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SureTec Insurance Co. v. Orchard Hills Estates

October 26, 2010

SURETEC INSURANCE COMPANY, PLAINTIFF,
v.
ORCHARD HILLS ESTATES, LLC; ORCHARD HILLS ESTATES II, LLC; RICHARD A. CONTO; CHERYL LYNN CONTO; BRIAN N. MCCARTHY; AND VALERIE LOJEWSKI-MCCARTHY, DEFENDANTS.



FINDINGS AND RECOMMENDATIONS

This case was referred to the undersigned pursuant to Eastern District of California Local Rule 302(c)(19) and 28 U.S.C. § 636(b)(1) for hearing on plaintiff SureTec Insurance Company's ("SureTec") motion for entry of default judgment against all defendants. On September 29, 2010, a hearing on the motion was held. Attorney Jeffrey Robbins appeared on behalf of SureTec; no appearance was made on behalf of defendants. For the reasons that follow, and as stated on the record at the hearing, the court recommends that SureTec's motion for entry of default judgment be granted.

I. BACKGROUND/ PLAINTIFF'S ALLEGATIONS

SureTec filed a complaint herein on January 13, 2009 for breach of contract, specific performance, declaratory relief, implied indemnity, quia timet, and statutory reimbursement pursuant to California Civil Code section 2847. Compl., Dckt. No. 2. The complaint alleges that this court has diversity jurisdiction since SureTec is a corporation incorporated under Texas law, with its principal place of business in Texas; that the business entity defendants were organized under California law and have their principal places of business in California; that the individual defendants are citizens residing in California or Florida; and that the amount in controversy exceeds $75,000.00. Compl. ¶ 1. The complaint further alleges that venue is proper in the Eastern District of California because "substantially all of the events and circumstances giving rise to this action took place in this judicial district. The contracts that are the subject of this action were entered into in either the County of El Dorado, California or the County of Butte, California." Compl. ¶ 2.

Specifically, the complaint makes the following factual allegations. Prior to December 13, 2006, defendants approached SureTec, a surety insurer, to request that SureTec issue construction-related surety bonds on behalf of defendant Orchard Hills Estate II, LLC ("Orchard II") in connection with its performance of construction services for a subdivision project in the City of Placerville, County of El Dorado, California, commonly known as The Ridge at Orchard Hill (the "Project"). Compl. ¶¶ 3, 10. As part of the consideration for issuing the surety bonds on behalf of Orchard II, on or about December 15, 2006, Orchard II and the four individual defendants executed a General Indemnity Agreement ("Orchard II GIA"). Compl. ¶ 11, Ex. A.

Prior to February 16, 2007, defendants approached SureTec to request that SureTec also issue a construction-related blanket surety bond on behalf of Orchard Hills Estate, LLC ("Orchard") for the Project, and that as part of the consideration for issuing the surety bond on behalf of Orchard, on or about March 14, 2007, Orchard and the four individual defendants executed a second General Indemnity Agreement ("Orchard GIA"). Compl. ¶¶ 12, 13, Ex. B.

Pursuant to the two GIAs, defendants agreed jointly and severally to indemnify SureTec against any and all liability for losses and expenses of any kind or nature, including attorneys' fees and costs, incurred by SureTec by reason of having executed or procured the execution of any bonds issued on behalf of Orchard and/or Orchard II, or by reason of failure of defendants to perform or comply with the covenants, terms and conditions of the GIAs. Compl. ¶ 15. Also, pursuant to the two GIAs, defendants agreed jointly and severally to deposit collateral with SureTec upon demand in an amount determined by SureTec to be sufficient to discharge and/or cover any loss or anticipated losses that SureTec may incur in connection with any bonds issued on behalf of Orchard and/or Orchard II. Compl. ¶ 16. Further, pursuant to the two GIAs, defendants are obligated to indemnify SureTec with respect to liability arising from "any Bond executed on behalf of any Indemnitor or any Principal." Compl. ¶ 17. SureTec alleges that Orchard and Orchard II are principals as that term is defined in the GIAs. Compl. ¶ 20.

Pursuant to the request of defendants, and in reliance on the terms of the GIAs, on or about December 16, 2006, SureTec issued surety bonds on behalf of Orchard II, including but not limited to, Subdivision Performance and Payment Bond No. 4357492 (the "Orchard II Bonds") for the Project. The Orchard II Bonds ensured compliance with the City of Placerville's codes and ordinances in connection with the installation and completion of certain designated public improvements in the City of Placerville, and name the City of Placerville as the obligee. Compl. ¶ 21, Ex. C. Additionally, pursuant to the request of defendants, and in reliance on the terms of the GIAs, on or about February 16, 2007, SureTec issued surety bonds on behalf of Orchard, including but not limited to, Blanket Surety Bond No. 4357494 (the "Orchard Bond") in connection with Orchard's development of the Project. The Orchard Bond names the State of California as the obligee. Compl. ¶ 22, Ex. D.

Prior to November 26, 2008, SureTec received a claim in the amount of $22,270.00 from James A. Kniep, a Trustee ("Kniep"), on the Orchard Bond. Compl. ¶ 24. On or about November 26, 2008, SureTec sent a written letter to defendants, requesting that they contact SureTec immediately in order to advise SureTec of their intentions to resolve Kniep's claim against the Orchard Bond. Compl. ¶ 25, Ex. E. Defendants have failed and/or refused to answer the November 26, 2008 demand letter. Compl. ¶ 26.

On or about December 16, 2008, SureTec entered into a Release and Assignment agreement (the "Release") with Kniep, wherein Kniep agreed to release and discharge SureTec from any demands or causes of action Kniep may have against the blanket surety bond on the condition that SureTec issue to Kniep a check in the amount of $22,270.00. Compl. ¶ 27, Ex. F. On or about December 30, 2008, SureTec issued a check to Kniep in the amount of $22,270.00. Compl. ¶ 28, Ex. G.

On or about January 5, 2009, SureTec received a Proof of Claim from Joe Vicini, Inc. ("Vicini"), a subcontractor and/or materialman to Orchard II, in the amount of $82,558.63 for labor, services, equipment and/or materials incorporated into the Project. Compl. ¶ 29, Ex. H.

On or about January 8, 2009, SureTec received from the City of Placerville, by written letter, a claim against the Subdivision Performance Bond No. 4357492 in the amount of $80,000.00 due to Orchard's default and failure to complete required improvements on the Project. Compl. ¶ 29, Ex. I.

Thus far, SureTec has received claims totaling $184,828.63. Compl. ¶ 31. Defendants have failed and/or refused to either (1) jointly and severally indemnify SureTec or to (2) jointly and severally deposit collateral with SureTec, as required by the GIAs. Compl. ¶ 32. In addition to losses already incurred in connection with the above claims, SureTec has incurred and will continue to incur costs in connection with the Bonds, including possible losses, claim adjustment expenses, consultants' fees and attorneys' fees and costs, as a consequence of SureTec's issuance of the Bonds, plus attorneys' fees, expenses, and costs prosecuting the instant action. Compl. ¶ 33.

SureTec's complaint alleges claims for (1) breach of contract (the GIAs), against all defendants, based on (a) Orchard II's failure and refusal to pay Vicini, Compl. ¶ 37, and SureTec's obligation to investigate and incur costs in relation to this claim, Compl. ¶ 39; (b) Orchard's failure and refusal to pay Kniep, Compl. ¶ 38, and SureTec's investigation and incurred costs in relation to this claim, Compl. ¶ 39; (c) demands made by the City of Placerville on Orchard II for completion of the required subdivision improvements on the Project; Orchard II's failure and refusal to complete performance of the required subdivision improvements on the Project; and SureTec's obligation to investigate and incur costs in relation to this claim, Compl. ¶ 40, 41; (d) SureTec's demands that defendants honor their obligations under the GIAs, and defendants' failure and refusal to indemnify SureTec or deposit collateral, Compl. ¶ 42; and (e) SureTec's requirement to now investigate the claims made by Vicini and the City of Placerville and to pay them any amounts owed by defendants, Compl. ¶ 43; (2) specific performance of the indemnity agreements, against all defendants; (3) declaratory relief, against all defendants; (4) implied indemnity, against all defendants; (5) quia timet, against all defendants; and (6) statutory reimbursement, against Orchard and Orchard II.

II. SERVICE OF PROCESS

SureTec made numerous attempts, in both California and Florida, to serve the summons and complaint on defendants via personal service and via a waiver of service. Despite its efforts, SureTec was not able to personally serve defendants or obtain their waiver of service. Dckt. No. 24 at 3; Robbins Decl. ¶ 4. Therefore, on May 6, 2009, SureTec obtained approval from the district judge in this action to serve all defendants by publication. Dckt. No. 10.

On June 26, 2009, SureTec filed a notice of service by publication, indicating that on June 17, 2009, service on defendants was complete in California by publishing a summons once a week for four consecutive weeks (on May 27, June 3, June 10, and June 17, 2009) in a newspaper of general circulation, the Mountain Democrat. Service on defendants was complete in Florida by publishing summons in the Sarasota Herald-Tribune (on May 29, June 5, June 12, and June 19, 2009). Dckt. No. 15.

On July 20, 2009, SureTec requested entry of default against all defendants. Dckt. No. 16. The clerk entered defendants' default on July 21, 2009. Dckt. No. 17. On June 14, 2010, SureTec moved for default judgment against all defendants. Dckt. No. 24. To date, defendants have not appeared in this action or responded to SureTec's complaint. Dckt. No. 24 at 4; Robbins Decl. ¶ 7.

Federal Rule of Civil Procedure ("Rule") 4(e)(1) provides that, where service is not waived, a person may be served in a judicial district of the United States by: "(1) following state law for serving a summons in an action brought in courts of general jurisdiction in the state where the district court is located or where service is made." Rule 4(h)(1)(A) further provides that "a domestic or foreign corporation, or a partnership or other unincorporated association that is subject to suit under a common name, must be ...


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