Western Surety Company v. PASI of LA, Inc. et al

Filing 55

FINDINGS OF FACT AND CONCLUSIONS OF LAW denying 11 Motion for Preliminary Injunction. Signed by Judge John W. deGravelles on 9/25/2018. (SGO)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF LOUISIANA
WESTERN SURETY COMPANY
CIVIL ACTION
VERSUS
NO. 17-1643-JWD-RLB
PASI OF LA, INC., ET AL.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
This matter is before the Court on Western Surety Company’s Motion for Preliminary
Injunction.1 Defendants PASI of La., Inc.; Professional Application Services, Inc.; PASI
Properties, LLC; Mark W. Alexander; Howard K. Lobell; and Sammie G. Lobell oppose the
motion. Both sides have submitted evidence and filed proposed findings of fact and conclusions
of law2 and reply briefs.3 On September 21, 2018, the Court held an evidentiary hearing.4 The
Court has carefully considered the law, the facts in the record, and the arguments and
submissions of the parties and is prepared to rule.

1

Western Surety Company’s Motion for Preliminary Injunction, Doc. 11.

2

Western Surety’s Company’s Findings of Fact and Conclusions of Law in Support of Motion for
Preliminary Injunction (“Western’s PFFCL”), Doc. 40; Defendants’ Proposed Findings of Fact &
Conclusions of Law in Opposition to Plaintiff’s Motion for Preliminary Injunction (“PASI’s PFFCL”),
Doc. 41; PASI’s PFFCL, Doc. 51; Western Surety Company’s Updated Findings of Fact and
Conclusions of Law in Support of Motion for Preliminary Injunction, Doc. 52. The second set of
proposed findings of fact and conclusions of law from each party are the same in substance as their
originals; the later ones were simply updated to include citations to exhibits that would be used at the
preliminary injunction hearing. See Notice to Counsel, Doc. 49.
3

Western Surety Company’s Response to Defendants’ Proposed Findings of Fact and Conclusions of
Law (“Western’s Resp.”), Doc. 46; Defendants’ Response to Plaintiff’s Proposed Findings of Fact &
Conclusions of Law (“PASI’s Resp.”), Doc. 47.

4

See Joint Exhibit List, Doc. 53.

Pursuant to Federal Rule of Civil Procedure 52(a), the Court enters these Findings of Fact
and Conclusions of Law. If any finding is in truth a conclusion of law, or if any conclusion stated
is in truth a finding of fact, it shall be deemed so.
I.

FINDINGS OF FACT
A. The Parties, the Construction Project, and the Performance Bond

1. Defendant PASI of LA, Inc. (“PASI”) is a contractor specializing in industrial blasting
and painting/coating.5
2. Plaintiff Western Surety Company (“Western” or “Western Surety”) is a bonding company
that issues surety bonds on construction projects, and is a wholly owned subsidiary of CNA
Financial Corp.6
3. On June 24, 2014, PASI, as subcontractor, entered into an agreement (“Subcontract”) with
general contractor, Harry Pepper & Associates, Inc. (“HPA” or “Harry Pepper”).7
4. The Subcontract called for PASI to perform blasting and painting services as part of HPA’s
“principal” contract with NASA, the owner, for the restoration of the B-2 Test Stand at the
John C. Stennis Space Center in Hancock County, Mississippi (“Project”). HPA required
PASI to provide a subcontract performance bond.8

5

See Affidavit of Mark W. Alexander (“Alexander Aff.”) ¶ 2, Doc. 41-1. The Court may consider
affidavits and deposition testimony in deciding this motion for preliminary injunction. See Sierra Club,
Lone Star Chapter v. F.D.I.C., 992 F.2d 545, 551 (5th Cir. 1993) (“[a]t the preliminary injunction stage,
the procedures in the district court are less formal, and the district court may rely on otherwise
inadmissible evidence, including hearsay evidence. Thus, the district court can accept evidence in the
form of deposition transcripts and affidavits.” (citing Fed. Sav. and Loan Ins. Corp. v. Dixon, 835 F.2d
554, 558-59 (5th Cir. 1987)).
6

Rule 30(b)(6) Deposition of Western Surety (“Western Dep.”) 85: 1–4, Ex. 60.

7

HPA-PASI Subcontract 1, Ex. 2.

8

Alexander Aff. ¶ 4, Doc. 41-1; HPA-PASI Subcontract 1, Ex. 2.

2

5. In order to induce Western to issue surety bonds, PASI, Professional Applications Services,
Inc. (“Professional”), PASI Properties, LLC (“PASI Properties”), Mark W. Alexander
(“Alexander”), Howard K. Lobell (“Mr. Lobell”), and Samie G. Lobell (“Ms. Lobell”)
(PASI, Professional, PASI Properties, Alexander, Mr. Lobell, and Ms. Lobell are
sometimes hereinafter collectively referred to as the “Indemnitors”), as indemnitors, each
executed a General Agreement of Indemnity (the “Indemnity Agreement”), dated April 1,
2011, in favor of Western.9 Western also collected a premium payment from PASI. 10
B. The General Agreement of Indemnity
6. The Indemnity Agreement jointly and severally obligates the Indemnitors to:
[I]ndemnify and save the Surety harmless from and against any Loss which
the Surety may pay or incur. In the event of any payments made by the
Surety in the good faith belief of their necessity, the Indemnitors agree to
accept the voucher or other evidence of such payments as prima facie
evidence of the propriety thereof, and of the Indemnitors liability therefore
to the Surety;11
7. A “Loss” is defined in the Indemnity Agreement as:
(a) any and every claim, demand, liability, cost, charge, suit, judgment, fee,
interest on any amounts due the Surety, and expense, including but not
limited to attorney fees and consultant fees incurred by the Surety as the
result of issuing or considering the issuance of a Bond; (b) any cost incurred
by the Surety in the process of procuring, or attempting to procure, release
from liability under a Bond; (c) the cost to the Surety of making any
independent investigation of a claim, demand or suit arising under a Bond;
(d) any cost incurred by the Surety in bringing suit to enforce the obligation
of any of the Indemnitors under this Agreement; and (e) any other cost

9

Affidavit of Laurence P. Jortner (“Jortner Aff.”) ¶ 3, Doc. 40-1; General Agreement of Indemnity
(“Indemnity Agreement”) 1, Ex. 1.

10

Indemnity Agreement § 2, Ex. 1.

11

Indemnity Agreement § 3(a), Ex. 1.

3

incurred by the Surety in good faith as a result of having issued or procured
the issuance of a Bond.12
8. The Indemnity Agreement provides that the Indemnitors shall:
[D]eposit with the Surety on demand collateral security in an amount and
kind satisfactory to the Surety in its sole discretion whenever the Surety
shall reasonably determine that such collateral is necessary to protect it from
Loss whether or not the Surety has made any payment. The Surety shall
have the right to use the deposit, or any part thereof, in payment or
settlement of any Loss for which the Indemnitors would be obligated to
indemnify the Surety under the terms of this Agreement if for any reason
the Surety shall deem it necessary to increase the amount necessary to
protect it from Loss, the Indemnitors shall deposit with the Surety,
immediately upon demand, a sum of money equal to any increase thereof
as collateral security to the Surety for such Loss. Any unused collateral
security shall be returned to the depositing Indemnitors when the Surety
determines, in its sole discretion, that the collateral security is no longer
necessary to protect it from Loss. The Surety has no duty to invest or pay
interest on the deposit.13
9. The Indemnity Agreement defines an Event of Default as:
[T]he occurrence of any one or more of the following: (a) any breach of any
of the terms and conditions of this Agreement; . . .14
10. In the Indemnity Agreement, the Indemnitors agreed that upon the occurrence of an Event
of Default:
[T]he Indemnitors hereby assign, transfer, and set over to the Surety all of
their rights under the Bonded Contracts, including: i. their right, title and
interest in and to all subcontracts let in connection therewith; ii. all
machinery, plant, equipment, tolls and materials upon the site of the work or
elsewhere for the purposes of the Bonded Contracts, including all material
ordered for the Bonded Contracts; iii. all patents, licenses, permits and
computer software used for the performance of any Bonded Contract and/or
financial record keeping of the same; iv. all actions, causes of action, claims
12

Indemnity Agreement § 1, Ex. 1.

13

Indemnity Agreement § 3(b), Ex. 1.

14

Indemnity Agreement § 1, Ex. 1.

4

and demands whatsoever relating to the Bonded Contracts; and v. any and
all sums due under the Bonded Contracts at the time of the Event of Default
or which may thereafter become due;15
11. The Indemnity Agreement provides that:
The Surety shall have the exclusive right and power to determine for itself
and the Indemnitors and Principals whether any claim, suit, or assertion of
liability against the Surety or the Principal upon any Bond shall be settled,
compromised, tendered, or defended. The Surety's decision in such regard
shall be binding and conclusive upon the Indemnitors.16
C. Issuance of the Bond
12. PASI applied to Western to issue a payment bond and a performance bond for the
Subcontract.17
13. In full reliance on the terms and conditions of the Indemnity Agreement executed by
Indemnitors, Western, as surety, issued a Subcontract Performance Bond (the
“Performance Bond”) and a Subcontract Payment Bond (the “Payment Bond”) (the
Performance Bond and the Payment Bond are sometimes hereinafter referred to jointly as
the “Bonds”) with PASI as principal/subcontractor/obligor and Harry Pepper as
obligee/contractor for the Subcontract.18
14. The Bonds each had a penal sum of Four Million Eight Hundred Seventy-Four Thousand
Four Hundred Thirty-Five and No/100 ($4,874,435.00) Dollars.19
15. Further, the Performance Bond provided:

15

Indemnity Agreement § 9(b), Ex. 1.

16

Indemnity Agreement § 5, Ex. 1.

17

Jortner Aff. ¶ 4, Doc. 40-1.

18

Jortner Aff. ¶ 5, Doc. 40-1; Bonds, Ex. 3.

19

Jortner Aff. ¶ 5, Doc. 40-1; Bonds, Ex. 3.

5

4. PRINCIPAL DEFAULT. Whenever the Principal shall be, and is declared by
the Obligee to be in default under the Subcontract, with the Obligee having
performed its obligations in the Subcontract, the Surety may promptly remedy the
default, or shall promptly:
4.1 COMPLETE SUBCONTRACT. Complete the Subcontract in
accordance with its terms and conditions; or
4.2 OBTAIN NEW CONTRACTORS. Obtain a bid or bids formally,
informally or negotiated for completing the Subcontract in accordance with
its terms and conditions, and upon determination by the Surety of the lowest
responsible bidder, or negotiated proposal, or, if the Obligee elects, upon
determination by the Obligee and the Surety jointly of the lowest
responsible bidder, or negotiated proposal, arrange for a contract between
such party and the Obligee. The Surety will make available as work
progresses sufficient funds to pay the cost of completion less the balance of
the contract price. The cost of completion includes responsibilities of the
Principal for correction of defective work and completion of the
Subcontract; the Obligee's legal and design professional costs resulting
directly from the Principal’s default, and; liquidated damages or actual
damages if no liquidated damages are specified in the Subcontract. The term
“balance of the contract price,” as used in this paragraph, shall mean the
total amount payable by the Obligee to the Principal under the Subcontract
and any amendments to it, less the amount properly paid by the Obligee to
the principal; or
4.3 PAY OBLIGEE. Determine the amount for which it is liable to the
Obligee and pay the Obligee that amount as soon as practicable; or
4.4 DENY LIABILITY. Deny its liability in whole or in part and notify
and explain to the Obligee the reasons why the Surety believes it does not
have responsibility for this liability.20
D. HPA Terminates PASI from the Project
16. Sometime in January of 2015, a dispute arose on the Project regarding allegations of
airborne lead contamination.21

20

Performance Bond Art. 4, Ex. 3.

21

Alexander Aff. ¶ 7, Doc. 41-1; Letter from NASA to HPA, January 27, 2015, Ex. 4.

6

17. On or about January 28, 2015, Harry Pepper notified PASI that it was in default of the
Subcontract.22 Harry Pepper specifically stated that PASI lacked a current Mississippi
certification for a Lead Based Paint abatement firm, which, HPA claimed, was “in breach
of the subcontract agreement and non-compliant with local, state and federal law.”23 PASI
was given three days “to cure its default”, which “include[d] but [was] not limited to
providing a response to all of the items in NASA’s letter that will enable work to resume
and PASI to strictly comply with the terms of the Subcontract and Prime contract.”24
18. According to Mark W. Alexander, PASI’s Vice President, HPA took the position that PASI
was responsible for the alleged contamination.25
19. PASI vigorously disputed responsibility for any contamination condition and questioned
whether any such condition existed at all.26
20. By letter of February 25, 2015, from Harry Pepper to PASI, Harry Pepper terminated the
Subcontract and informed PASI that Harry Pepper “intend[ed] to hold Western and PASI
responsible for all costs associated with completion of the work as well as any and all
damages HPA might sustain because of PASI’s failure to properly perform its work.”27
21. PASI, at all times relevant from the initial claim by HPA until the present, has adamantly
denied that PASI defaulted on the subcontract for the Project and has consistently advised

22

Jortner Aff. ¶ 6, Doc. 40-1; Letter from HPA to PASI, January 28, 2015, Ex. 5.

23

Letter from HPA to PASI, January 28, 2015, Ex. 5.

24

Letter from HPA to PASI, January 28, 2015, Ex. 5.

25

Alexander Aff. ¶ 8, Doc. 41-1.

26

Alexander Aff. ¶ 8, Doc. 41-1.

27

Jortner Aff. ¶ 7, Doc. 40-1; Letter from HPA to PASI, February 25, 2015, Ex. 9.

7

Western that PASI was not liable to HPA for a default on the subcontract for the
Project.28
E. The Dispute Between HPA, PASI, and Western Surety
22. By letter dated February 25, 2015 from Harry Pepper to Western, a copy of which was
sent to PASI, Harry Pepper notified Western that PASI’s subcontract was terminated and
made demand on Western to perform its obligations under the Performance Bond.29
23. After initially receiving HPA’s notification, Western assigned the claim to Theodore
Gryfinski, senior claims consultant.30 Mr. Gryfinski admitted at his deposition that his
initial impression was that PASI had been wrongfully terminated. 31 “It’s kind of back
and forth, but, generally speaking, [Gryfinski] felt all along that they were wrongfully
terminated.”32
24. On or about March 13, 2015, Western conducted a site visit of the Project.33
25. On April 7, 2015, HPA receives bids from ADS Services, Inc. (“ADS”) in the amount of
about $2.9M to complete sandblasting and lead paint abatement and M Natal Contractor,
Inc. (“M. Natal”) in the amount of about $736K to complete painting scope.34

28

See, e.g., Email Chain (particularly Western_000499), July 2015, Ex. 19; Email from Mark Alexander
(of PASI) to Theodore Gryfinski (of Western), October 1, 2015, Ex. 26; Letter from PASI to Western,
October 13, 2015, Ex. 27; Letter from PASI to Western, November 18, 2015, Ex. 34; Email Chain
between James Carver and Jim Green (Western’s attorney), August 15–16, 2017, Ex. 50.

29

Jortner Aff. ¶ 8, Doc. 40-1; Letter from HPA to Western, February 25, 2015, Ex. 10.

30

See Western Dep. 16:3–17:24, Ex. 60.

31

Western Dep. 29:11–31:10, Ex. 60.

32

Western Dep. 31:7–10, Ex. 60.

33

Email Chain between HPA and Western, March 11, 2015, Ex. 11.

34

ADS and M. Natal Bids, April 7, 2015, Ex. 12.

8

26. On April 8, 2015, HPA wrote a letter to Western.35 HPA stated that PASI was terminated
for default as “a result of PASI’s actions on 19 January 2015 when PASI allowed a
breach in a containment area to occur and their failure to follow their Site Specific Lead
Paint Removal Compliance Plan.”36 The letter expressed that “Since the date of the
breach basically all productive painting and blasting [has] stopped.”37 The letter stated
that “PASI’s actions have caused approximately a 3 month delay to the project and the
costs associated with the delay are increasing on a day by day basis until painting and
abrasive blasting operations recommence. Therefore, [HPA] must take action to stop the
delay and move the project forward toward completion.”38 The April 8, 2015 letter also
provided completion bids from two replacement subcontractors, ADS and M. Natal, and
requested Western’s authorization for HPA to engage those subcontractors to complete
the scope of work.39 Alternatively, HPA requested that Western propose an alternate
method for completion.40 HPA requested Western’s response by April 14, 2015.41
27. On April 28, 2015, HPA wrote another letter to Western.42 There, HPA stated that since
HPA’s February 25, 2015, demand on Western, Western “ha[d] not provided [HPA] with

35

Letter from HPA to Western, April 8, 2015, Ex. 13.

36

Letter from HPA to Western, April 8, 2015, Ex. 13.

37

Letter from HPA to Western, April 8, 2015, Ex. 13.

38

Letter from HPA to Western, April 8, 2015, Ex. 13.

39

Letter from HPA to Western, April 8, 2015, Ex. 13.

40

Letter from HPA to Western, April 8, 2015, Ex. 13.

41

Letter from HPA to Western, April 8, 2015, Ex. 13.

42

Letter from HPA to Western, April 28, 2015, Western Dep. Ex. 10, Ex. 60.

9

a proposed method of completing PASI’s remaining work.”43 HPA noted that, three
weeks prior, HPA had proposed using ADS and M Natal and that, “At that time HPA
requested authorization from WSC to issue the subcontracts. Not having heard anything
on 16 April 2015 HPA again requested WSC’s authorization. As of this date [Western]
has failed to provide any type of response.”44 HPA asserted that, to meet its obligations
to NASA, HPA could “no longer wait on a response from” Western and that HPA “must
take immediate action to resume the work that ha[d] been delayed as a result of PASI’s
failure to properly perform.”45 HPA informed Western that it would tender subcontracts
to ADS and M Natal; that the “cost of these two subcontracts will exceed the remaining
amounts of PASI’s contract balance by approximately $250,000”; and that HPA intended
to hold Western and PASI “responsible” for “any and all” costs “associated with PASI’s
default”.46
28. On April 29, 2015, Western responded by letter to HPA.47 Western stated that it
disagreed with HPA’s assessment because “one of the surety’s fundamental rights is the
right to investigate the declaration of default by the obligee and the underlying contract at
issue.”48 Western further stated: “While we have been willing to cooperate and consider
HPA’s proposals [with ADS and M Natal], as surety we are entitled to accept or reject

43

Letter from HPA to Western, April 28, 2015, Western Dep. Ex. 10, Ex. 60.

44

Letter from HPA to Western, April 28, 2015, Western Dep. Ex. 10, Ex. 60.

45

Letter from HPA to Western, April 28, 2015, Western Dep. Ex. 10, Ex. 60.

46

Letter from HPA to Western, April 28, 2015, Western Dep. Ex. 10, Ex. 60.

47

Letter from Western to HPA, April 29, 2015, Western Dep. Ex. 11, Ex. 60.

48

Letter from Western to HPA, April 29, 2015, Western Dep. Ex. 11, Ex. 60.

10

suggested contracts or otherwise put to bid with other contractors for competitive
pricing.”49 Western denied that it had “done nothing”; denied having copies of the ADS
and M Natal proposals; said that it “appear[ed] that HPA has elected to move forward
under its own volition without the surety’s agreement as to process objective”; indicated
that Western “expect[ed] HPA to mitigate any and all damage during the prosecution of
the work; and “strictly reserve[d]” its rights under the Bond, contract, and law.50
29. According to the deposition of Willie Dobes, President and CEO of Harry Pepper, if
Western had timely denied HPA’s claim against on the performance bond regarding the
project, the cost overrun over the subcontract price to complete the work of PASI on the
project would have only been approximately $250,000.51 Dobes further stated that, as a
direct result of Western’s untimely denial of HPA’s claim against WSC on the
performance pond, HPA anticipated that the actual cost overrun over the contract price to
complete the work of PASI on the project was going to be approximately $2,500,000.52
30. On May 7, 2015, Western emailed HPA that the ADS price was too high and that ADS’
inability to obtain a bond was a deal breaker.53

49

Letter from Western to HPA, April 29, 2015, Western Dep. Ex. 11, Ex. 60.

50

Letter from Western to HPA, April 29, 2015, Western Dep. Ex. 11, Ex. 60.

51

Deposition of Willie Dobes (of HPA) (“HPA Dep.”) 7:23–8:6, Ex. 59.

52

HPA Dep. 8:7–16, Ex. 59.

53

Email from Ted Gryfinski to Chip McCutcheon (of HPA), May 7, 2015, Ex. 14.

11

31. On May 8, 2015, Keith Roberts, of Roberts, Taylor, Sensabaugh (“RTS”) emailed HPA
informing HPA that RTS has been retained to assist in the re-let process and to schedule
inspection of the site.54
32. On or about June 26, 2015, Industrial Corrosion Control, Inc. (“ICCI”), submitted a bid
with a price range of between about $5.3M and $9.3M.55
33. On July 20, 2015, Western’s attorney sent an email to HPA’s counsel stating that it
would “like to make a run at settling at least the actual work performance aspect of
this.”56 Western’s attorney stated, “PASI is objecting to the ADS and M NATAL
completion estimates as being too high for a number of reasons so the surety is being
cautious in its attempt to settle in order to preserve its subrogation rights. That is the
reason we’re looking for some reduction in those estimates.”57
34. On July 20, 2015, Western sent a proposed partial release agreement to HPA in which
Western proposed paying HPA the difference between the remaining subcontract funds
and the ADS and M Natal estimates - approximately $227,000.58
35. On July 23, 2015, Western received revised quotes from M Natal and ADS.59 M Natal
provided a lump sum quote of $1,146,520 for painting, which is a roughly $410,000

54

Email from Keith Roberts (of RTS) to Chip McCutcheon, May 8, 2015, Ex. 15.

55

Email Chain between HPA and PASI (particularly Western_002504) June 2015 to March 2016, Ex. 16.

56

Email from Jim Green to Jim Staak (HPA’s attorney) July 20, 2015, Ex. 17.

57

Email from Jim Green to Jim Staak, July 20, 2015, Ex. 17.

58

Email Chain between Jim Green and James Carver, April 29, 2016, Ex. 36.

59

See Email Chain between Jim Green and James Carver, July 24, 2015, Ex. 18.

12

increase from the quote given in April.60 ADS’s revised lump sum for blasting and
abatement had a lump sum total of $3,637,685, which includes roughly $3M for the
contract completion and about $615K for “Back Charge” work items.61 As Jim Green
stated in a contemporaneous email, “These increase the proposed completion costs by
ADS and M Natal by $1,082,476.”62
36. On July 24, 2015, HPA sent Western a letter.63 HPA stated, after HPA declared PASI in
default on January 28, 2015, “Western was notified of the default in letters of February
13, 18, and 19, 2015.”64 “Since [PASI’s] termination [on February 25, 2015,] HPA has
repeatedly demanded that Western meet its Bond obligations. Western has failed and
refused to do so.”65 Western purportedly requested “voluminous records” from HPA,
which were provided “in March”, yet, despite that, “Western’s failure to promptly
proceed under [the Bond] continued.”66 HPA then details how, in April 2015, it
submitted proposed bids, but “Western refused to accept the pricing from these
contractors” because they provided no bond, even though that was not a requirement in

60

Email Chain between Jim Green and James Carver (particularly Western_001694–97), July 24, 2015,
Ex. 18.
61

Email Chain between Jim Green and James Carver (particularly Western_001702), July 24, 2015, Ex.
18.

62

Email Chain between Jim Green and James Carver (particularly Western_001694), July 24, 2015, Ex.
18.

63

Letter from HPA to Western, July 24, 2015, Ex. 20.

64

Letter from HPA to Western, July 24, 2015, Ex. 20.

65

Letter from HPA to Western, July 24, 2015, Ex. 20.

66

Letter from HPA to Western, July 24, 2015, Ex. 20.

13

the Western-HPA Bond.67 On April 29, Western stated that it “intended to put the
completion work out to bid”, but “[n]early four months passed” and “Western . . . never
formally issued HPA the results of that bidding process,” other than to verbally state that
one bid was too high. HPA stated: “The delay associated with this rebidding has not only
further impacted the Project but also has caused Pepper and Western to lose the
opportunity to contract with the two contractors at the pricing they had offered in
April.”68 Those contractors provided higher prices to HPA’s recent inquiries.69 PASI
closed by saying that Western was in default, that six months had passed since the
default, that Western had ten days to make an election under the bond, and, if Western
did not, HPA would “proceed to complete the work in the fastest and most economical
means possible without Western’s involvement.”70
37. On or about July 24 and 25, 2015, PASI informed Western that ADS bid was incredibly
inflated and called for work not within PASI’s scope of work.71
38. Additionally, sometime around late July of 2015, Laurence Jortner, claims director of
Western, first became aware of HPA’s claim on the bond.72 Prior to that, Mr. Gryfinski
was the direct representative on the claim.73 Jortner said that he became involved

67

Letter from HPA to Western, July 24, 2015, Ex. 20.

68

Letter from HPA to Western, July 24, 2015, Ex. 20.

69

Letter from HPA to Western, July 24, 2015, Ex. 20.

70

Letter from HPA to Western, July 24, 2015, Ex. 20.

71

Email Chain between Jim Green and James Carver (particularly Western_000501), July 2015, Ex. 19.

72

Western Dep. 86:11–87:5, Ex. 60.

73

Western Dep. 87:6–11, Ex. 60.

14

because his direct supervisor, Walter Kubalanza, said there had been complaints to his
supervisor, John Welsh, about how the claim was handled and that, since Jortner was
Gryfinkski’s supervisor, Jortner should look at the issue.74 The complaints were made to
CNA and were passed down to Jortner. These complaints emanated from both EMCOR
and Harry Pepper.75
39. According to Jortner, the complaint from EMCOR came from an in-house attorney
specializing in conflicts resolution.76 “EMCOR was contacting CNA because there was a
liability insurance relationship with CNA. So Harry Pepper as a subsidiary of EMCOR
was going to the parent company to try and use that as leverage to get action that they
might find desirable on their claim. And what they got is a meeting.”77 But Jortner
continued:
There was no relationship that I was aware of from the surety department
or the surety division or Western at any time between the surety until [PASI]
made your inquiries in 2018 in discovery of this litigation when we searched
the records with a fine-toothed comb and found that a totally unrelated
EMCOR subsidiary to this case, a Hyre Electric out of Indiana, was issued
a couple of small bonds, a permit bond or a maintenance bond of some type
with very, very small premiums, I think, like, $250 or something. . . . But I
was unaware of any relationship having to do with Surety and EMCOR or
any of its subsidiaries except for Harry Pepper until 2018.78

74

Western Dep. 87:15–88:5, Ex. 60.

75

Western Dep. 88:16–21, Ex. 60.

76

Western Dep. 92:16–19, Ex. 60.

77

Western Dep. 92:22–93:4, Ex. 60.

78

Western Dep. 93:14–94:7, Ex. 60.

15

40. On August 10, 2015, Western’s attorney sent a letter to HPA in response to a July 31,
2015, letter about completing the project and resolving the claims.79 Western advised
HPA that neither ADS or M Natal can provide bonds, and their scope of the work was
“not in the original scope of the PASI subcontract.”80 Other issues with the bids were
discussed as well.81
41. On August 10, 2015, RTS issued to Western a Preliminary Report.82 In RTS’s
Preliminary Report, RTS stated that “HPA is attempting to hold PASI accountable for
contaminating the entire B Test stand, that includes the occupied interior and exterior
spent abrasive and paint chips which were distributed throughout the stand.”83 RTS went
on to provide “some examples of other subcontractor’s potential and reported culpability
in stand contamination.”84 As to its conclusion, RTS stated in relevant part:
The facts, the allegations surrounding this project, and the reluctance by
HPA to provide additional information caused us to question the actions of
NASA and HPA and the subsequent termination of PASI. Attempts by the
Surety and RTS have been undertaken to locate a bondable replacement
subcontractor or subcontractors that would serve to mitigate any potential
loss in the completion of the work of this subcontract. The complicated
nature of this project and the questionable reputation of HPA appears to
have caused potential completion contractors from providing completion
bids. . . .
We have been in support of negotiating with HPA for the resolution of the
performance portion of this project by their utilizing their existing
contractors (ADS & Natal), but counsel for HPA has placed unreasonable
79

Letter from Western to HPA, August 10, 2015, Ex. 21.

80

Letter from Western to HPA, August 10, 2015, Ex. 21.

81

Letter from Western to HPA, August 10, 2015, Ex. 21.

82

RTS Preliminary Report 1, August 10, 2015, Ex. 22.

83

RTS Preliminary Report 8, August 10, 2015, Ex. 22.

84

RTS Preliminary Report 8–9, August 10, 2015, Ex. 22.

16

demands in the proposed agreement with the Surety. ADS and Natal have
just recently provided revised and increased pricing for the completion
work. The qualifications added by Natal and differing from their prior bid
appear to reflect current or ongoing HPA problems in the scheduling and
construction of the facility that PASI has reported.85
As to recommendations, RTS stated in relevant part:
We do not believe that the Surety can reach an agreement with HPA for
completion and it appears that no other alternative exists but to allow HPA
to contract directly with its subcontractors for the completion of the work.
HPA must mitigate its loss and their completion of this subcontract work
should be monitored if allowed to do so.
The Surety should obtain, through counsel for PASI, copies of the FOIA
request documents to determine the validity of PASl's claims and potentially
consider support PASI in its move to litigate for wrongful termination.
Seldom, in our experience, is a wrongful termination defense an easy task
to support and it is often an uphill battle considering the onerous terms and
conditions found in many contracts and subcontracts. The future facts to be
learned may find PASI at fault, but it seems logical to continue to support
the research underway in light of HPA's counsel refusing to agree to
completion with all parties reserving their rights.86
42. On or about August 27, 2015, Harry Pepper initiated an arbitration demand with the
American Arbitration Association against PASI for damages, and PASI asserted a
counter-claim against Harry Pepper for funds alleged to be due under the Subcontract.87
43. On October 1, 2015, in accordance with and pursuant to Paragraph 3 of the Indemnity
Agreement, Western made demand on the Indemnitors for the deposit of $2,500,000.00
in collateral.88

This collateral is the subject of the instant motion. Gryfinski signed the

85

RTS Preliminary Report 9–10, August 10, 2015, Ex. 22.

86

RTS Preliminary Report 10, August 10, 2015, Ex. 22.

87

Jortner Aff. ¶ 16, Doc. 40-1; HPA Demand for Arbitration, August 27, 2015, Ex. 23.

88

Jortner Aff. ¶ 13, Doc. 40-1; Collateral Demand Letter from Western to Indemnitors (and attachments),
October 1, 2015, Ex. 25.

17

letter, though he stated that the analysis was done by his supervisor, Larry Jortner.89
Jortner was asked to provide all the information he considered in making the
determination for the $2.5M in collateral, and he responded:
The collateral demand, this was a tough claim because, first of all, a
collateral demand is based on an estimate, and we elected not to put a
reserve on this particular one because we knew that the damages were likely
to be very high. We looked at this as the obligee, Harry Pepper, was going
to go after us for the full bond penalty, the penal sum of the bond, and their
demand was up there.
And it hinged on whether the termination of default was valid or not because
of that, which, we didn't have enough information to determine. We felt that
it was a reasonable defense raised by PASI, and certainly there was a
defense, and it was something that PASI felt very strongly about.
But we just didn't have enough information, so I didn't want to make a
demand for the whole bond penalty, which, I think the surety would have
been within its rights to do. So I, essentially, went for a little more than half,
because I knew that the damages, there was this $500,000 in contract
balance and knew this thing was going to be demanded well over 3 million.
And I knew the surety was going to incur a lot in attorneys' fees and costs.
So all that went in my thinking to say, okay, where might be the point where
CNA might have to settle this once we got all the information together if it
doesn't go PASI's way. So that's really the best explanation I can do.
I talked to Roberts, Taylor & Sensabaugh, I talked to -- you know, we had
the correspondence with Mr. Staak, went through that and, basically, looked
at everything that Ted [Gryfinski] did and talked to him about what was
done and what was not done about this and came to that decision for the
2.5.90

89

Western Dep. 75:8–16.

90

Western Dep. 95:1–96:17, Ex. 60.

18

44. Western also submitted with the letter a document entitled “Costs to Complete
PASI’s Scope of Work.”91 The total was about $2.67M. Jortner testified that this
amount represented a potential loss to Western under the Bond.
45. On October 1, 2015, Mark Alexander of PASI responded to the collateral demand stating
it will not provide collateral.92 PASI stated: “First of all let me assure you that this
Company nor its subsidiaries have anything close to that total. We personally do not
have anything close to that amount of money either.”93 PASI then said that it was under
the “assumption” from when Western “first sat down in [PASI’s] office and told
everyone present that [Western was] going to inform HPA that [Western was] going to
deny [HPA’s] claim.”94 PASI claims that Western then told PASI’s attorney that it
Western was going to deny the claim. PASI then states: “We again deny all HPA’s
claims and charges! We do not agree to the charges in you[r] letter today.”95 PASI
claimed: “What you are attempting to do is put us out of business so we cannot continue
to pursue our claim for wrongful termination against HPA including damages. . . . It is
hard enough fighting HPA for wrongful termination and then have to fight the insurance
carrier that we paid a fee to to [sic] protect our interest to turn on us without justification.
That is down right wrong and in my opinion criminal.”96

91

Collateral Demand Letter from Western to Indemnitors (and attachments), October 1, 2015, Ex. 25;
HPA’s Costs to Complete PASI’s Scope of Work, September 17, 2017, Ex. 24.

92

Email from Mark Alexander to Theodore Gryfinski, October 1, 2015, Ex. 26.

93

Email from Mark Alexander to Theodore Gryfinski, October 1, 2015, Ex. 26.

94

Email from Mark Alexander to Theodore Gryfinski, October 1, 2015, Ex. 26.

95

Email from Mark Alexander to Theodore Gryfinski, October 1, 2015, Ex. 26 (emphasis in original).

96

Email from Mark Alexander to Theodore Gryfinski, October 1, 2015, Ex. 26 (emphasis in original).

19

46. On or about October 7 and 8, 2015, Jim Carver and Larry Jortner exchanged emails.97
Carver states: “Just a reminder note; PASI does not have the money to pay the demand
by Friday. If Western were to force the issue it would drive PASI and the other
companies and the individuals into bankruptcy.”98 Carver also reiterated that PASI was
not at fault, urged that Western deny the claim, and noted that he received information
about a possible conflict of interest with Western, CNA, EMCOR, and Harry Pepper.99
Jortner responded by saying, among other things, that (1) Western still needed to
investigate the claim; (2) by not reimbursing Western and providing collateral, an Event
of Default had occurred; (3) while Western is willing for its consultant to meet PASI’s
“technical people . .. without lawyers present for either side, per [PASI’s] request,”
Western will not provide “free discovery” by giving PASI “consultant reports and
investigative material” because PASI must provide information to Western under the
Indemnity Agreement, “not the other way around.”100 Western declared: “Western see[s]
this as a complex, bona fide legal and factual dispute between PASI and Harry Pepper
and is not prepared to and does not see it as at all prudent for[] the surety to dismiss the
termination for default action of Harry Pepper out-of-hand, as you and your client seem
to be prevailing upon it to do.”101

97

Email Chain from Jim Carver to Laurence Jortner, October 7–8, 2015, Ex. 28.

98

Email Chain from Jim Carver to Laurence Jortner, October 7–8, 2015, Ex. 28.

99

Email Chain from Jim Carver to Laurence Jortner, October 7–8, 2015, Ex. 28.

100

Email Chain from Jim Carver to Laurence Jortner, October 7–8, 2015, Ex. 28.

101

Email Chain from Jim Carver to Laurence Jortner, October 7–8, 2015, Ex. 28.

20

47. On October 13, 2015, Jim Carver responded to Laurence Jortner by letter.102 Carver
stated it was “disturbing” that, since Jortner became involved, “Western [wa]s taking
such a hostile position toward its principal in this matter, even though the facts do not
support that PASI was in default.”103 Carver reiterated that HPA’s estimate was “grossly
inflated” and that it is free from fault.104 Carver also questioned Jortner’s “free
discovery” line, stating that “While we do not wish to be adverse to Western, it appears
that you are moving in that direction.”105Carver also stated: “It does appear that Western
failed to timely investigate this matter.”106 The letter otherwise reflects a deteriorating
relationship between Western and PASI,107 and, at the hearing, Carver testified that this
was caused by Jortner’s involvement in the matter.
48. On October 16, 2015, ICCI submitted a Time and Material proposal to complete work.108
49. On October 16, 2015, HPA proposed an agreement to settle with Western for about
$3.4M.109

102

Letter from Jim Carver to Western, October 13, 2015, Ex. 27.

103

Letter from Jim Carver to Western, October 13, 2015, Ex. 27.

104

Letter from Jim Carver to Western, October 13, 2015, Ex. 27.

105

Letter from Jim Carver to Western, October 13, 2015, Ex. 27.

106

Letter from Jim Carver to Western, October 13, 2015, Ex. 27.

107

Letter from Jim Carver to Western, October 13, 2015, Ex. 27.

108

Email Chain between Theodore Gryfinksi and Chip McCutcheon, October 16, 2015 to March 29,
2016, Ex. 29.

109

Email Chain between Mark Pritchard (of HPA) and Laurence Jortner, October 13–16, 2015, Ex. 30.

21

50. On October 29, 2015, Western sent a letter to HPA denying the performance bond
claim.110 In the letter, Western claimed that its obligations under Article 4 of the
Performance Bond had “not been demonstrated to have been triggered to Western’s
satisfaction to date” because of HPA’s “overreaction” to NASA’s complaints.111 Western
further asserted that it “believe[d] that PASI ha[d], at bare minimum, a reasonable basis
for asserting that HPA wrongfully terminated them for default.”112 Further, if PASI
prevailed on the wrongful termination issue, Western would have no obligation to HPA
as surety under Article 4.113 Western also maintained that HPA failed to mitigate its
damages.114 Western further had “deep concerns over whether HPA’s course of conduct
aggravated the situation created by NASA’s actions and improperly poisoned the
project’s atmosphere, thereby making competitive, reasonable bids impossible for the
surety.”115 Western “join[ed] PASI in fully disputing this performance bond claim.”116
All of that said, as PASI notes, this letter came eighty days from the issuance of the RTS
Preliminary Report and two hundred, forty-six days after HPA’s initial February 25,
2015, demand.

110

Letter from Western to HPA, October 29, 2015, Ex. 32.

111

Letter from Western to HPA, October 29, 2015, Ex. 32.

112

Letter from Western to HPA, October 29, 2015, Ex. 32.

113

Letter from Western to HPA, October 29, 2015, Ex. 32.

114

Letter from Western to HPA, October 29, 2015, Ex. 32.

115

Letter from Western to HPA, October 29, 2015, Ex. 32.

116

Letter from Western to HPA, October 29, 2015, Ex. 32.

22

51. However, on October 29, 2015, Western also proposed an $860,000 loan payment (with
certain conditions) to HPA as a settlement.117
52. On November 17, 2015, HPA sent Western a letter.118 In the letter, HPA complained
extensively about Western’s failure to act promptly, asserting:
The termination occurred more than ten months ago and it was not until
October 29th that CNA made any election under Section 4 of the Bond. As
such, CNA has exacerbated rather than mitigated the problems caused by
PASI’s defaults and termination. As such, CNA defaulted on its
performance bond obligation and remains in default.119
HPA also referenced its July 24, 2015, letter which expressed urgency in the situation,
yet CNA “ignored [the] letter and continued to drag its feet in assisting HPA in the
performance of the work.”120 HPA also objected to CNA’s refusal to accept HPA’s
replacement bids and with CNA's statements throughout the process that HPA did not
furnish adequate information.121
53. On November 18, 2015, PASI’s attorney sent Western a letter.122 PASI described in
great detail the various ways in which it was wrongfully terminated from its contract with
HPA.123 Jim Carver, the letter’s author, said at the hearing that he did so in an effort to
cooperate with Western. PASI concluded the letter by stating:

117

Email Chain between Laurence Jortner and Mark Pritchard, October 29, 2015, Ex. 31.

118

Letter from HPA to Western, November 17, 2015, Ex. 33.

119

Letter from HPA to Western, November 17, 2015, Ex. 33.

120

Letter from HPA to Western, November 17, 2015, Ex. 33.

121

Letter from HPA to Western, November 17, 2015, Ex. 33.

122

Letter from PASI to Western, November 18, 2015, Ex. 34.

123

Letter from PASI to Western, November 18, 2015, Ex. 34.

23

We trust that this more detailed information will assist you in responding to
HPA’s letter. We cannot comment on HPA’s allegations that Western’s
decision was not prompt, and thus caused damage.
Further, while PASI wishes to be fully cooperative with Western on this
matter, PASI is concerned that in spite of denying HPA’s claim on the bond,
that Western has refused to provide PASI with any new bond requests.
Without bonding, PASI cannot work. Without work, PASI will not have
income and the implications of that are clear.
Thus we ask that Western reconsider its decision not to honor bonding for
Professional Application.124
54. The exhibits reflect a gap in major activity between PASI’s November 2015 letter and the
March 2016 mediation.125
55. On March 24, 2016, a mediation between PASI, Crum & Foster (PASI's insurance
provider), Western, and HPA occurred.126
56. At that mediation, Western offered $900,000, and HPA countered with between about
$2.8M and $4.9M.127
57. On April 29, 2016, Western and PASI’s attorneys had several exchanges.128 Western’s
counsel informed PASI’s that, in July 2015, he sent HPA a proposed settlement: “what
the surety was proposing was to pay HPA the difference between the remaining
subcontract funds and the sum of the ADS and M NATAL initial estimates. That amount

124

Letter from PASI to Western, November 18, 2015, Ex. 34.

125

See Federal Rule of Evidence Article 1006 Summary to Prove Content, Doc. 46-1 at 2; Joint Exhibit
List, Doc. 53 at 2–3.

126

Email Chain involving multiple parties, December 30, 2015 to January 7, 2016, Ex. 35.

127

Email Chain between Jim Green and Kenneth Weckstein (HPA’s attorney), July 20, 2017, Ex. 44.

128

Email Chain between Jim Green and James Carver, April 29, 2016, Ex. 36.

24

was $227,304. I was hoping we could negotiate down from that figure which is why I
left the amount blank.”129
58. On May 27, 2016, HPA filed suit against Western in the Middle District of Florida.130 In
the introduction to the complaint, HPA stated that, after it exercised its right to terminate
PASI:
Thereafter, Harry Pepper made a timely demand that Western perform its
obligations as Surety under the performance bond. The Bond required
Western to act “promptly,” but more than one year later, Western still has
not performed its obligations to Harry Pepper under the performance bond.
Worse yet, instead of helping to complete the construction project, as
required by the Bond, Western prevented Harry Pepper from timely and
cost-effectively completing the construction project. Specifically, Western
asserted the right to select or approve a replacement contractor, but then did
not do so. As a result of Western’s breach of the Bond and its other
promises to Harry Pepper, Harry Pepper’s cost to complete its NASA
contract has increased by approximately $2.25 million. In addition, NASA
has asserted almost one million dollars in claims against Harry Pepper and
Harry Pepper has lost goodwill of its customer, NASA. Finally, Harry
Pepper has suffered delays and other damages that will be proven at trial.
In all, Harry Pepper’s damages as a result of Western’s breaches exceed
$4,000,000.131
HPA further asserted:
. . .Had Western promptly denied liability to Harry Pepper and advised
Harry Pepper that it would not pay for any replacement subcontract, Harry
Pepper would have proceeded to enter into the replacement subcontracts
with ADS and MNC for a total cost of $3,701,729. This would have
resulted in a cost overrun (compared to PASI’s Subcontract price) of
approximately $250,000.
. . . Instead, Western said that it would find a replacement contractor and
was “going forward with the bid process.” By so doing, Western admitted
that it had an obligation under the bond, including finding a replacement
129

Email Chain between Jim Green and James Carver, April 29, 2016, Ex. 36.

130

Harry Pepper & Associates, Inc. v. Western Surety Company, No. 16-657 (M.D. Fla. May 27, 2015),
Doc. 1 (“HPA Complaint”), Ex. 37.

131

HPA Complaint 2, Ex. 37.

25

contractor. Despite the above, Western never provided Harry Pepper with
the name of a replacement contractor.
. . . Now, more than one year after Harry Pepper was ready to and proposed
to contract with a ADS and MNC, and one year after Western told Harry
Pepper not to enter into those replacement subcontracts because Western
was starting the bid process to find a replacement contractor, the cost for
the replacement work that was bid by ADS and MNC has increased from
$3,701,729 to a projected amount of over $5.7 million. That increase in the
cost of proposals that Harry Pepper is receiving in 2016 from the proposals
received by Harry Pepper in March and April of 2015 is solely attributable
to the acts of Western. This will result in a cost overrun (compared to
PASI’s Subcontract price) of approximately $2.25 million.132
59. HPA’s President and CEO testified that “HPA would not have filed the HPA v. WSC suit
. . . but for the actions and inaction of the WSC in responding to HPA’s claim against
WSC” on the “Performance Bond . . . regarding the project[.]” 133
60. Based on the exhibits, there is another gap in major activity between the May 27, 2016
HPA Complaint and the next relevant document in this suit from December 12, 2016.134
61. On December 12, 2016, Western's attorney sent AAA an R-7 request for Joinder with the
HPA/PASI arbitration.135
62. On December 16, 2016, Western’s attorney emailed counsel for HPA and PASI
requesting parties’ approval for Western’s joinder in the arbitration.136

132

HPA Complaint ¶¶ 88–90, Ex. 37.

133

HPA Dep. 8:17–22, Ex. 59.

134

See Federal Rule of Evidence Article 1006 Summary to Prove Content, Doc. 46-1 at 2–3; Joint Exhibit
List, Doc. 53 at 3.

135

Email from Jim Green to S. Cleo Gladden (of AAA), December 12, 2016, Ex. 38.

136

Email from Jim Green to multiple parties, December 16, 2016, Ex. 39.

26

63. On December 29, 2016, PASI wrote saying that it would not oppose Western joining in
the arbitration.137
64. On January 10, 2017, PASI later objected to Western’s joinder in arbitration.138 Jim
Carver said PASI could “no longer passively stand by. . . . This decision is made in
response to the fact that Western is not willing to agree to the conditions previously set
forth, including but not limited to that Western would not attempt to tax any of the costs
of the arbitration to PASI.”139 PASI did express that it was “willing to work with
Western on finding a comprehensive settlement of this whole matter, as long as Western
cooperate[d] fully with PASI.”140
65. On January 10, 2017, HPA also offered $2.5 Million to settle with Western.141 Earlier in
the email chain, HPA asserted on December 29, 2016, that “HPA ha[d] claims against
Western that are separate from HPA’s claims against PASI” and that “Even if AAA
joined Western to the arbitration, that would not resolve HPA’s separate claims against
Western.”142
66. On January 24, 2017, PASI’s attorney wrote to AAA objecting to Western’s joinder in
the arbitration on the following grounds: (1) “There is no agreement to arbitrate that
includes Western.” (2) “Any claims Western may have against PASI or that PASI may

137

Email Chain from Kenneth Weckstein to Jim Green, January 10, 2017, Ex. 41.

138

Email from Jim Carver to Jim Green, January 10, 2017, Ex. 40.

139

Email from Jim Carver to Jim Green, January 10, 2017, Ex. 40.

140

Email from Jim Carver to Jim Green, January 10, 2017, Ex. 40.

141

Email Chain from Kenneth Weckstein to Jim Green, January 10, 2017, Ex. 41.

142

Email Chain from Kenneth Weckstein to Jim Green, January 10, 2017, Ex. 41.

27

have against Western are premature.” (3) “Adding Western to this arbitration will make it
unnecessarily more complicated.”143
67. Again, there is a gap in the record of major activity from between PASI’s January 24,
2017, email to the next document from July 18, 2017.144
68. On July 18, 2017, Western offered a settlement of “simply a walk away with HPA
releasing WS from any liability[,]” with Western and HPA reserving their rights as to
other parties.145
69. On July 21, 2017, Western offered $125,000 to settle with HPA.146
70. On July 26, 2017, HPA offered $1.6M to settle with Western, and Western’s attorney
responded with a request for a “current accounting of what HPA contend[ed] to be its
loss.”147
71. On August 9, 2017, Western offered $450,000 to settle with HPA.148
72. On August 10, 2017, HPA’s attorney wrote that if Western offered to pay $1.6M before
August 15, 2017, HPA would accept the offer.149 HPA also accused Western of not
dealing in good faith.150

143

Email from James Carver to S. Cleo Gladden, January 24, 2017, Ex. 42.

144

See Fedral Rule of Evidence Article 1006 Summary to Prove Content, Doc. 46-1 at 3; Joint Exhibit
List, Doc. 53 at 3.

145

Email from Jim Green to Kenneth Weckstein, July 18, 2017, Ex. 43.

146

Email Chain from Jim Green to Kenneth Weckstein, July 21, 2017, Ex. 45.

147

Email from Jim Green to Kenneth Weckstein, July 26, 2017, Ex. 46.

148

Email Chain between Jim Green to Kenneth Weckstein, August 9, 2017, Ex. 47.

149

Email Chain between Kenneth Weckstein and Jim Green, August 10, 2017, Ex. 48.

150

Email Chain between Kenneth Weckstein and Jim Green, August 10, 2017, Ex. 48.

28

73. On August 14, 2017, after expressing disagreement with HPA’s contentions, Western’s
attorney offered $1M to settle with HPA.151
74. On August 15, 2017, PASI’s attorney emailed Western’s asking if Western responded to
HPA’s “ ‘settlement’ inquiry.”152 PASI’s lawyer also said that, though he had not
completed the promised analysis of HPA’s claims, his “cursory review” was that they
were “grossly inflated” and included items which were the fault of either third parties or
HPA and delay damages that were not owed.153
75. On August 16, 2017, Western’s attorney responded to PASI’s that it had made a
settlement counteroffer but that the numbers were confidential, particularly with PASI’s
decision not to participate in settlement negotiations.154 Western’s counsel also reiterated
(1) PASI’s liability for costs Western incurred and for the collateral, (2) the fact that there
had been an Event of Default under the Indemnity Agreement, and (3) Western’s right to
settle under that contract.155 Western emphasized that it was Western and PASI’s burden
to prove that HPA’s termination for default was unreasonable and that, if they failed to do
so, HPA’s damages were likely “substantial,” even if HPA’s figures were inflated.156
Western concluded with a reservation of rights.157

151

Email from Jim Green to Kenneth Weckstein, August 14, 2017, Ex. 49.

152

Email Chain between James Carver and Jim Green, August 16, 2017, Ex. 50.

153

Email Chain between James Carver and Jim Green, August 16, 2017, Ex. 50.

154

Email Chain between James Carver and Jim Green, August 16, 2017, Ex. 50.

155

Email Chain between James Carver and Jim Green, August 16, 2017, Ex. 50.

156

Email Chain between James Carver and Jim Green, August 16, 2017, Ex. 50.

157

Email Chain between James Carver and Jim Green, August 16, 2017, Ex. 50.

29

76. On August 16, 2017, PASI’s attorney responded that he was “disappointed in Western’s
position” and that PASI “may be a little more reluctant to continue this one way sharing”
of PASI’s “work product in the arbitration.”158 PASI’s lawyer concluded: “Please note
that the direct claims made by HPA against Western (and the legal fees associated
therewith) do not involve PASI, and we do not intend to accept any liability for them.”159
77. On August 23, 2017, HPA’s counsel sent a draft subpoena to Western (purporting to
establish through exhibits that “Western is liable to Harry Pepper”) and stated that $1.6M
was HPA’s bottom line, though indicating that he would explore with HPA “with it
would be willing to ‘split the difference’ ” with Western’s offer of $1M.160
78. On August 29, 2017, HPA’s lawyer wrote that it would accept payment of $1.3M from
Western to settle.161
79. On August 29, 2017, Western’s counsel confirmed that it would pay HPA $1.3M to
settle, subject to “acceptable release language.”162 Western’s counsel also asked “HPA
[to] keep the compromise confidential, at least until consummated.”163
80. HPA and Western entered into its settlement agreement (the “HPA-Western Settlement
Agreement”), effective August 29, 2017.164

158

Email Chain between James Carver and Jim Green, August 16, 2017, Ex. 50.

159

Email Chain between James Carver and Jim Green, August 16, 2017, Ex. 50.

160

Email from Kenneth Weckstein to Jim Green, August 23, 2017, Ex. 51.

161

Email from Kenneth Weckstein to Jim Green, August 29, 2017, Ex. 52.

162

Email Chain between Jim Green and Kenneth Weckstein, August 29, 2017, Ex. 53.

163

Email Chain between Jim Green and Kenneth Weckstein, August 29, 2017, Ex. 53.

164

HPA-Western Settlement Agreement 1, Ex. 54.

30

81. The recital of the settlement agreement contains the following:
On or about August 27, 2015, HPA filed a Demand for Arbitration against
PASI with the American Arbitration Association (“HPA Arbitration
Demand”). The HPA Arbitration Demand sought damages relating to lead
contamination that HPA asserted was caused by PASI and delay damages
from such contamination. Those damages were claimed in paragraphs 4, 5,
and 7 of the HPA Arbitration Demand (“Contamination Damages”). The
HPA Demand was also sought damages in paragraph 6 for excess reprocurement costs to complete PASI’s scope of work (“Re-procurement
Costs”). The HPA Arbitration Demand was docketed as AAA No. 01-150004-7930. . . .
The HPA Lawsuit [between HPA and Western] seeks recovery from
Western of the Re-procurement Costs covered by paragraph 6 of the HPA
Arbitration Demand, delay damages, claims by NASA and others against
HPA, costs, fees and asserts that Western breached its obligations relating
to the Bonds. Western denies the allegations in the HPA Lawsuit.165
82. Western’s payment to HPA was in full and final settlement of all claims between Harry
Pepper and Western.166 Specifically, in exchange for the sum of $1.3 million, the parties
agreed to file a stipulation of dismissal to dismiss the HPA Lawsuit with prejudice.167
The parties also agreed:
[U]pon receipt by HPA of the foregoing payment, the Parties each shall
release each other . . . of and from any and all past, present or future claims,
demands, obligations . . . and all other associated expenses of any type or
kind, known or unknown, foreseen or unforeseen, . . . which the Parties or
either Party had, has, can, shall or may have had against the Released
Parties, for, upon or by any reason or any matter, cause or thing whatsoever,
which arise out of or are related to the bonds, the Subcontract, the Prime
Contract, the HPA Lawsuit, or the AAA Arbitration.168
83. Nevertheless, in the section titled “AAA Arbitration,” the parties agreed:

165

HPA-Western Settlement Agreement 1–2, Ex. 54.

166

Jortner Aff. ¶ 17, Doc. 40-1. See HPA-Western Settlement Agreement, Ex. 54.

167

HPA-Western Settlement Agreement §§ 1, 2, Ex. 54.

168

HPA-Western Settlement Agreement § 4 Ex. 54.

31

Notwithstanding anything in this Agreement to the contrary, the Parties
agree that HPA will have the right to continue to assert and prosecute the
HPA Arbitration Demand against PASI for Contamination Damages, PASI
will have the right to continue to assert and prosecute the PASI
Counterclaim against HPA, and the right to continue to assert all defenses
and set-offs against the HPA claim and HPA will have the right to continue
to assert all defenses and set-offs against the PASI Counterclaim.169
84. At the hearing, Jortner and Carver provided conflicting testimony as to the extent to
which the HPA-Western Settlement Agreement resolved claims by HPA against PASI.
85. On September 21, 2017, Western made the settlement payment of $1.3M to HPA.170
F. Procedural History and Outcome of the HPA/PASI Arbitration
86. After Western had settled away its liability to HPA, on September 15, 2017, Western filed
a lawsuit against the same group of PASI-related parties who are the Defendants in this
present lawsuit.171 This lawsuit sought damages in the amount of $122,394.97, which
Western alleged constituted the attorney’s fees, costs, and expenses of its involvement
related to the Bond claim. Western also sought “all additional losses, costs, expenses and
attorney’ fees which Western may incur as a result of having issued the Subcontract
Performance and/or Subcontract Payment Bonds,” plus interests and costs. This lawsuit
did not, however, include a demand for a demand for a preliminary injunction.
87. On October 3, 2017, Western sought dismissal of this lawsuit without prejudice.172

169

HPA-Western Settlement Agreement § 5 Ex. 54.

170

Letter from Jim Green to HPA, September 21, 2017, Ex. 56.

171

Western Surety Co. v. PASI of LA, Inc. No. 17-614-JWD-RLB (M.D. La. Sept. 5, 2017) (“Original
Western-PASI Action”), Complaint, Doc. 1.

172

Original Western-PASI Action, Notice of Voluntary Dismissal Without Prejudice, Doc. 15.

32

88. On October 4, 2017, Western sought leave to file an amended notice of voluntary
dismissal,173 which was granted by this Court.174 The amended notice stated that “Western
advises the Court of its intention to refile this action after additional research and
investigation are complete.”175
89. On October 25, 2017, the Court approved of the voluntary dismissal. 176
90. On November 9, 2017, Western filed the instant action against PASI.177
91. On December 7, 2017, Western filed the instant motion for a preliminary injunction. 178
In the motion, Western sought an order compelling PASI:
(1) to deposit sufficient collateral to protect Western from the loss suffered
. . . ; (2) to deposit the funds of the bonded Subcontract . . . , including the
proceeds of any Arbitration award or settlement in a trust account; (3) the
delivery of the assigned proceeds of the bonded Subcontract from the
Arbitration, to the extent of Western’s loss; and (4) pending the above,
enjoining and restraining Indemnitors from transferring, disposing, or
otherwise disbursing the proceeds of the bonded Subcontract, as required
by the Indemnity Agreement and the law.179
92. On December 7, 2017, Western filed a motion for expedited hearing on the motion.180
Western argued that it would suffer irreparable injury if denied expedited consideration

173

Original Western-PASI Action, Motion for Leave to File Rule 41(a)(1)(A)(i) Amended Notice of
Voluntary Dismissal Without Prejudice, Doc. 17.

174

Original Western-PASI Action, Order, October 5, 2017, Doc. 18.

175

Original Western-PASI Action, Amended Notice of Voluntary Dismissal Without Prejudice, Doc. 19 at

1.
176

Original Western-PASI Action, Order, October 25, 2017, Doc. 20.

177

Complaint, Doc. 1.

178

Western Surety Company’s Motion for Preliminary Injunction, Doc. 11.

179

Western Surety Company’s Motion for Preliminary Injunction, Doc. 11 at 1–2.

180

Motion for Expedited Hearing/Submission, Doc. 12.

33

and that the same interests underlying its motion for preliminary injunction justified an
expedited hearing.181
93. On December 12, 2017, then Chief Judge Jackson denied the request for expedited
consideration.182 In the ruling, Judge Jackson explained that “Defendants have refused to
deposit collateral since October 1, 2015, more than two years ago. Western first
requested a preliminary injunction against Defendants on December 7, 2017, despite
being engaged in litigation with Harry Pepper since May 27, 2016, and having settled that
suit on August 29, 2017.”183 The Court noted that it was unclear from the record whether
Western was denied the right to intervene in arbitration before or after filing suit against
the Defendants, so the Court could not determine if there was a change in circumstances
justifying expedited consideration.184 Further, Western admitted that arbitration was
ongoing and that there was no indication that a resolution was imminent.185
94. Western filed no motion to reconsider Judge Jackson’s order on its Motion for Expedited
Hearing/Submission, nor did Western submit additional evidence or argument to address
Judge Jackson’s concerns.
95. On January 10, 2018, undersigned held a status conference with the parties to discuss the
motion for preliminary injunction.186 The parties requested a hearing, and the Court

181

Memorandum in Support of Motion for Expedited Hearing/Submission, Doc. 12-1 at 1.

182

Ruling and Order, December 12, 2017, Doc. 16.

183

Ruling and Order, December 12, 2017, Doc. 16 at 2.

184

Ruling and Order, December 12, 2017, Doc. 16 at 2–3.

185

Ruling and Order, December 12, 2017, Doc. 16 at 3.

186

Minute Entry, January 10, 2018, Doc. 22.

34

allowed ninety days to complete discovery, followed by thirty days for simultaneous
briefs and fourteen days for a reply.187 The motion for preliminary injunction was set for
hearing on June 22, 2018.188
96. On January 15, 2018, the arbitration award in the case between HPA and PASI issued.189
97. The arbitration panel issued certain conclusions of law which included: (1) “HPA has
failed to prove with reasonable certainty that PASI’s work caused environmental lead
contamination of the B2 test stand beyond the level of what was pre-existing on site prior
to and to the exclusion of the work of other contractors.” ; (2) PASI performed its work in
accordance with the contract documents, in a good and workman-like manner and per
industry standards.”; (3) “HPA materially breached its subcontract with PASI by failing
to allow PASI the opportunity to cure any deficiencies in its work.”; (4) “HPA materially
breached its subcontract with PASI by wrongfully terminating the subcontract.”190
98. In the Award, the arbitration panel ordered HPA to pay PASI a variety of damages
amounting to $2,276,213, itemized as follows:
Increased Labor Costs $ 25,934
Loss of Profits $ 510,000
Bond Fee $ 27,459
Training/Certificates $ 6,425
Changed Work $ 24,570
Loss Use of Equipment $ 26,100
Project Specific Equipment $ 90,000
Lost Reputation $ 925,000
Attorney’s Fees $ 316,633
Miller Act $ 324,092
187

Minute Entry, January 10, 2018, Doc. 22.

188

Minute Entry, January 10, 2018, Doc. 22.

189

Alexander Aff. ¶ 11, Doc. 41-1 at 11–22; Arbitration Award, Ex. 58.

190

Arbitration Award 10, Ex. 58.

35

TOTAL $2,276,213191
99. On January 23, 2018, a scheduling order was issued by the Magistrate Judge establishing
a discovery deadline of October 26, 2018.192
100.

On April 4, 2018, Western Surety filed an unopposed motion to continue the

preliminary injunction hearing and all prehearing deadlines.193 Western represented that
all parties agreed to the continuance because of the parties’ efforts to settle the matter.194
Western further requested that all pre-hearing deadlines be extended ninety days.195
101.

The following day, Western’s motion to continue was granted.196 The hearing on

the preliminary injunction was set for September 21, 2018, and all pre-hearing deadlines
were extended by ninety days.197
G. Alleged Loses by Western and PASI’s Current Solvency
102.

According to Laurence Jortner, to date, despite Western’s demands, Indemnitors

have not deposited any collateral with Western, or deposited any funds in trust, or held
Western harmless for the claims asserted.198
103.

Jortner attests that, to date, Western has incurred attorneys’ fees, investigative and

191

Arbitration Award 10–11, Ex. 58.

192

Order, January 23, 2018, Doc. 24.

193

Unopposed Motion to Continue Preliminary Injunction and Preliminary Injunction Deadlines
(“Unopposed Motion to Continue”), April 4, 2018, Doc. 26.

194

Unopposed Motion to Continue, Doc. 26 at 1.

195

Unopposed Motion to Continue, Doc. 26 at 1.

196

Order, April 5, 2018, Doc. 27.

197

Order, April 5, 2018, Doc. 27.

198

Jortner Aff. ¶ 22, Doc. 40-1.

36

adjustment costs of $155,820.97, of which it has been reimbursed only $29,000.00,
resulting in a net Loss, as defined under the Indemnity Agreement, including the amount
paid by Western to Harry Pepper pursuant to the Settlement Agreement, of $1,426,820.97
as of the date of his affidavit (August 3, 2018).199
104.

Alexander testified at the hearing about two of the Indemnitors: PASI and

Professional.
105.

PASI was formed solely for the Project and is currently performing no other

projects. Professional has numerous projects for sandblasting and painting.
106.

Alexander estimated that, of the Arbitration Award moneys received by PASI,

between $1.7M and $2M is currently being held in PASI’s account. PASI has no plans to
use the money prior to trial other than to pay miscellaneous expenses. Further, there are
no plans to liquidate PASI.
II.

CONCLUSIONS OF LAW
A. Preliminary Injunction Standard

107.

“To obtain a preliminary injunction, the plaintiff must show 1) that there is a

substantial likelihood that it will succeed on the merits, 2) that there is a substantial threat
that it will suffer irreparable injury if the district court does not grant the injunction, 3)
that the threatened injury to the plaintiff outweighs the threatened injury to the defendant,
and 4) that granting the preliminary injunction will not disserve the public interest.”200

199

Jortner Aff. ¶ 20, Doc. 40-1.

200

Sierra Club, Lone Star Chapter, 992 F.2d at 551 (citing Canal Auth. of Fla. v. Callaway, 489 F.2d
567, 572 (5th Cir. 1974)).

37

108.

“[A] preliminary injunction is an extraordinary remedy which should not be

granted unless the party seeking it has ‘clearly carried the burden of persuasion’ on all
four requirements.”201 “Otherwise stated, if a party fails to meet any of the four
requirements, the court cannot grant the . . . preliminary injunction.”202
109.

The Fifth Circuit has said:
Our review is deferential: “A district court's determination as to each of the
elements required for a preliminary injunction are mixed questions of fact
and law, the facts of which this Court leaves undisturbed unless clearly
erroneous. Conclusions of law made with respect to denial of a preliminary
injunction are reviewed de novo. The ultimate decision for or against issuing
a preliminary injunction is reviewed under an abuse of discretion
standard.”203
B. Substantial Threat of Irreparable Injury
1. Parties’ Arguments

110.

Western argues that “The objectives of the assignment and collateral security

provision include insuring that the surety is fully protected from any loss that might result
from the indemnitors’ insolvency and/or dissipation of assets, as well as motivating the

201

Bluefield Water Ass'n, Inc. v. City of Starkville, Miss., 577 F.3d 250, 253 (5th Cir. 2009) (stating that it
has “cautioned” this point “repeatedly”) (quoting Lake Charles Diesel, Inc. v. Gen. Motors Corp., 328
F.3d 192, 195–96 (5th Cir. 2003)); See also Holland Am. Ins. Co. v. Succession of Roy, 777 F.2d 992, 997
(5th Cir. 1985) (“Injunctive relief is an extraordinary and drastic remedy, not to be granted routinely, but
only when the movant, by a clear showing, carries the burden of persuasion.” (citing 7 Moore's Federal
Practice ¶ 65.04(s) (1982); 11 C. Wright & A. Miller, Federal Practice and Procedure § 2942 at 368
(1973)); Gonannies, Inc. v. Goupair.Com, Inc., 464 F. Supp. 2d 603, 607 (N.D. Tex. 2006) (“The party
seeking such relief must satisfy a cumulative burden of proving each of the four elements enumerated
before a . . . preliminary injunction can be granted” (citing Mississippi Power & Light Co. v. United Gas
Pipe Line, 760 F.2d 618, 621 (5th Cir. 1985); Clark v. Prichard, 812 F.2d 991, 993 (5th Cir. 1987)).

202

Gonannies, 464 F. Supp. 2d at 607 (emphasis in original).

203

Bluefield Water Ass'n,, 577 F.3d at 253 (quoting Guy Carpenter & Co. v. Provenzale, 334 F.3d 459,
463 (5th Cir. 2003) (internal citations omitted)).

38

indemnitors to promptly resolve outstanding claims.”204 Western further asserts:
“Western will continue to suffer irreparable harm unless Indemnitors are compelled to
deposit collateral to the extent of the Loss with Western or into the Registry of the Court
and are enjoined and restrained from transferring, disposing, disbursing the proceeds of
the bonded Subcontract, including but not limited to the proceeds of the Arbitration
Award up to the amount of the Loss.”205
111.

PASI contends that Western’s desired relief—the cost of settlement, expenses,

and attorneys’ fees—are all monetary damages for which there is a remedy at law. PASI
further asserts that, under analogous case law from other jurisdictions, sureties must
establish irreparable harm through evidence that there is a “specific and heightened risk
that it will not recover at judgment—i.e., evidence of the principal’s insolvency, financial
‘dire straits,’ or secretion of assets.”206 According to PASI, this case law is in line with
the general rules governing irreparable harm in the Fifth Circuit. Here, PASI says,
Western has no evidence of a heightened collection risk. PASI also maintains that
Western has delayed in seeking injunctive relief and that this weighs against granting an
injunction.
112.

In response, Western argues (1) other cases recognize that a surety will suffer

irreparable injury if denied its collateral, and, “[a]t a minimum, [the] money [in this case]
should be set aside and preserved until final resolution, and (2) in any event, Western has
not delayed in this case, as it (a) moved for a preliminary injunction two months after

204

Western’s PFFCL, Doc. 40 at 10.

205

Western’s PFFCL, Doc. 40 at 11.

206

PASI’s PFFCL, Doc. 41 at 16 (citations omitted).

39

settling with HPA and before the Arbitration award; (b) sought expedited consideration
of its motion; and (c) the hearing was only postponed because of discovery and
settlement efforts.
113.

In reply, PASI maintains that Western must show that the “harm suffered between

the time of suit and the time of ultimate decision in this case would seriously prejudice
[plaintiff’s] opportunity for full recovery.”207
2. Irreparable Harm Generally
114.

“Irreparable harm requires a showing that: (1) the harm to Plaintiff[] is imminent

(2) the injury would be irreparable and (3) that Plaintiff[] ha[s] no other adequate legal
remedy.”208
115.

“An injury is ‘irreparable’ only if it cannot be undone through monetary

remedies.”209
116.

“[S]peculative injury is not sufficient; there must be more than an unfounded fear

on the part of the applicant.”210
117.

Further, a party seeking a preliminary injunction does not suffer irreparable harm

if “[t]here is nothing to suggest that harm suffered between the time of suit and the time
of ultimate decision in this case would seriously prejudice [mover’s] opportunity for full
recovery” because, “in traditional terms of equity, the remedy at law is adequate.”211
207

PASI’s Resp., Doc. 47 at 2 (quoting Bluefield Water Ass'n,, 577 F.3d at 253).

208

Gonannies, 464 F. Supp. 2d at 608 (citing Chacon v. Granata, 515 F.2d 922, 925 (5th Cir. 1975)).

209

City of Meridian, Miss. v. Algernon Blair, Inc., 721 F.2d 525, 529 (5th Cir. 1983) (quoting Deerfield
Medical Ctr. v. City of Deerfield Beach, 661 F.2d 328, 338 (5th Cir. 1981)).

210

Holland Am. Ins. Co., 777 F.2d at 997 (citing Carter v. Heard, 593 F.2d 10, 12 (5th Cir. 1979).

211

See Bluefield Water Ass’n, 577 F.3d at 253.

40

3. Summary of Ruling
118.

Here, the central issue of irreparable harm turns on two key questions: (1) does a

surety need to make a specific showing of irreparable harm when an indemnitor fails to
provide security? and (2) has Western sufficiently delayed pursuing an injunction to the
point that it no longer can claim irreparable injury?
119.

In sum, having carefully considered the law, the facts in the record, and the

arguments and submissions of the parties, the Court finds that Western has failed to meet
its burden of clearly showing irreparable injury. First, Western has failed to show that it
is entitled to an injunction purely by virtue of its status as a surety. Rather, Western must
demonstrate that it faces some risk that PASI will ultimately be unable to pay a judgment
if liable, and Western has failed to do so. Second, the Court finds that PASI has
unreasonably delayed seeking a preliminary injunction without adequate justification.
120.

Given the Court’s finding on the issue of irreparable injury, it need not resolve

whether Western has sufficiently demonstrated the other requirements of a preliminary
injunction.
4. A Surety’s Showing of Irreparable Injury
121.

The parties cite conflicting case law on whether a surety suffers irreparable injury

upon the obligor’s failure to provide collateral.
122.

Western cites to several cases supporting the view that a surety is entitled to

specific performance on the collateral obligation. In Employers Mutual Casualty Co. v.
Precision Construction. & Maintenance, LLC, the Eastern District of Louisiana provided
an extensive discussion of this line of cases:
The primary issue, then, is whether plaintiff has an adequate remedy at law
for defendants' failure to post collateral security. Plaintiff argues that its
41

legal remedies are inadequate because a claim for money damages would
deprive plaintiff of its prejudgment right to collateralization. This argument
finds support in an extensive body of case law. Courts have generally held
that a surety is entitled to specific performance of a collateralization right
because specific performance is necessary to protect the surety's bargainedfor right to prejudgment relief. See e.g., [Safeco Ins. Co. of Am. v. Schwab,
739 F.2d 431, 433 (9th Cir. 1984)] (“Sureties are ordinarily entitled to
specific performance of collateral security clauses.”); [Safeco Ins. Co. of
Am. v. Lake Asphalt Paving & Const., LLC, 807 F. Supp. 2d 820, 827 (E.D.
Mo. 2011)] (“[T]he law favors protecting a surety's right to collateralization
by granting specific performance.”); Liberty Mut. Ins. Co. v. Aventura Eng'g
& Const. Corp., 534 F. Supp. 2d 1290, 1320 (S.D. Fla. 2008) (“[C]ase law
nationwide has affirmed the availability of [specific performance]” in an
action to compel an indemnitor to post collateral); Liberty Mut. Ins. Co. v.
Nat'l Pers. of Tex., Inc., 2004 WL 583531, at *2 (N.D. Tex. Mar.24, 2004)
(“Courts have generally granted specific performance to enforce collateral
security clauses based on the premise that such remedy is required to protect
the benefit of the surety's bargain”).
The Court recognizes that there is a contrary minority position. Some courts
have refused to specifically enforce collateral security provisions absent a
specific showing by the surety as to why the surety's remedies at law are
inadequate. See e.g., Safeco Ins. Co. of Am. v. Mountaineer Grading Co.,
2012 WL 830158, at * 10 (S.D.W.Va. March 9, 2012) (holding that a surety
failed to demonstrate an entitlement to specific performance when it
asserted only that indemnitors failed to provide collateral security upon
demand and did not offer any evidence demonstrating why its legal
remedies were inadequate). These cases do not give sufficient weight to the
nature of the surety's right to right to collateral security. As the majority
position recognizes, a surety's claim for collateralization is not just an issue
of monetary loss, which can be remedied by monetary damages; rather, it is
an issue of protecting the surety's expectations under the indemnity contract.
See [Travelers Cas. & Sur. Co. v. Ockerlund, No. 04 C 3963, 2004 WL
1794915, at *6 (N.D. Ill. Aug.6, 2004)]. A surety who holds a contractual
right to demand collateral security has specifically bargained for a
contractual right to prejudgment relief. So if the surety is “to have the
security position for which he bargained, the promise to maintain the
security must be specifically enforced.” Safeco, 807 F. Supp. 2d at 827; see
also Ohio Cas. Ins. Co. v. Fratarcangelo, 7 F. Supp. 3d 206, 214 (D. Conn.
2014) (concluding that because a surety had bargained for prejudgment
collateralization, a judgment for money damages alone would deprive the
surety of prejudgment relief to which it is contractually entitled).
Plaintiff [insurer] in this case bargained for the right to demand and receive
funds, which it could use to pay losses that it anticipated incurring on the
Yacht Harbor Bond. That bargain will be frustrated if plaintiff is required
42

to “suffer any loss, even if only temporary, associated with the performance
of the primary obligor's duty.” Travelers v. Ockerlund, 2004 WL 1794915,
at *4. Thus, the Court finds that plaintiff's legal remedies are inadequate.
While plaintiff may be entitled to money damages in this matter, an award
of damages after trial does not adequately vindicate the plaintiff's right to
collateralization. See Ohio, 7 F.Supp.3d at 214 (noting that surety's true
injury the loss of its bargained-for and contractually-guaranteed position as
a secured creditor,” a loss that cannot be rectified post judgment). Plaintiff
is therefore entitled to the injunctive relief its seeks.212
123.

The Employers Mutual Casualty court ultimately held that the insurer was entitled

to specific performance as a matter of state law even without a showing of irreparable
injury under federal injunction law.213

In granting the motion for partial summary

judgment, the court explained:
Defendants resist this conclusion by arguing that plaintiffs have not made
the showings required for a preliminary injunction. Defendants cite a
Florida district court case for the proposition that “a party seeking entry of
a preliminary injunction must establish (1) a substantial likelihood of
success on the merits, (2) a substantial threat of irreparable injury if the
injunction is not granted, (3) the threatened injury to the moving party
outweighs whatever damage the proposed injunction may cause the
opposing party, and (4) if issued, the injunction would not be adverse to the
public interest.” Developers Sur. & Indem. Co. v. Hansel Innovations, Inc.,
No. 8:14–CV–425–T–23TBM, 2014 WL 2968138, at *4 (M.D. Fla. July 1,
2014). Defendants misconstrue the nature of plaintiff's motion. Plaintiff
does not seek a preliminary injunction but, rather, specific performance of
its right to collateral security. As discussed in Section III.B.1 above, a
party's entitlement to specific performance is governed by state law, not the
federal standards for granting injunctive relief under Rule 65 of the Federal
Rules of Civil Procedure. See e.g., [Horner v. Bourland, 724 F.2d 1142,
1144–45 (5th Cir. 1984)]. Thus, courts in this circuit and others have
repeatedly granted specific enforcement of collateral security provisions, as
long as specific performance is available under state law. [(citations
omitted).] Here, plaintiff has established that it is entitled under Iowa law
to specific performance of its contractual right to collateral security.

212

Employers Mut. Cas. Co. v. Precision Const. & Maint., LLC, 2015 WL 5254706, at *9–10.

213

Id. at *10.

43

Plaintiff does not need to make any additional showing to obtain its
requested relief.214
124.

Nevertheless, other courts have evaluated indemnity contracts of this type and

found that a surety suffered irreparable injury by the obligor’s failure to provide
collateral.215
125.

Conversely, PASI identifies authority finding that an indemnitor’s failure to

provide security is not, by itself, irreparable injury. A recent District of Nebraska case,
Allied World Specialty Insurance Co. v. Abat Lerew Construction, LLC,216 provides an
extensive discussion of this line of cases:
“While a surety need not sustain a loss from its own pocket before it can
raise a claim demanding specific enforcement of an indemnity agreement,
the fact that the claim exists does not establish irreparable injury for
purposes of injunctive relief.” Ohio Cas. Ins. Co. v. Campbell's Siding &
Windows, No. 1:15-CV-00255-EJL, 2015 WL 6758137, at *3 (D. Idaho
Nov. 4, 2015) (citation omitted) (finding surety's “motion only seeks
injunctive relief to require the payment of collateral security which is an
economic injury and not irreparable”); see Travelers Cas. & Sur. Co. of
America v. W.P. Rowland Constructors Corp., No. CV-12-0390-PHX-FJM,
2012 WL 1718630, at *3 (D. Ariz. May 15, 2012) (denying injunctive relief
of collateralization to a surety); Hudson Insur. Co. v. Simmons Constr.,
LLC, No. CV12–407–PHX–GMS, 2012 WL 869383, at *4 (D. Ariz. March
14, 2012) (finding no authority for preliminary injunctive relief for
collateralization); Hanover Ins. Co. v. TLC Investing, LLC, No. 2:11-CV00711-JCM-LRL, 2011 WL 3841299, at *1 (D. Nev. Aug. 26, 2011)
(denying reconsideration of a denial of preliminary injunction based on
failure to show irreparable harm).

214

Id.

215

See Travelers Cas. & Sur. Co. v. Ockerlund, 2004 WL 1794915, at *5; Int'l Fid. Ins. Co. v. Anchor
Envtl., Inc., No. 07-04750, 2008 WL 1931004, at *7 (E.D. Pa. May 1, 2008); Great Am. Ins. Co. v. SRS,
Inc., No. 11-970, 2011 WL 6754072, at *8 (M.D. Tenn. Dec. 23, 2011) (“courts have routinely found that
sureties suffer immediate, irreparable harm if they are denied receipt of collateral after liability has been
asserted against them” (collecting cases)); Int'l Fid. Ins. Co. v. Sols. to Every Problem, Inc., No. 12-37,
2012 WL 2576775, at *7 (E.D. Tenn. July 3, 2012).
216

Allied World Specialty Ins. Co. v. Abat Lerew Constr., LLC, No. 16-545, 2017 WL 1476131 (D. Neb.
Apr. 24, 2017).

44

“Cases discussing preliminary injunctions have held that a preliminary
injunction is warranted to enforce a surety's rights if the principal is
insolvent or secreting assets.” Aventura Eng'g, 534 F. Supp. 2d at 1321–22;
see also Travelers Cas. & Sur. Co. v. Ockerlund, No. 04–C–3963, 2004 WL
1794915, at *5 (N.D. Ill. Aug. 6, 2004) (issuing preliminary injunction
requiring indemnitor to post collateral in the absence of any defenses or any
argument that the indemnity agreement was unenforceable). Courts
granting preliminary injunctive relief under Federal Rule of Civil Procedure
65 generally require some showing of irreparable harm such as evidence
that establishes that the indemnitor is in dire financial straits, no longer has
a traditional source of credit, has been dishonest or “is millions of dollars in
the hole with various creditors.” W. Sur. Co. v. Futurenet Grp., Inc., No.
16-CV-11055, 2016 WL 3180188, at *7 (E.D. Mich. June 8, 2016)
(enjoining the indemnitors, after a hearing, from transferring or
encumbering their assets, but not requiring them to post collateral); Allied
World Specialty Ins. Co. v. Lawson Inv. Grp., Inc., No. 6:15-CV-1397-Orl37TBS, 2016 WL 695980, at *4 (M.D. Fla. Feb. 22, 2016) (granting motion
for preliminary injunction on a finding that indemnitors had filed or sought
protection in bankruptcy court and assets were likely to be dissipated).
A showing that a surety is not likely to incur any damages beyond the
economic cost of paying the bond claims prior to receiving collateral “ ‘does
not support a finding of irreparable harm, because such injury can be
remedied by a damage award.’ ” Travelers Cas. & Sur. Co. of Am. v. W.P.
Rowland Constructors Corp., No. CV 12-00390-PHX-FJM, 2012 WL
1718630, at *3 (D. Ariz. May 15, 2012) (quoting Rent–A–Center, Inc. v.
Canyon Television & Appliance Rental, Inc., 944 F.2d 597, 603 (9th Cir.
1991)). A showing that a surety will suffer extreme or very serious damage
that would justify a mandatory injunction requiring the deposit of collateral
would include, for example, establishing that it does not possess sufficient
funds to pay the bond claims or showing that the injury sustained by the
indemnitor's failure to provide collateral is incapable of being compensated
with money damages. Id. “ ‘[T]he fact that plaintiff may, in the interim, be
marginally less secure with respect to the availability of a final money
judgment [or decree], does not constitute “irreparable harm” so as to
warrant the extraordinary remedy of a preliminary injunction.’ ” Great Am.
Ins. Co. v. Fountain Eng'g, Inc., No. 15-CIV-10068-JLK, 2015 WL
6395283, at *3 (S.D. Fla. Oct. 22, 2015) (quoting Firemen's Ins. Co. v.
Keating, 753 F. Supp. 1146, 1157 (S.D.N.Y. 1990)). The purpose of a
collateral security clause is to provide sureties with access to financial
cushioning during the pendency of claims and, where violated, the surety
suffers ongoing harm in the form of missing money, but, whatever the loss,
whether to financial security or otherwise, it is monetary in character, and
may be adequately remedied by a judgment on the merits. Id.217
217

Id. at *4.

45

126.

Thus, in Allied World, the Court denied the motion for preliminary injunction for

lack of a showing of irreparable harm.218 The Court so ruled because (1) the surety had
not shown “the defendants are insolvent or disposing of or secreting assets”219; (2) the
surety “concede[d] that it ha[d] not paid out any claims and [was] in the process of
investigating the claims”; and (3) the defendant had “express[ed] some willingness to
resolve the issues and fulfill its admitted obligations.”220 Further, the fact that the surety
was entitled under state law “to the equitable remedy of specific performance after
proving its case, does not mean that an order granting specific performance is appropriate
or necessary at this time.”221 “[The Surety] ha[d] not established that it [could not] be
compensated for the indemnitor's failure to provide collateral with money damages or
with an order of specific performance after resolution of the merits.”222 The Court also
stated that “The cases that grant specific performance of a collateralization clause
generally involve motions for summary judgment and a full development of the record.
Defendants have raised issues of good faith and inequitable conduct, as well as a public
policy argument, that deserve fuller consideration.”223 The motion was ultimately denied
“without prejudice to reassertion.”224

218

Id. at *5.

219

Id.

220

Id.

221

Id.

222

Allied World, 2017 WL 1476131, at *5.

223

Id.

224

Id. at *6.

46

127.

Looking at these authorities, the Court finds that Allied World provides the

appropriate standard (and, indeed, one consistent with the general rules governing
preliminary injunctions articulated above). Unlike Employers Mutual Casualty, Western
is not seeking specific performance of the Indemnity Agreement through a motion for
summary judgment. Rather, as in Allied World, Western is seeking a preliminary
injunction, which requires a clear showing of irreparable harm.
128.

Western has failed to meet its burden on this issue. Like Allied World, Western

has failed to put forward any evidence that PASI is currently “insolvent or disposing of or
secreting assets”225 There is no proof that PASI is presently “in dire financial straits, no
longer has a traditional source of credit, has been dishonest or ‘is millions of dollars in
the hole with various creditors.’ ”226
129.

To the contrary, the present need for an injunction is considerably less now than it

was at the time Western made its initial demand. While there is some evidence in the
record of PASI’s potential insolvency years ago,227 now, according to Alexander’s
testimony, PASI is in possession of between $1.7M and $2M of the Arbitration Award,
with no plans to spend any of the money before trial. The Court found this testimony
credible.
130.

Further, as in Allied World, the Court finds that there are two pivotal issues that

are more appropriately resolved at the stage of “motions for summary judgment and a full

225

Id. at *5.

226

Id. (citations omitted).

227

See Email Chain from Jim Carver to Laurence Jortner, October 7–8, 2015, Ex. 28 (“Just a reminder
note; PASI does not have the money to pay the demand by Friday. If Western were to force the issue it
would drive PASI and the other companies and the individuals into bankruptcy.”).

47

development of the record.”228 Here, “Loss” is defined in the Indemnity Agreement to
include “any other cost incurred by the Surety in good faith as a result of having issued or
procured the issuance of a Bond.229 Thus, there are two key issues. First, under Great
American Insurance Co. v. McElwee Bros, Inc .(which this Court finds controlling),
Indemnitors have the burden of proving bad faith on Western’s part.230 Second, Western
has the burden of proving causation.231 While the Court likely agrees that PASI has
failed to prove bad faith at this stage,232 PASI has raised considerable questions and
uncertainty about the issue of whether the bulk of Western’s losses were truly “incurred .
. . as a result of having issued or procured the issuance of a Bond”233 and not, as PASI

228

Allied World, 2017 WL 1476131, at *5.

229

Indemnity Agreement § 1, Ex. 1.

230

Great Am. Ins. Co. v. McElwee Bros, Inc., No. 03-2793, 2007 WL 861152, at *5 (E.D. La. Mar. 19,
2007) (“In the suretyship context, lack of good faith carries an implication of a dishonest purpose, a
conscious doing of wrong, a breach of a duty through motives of self-interest or ill will. Moreover, a lack
of diligence or negligence is not the equivalent of bad faith, indeed even gross negligence cannot support
a finding of bad faith.” (quoting Frontier Ins. Co. v. International, Inc., 124 F. Supp. 2d 1211
(N.D.Ala.2000) (emphasis, internal citations and quotations omitted)).
231

See Gray Ins. Co. v. Terry, No. 07-1523, 2014 WL 906481, at *6 (W.D. La. Mar. 6, 2014), aff'd, 606
F. App’x 188 (5th Cir. 2015) (stating “Thus, the question under this provision is essentially one of
causality. An indemnification obligation will exist if the expense incurred by [insurer] would not exist but
for [the insurer’s] having issued payment and performance bonds to the defendants” and finding, at the
summary judgment stage, that “the expenses that [insurer] incurred on the aforementioned projects . . .
were all incurred because of [insurer’s] having furnished the subject bonds to the defendants.”).
232

PASI’s “reliance on codal suretyship arguments is misplaced.” Abbott v. Equity Grp., Inc., 2 F.3d 613,
627 (5th Cir. 1993). “[A] contract on indemnity is different from a contract on suretyship[.]” Id.
“ [‘]The contract of indemnity forms the law between the parties and must be interpreted according to its
own terms and conditions.. . . . [I]n an indemnity contract, the principal and indemnitors can be bound to
the surety in any manner they elect in consideration of the surety issuing the bond covering the principal
obligation.’ ” Id. (quoting Commercial Union Ins. Co. v. Melikyan, 430 So. 2d 1217, 1221 (La. App. 1
Cir. 1983).
233

Indemnity Agreement § 1, Ex. 1.

48

contends, the result of Western’s own breach of its obligations under the Bond.234
Considering the fact that discovery has not even closed at this point,235 the Court finds
that issuing a preliminary injunction at this stage with an incomplete record would be illadvised.
131.

The Court notes a final reason for following Allied World over Employers Mutual

Casualty. While the Court does not doubt a surety’s entitlement to specific performance
on the issue of collateralization under state law, the issue here is whether that state law
trumps Rule 65’s requirement for a substantial threat of irreparable injury if the
injunction is not granted.
132.

In Passmore v. Baylor Health Care System, the Fifth Circuit explained: “A federal

court entertaining state law claims cannot apply a state law or rule if (1) the state law or
rule ‘direct[ly] colli[des]’ with a Federal Rule of Civil Procedure and (2) the Federal Rule
‘represents a valid exercise of Congress’ rulemaking authority.’ ”236 There is no serious
dispute as to the second issue.237

234

See HPA Complaint 2, ¶¶ 88–90, Ex. 37; HPA Dep. 7:23–8:22, Ex. 59.

235

Order, January 23, 2018, Doc. 24 (scheduling order setting October 26, 2018, discovery deadline and a
March 1, 2019, expert discovery deadline).

236

Passmore v. Baylor Health Care Sys., 823 F.3d 292, 296 (5th Cir. 2016) (quoting Burlington N. R.R.
Co. v. Woods, 480 U.S. 1, 4–5, 107 S. Ct. 967, 94 L.Ed.2d 1 (1987)).
237

As the Fifth Circuit stated in Passmore:
A Federal Rule is invalid if it exceeds either constitutional constraints or the constraints of
the Rules Enabling Act, 28 U.S.C. § 2072. See Burlington, 480 U.S. at 5, 107 S. Ct. 967.
A Rule is constitutionally valid if it is regulates matters that “are rationally capable of
classification” as procedural. Hanna v. Plumer, 380 U.S. 460, 472, 85 S. Ct. 1136, 14 L.
Ed. 2d 8 (1965). And, a Rule is valid under the Rules Enabling Act if it “really regulates
procedure,—the judicial process for enforcing rights and duties recognized by substantive
law and for justly administering remedy and redress for disregard or infraction of them.”
Sibbach v. Wilson & Co., 312 U.S. 1, 14, 61 S. Ct. 422, 85 L. Ed. 479 (1941).

49

133.

As to the first, “[a] state law directly collides with a Federal Rule if it provides a

different answer to the question in dispute.”238
134.

“To preclude the application of a state law . . . the relevant Federal Rule need not

be identical in purpose or scope. Rather, the inquiry is whether the scope of the Federal
Rule is sufficiently broad . . . to control the issue before the court, such that it answer[s]
the same question’ as the state law.”239
135.

Here, the Court finds a direct collision between state and federal law. As

reflected above, state law would entitle Western to specific performance without any
showing of a substantial threat of irreparable injury.
136.

Conversely, as amply demonstrated above, Rule 65 requires such a showing.

137.

Moreover, Rule 65 is sufficiently broad to control the issue before the Court and

answer the same question as the state law claim: whether a plaintiff (here, a surety) is
entitled to have defendants deposit with the Court the alleged losses plaintiff sustained
before judgment to protect plaintiff from loss.
138.

Thus, under Passmore, the Court cannot enforce state law allowing specific

performance absent proof of a substantial threat of irreparable harm, given Rule 65’s
requirements.
139.

Nevertheless, the Court notes that, even if there were no direct collision, Western

would still be required to prove a substantial threat of irreparable harm; under this

Id. at 298–99. Western cannot seriously contend that the issuance of a preliminary injunction is
procedural.
238

Id. (citing Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 559 U.S. 393, 398, 130 S. Ct.
1431 (2010) (majority opinion) (citing Burlington, 480 U.S. at 4–5, 107 S. Ct. 967)).

239

Id. at 297 (internal citations and quotations omitted).

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scenario, Rule 65’s general requirement for a clear showing of a substantial threat of
irreparable harm without the injunction would apply.
140.

For all these reasons, the Court finds that Western has failed to make a clear

showing of a substantial threat of irreparable injury so as to entitle it to a preliminary
injunction. On this ground alone, Western’s motion can be denied.
5. Western’s Delay
141.

Nevertheless, even putting the above findings aside, Western has also failed to

meet its burden of showing entitlement to this extraordinary relief for unreasonably
delaying in seeking a preliminary injunction, without adequate justification and to PASI’s
prejudice.
142.

“The law is well-established that:”
[D]elay in seeking a remedy is an important factor bearing on the need for
a preliminary injunction. Absent a good explanation, a substantial period of
delay militates against the issuance of a preliminary injunction by
demonstrating that there is no apparent urgency to the request for injunctive
relief.240

143.

Wright and Miller similarly recognizes: “A long delay by plaintiff after learning

of the threatened harm also may be taken as an indication that the harm would not be
serious enough to justify a preliminary injunction.”241 On the other hand, in a different
section on laches and preliminary injunctions, the treatise states:
Unlike a defense based upon the statute of limitations, mere delay is not
sufficient to bar injunctive relief on the ground of laches. . . . Delay coupled
with knowledge and acquiescence in the acts complained of, as well as
prejudice to defendant generally will be a sufficient basis for denying
240

Gonannies, 464 F. Supp. 2d at 609 (quoting Wireless Agents, L.L.C. v. T–Mobile USA, Inc., 2006 WL
1540587, *3 (N.D. Tex. June 6, 2006) (internal citations and punctuation omitted)).

241

11A Charles A. Wright, Arthur R. Miller, et al., Federal Practice and Procedure, § 2948.1 (3d ed.
2018).

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injunctive relief. . . . The defense of laches is equitable in nature and the
court must look at all the factors or circumstances relevant to a given case
when deciding whether relief should be barred. Thus, a lapse of time
because of plaintiff's ignorance of his rights or his disability or in some
situations, even neglect, when it is not attributable to a lack of diligence,
should not bar the issuance of an injunction.”242
144.

Thus, in Gonannies, the Northern District of Texas denied a motion for a

preliminary injunction because the plaintiffs “first learned of the alleged infringing
conduct on March 1, 2006, and filed this action on April 7, 2006, they nonetheless did not
file the present motion seeking injunctive relief until September 15, 2006, and only after
settlement negotiations had soured.”243 The Court concluded that “Plaintiffs' undue delay
would be sufficient to rebut any possible presumption of irreparable harm” and cited
several cases in support of its holding.244
145.

Conversely, in Daily Instruments Corp. v. Heidt,245 a non-compete case, the

Southern District of Texas found that, while the employer did not examine its former
employee’s laptop “until nearly four months after [the employee’s] resignation” and was
“therefore slow in coming out of the gate[,] [s]ince then, . . . [the employer] [had] shown
diligence in prosecuting to enforce [the employment] agreements and to obtain relief

242

11A Charles A. Wright, Arthur R. Miller, et al., Federal Practice and Procedure, § 2946 (3d ed.
2018).

243

Gonannies, 464 F. Supp. 2d at 609.

244

Id. (citing Tough Traveler, Ltd. v. Outbound Prod., 60 F.3d 964, 968 (2d Cir. 1995) (vacating
preliminary injunction where movant waited four (4) months to seek a preliminary injunction after filing
suit); Citibank, N.A. v. Citytrust, 756 F.2d 273, 276 (2d Cir. 1985) (ten (10) week delay in seeking
injunction for trademark infringement undercut claim of irreparable harm); Boire v. Pilot Freight
Carriers, Inc., 515 F.2d 1185, 1193 (5th Cir. 1975) (affirming district court's denial of temporary
injunctive relief where movant, among other things, delayed three (3) months in making its request)
(descriptions of authority quoted from Gonannies)).

245

Daily Instruments Corp. v. Heidt, 998 F. Supp. 2d 553 (S.D. Tex. 2014).

52

from Defendants’ complicity with him.”246 Conversely, Defendants had “resisted
expedited discovery needed to prepare for the preliminary injunction hearing” and, “on
the last business day before [the employer’s] motion was to be heard, . . . removed the
case” to federal court.247 There, “Defendants persisted in opposing accelerated discovery,
which finally required judicial intervention to permit the case to go forward.”248 The
Court found that it was the employer that was “prejudiced by delay, not Defendants who
continued to do business as they pleased and who resisted accelerated discovery that
would expedite hearing on Plaintiff’s motion.”249 The Court concluded that Plaintiff
employer had “a decent although not an ideal explanation for its delay in seeking a
preliminary injunction, but Defendants have suffered no prejudice as a result thereof, and
Plaintiff has shown an ongoing immediate threat to continue irreparable injury to Plaintiff
if a preliminary injunction is not issued.”250
146.

Having carefully considered the law and facts, the Court finds that Western has

unreasonably and without justification delayed seeking a preliminary injunction—both in
its conduct before filing this suit and its conduct since suit was filed.
147.

First, Western has unreasonably delayed in its pre-suit actions.

148.

HPA terminated Western for default on February 25, 2015, and stated that it

“intend[ed] to hold Western and PASI responsible for all costs associated with

246

Id. at 570.

247

Id.

248

Id. at 571.

249

Id.

250

Daily Instruments Corp., 998 F. Supp. 2d at 571.

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completion of the work as well as any and all damages HPA might sustain because of
PASI’s failure to properly perform its work.”251 On the same day, HPA informed
Western of the termination and made demand on Western to perform its obligations
under the Performance Bond.252
149.

Yet, it took until October 29, 2015, for Western to finally send a letter to HPA

officially denying the performance bond claim for the first time.253
150.

While the Court recognizes Western’s right to investigate, as PASI notes, this

letter came eighty days from the issuance of the RTS Preliminary Report and two
hundred, forty-six days after HPA’s initial February 25, 2015, demand. Given the
findings and recommendations of the RTS Preliminary Report,254 and the totality of the
circumstances,255 the Court finds that Western’s delay in denying the performance bond
claim was unreasonable.

251

Jortner Aff. ¶ 7, Doc. 40-1; Letter from HPA to PASI, February 25, 2015, Ex. 9.

252

Jortner Aff. ¶ 8, Doc. 40-1; Letter from HPA to Western, February 25, 2015, Ex. 10.

253

Letter from Western to HPA, October 29, 2015, Ex. 32.

254

RTS Preliminary Report 9–10, August 10, 2015, Ex. 22 (“We do not believe that the Surety can reach
an agreement with HPA for completion and it appears that no other alternative exists but to allow HPA to
contract directly with its subcontractors for the completion of the work. HPA must mitigate its loss and
their completion of this subcontract work should be monitored if allowed to do so.”).
255

The Court emphasizes here Western’s April 29, 2015, letter to HPA, wherein Western stated: “While
we have been willing to cooperate and consider HPA’s proposals [with ADS and M Natal], as surety we
are entitled to accept or reject suggested contracts or otherwise put to bid with other contractors for
competitive pricing.” Letter from Western to HPA, April 29, 2015, Western Dep. Ex. 11, Ex. 60. The
Court believes this statement directly contradicts Western’s position, taken through Jortner’s testimony at
the hearing, that Western had no control over HPA hiring a replacement bidder. To the contrary, as the
April 29, 2015, letter makes clear, Western was directly attempting to assert control over who HPA hired
as a replacement contractor as early as April 29, 2015.

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151.

Moreover, while Western has submitted evidence of conduct occurring between

this October 29, 2015, denial, and its first lawsuit against the Indemnitors on September
5, 2017,256 the Court finds that the record demonstrates unreasonable and unexplained
gaps in major activity in the chronology. Specifically, Western has failed to point to
major activity during the following periods: 257
a. PASI’s November 18, 2015 Letter to Western258 and the March 24, 2016,
mediation between PASI, PASI’s insurer, Western, and HPA259 (4 months);
b. The May 27, 2016 HPA Complaint260 and Western’s December 12, 2016 request
for Joinder in the HPA/PASI arbitration 261 (6.5 months); and
c. The January 24, 2017, email from Jim Carver to AAA262 and the July 18, 2017
settlement offer from Western to HPA263 (7 months).
152.

Thus, Western not only waited about two years from the October 2015 demand

before filing suit, there appears to be roughly eighteen months during that time period in
which there was no major activity on these claims. Further, Western has provided little
explanation as to what Western was doing during these periods, other than a vague
statement by Jortner at the hearing that Western was trying to settle the claims during one
of these gaps.

256

Original Western-PASI Action, Complaint, Doc. 1.

257

See Federal Rule of Evidence Article 1006 Summary to Prove Content, Doc. 46-1.

258

Letter from PASI to Western, November 18, 2015, Ex. 34.

259

Email Chain involving multiple parties, December 30, 2015 to January 7, 2016, Ex. 35.

260

HPA Complaint, Ex. 37.

261

Email from Jim Green to S. Cleo Gladden, December 12, 2016, Ex. 38.

262

Email from James Carver to S. Cleo Gladden, January 24, 2017, Ex. 42.

263

Email from Jim Green to Kenneth Weckstein, July 18, 2017, Ex. 43.

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153.

Further, these delay periods far exceed the four-month delay found acceptable by

Daily Instructions Corp. and are even beyond the periods in Gonannies and its authority
which found the delay too excessive to justify the injunction.
154.

Second, Western has delayed the proceedings in this Court.

155.

Western originally filed its first suit on September 5, 2017.264

156.

On October 4, 2017, Western sought leave to amend the notice of dismissal filed

the preceding day so that it could refile “after additional research and investigation are
complete.”265
157.

While the need for further investigation can be a legitimate ground justifying

delay, under the circumstances of this case, such a justification was unreasonable.
Western made demand on the Indemnitors for the deposit of $2,500,000.00 in collateral
on October 1, 2015.266 The Court finds it unreasonable that Western would need further
research and investigation over two years after filing the October 1, 2015, demand.
158.

Further, on November 9, 2017, Western filed the instant action against PASI.267

Western waited nearly a month, until December 7, 2017, to file the instant motion for
preliminary injunction.268

264

Original Western-PASI Action, Complaint, Doc. 1.

265

Original Western-PASI Action, Amended Notice of Voluntary Dismissal Without Prejudice, Doc. 19.

266

Jortner Aff. ¶ 13, Doc. 40-1; Collateral Demand Letter from Western to Indemnitors, October 1, 2015,
Ex. 25.

267

Complaint, Doc. 1.

268

Western Surety Company’s Motion for Preliminary Injunction, Doc. 11.

56

159.

While Western moved for expedited consideration of its motion on December 7,

2017, 269 it failed to make an adequate showing before Judge Jackson, instead making the
conclusory argument that it was entitled to expedited consideration on the same basis as
its injunction.270 Judge Jackson rejected the argument,271 yet Western filed no motion to
reconsider and provided no additional evidence or argument to correct the deficiencies
found by Judge Jackson.
160.

Instead, Western re-urged the same arguments to the undersigned judge at the

January 10, 2018, status conference, which undersigned also rejected. Again, no motion
to reconsider was filed.
161.

Even stronger still, on April 4, 2018, Western Surety filed its Unopposed Motion

to Continue the preliminary injunction hearing asking for the hearing to be moved and for
the Court to push all prehearing deadlines back ninety days.272
162.

This case is thus analogous to Gonannies, where the mover sought the injunction

“only after settlement negotiations had soured.”273 Similarly, the Court finds that
Western, after having filed the motion (untimely), backed off at the prospect of
settlement. This strongly indicates a lack of irreparable injury.
163.

Further, this case is unlike Daily Instruments Corp., where (1) the obligors (a)

obstructed by a late removal to federal court and (b) “persisted in opposing accelerated

269

Motion for Expedited Hearing/Submission, Doc. 12.

270

Memorandum in Support of Motion for Expedited Hearing/Submission, Doc. 12-1 at 1.

271

Ruling and Order, December 12, 2017, Doc. 16.

272

Unopposed Motion to Continue, Doc. 26 at 1.

273

Gonannies, 464 F. Supp. 2d at 609.

57

discovery” to the point of “requir[ing] judicial intervention to permit the case to go
forward”; and (2) the obligee demonstrated a threat of irreparable harm.274 While the
delay was justified in Daily Instruments Corp., PASI has engaged in no such obstruction,
and, again Western has failed to show a substantial threat of irreparable harm.
164.

Lastly, looking at the Wright and Miller factors articulated above, the Court finds

that (1) PASI has been prejudiced by all of the above delays, (2) Western cannot claim to
be ignorant of its rights, and (3) Western voluntarily acquiesced in PASI’s conduct and
showed a serious lack of diligence. The second and third are abundantly clear from the
above analysis. As to the first, PASI has submitted evidence from HPA demonstrating
that Western’s delay substantially increased PASI’s exposure for the Project.275
165.

For all these reasons, the Court finds that Western’s delay in seeking the

preliminary injunction, combined with Western’s lack of reasonable explanation and
PASI’s prejudice, demonstrate that Western has not clearly shown a substantial threat
that it will suffer irreparable harm.
III.

ORDER

166.

Western has failed to satisfy its burden of making a clear showing that it faces a

substantial threat of irreparable injury. Western has not demonstrated that it faces a
serious threat of being unable to collect a judgment against PASI. Further, Western has
unreasonably and without adequate justification delayed seeking a preliminary injunction,
to PASI’s detriment.
167.

Accordingly,

274

Daily Instruments Corp., 998 F. Supp. 2d at 570–71.

275

HPA Complaint 2, ¶¶ 88–90, Ex. 37; HPA Dep. 7:23–8:22, Ex. 59.

58

IT IS ORDERED that Western Surety Company’s Motion for Preliminary Injunction
(Doc. 11) is DENIED.
Signed in Baton Rouge, Louisiana, on September 25, 2018.

S

JUDGE JOHN W. deGRAVELLES
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF LOUISIANA

59