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International Fidelity Insurance v. Draeger Construction

January 14, 2010

INTERNATIONAL FIDELITY INSURANCE
COMPANY, A NEW JERSEY CORPORATION, PLAINTIFF,
v.
DRAEGER CONSTRUCTION, INC., A CALIFORNIA CORPORATION; JOHN E. DRAEGER, AN INDIVIDUAL; AND JOHN E. DRAEGER, TRUSTEE OF JOHN E. DRAEGER REVOCABLE
TRUST, DOMICILED IN CALIFORNIA, DEFENDANTS.



The opinion of the court was delivered by: Lucy H. Koh United States District Judge

United States District Court For the Northern District of California

ORDER DENYING PLAINTIFF'S APPLICATION FOR AN ORDER FOR DEFENDANTS TO SHOW CAUSE WHY SANCTIONS SHOULD NOT ISSUE

On January 5, 2011, Plaintiff International Fidelity Insurance Company requested that this Court set a hearing at which Defendants are ordered to show cause why they should not be 21 sanctioned for contempt of the Court's November 12, 2010 preliminary injunction (the "Preliminary Injunction"). Dkt. No. 33 ("Appl. for Order"); see also Dkt. No. 34 ("Ornum Del.").

Defendants Draeger Construction, Inc., John E. Draeger, an individual, and John E. Draeger, Trustee of John E. Draeger revocable trust (collectively "Draeger") oppose International Fidelity's 25 request. Dkt. No. 35 ("Opp'n"); see also Dkt. No. 36 ("Pappy Decl."); Dkt. No. 37 ("Radzinski Decl."). For the foregoing reasons, the Court hereby DENIES International Fidelity's request.

I. BACKGROUND

alleged violation of the Preliminary Injunction.*fn1 International Fidelity sought the Preliminary Injunction out of an alleged fear that Draeger would not fulfill Draeger's payment and performance obligations on projects bonded by International Fidelity. See Dkt. No. 14. International Fidelity 6 was concerned about Draeger's potential failure to perform because International Fidelity would be forced to perform Draeger's unfulfilled construction contract obligations.

In the Preliminary Injunction, the Court ordered Draeger, a construction contractor, to use International Fidelity's request for an order to show cause hearing is based on Draeger's all money obtained from projects covered by International Fidelity's bonds for the benefit of persons performing labor or providing materials on those projects and for payment of obligations arising in connection with such projects. Dkt. No. 30 ("Prelim. Inj."), at 2. In addition, under the Preliminary Injunction, Draeger must take specific action with regards to certain ongoing projects.

First, Draeger is enjoined to require the project managers on three of its construction projects*fn2 to issue joint check payments for all persons performing labor or providing materials for projects 15 covered by International Fidelity's surety bonds. Id. Second, Draeger is enjoined to open a special 16 bank account ("Trust Account") for two of its projects, Isle Cove and Viewpoint at the Ridge. Id. 17 at 3. Draeger is to place all funds from those projects into the Trust Account. Id. Withdrawals 18 from the Trust Account must be made by checks which are signed by Draeger and countersigned 19 by a representative of International Fidelity. Id. The Preliminary Injunction also contains 20 restrictions on how Draeger can use funds that are deposited in the Trust Account. Id.

International Fidelity claims that Draeger has not complied with the preliminary injunction in two respects. Mot. 2. First, International Fidelity claims that Draeger has failed to require three of its project owners, as specified by the Preliminary Injunction, to issue joint checks. Second, International Fidelity claims that Draeger has not established the joint control Trust Account.

International Fidelity has not, however, alleged that Draeger has misused any payments received 4 from project owners. Based on Draeger's alleged non-compliance, International Fidelity seeks a 5 hearing at which Defendants must show cause why they should not be sanctioned for contempt of 6 the Court's Preliminary Injunction. Id. at 1-2. In addition, International Fidelity seeks civil 7 contempt sanctions for its costs of compelling Draeger to comply with the Preliminary Injunction. Id. at 6.

II. LEGAL STANDARD

"Civil contempt in this context consists of a party's disobedience to a specific and definite court order by failure to take all reasonable steps within the party's power to comply." Reno Air Racing Ass'n., Inc. v. McCord, 452 F.3d 1126, 1130 (9th Cir. 2006) (citing In re Dual-Deck Video Cassette Recorder Antitrust Litig., 10 F.3d 693, 695 (9th Cir. 1993)); see also In re Crystal Palace Gambling Hall, Inc., 817 F.2d 1361, 1365 (9th Cir. 1987) ("A person fails to act as ordered by the 15 court when he fails to take all the reasonable steps within his power to insure compliance with the 16 court's order.") (citation, quotation marks, and alterations omitted). "The contempt 'need not be 17 willful,' and there is no good faith exception to the requirement of obedience to a court order." In 18 re Dual-Deck Video, 10 F.3d at 695 (citing In re Crystal Palace, 817 F.2d at 1365).

"Civil contempt sanctions . . . are employed for two purposes: to coerce the defendant into compliance with the court's order, and to compensate the complainant for losses sustained."

Whittaker Corp. v. Execuair Corp., 953 F.2d 510, 517 (9th Cir. 1992) (citing United States v. United Mine Workers of Am., 330 U.S. 258, 303-04, 67 S. Ct. 677, 701-02 (1947)). "Generally, the 23 minimum sanction necessary to ...


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