LIBERTY MUTUAL INSURANCE CO. v. DeVere Construction Co., Inc. et al

Filing 70

ORDER Granting 60 Motion to Compel, Directing Posting of Collateral, Imposing Civil Sanction, Denying In Part 63 Motion to Quash, and Directing Submission of Stipulated Protective Order. (Stipulated Protective Order due by 8/1/2016) Signed by District Judge Thomas L. Ludington. (Sian, M)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
NORTHERN DIVISION
LIBERTY MUTUAL INSURANCE CO.,
Plaintiff,

Case No. 16-cv-10423

v.

Honorable Thomas L. Ludington

DEVERE CONSTRUCTION CO., INC., et al.,
Defendants.
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ORDER GRANTING MOTION TO COMPEL, DIRECTING POSTING OF
COLLATERAL, IMPOSING CIVIL SANCTION, DENYING IN PART MOTION TO
QUASH, AND DIRECTING SUBMISSION OF STIPULATED PROTECTIVE ORDER
I.
On March 14, 2016, Plaintiff Liberty Mutual Insurance Company filed a motion to
compel Defendants to comply with this Court’s June 15, 2016 Order directing Defendants to post
$12,500,000 in cash collateral with Liberty on or before June 17. See Pl.’s Mot. Compel, ECF
No. 60. This is the second motion to compel that Liberty has filed alleging non-compliance by
Defendants with an order of this Court. See Pl.’s Mot. Compel, ECF No. 55.
As explained in the Court’s June 15, 2016 Order, the posting of cash collateral by
indemnitors (here, Defendants) is an important element to the operation of construction
performance and completion bonds. This obligation exists under the bond contracts irrespective
of the likelihood that the incomplete projects (which Defendants are admittedly unable to
complete) will be profitable. It matters only that Liberty has received claims for payment from
subcontractors. Liberty has no obligation to finance accounts payable on the construction
projects with its own funds. The parties have bargained under the contract to assign that

responsibility to Defendants. The June 15, 2016 Order puts into effect that obligation.
Defendants, by representation of Liberty, have not complied with the directive to post cash
collateral.
Defendants responded to Liberty’s motion by claiming that they have been unable to post
the necessary collateral because it has been difficult to secure appropriate financing. This is
Defendants’ first representation that they are unable to meet the posting requirement in the bond.
Defendants represent that they “need additional time to pursue possible financing. Otherwise,
bankruptcy is likely.” Pl.’s Resp. 2, ECF No. 65. That may be, but because Defendants have not
sought the protections of a bankruptcy proceeding, they are still under court order to post the
required collateral. They concede that they have not complied with the Court’s order.
Plaintiff’s motion to compel compliance will be granted. Defendants will be given one
week from the entry of this order to post the required $12.5 million in collateral. If Defendants
do not post collateral within one week, they will be subject to a daily $2,500 civil sanction, to be
paid to Plaintiff. Plaintiff shall file a notice on the Court’s docket when Defendants meet their
collateral posting requirement.
II.
On June 29, 2016, Defendants filed a motion to quash or, alternatively, for a protective
order. ECF No. 63. Defendants seek to quash a subpoena that Plaintiff served upon First Federal
of Northern Michigan seeking 20 years of information concerning Defendants’ assets and
liabilities (including personal financial information). Defendants argue that the subpoena is
unduly burdensome, overbroad, and irrelevant.
Under Rule 26, “[p]arties may obtain discovery regarding any nonprivileged matter that
is relevant to any party's claim or defense and proportional to the needs of the case.” Fed. R. Civ.

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P. 26(b)(1). Defendants concede that this information is relevant to Plaintiff’s claims because
this Court entered an order permitting discovery into Defendants’ assets for the purposes of
determining Defendants’ ability to meet their collateral posting requirement. Defendants stand as
indemnitors on the bond agreements with Plaintiff. Thus, any losses incurred by Plaintiff must be
borne by Defendants. That is part of the rationale behind the collateral posting requirement.
Thus, the financial health of Defendants is entirely relevant. Defendants’ motion to quash will be
denied.1
Defendants also seek a protective order. Because discovery into the finances of
Defendants may raise sensitive information related to both Defendants and non-parties, a
protective order against the public disclosure of personal financial information is appropriate.
The parties will be directed to submit a stipulated protective order setting forth terms for the
disclosure and use of such information.
III.
Accordingly, it is ORDERED that Plaintiff Liberty Mutual’s Motion to Compel, ECF
No. 60, is Granted.
It is further ORDERED that Defendants are DIRECTED to post collateral with Liberty
Mutual in the amount of $12,500,000.00 on or before August 4, 2016. Beginning on August 5,
2016, Defendants are subject to a daily civil sanction of $2,500 for each day they do not post the
required collateral with Plaintiff Liberty. Defendants are to pay any sanction amount to Plaintiff
Liberty the day it becomes due.

1

Defendants argue that Plaintiff cannot use the request for collateral as justification for the subpoena
because the Court has already granted Plaintiff that relief. Defendants, however, have not yet posted collateral,
meaning that the point is not moot. To the contrary, Defendants’ inability to post collateral makes the requested
information entirely relevant.

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It is further ORDERED that Defendants’ Motion to Quash, ECF No. 63, is DENIED in
part.
It is further ORDERED that the parties are DIRECTED to submit a stipulated protective
order in compliance with the terms set forth above on or before August 1, 2016.
Dated: July 28, 2016

s/Thomas L. Ludington
THOMAS L. LUDINGTON
United States District Judge
PROOF OF SERVICE
The undersigned certifies that a copy of the foregoing order was served
upon each attorney or party of record herein by electronic means or first
class U.S. mail on July 28, 2016.
s/Michael A. Sian
MICHAEL A. SIAN, Case Manager

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