Filed: Dec. 28, 2018
Latest Update: Dec. 28, 2018
Summary: STATEMENT OF UNCONTROVERTED FACTS AND CONCLUSIONS OF LAW MANUEL L. REAL , District Judge . UNCONTROVERTED FACTS Issue 1: Plaintiff is Entitled to Summary Judgment on its Second Claim for Breach of Written Contract Against Defendants Frontier Homes, LLC; James L. Previti; FH Construction Management; and Frontier Homebuilders, Inc. (aka Frontier Homes Builders): 1. The Continuing Agreement of Indemnity dated 1/3/06 ("CAI") was signed by Frontier Homes, LLC; FH Construction Management Corp
Summary: STATEMENT OF UNCONTROVERTED FACTS AND CONCLUSIONS OF LAW MANUEL L. REAL , District Judge . UNCONTROVERTED FACTS Issue 1: Plaintiff is Entitled to Summary Judgment on its Second Claim for Breach of Written Contract Against Defendants Frontier Homes, LLC; James L. Previti; FH Construction Management; and Frontier Homebuilders, Inc. (aka Frontier Homes Builders): 1. The Continuing Agreement of Indemnity dated 1/3/06 ("CAI") was signed by Frontier Homes, LLC; FH Construction Management Corpo..
More
STATEMENT OF UNCONTROVERTED FACTS AND CONCLUSIONS OF LAW
MANUEL L. REAL, District Judge.
UNCONTROVERTED FACTS
Issue 1: Plaintiff is Entitled to Summary Judgment on its Second Claim for Breach of Written Contract Against Defendants Frontier Homes, LLC; James L. Previti; FH Construction Management; and Frontier Homebuilders, Inc. (aka Frontier Homes Builders):
1. The Continuing Agreement of Indemnity dated 1/3/06 ("CAI") was signed by Frontier Homes, LLC; FH Construction Management Corporation, LLC; Frontier Homebuilders, Inc.1; and James Previti, an Individual, as "Contractor".
Final Pretrial Conference Order entered 11/5/18 ("Final Order"), p. 5/12-15, Admitted Fact No. 10; Appendix of Exhibits concurrently filed ("App."), Ex. 2.2
2. It is undisputed that the CAI was signed by and binding on Frontier Homes, LLC; FH Construction Management Corporation, LLC; Frontier Homebuilders, Inc.; and James Previti, an Individual.
Final Order p. 5/12-15, Admitted Fact No. 11; App. Ex. 2.
3. Pursuant to the CAI, these Defendants obligated themselves to:
"indemnify, and keep indemnified, and hold and save harmless the Surety against all demands, claims, loss, costs, damages, expenses and attorneys' fees whatever, and any and all liability therefor, sustained or incurred by the Surety by reason of executing or procuring the execution of any said Bond or Bonds, or any other Bonds, which may be already or hereafter executed on behalf of the Contractor, or renewal or continuation thereof; or sustained or incurred by reason of making any investigation on account thereof, prosecuting or defending any action brought in connection therewith, obtaining a release therefrom, recovering or attempting to recover any salvage in connection therewith or enforcing by litigation or otherwise any of the agreements herein contained. Payment of amounts due Surety hereunder together with legal interest shall be payable upon demand."
CAI, App. Ex. 2, ¶ SECOND.
4. These Defendants further agreed in the CAI that Plaintiff:
"shall have the exclusive right to decide and determine whether any claim, demand, suit or judgment upon said Bond or Bonds shall, on the basis of liability, expediency, or otherwise, be paid, settled, defended or appealed, and its determination shall be final, conclusive and binding upon the Undersigned (except as provided in Section Ninth (C) hereof); and any loss, costs, charges, expense or liability thereby sustained or incurred, as well as any and all disbursements on account of costs, expenses and attorneys' fees, deemed necessary or advisable by the Surety, shall be borne and paid immediately by the Undersigned, together with legal interest. In the event of any payment, settlement, compromise or investigation, an itemized statement of the payment, loss, costs, damages, expenses or attorneys' fees, sworn to by any officer of the Surety or the voucher or vouchers or other evidence of such payment, settlement or compromise, shall be prima facie evidence of the fact and extent of the liability of the Undersigned to the Surety in any claim or suit hereunder and in any and all matters arising between the Undersigned and the Surety.
CAI, App. Ex. 2, ¶ TENTH; see also ¶ NINTH (c).
5. Defendants nonetheless had the right to require Plaintiff to litigate any claim or demand under the bonds by submitting to Plaintiff a written request therefore accompanied by "cash or collateral satisfactory to the Surety in kind and amount to be used in paying any judgment or judgments rendered with interest, costs and attorney's fees."
CAI, App. Ex. 2, ¶ NINTH (c).
6. At Defendants' request, Plaintiff issued an array of Performance bonds, Labor and Material bonds, and other construction bonds in favor of, inter alia, the City of Victorville and the City of Lancaster, naming as principals, inter alia, Frontier Homes, LLC, Sorrento Hills, LLC, and Falcon Pointe, LLC/Frontier Homes.
Declaration of Jackie Muro concurrently filed ("Muro Dec."), ¶ 4; Bonds, App., Ex. 3.
7. On September 13, 2011, Plaintiff was ordered into liquidation by Order of the Third Judicial District Court of Salt Lake County, State of Utah, pursuant to the Uniform Insurer's Liability Act ("UILA") in the form adopted by the State of Utah. The Court issued a stay of any actions against Plaintiff, and set a new deadline of March 9, 2012, for filing of claims against Plaintiff.
Liquidation Order, Declaration of Insolvency and Restraining Orders, App. Ex. 1, esp. ¶¶ 7, 11-13 & 16; Final Order, p. 7, Admitted Fact No. 26.
8. Plaintiff notified Defendants in writing of the liquidation proceedings, explaining the liquidation process and the procedure for opposing claims therein in the Utah Court.
Muro Dec., ¶ 6; App. Ex. 15.
9. The City of Victorville timely tendered its claim against the bonds issued to it in the amount of $1,047,994.20, representing 40% of the total bond amount.
Proof of Claim, App. Ex. 4.
10. The City of Lancaster timely tendered its claim against the bonds issued to it in the amount of $41,065,282.35.
Proof of Claim, App. Ex. 5.
11. Defendants never demanded that Plaintiff defend or litigate either of these claims, and never deposited the required collateral, pursuant to CAI ¶ 9(c).
Muro Dec., ¶ 9.
12. Plaintiff therefore proceeded in accord with the CAI to investigate the claims. Ultimately, it determined that the City of Victorville was entitled to recover $1,047,994.00 on its claim. Plaintiff also determined that the City of Lancaster was entitled to recover only $9,180,293.96 (or about 22%) of the amount it claimed; of which $875,792.84 is attributable to the bonds at issue in this action.
Notices of Determination, App. Exs. 6 & 7; Final Order, p. 7, Admitted Facts Nos. 27 & 28.
13. The Notices of Determination were thereafter submitted to the Utah court handling the liquidation proceedings for review and approval. The Utah Court thereafter approved the claims in these amounts by its July 29, 2014, Order Granting Liquidator's Recommendation and Motion Regarding Claims, and its August 20, 2014, Amended Order Granting Liquidator's Recommendation and Motion Regarding Claims.
Muro Dec., ¶¶ 7-8; App. Ex. 8; Final Order, p. 8, Admitted Fact No. 29
14. Plaintiff made multiple written demands on Defendants for payment of the amounts owed, which demands were received by Defendants.
Muro Dec., ¶¶ 12-14; Demand letters, App. Exs. 9-11; Final Order p. 5, ¶ 13, Admitted Facts No. 13.
15. Defendants never contested the NODs or the Utah Court Orders approving same upon receipt of any of the demand letters, pursuant to the Utah Code controlling the liquidation proceedings.
Muro Dec., ¶ 14.
16. Defendants never secured releases of the claims from either City, as both Cities continue to assert their right to collect on their claims in order to complete the work for which Defendants were responsible.
Muro Dec., ¶ 11.
17. Defendants have never paid to Plaintiff or to the Cities themselves any part of the monies determined to be due under the NODs.
Muro Dec., ¶ 15; Final Order, p. 7, Admitted Fact No. 30.
Issue 2: Plaintiff is Further Entitled to Summary Judgment on its Second Claim for Breach of Written Contract Against Defendants Sorrento Hills, LLC, and Falcon Pointe, LLC:
18. James Previti signed the CAI on behalf of himself and on behalf of Defendants Frontier Homes, LLC, and Frontier Homes Builders aka Frontier Homebuilders, Inc.
CAI, App. Ex. 2-3, signature lines; Final Order, p. 5, Admitted Fact No. 10.
19. James Previti signed the CAI on behalf of Frontier Homes, LLC's "subsidiaries, affiliated partnerships, joint ventures, limited liability companies or corporations, now in existence or hereafter created whether partially or wholly owned and controlled, as fully as if the names of such subsidiaries, affiliated partnerships, joint ventures, limited liability companies or corporations appeared hereafter as principal, for which Western Insurance Company now is or hereafter becomes surety".
CAI, App. Ex. 2-3, signature lines.
20. Frontier Homes, LLC, is the Managing Member of Defendant Sorrento Hills, LLC; therefore Sorrento Hills, LLC, is a limited liability company affiliated with Frontier Homes, LLC, within the meaning of the CAI.
CA Secretary of State records, App. Ex. 14.
21. Frontier Homes, LLC, is the Managing Member of Defendant Falcon Pointe, LLC; therefore Falcon Pointe, LLC, is a limited liability company affiliated with Frontier Homes, LLC, within the meaning of the CAI.
CA Secretary of State records, App. Ex. 13.
22. Frontier Homes, LLC is identified in the Articles of Organization as the sole manager of both Sorrento Hills and Falcon Pointe, and the Articles of Organization for both LLCs were signed by Defendant James Previti, who also manages Frontier Homes, LLC.
23. In addition, Previti serves as the Chief Executive Officer for both Sorrento Hills and Falcon Pointe.
CONCLUSIONS OF LAW
1. Plaintiff's Claim for Breach of Written Contract arises out of liquidation proceedings in the State of Utah and are subject to the Utah Receivership Act, and California's Uniform Liquidation Act. Utah Code, § 31A-27a-101 et seq.; California Insurance Code, § 1064.1 et seq.
2. "An indemnity agreement is to be interpreted according to the language and contents of the contract as well as the intention of the parties as indicated by the contract." Myers Bldg. Indus., Ltd. v. Interface Tech., Inc., 17 Cal. Aptr. 2d 242, 253-54 (1993) citing Widson v. International Harvester Co., 200 Cal.Rptr. 136 (1984)).
3. Both Sorrento Hills and Falcon Pointe are parties to the CAI agreement as "subsidiaries, affiliated partnerships, joint ventures, limited liability companies or corporations . . . hereafter created . . . whether partially or wholly owned and controlled" by Frontier Homes, LLC, which effectively signed on their behalf.
4. In order to demonstrate a valid claim for breach of an indemnity agreement under California law, a plaintiff must demonstrate (1) the existence of an indemnity agreement, (2) the plaintiff's performance under the agreement, (3) breach, and (4) damages. See Reichert v. Gen. Ins. Co. of Am., 442 P.2d 377, 381 (Cal. 1968).
5. First, it is undisputed that the Defendants other than Sorrento Hills and Falcon Pointe are bound by the CAI. As to Sorrento Hills and Falcon Pointe, although they did not receive direct notice of the Cities' claims or of the demands for payment, the notice served on their manager, Frontier Homes, LLC, and on their CEO, James Previti, was clearly sufficient. Defendants have not provided competent evidence to the contrary. Accordingly, the first element is met.
6. Second, there is no dispute that Plaintiff performed under the CAI by issuing certain construction bonds at Defendants' request to ensure performance of the construction work. Although Defendants contend that Plaintiff was required to provide notice of the Cities' claims with the Utah receivership court, neither Utah law nor the CAI imposes such a duty. Defendants have not presented any argument for implying such a term, except their assertion that by not providing notice, Plaintiff deprived them of "due process." The Due Process Clause is inapplicable to private defendants acting in a purely private capacity, as Plaintiff did here. Thus, the second element is met.
7. Third, Defendants breached the CAI by failing to indemnify Plaintiff after Plaintiff made a total of three written demands for payment; however, Defendants assert (1) that they did not breach the CAI because they did not receive notice of the Cities' claims and, consequently, had no ability to challenge the claims or demand that Plaintiff challenge them; and (2) that any failure of performance by Defendants under the construction contracts is excused by impossibility and/or frustration of purpose.
8. Defendants' first argument is unsupported by law and conflicts with provisions of the CAI giving Plaintiff full discretion to settle the Cities' claims unless Defendants made a written demand to Plaintiff and deposited collateral with Plaintiff for the costs of challenging the claims. Defendants cite no authority requiring a surety to provide notice of claims under these circumstances; rather, the Utah Code provision cited by Defendants places this duty on the Liquidator. Utah Code § 31A-27a-501(1)(a). If this third person alleges a right to retain the funds or property, then the person shall "(A) file a pleading with the receivership court setting out that right within 20 days of the day on which the person receives the demand that the funds or property be delivered to the receiver; and (B) serve a copy of the pleading on the receiver." Utah Code S31A-27a-501(1)(b)(ii).
9. Additionally, Defendants had the right under the Ninth paragraph of the CAI to "request in writing [Plaintiff] to litigate" the Cities' claims, provide that Defendants deposited cash or other collateral sufficient to defend the claim. Although Plaintiff was not required to provide notice to Defendants, Plaintiff did provide full notice of the claims, the Liquidator's determination, and Plaintiff's right to indemnification from Defendants no later than April 26, 2017 when the third and final demand letter was transmitted to Defendants. That letter specifically instructed Defendants regarding how to challenge the cities' claims and cited the relevant statutes.
10. However, Defendants did not send a written demand that Plaintiff defend the claim and did not challenge the claims before the Utah court under section 31A-27a-501. Consequently, Plaintiff had the exclusive right "at its option and in its sole discretion" to settle claims against the bonds pursuant to the Ninth and Tenth paragraphs of the CAI.
11. Defendant's second defense to the third element, that it impossible for them to complete work on either project because they no longer own the tracts, is flawed. The NODs do not require Defendants to complete the work, but are determinations regarding the validity of the Cities' claims against Plaintiff and, through the CAI, against Defendants. Defendants' present ability to complete the allegedly deficient work for the Cities is not at issue here; therefore, the defenses of legal impossibility and frustration of purpose are irrelevant and invalid. The third element, breach of the CAI, is met.
12. Fourth and finally, Plaintiff has been damaged in the full amount determined by the Utah Court. The $1,923,786.84 is a current and present liability of Plaintiff under Utah law, which governs the liquidation proceeding. Utah Code § 37A-27a-608(3)(a). It is not speculative as Defendants contend. Moreover, the fact that the payments will be made on a pro rata basis through the liquidation process is irrelevant. "An Insurer's insolvency does not affect the amount of liability described in Subsection (3)(a), regardless of any provision in an agreement to the contrary." Utah Code § 31A-27a-608(3)(b).
13. Furthermore, Plaintiff is not required to make any payments to the Cities before it is entitled to demand payment from Defendants and sue for breach of Defendants' indemnification obligation. "A surety may compel his principal to perform the obligation when due." Cal. Civ. Code § 2846. In fact, Plaintiff is currently prohibited from making any payments to the Cities by the UILA, which requires the marshalling of all Plaintiff's assets before paying claims on a pro-rata basis.
14. Plaintiff has demonstrated, and Defendants have failed to refute, that there is no genuine issue of material fact as to whether Plaintiff has incurred damages; therefore, the fourth and final element is met.
15. Because Plaintiff has demonstrated that there is no genuine dispute of material fact and that it is entitled to judgment as a matter of law on its breach of contract claim, it is unnecessary for the Court to address in detail Plaintiff's additional contention that Defendants' lack of notice defense is barred by res judicata or collateral estoppel. Although Defendants contend that Plaintiff mishandled the Cities' claims, which Defendant assert were time barred, the merit of those underlying claims is not a direct concern in this case.
16. Neither res judicata nor collateral estoppel apply.
17. Thus, Defendants breached the CAI by refusing to indemnify Plaintiff for the amount determined by the Utah receivership court, and Defendants have failed to provide competent evidence establishing a viable defense.
