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Travelers Casualty and Surety Co. of America v. Comerica Bank

July 15, 2009

TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA, PLAINTIFF,
v.
COMERICA BANK, DEFENDANT.



The opinion of the court was delivered by: Frank C. Damrell, Jr. United States District Judge

MEMORANDUM AND ORDER

This matter is before the court on plaintiff Travelers Casualty and Surety Company of America's ("Travelers") motion to lift the stay of this action, entered by the court on June 13, 2008. For the reasons set forth below, Travelers' motion is DENIED.*fn1

BACKGROUND

A. General Background Facts

In December of 2005, Travelers entered into an indemnity agreement involving Dunmore Croftwood, LLC ("Dunmore") under which Travelers agreed to issue construction bonds on behalf of Dunmore guaranteeing the performance and payment obligations of Dunmore for improvement projects it undertook. (Mem. and Order, filed June 13, 2008, at 2 [hereinafter, the "Order"].) In return, Travelers was entitled to indemnity for payment made to claimants of bonds issued on behalf of Dunmore. (Id. at 3.)

After execution of the Indemnity Agreement, Dunmore entered into an agreement with the City of Rocklin whereby Dunmore agreed to install and complete certain public improvements at a 156-acre lot near Rocklin, California ("Rocklin Project"). (Id.) In order to finance the Rocklin Project, Dunmore entered into a loan agreement with defendant Comerica Bank ("Comerica") in which Comerica was to arrange financing for Dunmore in the amount of $33,973,331.00. (Id.) To induce Travelers to issue the payment and performance bonds on behalf of Dunmore, Comerica and Travelers entered into "Set Aside Agreements" whereby Comerica would create a separate fund of money related to "a bond" executed by Travelers on behalf of Dunmore. (Id. at 4.) The funds in the Set Aside Agreements were to be made immediately available to Travelers if Dunmore defaulted in the performance and/or payment requirements of the bonds referenced in the Set Aside Agreements, subject only to statutory requirements for Comerica to hold the funds. (Id.) Accordingly, on May 19, 2006, Travelers issued three performance bonds and three payment bonds on behalf of Dunmore. (Id. at 3.)

Beginning on or about June 1, 2006, Dunmore began entering into agreements with various subcontractors, including Cal Sierra Construction, Inc. ("Cal Sierra") and DeSilva Gates Construction, L.P. ("DeSilva Gates"), to perform portions of the labor at the Rocklin Project. (Id. at 5.) After the improvements began, both Cal Sierra and DeSilva Gates claimed that Dunmore defaulted on their agreements by failing to provide payment for the work each performed at the Rocklin Project. (Id.)

B. Procedural History

In November 2007, DeSilva Gates filed an action in state court against Comerica to recover $671,200.72 DeSilva Gates alleged it was owed for work performed at the Rocklin Project. (Id. at 6.) In January 2008, Cal Sierra also filed suit against Comerica in state court asserting two claims for relief, including foreclosure of mechanics' lien and enforcement of a bonded stop notice*fn2 in the amount of $2,368,622.25. (Id.) Pursuant to its rights under the Indemnity Agreement, on February 19, 2008, Travelers filed the instant complaint in this court against Comerica asserting: (1) breach of contract, (2) conversion, (3) subrogation, and (4) declaratory relief. (Compl. ¶¶ 21-52, filed February 12, 2008.)

On June 13, 2008, the court stayed this action pursuant to the Colorado River doctrine. See also Colorado River West Conservation Dist. v. U.S., 424 U.S. 800 (1976). The court stayed the action because the two pending California state court actions by Cal Sierra and DeSilva Gates were sufficiently similar to the instant action to be considered "parallel litigation" under Colorado River. (Order at 10:2-13:16.) Specifically the court found that because "the money sought by [Travelers] here is for the same recovery that Cal Sierra and [DeSilva Gates] seek from [Comerica] in their respective state actions . . . the state court actions and this action are substantially similar and constitute parallel litigation under the Colorado River doctrine." (Order at 13:1-13:18.) Additionally, the court found several of the remaining Colorado River factors weighed strongly in favor of staying this action. (Id. at 13:21-18:3.) Particularly, the court found that a stay would avoid piecemeal litigation since an adverse judgment rendered against Comerica in both state and federal court could subject Comerica to the risk of double liability or inconsistent judgments. (Id. at 16.)

C. Cal Sierra Developments

On July 25, 2008, Comerica moved for a decree to release Cal Sierra's mechanics' lien and bonded stop notice claim. (Travelers' Req. for Jud. Not. ["RJN"], filed June 1, 2009, at ¶ 2.) Subsequently, on August 15, 2008, Travelers moved to intervene in Cal Sierra's action against Comerica on the ground that Travelers is a real party in interest on a portion of the claims asserted by Cal Sierra, as suborgee and assignee. (Id. at ¶ 1; Ex. 7 to Travelers RJN.) On October 1, 2008, the state court granted Comerica's motion to release Cal Sierra's mechanics' lien and bonded stop notice. (Ex. 9 to Travelers' Req. for Judicial Notice.) Consequently, on October 23, 2009, Travelers withdrew its motion to intervene. (Ex. A to Comerica's Req. for Jud. Not. ["RJN"], filed June 26, 2009.)

On December 10, 2008, Cal Sierra entered into a settlement agreement with Comerica wherein Cal Sierra agreed to dismiss, release and withdraw its mechanics' lien in exchange for $30,000.00 from Stewart Title Guarantee Company. (Colucci Decl. in Supp. of Mot. to Lift Stay ["Colucci Decl."], filed June. 1, 2009, at ΒΆ 13.) However, although the settlement agreement released Comerica from liability under the mechanics' lien, it did not preclude Cal Sierra from pursuing its stop notice claim against Comerica. (Ex. 4 to Colucci. Decl.) Accordingly, Cal Sierra withdrew the mechanics' lien ...


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