Developers Surety & Indemnity Company v. Driftwood Development, LP et al

Filing 23

ORDER GRANTING 15 Plaintiff's Motion for Summary Judgment. All current deadlines and settings are VACATED. The Parties shall appear for an evidentiary hearing regarding the amount of damages on Tuesday, November 25, 2008 at 9:30 AM. Signed by Judge Xavier Rodriguez. (rg)

U N IT E D STATES DISTRICT COURT W E S T E R N DISTRICT OF TEXAS S A N ANTONIO DIVISION D E V E L O P E R S SURETY AND IN D E M N I T Y COMPANY, P l a in t i f f , VS. D R IF T W O O D DEVELOPMENT, LP, et a l., D ef en d an ts. OR DER O n this date the Court considered Plaintiff's motion for summary judgment (Docket No. 15). P laintiff in this action seeks to recover under an indemnity agreement losses Plaintiff sustained in co n n ectio n with a subdivision bond Plaintiff issued on behalf of one of the Defendants. After careful con sideration of the motion, the response and reply thereto, and the evidence submitted by the parties, th e Court finds that no genuine issue of material fact exists with respect to Plaintiff's sole claim for b reach of contract. The Court therefore GRANTS Plaintiff's motion. All current deadlines and settin gs are VACATED. The parties shall appear for an evidentiary hearing regarding the amount of d am ages on Tuesday, November 25, 2008 at 9:30 a.m. I. Factual Background and Procedural History T h e undisputed summary judgment evidence establishes the following facts. Driftwood D ev elo p m e n t, LP ("Driftwood"), one of the Defendants in this matter, was the owner/developer of the La Ventana Driftwood Preserver Phase II residential subdivision, located in Hays County, Texas (the " P r o p e rty" ). Hays County required Driftwood to obtain a subdivision bond to guarantee Driftwood's ) ) ) ) ) ) ) ) ) )

Civil Action No. SA-07-CV-503-XR

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c o m p letio n of street and drainage improvements on the Property (the "Project").1 On or about N o v em b er 9, 2005, Developers Surety and Indemnity Company ("Developers"), the Plaintiff in this law su it, issued a subdivision bond as principal on behalf of Driftwood, the surety, and in favor of Hays C o u n ty, the obligee. Among other things, the bond guaranteed the completion of the Project. The am o u n t of the bond was $689,078.35.2 A s a condition of Developers' issuance of the bond, Developers required that Defendants ex e cu te an indemnity agreement in favor of Developers. Defendants agreed therein to: ind em nify and hold harmless [Developers] from and against any and all liability, loss, claims, dem and s, costs, damages, attorneys' fees and expenses of whatever kind or nature, together w ith interest thereon at the maximum rate allowed by law, which [Developers] may sustain or in cu r by reason of or in consequence of the execution and delivery by [Developers] of any B on d on behalf of [Driftwood] . . . including, without limitation, the following: 1.2 Liability incurred or amounts paid in satisfaction or settlement of any or all claims, d em an d s, damages, costs, losses, suits, proceedings or judgment relating to [D riftw o o d 's] nonperformance of an Obligation or any other matter covered by a Bond. Liability incurred or expenses paid in connection with claims, suits or judgment relatin g to an Obligation or a Bond, including, without limitation, attorneys' fees and all legal expenses, and all fees and costs for investigation, accounting, or engineering services related to the adjustment of claims or losses. Liab ility incurred or expenses paid in procuring or attempting to procure a release of liability under or exoneration of a Bond. Liability incurred or expenses paid in recovering or attempting to recover losses or e x p e n se s paid or incurred in connection with this Agreement, an Obligation or a B o n d .3

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App. to Pls.' Mtn. for Summ. J. (Docket No. 17), Ex. 1 ¶ 3. Id. Ex. 1 ¶ 4 & Ex. A. Id. Ex. 1 ¶ 5 & Ex. B. -2-

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In early 2007, Hays County declared Driftwood in default and submitted a claim on the bond.4 O n February 12, 2007, Developers formally notified Defendants of the bond claim and requested that D efen d an ts indemnify and hold Developers harmless from loss or exposure to loss because of the claim made on the bond.5 Defendants have failed to indemnify Developers.6 T h e Indemnity Agreement grants Developers "sole and absolute discretion to determine w hether any claims under [the] Bond shall be paid, compromised, defended, prosecuted or appealed."7 A cco rd in gly, Developers investigated and settled the claim by paying the penal sum of the bond, $ 6 8 9,0 7 8 .3 5 .8 Developers has since recovered salvage proceeds in the amount of $54,908.95.9 O n June 13, 2007, Developers filed this lawsuit, asserting that Defendants breached the in d em n ity agreement by failing to indemnify Developers. Developers seeks recovery of

$6 34 ,16 9.4 0-- the amount it paid on the bond claim less salvage proceeds it recovered. Driftwood also see k s recovery of attorneys' fees, costs, prejudgment interest, and postjudgment interest.10 II. Standard of Review

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Id. Ex. 1 ¶ 6 & Ex. C. Id. Ex. 1 ¶ 6 & Ex. D.

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Id. Ex. 1 ¶ 6. Further supporting Plaintiff's unrebutted summary judgment evidence, Defendants admit in the Answer the facts set forth to this point in this Order. See Defs.' Answer (Docket No. 5) at 1. Defendants' admissions in their Answer are legally determinative admissions of fact and serve as proper summary judgment evidence to demonstrate that there is no genuine issue of fact. FED. R. CIV. P. 56; Wyatt v. Hunt Plywood Co., 297 F.3d 405, 411-12 & n.18 (5th Cir. 2002).
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Docket No. 17, Ex. B. Id. Ex. 1 ¶ 7 & Ex. E. Id. Ex. 1 ¶ 7. Pl.'s Original Compl. (Docket No. 1) at 5-6 (Prayer for Relief). -3-

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A summary judgment movant must show by affidavit or other evidence that there is no genuine issu e regarding any material fact.11 To establish that there is no genuine issue as to any material fact, th e movant must either submit evidence that negates the existence of some material element of the n o n m o v ing party's claim or defense, or, if the crucial issue is one for which the nonmoving party will b ear the burden of proof at trial, merely point out that the evidence in the record is insufficient to sup po rt an essential element of the nonmovant's claim or defense.12 Once the movant carries its initial bu rden , the burden shifts to the nonmovant to show that summary judgment is inappropriate.13 In order for a court to conclude that there are no genuine issues of material fact, the court must be satisfied that no reasonable trier of fact could have found for the nonmovant, or, in other words, that th e evidence favoring the nonmovant is insufficient to enable a reasonable jury to return a verdict for th e nonmovant.14 In making this determination, the court should review all the evidence in the record, giv in g credence to the evidence favoring the nonmovant as well as the "evidence supporting the m o v in g party that is uncontradicted and unimpeached, at least to the extent that evidence comes from d isin terested witnesses" and disregarding the evidence favorable to the nonmovant that the jury is not requ ired to believe.15 III . Analysis D ev elo p er s seeks recovery from Defendants for their alleged breach of the indemnity

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Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986).

Lavespere v. Niagra Machine & Tool Works, Inc., 910 F.2d 167, 178 (5th Cir. 1990), cert. denied, 510 U.S. 859 (1993).
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See Fields v. City of South Houston, 922 F.2d 1183, 1187 (5th Cir. 1991). See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 n.4 (1986). Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 152 (2000). -4-

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agreem ent. The parties do not dispute that Texas law governs the agreement and the substantive issues re lated to this motion. To prove that summary judgment is appropriate on a breach of contract claim bro ugh t pursuant to Texas law, a plaintiff must demonstrate that there is no genuine issue of material fact regarding the following elements: (1) a valid and enforceable contract exists; (2) the plaintiff p erfo rm ed or tendered performance; (3) the defendant materially breached the contract; and (4) the p lain tiff sustained damages due to the defendant's breach.16 T h e unrebutted summary judgment evidence establishes that the indemnity agreement is a valid an d enforceable contract. Developers submitted a copy of the indemnity agreement, which Defendants ex ecuted in favor of Developers on November 9, 2005. 17 The contract provides prima facie evidence th at the agreement was the product of a valid offer and acceptance and is supported by sufficient co n sid eratio n , specifically, Developers' agreement to issue the bond on behalf of Driftwood.18 D efen d an ts admit that they executed the indemnity agreement and do not deny the enforceability or v alid ity of the agreement or plead any affirmative defenses or facts which would otherwise question th e enforceability or validity of the agreement.19 Accordingly, there is no reason to question the u n reb u tted summary judgment evidence that establishes that the indemnity agreement is a valid and en for cea b le contract. T he summary judgment evidence also establishes that Developers performed its contractual o b ligatio n s. By the terms of the indemnity agreement, Defendants agreed to the indemnification

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Smith Int'l, Inc. v. Egle Group, LLC, 490 F.3d 380, 387 (5th Cir. 2007). Docket No. 17, Ex. 1 ¶ 6 & Ex. B. Id. See Docket No. 5 at 1. -5-

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p ro v isio n s "[i]n consideration of the execution and delivery by [Developers]" of the bond on D riftw oo d's behalf.20 Developers submitted a copy of the surety agreement which demonstrates that it did in fact issue the bond, thereby incurring obligations to Hays County on Driftwood's behalf.21 M o reo v er, the indemnity agreement required Developers to notify Defendants of any claims made on the bond in the event of Driftwood's default and permitted Developers sole discretion to investigate a n d settle any such bond claims.22 Developers submitted a letter dated February 12, 2007 in which D ev elo p ers notified Defendants that Hays County made a claim for performance under the terms of the bond. 23 Developers also tendered a copy of the settlement agreement with Hays County which in d icates that it negotiated to pay the penal sum of $689,078.35 in satisfaction of the bond claim,24 and a wire transfer receipt which indicates that it paid the settlement amount.25 In turn, the indemnity agreement required Defendants to reimburse Developers for any " [l]iability incurred or amounts paid in satisfaction or settlement of all claims, demands, damages, costs, losses, suits or proceedings or judgments related to [Driftwood's] nonperformance of an O bligation or any other matter covered by the Bond."26 Defendants admit in their Answer that they d id not indemnify Developers.27
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Developers' representative testified that Defendants had not

Docket No. 17, Ex. B. Id. Ex. 1 ¶¶ 4, 5 & Ex. A. Id. Ex. B. Id. Ex. D. Pl.'s Reply (Docket No. 21), Ex. B. Docket No. 17, Ex. E. Id. Ex. B. Docket No. 5 at 1. -6-

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in d em n ified Developers as of September 23, 2008.28 Defendants do not dispute this or submit any eviden ce to the contrary. Therefore, the unrebutted summary judgment evidence demonstrates that D efend ants materially breached the indemnity agreement by failing to indemnify Developers. Finally, the unrebutted summary judgment evidence shows that Developers suffered damages as a result of Defendants' breach. Developers paid the $689,078.35 settlement payment which represen ted the penal sum of the bond. Developers' representative testified that Developers has recov ered salvage proceeds totaling $54,908.95.29 Therefore, the uncontroverted evidence shows that D ev elo p ers' unreimbursed loss on the bond claim totals $634,169.40. D efen d an ts merely oppose summary judgment on two irrelevant grounds. Defendants point o u t that the wire transfer Developers submitted that evidences Developers' settlement payment shows th at Developers deposited the $698,078 payment into an IOLTA account maintained by the attorneys fo r the lender who foreclosed on the Property and not the attorneys for Hays County. By the terms of D ev elo p ers ' settlement agreement with Hays County, however, Developers was required to pay the m o n e y owed on the bond claim directly to the lender.30 Nevertheless, the payment was made in co n sid er ation for the settlement of Hays County's bond claim.31 Defendants therefore fail to

d em o n strate how this nuance is material to the breach of contract action. A d d itio n a lly, Defendants complain -- without any legal or evidentiary support -- that "there is no verification that these funds were ever paid in an appropriate manner or for reasonable and

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Docket No. 17, Ex. 1 ¶ 6. Id. Ex. 1 ¶ 7. Docket No. 21, Ex. A ¶¶ 5,6 & Ex. B. Id. -7-

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n ece ssa ry expenses related to the completion of the project that Plaintiffs [sic] guaranteed."32 This argu m en t is irrelevant and unsupported. Defendants do not explain how Developers' manner of p aym en t was inadequate.33 Moreover, Developers had no obligation under the indemnity agreement or surety agreement to show that the bond claims were paid for "reasonable and necessary expenses re lated to the completion of the project." Rather, Defendants agreed in the indemnity agreement to p ro v id e Developers with "the right in its sole and absolute discretion to determine whether any claims un der a Bond shall be paid, compromised, defended, prosecuted or appealed," and Defendants agreed to indemnify Developers for any liability incurred in satisfaction of any such claims.34 Thus, D efen d an ts' arguments fail to raise any genuine issues of material fact. IV . Damages In addition to the $634,169.40 loss Developers has incurred related to the bond claim, D ev elo p er s seeks an award of attorneys' fees which it claims to have incurred in enforcing its rights un der the indemnity agreement and in prosecuting this action. Developers' representative testifies that as of September 23, 2008, Developers had incurred $59,676.06 in attorneys' fees.35 The express terms of the indemnity agreement require Defendants to reimburse Developers for attorneys' fees incurred in connection with claims relating to a bond, expenses paid in procuring a release of liability under a bo nd , and expenses incurred in connection with enforcing the indemnity agreement against

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Defs.' Resp. to Pl.'s Mtn. for Summ. J. (Docket No. 19) at 2.

Even so, the settlement agreement shows that Hays County approved the manner in which the bond's penal sum was paid. See Docket No. 21, Ex. B.
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Docket No. 17, Ex. B ¶¶ 1.2, 2.1. Id. Ex. 1 ¶ 7. -8-

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D e f e n d a n t s . 36 B e fo re awarding damages, however, the Court will afford Defendants an opportunity to rebut D ev elo p ers' evidence regarding the amount of attorneys' fees. Defendants must do so in writing on or before November 14, 2008. The parties shall appear for an evidentiary hearing regarding the amount of damages on T u e sd ay, November 25, 2008 at 9:30 a.m. The hearing will take place in Courtroom 3, First Floor of th e John H. Wood, Jr. United States Courthouse, 655 E. Durango Boulevard, San Antonio, TX 78206. C o n c lu s i o n T h e Court finds that no material fact issue exists with respect to Developers' entitlement to reco v er for Defendants' breach of the indemnity agreement. Accordingly, Plaintiff's motion for su m m ary judgment (Docket No. 15) is GRANTED. All current deadlines and settings are VACATED. T h e parties shall appear for an evidentiary hearing regarding the amount of damages on Tuesday, N o v em b er 25, 2008 at 9:30 a.m. It is so ORDERED. S IG N E D this 5th day of November, 2008.

_ _ _ __ _ _ __ _ _ __ _ _ __ _ _ __ _ _ __ _ _ __ _ _ __ X A V IE R RODRIGUEZ U N IT E D STATES DISTRICT JUDGE

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Id. Ex. B ¶¶ 1, 1.3, 1.4, 1.5, 1.6. -9-