Safety National Casualty Corporation et al v. United States Department of Homeland Security et al

Filing 286

MEMORANDUM AND ORDER 271 MOTION for Summary Judgment, 272 MOTION for Summary Judgment, 282 Opposed MOTION to Strike 271 MOTION for Summary Judgment Declaration (Signed by Judge Keith P Ellison) Parties notified.(sloewe, 4)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
AAA BONDING AGENCY, INC.,

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Plaintiff,
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V.
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Civ. No. 4:05-cv-2159
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UNITED STATES DEPARTMENT OF §
HOMELAND SECURITY, et al.,
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Defendants.
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________________________________________________________________________
MEMORANDUM AND ORDER
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The following motions are now pending before the Court: (1) a Motion for
Summary Judgment, filed by the United States Department of Homeland Security
(“DHS”) against AAA Bonding Agency, Inc. (“AAA Bonding”); (2) a Motion for
Summary Judgment, filed by AAA Bonding against DHS; and (3) a Motion to Strike
filed by AAA Bonding against a declaration offered by DHS. After considering these
motions, all responses thereto, and the applicable law, the Court finds that DHS’s Motion
for Summary Judgment against AAA Bonding must be GRANTED as to all but one of
the disputed bonds. For Delcid-Perdomo’s bond, DHS’s Motion for Summary Judgment
must be DENIED and REMANDED to the Agency for further consideration. AAA
Bonding’s Motion for Summary Judgment and Motion to Strike must be DENIED.
I.

BACKGROUND

This lawsuit originally involved Safety National Casualty Corporation (“Safety
National”), a surety company authorized by the Department of Treasury to issue

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immigration delivery bonds, AAA Bonding, Safety National’s authorized agent, and the
Department of Homeland Security (“DHS”). Safety National and AAA Bonding had
entered into a number of bail bond contracts for the purpose of procuring the release of
undocumented immigrants from DHS custody by guaranteeing their appearance at the
termination of immigration proceedings.

DHS determined, and the Administrative

Appeals Office (“AAO”) affirmed, more than 1400 breaches of these bond contracts. In
June 2005, Safety National and AAA Bonding filed this action to challenge DHS’s
determination of the bond breaches. DHS filed a counterclaim in September 2005,
demanding payment on 1,421 bonds.
This Court has, on four prior occasions, detailed the procedural and factual
background of the case. (Docs. No. 113, 140, 159, 240.) The relevant history for the
present motions concerns the “notice to both” defense. This Court held that “notice to
both,” when selected on the I-352 Bond Contract, was a condition precedent to the
obligors’ performance. (Doc. No. 113 at 28.) Accordingly, Safety National and AAA
Bonding were not obligated under the contract if they had requested that DHS deliver
notice to both obligors, but DHS had sent notice to only one. The Fifth Circuit reversed
and held that “notice to both” was not a condition precedent to performance. AAA
Bonding Agency, Inc. v. United States Dep’t of Homeland Sec., 447 Fed. App’x 603, 60910 (5th Cir. 2011). If DHS provided notice to only one obligor, that obligor – and only
that obligor – could be held liable. Id.
This Court reviewed six bonds in light of the Fifth Circuit’s decision in March
2012. (Doc. No. 240.) The parties did not dispute that only AAA Bonding received
proper notice for all six bonds. (Id. at 9 and 14.)

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DHS argued that the Bond Contract

imposed joint and several liability on Safety National even if they had not received a
demand notice. (Id. at 12-14.) The Court rejected this argument. (Id. at 13-14.) It
awarded judgment to DHS against AAA Bonding, but not Safety National. (Id. at 15.)
DHS and Safety National subsequently reached a Settlement Agreement and the
Court dismissed Safety National from the case. (Doc. No. 263.) Meanwhile, DHS and
AAA Bonding continued to review bonds under the Agreed Procedures (which has been
described in earlier opinions). The Parties alerted the Court to a dispute over 26 bonds
(Doc. No. 265 at 2), but DHS decided to pursue only 24 (Doc. No. 267). Those 24 bonds
are the subject of the Parties’ pending Cross Motions for Summary Judgment.
II.

LEGAL STANDARD

Summary judgment is proper when there is no genuine dispute as to any material
fact of a case and the moving party is entitled to judgment as a matter of law. Fed. R.
Civ. P. 56(a). A genuine issue of material fact exists if a reasonable jury could enter a
verdict for the non-moving party. Crawford v. Formosa Plastics Corp., 234 F.3d 899,
902 (5th Cir. 2000). The Court can consider any evidence in “the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the affidavits, if any.”
Kee v. City of Rowlett, 247 F.3d 206, 210 (5th Cir. 2001). The Court must view all
evidence in the light most favorable to the non-moving party and draw all reasonable
inferences in that party’s favor. Crawford, 234 F.3d at 902. Cross motions for summary
judgment do not alter the basic Rule 56 standard; instead, the Court must determine
whether either of the parties deserves judgment.
When reviewing summary judgment motions concerning agency action, the Court
asks “not whether the material facts are disputed, but whether the agency properly dealt

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with the facts.” Lodge Tower Condo. Ass’n v. Lodge Prop., Inc., 880 F. Supp. 1370,
1374 (D. Colo. 1995); see also Sierra Club v. Fed. Highway Admin., 715 F. Supp. 2d
721, 727 (S.D. Tex. 2010), aff’d, 435 F. App’x 368 (5th Cir. 2011). In this case, the
Court will review whether the agency’s bond breach determinations were arbitrary or
capricious. 5 U.S.C. § 706(2)(A). “Arbitrary and capricious review focuses on whether
an agency articulated a rational connection between the facts found and the decision
made.” Pension Benefit Guar. Corp. v. Wilson N. Jones Mem’l Hosp., 374 F.3d 362, 366
(5th Cir. 2004).
III.

ANALYSIS

It is undisputed that AAA Bonding is a co-obligor on each of the 24 disputed
bonds. For each bond, the record includes a demand notice requiring the obligor to
present the bonded individual at a specific date, time, and place. Each notice is addressed
to AAA Bonding.1 Twenty-three of the bond records include a signed return receipt on
delivery of the demand notice to AAA Bonding’s address. 2 It is undisputed that AAA
Bonding failed to deliver the named individual for any of the underlying bonds.
The Fifth Circuit made clear that DHS can enforce a bond breach determination
against any obligor who received a demand notice and failed to produce the named
individual. AAA Bonding Agency Inc. v. United States Dep’t of Homeland Sec., 447 Fed.

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All of the notices used AAA Bonding’s address in Houston. Some of the notices named only AAA
Bonding as the recipient. Other notices named both AAA Bonding and Safety National as the recipients,
but included only AAA Bonding’s address. The demand notice for Avila-Valladares named only Safety
National as the recipient, but used AAA Bonding’s address. (3rd Jt. App. at 180.) The delivery receipt for
this bond also named only Safety National as the recipient, but used AAA Bonding’s address. (3rd Jt. App.
at 183.) Since Plaintiff has not contested the delivery of this bond, receipt is assumed.
2
3rd Jt. App. at 10 (Lovos Chicas), 34 (Orosco-Cano), 56 (Guerra Lopez), 83 (Sibrian Morales), 105
(Becerra-Garcia), 130 (Rivera-Solis), 156 (Klak), 183 (Avila-Valladares), 211 (San Pablo-Mota), 236
(Posso-Beroga), 262 (Leon-Lopez), 290 (Hernandez), 319 (Avila-Lopez), 346 (Vasquez-Melara), 0370
(Mendes-Aparecido), 396 (Barahona-Lemus), 444 (Hernandez), 472 (Frabrecio-Zarrabio), 499 (MartinezOseguera), 531 (Perez Pineda), 556 (Lumby-Dubon), 584 (Banegas), and 612 (Milla Diaz).

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App’x 603, 609-10 (5th Cir. 2011). DHS asserts that it is entitled to summary judgment
as a matter of law based on these undisputed facts. AAA Bonding raises three defenses
to DHS’s Motion for Summary Judgment. First, AAA Bonding contests the delivery of
the demand notice in regard to the Delcid-Perdomo bond (A97 316 238). Second, AAA
Bonding contests the enforceability of 21 bonds under the Paperwork Reduction Act.
Third, AAA Bonding contests DHS’s subsequent demand for payment for all 24 bonds.
In addition, AAA Bonding moves for summary judgment against DHS on the basis of
DHS’s recent settlement agreement with Safety National.

Each argument will be

considered in turn below.
A. Delivery of Demand Notices
AAA Bonding argues that DHS has not proven delivery of the demand notice for
Delcid-Perdomo. The record for Delcid-Perdomo’s bond shows that DHS sent AAA
Bonding the demand notice by certified mail, return receipt requested, but does not
include the return receipt. Certified mail loses the presumption of delivery if the sender
requested, but did not receive, the return receipt. Mulder v. Comm’r of Internal Revenue,
855 F.2d 208, 212 (5th Cir. 1988); Lundy v. United States, 2007 WL 655756 at *5 (S.D.
Tex. Feb. 27, 2007). The agency, and the reviewing court, must find other evidence of
delivery in the record. See In re Obligor, 2003 WL 21000163 at *2 (DHS Office of
Admin. Appeals Feb. 11, 2003) (finding insufficient evidence of delivery when “[t]he
record fail[ed] to contain the domestic return receipt . . . or to indicate that the obligor
had received the notice to produce the bonded alien.” (emphasis added)).
Instead of a return receipt, the record for Delcid-Perdomo’s bond includes a
printout from the Postal Service’s online “Track & Confirm” system. The “Track &

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Confirm” printout shows that mail bearing the same certified mail number as the demand
notice was “delivered at 11:00 am on April 22, 2004 in HOUSTON, TX 77057.” (3rd Jt.
App. at 419.) Without discussion, the Agency concluded that the “track and confirmation
receipt indicates the obligor received notice to produce the bonded alien.” (3rd Jt App. at
433.)
The Northern District of California recently highlighted the possible pitfalls of
relying on a “Track & Confirm” printout. In that case, the plaintiff offered a “Track &
Confirm” printout as proof that he had filed a timely EEOC administrative complaint.
Hemenway v. Shinseki, 2012 WL 2792440, at *5 (N.D. Cal. July 9, 2012). The court
found that the printout “demonstrates only that someone mailed something . . . to
Washington, D.C., somewhere in the same zip code as the VA’s OEDCA [Office of
Employment Discrimination Complaint Adjudication], in September 2007.”

Id. at 9.

Importantly, “[i]t does not clarify what that something was, who mailed it, or to whom it
was mailed.” Id.
The record for Delcid-Perdomo’s bond provides more information than the record
before the Northern District of California in Hemenway. The certified mail number on
the “Track & Confirm” printout (3rd Jt. App. at 419) can be matched to the same number
appearing on the demand letter itself (3rd Jt. App. at 415) and the receipt for certified
mail (3rd Jt. App. at 418). The printout thus clarifies what was mailed and who mailed it.
The printout does not, however, clarify to what address the demand letter was mailed.
The demand letter bears the correct address for AAA Bonding, but the receipt for
certified mail does not. Compare 3rd Jt. App. at 415 (6309-A Skyline Dr. Houston, TX
77057) with 3rd Jt. App. at 418 (69309-A Skyline Drive, Houston, TX 77057). It is

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unclear what the effects of this error would have been on the delivery of the notice. The
confirmation printout only confirms delivery somewhere within the 77057 zip code.
The “Track & Confirm” printout is not insufficient as a matter of law. Courts
have found the electronic confirmation to be sufficient proof of actual delivery. See, e.g.,
Masuku v. Bank of America, 2012 WL 3528006 (S.D. Tex. Aug. 14, 2012); El-Aheidab v.
Citibank, 2012 WL 506473 (N.D. Cal. Feb. 15, 2012). However, evidence exists in this
record to raise a material dispute as to delivery. The Court finds the AAO’s failure to
consider the conflicting evidence in the record to be arbitrary and capricious. DHS’s
Motion for Summary Judgment on this bond must be DENIED.

This bond is

REMANDED to the Agency for further consideration not inconsistent with this opinion.
B. The Paperwork Reduction Act
AAA Bonding asserts that the Paperwork Reduction Act (“PRA”) shields them
from any penalty resulting from their breach of 21 bond agreements. The PRA is
designed to “minimize the paperwork burden” created by the information demands of the
Federal Government. 44 U.S.C. § 3501(1). Under the Act’s framework, the Office of
Management and Budget (OMB) must approve any agency’s “information collection
request” and provide it with a “control number.” 44 U.S.C. § 3507(a). To protect the
public from improper information requests, the PRA states that “no person shall be
subject to any penalty for failing to comply with a collection of information . . . if the
collection of information does not display a valid control number. . .” 44 U.S.C. §
3512(a)(1).
The Immigration Bond, the I-352 form, is undoubtedly an information collection
request that should be labeled with a valid control number.

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DHS’s OMB number

changed from “0115-0085” to “1653-022” on March 1, 2003. AAA Bonding highlights
18 bonds posted after this date that bear the previous OMB number. They claim to be
protected from any penalty assessed on these bonds by the PRA’s “Public Protection”
provision.
AAA Bonding’s attempt to stretch the Public Protection provision to apply to
their breach of the immigration bonds is unavailing. The Act protects individuals who
fail to provide information requested by the Federal Government in violation of the
PRA’s requirements. 44 U.S.C. § 3512(a); see, e.g., United States v. Smith, 866 F.2d
1092 (9th Cir. 1989). This protection is limited in its scope. The Act “only protects
individuals who fail to file information.” United States v. Sasser, 974 F.2d 1544, 1554
(10th Cir. 1992). Parties cannot claim the PRA’s protection when they provided the
government with false information even if the underlying forms violated the Act. Id;
United States v. Weiss, 914 F.2d 1514, 1521-22 (2nd Cir. 1990).

Likewise, AAA

Bonding cannot claim the PRA’s protection when they breached a bond agreement even
if the underlying forms carried outdated OMB numbers.
AAA Bonding’s reliance on Ctr. for Auto Safety v. Nat’l Highway Traffic Safety
Admin., 244 F.3d 144 (D.C. Cir. 2001), is misplaced. In that case, the D.C. Circuit
explained the impact of the Public Protection provision as vitiating the mandatory nature
of an information request. A “request for information can be ignored without penalty” if
the request failed to conform to the dictates of the PRA. Id. at 148. Here, AAA Bonding
does not seek to ignore the request for information, but the subsequent contract that it
entered and breached.

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AAA Bonding claims that they cannot be penalized for their breach of another
three bonds that used outdated forms. Nothing in the Public Protection provision applies
to outdated forms rather than outdated OMB numbers. In any case, the same narrow
application of the provision would provide AAA Bonding no solace.
C. Transmission of Invoices
AAA Bonding claims that payment is not “currently due” for bonds that it
breached since DHS failed to send AAA Bonding payment invoices. DHS attached a
sworn declaration of Lori Genest to contradict this assertion without asking for leave to
file a supplemental affidavit. (See Def.’s Reply, Doc. No. 278-A.) AAA Bonding moved
to strike the declaration. (Pl. Mot. Strike, Doc. No. 282 at 2.) In the alternative, AAA
Bonding asked the Court to consider its attached declaration of Juan Mendoza. (Id. at 3.)
The Court will consider both affidavits. AAA Bonding’ Motion to Strike is DENIED.
According to the Bond Contract, DHS must send the obligor a demand for
payment after the breach determination is finalized.

(I-352, General Terms and

Conditions.) A copy of an invoice demanding payment is present in the record for each
of the 24 bonds. (Def.’s Mot. for Summ. J., Doc. No. 271-B.) Each invoice includes an
address for Safety National at the top of the page and an address for AAA Bonding in the
middle of the page. (Id.) Genest explained that the invoices were strategically designed
so that either address could appear in the envelope window depending on how the invoice
was folded. (Def.’s Reply, Doc. No. 278-A at 2.) Genest stated that “the standard
operating procedure . . . has been for the Bonds Branch to mail invoices for breached
surety bonds to both the surety company and the agent, provided that both companies are
still in business.” (Id. at 1.)

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AAA Bonding offers two pieces of evidence in support of its contention that the
invoices were not sent to AAA Bonding. First, AAA Bonding argues that the invoices
were improperly addressed to Safety National. (Pl. Response to Def.’s Mot. Summ. J.,
Doc. No. 275 at 13.) As described above, this is directly contradicted by the invoices in
the record that bear AAA Bonding’s address.

Second, Mendoza claims that AAA

Bonding “has not received invoices from DHS” for these 24 bonds and many others. (Pl.
Mot. Strike, Doc. No. 282-A at 2.) This is irrelevant. The issue is whether DHS sent the
invoices, not whether AAA Bonding received them.

AAA Bonding’s evidence is

insufficient to raise a question of fact on this issue. The evidence in the record that DHS
sent the notices remains uncontradicted.
D. Effect of DHS’s Settlement with Safety National
AAA Bonding asserts that the recent settlement agreement between DHS and
Safety National entitles AAA Bonding to summary judgment. After almost eight years of
litigation, DHS and Safety National settled “all claims arising out of or related to the
Mediation Bonds and Litigation Bonds . . . as well as from all claims made against each
other in the Pending Lawsuits.” (Def.’s Supp. Br., Doc. No. 285 at 3.) AAA Bonding
was not a party to the Settlement Agreement. (Pl. Mot. Summ. J., Doc. No. 272-A.)
Nevertheless, the Settlement Agreement expressly releases AAA Bonding from liability
for any bond for which AAA Bonding and Safety National would have been jointly and
severally liable. (Id. at ¶ 7.)
It is undisputed that the Settlement Agreement included the 24 bonds at issue in
this litigation.3 The settlement of these 24 debts does not establish Safety National’s

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The Court can find only 22 of the 24 disputed bonds in the spreadsheet attached to the Settlement
Agreement. The bonds for Avila-Lopez (No. 078953983) and Frabrecio-Zarrabio (No. 097336373) are not

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liability for the same. DHS explained that “[t]he Settlement Agreement focused on the
resolution of disputes between the United States and Safety, not on the final resolution of
individual bond debts.” (Def.’s Supp. Br., Doc. No. 285 at 4.) To that end, the
Agreement included “all of Safety’s potential liability in this litigation, even for bond
debts unenforceable against it under the Fifth Circuit’s decision.” (Id.)
The Fifth Circuit held that a bond breach determination was only enforceable
against an obligor that received a demand notice. AAA Bonding Agency Inc. v. United
States Dep’t of Homeland Sec., 447 Fed. App’x 603, 609-10 (5th Cir. 2011). This
holding established four categories of bond debts potentially at issue: (1) bond debts
owed by AAA Bonding alone (DHS provided the required notice to AAA Bonding, but
not to Safety National); (2) bond debts owed by Safety National alone (DHS provided
the required notice to Safety National, but not to AAA Bonding); (3) bond debts owed by
Safety National and AAA Bonding jointly (DHS provided the required notice to both
Safety National and AAA Bonding); and (4) debts owed by neither Safety National nor
AAA Bonding (DHS failed to provide the required notice to Safety National and AAA
Bonding). Since there is no evidence in the record that Safety National received a
demand notice for any of the disputed bonds, they cannot be held jointly and severally
liable.4 See id.

included. Since both sides agree that the Settlement Agreement applies to all 24 bonds (Pl. Mot. Summ. J.,
Doc. No. 272 at 5; Def’s Supp. Br., Doc. No. 285 at 3), the issue is treated as undisputed.
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AAA Bonding has failed to produce any evidence to the contrary. In its response to DHS’s Motion for
Summary Judgment, AAA Bonding asserts that Safety National’s receipt of demand notices is a genuine
fact issue. AAA Bonding claims that “DHS’ files actually show that Safety did get notice.” (Pl. Resp. to
Def.’s Mot. Summ. J., Doc. No. 275 at 7.) AAA Bonding cites to 14 demand notices (as well as 14
irrelevant notices of breach). All 14 of the demand notices use the address provided for AAA Bonding, not
for Safety National. Even though Safety National is named as a recipient, the notices were sent to AAA
Bonding’s address. Seven of the notices include a small carbon copy notation with the correct address for
Safety National at the bottom of the demand notice. There is no evidence in the record that these seven
notices were actually mailed to Safety National at the correct address. AAA Bonding has failed to establish

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AAA Bonding contests the possibility of being held independently liable for any
of the bonds. Plaintiff argues that the language of the I-352 Bond Contract renders
evidence of the demand notices irrelevant to the question of joint and several liability.
(Pl.’s Mot. Summ. J., Doc. No. 272 at 10.) Specifically, the Bond Contract states that
“[a] co-obligor shall be jointly and severally liable with the surety for any breach of this
bond agreement.” (I-352, Instructions.) As such, AAA Bonding asserts that they are
jointly and severally liable for the disputed bonds with Safety National and thus released
under the terms of the Settlement Agreement.
DHS previously highlighted the same language in the Bond Contract concerning
joint and several liability. DHS argued that they could hold Safety National liable, even
if it did not receive a demand notice, since it was jointly and severally liable with AAA
Bonding, which did receive a demand notice. (Def.’s Cross Mot. Final J., Doc. No. 223
at 3.) This Court held that the Fifth Circuit had “considered, and dispensed with,” this
argument. (Doc. No. 240 at 14.) AAA Bonding’s attempt to raise the same argument
must be rebuffed for the same reasons. The Fifth Circuit’s holding left no doubt that an
obligor’s liability turns on the receipt of a demand notice. AAA Bonding Agency, 447
Fed. App’x at 609-10. Only the obligor who received notice can be held liable for the
bond’s breach. (Id.) Joint and several liability does not change this outcome. Just as
DHS could not invoke joint and several liability to hold Safety National liable when it did
not receive notice, AAA Bonding cannot invoke joint and several liability to escape

a genuine fact issue sufficient to defeat DHS’s Motion for Summary Judgment. As the Fifth Circuit noted,
“[t]he nonmovant cannot satisfy his summary judgment burden with conclusional allegations,
unsubstantiated assertions, or only a scintilla of evidence.” Diaz v. Superior Energy Serv. LLC, 341 Fed.
Appx. 26, 28 (5th Cir. 2009).

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liability when it did receive notice. AAA Bonding’s Motion for Summary Judgment
must be DENIED.
In the alternative, AAA Bonding asserts that it is entitled to a settlement credit for
Safety National’s $5.25 million payment to DHS. A defendant is entitled to a settlement
credit when a joint tortfeasor settles with the plaintiff. Westinghouse Credit Corp. v. M/V
New Orleans, 39 F.3d 553, 554 (5th Cir. 1994). In such a case, a nonsettling defendant
must show that “the plaintiff settled with another party the claim on which the nonsettling
defendant is liable.” Matter of Texas General Petroleum Corp., 52 F.3d 1330, 1340 (5th
Cir. 1995). The burden then shifts to the plaintiff to disprove any risk of double
recovery. Id. This rule is inapplicable to the present case where AAA Bonding is
individually liable on all of the disputed bonds. See, e.g., Dobson v. Camden, 725 F.2d
1003, 1006 (5th Cir. 1984). There is no risk of double recovery for DHS since Safety
National could not have been held liable on the underlying bonds.
IV.

CONCLUSION

For the reasons discussed above, the Court finds that DHS’s Motion for Summary
Judgment against AAA Bonding must be GRANTED for all bonds except for that of
Delcid-Perdomo. DHS’s Motion for Summary Judgment against AAA Bonding must be
DENIED for Delcid-Perdomo’s bond. AAA’s Motion for Summary Judgment against
DHS must be DENIED. In addition, AAA’s Motion to Strike the sworn declaration of
Lori Genest must be DENIED.

IT IS SO ORDERED.

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SIGNED at Houston, Texas on this the 26th day of September, 2013.

KEITH P. ELLISON
UNITED STATES DISTRICT COURT JUDGE

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