Developers Surety and Indemnity Company v. DKSL, LLC, et al.
ORDER GRANTING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT, ECF NO. 47 . Excerpt of Conclusion:"Developers' Motion for Partial Summary Judgment is GRANTED. As requested by Developer s, Defendants are (1) enjoined from transferring any other assets to avoid satisfying their obligations under the GIA, and (2) required to post collateral security with Developers (to be clear, not with the court) by March 14, 2018 in the amount of $260,000, which is the amount sought as reserves on the bonds...."IT IS SO ORDERED. Signed by CHIEF JUDGE J. MICHAEL SEABRIGHT on 3/6/2018. (afc) WRITTEN ORDER follows hearing held 2/5/2018. Minutes of h earing: ECF 74 . 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). All participants are registered to receive electronic notifications.
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
DEVELOPERS SURETY AND
Civ. No. 17-00221 JMS-KSC
ORDER GRANTING PLAINTIFF’S
MOTION FOR PARTIAL
SUMMARY JUDGMENT, ECF NO.
DKSL, LLC dba Paramount Builders; et
AND RELATED THIRD-PARTY
CLAIMS, COUNTERCLAIMS AND
ORDER GRANTING PLAINTIFF’S MOTION FOR PARTIAL
SUMMARY JUDGMENT, ECF NO. 47
Defendant DKSL, LLC dba Paramount Builders (“DKSL”) was the
contractor on three construction projects that were not completed, or were
cancelled, after problems arose related to DKSL’s contractor’s license. Plaintiff
Developers Surety and Indemnity Company (“Developers” or “Plaintiff”) issued
surety bonds on those projects, with DKSL as the principal. DKSL, as well as co-
Defendants Steven Lee, Daniel Kim, Julia Kim, and Patricia Lee, individually
(collectively, “Indemnitors” or “Defendants”) agreed to indemnify Developers for
claims made on those surety bonds. After Indemnitors failed to perform on the
indemnity agreement, Developers brought this diversity action, and has now filed a
Motion for Partial Summary Judgment, ECF No. 47, seeking to enforce the
Based on the following, Developers’ Motion is GRANTED.
Defendants are required to post collateral security in the amount of $260,000 in
accordance with the “Reserve Account” provisions of the indemnity agreement.
Developers, however, may not expend or disburse any of this security without
further order from the court.
Plaintiff’s Motion is supported by a concise statement of facts
(“CSF”) filed pursuant to Local Rule 56.1. ECF No. 48. In response, DKSL,
Steven Lee, Daniel Kim, and Julia Kim (joined by Patricia Lee, who is represented
separately) forthrightly “do not dispute any of the facts proffered in Plaintiff’s
[CSF],” at least for purposes of this Motion. Defs.’ Opp’n CSF at 3, ECF No. 62
at 3. They do, however, proffer evidence supporting additional facts for their
position that other “genuine issues exist that are necessary to be litigated,” id.,
arguing that it is premature to grant relief. Accordingly, the essential facts as
proffered by Plaintiff are established, and are summarized as follows:
The Indemnitors executed a General Indemnity Agreement (“GIA”)
with Developers on June 18, 2007. Pl.’s CSF ¶ 6. Under the GIA, the Indemnitors
agreed, among other matters, to indemnify Developers for claims or liabilities on
surety bonds (performance or payment bonds) that Developers issued on behalf of
DKSL as principal. Specifically, regarding indemnification, the GIA provides:
I. INDEMNIFICATION. In consideration of the
execution and delivery by Surety [Developers] of a Bond
or any Bonds on behalf of Principal [DKSL], Principal
and Indemnitor shall pay all premiums charged by Surety
in connection with any Bond (including extensions,
renewals or modifications) issued by Surety on behalf of
Principal and shall indemnify and hold harmless
Surety from and against any and all liability, loss,
claims, demands, costs, damages, attorneys’ fees and
expenses of whatever kind or nature, together with
interest thereon at the maximum rate allowed by law,
which Surety may sustain or incur by reason of or in
consequence of the execution and delivery by Surety
of any Bond on behalf of Principal, whether or not
Surety shall have paid any amount on account thereof[.]
GIA at 1, Compl. Ex. 1, ECF No. 1-1 (emphasis added). The GIA also has the
following terms regarding a reserve account by Developers:
3. RESERVE ACCOUNT. If Surety shall establish a
reserve account to cover any liability, claim asserted, suit
or judgment under any Bond, the Indemnitor shall,
immediately upon demand and whether or not Surety
shall have made any payment therefor, deposit with
Surety a sum of money equal to such reserve account
and any increase thereof as collateral security on such
Bond, and such sum and other money and property
which shall have been or shall thereafter be pledged as
collateral security on any such Bond shall be available, at
the discretion of Surety, as collateral security on all
Bonds coming within the scope of this Agreement or for
any other indebtedness of Indemnitor or Principal to
Surety. If Indemnitor shall fail, neglect or refuse to
deposit with Surety the collateral demanded by
Surety, Surety may seek a mandatory injunction to
compel the deposit of such collateral together with
any other remedy at law or in equity that Surety may
have. Surety shall have the right to retain such collateral
until Surety has received evidence satisfactory to Surety
of Surety’s complete discharge and exoneration from any
claim or potential claim under all Bonds and until Surety
has been fully reimbursed for any and all liability
incurred or for claims, demands, damages, costs, loss,
expense and attorneys’ fees.
Id. at 2 (emphases added).
Three surety bonds issued by Developers, with DKSL as the principal,
are at issue in this action: (1) “the Ala Wai project,” regarding improvements at
Ala Wai Elementary School, with a bond amount of $266,430 (and with the State
of Hawaii as obligee); (2) “the Kalakaua project,” regarding improvements at
Kalakaua Middle School, with a bond amount of $2,097,900 (and with the State of
Hawaii as obligee); and (3) “the Kokea project,” regarding improvements at a
Kokea Street maintenance facility building, with a bond amount of $733,000 (and
with the City and County of Honolulu as obligee). Pl.’s CSF ¶¶ 7 to 9.
DKSL “has failed and/or has been unable to meet its obligations” for
all three projects. Id. ¶ 13. The State of Hawaii, Department of Education
(“DOE”), terminated the Ala Wai and Kalakaua projects by letters dated May 29,
2015. Id. ¶¶ 10 & 11. The termination letters both stated, among other things, that
“[w]e have been made aware that effective October 1, 2014 DKSL LLC dba
Paramount Builders contractor’s license and RME Daniel Kim’s license has been
terminated,” and that under Hawaii laws “any contractor engaged on a State of
Hawaii public works project is required to have a current state of Hawaii
contractor’s license and be in good standing.” Pl.’s Ex. 6 at 1, ECF No. 48-5; Pl.’s
Ex. 7 at 1, ECF No. 48-6. Likewise, they both declared the surety bonds forfeited,
stating, “If the work required to complete the remaining contract items are greater
than what will remain, the Contractor and Surety will be liable for all expenses to
complete the project. . . . The bond is hereby forfeited.” Pl.’s Ex. 6 at 7; Pl.’s Ex. 7
at 2. Similarly, by letter to DKSL dated August 3, 2017, the City and County of
Honolulu issued a notice of default and intent to terminate the Kokea project. Pl.’s
CSF ¶ 12.
Developers has incurred actual expenses under its bonds and has set
reserves for future expenses. Developers has paid claims and expenses on the
Bonds totaling over $85,000 as of October 27, 2017. Id. ¶ 15. The evidence
indicates that (1) on March 29, 2016, Developers paid $2,000 to the DOE to settle
the outstanding bond claim for the Ala Wai project, (2) on May 12, 2016,
Developers paid $17,329.00 to Ala Kai Mechanical Corporation, and (3) on
January 23, 2015, Developers paid $12,021.31 to Ted’s Wiring Service. Pl.’s Ex.
9, ECF No. 48-8; Svitenko Decl. ¶¶ 6 to 10, ECF No. 78-1; Pl.’s Exs. 13 & 14,
ECF Nos. 78-2 & 78-3. Developers has also paid attorneys’ fees and costs of over
$49,000 (as of June 2017), apparently related only to the bond claims. Pl.’s Supp.
CSF ¶¶ 25, 27, ECF No. 77; Svitenko Decl. ¶¶ 10, 11; Ogawa Supp. Decl. ¶ 6,
ECF No. 78-6. It also paid a consultant $18,629.34 on January 10, 2018, for bondrelated services, such as reviewing construction documents, attending site
inspections, preparing scope-of-work documents, and securing and reviewing
contractor proposals. Svitenko Decl. ¶ 13; Ogawa Supp. Decl. ¶ 7; Pl.’s Ex. 17,
ECF No. 78-7.
Additionally, Developers has set reserves in the amount of
$260,021.31 based on amounts already paid, as well as an estimate of $180,000 for
future bond expenses. Pl.’s CSF ¶ 16; Svitenko Decl. ¶ 12. The $180,000 estimate
is based on proposals received to complete part of outstanding work on the
Kalakaua project ($60,045), estimates for further work after receiving information
from the DOE ($80,979), and additional attorney’s fees and costs ($35,000 to
$40,000). Ogawa Supp. Decl. ¶¶ 8 to 12; Pl.’s Exs. 18, 19, & 21; ECF Nos. 78-8
On March 9, 2017, Developers formally demanded that Indemnitors,
jointly and severally, indemnify it under the indemnification provision of the GIA.
Pl.’s CSF ¶ 17. It also demanded, under the reserve account provision of the GIA,
that Indemnitors deposit security to protect it from any losses as a result of claims
regarding the Ala Wai, Kalakaua, and Kokea project bonds. Id. That demand
sought payment of $71,578.86 as reimbursement of actual expenses from
Indemnitor, and a deposit of $147,464.00 as collateral security under the reserve
account provision. Compl. Ex. 2 at 3, ECF No. 1-2. Developers later made similar
demands on June 27, 2017, seeking $81,611.82 as reimbursement for claims paid,
and a deposit of $180,000 as collateral security. Pl.’s Ex. 11 at 3, ECF No. 48-11.
The parties also agree that (1) “Performance Bond claims on the
Kalakaua Project are pending in Developers Surety and Indemnity Company v.
Department of Education, State of Hawaii et al., Civil No. 17-1-0532-03 (BIA),
First Circuit Court, State of Hawaii,” Pl.’s CSF ¶ 20 (italics added), and (2) “Bond
claims on the Kalakaua Project and the Kokea Project are still pending and the
amount of [Developer’s] total anticipated losses, costs and expenses are not yet
determined as litigation and claims are still pending,” id. ¶ 21.
In short, “Defendants have not indemnified Developers and have
failed to deposit with Developers cash or other property as collateral security for
payment of claims on the Bonds.” Id. ¶ 19.
It is also undisputed that Steven Lee and Patricia Lee sold a residence
for approximately $2,000,000 in September 2015. Id. ¶ 22. And it is also
undisputed that DKSL has filed a breach of contract action in state court, seeking
recovery of $286,640.00 from the DOE. Defs.’ Opp’n CSF ¶¶ 6 & 7. Defendants
have filed similar Third-Party Complaints against the DOE in the current action.
ECF Nos. 33-2 & 56.
Developers filed this action on May 17, 2017. ECF No. 1. The
Complaint asserts three causes of action against all Defendants: Count One alleges
a “Breach of Contract of Indemnity,” Count Two seeks relief for “Unjust
Enrichment,” and Count Three seeks “Quia Timet” relief.1 Id. at 7, 10, 11.
“Quia timet is equitable relief which can compel the principal to pay the debt after it
has become due, but its use has also been extended to compel the principal to furnish the surety
(continued . . .)
DKSL and all Defendants besides Patricia Lee, filed their Answer on
July 18, 2017, ECF No. 22, followed by Third-Party Complaints against (1) the
DOE on August 1, 2017, ECF No. 27; and (2) Leeward Construction, LLC, on
December 18, 2017, ECF No. 54. On August 11, 2017, Patricia Lee (represented
separately from the other Defendants) filed an Answer, as well as a Third-Party
Complaint against the DOE, and a Crossclaim against the other Defendants. ECF
Nos. 33, 33-1 & 33-2.2
Developers filed its Motion on November 17, 2017. ECF No. 47.
DKSL and all Defendants besides Patricia Lee, filed an Opposition on January 12,
2018, ECF No. 61, in which Patricia Lee substantively joined on January 16, 2018.
ECF No. 63. Patricia Lee also filed a request under Federal Rule of Civil
(. . . continued)
indemnity against possible loss where the surety has reasonable grounds for anticipating that his
rights are being jeopardized and that he will incur a liability by conduct of the principal.”
Selective Ins. Co. of Am. v. Kuan-Tsan Yu, 2014 WL 12674384, at *3 (W.D. Wash. Nov. 21,
2014) (citing Milwaukie Const. Co. v. Glens Falls Ins. Co., 367 F.2d 964 (9th Cir. 1966)). “Quia
Timet is the right of a surety to demand that the principal place the surety in immediate funds
when there are reasonable grounds to believe that the surety will suffer a loss in the future
because the principal is likely to default on its primary obligation to the creditor.” Id. (citing
Borey v. Nat’l Union Fire Ins. Co., 934 F. 2d 30 (2nd Cir. 1991)). “Bills quia timet are most
often filed in surety cases, where a surety, after the debt for which he is liable has become due,
seeks to compel the principal to pay the debt.” Concorde Equity II, LLC v. Miller, 732 F. Supp.
2d 990, 1002 (N.D. Cal. 2010).
Patricia Lee alleges in her crossclaim that she is divorced from Steven Lee, and that
Steven Lee is obligated to indemnify her for any liability from the GIA under terms of their 2015
divorce decree. ECF No. 33-1 at 4. But this crossclaim would provide no defense to
Developers’ claim under the GIA, under which Patricia Lee is an Indemnitor.
Procedure 56(d) to continue the hearing, along with a Declaration from her
counsel. ECF Nos. 63 & 63-1. 3 The DOE filed a Statement of No Opposition.
ECF No. 60. Developers filed a Reply on January 22, 2018. ECF No. 67. The
court heard the Motion on February 5, 2018.
After the hearing, on February 20, 2018, Developers filed (1) a
Supplemental Memorandum, ECF No. 76, (2) an Amended Supplemental CSF,
ECF No. 78, and (3) additional evidence to document its claims, ECF Nos. 78-1 to
78-10. And on February 27, 2018, Defendants (including a joinder by Patricia
Lee) filed an Opposition to the Supplemental Memorandum, ECF Nos. 82-83.
Although she seeks a continuance under Federal Rule of Civil Procedure 56(d), she
does not identify any specific facts that would be sought by further discovery, nor indicate how
additional discovery could create a genuine issue of material fact regarding liability under the
GIA. She indicates only generally that she “has not had adequate opportunity to conduct
discovery of the facts and circumstances at issue,” and “requests the continuance in order to
request written discovery from the other Defendants who were actually involved in the projects
and have knowledge and documents regarding liability and damages in this matter that [she] does
not have as an uninvolved guarantor.” Carroll Decl. ¶¶ 3, 4, ECF No. 65. She does not explain
why the discovery she seeks was not requested in the nine months since suit was filed. The court
DENIES the Rule 56(d) continuance. See, e.g., Tatum v. City & Cty. of S.F., 441 F.3d 1090,
1100 (9th Cir. 2006) (“A party requesting a continuance pursuant to Rule 56[(d)] must identify
by affidavit the specific facts that further discovery would reveal, and explain why those facts
would preclude summary judgment.”); Pfingston v. Ronan Eng’g Co., 284 F.3d 999, 1005 (9th
Cir. 2002) (“The failure to conduct discovery diligently is grounds for the denial of a Rule
III. STANDARD OF REVIEW
Summary judgment is proper where there is no genuine issue of
material fact and the moving party is entitled to judgment as a matter of law. Fed.
R. Civ. P. 56(a). Rule 56(a) mandates summary judgment “against a party who
fails to make a showing sufficient to establish the existence of an element essential
to the party’s case, and on which that party will bear the burden of proof at trial.”
Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); see also Broussard v. Univ. of
Cal. at Berkeley, 192 F.3d 1252, 1258 (9th Cir. 1999).
“A party seeking summary judgment bears the initial burden of
informing the court of the basis for its motion and of identifying those portions of
the pleadings and discovery responses that demonstrate the absence of a genuine
issue of material fact.” Soremekun v. Thrifty Payless, Inc., 509 F.3d 978, 984 (9th
Cir. 2007) (citing Celotex, 477 U.S. at 323); see also Jespersen v. Harrah’s
Operating Co., 392 F.3d 1076, 1079 (9th Cir. 2004). “When the moving party has
carried its burden under Rule 56[(a)] its opponent must do more than simply show
that there is some metaphysical doubt as to the material facts [and] come forward
with specific facts showing that there is a genuine issue for trial.” Matsushita
Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986) (citation and
internal quotation marks omitted).
“An issue is ‘genuine’ only if there is a sufficient evidentiary basis on
which a reasonable fact finder could find for the nonmoving party, and a dispute is
‘material’ only if it could affect the outcome of the suit under the governing law.”
In re Barboza, 545 F.3d 702, 707 (9th Cir. 2008) (citing Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986)). When considering the evidence on a
motion for summary judgment, the court must draw all reasonable inferences in the
light most favorable to the nonmoving party. Friedman v. Live Nation Merch.,
Inc., 833 F.3d 1180, 1184 (9th Cir. 2016).
Defendants are in Breach of the GIA
Defendants admit that (1) they are parties to the GIA; (2) DKSL has
“failed and/or has been unable to meet its obligations,” Pl.’s CSF ¶ 13, for the Ala
Wai, Kalakaua and Kokea projects; (3) Developers has paid claims and set reserves
for pending and potential claims on the three projects; (4) Developers has made
demands for performance on the GIA; and (5) they have not indemnified
Developers and have failed to deposit cash or other property as collateral security
under the terms of the GIA. Developers has thus established as a matter of law that
Defendants are in breach of the GIA. See, e.g., Evergreen Eng’rg, Inc. v. Green
Energy Team LLC, 884 F. Supp. 2d 1049, 1059 (D. Haw. 2012) (setting forth
elements of breach of contract under Hawaii law); Travelers Cas. & Sur. Co of Am.
v. Big Town Mech., LLC, 2013 WL 5818601, at *3 (D. Nev. Oct. 8, 2013)
(applying contract principles to indemnification and collateral security provisions
of a GIA).
Given this breach, Developers seeks quia timet relief based on the
reserve account (or “collateral security”) provision of the GIA (“If Indemnitor shall
fail, neglect or refuse to deposit with Surety the collateral demanded by Surety,
Surety may seek a mandatory injunction to compel the deposit of such
collateral[.]”), GIA at 2. Specifically, it seeks an order (1) enjoining Defendants
from transferring assets to avoid satisfying their obligations under the GIA, and
(2) requiring Defendants “jointly and severally to post collateral security in the
amount of the reserves and to cover the payments already made as a result of
claims” on the bonds. Pl.’s Mem. at 14-15, ECF 47-1 at 19-20 (emphasis added).
Developers is Entitled to Quia Timet Relief
“When a surety agreement contains a collateral security provision, the
surety is generally entitled to specific performance of the collateral security
provision, regardless whether it has actually incurred a loss or only anticipates a
loss[.]” Allied World Specialty Ins. Co. v. JND Thomas Co., 2015 WL 9480626, at
*5 (E.D. Cal. Dec. 29, 2015).
A collateral security provision provides that once a surety
. . . receives a demand on its bond, the indemnitor must
provide the surety with funds which the surety is to hold
in reserve. If the claim on the bond must be paid, then
the surety will pay the loss from the indemnitor’s funds;
otherwise, the surety must return the funds to the
indemnitor. Sureties are ordinarily entitled to specific
performance of collateral security clauses.
Id. (quoting Safeco Ins. Co. of Am. v. Schwab, 739 F.2d 431, 433 (9th Cir. 1984))
(California law). See also, e.g., Berkley Reg’l Ins. Co. v. Murray, 2016 WL
235191, at *5 (D. Md. Jan. 20, 2016) (granting specific performance to a surety
where “there is no dispute that the Agreements are valid contracts requiring
Defendants to continue to indemnify Plaintiff and post the requested collateral,”
reasoning in part that “[l]egal remedies are not sufficient because Plaintiff’s
‘obligation under the bonds are continuing, and the total loss to Plaintiff is not yet
ascertainable’”) (quoting U.S. Fid. & Guar. Co. v. J. United Elec. Contracting
Corp., 62 F. Supp. 2d 915, 923 (E.D.N.Y. 1999) (brackets omitted)) (New York
Further, “[q]uia timet allows the surety to prevent the principal from
dissipating . . . funds if the surety knows it will be called upon to ‘pay the debt or
perform the obligation’ on the bond, suspects that the principal has some or all of
the necessary funds to do so, and fears that the principal may abscond with those
funds.” Liberty Mut. Ins. Co. v. Sumo-Nan LLC, 2015 WL 2449480, at *12 (D.
Haw. May 20, 2015) (quoting Am. Contractors Indem., Co. v. Bigelow, 2011 WL
5546052, at *10 (D. Ariz. Apr. 11, 2011)).
Here, the GIA plainly authorizes Developers to establish a reserve
account “to cover any liability, claim asserted, suit or judgment under any Bond,”
and to require Indemnitors to deposit security with Developers, “whether or not
[Developers] shall have made any payment.” GIA at 2 ¶ 3. And the provision
specifically authorizes Developers to “seek a mandatory injunction to compel the
deposit of such collateral” if Indemnitor “shall fail, neglect or refuse to deposit”
such collateral. Id.
The amounts demanded under these provisions — both the
indemnification and reserve account clauses — must be reasonable.
See, e.g., Star Ins. Co. v. Champion Constr. Servs. Corp., 2014 WL 4065093, at *4
(E.D.N.Y. July 30, 2014) (“[T]he surety is entitled to indemnification as long as
the payments made in execution of the bonds were reasonable and made in good
faith.”) (applying New York law and citing cases); id. (“So long as the sum
demanded is reasonable, the contractor . . . must abide by [the reserve account
provision.]”) (quoting BIB Constr. Co. v. Fireman’s Ins. Co., 625 N.Y.S.2d 550,
552 (N.Y. App. Div. 1995)) (square brackets omitted); Yakima Co. v. Lincoln Gen.
Ins. Co., 583 F. App’x 744, 746 (9th Cir. 2014) (mem.) (“While the GIA does not
expressly require that Lincoln’s attorneys’ fees be ‘reasonable,’ courts routinely
imply such a limitation in contractual fee-shifting provisions — including those
contained in indemnity agreements.”) (citations omitted). And “[a] demand for
collateral is reasonable if the sum demanded is commensurate with the claims
made against the surety or the amount sought by a third party in litigation.”
Champion Constr. Servs. Corp., 2014 WL 4065093, at *4 (citations omitted).
Here, Developers has clearly established that in 2017 it paid $2,000 to
the State of Hawaii, $17,329.00 to Ala Kai Mechanical Corp, $12,021.31 to Ted’s
Wiring Service, and over $49,000 in attorney’s fees and costs (as of June 2017).
Pl.’s Exs. 9, 10, 13 to 16. And recently, it also paid its consultant $18,629.34 for
bond related services. Pl.’s Ex. 17. Further, it has submitted adequate evidence to
establish the reasonableness of the $180,000 in reserves for future anticipated
obligations, included proposed construction agreements, and consultant-reviewed
itemized estimates. Pl.’s Exs. 18 to 21. The total reserve (slightly over $260,000)
is commensurate with anticipated losses, and is reasonable. Developers has also
established that it made a proper demand for payment and that Defendants have
failed to deposit collateral under the terms of the reserve account provision.
Finally, it is undisputed that Defendants have failed to perform for nearly a year
(the first demand by Developers was made on March 9, 2017). 4
Defendants’ primary response is that it is premature and not necessary
for Developers to require security, indicating that Developers will eventually be
reimbursed from the DOE (which is a defendant in the state court litigation brought
by Developers). But even assuming Developers eventually recovers amounts from
DOE, Defendants do not dispute that they are presently in breach of the GIA.
Granting relief to Developers would simply hold Defendants to their contractual
Accordingly, the court will enforce the injunction provision in the
GIA. No later than March 14, 2018, Defendants must deposit collateral security in
the amount of $260,000 in accordance with the GIA’s reserve account provisions.
Ordinarily the equitable remedy of specific performance is not available if there is an
adequate remedy at law. In the context of a surety bond indemnity agreement, some courts have
denied quia timet relief as to amounts already paid by a surety (granting relief as damages), and
limited specific performance to collateral security for future losses. See, e.g., Hartford Fire Ins.
Co. v. Universal Import, LLC, 2009 WL 4042699, at *4 (D. Nev. Nov. 20, 2009) (refusing to
specifically enforce a collateral security provision where the surety was able to recover money
damages for breach of an indemnity clause) (citing Commercial Ins. Co. of Newark v. Pac. Peru
Constr., 558 F.2d 948, 954 (9th Cir. 1977)). This distinction, however, does not necessarily
apply if the specific collateral security provision — such as the reserve account provision at issue
here — does not distinguish “between losses already incurred and existing claims or future
losses.” Safeco Ins. Co. of Am. v. M.E.S., Inc., 2010 WL 3928606, at *5 (E.D.N.Y. Oct. 4,
2010). Rather, here, “[l]egal remedies are not sufficient because Plaintiff’s ‘obligation under the
bonds are continuing, and the total loss to Plaintiff is not yet ascertainable.’” Berkley Reg’l Ins.
Co., 2016 WL 235191, at *5 (quoting U.S. Fidelity & Guar. Co., 62 F. Supp. 2d at 923).
And, given the amount of time (nearly a year) that has passed since Developers
first demanded compliance, the court will further enjoin Defendants from
transferring assets to avoid their obligations under the GIA. Under the reserve
account provisions, once Defendants deposit such collateral security with
Developers, Developers “shall have the right to retain such collateral until [it]] has
received evidence satisfactory to [it] of [its] complete discharge and exoneration
from any claim or potential claim under all Bonds and until [it] has been fully
reimbursed for any and all liability incurred or for claims, demands, damages,
costs, loss, expense and attorneys’ fees.” GIA at 2. In that regard, the court will
require further court order before Developers may expend any of the collateral
security. That is, Developers may not disburse or spend any of the collateral
security without further order of the court.
Developers’ Motion for Partial Summary Judgment is GRANTED.
As requested by Developers, Defendants are (1) enjoined from transferring any
other assets to avoid satisfying their obligations under the GIA, and (2) required to
post collateral security with Developers (to be clear, not with the court) by March
14, 2018 in the amount of $260,000, which is the amount sought as reserves on the
bonds. Pl.’s Mem. at 14-15.
IT IS SO ORDERED.
DATED: Honolulu, Hawaii, March 6, 2018.
/s/ J. Michael Seabright
J. Michael Seabright
Chief United States District Judge
Developers Sur. & Indem. Co. v. DKSL, LLC et al., Civ. No. 17-00221 JMS-KSC, Order
Granting Plaintiff’s Motion For Partial Summary Judgment, ECF No. 47
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?