Travelers Casualty and Surety Company of America v. Graves et al

Filing 63

ORDER Denying 54 Motion to Stay. Signed by Magistrate Judge Carl W. Hoffman on 5/14/2012. (Copies have been distributed pursuant to the NEF - SLR)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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TRAVELERS CASUALTY AND
SURETY COMPANY OF AMERICA,

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Plaintiff,
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vs.
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SUSAN GRAVES, et al.
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Defendants. )
__________________________________________)

Case No. 2:11-cv-00937-PMP-CWH
ORDER

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This matter is before the court upon the Defendants Susan Graves as Trustee for the Madison
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and Susan Graves 1993 Family Trust and The Madison and Susan Graves 1993 Family Trust’ Motion
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to Stay Proceedings (Dkt. No. 54), filed January 6, 2012. Plaintiff Travelers Casualty and Surety
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Company of America as well as Defendant Doc Wiener filed oppositions to the stay (Dkt. Nos. 57, 58).
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The court conducted a motion hearing on February 7, 2012.
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BACKGROUND
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This case arises out of a surety bond obtained by the Boulevard Bar, LLC from Travelers in the
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amount of $291,000.00. The bond was issued in favor of the State of Nevada Department of Taxation
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for security for the payment of taxes.
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The Department of Taxation has filed a claim against the bond in the full amount to cover taxes
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allegedly owed by Boulevard Bar. Travelers filed the instant action to procure payment from the
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Defendants in the full amount of the bond under a collateral security provision contained within an
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Indemnity Agreement entered into between Defendants and Travelers. The Agreement provides the
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following:
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Indemnitors will at all times indemnify and exonerate [Travelers] from and
against any and all loss, costs and expense of whatever kind which it may
incur or sustain as a result of or in connection with the furnishing of the
Bond and/or the enforcement of this Agreement, including unpaid

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premiums, interest, court costs and counsel fees, and any expense incurred
or sustained by reason of making any investigation.

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....
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To this end Indemnitors promise: a) to promptly reimburse [Travelers] for
all sums paid and b) to deposit with [Travelers] on demand an amount
sufficient to charge any claim made against [Travelers] on the Bond. This
sum may be used by [Travelers] to pay such claim or be held by [Travelers]
as collateral security against loss or cost on the Bond.

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See Exh. 3 to Complaint (Dkt. No. 1), at 2.
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The Trust Defendants filed a Motion to Stay all Proceedings pending a final determination of
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tax liability by the Nevada Department of Taxation.
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DISCUSSION
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“[T]he power to stay proceedings is incidental to the power inherent in every court to control the
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disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for
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litigants. How this can best be done calls for the exercise of judgment, which must weigh competing
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interests and maintain an even balance. Landis v. North American Co., 299 U.S. 248, 254-55 (1936)
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(citations omitted). “[T]he suppliant for a stay must make out a clear case of hardship or inequity in
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requiring to go forward.” Id.
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The Trust Defendants argue that a stay of all proceedings is warranted pending the Nevada
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Department of Taxation’s final determination of the tax liability allegedly owed by Boulevard Bar.
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Specifically, the Trust Defendants assert that the Court’s jurisdiction is dependent upon the amount of
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taxes owed by the bar.
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Jurisdiction in this case is based on diversity of citizenship. “The district courts shall have
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original jurisdiction of all civil actions where the matter in controversy exceeds the sum of $75,000,
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exclusive of interest and costs, and is between . . . citizens of different States . . . .” 28 U.S.C. § 1332.
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Travelers’ Complaint was filed to enforce the Indemnity Agreement based on the Nevada Department
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of Taxation’s claim against the bond in the full penal sum amount of $291,000.00.
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Movants contend that the latest evaluation by the Department was overstated because the
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Department improperly allocated $7,385,000.00 of the $10,310,515.84 to equipment and materials.
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Instead, the Trust Defendants claim that the majority of this contract amount was for labor. Further, the
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Trust Defendants allege that the actual tax assessment is likely to be less than $75,000.00.
The issue of whether or not the Defendants should be required to deposit an amount that

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Travelers could be required to pay for a claim made on the bond that it issued is one that is ripe for

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decision. See Safeco Ins. Co. of America v. Schwab, 739 F.2d 431 (9th Cir. 1984). The State of

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Nevada has made a claim for $291,000.00, the full amount of the bond issued by Travelers. As such,

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the potential amount that Travelers may be required to pay is $291,000.00, an amount in excess of the

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jurisdictional requirement of $75,000.00. The possibility that Travelers may eventually owe less to the

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Department is irrelevant at this juncture.

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The fact that the State of Nevada has not finalized its claim is of no consequence when

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considering the obligations undertaken by the Defendants in executing the Indemnity Agreement. The

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Department’s demand of Travelers triggered the indemnity obligation of Defendants. See id. at 433

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(finding that the indemnity contract provided collateral security after a demand was made so a request

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for specific performance at that time was a claim upon which relief could be granted). In essence, the

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Defendants undertook two separate obligations. First, Defendants agreed to reimburse Travelers for

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actual amounts paid. Second, Defendants agreed to deposit a sum of money equal to Traveler’s

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maximum exposure wherein that money could be used to pay the actual amount ultimately paid by

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Travelers, if any, or the funds could remain on deposit to be used once a final liability is determined.

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The final amount claimed by the State of Nevada will be determinative of how much of the funds held

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on deposit that the Defendants may get back after a claim is paid by Travelers, however, the final claim

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amount does not need to be considered in answering the question of whether or not the Defendants may

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be required to post collateral security in favor of Travelers.

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Defendants agreed to cover any potential loss incurred by Travelers related to the bond.

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Specifically, Defendants could be required to deposit an amount equal to Travelers’ potential loss under

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the Indemnity Agreement the amount in controversy requirement is met. Travelers’ current potential

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exposure is for the amount of $291,000.00, which is significantly higher than the jurisdictional amount

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in controversy requirement.

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The Trust Defendants have not made a showing that hardship or inequity will result from the
continued litigation of this case. For these reasons, the Court finds that a stay of proceedings is not
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warranted in this matter. Accordingly,

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IT IS ORDERED that Defendants’ Motion to Stay Proceedings (Dkt. #54) is DENIED.

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Dated this 14th day of May, 2012.

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___________________________________
C.W. HOFFMAN, JR.
UNITED STATES MAGISTRATE JUDGE

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