Safety Nat'l Cas. Corp. v. United States Dep't Of Homeland Sec.

• Decision Date: 24 March 2008
• Docket Number: Civil Action No. H-05-cv-2159.
• Citation: 711 F.Supp.2d 697
• Parties: SAFETY NATIONAL CASUALTY CORPORATION and AAA Bonding Agency, Inc., Plaintiffs,v.UNITED STATES DEPARTMENT OF HOMELAND SECURITY, et al., Defendants.
• Court: U.S. District Court — Southern District of Texas

711 F.Supp.2d 697

SAFETY NATIONAL CASUALTY CORPORATION and AAA Bonding Agency, Inc., Plaintiffs,v.UNITED STATES DEPARTMENT OF HOMELAND SECURITY, et al., Defendants.

Civil Action No. H-05-cv-2159.

United States District Court,

S.D. Texas,

Houston Division.

March 24, 2008.

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Joseph S. Grinstein, Susman Godfrey LLP, Alan N. Magenheim, Magenheim & Associates, Gerald Walter Guerinot, Attorney at Law, Houston, TX, Nick J. Digiovanni, Steven T. Whitmer, Locke Lord et al, Chicago, IL, for Plaintiffs.

Frances M. Toole, Jeannine Renee Lesperance, Marcus Scott Sacks, Department of Justice, Washington, DC, Elizabeth F. Karpati, Assistant US Attorney, Houston, TX, for Defendants.

MEMORANDUM AND ORDER

KEITH P. ELLISON, District Judge.

Pending before the Court are the parties' Cross Motions for Summary Judgment. After considering the relevant law and the arguments presented in briefing and at a hearing on the pending motions, the Court finds that Plaintiffs' Motion for Partial Summary Judgment, Docket No. 88, should be GRANTED IN PART because Defendants' determination that certain bonds were breached was arbitrary and capricious. These bond breach determinations are therefore REMANDED to the Agency to take action not inconsistent with this Order. Plaintiffs' Motion is also GRANTED IN PART as to certain bonds that were settled; Defendants cannot, therefore, prevail on their counterclaim with regard to these bonds.

Defendants' Motion, Docket No. 86, is GRANTED IN PART because Defendants' determination that certain bonds were breached was not arbitrary and capricious. Payment is therefore due on these bonds in accordance with the terms of the Alternative Dispute Resolution Agreed Framework, Docket No. 27.

The Court further finds that certain bonds that were cancelled are now MOOT.

I. BACKGROUNDA. Procedural Posture

This lawsuit involves a bitter dispute between Safety National Casualty Corporation (Safety National), a surety company authorized by the Department of Treasury to issue immigration delivery bonds, AAA Bonding Agency, Inc. (AAA), Safety National's authorized agent, and the Department of Homeland Security (DHS), regarding more than 1400 immigration bond breach determinations. An alien may use an immigration delivery bond to procure his release from the custody of DHS's Bureau of Immigration and Customs Enforcement (ICE) pending the outcome of deportation proceedings against him. As discussed below, an immigration delivery bond is a contract, akin to a bail bond, between Safety National-acting through its agent AAA-and DHS.

Plaintiffs contend that DHS has failed to follow the terms of the bond contract and the relevant regulations and statutes when determining that the immigration bonds at issue were breached. Specifically, Plaintiffs claim that DHS has demanded payment of bonds that were not actually breached or to which they have asserted valid defenses, and that DHS has refused to comply with valid requests for information made pursuant to the Freedom of Information Act (FOIA). Plaintiffs' Complaint sought declaratory and injunctive relief, including offsets and credits, for amounts due under the breached immigration bonds. Plaintiffs also pled a claim under the Freedom of Information Act, 5 U.S.C. § 552, demanding documents they had requested from DHS regarding the bonds at issue. Defendants counterclaimed against Plaintiffs for $9,255,750 in penal amounts plus interest, penalties and handling charges for outstanding breached bonds. Defendants also filed a motion to dismiss all counts except for those claims brought under the Administrative Procedures Act, 5 U.S.C. § 701 et seq. (APA).

Shortly after this lawsuit was filed, DHS informed Plaintiffs of its decision to unilaterally prohibit Safety National from writing any further immigration bonds. The Court subsequently enjoined DHS from refusing to accept bonds issued by Safety National, finding inter alia, that Safety National had established a substantial likelihood of prevailing on the merits of its claim that DHS lacked inherent authority to refuse all bonds issued by a particular surety and on its due process claims.¹ (Docket No. 35.)

The parties subsequently entered into an Agreed Framework for Alternative Dispute Resolution (ADR Agreement) that was approved by the Court on September 14, 2005. (Docket No. 27.) Pursuant to the ADR Agreement, which was prepared by Defendants, parties agreed to jointly review 50 bond breach determinations-25 selected by Plaintiffs, and 25 selected by Defendants. Defendants agreed to produce a copy of the full Alien file (“A-file”) to Plaintiffs for each of these 50 bonds “exclusive of any privileged or otherwise protected documents.” The parties also agreed to “review the 50 files produced and identify any and all potential defenses to payment found in the selected files” and to “compile a list of all such potential defenses found in those files.” The parties were then to agree to a “general description or brief statement of facts that illustrates the purported defense,” and mutually confer and decide whether any of the 50 bond determinations should be rescinded and/or the bond cancelled or whether the breach determination should stand. Plaintiffs agreed to immediately pay the outstanding debt owing from a determination that a selected breach should stand. The ADR Agreement concluded:

Any selected breach determinations as to which the parties cannot agree whether there exists a valid defense to payment will be presented to the Court for resolution, with a copy of the corresponding file produced to Plaintiffs and the general description or statement of facts for the purported defense, as cross motions for summary judgment or using another mutually agreed-upon method. The Court's ruling on any such determinations shall be binding only with regard to the rescission or payment of the selected determinations.

The Court also agreed to the Parties' joint request that it refrain from deciding Defendants' pending Motion to Dismiss until the conclusion of the ADR proceedings. The Motion to Dismiss was denied without prejudice to refiling “at the conclusion of those proceedings.” (Doc. No. 37.)

Any hope that the ADR Agreement might substantially assist the parties in resolving their differences was dampened when parties later became engaged in a protracted battle over Defendants' refusal to release more than 2,000 pages of documents related to the 50 bonds based on claims of privilege.² The Court compelled the production of those documents over the protest of Defendants. Defendants sought mandamus as to that decision, and the Fifth Circuit ordered the Court to review the documents in camera to determine whether any were protected by the law enforcement privilege. The parties, however, never asked the Court to do so. A year after the Court approved the ADR Agreement, parties entered into an Agreed Protective Order and Defendants finally produced the remaining redacted documents to Plaintiffs. The parties then agreed to a stipulated Joint Statement of Facts (JSOF) for each of the 50 bond breach determinations and compiled a Joint Appendix of the documents referenced in the JSOF. Plaintiffs also identified thirteen defenses they claim are applicable to one or more of the 50 bonds and provided a list of those defenses to Defendants.

The ADR process had some limited success. Defendants agreed to cancel six of the bond breach determinations,³ and Plaintiffs now concede that one of the bonds was properly declared breached.⁴ Of the remaining 43 bonds, DHS conceded that two invoices were not enforceable, and remanded those breach determinations to the agency for further proceedings,⁵ leaving 41 bond breach determinations for the Court to consider.

As agreed, Parties have provided the JSOF and the Joint Appendix to the Court, subject to the parties' “right to object to the relevance or admissibility of any document included herein.” (Doc. No. 83.) The Court is therefore prepared to rule on the remaining 41 bond breach determinations.

B. Relevant Statutory and Regulatory Background

The Bureau of Immigration and Customs Enforcement (ICE) is responsible for the apprehension and detention of inadmissible and deportable aliens. 8 U.S.C. § 1103(a); 8 C.F.R. Part 236. An alien detained by ICE may be released from custody during removal proceedings under certain circumstances. 8 C.F.R. § 236.1(c). The Secretary of Homeland Security is authorized to “prescribe such forms of bond” as he deems necessary to carry out his authority. 8 U.S.C. § 1103(a)(3).

An alien may post a cash or surety bond for his release from custody on form I-352 (the Bond Contract). 8 C.F.R. § 103.6. Given the exceptionally poor draftsmanship reflected in this document, it is perhaps unsurprising that its requirements and conditions are subject to dispute. The delivery bond is issued to guarantee the appearance of an alien for deportation and at hearings in exclusion proceedings. According to the Bond Contract, “[a] delivery bond is breached when in response to a timely demand, the obligor either [sic] fails to produce the alien at the location specified in that demand.” I-352, General Terms and Conditions. The Bond Contract further specifies that the bond obligation is terminated if the obligor produces or causes the alien to be produced as specified in the appearance notice “upon each and every written request until exclusion/deportation/removal proceedings” are terminated, if the alien is accepted by ICE for detention or deportation/removal, or if the bond is “otherwise cancelled.” I-352(G)(1). The General Terms and Conditions section of the I-352 lists a number of specific events that lead to automatic cancellation of a bond if they occur prior to the date of the breach. “[O]ther circumstances as provided by statute or regulation” are also listed as a reason for cancellation of a bond. Id. If the obligor “fails to surrender...