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Lincoln General Insurance Co. v. Tri Counties Bank

August 5, 2010

LINCOLN GENERAL INSURANCE COMPANY, A PENNSYLVANIA CORPORATION, PLAINTIFF,
v.
TRI COUNTIES BANK, A CALIFORNIA CORPORATION, INCLUSIVE, DEFENDANT.



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

MEMORANDUM AND ORDER

Plaintiff Lincoln General Insurance Company ("plaintiff" or "Lincoln") acted as surety for third party Sanderson Company Inc. ("Sanderson") for construction of a subdivision. Defendant Tri Counties Bank ("defendant" or "TCB") allegedly entered into an agreement with plaintiff to set aside funds to back a bond plaintiff issued on behalf of Sanderson. Plaintiff brings the instant suit against TCB, alleging defendant wrongfully refused to disburse the funds it agreed to set aside for plaintiff. Plaintiff brings claims against defendant for breach of contract, conversion, and declaratory relief. Pending before the court is defendant's motion to dismiss plaintiff's complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). Plaintiff opposes the motion.*fn1

For the reasons set forth below, defendant's motion is DENIED.

BACKGROUND

Sanderson is an Oregon corporation that planned to develop and construct a subdivision called The Vineyard at Anderson in Anderson, California (the "Project"). (Compl., filed June 10, 2010, ¶ 8.) In order to fund that development, Sanderson secured a revolving line of credit in the amount of $6,000,000 from defendant with a total estimated construction cost of $7,912,500. (Id. at ¶ 8, Ex. A.)

Before proceeding with the Project, Sanderson was required by law to obtain a bond guaranteeing the construction of all public subdivision improvements. See Cal. Gov't. Code § 66462. On or about May 17, 2006, Lincoln issued Performance Bond No. 661117506 (the "Bond") to guarantee the construction of public improvements involved in the Project. (Compl., ¶ 12, Ex. B.) The City of Anderson was the Bond obligee. (Id. at ¶ 13.)

Before it issued the Bond, on or before April 17, 2006, Lincoln received a Set Aside Agreement from defendant. (Id. at ¶ 10.) The Agreement stated, in relevant part: In consideration of the executing by [Lincoln] bond(s) in the amount of $444,287.00 on behalf of [Sanderson], we agree upon recordation to set aside from the construction funds a sum in the amount of your bond(s) to be used in paying for those off site improvements in this tract guaranteed to the Obligee under the terms of the subdivision bond(s). (Id. at Ex. B.) The Set Aside Agreement also called for defendant to create an acount to contain the funds set aside pursuant to the agreement ("Set Aside Funds") and mandated a method of disbursing the funds. (Id.) The Agreement provided: "[i]n the event [Sanderson] fail(s) to complete and pay for said off site improvements, all funds remaining in said impound account shall be immediately available for [Lincoln] to complete and pay for the cost of said improvements." (Id.) The Agreement stated further that it constituted "an irrevocable commitment of funds" and that "said funds are for the benefit of the Surety Company in connection with the Surety's liability under the above bonds." (Id.)

Ultimately, Sanderson failed to complete the improvements guaranteed by the Bond, and the City of Anderson made demand on Lincoln's Bond. (Id. at ¶ 14.) In response to the demand on the Bond, Lincoln requested all remaining Set Aside Funds, but defendant has refused to provide the funds. (Id. at ¶¶ 16-18.) The City of Anderson eventually filed suit against Lincoln to enforce the Bond, and Lincoln recently incurred liability in settling that suit. (Id. at ¶ 19.) Therefore, Lincoln alleges it has been damaged as a result of defendant's failure to provide any of the Set Aside Funds guaranteed by the Agreement. (Id. at ¶ 20.)

STANDARD

Under Federal Rule of Civil Procedure 8(a), a pleading must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." See Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). Under notice pleading in federal court, the complaint must "give the defendant fair notice of what the claim is and the grounds upon which it rests." Bell Atlantic v. Twombly, 550 U.S. 544, 555 (2007) (internal quotations omitted). "This simplified notice pleading standard relies on liberal discovery rules and summary judgment motions to define disputed facts and issues and to dispose of unmeritorious claims." Swierkiewicz v. Sorema N.A., 534 U.S. 506, 512 (2002).

On a motion to dismiss, the factual allegations of the complaint must be accepted as true. Cruz v. Beto, 405 U.S. 319, 322 (1972). The court is bound to give plaintiff the benefit of every reasonable inference to be drawn from the "well-pleaded" allegations of the complaint. Retail Clerks Int'l Ass'n v. Schermerhorn, 373 U.S. 746, 753 n.6 (1963). A plaintiff need not allege "'specific facts' beyond those necessary to state his claim and the grounds showing entitlement to relief." Twombly, 550 U.S. at 570. "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S.Ct. at 1949.

Nevertheless, the court "need not assume the truth of legal conclusions cast in the form of factual allegations." United States ex rel. Chunie v. Ringrose, 788 F.2d 638, 643 n.2 (9th Cir. 1986). While Rule 8(a) does not require detailed factual allegations, "it demands more than an unadorned, the defendant-unlawfully-harmed-me accusation." Iqbal, 129 S.Ct. at 1949. A pleading is insufficient if it offers mere "labels and conclusions" or "a formulaic recitation of the elements of a cause of action." Twombly, 550 U.S. at 555; Iqbal, 129 S.Ct. at 1950 ("Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice."). Moreover, it is inappropriate to assume that the plaintiff "can prove facts which it has not alleged or that the defendants have violated the . . . laws in ways that have not been alleged." Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526 (1983).

Ultimately, the court may not dismiss a complaint in which the plaintiff has alleged "enough facts to state a claim to relief that is plausible on its face." Iqbal, 129 S.Ct. at 1949 (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 554, 570 (2007)). Only where a plaintiff has failed to "nudge [his or her] claims across the line from conceivable to plausible," is the complaint properly dismissed. Id. at 1952. While the plausibility requirement is not akin to a probability requirement, it demands more than "a sheer possibility that a defendant has acted unlawfully." Id. at 1949. This plausibility inquiry is "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 1950.

In ruling upon a motion to dismiss, the court may consider only the complaint, any exhibits thereto, and matters which may be judicially noticed ...


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