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Travelers Casualty and Surety Co. of America v. RJ Lanthier Co., Inc.

United States District Court, S.D. California

September 2, 2014

TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA, Plaintiff,
v.
R.J. LANTHIER COMPANY, INC., a California corporation; BRENT L. BOYD, an individual; NANCY K. BOYD, an individual; RICHARD RACETTE, an individual; KATHLEEN SUE RACETTE, an individual; BOYD FAMILY TRUST; G.I. BECHTHOLD CORPORATION, a California corporation; DONNA BECHTHOLD, an individual; GLENN BECHTHOLD, an individual, Defendants. RICHARD RACETTE, an individual, and KATHLEEN SUE RACETTE, an individual, Counter-claimants,
v.
TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA; G.I. BECHTHOLD CORPORATION, a California corporation; DONNA BECHTHOLD, an individual; GLENN BECHTHOLD, an individual Counter-defendants. R.J. LANTHIER COMPANY, INC., a California corporation; BOYD FAMILY TRUST; BRENT L. BOYD, an individual and trustee of the BOYD FAMILY TRUST; NANCY K. BOYD, an individual and trustee of the BOYD FAMILY TRUST, Counter-claimants,
v.
TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA, a Connecticut corporation, Counter-defendant. R.J. LANTHIER COMPANY, INC., a California corporation; BOYD FAMILY TRUST; BRENT L. BOYD, an individual and trustee of the BOYD FAMILY TRUST; NANCY K. BOYD, an individual and trustee of the BOYD FAMILY TRUST, Cross-claimants,
v.
G.I. BECHTHOLD CORPORATION, a California corporation; DONNA BECHTHOLD, an individual; and GLENN BECHTHOLD, an individual, Cross-defendants. G.I. BECHTHOLD CORPORATION, a California corporation; DONNA BECHTHOLD, an individual; and GLENN BECHTHOLD, an individual, Counter-claimants,
v.
TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA, a Connecticut corporation, Counter-defendant. G.I. BECHTHOLD CORPORATION, a California corporation; DONNA BECHTHOLD, an individual; and GLENN BECHTHOLD, an individual, Cross-claimants,
v.
R.J. LANTHIER COMPANY, INC., a California corporation; BOYD FAMILY TRUST; BRENT L. BOYD, an individual and trustee of the BOYD FAMILY TRUST; NANCY K. BOYD, an individual and trustee of the BOYD FAMILY TRUST; RICHARD RACETTE, an individual; KATHLEEN SUE RACETTE, an individual; and DOES 1 through 10, inclusive, Cross-defendants.

ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS; GRANTING LEAVE TO AMEND

JEFFREY T. MILLER, District Judge.

Plaintiff Travelers Casualty and Surety Company of America ("Travelers") moves to dismiss portions of the counterclaims filed by Counter-claimants, Cross-Claimants and Defendants R. J. Lanthier Company, Inc. ("RJL"), Boyd Family Trust, Brent L. Boyd, and Nancy K. Boyd (the "Boyds") and the counterclaims filed by Counter-claimants, Cross-defendants, and Defendants Richard Racette and Kathleen Sue Racette (collectively the "Racettes"). All motions are opposed. Pursuant to Local Rule 7.1(d)(1), the court finds the matters presented appropriate for decision without oral argument. For reasons set forth below, the court grants Travelers' motion to dismiss the breach of the covenant of good faith and fair dealing counterclaim and the breach of contract claim counterclaim, denies and defers ruling on the motion to dismiss the declaratory relief counterclaim, and grants moving Counter-claimants 15 days leave to amend from the date of entry of this order.

BACKGROUND

The Complaint

On December 10, 2013, Travelers commenced this diversity action alleging five claims for relief: (1) Statutory Indemnity, (2) Breach of Contract, (3) Quia Timet, (4) Declaratory Relief; and (5) Specific Performance. On October 3, 2001, Defendants RJL and the Boyds executed an indemnity agreement promising Travelers "to exonerate, indemnify and save [Travelers] harmless from and against every claim, loss, damage, demand" arising from the execution of certain construction bonds issued on behalf of Lanthier as the bond principal (the "RJL Bonds"). (Compl. ¶16). On March 1, 2010, Defendants RJL, the Boyds, and the Racettes executed the General Agreement of Indemnity ("GAI") at issue. Under the GAI, Defendants are obligated to "exonerate, indemnify, and save [Travelers] from and against all Loss." (Compl. ¶17, Exh. B). Also on or about March 1, 2010, Defendants Bechthold Corporation, Donna Bechthold, and Glenn Bechthold (collectively the "Bechtholds") executed a General Agreement of Indemnity Additional Indemnitor Rider ("GAIR"). The GAIR also provided that the Bechtholds would "exonerate, indemnify, and save [Travelers] from and against all Loss." (Compl. ¶18, Exh. B). At the heart of Travelers' complaint is the allegation that, following RJL's default on the bonded projects, it paid about $6, 751, 915.58 on its surety obligations. (Compl. ¶21).

On November 21, 2013, Travelers sent a demand letter to the Defendants seeking $6, 751, 915.58 to recover Travelers' anticipated losses on the RJL Bonds. Defendants "have failed to comply with Travelers' demands." (Compl. ¶23).

Racettes' Counter and Cross Claims

On March 5, 2014, the Racettes filed an answer and counterclaim against Travelers. (Ct. Dkts. 14, 15). The answer generally denies the complaint's allegations. In their counterclaim, the Racettes allege that in early 2013 RJL experienced cash-flow problems and needed additional financing to help the company cover overhead expenses such as payroll. (Counterclaim "CC" ¶16). On January 17, 2013, Richard Racette, a 2% owner of RJL, and Brent Boyd met with Travelers and discussed the possibility of Travelers providing RJL with cash flow assistance. After several conversations with Travelers, the Racettes allege Travelers indicated a willingness to provide financial assistance and required a 50% collateral for any loan.[1] (CC ¶22). The parties discussed financial assistance in the range of $750, 000 to $1, 00, 000.

On February 15, 2013, Brent Boyd believed that Travelers was willing to reduce the collateral requirements and provide RJL with overhead assistance. On February 19, 2013, Travelers "informed RJL that it required a minimum of $500, 000 collateral to provide overhead assistance on bonded projects only." (CC ¶24). The Racettes allege that "had Travelers been more upfront in its collateral requests, RJL and Counter-Claimants would have been able to refocus its efforts into seeking alternative sources of funding, keep the projects going and the bonding intact." (CC ¶26). Thereafter, Travelers allegedly refused to issue bonds on new projects or to issue bonds on future projects without RJL providing additional capital or a substantial security deposit.

The Racettes allege that "[w]ithout the capability to obtain bonds on future projects, RJL was unable to obtain and complete work" on existing projects, thereby defaulting on existing projects. (CC ¶27). After RJL defaulted on the bonded projects, on November 29, 2013, Travelers demanded payment in the amount of $6, 751, 915.58. At some unidentified point in time, Travelers cancelled three issued bonds. Id.

Based upon the above generally described conduct, the Racettes allege four counter-claims for (1) breach of the covenant of good faith and fair dealing; (2) breach of contract; (3) negligent misrepresentation; and (4) contribution against all Cross-defendants. The court notes that the only Cross-defendants identified in the CC are the Bechtholds.

RJL and the Boyds' Counter and Crossclaims

On March 7, 2014, RJL and the Boyds filed an answer to the complaint, a counterclaim against Travelers, and a crossclaim against the Bechtholds. RJL and the Boyds assert the same counterclaims against Travelers as the Racettes in addition to a declaratory relief claim based upon the same general allegations as the Racettes. ...


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