Allied World Specialty Ins. Co. v. Abat Lerew Constr., LLC, 8:16CV545

CourtUnited States District Courts. 8th Circuit. United States District Court of Nebraska
Docket Number8:16CV545
Decision Date24 April 2017

and NOEL A. FORD, Defendants.



April 24, 2017


This matter is before the court on the plaintiff Allied World Specialty Insurance Company's ("Allied") motion for a preliminary injunction, Filing No. 2. This is an action on an indemnity agreement. Jurisdiction is based on diversity of citizenship under 28 U.S.C. § 1332.


In its complaint, Allied asserts claims for breach of contract, specific performance, and exoneration and quia timet.1 It seeks specific performance of the Indemnitors' (ALC's) obligation to deposit collateral security in an amount sufficient to discharge the claims that have been asserted against Allied on a payment and performance surety bond. Defendants Abat Lerew Construction, LLC, Abat Lerew, LLC,

Page 2

Michael R. Ford, and Noel A. Ford (collectively, "ALC") generally deny the plaintiff's allegations and assert equitable defenses of estoppel and unclean hands. ALC also affirmatively alleges that Allied has breached its obligation of good faith and fair dealing. Further, it alleges that portions of the Indemnity Agreement are void as against public policy or otherwise legally unenforceable.

ALC is a general contractor. It entered into ten public construction contracts to perform general contracting services for various projects and obtained payment and performance surety bonds from Allied. Eight of the ten projects have been completed and two are temporarily shut down due to seasonal conditions. ALC and Allied also entered into an indemnity agreement.

In its complaint, Allied states that, in accordance with the law and contracts for the projects, it issued, as surety, Payment Bond and Performance Bond No. S001-2203 in the maximum penal sum of $1,677,772 on behalf of ALC, as principal, and naming the United States of America as the Obligee (the "Bond"). Filing No. 1, Complaint at 2-3. It alleges it has received bond claims for over $300,000. Id. at 4. On November 15, 2016, it demanded that ALC provide $400,000 in collateral security pursuant to the Agreement of Indemnity. Id. The indemnity agreement obligates ALC

to indemnify and to hold the Surety harmless from and against any and all liability for any and all Loss, and in such connection, Indemnitors will pay the Surety for all Losses specified or otherwise described in Surety's notice, no later than close of business on the Due Date with respect to such notice, whether or not the Surety has actually made any payment thereon as of such Due Date.

Filing No. 1-1, Complaint, Ex. A, Indemnity Agreement at 3. The Indemnity Agreement further requires ALC "to deposit with [Allied] as collateral, by the Due Date and after

Page 3

receipt of [Allied's] written demand, the sum equal to an amount determined by [Allied], to cover liability for Loss . . . as determined by [Allied]." Filing No. 1-1, Complaint, Ex. A.

Allied seeks an injunction ordering ALC to post collateral security with Allied World in the amount of $400,000, enjoining and restraining ALC from selling, transferring, disposing of or liening their assets and property, granting a lien on ALC's property until such collateral is deposited, requiring ALC to indemnify and exonerate Allied for all liabilities, losses, and expenses incurred by Allied World as a result of Allied World having executed the Bonds, and providing Allied access to ALC's books and records. It also seeks an order requiring ALC to pay Allied's reasonable attorneys' fees and costs.

In support of its motion, Allied submits the bond, the indemnity agreement, its demand for collateral, and the affidavit of James A. Keating, Assistant Vice President of Surety Claims for Allied ("Keating Aff."). Filing No. 4, Index of Evid., Exs. 1-4. Keating states that Allied has received claims on the bond and is investigating them in order to discharge its obligations. Filing No. 4-4, Keating Aff. at 5. He also states Allied has incurred and continues to incur attorney fees, costs, and expenses associated with the investigation and litigation of the Bond Claims. Id. at 6 Further, he states that Allied has made a demand on ALC for collateral security under the indemnity agreement, but "the Indemnitors have failed, despite [Allied's] demand, to fully and satisfactorily respond to and resolve the pending Bond claims, indemnify or exonerate [Allied], and post collateral." Id.

In response to Allied's motion for a preliminary injunction, ALC challenges at least one of the bond claims as wholly without merit and asserts that it has not received

Page 4

final payment on one of the projects because Allied has wrongfully refused to provide its consent. Filing No. 25-1, Declaration of Michael D. Ford at 2-3. Ford states ALC is making every effort to resolve the bond claims in order to fully perform its legitimate obligations under the indemnity agreement. Id. at 3-4. Ford contends Allied has not paid on the bond claims and any harm to Allied is speculative at this point. Id. at 4. Further, Ford states that the defendants are not absconding with money or transferring, disposing of, or dissipating assets to avoid paying the bond claims or to avoid obligations under the indemnity agreement. Id. at 3.

In its brief, ALC does not dispute that it has a duty under the agreement to indemnify Allied for legitimate losses, but contends the relief requested—specific performance with respect to providing collateral security—is excessive and does not correspond with the actual potential liability from the bond claims. Also, it argues that Allied has failed to show a probability of success on the merits because ALC has raised the legitimate defenses of unclean hands and equitable estoppel.


When evaluating whether to grant the extraordinary relief of a preliminary injunction, a district court should consider four factors: (1) the threat of irreparable harm to the movant; (2) the state of the balance between this harm and the injury that granting the injunction will inflict on other parties; (3) the probability that the movant will succeed on the merits; and (4) the public interest. Dataphase Sys., Inc. v. C L Sys., Inc., 640 F.2d 109, 114 (8th Cir. 1981) (en banc); Roudachevski v. All-American Care Centers, Inc., 648 F.3d 701, 705 (8th Cir. 2011). A preliminary injunction is an extraordinary remedy and the burden of establishing the propriety of an injunction is on

Page 5

the movant. Roudachevski, 648 F.3d at 701, 705 (8th Cir. 2011). The burden on a movant to demonstrate that a preliminary injunction is warranted is heavier when granting the preliminary injunction will in effect give the movant substantially the relief it would obtain after a trial on the merits. Calvin Klein Cosmetics Corp. v. Lenox Lab., 815 F.2d 500, 503 (8th Cir. 1987).

No single factor is determinative, although the failure to demonstrate the threat of irreparable harm is, by itself, a sufficient ground upon which to deny a preliminary injunction. See Adam-Mellang v. Apartment Search, Inc., 96 F.3d 297, 299 (8th Cir. 1996); see also Modern Computer Sys., Inc. v. Modern Banking Sys., Inc., 871 F.2d 734, 738 (8th Cir. 1989) (en banc); Roudachevski, 648 F.3d at 706 (stating the threat of irreparable harm is a necessity in proving the propriety of preliminary injunctive relief). To succeed in demonstrating a threat of irreparable harm, "a party must show that the harm is certain and great and of such imminence that there is a clear and present need for equitable relief." Id. (quoting Iowa Utils. Bd. v. Fed. Commc'ns Comm'n, 109 F.3d 418, 425 (8th Cir. 1996)). "[A]n injury is 'irreparable' only if it cannot be undone through monetary remedies." Snook v. Trust Co. of Ga. Bank of Savannah, N.A., 909 F.2d 480, 487 (11th Cir. 1990).

A showing of irreparable harm does not automatically mandate a ruling in the plaintiff's favor; the court must proceed to balance the harm to the defendant in granting the injunction. Hill v. Xyquad, Inc., 939 F.2d 627, 630-31 (8th Cir. 1991). Also, although success on the merits has been referred to as the most important of the four factors, it is insufficient on its own. Roudachevski, 648 F.3d at 706.

Page 6

Under Nebraska law, in order to recover in an action for breach of contract, the plaintiff must plead and prove the existence of a promise, its breach, damage, and compliance with any conditions precedent that activate the defendant's duty. Henriksen v. Gleason, 643 N.W.2d 652, 658 (2002). To recover under a theory of quia timet or exoneration, a surety must establish that the debt is presently due (exoneration) or will come due (quia timet), that the principal is or will be liable for the debt, and, that absent equitable relief, the surety will be prejudiced because it will be forced to advance the money to the creditor. In re Farmland Indus., Inc., 296 B.R. 793, 797 n.1 (B.A.P. 8th Cir. 2003).

Specific performance is an appropriate remedy only under certain circumstances. Tierney v. Four H Land Co. Ltd. P'ship, 852 N.W.2d 292, 298 (Neb. 2014). It may be granted only where there is a valid, legally enforceable contract, and the party seeking specific performance has substantially complied with the terms of that contract. Id. Also, "[t]here must be no adequate remedy at law for breach of the relevant contract." Id at...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT