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Travelers Casualty and Surety Co. of America v. K.O.O. Construction, Inc.

United States District Court, N.D. California

June 8, 2017

TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA, Plaintiff,
v.
K.O.O. CONSTRUCTION, INC., et al., Defendants.

          ORDER DENYING MOTION TO INTERVENE AND GRANTING MOTION TO AMEND ATTACHMENT ORDER RE: DKT. NOS. 88, 98

          JOSEPH C. SPERO Chief Magistrate Judge.

         I. INTRODUCTION

         In this diversity jurisdiction action under California law, Plaintiff Travelers Casualty and Surety Company of America ("Travelers") alleges that Defendants K.O.O. Construction, Inc. ("K.O.O.") and Keith Odister, K.O.O.'s president and CEO, breached contractual indemnity obligations relating to construction projects. The Court previously granted in part and denied in part Travelers' motion for partial summary judgment and motion for attachment. See Order re Mot. for Partial Summ. J. & Mot. for Attach. ("December Order, " dkt. 75).[1]Travelers now moves to modify the attachment order to reach property that it has since discovered is held by the Keith O. Odister Trust (the "Odister Trust"). Great American Insurance Company ("Great American, " also referenced by the parties as "GAIC") moves to intervene based on interest it claims to have in the property at issue. The Court held a hearing on May 26, 2017. For the reasons discussed below, Great American's motion to intervene is DENIED, and Travelers' motion to amend the attachment order is GRANTED.[2]

         II. BACKGROUND

         A. Procedural History

         Travelers filed this action in January of 2016, and filed a First Amended Complaint on February 29, 2016. See Compl. (dkt. 1); 1st Am. Compl. (dkt. 11). Defendants filed counterclaims in April of 2016 but amended and later voluntarily dismissed their counterclaims after Travelers moved to dismiss them. See dkts. 16, 41, 53.

         Travelers filed a motion for partial summary judgment (dkt. 58) and a motion for a right to attach order (dkt. 59) on August 26, 2016. After granting a series of stipulations continuing briefing deadlines and the hearing date for those motions, the Court heard argument on December 16, 2016, and granted in part and denied in part both motions. At that hearing, counsel for Defendants suggested that Great American might have an interest in certain property at issue, but Great American made no appearance in the action at that time.

         The Court held that Travelers sufficiently established Defendants' liability as to certain claims that Travelers paid on bonded construction projects, but did not resolve other alleged grounds for liability or any credits to which Defendants might be entitled. December Order at 14-15. The Court also held that Travelers was entitled under California law to attach $2, 743, 193.81 based on the probable validity of its claims that Defendants breached an indemnity agreement by failing to provide required collateral and failing to indemnify Travelers for certain payments. Id. at 17-20. The Court issued one order explaining its reasoning, see generally id., and a separate order setting forth categories of K.O.O.'s and Odister's property subject to attachment, including but not limited to five parcels of real property and “any other real property in which [Odister] holds a right, title or interest.” See dkt. 76 ¶ 6.a. The Clerk later issued two writs of attachment, one in the name of each defendant, incorporating the list of property set forth by the Court. See dkts. 81, 82.

         On Friday, February 3, 2017, the Court received a letter (dkt. 83) from Odister requesting that certain accounts be released from attachment in order to allow K.O.O. to continue to operate and pay its employees, which the Court construed as an emergency motion. The Court held a telephonic hearing the same day, ordered the parties to meet and confer to attempt to negotiate a resolution, and set a second hearing for Monday, February 6, 2017, which the Court invited Great American to join. Civil Minute Order (dkt. 83). Counsel for Travelers, Defendants, and Great American appeared telephonically at the second hearing and reported that they had not reached a resolution, and the Court denied the emergency motion. Civil Minute Order (dkt. 87).

         Travelers filed its present motion to amend the attachment order on March 17, 2017. Great American moved to intervene on April 14, 2017. Pending a decision on the motion to intervene, the Court granted Great American leave to file a brief in opposition to Travelers' motion and continued the hearing on Travelers' motion to allow both motions to be heard together.

         B. Motion to Amend Previous Order[3]

         1. Travelers' Motion to Amend Right to Attach Order

         Travelers moves to amend the previously-issued right to attach order in two respects. First, Travelers seeks to include property owned by the Odister Trust, which Travelers contends is Odister's revocable living trust to which he transferred four of the parcels of real property included in the previous attachment order. Mot. to Amend (dkt. 88) at 1-2, 3-4. Travelers asserts that it discovered that the properties were held by the Odister Trust after issuance of the previous attachment order, but does not claim that Odister transferred the properties for the purpose of evading attachment; to the contrary, the declaration and deeds that Travelers submits with its motion show that Odister transferred the properties to the Odister Trust several years before the start of this litigation. See Id. at 1, 3-4; Van Ornum Decl. (dkt. 88-1) ¶ 3 & Exs. A-G. Second, Travelers seeks to add to the attachment order three additional properties that it discovered were owned by the Odister Trust. Mot. to Amend at 2-3.

         According to Travelers, California law treats property held in a revocable trust as property of the settlor, allowing creditors of the settlor to access such property. Id. at 4-5. Travelers does not submit actual trust documents, which it contends Defendants have refused to produce, but relies instead on Odister's certifications on the transfer deeds and in a document submitted to a financial institution as evidence that the Odister Trust is revocable. Id. at 1-2, 4 (citing Van Ornum Decl. ¶¶ 2, 4, 7 & Ex. H). Travelers contends that property of the Odister Trust is therefore subject to attachment, and notes that Defendants did not contest that the properties at issue were subject to attachment either in response to Travelers' first motion for attachment or in Odister's letter requesting that the Court release K.O.O.'s payroll accounts. Id. at 5-6. According to Travelers, all of the property at issue was already subject to the previous attachment order, but amendment is warranted to clarify its scope. Id. at 6.

         2. Defendants' Opposition

         Defendants primarily oppose Travelers' motion on the grounds that, according to Defendants, whether revocable trust property is subject to a writ of attachment is an issue of first impression in California, and in the absence of authority directly on point, Travelers has not met its burden to show that it is entitled to attachment. Opp'n to Amendment (dkt. 90) at 4-7. Defendants note Travelers' failure to provide the trust documents, and assert that Defendants agreed to produce those documents subject to a protective order, but “Travelers has yet to provide a draft of such an agreement” as of the filing of Defendants' opposition. Id. at 1-2. Defendants also argue that Travelers' motion should be denied because Travelers failed to conduct due diligence to determine the ownership of the property at issue before filing its first motion for attachment, and accuse Travelers of “subtrafuge” (sic) for “subtly attempt[ing] to paint the creation of the Trust and the transfer of the real property assets into the Trust as being part of a scheme to shield assets from the reach of creditors, ” when Odister instead created the Trust and transferred property to it as routine estate planning well before the events at issue. Id. at 2, 3-4.

         3. Travelers' Reply

         Travelers argues that California law clearly requires the Court to disregard a revocable trust, although it cites no case applying that rule in the context of attachment. Reply re Amendment (dkt. 95) at 1-2. According to Travelers, allowing attachment of revocable trust assets follows from case law allowing collection of a judgment debt from such assets. Id. at 2-4. Travelers also contends that Defendants do not dispute that the Odister Trust is revocable or that Odister transferred the property at issue to the trust, and that Odister effectively admitted that the property is subject to attachment in his letter to the Court seeking release of the payroll accounts. Id. at 1, 4-5.

         C. Motion to Intervene by Great American

         1. Great American's Motion

         Great American seeks to intervene in this action to protect its purported interest in real property conveyed to Great American by deeds of trust, as well as other assets required to pay subcontractors and suppliers on projects bonded by Great American. See Mot. to Intervene (dkt. 98) at 3. Great American relies on Rule 24(a)(2) of the Federal Rules of Civil Procedure, which provides that a party may intervene by right if it “'claims an interest relating to the property or transaction that is the subject of the action, and is so situated that disposing of the action may as a practical matter impair or impede the movant's ability to protect its interest, unless existing parties adequately represent that interest.'” Id. at 4 (quoting Fed.R.Civ.P. 24(a)(2)). According to Great American, it satisfies the four elements required by the Ninth Circuit for intervention under that rule because: (1) it timely moved to intervene after negotiations among the parties broke down and Travelers filed its present motion to amend the attachment order; (2) it “has deeds of trusts and perfected assignments and rights under the indemnity agreement and common-law” related to the property at issue; (3) attachment of the property and disposition of this action could affect those rights; and (4) “the existing parties have interests that diverge from GICC's [sic] interests and may interfere with of [sic] violate GAIC's rights.” Id. at 4-5 (citing Citizens for Balanced Use v. Mont. Wilderness Ass'n, 647 F.3d 893, 897 (9th Cir. 2011)).

         Great American attaches a proposed intervening complaint for declaratory relief, seeking a declaration that its rights are superior to Travelers' with respect to assets that Defendants assigned to Great American, that funds to be paid on contracts bonded by Great American are not subject to attachment, and that any order or writ issued by this Court “should not impair GAIC's rights.” Id. Ex. A (“Proposed Intervening Compl.”).

         Great American's motion is supported by a declaration of its divisional vice president Timothy Martin, who states that Great American entered an indemnity agreement with Defendants in 2014 and later advanced more than two million dollars to allow K.O.O. to complete projects bonded under the indemnity agreement when K.O.O. “was experiencing cash flow difficulties.” Martin Decl. (dkt. 98-4) ¶¶ 2-5. Martin states that Defendants pledged certain assets-including each parcel of real property included in Travelers' proposed amended attachment order-to Great American as collateral for that advance, referencing deeds of trust attached to the proposed intervening complaint. Id. ΒΆΒΆ 6-8; Proposed Intervening Compl. Ex. B. Martin also states that if Travelers attaches funds ...


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