Oceanside
1
Subsections (b) and (c) are irrelevant to this motion.
pertain to a dissociated partner’s liability when the
dissociation results in dissolution of the partnership
(subsection (b)), and to transactions entered into after
dissociation (subsection (c)).
17
They
incurred before or after OCD dissociated from Oceanside on May
22, 2002.
OCD argues that the obligation to indemnify could not
arise under the Bonds until Oceanside defaulted on its
obligations and The Club and HCA completed the bonded
improvements on the Hokuli’a project, thereby triggering AMICO’s
liability as a surety.
before May 22, 2002.
According to OCD, no such event occurred
See Def.’s Memo. in Supp. of Motion for
Summary Judgment (“Motion”) at 24.
OCD reads the indemnity agreements as conditional
contracts imposing no legal obligation until stated conditions
occur.
OCD argues that the indemnity agreements set “loss” and
“liability” as the conditions triggering liability.
According to
OCD, AMICO did not suffer any loss before May 22, 2002, because
AMICO paid no judgment under the Bonds, made no demand for
indemnity, and incurred no liability as of that date; Oceanside
had not breached its development agreements as of that date; and
no party made a claim under the Bonds as of that date.
OCD
argues that The Club and HCA must complete the bonded
improvements and seek reimbursement from AMICO before AMICO has
any obligation under the Bonds.
AMICO, on the other hand, argues that Oceanside became
obligated to indemnify AMICO while OCD was still a general
partner, as Oceanside executed the 2001 Indemnity Agreement on
June 12, 2001.
According to AMICO, Oceanside’s obligation to
18
indemnify AMICO arose when Oceanside agreed to the indemnity
provision, and OCD remains liable to keep that promise.
Whether the indemnification agreement is an “obligation
incurred” at the time the indemnification is signed is unclear.
Hawaii’s appellate courts have yet to issue a published opinion
stating Hawaii law in this regard.
Courts in some other states
agree with OCD that an obligation to indemnify does not arise
until the events that trigger indemnification occur.
For
instance, interpreting partnership laws similar to Hawaii’s, the
Supreme Court of Utah held that “the dispositive issue is whether
the events out of which the [remaining partners’] lawsuits arose
occurred before or after” a former partner dissociated.
Hardy, 973 P.2d 941, 945 (Utah 1998).
McKay v.
The court declined to
impose liability on a former general partner for expenses
relating to lawsuits brought against the remaining partners after
the former partner’s dissociation, noting that the remaining
partners did not produce “any evidence that would even remotely
suggest” that the lawsuits arose out of the partnership business
before dissociation.
Id. at 946; see also Fox Valley Builders
Corp. v. Day, 71 Wis. 2d 785, 790-91, 238 N.W.2d 748, 751-52
(1976) (holding that a former partner was jointly liable to a
client that had been double-billed by a partnership because the
double-billing occurred before the partner withdrew).
On the other hand, the Ninth Circuit has characterized
an indemnity agreement as a “preexisting obligation.”
19
Inland
Asphalt Co. v Comm’r of Internal Revenue, 756 F.2d 1425, 1429
(9th Cir. 1985).
The Ninth Circuit, however, said that outside
the context of partnership law.
The indemnity agreement in that
case was issued by a corporation to a shareholder when the
shareholder sold his shares to a third party.
Id. at 1427.
The
indemnity agreement provided that the corporation would pay any
tax deficiencies that the former shareholder might face in
connection with certain corporate transactions.
Id.
When the
corporation made good on the agreement, the IRS deemed the
indemnification to be a constructive divided, even though it
occurred after the shareholder sold his shares.
Id.
More analogous to the present case are cases involving
loans or lease agreements.
Like loans and lease agreements, an
indemnity agreement is a contract that requires a party to do
something at a later time.
The United States District Court for
the District of Massachusetts notes that an obligation incurred
before dissociation “obviously includes obligations with respect
to debts which have not yet matured.”
F. Supp. 28, 31, 35 (D. Mass 1996).
Fedder v. McClennen, 959
The court held a former
general partner jointly and severally liable for loans made to a
limited partnership before dissociation even though the loans did
not mature until after dissociation.
Id.; see also UBS Bank USA
v. Wolstein Bus. Enter., No. 2:08-cv-0911 CW-SA, 2011 WL 129868,
at *11 (D. Utah Jan 14, 2011) (holding a dissociated general
partner jointly and severally liable for a loan the partnership
20
took out before dissociation, even though the loan matured after
dissociation).
In 8182 Maryland Assoc. v. Sheehan, the Supreme Court
of Missouri, stating that “withdrawing partners retain personal
liability after withdrawal, even for contingent obligations,”
held a former partner personally liable on a lease agreement that
the former law partner had personally signed, even though the
partner withdrew from the partnership before the lease commenced
or was breached.
stated:
14 S.W.3d 576, 581 (Mo. 2000).
The court
“A party becomes liable on a contractual agreement, even
a lease agreement with a future date of commencement, at the
moment it is executed.”
Id. at 582; see also Krasne v. Tedeschi
and Grasso, 762 N.E.2d 841 (Mass. 2002) (holding that a former
general partner of a law firm could be held liable for the
partnership’s unpaid rent); contra Oxford Mall Co. v. K&B
Missouri Corp., 737 F. Supp. 962, 966 (S. D. Mo. 1990) (holding
that a dissociated partner could not be held liable for breach of
a lease agreement that had been executed before dissociation if
the wrongful events occurred after dissociation).
AMICO argues that it issued the Bonds “based on the
credit of the partnership and the confidence reposed in the
ability of the partnership.”
Pls. Memo. in Opp. to Def’s Motion
for Summary Judgment (“Opposition”) at 21 (citing Briggs v.
Briggs & Vose, 15 N.Y. 471, 475 (App. 1857)). Therefore, AMICO
says, the composition and credit of the partnership at that time
21
was highly relevant to it as a contracting party.
Id.
See
Dayton Securities Associates v. Securities Group 1980, 74 F.3d
1103, 1110 (11th Cir. 1996) (interpreting New York law as
protecting landlords who, in determining whether to lease their
properties, relied on the dissociated partners’ obligations to
contribute money to satisfy recourse obligations under the
limited partnership certificate).
It cannot be disputed that
the Bonds and the indemnification agreements were transactions
for which confidence in the financial viability of the parties
was indeed significant.
See, e.g., Ground Improvement
Techniques, Inc. v. Merchants Bonding Co., 63 F. Supp.2d 1272,
1275 (D. Colo. 1999)(“Suretyship is a credit transaction in which
a surety, in providing bonds on behalf of its principal, is
extending the surety’s credit to the principal in order for the
principal to enter into a contract with an obligee. The surety
expects to incur no loss as a result of that extension of credit.
In the event that the surety incurs a loss, the surety expects to
be reimbursed for its loss by its principal and any third-party
indemnitors.”) (citation omitted).
While the court acknowledges the competing arguments as
to whether the indemnity agreements imposed obligations even
before any default occurred, the court need not resolve that
matter on this motion.
AMICO makes the additional argument that,
even if Oceanside’s obligation to indemnify AMICO accrued after
OCD dissociated, there are genuine issues of material fact as to
22
whether Oceanside defaulted on its bond obligations while OCD was
a general partner.
If it did, AMICO contends, OCD is liable for
Oceanside’s default.
The court agrees that there are genuine
issues of material fact regarding this issue.
At the hearing on
this motion, both parties agreed that, had OCD been a general
partner when the events occurred that triggered Oceanside’s
obligation to indemnify AMICO, OCD could be held jointly and
severally liable under at least one of the indemnification
agreements.
According to OCD, no such events occurred.
In
particular, OCD contends, Oceanside did not default on its bond
obligations before OCD dissociated.
See Nakamura Decl. Ex. K, at
6-8, ECF No. 357-13; Nakamura Decl. Ex. L, at 4-7, ECF
No. 357-14.
AMICO, however, points to completion dates specified in
the Club Improvement Bond and the Phase I Bond that AMICO says
Oceanside failed to meet.
In the Club Improvements Bond,
Oceanside agreed to complete the Golf Course by October 2001, and
the Golf Maintenance Facility by December 2001.
1.
See Club Bond at
As this court stated in an earlier order, there are genuine
issues of material fact as to whether the Golf Course is
“complete.”
See Order Denying AMICO’s Mot. for Partial Summary
Judgment Regarding the Golf Course at 14, August 11, 2011, ECF.
No. 360.
AMICO has also presented evidence suggesting that the
Golf Maintenance Facility was not complete by its completion
date.
See De Fries Depo. at 183:24 - 184:21.
23
In the Phase I Bond, Oceanside agreed to complete
telephone, electrical, and utility ductline work by December
2001.
See Phase I Bond at 2.
AMICO has presented evidence
suggesting that Oceanside did not complete this work before the
December 2001 completion date.
169:2.
See De Fries Depo. at 166:14-
There is no evidence that Oceanside and The Club agreed
in writing to extend the completion dates, as required by the
Bonds for any extension.
See Club Improvements Bond at 2; Phase
I Bond at 2-3 (requiring that the obligee and principal agree to
extensions in writing).
In addition, at the hearing on this motion, AMICO
argued that there are issues of fact as to whether OCD’s
withdrawal from the partnership caused Oceanside to default on
any bond obligations, and whether the parties intended that OCD
serve as a direct obligor under the indemnity agreements, not
merely as Oceanside’s partner.
The court finds that summary
judgment is precluded by genuine issues of material fact as to
whether Oceanside defaulted on its bond obligations before OCD
dissociated.
As an Oceanside default on bond obligations before
OCD’s dissociation would have indisputably given rise to OCD’s
obligation under at least one indemnity agreement, these factual
questions prevent the court from granting summary judgment.
B.
AMICO’s Claims Against OCD Are Not Time-Barred.
OCD also argues that AMICO’s claims against OCD for
Oceanside’s breach of the 2001 Indemnity Agreement are barred by
24
the statue of limitations.
While the parties briefed the court
on Hawaii law, AMICO noted at the hearing on this motion that
California law controls, pursuant to the choice of law provision
in the Indemnity Agreement.
See 2001 Indemnity Agreement at 4.
OCD did not challenge this assertion at the hearing.
California
has a four-year statute of limitations for breach of contract
claims.
Cal. Civ. Proc. Code § 337.
As AMICO filed its
complaint against OCD on May 12, 2011, AMICO’s claims would be
time-barred if they accrued before May 12, 2007.
Under California law, “statutes of limitation do not
begin to run until a cause of action accrues. . . .
Generally
speaking, a cause of action accrues at the time when the cause of
action is complete with all of its elements.”
Fox v. Ethicon
Endo-Surgery, Inc., 110 P.3d 914, 920 (Cal. 2005) (citations
omitted).
In other words, the statute of limitations begins to
run only when events have occurred that would allow the wronged
party to bring a lawsuit.
OCD argues that the statute of limitations on AMICO’s
claims for any breach of the 2001 Indemnification Agreement began
to accrue in 2003, when AMICO had knowledge of facts giving rise
to Oceanside’s liability to AMICO.
OCD claims that AMICO could
have sued Oceanside based on that knowledge.
persuaded.
The court is not
Even if AMICO knew that Oceanside had defaulted on
the Development Agreements before May 12, 2007, default on the
25
Development Agreements is not automatically equivalent to default
on the indemnity agreements.
OCD further argues that, if the court rules that
Oceanside incurred its obligations under the indemnity agreements
when they were executed, it must also rule that execution of the
agreements triggered the statute of limitations.
The court, as
noted above, has not ruled on whether Oceanside incurred
obligations upon executing the agreements.
Moreover, the statute
of limitation on AMICO’s claims does not necessarily begin to run
when Oceanside incurred its obligations.
AMICO’s statute of
limitations did not start to run until AMICO could make a claim
against Oceanside for breaching one or more of the indemnity
agreements.
OCD has not argued that AMICO had a cause of action
under any indemnity agreement before May 2007.
On the present
record, OCD does not establish that AMICO’s claims are timebarred.
C.
There are Genuine Issues of Material Fact
Regarding Whether AMICO Materially Altered the
Nature of OCD’s Obligation.
Lastly, OCD argues that, even assuming Oceanside
incurred an obligation to AMICO under the indemnity agreements
before OCD’s dissociation, OCD’s liability was extinguished when
AMICO materially altered OCD’s obligation.
Section 425E-607(e)
of Hawaii Revised Statutes states that a dissociated general
partner is released from liability when there is a nonconsensual
material alteration to the dissociated partner’s obligation:
26
A person dissociated as a general partner
shall be released from liability for an
obligation of the limited partnership if the
limited partnership’s creditor, with notice
of the person’s dissociation as a general
partner but without the person’s consent,
agrees to a material alteration in the nature
of time or payment of the obligation.
The parties point the court to no case defining a
“material alteration” in the context of an obligation arising
under the Uniform Limited Partnership Act.
However, the concept
of a “material alteration” has been the subject of contract
cases.
Thus, for example, the Ninth Circuit notes that, under
California law, whether a change is material depends on “whether
or not the change works any alteration in the meaning or legal
effect of the contract.”
S. Cal. Edison Co., v. Hurley, 202 F.2d
257 (9th Cir. 1953) (citations omitted).
“[A] material
alteration is one that works some change in the rights,
interests, or obligations of the parties to the writing.”
Id.;
see also Bank of Moberly v. Meals, 316 Mo. 1158, 1167 (1927) (“A
material alteration is one which so changes the terms of the
instrument as to give it a different legal effect from that which
it originally had, and thus works some change in the rights,
interest, or obligations of the parties.”).
According to OCD, AMICO agreed to two material
alterations to Oceanside’s obligation to AMICO: (1) AMICO
allegedly continued to renew three of the Bonds after their
estimated completion dates had passed without completion of the
27
work in issue; and (2) AMICO added Textron as a new dual obligee
on the Bonds.
1.
Whether AMICO Renewed the Bonds and
Materially Altered OCD’s Obligation.
OCD argues that AMICO renewed the Phase I, Phase II,
and Club Improvements Bonds after OCD dissociated from Oceanside.
It is undisputed that Oceanside did not meet many of the
completion dates set forth in the Bonds.
According to OCD, after
OCD dissociated, AMICO, knowing that Oceanside had not met
certain deadlines, continued to renew or extend those Bonds and
collect premiums without OCD’s consent.
This, OCD argues,
materially altered Oceanside’s obligation under the indemnity
agreements by increasing Oceanside’s “amount and time of
indemnification.”
Motion at 31.
AMICO responds that it could not, acting alone, renew
the Bonds, as any extension required the agreement of others,
such as Oceanside, the Bonds’ principal.
See, e.g., Phase I
Bond, at 2-3.
Second, AMICO argues that, although the parties used
the term “renewal” in the course of their dealings, the Bonds
were not actually renewed because they did not expire.
The Bond
invoices state that the Bonds were “continuous in nature.”
Squatrito Decl. Ex. 5, ECF No. 446-6.
In addition, a letter from
AON Risk Services to Oceanside states: “If the bonds remain
outstanding after two years, they will be renewed . . . annually
28
until the County of Hawaii exonerates the bond [sic].”
Squatrito
Decl. Ex. 4, ECF No. 446-5.
Third, AMICO argues that, even assuming the Bonds were
renewed by AMICO, it is unclear whether the alleged renewals
materially altered OCD’s obligation.
The 2001 Indemnity
Agreement included “any renewals or extensions” of the Bonds, and
any subsequent Bonds.
2001 Indemnity Agreement at 1.
Similarly,
the 1999 Indemnity Agreement stated that it extended to “any
renewals or continuations.”
1999 Indemnity Agreement at 1.
If
the indemnity agreements were continuous and expressly
contemplated renewals, then a renewal of the Bonds would not have
altered OCD’s legal rights.
On the present record, there are
genuine issues of material fact as to whether AMICO materially
altered OCD’s obligation by renewing the Bonds.
2.
Whether AMICO Materially Altered OCD’s
Obligation When it Added Textron as a New
Dual Obligee to the Bonds.
In 2005, Deere was removed as a dual obligee of the
Bonds, and on June 27, 2006, Textron was added as a new dual
obligee.
Thus, there was a “gap” between Deere’s removal and
Textron’s addition.
OCD argues that AMICO participated in
adding Textron without OCD’s consent, materially altering OCD’s
obligation under the Bonds given (1) the absence of any dual
obligee on any of the Bonds at the time Textron became a dual
obligee, meaning that Textron was not a substitute for any
obligee; (2) Textron’s addition as a dual obligee on nine Bonds,
29
while Deere had been a dual obligee on only three;2 and (3)
Textron’s loan of $40 million to Oceanside when Textron became a
dual obligee.
See Siwek Depo. at ¶ 49:24-50:2; Squatrito Decl.
Exs. 7a-7c, ECF No. 446-8; Squatrito Decl. Exs. 8a-8i, ECF No.
446-9.
AMICO responds that adding Textron made no change to any
bond obligation; Textron allegedly merely replaced Deere and
provided financing functionally the same as Deere’s financing
services.
See Siwek Depo. at 59:20-22.
Further, at the hearing,
AMICO argued that, regardless of the number of obligees or the
amount of money loaned, the parties’ obligations under the Bonds
remained limited to the terms that the parties agreed to in the
Bonds.
OCD cites Keesling v. TEK Partners, LLC, an Indiana
Court of Appeals case addressing a dispute about a note that was
replaced by a new note without the consent of some of the note’s
original signatories.
2007).
861 N.E.2d 1246, 1253 (Ind. Ct. App.
The second note increased the principal balance from
$300,000 to $362,000.
Id.
The court held that parties that had
not consented to a change were not bound by the change because “a
guaranty of a particular debt does not extend to other indebtness
not within the manifestation of the parties.”
2
Id. at 1254.
In its reply, OCD states that Deere was a dual obligee on
three Bonds. Def.’s Reply to Pls. Opp. to Def.’s Mot. for
Summary Judgment at 18, ECF No. 484. AMICO’s exhibits, however,
indicate that Deere was a dual obligee on four Bonds. See
Squatrito Decl. Exs. 6a-d, ECF No. 446-7. This inconsistency
does not affect the court’s decision.
30
Keesling is inapposite.
In Keesling, the four corners of the
note did not allow the principal balance to exceed $300,000.
Id.
In the present case, the court is unable to determine whether the
addition of another dual obligee was contemplated by the parties,
or whether or how the addition of Textron affected OCD.
The
court is left with genuine issues of material fact as to whether
the addition of Textron materially altered any of OCD’s
obligations.
V.
CONCLUSION.
Given the multiple issues of fact, the court DENIES
OCD’s motion for summary judgment.
IT IS SO ORDERED.
DATED: Honolulu, Hawaii, October 27, 2011.
/s/ Susan Oki Mollway
Susan Oki Mollway
Chief United States District Judge
AMICO v. The Club at Hokuli`a; Civil No. 10-00199 SOM/KSC; ORDER DENYING OCD, LLC’S
MOTION FOR SUMMARY JUDGMENT
31
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