Guarantee Co. of N. Am. U.S. v. Rkm Util. Servs.

• Decision Date: 23 September 2021
• Docket Number: Civil Action 3:20-CV-3366-L
• Parties: THE GUARANTEE COMPANY OF NORTH AMERICA USA, Plaintiff, v. RKM UTILITY SERVICES, INC.; SHI MACHINERY, LLC; KMR TRANSPORTATION, LLC; 2105 WATERVIEW REALTY, LLC; and RYAN DOWDY, Defendants.
• Court: U.S. District Court — Northern District of Texas

THE GUARANTEE COMPANY OF NORTH AMERICA USA, Plaintiff, v. RKM UTILITY SERVICES, INC.; SHI MACHINERY, LLC; KMR TRANSPORTATION, LLC; 2105 WATERVIEW REALTY, LLC; and RYAN DOWDY, Defendants.

Civil Action No. 3:20-CV-3366-L

United States District Court, N.D. Texas, Dallas Division

September 23, 2021

MEMORANDUM OPINION AND ORDER

Sam A Lindsay United States District Judge

Before the court is Plaintiff's Motion for Preliminary Injunction (“Motion”) (Doc. 10), filed by The Guarantee Company of North America USA (“Guarantee” or “Plaintiff” or “Surety”) on December 18, 2020. After considering the Motion, the parties' briefs, evidence, and pleadings the court denies the Motion (Doc. 10) for the reasons herein explained.

I. Factual and Procedural Background

On November 11, 2020, Guarantee brought this action as a surety against RKM Utility Services, Inc. (“RKM”); SHI Machinery, LLC (“SHI”); KMR Transportation, LLC (“KMR”); 2105 Waterview Realty, LLC (“2105 Waterview”); and Ryan Dowdy (“Mr. Dowdy”). Except for Mr. Dowdy, the court refers to all Defendants in this case collectively as “Defendants” or “Indemnitors.” Plaintiff seeks indemnity, equitable relief, and other relief against Defendants, as “Indemnitors of a General Agreement of Indemnity” (“Indemnity Agreement” or “Agreement”) executed on August 16, 2007, by RKM, SHI, and Mr. Dowdy. Riders to the Indemnity Agreement were executed by 2105 Waterview on April 17, 2018, and KMR on June 26, 2019, adding 2105 Waterview and KMR as additional Indemnitors under the Indemnity Agreement.

Guarantee asserts claims for breach of the Indemnity Agreement; specific performance of the Indemnity Agreement; common law indemnity; exoneration; and collateralization or quia timet.^[1] Guarantee's Original Complaint also includes a request for a preliminary injunction against Defendants, which it contends is necessary to prevent it from suffering irreparable harm and to preserve the status quo while this action is pending. Plaintiff summarizes the relief it seeks in this action as follows:

(a) For entry of a preliminary injunction and permanent injunction for the following relief: (1) that Indemnitors be required to specifically perform their obligation to deposit cash collateral with the Surety in the minimum amount of $6, 400, 000 to reimburse the Surety; (2) that Indemnitors provide the Surety with access to their books and records; (3) prohibiting Indemnitors (or any person on behalf of or directed by Indemnitors) from altering, modifying, destroying, and/or tampering with Indemnitors' books and records; and (4) prohibiting Indemnitors (or any person on behalf of and/or directed by the Indemnitors) from transferring, conveying, or selling any of their assets without prior written consent or approval of the Surety;

(b) For the entry of judgment compelling Indemnitors to specifically perform their obligation to reimburse and collateralize the Surety in the minimum amount of $6, 400, 000, which is the amount determined by the Surety as sufficient to discharge any losses, and compelling Indemnitors to provide the Surety with immediate access to books and records;

(c) For the entry of judgment against the Indemnitors in an amount sufficient to fully exonerate, indemnify, and save the Surety harmless from and against all loss as required by the Indemnity Agreement;

(d) Judgment against Indemnitors for the Surety's reasonable attorneys' fees and expenses;

(e) Judgment against Indemnitors for all costs of court;

(f) Judgment against Indemnitors for prejudgment and post judgment interest at the highest rate allowed by law; and

(g) For such further relief, both general and specific, as may be deemed appropriate by this Court.

Pl.'s Orig. Compl. 15.

In support of its request for injunctive relief, Plaintiff alleges as follows in its Motion regarding the losses it contends are covered by the Indemnity Agreement and Riders but have yet to be paid by Defendants:

In reliance upon its rights under the Indemnity Agreement, the Surety executed numerous construction surety performance, payment, and maintenance bonds (“Bonds”) on behalf of or at the request of Indemnitors for construction projects throughout the State of Texas (“Projects”). After executing the Bonds, the Surety began to receive notices of claim for payment under the Bonds from several of RKM Utility's subcontractors and suppliers on the respective projects. These subcontractors and suppliers sought payment for work they performed and/or materials they delivered to the Projects. To date, the Surety has established a reserve of over $8, 000, 000 to cover claims against the Bonds and incurred losses of over $6, 500, 00.00 to resolve those claims, including fees and expenses of approximately $175, 000 incurred to investigate the claims. Specifically, the Surety has received claims on the Bonds listed in the table included in the Appendix as Exhibit 6.

Pl.'s Br. 3 (footnotes omitted). The amount of the losses claimed or sustained form the basis for Plaintiff's request for injunctive relief, as well as its request to recover monetary damages in this action as a result of Defendants' failure to perform their payment obligations under the Indemnity Agreement.

On November 24, 2020, Mr. Dowdy filed a Notice of Bankruptcy (Doc. 6). The next day, Plaintiff filed its Notice of Partial Dismissal of Claims Against Ryan Dowdy pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(i). Accordingly, Mr. Dowdy is no longer a party to this action.

On December 4, 2020, RKM and 2105 Waterview filed a joint Answer. SHI and KMM have yet to file an answer. Defendants, however, did file a joint response in opposition to the Motion for Preliminary Injunction that Plaintiff filed on December 18, 2020.^[2] In its Motion, Plaintiff requests the same injunctive relief as set forth in its earlier Complaint. For the reasons that follow, the court determines that issuing a preliminary injunction that includes the injunctive relief sought Plaintiff is not appropriate based on the facts of this case.

II. Standard for Preliminary Injunction

There are four prerequisites for the extraordinary relief of a preliminary injunction. A court may grant such relief only when the movant establishes that:

(1) there is a substantial likelihood that the movant will prevail on the merits; (2) there is a substantial threat that irreparable harm will result if the injunction is not granted; (3) the threatened injury [to the movant] outweighs the threatened harm to the defendant[s]; and (4) the granting of the preliminary injunction will not disserve the public interest.

Clark v. Prichard, 812 F.2d 991, 993 (5th Cir. 1987); Canal Auth. of the State of Fla. v. Callaway, 489 F.2d 567, 572 (5th Cir. 1974) (en banc). The party seeking such relief must satisfy a cumulative burden of proving each of the four elements enumerated before a temporary restraining order can be granted. Mississippi Power and Light Co. v. United Gas Pipeline, 760 F.2d 618, 621 (5th Cir. 1985); Clark, 812 F.2d at 993. Otherwise stated, if a party fails to meet any of the four requirements, the court cannot grant the preliminary injunction.

III. Analysis

Plaintiff contends that it is entitled to a preliminary injunction requiring Defendants to “provide the Surety with access to their books and records” and require Defendants to “specifically perform their [contractual] obligation to deposit cash collateral with the Surety in the minimum amount of $6, 400, 000 to reimburse Surety” for its losses, which Plaintiff refers to as “post[ing] collateral.” Pl.'s Br. 1, 13.

A. Whether There is a Substantial Likelihood of Plaintiff's Success of the Merits

The thrust of Plaintiff's argument is that Defendants agreed to “reimburse and collateralize” the surety (Guarantee) upon demand, and by executing the Indemnity Agreement, they “‘confirm[ed] and acknowledge[ed] that [Guarantee as] the Surety is entitled to injunctive relief for specific performance' of their indemnity and collateral obligations.” Pl.'s Br. 1-2 (emphasis added).

Plaintiff is correct that the Indemnity Agreement provides and Defendants “agree[d] to pay to Surety upon demand . . . [a]ll loss, cost and expenses of whatsoever kind and nature” and “[a]ny amount sufficient to discharge any claim made against Surety on any Bond” in an amount deemed sufficient by the Surety to protect it from loss. Pl.'s App. 6 (emphasis added). The Indemnity Agreement further provides that the sum paid by Defendants “may be used by Surety to pay such claim or be held by Surety as collateral security against loss on any Bond.” Id. The court, however, does not read Guarantee's option of holding any payments as collateral security as a “collateral obligation” or requirement that Defendants “collateralize” Guarantee under the Indemnity Agreement.

Defendants, instead, agreed to pay Guarantee “upon demand” for losses in an amount determined and demanded by Guarantee. While the Indemnity Agreement gave Guarantee the option of using any money demanded and paid by Defendants to pay claims or hold the money as “collateral security, ” this option does not obligate Defendants to “collateralize” Guarantee or provide it with collateral in the amount demanded by it under the section of the Agreement titled “INDEMNITY TO SURETY.” Id. at 6. Rather, a separate section of the Agreement titled “SECURITY TO SURETY” sets forth Defendants' obligation to provide “collateral security to Surety, ” but only in the form of providing Guarantee with an assignment of their rights for such things as contracts, equipment, cash, bank accounts, licenses, claims, and partnership interests, and their obligation in this regard would only be enforceable if they defaulted under the Indemnity Agreement. Id. at 7.

Plain...