Safety National Casualty Corporation et al v. United States Department of Homeland Security et al
Filing
240
MEMORANDUM AND ORDER DENYING 220 Opposed MOTION for 16(A) Scheduling Conference, 216 MOTION for Final (on Six Bonds Resolved by the Fifth Circuit in Its October 31, 2011 Decision) Judgment MOTION for Final (on Six Bonds Resolved by the Fifth Circuit in Its October 31, 2011 Decision) Judgment, 217 Cross MOTION Final Judgment, 223 Cross MOTION for Final Judgment.(Signed by Judge Keith P Ellison) Parties notified.(sloewe)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
SAFETY NATIONAL CASUALTY
CORPORATION and
AAA BONDING AGENCY, INC.,
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Plaintiffs,
v.
UNITED STATES DEPARTMENT OF
HOMELAND SECURITY, et al.,
Defendants.
CIVIL ACTION NO. 05-cv-2159
MEMORANDUM AND ORDER
The following motions are now pending before the Court: (1) a Motion for Final
Judgment on Six Bonds, filed by Defendants against Plaintiff AAA Bonding Agency,
Inc. (“AAA”); (2) a Motion for Final Judgment on Six Bonds, filed by Plaintiff Safety
National Casualty Corporation (“Safety National” or “Safety”); (3) a Cross-Motion for
Final Judgment on Six Bonds, filed by Defendants against Safety National; and (4) a
Motion for Scheduling Conference filed by AAA. After considering these motions, all
responses thereto, and the applicable law, the Court finds that Defendants’ Motion for
Final Judgment against AAA must be GRANTED; Safety’s Motion for Final Judgment
must be GRANTED; Defendants’ Motion for Final Judgment against Safety must be
DENIED; AAA’s Motion for Scheduling Conference must be DENIED.
I.
BACKGROUND
1
This lawsuit involves a dispute between Safety National, a surety company
authorized by the Department of Treasury to issue immigration delivery bonds, AAA,
Safety’s authorized agent, and the Department of Homeland Security (“DHS”), regarding
more than 1400 immigration bond breach determinations. This dispute has spanned many
years, and the Court has, on three prior occasions, detailed the procedural and factual
background of the case. (Doc. Nos. 113, 140, 159.)
Plaintiffs’ claims stem from a number of bail bond contracts between Plaintiffs
and DHS for the purpose of procuring the release of undocumented immigrants
(“aliens”)1 from DHS custody by guaranteeing their appearance at the termination of
immigration proceedings. In June 2005, Plaintiffs filed this action to challenge DHS’s
determination that a large number of those bonds had been breached. The breach
determination was made by DHS as well as the Administrative Appeals Office (“AAO”),
which reviews DHS’s bond breach determinations. DHS filed a counterclaim in
September 2005, demanding payment on 1,421 bonds. The parties agreed to an ADR
framework under which they submitted a representative group of fifty of the 1,421 bonds
for this Court’s review.
A. Decisions in this Court
On March 24, 2008, the Court issued an order in which it resolved cross motions
for summary judgment on the fifty sample bonds (the “2008 Order”). (Doc. No. 113.)
After reviewing Plaintiffs’ defenses, the Court rejected some as invalid, accepted others
as valid, and decided a number of other issues. Ultimately, the Court granted summary
judgment to DHS on twenty-three bonds, summary judgment to Plaintiffs on eighteen
1
The term “alien” has been used by both parties throughout this case to refer to undocumented persons; the
Court adopts the term for the sake of clarity.
2
bonds, and summary judgment to neither party on nine bonds. As to fifteen other bonds,
the Court vacated the agency’s breach determination and remanded for reconsideration.
In 2009, the Court reheard argument on fourteen of the fifteen bonds remanded in
the 2008 Order. On May 11, 2009, the Court granted summary judgment to DHS on nine
bonds and summary judgment to Plaintiffs on five bonds (the “2009 Order”). (Doc. No.
140.) In 2010, the Court reviewed nine new bond breaches submitted by the parties (none
of which overlapped with the fifty which the Court had previously reviewed), and
addressed new defenses raised by Plaintiffs. In a May 28, 2010 Order (the “2010 Order”),
the Court remanded four bonds to DHS, and ordered payment on two other bonds. (Doc.
No. 159.) The Court issued final judgments with respect to these three orders, and the
parties cross-appealed them to the Fifth Circuit.
B. Issues Decided on Appeal
Both parties raised a number of issues on appeal. Although only a subset of the
issues raised and decided on appeal is relevant to the motions now pending before the
Court, the Court will briefly summarize all of the issues on appeal with the hope that such
a summary may offer clarity as this case moves forward.
On appeal, Plaintiffs argued that the Court erred in the following four material
ways: (1) by holding that DHS is not required to issue a demand notice within 90 days;
(2) by holding that demand notices may be sent by regular mail; (3) by holding that
Plaintiffs forfeited their “notice to both” defense with respect to two bonds; and (4) by
failing to find that DHS’s breach determination must be made by an authorized DHS
employee with supervisory authority.2 DHS’s appeal asserted that the Court erred by
2
The fourth issue was referenced in the beginning of the Fifth Circuit’s opinion, but was never addressed
thereafter.
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holding (1) that DHS’s failure to provide notice to both obligors relieves each obligor of
its duty; and (2) that a bond is permanently unbreachable, and re-noticing impermissible,
in cases where DHS previously sent a form I-166 to the alien.3
1. Demand Notice Sent More than 90 Days after Entry of Final
Removal Order
Plaintiffs appealed this Court’s holding that 8 U.S.C. § 1231(a)(1)(A) does not
require DHS to issue a demand notice within 90 days. Pursuant to the General Terms and
Conditions of the bond contract (the “I-352”), a bond is cancelled as required by
“circumstances as provided by statute or regulation.” The relevant statute provides that,
“when an alien is ordered removed, the Attorney General shall remove the alien from the
United States within a period of 90 days.” 8 U.S.C. § 1231(a)(1)(A). Plaintiffs’ assertion,
before this Court and on appeal, was that the mandatory removal date creates an implied
term in the bond agreement, requiring DHS to send a demand notice within 90 days.
This Court concluded that 8 U.S.C. § 1231(a)(1)(A) only applies to the
government’s detention authority, and thus does not require DHS to issue a demand
notice within 90 days. The Fifth Circuit affirmed, holding that § 1231 is not an implied
term of the bond agreement, and that DHS is not required to send a demand notice within
90 days of a removal order. AAA Bonding Agency, Inc. v. U.S. Dep’t of Homeland Sec.,
447 F. App’x 603, 608 (5th Cir. 2011).
2. Demand Notices Sent by Regular Mail
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The introduction to the Fifth Circuit’s per curiam opinion mischaracterizes the precise issues on appeal
and which party raised each issue. For example, it states that DHS’s appeal argues that “Plaintiffs forfeited
the ‘notice to both’ defense with respect to two bonds.” AAA Bonding Agency, Inc. v. U.S. Dep’t of
Homeland Sec., 447 F. App’x 603, 607 (5th Cir. 2011). A review of the appellate record makes clear that
DHS did not appeal this issue (and would not have, as the Court ruled in DHS’s favor); rather, Plaintiffs
appealed it, and DHS discussed it in response to Plaintiffs’ appeal.
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Plaintiffs also appealed this Court’s holding that breach determinations may be
sent by regular mail. The Code of Federal Regulations requires that, “[i]n any proceeding
initiated by the [agency], with proposed adverse effect, service of the initiation notice and
of notice of any decision by a[n agency] officer shall be accomplished by personal
service.” 8 C.F.R. § 103.5a(c)(1). Personal service is defined as either personal delivery
or delivery by certified mail. Id. § 103.5a(a). The C.F.R. permits service by regular mail
for “other types of papers” involved in a proceeding. Id. § 103.5a(d). Plaintiffs argued,
before this Court and on appeal, that a breach determination has a proposed adverse
effect and initiates a proceeding, because it may be appealed with DHS or to the district
court.
DHS’s position was that it does not treat a breach determination as a
“proceeding,” and that it is owed deference in its reasonable interpretation of its own
regulations. DHS also asserted that its own policy statements make clear that agency
policy was to mail notice of a breach determination by regular mail. This Court held that
DHS’s interpretation was entitled to deference under the Administrative Procedure Act
(“APA”), and that breach determinations sent by regular mail gave Plaintiffs proper and
timely notice. The Fifth Circuit affirmed, holding that DHS’s interpretation is entitled to
deference under Auer v. Robbins, 519 U.S. 452, 461 (1997). AAA Bonding, 447 F. App’x
at 609.
3. Notice to Both
Both parties appealed portions of this Court’s holding with regard to what has
been termed “notice to both.” DHS’s argument on appeal was that this Court erred in
holding that separate notices must be sent to Safety National and AAA. First, DHS
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appealed the Court’s holding that “notice to both” is a condition precedent to the
obligors’ performance.
The I-352 reads: “Address to use for notice purposes: [ ] Obligor [ ] Agent [ ]
Both.” Plaintiffs selected “[ ] Both.” This Court held that, when the “Both” box is
checked, “notice to both” becomes a condition precedent to both Safety’s and AAA’s
performance, even in cases where notice was sent to one of the two obligors (Safety or
AAA). The Court concluded that neither Safety nor AAA was obligated under the
agreement if notice was not sent to both Safety and AAA. DHS urged, in this Court and
on appeal, that notice to both obligors is not a condition precedent to performance by
either obligor.
The Fifth Circuit agreed with DHS, and held that “notice to both” is not a
condition precedent. Id. However, it held that when notice is provided to only one
obligor, only that obligor’s duty to act is triggered. Id. at 609-10. It further clarified that
DHS can enforce a bond only against an obligor that actually receives notice. Id. Thus,
whereas this Court held that notice to only one obligor failed to meet a condition
precedent, meaning that neither obligor had to act, the Fifth Circuit concluded that notice
to one obligor triggers that obligor’s duty to act, but does not impose a duty upon the
obligor who did not receive notice.
Secondly, DHS appealed this Court’s finding that, when a bond contract so
specifies, notice must be sent to both obligors, even if the address provided for each is the
same. This Court rejected DHS’s argument, concluding that, although two separate
notices need not be mailed to the same address, the notice sent must identify both
obligors as recipients. The Fifth Circuit affirmed.
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4. Forfeit of “Notice to Both”
Plaintiffs appealed this Court’s holding, in the 2010 Order, that Plaintiffs’ “notice
to both” defense was forfeited with respect to two bonds. Plaintiffs’ position was that
DHS failed to give the requisite notice to both when it did not attach the questionnaire
that would have allowed the obligors to check the box for “[ ] Both.” Plaintiffs contended
that failure to provide this questionnaire entitled them to rescission of the declaration of
breach. This Court held that Plaintiffs forfeited that issue on appeal to the district court by
failing to raise it administratively.
The Fifth Circuit reversed. It held that federal courts do not have the authority to
require a plaintiff to exhaust administrative remedies before seeking judicial review
under the APA. See Darby v. Cisneros, 509 U.S. 137, 154 (1993) (“[W]here the APA
applies, an appeal to ‘superior agency authority’ is a prerequisite to judicial review only
when expressly required by statute or when an agency rule requires appeal before review
and the administrative action is made inoperative pending that review.”) The Fifth Circuit
further held that the governing regulations in this case, 8 C.F.R. § 103.6(e), allow, but do
not require, administrative review of a breach determination. The Fifth Circuit therefore
concluded that Plaintiffs may appeal a breach determination directly to a federal court,
and may raise this “notice to both” defense just as they raised it with the other bonds at
issue.
5. Run Letters
Finally, both parties appealed a number of issues related to the requirement, under
the bond agreement, that notice to obligors to produce the bonded alien must be sent at
least three days before notice is sent to the bonded alien. Notice to the bonded alien is
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referred to by the parties as the “run letter,” apparently because it creates a risk that the
alien will leave town before the delivery or deportation date.
a. DHS’s appeal
The I-352s at issue in this case state that “no demand to produce the bonded alien
for deportation/removal shall be sent less than three days prior to sending notice to the
bonded alien.” DHS has conceded that notice to the obligors is untimely when DHS
sends a run letter to an alien less than three days after the demand notice to the obligors.
This Court held that, in such a situation, the bond remains forever unbreachable. (Doc.
No. 159 at 7-13.)
On appeal, DHS argued that this Court’s holding was contrary to the purpose of
the bond, because it would deprive DHS of its leverage to compel obligors to produce an
alien. DHS urged the Fifth Circuit to find that DHS can cure the defect of sending a
premature run letter by sending one again at a later date. The Fifth Circuit affirmed this
Court’s holding that DHS cannot cure the defect of a premature run letter.
As to run letters, DHS also argued before this Court that the determination of
whether a run letter is premature should be based on when the alien received the letter,
and not when DHS sent it. The Court disagreed, holding that the question of timely notice
depends on when the demand notice and run letter are sent, not when they are received.
The Fifth Circuit affirmed this ruling.
b. Plaintiffs’ appeal
Finally, Plaintiffs appealed this Court’s holding that, where there is no evidence in
a bonded alien’s file that a run letter was sent, no genuine issue of material fact remains
as to whether such a letter was sent prematurely. On appeal, Plaintiffs urged that a
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genuine issue of material fact existed in such cases, because DHS’s routine custom and
practice is to send such letters. Plaintiffs argued that the absence of these letters in the
aliens’ files was inconclusive. The Fifth Circuit affirmed this Court’s holding that
Plaintiffs’ mere speculation does not give rise to a genuine issue of material fact.
II.
PENDING MOTIONS
A. DHS’s Motion for Final Judgment on Six Bonds against AAA
The motions pending before the Court relate to six bonds on which DHS contends
it is entitled judgment pursuant to the Fifth Circuit’s opinion. The six bonds at issue are:
(1) Bueno (A97 736 496); (2) Gutierez-Mejia (A78 952 857); (3) Cerda-Rivas (A78 942
712); (4) Ajpuac-Machan (A79 043 251); (5) Morales-Morales (A95 211 678); and (6)
Hernadez-Ulloa (A78 956 639). The first of the pending motions is DHS’s Motion for
Final Judgment against AAA.
1. AAA received proper notice on these six bonds
The parties do not dispute that AAA received proper notice on all six of the bonds
at issue.
a. Bueno and Gutierez-Mejia
In the 2010 Order, the Court granted summary judgment in favor of Defendants
on these two bond breach determinations, ruling that Safety National and AAA waived
their “notice to both” defense by failing to raise it in administrative proceedings. (Doc.
No. 159 at 16-20). The Fifth Circuit reversed, ruling that Safety/AAA “may raise the
notice-to-both defense.” AAA Bonding, 447 F. App’x at 612. At the same time, however,
the Fifth Circuit ruled that “[t]he language of the bond agreement does not clearly specify
that notice to both obligors was a condition precedent to either obligor’s performance”
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and that “[t]o the extent that one obligor received a demand notice on the disputed bonds,
that obligor was required to perform and, subject to any other deficiencies, the bond
breach determination is enforceable.” Id. at 609. For these two bond breach
determinations, it is undisputed that AAA received proper notice.
b. Cerda-Rivas and Ajpuac-Machan
This Court granted summary judgment in favor of Safety National and AAA on
these two bond breach determinations, holding that, “when the same address is listed
separately for both Safety National and AAA and the ‘Both’ box is checked, notice must
be sent to the listed address as associated with both parties, regardless of whether one or
two copies of the notice are ultimately mailed out.” (Doc. No. 159 at 13-16). While the
Fifth Circuit found no error in this conclusion, AAA Bonding, 447 F. App’x at 610, its
ruling on “notice to both” still applies; that is, an obligor that received a demand notice is
required to perform. For these two bond breach determinations, it is undisputed that AAA
received proper notice.
c. Morales-Morales and Hernandez-Ulloa
This Court granted summary judgment in favor of Safety National and AAA on
these two bond breach determinations, holding that “Run Letters sent less than three days
after proper notice of demand renders the bond forever un-breached, even if the Run
Letter is later returned to sender as undeliverable. . . . These bonds cannot be breached in
the future.” (Doc. No. 159 at 7-13). While the Fifth Circuit found no error in this
conclusion, AAA Bonding, 447 F. App’x at 611, its ruling on “notice to both” still applies,
because the run letters at issue in both of these bond breach determinations were sent
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more than three days after notice of demand to Safety and AAA. Thus, for these two
bond breach determinations, it is undisputed that AAA received proper notice.
2. AAA’s Request for Discovery
Although AAA does not dispute that it received proper notice on the six bonds at
issue, it asks the Court to defer consideration of this motion so that AAA can take
discovery of the A-files for these six aliens. AAA highlights the Fifth Circuit’s statement
that, “[t]o the extent that one obligor received a demand notice on the disputed bonds,
that obligor was required to perform and, subject to any other deficiencies, the bond
breach determination is enforceable.” AAA Bonding, 447 F. App’x at 610 (emphasis
added). AAA urges that discovery of the A-files is necessary to determine whether there
are any “other deficiencies” that render the bond breach determination unenforceable.
This language in the Fifth Circuit’s opinion does not support AAA’s request for
discovery.
Federal Rule of Civil Procedure 56(d) provides that, if a nonmovant shows that “it
cannot present facts essential to justify its opposition” to a motion for summary
judgment, the court may: “(1) defer considering the motion or deny it; (2) allow time to
obtain affidavits or declarations or to take discovery; or (3) issue any other appropriate
order.” Fed. R. Civ. P. 56(d). AAA is requesting that, for the six bond breach
determinations that were conclusively resolved by the Fifth Circuit following a summary
judgment process in this Court spanning multiple years, it be granted leave to conduct
further discovery. The basis for this request apparently is the possibility, unsupported by
facts, that discovery of these six A-files might reflect other deficiencies which
theoretically could render the bond breach determinations unenforceable.
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The Fifth Circuit did not intend such a result. Its reference to “other deficiencies”
serves only to clarify that its holding as to notice does not make bond breach
determinations enforceable if those determinations have other deficiencies. If AAA
believed that there were other deficiencies in these six bond breach determinations, it
should have alleged such deficiencies earlier in this case; surely, AAA did not need the
Fifth Circuit to tell it that other deficiencies as to the bond breach determinations would
be relevant to its claims. AAA’s position, under Rule 56(d), that further discovery might
reveal facts of which AAA is currently unaware, is insufficient to defer ruling on the
pending motion. In accordance with the Fifth Circuit’s holding on these six bond breach
determinations, DHS’s Motion for Final Judgment against AAA must be granted.
B. Cross-Motions for Final Judgment by DHS and Safety National
The pending cross-motions for final judgment filed by DHS and Safety National
relate to the same six bonds discussed above. With respect to these six bonds, there is no
dispute that, though proper notice was provided to AAA, DHS failed to provide notice to
Safety National. The Fifth Circuit held that “DHS can only enforce a bond against an
obligor that received notice.” AAA Bonding, 447 F. App’x at 610. At issue here is what
the Fifth Circuit meant by the phrase “enforce a bond.”
DHS contends that the Fifth Circuit was referring only to DHS’s ability to require
an obligor to produce the alien, not its ability to recover from an obligor for a bond
breach. DHS also urges that it is not seeking to recover from Safety based on Safety’s
own duty to perform as co-obligor, which, due to lack of notice, never arose; rather, it is
pursuing a claim against Safety based upon Safety’s connection with AAA, which
received proper notice and does have a duty to perform. Safety maintains that neither
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joint and several liability nor Safety’s role as a surety for AAA counters the Fifth
Circuit’s conclusion that, as to these six bonds, Safety’s duty to act is not triggered. Thus,
the Court must determine whether, in holding that DHS can enforce a bond only against
an obligor that received notice, the Fifth Circuit meant to issue so narrow a holding that
DHS can recover from Safety on bonds as to which Safety indisputably never received
notice.
As an initial matter, the context of the appeal leaves no doubt that the Fifth Circuit
was considering the liability of Safety and AAA, and not just their responsibility to
perform through delivery of aliens. In its briefing to the Fifth Circuit, DHS repeatedly
asked the court to rule on Plaintiffs’ financial liability for the alleged bond breaches,
arguing that “the co-obligors here have agreed to a scheme under which each is
financially liable for the other’s failure to perform and may be sued separately.”
(Appellant’s Brief, Doc. No. 231-A at 29 (emphasis added).) In support of its liability
arguments, DHS directed the Fifth Circuit to a number of joint and several liability
provisions in the bond contract, arguing that these provisions supported a finding that
both Safety and AAA were liable for breaches by the other party. (See, e.g., Appellant’s
Brief, Doc. No. 231-B at 14 (‘[T]he joint-and-several liability provision only highlights
the unity of interest between Safety and AAA and the breadth of liability they share for
any breach of duties by the other party.”))4 Thus, the record makes clear that DHS
repeatedly asked the Fifth Circuit to rule on Plaintiffs’ liability for the alleged bond
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DHS also argued that “[t]he bonding agent and the surety are ‘co-obligors’ on the bond, and are jointly
and severally liable for the face amount of the bond if it is breached.” (Id. at 4.) They further explained that
“[t]he bond states that ‘[a]ny obligation or duty imposed on an obligor by this contract applies equally to all
co-obligors,’ and thus establishes a relationship in which obligors know that they may be held liable for any
failed performance by their co-obligor.” (Id. at 29.)
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breaches, and not on simply Plaintiffs’ responsibility to produce aliens. Moreover, the
Fifth Circuit surely considered DHS’s position on appeal that, “where notice to one
surety is effectively notice to the other—as where two obligors are jointly and severally
liable on a bond—a deficiency in the notice provided to one does not relieve both
obligors of liability.” (Appellant’s Brief, Doc. No. 231-A at 30.) In holding that DHS can
enforce a bond only against an obligor that actually receives notice, the Fifth Circuit
rejected DHS’s position that joint and several liability allows it to recover against an
obligor that does not receive notice. It thus considered, and dispensed with, the very
argument that DHS seeks to assert here.
Finally, the plain language of the Fifth Circuit’s opinion supports the conclusion
that the Fifth Circuit was referring not simply to an obligor’s responsibility to produce the
alien, but to the obligor’s financial liability, as well. By using the word “enforce” (“DHS
can only enforce a bond against an obligor that received notice”), the Fifth Circuit
undoubtedly was describing DHS’s ability to hold obligors financially liable in the event
of a breach. Indeed, that is the only mechanism by which DHS can actually “enforce” a
bond. In light of the Fifth Circuit’s holding on “notice to both,” and because it is
undisputed that Safety did not receive notice on these six bonds, Safety’s motion on these
six bonds must be granted, and DHS’s motion must be denied.
C. AAA’s Motion for Scheduling Conference
Finally, AAA moves for a Rule 16(a) scheduling conference so that the Court can
set up dates for the discovery of A-files that AAA seeks. (Doc. No. 220.) The Court finds
that this request was premature when filed (the Court has not granted discovery of any Afiles), and hopes that the resolution of the motions for final judgment clarifies certain
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issues such that the extensive discovery sought is unnecessary. At the most recent
hearing, the parties appeared to be working together to devise a process by which
discovery could proceed in this case. The Court urges the parties, as it has in the past, to
continue these discussions and come up with a practical solution to the discovery
problem. This motion is therefore denied without prejudice to refiling. If, after working
with opposing counsel to resolve their remaining disputes, AAA still believes that further
discovery is warranted, the Court will entertain a discovery motion at that time.
III.
CONCLUSION
For the reasons discussed above, the Court finds that DHS’s Motion for Final
Judgment against AAA must be GRANTED. Safety’s Motion for Final Judgment also
must be GRANTED. DHS’s Cross-Motion for Final Judgment against Safety must be
DENIED. AAA’s Motion for Scheduling Conference also must be DENIED.
Pursuant to Rule 54(b) of the Federal Rules of Civil Procedure, the Court
expressly determines that there is no just reason for delaying entry of final judgment with
respect to the liability of Safety National and AAA on the six bonds at issue.
IT IS SO ORDERED.
Signed this the 21st day of March, 2012.
KEITH P. ELLISON
UNITED STATES DISTRICT JUDGE
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