Safeco Ins. Co. of America v. Lake Asphalt Paving & Constr., LLC

• Decision Date: 05 August 2011
• Docket Number: No. 4:10–CV–1160 CAS.,4:10–CV–1160 CAS.
• Citation: 807 F.Supp.2d 820
• Parties: SAFECO INSURANCE COMPANY OF AMERICA, Plaintiff, v. LAKE ASPHALT PAVING & CONSTRUCTION, LLC, et al., Defendants.
• Court: U.S. District Court — Eastern District of Missouri

807 F.Supp.2d 820

SAFECO INSURANCE COMPANY OF AMERICA, Plaintiff,

v.LAKE ASPHALT PAVING & CONSTRUCTION, LLC, et al., Defendants.

No. 4:10–CV–1160 CAS.

United States District Court,E.D. Missouri,Eastern Division.

Aug. 5, 2011.

Carol Z. Smith, Gilliland and Hayes, P.C., Overland Park, KS, for Plaintiff.

Neil J. Bruntrager, Charles H. Billings, Bruntrager and Billings, St. Louis, MO, for Defendants.

MEMORANDUM AND ORDER

CHARLES A. SHAW, District Judge.

This matter is before the Court on plaintiff Safeco Insurance Company of America's motion for partial summary judgment on Count IV for specific performance against defendants.¹ Defendants oppose the motion. For the following reasons, the Court will grant the motion for partial summary judgment and order defendants to pay or deposit collateral with plaintiff in the amount of $1,990,070.00 no later than September 8, 2011.

I. Background.

This action arises out of payment and performance bonds issued by plaintiff Safeco Insurance Company of America (“Safeco”), as surety, and defendant Lake Asphalt Paving & Construction, LLC (“Lake Asphalt”), as principal, with respect to two construction projects. In connection with these projects, defendants entered into a General Agreement of Indemnity for Contractors (“Indemnity Agreement”) with Safeco, under which defendants pledged to hold Safeco harmless from claims and other expenses incurred by Safeco in connection with the bonds. Lake Asphalt defaulted on both projects. Pursuant to its performance bond obligations, Safeco contracted with other companies to complete the projects.

Safeco asks the Court to grant summary judgment on Count IV of its complaint, which seeks specific performance of the portion of the Indemnification Agreement obligating defendants to post collateral security in the amount of Safeco's reserve—$1,990,070—to cover Safeco's potential liability under the bonds.² The motion calls on this Court to address the question of whether a surety is entitled to specific performance to enforce its contractual rights to collateral. For the reasons stated below, the Court finds that in this case Safeco is entitled to enforce the collateral security clause of the Indemnity Agreement through specific performance.

II. Legal Standard.

The standards applicable to summary judgment motions are well settled. Pursuant to Federal Rule of Civil Procedure 56(c), a court may grant a motion for summary judgment if all the information before the court shows “there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law.” See Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The initial burden is placed on the moving party. City of Mt. Pleasant, Iowa v. Associated Elec. Co-op., Inc., 838 F.2d 268, 273 (8th Cir.1988) (the moving party has the burden of clearly establishing the non-existence of any genuine issue of fact that is material to a judgment in its favor). Once this burden is discharged, if the record shows that no genuine dispute exists, the burden then shifts to the non-moving party who must set forth affirmative evidence and specific facts showing there is a genuine dispute on a material factual issue. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

Once the burden shifts, the non-moving party may not rest on the allegations in its pleadings, but by affidavit and other evidence must set forth specific facts showing that a genuine issue of material fact exists. Fed.R.Civ.P. 56(e); Herring v. Canada Life Assur. Co., 207 F.3d 1026, 1029 (8th Cir.2000); Allen v. Entergy Corp., 181 F.3d 902, 904 (8th Cir.), cert. denied, 528 U.S. 1063, 120 S.Ct. 618, 145 L.Ed.2d 512 (1999). The non-moving party “must do more than simply show that there is some metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). A dispute about a material fact is “genuine” only “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Herring, 207 F.3d at 1029 (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). A party resisting summary judgment has the burden to designate the specific facts that create a triable question of fact. See Crossley v. Georgia–Pacific Corp., 355 F.3d 1112, 1114 (8th Cir.2004). “Self-serving, conclusory statements without support are not sufficient to defeat summary judgment.” Armour and Co., Inc. v. Inver Grove Heights, 2 F.3d 276, 279 (8th Cir.1993).

III. Facts.³

On March 6, 2006, defendants Lake Asphalt; Gaines Leasing & Investment, LLC; Gaines Construction, Inc.; DGN, Inc.; William Gaines; Patricia Gaines; Keith A. Denney; Jeannie M. Denney; Michael L. Rogers; Sandra Rogers; and Harold E. Neumann executed the Indemnity Agreement in favor of Safeco.⁴ Safeco, as surety, issued performance bonds and payment bonds on behalf of defendant Lake Asphalt, as contractor, for various construction contracts including the following:

1. Performance and Payment Bond No. 6546173 dated June 30, 2008, each in the penal sum of $4,053,658.61, with McAninch, Inc. as obligee, with respect to the Route 54, Camden County Job # J5P0309A and J5P0648A (“Route 54 Project”).

2. Performance and Payment Bonds No. 6475121 dated November 1, 2007, each in the penal sum of $3,750,610.42, with Progressive Contractors, Inc. as obligee, with respect to Route 36, Marion and Shelby County Job # J3P0409C and J3P0410 (“Route 36 Project”).

In a letter dated March 4, 2010, the general contractor on the Route 54 Project, McAninch Inc. (“McAninch”), declared Lake Asphalt to be in default and called upon Safeco to honor the obligations of its performance bond. Lake Asphalt acknowledged to Safeco that it was unable to complete the performance of the work or comply with its contractual obligations to McAninch on the Route 54 Project and voluntarily abandoned that project.

Pursuant to its performance bond obligations, Safeco contracted with Magruder Paving, LLC (“Magruder”) to complete the Route 54 Project. Safeco estimated there would be a shortfall of at least $1,549,885.12 between the remaining contract balances to be paid to Safeco by McAninch and the costs to complete the Route 54 Project. Safeco also estimated a potential for the assessment of liquidated damages and other expenses could total as much as $800,000.00.

In an e-mail dated March 17, 2010, the general contractor on the Route 36 Project, Progressive Contractors, Inc. (“Progressive”), directed Lake Asphalt to begin work on the Route 36 Project no later than March 29, 2010 and requested confirmation that Lake Asphalt could complete the work. Lake Asphalt acknowledged to Safeco that it was unable to complete the work or comply with its contractual obligations to Progressive on the Route 36 Project and voluntarily abandoned that project.

Pursuant to its performance bond obligations, Safeco contracted with Magruder to complete the Route 36 Project. Safeco estimated that there would be a shortfall of at least $225,405.85 between the remaining contract balances to be paid to Safeco by Progressive and the cost to complete the Route 36 Project. Safeco anticipated it would incur consultant and legal fees and expenses of $303,920.00 as a result of issuing the bonds and in conjunction with the completion of the bonded projects.

As of May 18, 2010, Safeco had set a reserve in the amount of $2,890,270.00. At the time of posting this reserve, completion work on the two bonded projects was just starting. Since that time, construction on both projects has been completed and certain contingencies that were budgeted for in the reserve have not occurred. After briefing on Safeco's motion for partial summary judgment closed, Safeco reduced its reserve to $1,990,070.00. Consequently, Safeco amended and reduced its prayer for relief in Count IV to an order requiring defendants to provide cash or collateral in the amount of $1,990,070.00, the amount of Safeco's amended reserve. See Supplement to Pl's Mot. for Partial Summ. J. (Doc. 79).

The Indemnity Agreement obligates Indemnitors to pay Safeco, upon demand:

1. All loss, costs and expenses of whatsoever kind and nature, including court costs, reasonable attorney fees (whether [Safeco] at its sole option elects to employ its own attorney, or permits or requires [Indemnitors] to make arrangements for [Safeco's] legal representation), consultant fees, investigative costs and any other losses, costs or expenses incurred by [Safeco] by reason of having executed any Bond, or incurred by it on account of any Default under this agreement by any of the [Indemnitors], or by reason of the refusal to execute any Bond. In addition the [Indemnitors] agree to pay to [Safeco] interest on all disbursements made by [Safeco] in connection with such loss, costs and expenses incurred by [Safeco] at the maximum rate permitted by law calculated from the date of each disbursement.

2. An amount sufficient to discharge any claim made against [Safeco] on any Bond whether [Safeco] will have made any payment or established any reserve therefor. Such payment to be in the minimum amount of any reserve set by [Safeco]. This sum may be used by [Safeco] to pay such claim or be held by [Safeco] as collateral security against loss on any Bond. The [Indemnitors] acknowledge that their failure to pay, immediately upon demand, that sum demanded by [Safeco] will cause irreparable harm for which [Safeco] has no adequate remedy at law. The [Indemnitors] confirm and acknowledge that [Safeco] is entitled to injunctive relief for specific enforcement of the foregoing provision.

The Indemnity Agreement further provides in the GENERAL PROVISIONS section:

The [Indemnitors] will, on request of [Safeco], procure the discharge of [Safeco] from any bond and all liability by reason thereof. If such...