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Travelers Casualty and Surety Company of America v. Highland Partnership

November 26, 2012

TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA,
PLAINTIFF,
v.
HIGHLAND PARTNERSHIP, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Hon. Anthony J. Battaglia U.S. District Judge

ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT ON ITS FIRST AMENDED COMPLAINT; AND GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT ON DEFENDANTS' COUNTERCLAIM (Doc. No. 87)

Presently before the Court is Plaintiff Travelers Casualty and Surety Company of America's ("Travelers") motion for summary judgment, (Doc. No. 87), on its First Amended Complaint ("FAC"), (Doc. No. 22). Travelers also seeks summary judgment on the only cause of action remaining in Defendants' Counterclaim. (Doc. No. 36.) On September 17, 2012, Defendants filed an opposition, (Doc. No. 104), and on October 1, 2012, Travelers filed a reply, (Doc. No. 105). In accordance with Civil Local Rule 7.1.d.1, the Court finds this motion suitable for determination on the papers and without oral argument. Accordingly, the motion hearing scheduled for November 30, 2012, is hereby vacated. For the reasons set forth below, the Court GRANTS in part and DENIES in part Travelers' motion for summary judgment as to all causes of action set forth in Travelers' FAC, and GRANTS Travelers' motion with respect to the remaining cause of action for breach of contract in Defendants' Counterclaim.

BACKGROUND

On August 18, 2004, Highland Partnership ("Highland") entered into a contract with First Avenue Partners ("FAP") for the construction of a project called the Diegan Hotel in downtown San Diego (the "Project"). (Doc. No. 36 ¶ 13.) Highland was the general contractor for construction, and FAP was the developer and owner of the hotel. (Id.) To finance the construction, FAP obtained a loan in the amount of $67,815,000 from WestLB, a banking corporation. (Id. at ¶ 14.)

In April 2006, Highland obtained a labor and materials bond and a performance bond from Travelers in connection with the Project (collectively, the "Bonds"). (Id. at ¶ 15.) Each Bond was issued in the penal sum of $62,999,039.00, with Highland as the principal under the Bonds guaranteeing Highland's payment and performance obligations on the Project. (Doc. No. 87; Brown Decl., ¶ 7.) As partial consideration for Travelers' issuance of the Bonds, Travelers required Highland to enter into an Indemnity Agreement (the "Indemnity Agreement"). (Id.) The Indemnity Agreement was signed on April 11, 2006, by Defendants Highland Partnership, Bay Boulevard, Ian Murray Gill, Gail Stoorza Gill, John David Gardner, Carolyn Marie Gardner, and the Gill Family Trust.*fn1 (Doc. No. 22 ¶ 15; Ex. A.) Under the terms of the Indemnity Agreement, Defendants are obligated to "exonerate, indemnify and save [Travelers] harmless from and against all Loss." (Id.) The Indemnity Agreement also requires Defendants to deposit with Travelers, upon demand, an amount as determined by Travelers sufficient to discharge any loss or anticipated loss incurred as a result of issuing the Bonds.*fn2 (Id. at ¶ 16.)

On May 5, 2008, Highland terminated its agreement with FAP due to numerous breaches by*fn3 (Id. at ¶ 18.) This termination resulted in arbitration, wherein Highland, FAP, and Travelers were parties (the "FAP Arbitration"). (Doc. No. 87; Brown Decl., ¶ 10.) Both FAP and Highland alleged the other breached the Construction Agreement, and FAP also filed a claim against Travelers on the performance bond demanding that Travelers either complete performance on the Project or provide a third party contractor to complete performance.*fn4 (Doc. No. 36 ¶ 20.)

In November 2008, Travelers asked Highland to enter into a Joint Defense Agreement to aid in the resolution of claims made by FAP, in addition to other subcontractors, suppliers, and trade unions seeking payment as a result of work on the Project. (Id. at ¶ 21.) Travelers' request was predicated on the fact that it anticipated that given FAP's conduct and non-payment, litigation relating to the Project was inevitable. (Id.) Highland claims it spent significant time and expense in the FAP Arbitration, which ultimately found that Travelers' performance bond was exonerated due to FAP's breach of the construction agreement. (Id. at ¶¶ 22-23.)

In addition to FAP's claims against Travelers, Travelers has been sued by no less than nineteen subcontractors or suppliers of Highland who have sought, or are currently seeking, to receive payment due to them under Travelers' payment Bond. (Doc. No. 87; Brown Decl., ¶ 13.) A list of these suits and the status of each matter is as follows:*fn5

1. Alcala Company v. Travelers et al. (San Diego Superior Court, Case No. 37-2008-00090450). Travelers paid Alcala $75,000 to settle this claim. Settlement was negotiated by Highland.

2. Brewer Crane & Rigging v. 5th Avenue Partners, LLC et al, (San Diego Superior Court, Case No. 37-2008-00086146). Travelers paid Brewer $15,000 to settle this claim. Settlement was negotiated by Highland.

3. Casper Concrete Cutting, Inc. v. Highland Partnership, Inc. et al., (San Diego Superior Court, Case No. 37-2008-00088718). Travelers paid Casper $80,000 to settle this claim. Settlement was negotiated by Highland.

4. Whillock Contracting v. Highland Partnership, Inc. et al. (San Diego Superior Court, Case No. 37-2009-00082618). Travelers paid Whillock $17,465.78 to settle this claim. Settlement was negotiated by Highland.

5. Quality Cabinet & Fixture Co. v. Highland Partnership, Inc. et al. (San Diego Superior Court, Case No. 37-2008-00091966. Highland agreed to pay Quality Cabinet $237,000 in payments over a six month term. Travelers agreed to pay and did pay Quality Cabinet upon Highland's failure to make the settlement payments.

6. California Comfort Systems USA, Inc. v. 5th Avenue Partners, LLC (San Diego Superior Court, Case No. 37-2009-00093578). Travelers paid California Comfort $200,000 to settle this claim.

7. Gabbard Hardware Co., Inc. v. Highland Partnership, Inc. et al. (San Diego Superior Court, Case No. 37-2009-00099879). Travelers paid Gabbard $65,000 to settle this claim.

8. Diversified Window Coverings, Inc. v. Highland Partnership, Inc. et al. (San Diego Superior Court, Case No. 37-2008-00093719). Travelers paid Diversified $26,000 to settle this claim.

9. Harris Concrete v. Highland Partnership, Inc. et al. (American Arbitration Association, Case No. 73 110 Y 03350 09 MIlA). Travelers paid Harris $250,000 to settle this claim.

10. Cecilia's Safety Service, Inc. v. Highland Partnership, Inc. et al. (San Diego Superior Court, Case No. 37-2008-00091709). Travelers paid Cecilia $58,000 to settle this claim.

11. Howard's Rug Company of San Diego v. Highland Partnership, Inc. et al. (San Diego Superior Court, Case No. 37-2009-00091525). Travelers paid Howard $55,000 to settle this claim.

12. Wirtz Tile & Stone v. Highland Partnership, Inc. et al. (San Diego Superior Court, Case No. 37-2009-00104652). Travelers paid Wirtz $112,000 to settle this claim.

13. San Diego Steel Holdings f/k/a Pacific Coast Steel, Inc. v. 5th Avenue Partners, LLC, et al., (San Diego Superior Court, Case No. 37-2008-00088969). Travelers paid San Diego Steel $204,369 to settle this claim.

14. Carpenters Southwest Admin. Corp. v. 5th Avenue Partners, LLC, et al. (San Diego Superior Court, Case No. 37-2007-00084095). Travelers paid Carpenters $39,250 to settle this claim.

15. Buxcon Sheet Metal, Inc. v. Fifth Avenue Partners, LLC, et al. (San Diego Superior Court, Case No. 37-2011-00095723-CU-BC-CTL). Buxcon dismissed Travelers from this action.

16. Dynalectric Co., Inc. v. 5th Avenue Partners, LLC et al. (San Diego Superior Court, Case No. 37-2009-00088141). This suit is pending. Dynalectric claims as due $1,432,848 from Travelers.

17. Allied West Co., Inc. v. TWD, LLC et al. (San Diego Superior Court, Case No. 37-2008-00092086.) This suit is pending. Allied claims as due $39,650 from Travelers.

18. Raymond San Diego, Inc. v. 5th Avenue Partners, LLC, et al. (San Diego Superior Court, Case No. 37-2009-00091892). This suit is pending. Raymond claims as due $237,647 from Travelers.

19. Angus Asphalt, Inc. v. Fifth Avenue Partners, LLC, et al. (San Diego Superior Court, Case No. 37-2009-00092535-CU-BC-CTL.) This suit is pending. Angus claims as due $28,511 from Travelers.

To date, Travelers' total losses resulting from payment on the Bonds is $3,592,854; $1,549,187 of which has been paid to settle claims, and $2,043,667 of which has been paid as attorneys' fees and other expenses associated with payment on the Bonds. In addition, Travelers alleges it has been, and continues to be, required to investigate claims, adjust claims, and defend itself against claims on the Bonds. (Doc. No. 87.) Travelers estimates that its current exposure on the Payment Bond is in excess of $2,000,000, inclusive of expenses and fees. (Id.)

On December 6, 2010, Travelers filed the original Complaint against Defendants seeking indemnity for payments it already made to settle Bond claims, as well as fees and costs incurred. (Doc. No. 1.) On January 24, 2011, Travelers filed the operative FAC, and on March 4, 2011, Defendants filed their Answer and Counterclaims.*fn6 (Doc. No. 36.) On March 24, 2011, Travelers moved to dismiss Defendants' counterclaims, (Doc. No. 46), and on September 20, 2011, the Court granted Travelers' motion with respect to all claims, with leave to amend, except Defendants' fourth cause of action for breach of the Joint Defense Agreement, (Doc. No. 73). As Defendants elected not to file an amended Counterclaim, the only cause of action remaining alleges Travelers breached the Joint Defense Agreement. On July, 16, 2012, Travelers filed the instant motion for summary judgment requesting adjudication of their FAC and Defendants' remaining Counterclaim. (Doc. No. 87.)

DISCUSSION

A surety bond is a "written instrument executed by the principal and surety in which the surety agrees to answer for the debt, default, or miscarriage of the principal." Butterfield v. Northwestern Nat'l Ins. Co. (1980) 100 Cal.App.3d 974, 978, 161 Cal.Rptr. 280 (internal quotations omitted); See also Cal. Civ. Code, ยง 2787. When a surety bond is issued, the risk of loss remains with the principal, while the surety merely lends its credit so as to guarantee payment or performance in the event that the principal defaults. ...


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