RLI Ins. Co. v. Nexus Servs., Inc.
| Decision Date | 27 January 2022 |
| Docket Number | No. 20-2253,20-2253 |
| Citation | 26 F.4th 133 |
| Parties | RLI INSURANCE COMPANY, Plaintiff - Appellee, v. NEXUS SERVICES, INC.; Libre by Nexus, Inc. ; Homes by Nexus, Inc., Defendants - Appellants. |
| Court | U.S. Court of Appeals — Fourth Circuit |
ARGUED: Carl August Anderson, ROCK SPRING LAW GROUP, PLLC, Washington, D.C., for Appellants. Vivian Katsantonis, WATT, TIEDER, HOFFAR & FITZGERALD, LLP, McLean, Virginia, for Appellee. ON BRIEF: Mario B. Williams, NDH LLC, Atlanta, Georgia; John M. Shoreman, MCFADDEN & SHOREMAN, Washington, D.C., for Appellants.
Before GREGORY, Chief Judge, QUATTLEBAUM, Circuit Judge, and FLOYD, Senior Circuit Judge.
Affirmed by published opinion. Senior Judge Floyd wrote the opinion in which Judge Gregory joined. Judge Quattlebaum wrote an opinion concurring in parts I, II, III, V, and VI and in the judgment.
This case concerns relatively straightforward obligations of a bond surety, RLI Insurance Company (RLI), and its indemnitor, Nexus Services, Inc. (Nexus), under a standard Commercial Surety General Indemnity Agreement (the Agreement). Because surety is a zero-loss industry, the Agreement contains several clauses designed to keep RLI whole. One obligates Nexus to provide collateral sufficient to cover all of RLI's exposure, and the parties task us with resolving what kinds of risk "exposure" means to capture. What makes our task unique is that, unlike the familiar commercial or construction relationships that typically contemplate only a handful of guarantees, this Agreement involves nearly 2,500 bonds RLI issued to the U.S. government on behalf of individual immigrant detainees. Nexus insists that we must nonetheless measure RLI's exposure on each bond individually and that RLI is not actually "exposed" to any risk—and Nexus correspondingly does not need to deposit collateral—until the parties have reason to believe that RLI will have to pay out that particular bond. The first tangible evidence of that, Nexus continues, comes about when an immigrant fails to appear in court on the designated date, breaching the bond. In short, Nexus suggests it should deposit collateral only up to the sum of the already-breached bonds. RLI objects the Agreement is not so limited. Although we do not know which particular immigrant will breach, we can be certain some will. It follows that the Agreement must secure against aggregate risk—that is, the likelihood Nexus will be able to (timely) indemnify RLI for all future breached bonds. Because Nexus's financial condition, its willingness to indemnify RLI so far, and historical rate of bonds breached all bear on that likelihood, they should likewise inform the collateral calculus. The district court sided with RLI, and after reviewing the plain terms of the Agreement, we agree. We also affirm the district court's calculation of the collateral amount as a sound exercise of its discretion to order equitable relief.
An immigration bond, much like a criminal bond, allows the release of a detained individual from custody based on a surety's contractual undertaking to the United States to either deliver the individual as demanded or forfeit the penal sum specified in the bond. Nexus runs the bonds program: It screens the immigrants likely to keep their promise to appear in court and maintains contact with them throughout their release. But Nexus lacks the Department of Treasury's commercial-surety certification, and so needs another surety to take on the liability to the government. RLI agreed to perform that function in exchange for a set fee upfront, and Nexus agreed to indemnify RLI for all losses. Specifically, Nexus agreed to pay upon demand:
J.A. 53. Nexus also agreed that:
Id. at 54. Illinois law governs the Agreement. Id.
While the parties have always differed as to what the Agreement requires, they have never disputed the basic facts of how their relationship progressed. See RLI Ins. Co. v. Nexus Servs. Inc. , 470 F. Supp. 3d 564, 571 (W.D. Va. 2020). Between February 2016 and February 2017, RLI issued 2,486 immigration bonds totaling $30 million at Nexus's request. From the start, RLI insisted on collateral, and Nexus agreed to deposit $500,000. But it never did. Over the course of the year, Nexus's performance only continued to deteriorate. It repeatedly allowed several invoices from the government to become past due, forcing RLI to pay hundreds of thousands of dollars from its own pocket to avert referral to the Departments of Treasury and Justice. At one point, the unpaid invoices totaled $709,789.37. When RLI reached out to Nexus to resolve this crisis, Nexus refused to answer for weeks at a time, denied access to most of its financial records, misrepresented when checks were sent to the government, and failed to indemnify RLI until RLI brought several enforcement actions—which Nexus protracted by "cloak[ing] two of its affiliate companies" and obstructing discovery. RLI Ins. Co. v. Nexus Servs. Inc. , No. 5:18CV66, 2020 WL 6262967, at *12 (W.D. Va. Oct. 23, 2020).
Nexus also misrepresented the risk RLI was undertaking. During contract negotiations, it assured RLI that its proactive screening and tracking techniques would result in only about 2% of the bonds being breached. By the start of this suit, however, immigrants had breached about 48% of the discharged bonds.1 Meanwhile, Nexus has been investigated by states, the federal government, and insurance companies. And has had several liens placed on its assets for failing to satisfy creditors. All of this led RLI to finally invoke ¶ 3(d) of the Agreement and request Nexus to discharge its liability on all outstanding bonds or deposit $10 million in collateral. Nexus refused to do either, and RLI turned to the courts. Nexus counterclaimed that RLI requested the $10 million in bad faith.
Before the district court, RLI argued it has absolute discretion to request any amount of collateral up to its then-current liability, $20 million. Nexus countered that ¶ 3(d) secures only existing government claims or, at most, the penal value of the already-breached bonds, even if the government has yet to send a final claim. The district court rejected all of those readings as inconsistent with the plain text of ¶ 3(d). RLI Ins. , 470 F. Supp. 3d at 583–84. The clause, it reasoned, mentions neither the sole discretion RLI seeks, nor the specific limitations Nexus proposes. Id. Rather, "exposure" encompasses all sources of risk. Some of that risk stems from the number of bonds breached, yes; but that is not the only consideration. Nexus's poor accounting and questionable financial health endanger RLI, too, and the amount of collateral must account for those shortcomings. The court also rejected Nexus's bad-faith counterclaim, holding that RLI merely sought to enforce the Agreement as RLI understood it.
The court then held a separate evidentiary hearing to determine the amount of collateral that reasonably reflects RLI's anticipated losses, ultimately directing Nexus to deposit only $2.4 million. And it awarded RLI $3.4 million for litigation costs as damages Nexus must indemnify under ¶ 2(a)(i).
Nexus now appeals. It has walked back its most extreme position as to the meaning of "exposure"—that ¶ 3(d) encompasses only final claims—but maintains that collateral is appropriate only up to the value of the already-breached bonds. Alternatively, Nexus contends it did not have to deposit collateral at all because RLI did not fulfill the condition precedent of requesting it in good faith. Puzzlingly, Nexus does not appeal the district court's on-point finding that RLI acted in good faith; it asks instead that we take the district court's paring down of the collateral to $2.4 million to imply the court found RLI's original demand for $10 million "unreasonable as a matter of law." Opening Br. 36. Nexus finally disputes the district court's method of calculating the collateral and cursorily requests we reconsider the district court's costs determination. RLI defends the district court's judgment; it does not argue for its original interpretation of "exposure" or seek a higher deposit.2 We take these arguments in turn.
We begin with the district court's ruling that "exposure" reaches all sources of risk, not just risk associated with a particular breached bond. Because this decision comes to us on summary judgment, we review de novo and draw all inferences in in the light most favorable to Nexus, Denzler v. Questech, Inc. , 80 F.3d 97, 101 (4th Cir. 1996).
To affirm, we must agree not only that the Agreement conveys the meaning espoused by the district court but that the Agreement does so unambiguously, for ...
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