Travelers Casualty and Insurance Company of America v. C.R. Calderon Construction, Inc. et al

Filing 26

MEMORANDUM OPINION. Signed by Judge Theodore D. Chuang on 5/22/2017. (jf3s, Deputy Clerk)

UNITED STATES DISTRICT COURT
DISTRICT OF MARYLAND

TRAVELERS CASUALTY AND SURETY
COMPANY OF AMERICA,
Plaintiff,
v.
C.R. CALDERON CONSTRUCTION, INC.,
CALDERON I, LLC,
CARLOSL.CALDERON,and
ANAP. CALDERON,

Civil Action No. TDC-17-0282

Defendants.

MEMORANDUM OPINION
On January 31, 2017, Plaintiff Travelers Casualty and Surety Company of America
("Travelers") filed this breach of contract action based on the alleged breach of an indemnity
agreement

by Defendants

C.R. Calderon

Construction,

Inc. ("CRC"),

Calderon

I, LLC

("Calderon I"), Carlos L. Calderon ("Mr. Calderon"), and Ana P. Calderon ("Ms. Calderon").
Travelers alleges that pursuant to a collateral security provision of that indemnity agreement,
Defendants were required, but failed, to post a $228,359.27 security deposit to cover Travelers'
potential losses stemming from a judgment issued by the United States District Court for the
District of Columbia holding that Defendants and Travelers are jointly and severally liable for
unpaid wages.

Pending before the Court is Travelers' Motion for a Preliminary Injunction in

which Travelers seeks specific performance of the collateral security provision of the indemnity
agreement. Having reviewed the Complaint and the briefs, the Court finds no hearing necessary.
See D. Md. Local R. 105.6 (2016). For the reasons set forth below, the Motion is GRANTED.

FINDINGS OF FACT
The underlying facts are not in dispute. In January 2011, CRC entered into a subcontract
to install drywall at the H. Carl Moultrie Courthouse in Washingto~D.C.
conditioned on CRC providing a payment bond.

That subcontract was

Travelers provided the required bond (the

"Payment Bond"), which covered, as relevant here, payments to "all persons supplying labor."
Compi. Ex. 1 at 2, ECF NO.1-I.
Defendants'

execution

"Agreement").

of

an

Travelers, in turn, conditioned the Payment Bond on
indemnity

agreement

(the

"Indemnity

Agreement"

or

The Indemnity Agreement was executed in Maryland by all four Defendants on

March 14,2011.
The Indemnity Agreement extends to "[a]ny and all bonds" executed or procured by
Travelers on behalf of any of the indemnitors, and indemnifies Travelers for loss resulting from
any bond, with "loss" defined as "[a]ll loss and expense of any kind or nature, including
attorney's and other professional fees," such as loss and expense incurred in "defending any
action in connection with any Bond." Compi. Ex. 2,-r 1 ("Indemnity Agmt."), ECF No. 1-2. The
Indemnity Agreement contains a collateral security provision, which states:
Indemnitors agree to deposit with Company, upon demand, an amount as
determined by Company sufficient to discharge any Loss or anticipated Loss ....
Sums deposited with Company pursuant to this paragraph may be used by
Company to pay such claim or be held by Company as collateral security against
any Loss or unpaid premium on any Bond .... Indemnitors agree that Company
would suffer irreparable damage and would not have an adequate remedy at law if
Indemnitors fail to comply with the provisions of this paragraph.
Id. ,-r5. In a separate section entitled, "Notice of Rights," the Indemnity Agreement provides that
Travelers is entitled to specific performance of "the terms of this Agreement."

Id.,-r

16. Lastly,

the Agreement grants Travelers a security interest in Defendants' property, excepting Mr. and

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Ms. Calderon's residence.

In June 2013, Travelers perfected its security interest in Defendants'

property.
In April 2012, 13 construction workers employed by CRC on the courthouse project
made a claim against the Payment Bond for unpaid wages. On May 1,2012, those workers filed
suit against CRC, Mr. Calderon, Ms. Calderon, and Travelers, as well as against CRC's
subcontractor on the courthouse project, in the United States District Court for the District of
Columbia (the "D.C. Litigation").

On December 22, 2016, following a bench trial, the court

entered judgment against all defendants, jointly and severally, in the amount of $207,599.34 for
unpaid wages, plus attorney's fees in an amount to be later determined by the court. Travelers'
liability was premised on its role as surety for CRC's Payment Bond.
On January 12, 2017, pursuant to the Indemnity Agreement, Travelers demanded that
Defendants deposit with Travelers by January 17, 2017 collateral security in the amount of
$228,359.27, the amount required for Travelers to post a supersedeas bond to stay the judgment
in the D.C. Litigation pending appeal. In that demand, Travelers also informed Defendants that
its own attorney's fees for the D.C. Litigation totaled over $80,000, and that plaintiffs' counsel in
the D.C. Litigation would be seeking over $600,000 in attorney's fees and costs. On January 13,
2017, Travelers filed its Notice of Appeal in the D.C. Litigation and posted the required
$228,359.27 bond. To date, Travelers has received no collateral security from Defendants.
DISCUSSION
Travelers filed suit against Defendants in this Court, asserting a breach of the Indemnity
Agreement based on (1) Defendants' failure to reimburse Travelers $82,167.79 for its legal fees
arising from the D.C. Litigation; and (2) Defendants'
$228,359.27 in collateral security.

failure to satisfy Travelers' demand for

As to the latter claim, Travelers now seeks a preliminary

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injunction
security.

requmng

specific performance

of Defendants'

obligation to post the collateral

In opposing the Motion, Defendants do not challenge the validity of the Indemnity

Agreement.

Instead, they assert that the Indemnity Agreement does not cover the posting of a

supersedeas bond, the collateral security provision does not provide specific performance as a
remedy, and their obligations under the Indemnity Agreement can be satisfied by providing
Travelers a security interest in Defendants' property.
I.

Legal Standard
To obtain a preliminary injunction, moving parties must establish that (1) they are likely

to succeed on the merits, (2) they are likely to suffer irreparable harm in the absence of
preliminary relief, (3) the balance of equities tips in their favor, and (4) an injunction is in the
public interest.

Winter v. Nat. Res. De! Council, Inc., 555 U.S. 7, 20 (2008); see Dewhurst v.

Century Aluminum Co., 649 F.3d 287, 290 (4th Cir. 2011). A moving party must satisfy each
requirement as articulated.

Real Truth About Obama, Inc. v. Fed. Election Comm 'n, 575 F.3d

342, 347 (4th Cir. 2009), vacated on other grounds,

559 U.S. 1089 (2010).

Because a

preliminary injunction is "an extraordinary remedy," it "may only be awarded upon a clear
showing that the plaintiff is entitled to such relief." Winter, 555 U.S. at 22.
II.

Likelihood of Success on the Merits
Because Travelers' Motion stems from a state law cause of action, this Court applies the

choice-of-Iaw principles of the forum state, Maryland, to determine which state's law to apply in
evaluating whether Travelers is likely to succeed on its claim for breach of the Indemnity
Agreement.

Klaxon v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941); Branhaven, LLC v.

BeefTek, Inc., 965 F. Supp. 2d 650,664 (D. Md. 2013) ("When a claim is based on state law, the
choice of law rules are those of the state in which the district court sits.").

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Because indemnity

agreements and surety bonds are contracts under Maryland law, Atl. Contracting & Material Co.
v. Ulico Cas. Co., 844 A.2d 460, 468 (Md. 2004), the Court applies Maryland's choice-of-law
rules for contract claims.
If a contract contains a choice-of-law provision, Maryland courts will apply the law of
the state identified in that provision.
2011).

See Kunda v. C.R. Bard, Inc., 671 F.3d 464, 469 (4th Cir.

However, if a contract does not contain a choice-of-law provision, Maryland courts

follow the principle of lex loci contractus, under which the applicable law is that of the
jurisdiction where the contract was formed. See, e.g., Allstate Ins. Co. v. Hart, 611 A.2d. 100,
101 (Md. 1992). Here, the Indemnity Agreement contains no choice-of-law provision and was
executed in Maryland, so the Court applies Maryland law.
For purposes of this Motion, Travelers must demonstrate a likelihood that it can succeed
on its claim for breach of the collateral security provision of the Indemnity Agreement, a claim
that requires a showing of (1) "the existence of a contractual obligation owed by the defendant to
the plaintiff'

and (2) "a material breach of that obligation by the defendant."

LLC v. BAA Maryland, Inc., 994 A.2d 430, 442 (Md. 2010).
Travelers has made the requisite
Agreement.

showing by construing

RRC Northeast,

The Court evaluates whether

the language

of the Indemnity

As a written contract, the Indemnity Agreement "must be construed in accordance

with ... traditional rules of objective contract interpretation."

Atl. Contracting, 844 A.2d at 468.

In interpreting contract language, "the court will give effect to its plain, ordinary, and usual
meaning, taking into account the context in which it is used."
Starwood

Urban Retail II, LLC, 829 A.2d 540, 546 (Md. 2003).

Sy-Lene of Wash., Inc. v.
"[T]he contract must be

construed in its entirety and, if reasonably possible, effect must be given to each clause so that a
court will not find an interpretation which casts out or disregards a meaningful part of the

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language of the writing unless no other course can be sensibly and reasonably followed."
Dumbarton Improvement Ass'n v. Druid Ridge Cemetery Co., 73 A.3d 224, 232-33 (Md. 2013)
(quoting Sagner v. Glenangus Farms, Inc., 198 A.2d 277, 283 (Md. 1964)) (internal quotation
marks omitted).
Applying these principles, the Court finds that Travelers is likely to succeed on the merits
of its claim that Defendants breached the terms of the collateral security provision of the
Indemnity Agreement.

The plain language of that provision

states that, "upon demand,"

Defendants agree to deposit with Travelers a sum that Travelers determines to be sufficient to
"discharge any Loss or anticipated Loss." Indemnity Agmt. ,-r 5. "Loss," in tum, is clearly and
broadly defined as a loss or expense "of any kind" incurred in connection with "any Bond,"
including any expense incurred in "defending an action in connection with any Bond." Id. ,-r 1.
"Bond" is defined as "[a ]ny and all bondOhich

[Travelers] has executed or procured" that

were "issued for or on behalf of ... anyone or more of the indemnitors."

Id.

Giving these terms their ordinary meaning, the Court concludes that the present scenario
fits squarely within the range of situations that the Indemnity Agreement,
collateral security provision, was designed to cover.

in particular its

As no one disputes, the Payment Bond

obligates Travelers to act as a surety on behalf of CRC, including for CRC's payments to all
persons supplying labor on the courthouse project. By virtue of the Payment Bond, Travelers is
now jointly and severally liable for the judgment in the D.C. Litigation, leaving both Travelers
and Defendants obligated for, at a minimum, $207,599.34 in damages. That expense is a "loss"
as defined in the Indemnity Agreement in that it has been incurred as a result of Travelers'
"defending any action in connection with any Bond," specifically the Payment Bond. In tum, the
Payment Bond is a "Bond" as defined in the Indemnity Agreement because it was "issued for or

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/'('

on behalf of ...

one or more of the indemnitors," specifically, CRC. Because, under the plain

language of the Indemnity Agreement, the judgment in the D.C. Litigation would constitute a
Loss on a covered Bond, the equally plain language of the collateral security provision entitles
Travelers to demand collateral security from Defendants for that loss or anticipated loss. And
because "Loss" is further specifically defined to include any "expense of any kind or nature"
incurred in defending an action arising from Travelers'

bond obligations, Travelers is also

entitled to calculate the necessary collateral security as $228,359.27, the amount Travelers was
required to offer as security while it continues to defend in the D.C. Litigation by pursuing an
appeal. Thus, when Travelers made its demand that Defendants post $228,359.27 in collateral
security, Defendants were required by the terms of the Indemnity Agreement to satisfy that
demand. Defendants have not only failed to post the entire $228,359.27, but also failed to post
any collateral security whatsoever.

Accordingly, there is a strong likelihood that Travelers will

succeed in establishing that Defendants materially breached their contractual obligation.

See

RRC Northeast, 994 A.2d at 442.
Defendants' protestations merit little comment. Their assertion that the collateral security
provision is not triggered by the issuance of a supersedeas bond is unpersuasive.

Even if

Defendants are correct that a supersedeas bond is outside the ambit of the Indemnity Agreement,
Travelers nowhere asserts that Defendants' contractual obligations are tied to the issuance of the
supersedeas bond.

Instead, Travelers asserts only that the amount of the supersedeas bond

adequately reflects the sum it is entitled to as collateral security for its losses as a result of its
obligations under the Payment Bond, a bond that, as the very reason the parties entered into the
Indemnity

Agreement,

is certainly covered by that Agreement.

Equally unconvincing

is

Defendants' assertion that their collateral security obligation accrues only when there is an actual

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loss and their implied conclusion that Travelers' loss is not yet ripe because the D.C. Litigation
judgment is on appeal. Defendants' argument fails because the collateral security provision ties
that obligation to a "Loss or anticipated Loss."

Indemnity Agmt. ~ 5. Whether a loss is ripe

while a binding and final judgment is on appeal is thus immaterial.

Finally, the claim that the

collateral security provision does not provide for specific performance is contradicted by the
Indemnity Agreement's plain language, which states that Travelers "shall be entitled to specific
performance of the terms of this Agreement," without exception.

Id. ~ 16. The Agreement

therefore presents no barrier to, and in fact contemplates, such relief. Traveler's has thus shown
the requisite likelihood of success on the merits.
III.

Irreparable Harm
The Court turns to the next Winter factor, irreparable harm.

To establish irreparable

harm, plaintiffs must show that they are "likely to be irreparably harmed," not just that they face
a mere possibility of harm. United States v. South Carolina, 720 F.3d 518, 533 (4th Cir. 2013).
The "irreparable harm" to be suffered must be "neither remote nor speculative, but actual and
imminent."

Direx Israel, Ltd. v. Breakthrough Med. Corp., 952 F.2d 802, 812 (4th Cir. 1991)

(quoting Tucker Anthony Realty Corp. v. Schlesinger, 888 Fold 969,975 (2d Cir. 1989)).
Here, Travelers contends that it will be irreparably harmed by Defendants' breach of the
collateral security provision

such that specific performance

of that provision

is necessary.

Specific performance is an "extraordinary equitable remedy" to be granted only where money
damages would be "unavailable or inadequate."

Archway Motors, Inc. v. Herman, 378 Aold

720, 724 (Md. Ct. Spec. App. 1977). Because Travelers seeks to enforce a collateral security
agreement, such an extraordinary remedy is appropriate.

"Sureties are ordinarily entitled to

specific performance of collateral security clauses," because without such specific performance,

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the surety will lose "the security position for which [it] bargained."

Safeco Ins. Co. of Am. v.

Schwab, 739 F.2d 431,433 (9th Cir. 1984). Without specific performance, the collateral security
provision of an indemnity agreement would essentially be rendered a nullity, a result that runs
contrary to basic precepts of contract construction.

See Dumbarton,

73 A.3d at 232-33

(emphasizing that contracts must be construed to give effect to all of their elements). Courts thus
"routinely recognize that a surety's loss of its right to collateralization
remedied through money damages."

cannot be adequately

First Nat 'I Ins. Co. of Am. v. Sappah Bros., Inc., 771 F.

Supp. 2d 569, 574 (E.D.N.C. 2011); see, e.g., Developers Sur. and Indem. Co. v. Bi-Tech Const.,
Inc., 964 F. Supp. 2d 1304, 1310 (S.D. Fla. 2013) (finding that in the absence of a preliminary
injunction to enforce a collateral security provision of an indemnity agreement, the plaintiff
"would suffer the harm of having its rights under the Indemnity Agreement effectively nullified"
and thus that an injunction was warranted); Liberty Mut. Ins. Co. v. Aventura Eng'g & Const.,
534 F. Supp. 2d 1290, 1321 (S.D. Fla. 2008) (rejecting the argument that specific performance of
a collateral

security provision

collateralization

was inappropriate

because "a surety's

loss of its right to

cannot be adequately remedied through money damages");

us.

Fidelity &

Guar. Co. v. Feibus, 15 F. Supp. 2d 579,588 (M.D. Pa. 1998) (stating that specific performance
of a collateral security provision is necessary '''if a creditor is to have the security provision for
which he bargained''') (citing Safeco, 739 F.2d at 433).
Under the reasoning reflected in the great weight of case law, Travelers has shown a
likelihood of irreparable harm. Travelers bargained for collateral security in the event of a loss
or anticipated loss for which it would be obligated under the Payment Bond.

Based on the

judgment in the D.C. Litigation, Travelers is now, in fact, obligated for upwards of $200,000 as a
result of that Payment Bond, but does not have the collateral security it was promised under the

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Indemnity Agreement.

Travelers is therefore presently exposed to the risk of non-payment on

the part of Defendants, the very risk that the collateral security provision of the Indemnity
Agreement was meant to obviate.

Money damages are inadequate here, because they cannot

compensate Travelers for unduly bearing this risk of non-payment and the loss of its bargainedfor security position'as compared to other creditors.

See XL Specialty Ins. Co. v. Truland, No.

1:14CVI085, 2014 WL 4230388 at *4 (E.D.V.A. 2014) (finding irreparable harm in a collateral
security case because the plaintiffs were "not receiving the benefit of th[ eir] bargain, as they are
currently facing substantial, uncollateralized exposure from over sixty claims against the bonds.
Collateral security is meant to protect against this very risk.").

In recognition of this reality,

Defendants specifically agreed in the collateral security provision that failure to post such
security upon demand would cause "irreparable damage" to Travelers such that it "would not
have an adequate remedy at law."

Indemnity Agmt. ~ 5.

Thus, specific performance

is

necessary to avoid irreparable harm.
Defendants present no compelling argument to the contrary.

Defendants claim that

specific performance of the collateral security provision is unnecessary because Travelers has
already received a security interest in Defendants'

property.

Although status as a secured

creditor might improve Travelers's future ability to recover some or all of its expenses stemming
from the D.C. Litigation, that possible later recovery does not obviate the risk of loss that
Travelers is presently bearing and so does not substitute for the collateral security for which
Travelers bargained.

Travelers has thus established that it is likely to suffer irreparable harm in

the absence of Defendants'

posting of the collateral security.

Sappah Bros., 771 F. Supp. 2d at 574.

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See Sa/eco, 739 F.2d at 433;

IV.

Balance of Equities and Public Interest
The balance of equities tips in Travelers' favor. As discussed above, if Defendants are

not required to post the collateral security, Travelers will lose the benefit of its bargain on that
issue. Defendants have no comparable, cognizable injury because "requiring a party to comply
with its contractual obligations does not constitute harm."

Toolchex, Inc. v. Trainor, 634 F.

Supp. 2d 586, 593 (E.D. Va. 2008). Moreover, requiring Defendants to honor their obligations
under the Indemnity Agreement is in the public interest. Indeed, in matters relating to contracts,
"the usual and most important function of courts of justice is rather to maintain and enforce
contracts than to enable parties thereto to escape from their obligations" under them.

Smith

Braedon Co. v. Hadid, 825 F.2d 787, 790-91 (4th Cir. 1987) (quoting Bait. & Ohio Sw. Ry. Co.
v. Voight, 176

u.s.

498, 505 (1900)).

The general interest in enforcing valid contracts has a

particularly acute public interest implication here because of the "vital role of sureties in the
construction industry" in providing "financial strength and credit" to ensure that a contractor has
the "ability to perform its obligations."

Aventura Eng'g, 534 F. Supp. 2d at 1303. Where the

balance of equities and public interest favor an injunction, Travelers has satisfied each of the
Winter factors.

The Court will therefore grant the Motion and enter a preliminary injunction

requiring the posting of the collateral security.
VI.

Bond
Under Federal Rule of Civil Procedure 65, a court may issue a preliminary injunction

"only if the movant gives security in an amount that the court considers proper to pay the costs
and damages sustained by any party found to have been wrongfully enjoined or restrained."

Fed.

R. Civ. P. 65(c). Based on the posture of this case and the remedy sought, the Court determines
that no bond need be posted. See Bi- Tech Const., 964 F. Supp. 2d at 1310 (noting, in the context

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of a surety seeking a preliminary

injunction requiring specific performance

of a collateral

security provision, that "it would defeat the purpose of the instant injunction if Plaintiff had to
offset the bond to be posted by Defendants," and that the posted security could be returned if
Defendants succeeded in the litigation).
CONCLUSION
For the foregoing reasons, Travelers' Motion for a Preliminary Injunction is GRANTED.
Defendants are ordered to deposit immediately with Travelers collateral security in the amount
of $228,359.27. A separate Order shall issue.

Date:

THEODOREIZS

May 22, 2017

~~

United States District Judge

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