Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_04-cv-01977/USCOURTS-cand-3_04-cv-01977-5/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Other Contract

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United States District Court

For the Northern District of California

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1

 The Court has jurisdiction over this matter based on

diversity of the parties. Complaint ¶ 6. Safeco is a citizen of

Washington and all Defendants are citizens of California. Id. ¶¶ 1-4. Also, the amount in controversy is alleged to be greater

than $75,000.00, exclusive of interests and costs. Id. ¶ 6. 

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAFECO INSURANCE COMPANY OF

AMERICA, 

Plaintiff,

v.

LORI CHIANG, ROBERT CHIANG, and 

CM CONSTRUCTION COMPANY, INC., 

Defendants. 

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No. C-04-1977 SC

ORDER DENYING

PLAINTIFF'S MOTION

FOR SUMMARY JUDGMENT

I. INTRODUCTION

Plaintiff Safeco Insurance Company of America ("Plaintiff" or

"Safeco") brought this action against Defendants Lori Chiang,

Robert Chiang, and Chiang CM Construction Company, Inc.

("Defendants" or "CM"), alleging causes of action for, inter alia,

breach of an indemnity agreement and equitable indemnity.1

Presently before the Court is Plaintiff's motion for summary

judgment or, in the alternative, partial summary judgment. 

For the reasons stated herein, the Court DENIES Plaintiff's

motion for summary judgment because it finds that there are

disputes as to issues of material fact. The Court also DISMISSES

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For the Northern District of California

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several causes of action which fail to state a claim for relief.

II. BACKGROUND

Except as cited, the Court takes the facts from Defendants'

papers, which, for purposes of this motion, are assumed to be

true. 

Safeco, acting as surety, issued to CM seven payment and

performance bonds ("Bonds") on various construction projects on

which CM was the general contractor. Defendants' Memorandum in

Opposition to Plaintiff's Motion for Summary Judgment at 2

("Defs.' Mem."). As part of this, CM "executed in Safeco's favor

a general agreement of indemnity" ("Indemnity Agreement"), which

provides for the defense and indemnification of Safeco for 

[a]ll loss, costs, and expenses of whatsoever kind and

nature, including courts costs, reasonable attorney fees

(whether [Safeco] at its sole option elects to employ its own

attorney, or permits or requires [Defendants] to make

arrangements for [Safeco's] legal representation), consultant

fees, investigative costs and any other losses, costs or

expenses incurred by [Safeco] by reason of having executed

any Bond, or of any Default under this agreement by any of

the [Defendants]. 

Declaration of Robert Ho in Opposition to Motion for Summary

Judgment ("Ho Decl."), Ex. A at 1. The Indemnity Agreement also

states that CM will pay Safeco 

[u]pon demand...[a]n amount sufficient to discharge any claim

made against [Safeco] on any Bond [sic]. This sum may be

used by [Safeco] to pay such claim or be held by [Safeco] as

collateral security against any loss on any bond [sic].

Id.

Safeco was named as a defendant in four lawsuits ("Suits").

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 They are: 

A. Romak Iron Works, Inc. v. Owa Steel, Inc., et al.

Romak Iron Works, Inc. named Safeco as a defendant in a 2002

suit in the San Francisco Superior Court. Defs.' Mem. at 3. 

Default was entered against Safeco "for failure to file timely

responsive pleadings." Id. Safeco then retained its own counsel,

who was able to have the default vacated. Pl's. Mem. at 5. Upon

demand, Defendants provided both a defense and a promise to

indemnify Safeco. Defs.' Mem. at 3. After a trial decision in

Romak's favor, CM "satisfied the judgment in Romak's favor in

full." Id. 

Despite this, Safeco insists that it is owed $2,609.39 in

attorney's fees paid to have the default removed and $15,052.38 in

attorney's fees and costs for fees and costs incurred for

monitoring the underlying claims against the Bonds, including

active participation in settlement of the Romak Iron action. 

Reply at 7. 

B. Ki-Man Song, et al. v. Jin Construction & Electric Co.,

et al.

In September 2003, employees of Jin Construction filed a

lawsuit in the Northern District of California against Jin

Construction, CM, and Safeco. Defs'. Mem. at 4. These plaintiffs

voluntarily dismissed the federal action and refiled it in the San

Francisco Superior Court. Id. The state court sustained CM's

demurrers as to the first and second complaints. Id. at 4-5. The

court has yet to rule on the demurrer to the third amended

complaint. Id. Safeco continues to employ counsel to monitor

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this litigation. Pl's. Mem. at 7. 

Defendants assert that the "[d]efense in this case has been

conducted by [a law firm] at CM's entire cost and expense and at

no cost to Safeco. No damages have been assessed against CM or

Safeco in this case." Defs'. Mem. at 5. 

All the same, Safeco contends that it is owed $1,200.00 in

attorney's fees and costs incurred in the investigation of the

claims and $7,325.00 in consultant's fees and costs. Reply at 7. 

 C. The Last Two Suits: Wong Woong Im, et al. v. Jin

Construction Co., et al. and Chong Duk Kim, et al. v.

S.F.U.S.D., et al. Defendants provided a defense to Safeco in the Wong Woong Im

action, which the Honorable Susan Illston of the Northern District

of California dismissed in September 2004. See Defs.' Mem. at 5.

"No damages were rendered against Safeco in this case, nor did

Safeco incur fees for its defense in this case because Defendants

provided a complete defense to Safeco pursuant to the indemnity

agreement." Id. 

The Chong Duk Kim action, which has essentially the same

plaintiffs as the Wong Woong action, was dismissed in the San

Francisco Superior Court after the court sustained a demurrer to

the first amended complaint. Id. at 6. 

Safeco alleges that in response to all these Suits, it

"investigated and continues to investigate these claims, and as a

result has incurred and continues to incur loss, cost and

expense." Plaintiff's Memorandum in Support of Motion for Summary

Judgment at 2 ("Pl.'s Mem."). Safeco asserts that it has also

incurred expenses in "enforcing [Defendants'] defaulted

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2

 In its Motion for Summary Judgment, Plaintiff states that

this amount is $534,209.51, which is less than the amount stated

above. See Reply at 8, FN 6. Plaintiff states that the higher

amount "reflects the amounts shown on invoices, not the actual

payment received from Safeco." Id. The lower total "reflects the

actual loss incurred by Safeco, not the amount shown on the

invoices." Id. 

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obligations under the Indemnity Agreement," including expenses

incurred in pursuing the instant action. Id. at 2. 

From all the Suits, Safeco asserts that Defendants owe

Plaintiff $538,450.97. Id. at 14.2

 This amount is the total of

the amount of attorney's fees and costs for setting aside the

default in the Romak Iron Works action ($2,609.39), the amount of

attorney's fees incurred for the investigation of the claims in

the Ki-Man Song action ($1,200.00), the amount of consultants'

fees incurred for the investigation of claims in the Ki-Man Song

action ($7,325.00), the amount of attorney's fees and costs

incurred in monitoring the underlying claims against the Bonds,

including active participation in the settlement of the Romak Iron

Works action ($15,052.38), the amount of attorney's fees incurred

in prosecution of the instant action ($12,264.20) and the amount

of collateral security that Safeco demands ($500,000.00). See

Reply at 4, 7. 

Plaintiff filed this action in the Northern District of

California alleging causes of action for (1) breach of the

indemnity agreement; (2) specific performance of indemnity

agreement; (3) statutory reimbursement; (4) equitable indemnity;

(5) exoneration; (6) money paid; and (7) quia timet. See

Complaint ("Compl.") at 6-7. 

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III. LEGAL STANDARD

Summary judgment is appropriate only "if the pleadings,

depositions, answers to interrogatories, and admissions on file,

together with the affidavits, if any, show that there is no

genuine issue as to any material fact." Celotex Corp. v. Catrett,

477 U.S. 317, 322 (1986). A genuine issue of fact exists when the

non-moving party produces evidence on which a reasonable trier of

fact could find in its favor viewing the record as a whole in

light of the evidentiary burden the law places on that party. See

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252-56 (1986). 

Summary judgment is therefore appropriate against a party "who

fails to make a showing sufficient to establish the existence of

an element essential to the party's case, and on which that party

will bear the burden of proof at trial." Celotex, 477 U.S. at

322-23. The more implausible the claim or defense asserted by the

opposing party, the more persuasive its evidence must be to avoid

summary judgment, see Matsushita Electric Industrial Co. v. Zenith

Radio Corp., 475 U.S. 574, 587 (1986), but "[t]he evidence of the

non-moving party is to be believed, and all justifiable inferences

are to be drawn in its favor." Anderson, 477 U.S. at 255. 

IV. DISCUSSION

As stated above, the parties dispute that Defendants have

fully paid for the costs directly associated with litigating the

Suits. The parties also dispute whether Defendants should pay for

the costs arising from Plaintiff's monitoring of the Suits and

whether Defendants should have and should now post collateral

security. 

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3

 The Court determines that the Indemnity Agreement is

governed by the law of California, though the agreement is silent

on the issue of what state law governs it and Plaintiff is a

resident of Washington. In determining this, the Court looked to

California Civil Code § 1646 and to the Restatement, as required by

Shannon-Vail Five Inc. v. Bunch, 270 F.3d 1207, 1210 and to

Washington state law. The Court took into account the fact that

the Indemnity Agreement was executed in California, that the

underlying public works projects were in California, and the surety

bonds were issued in California. See Plaintiff's Supplemental

Briefing Regarding Applicable Law at 2-4. 

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A. There is a Question of Material Fact Whether Defendants

Have Breached the Indemnity Agreement by Refusing to Pay

for Safeco's Litigation Monitoring Fees

In California, the elements for a cause of action for breach

of contract are: (1) the existence of a contract, (2) plaintiff's

performance or excuse for non-performance, (3) defendant's breach

and (4) damages resulting to plaintiff because of the breach. 

See Armstrong Petroleum Corporation v. Tri-Valley Oil and Gas

Company, 116 Cal. App. 4th 1375, 1391, FN 6.3 The interpretation

of a written instrument is a matter of law and thus exclusively a

judicial function, unless the interpretation turns on the

credibility of extrinsic evidence. See De Guere v. Universal

Studios, 56 Cal. App. 4th 482, 501 (Cal. Ct. App. 1997). 

The Indemnity Agreement grants Safeco "reasonable attorney

fees (whether [Safeco] at its sole option elects to employ its own

attorney, or permits or requires [Defendants] to make arrangements

for [Safeco's] legal representation)." Ho Decl., Ex. A at 1. 

Because the parties dispute whether the costs - for removing

the default, hiring attorneys to monitor and investigate the

claims - are "reasonable" under the contract, the Court finds that

a genuine issue of material fact exists. 

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B. It is a Question of Material Fact Whether Defendants

Have Breached the Indemnity Agreement by Failing to

Provide Collateral Security

Plaintiff also contends that CM breached the Indemnity

Agreement by failing to post collateral security pursuant to the

Indemnity Agreement and Safeco's May 6, 2004 demand. Compl. ¶ 22. 

Safeco asserts that it has "incurred damages in the form of

attorney fees, consultant fees, and costs. Moreover, to the

extent that any claimant recovers any monies under the Bond as a

result of the claims asserted in the pending lawsuits discussed

above, [Defendants] are obligated to indemnify and hold Safeco

harmless for such loss." Pl's. Mem. at 14. 

Defendants, on the other hand, contend that Safeco has not

demonstrated "by admissible evidence that it is entitled to

collateral in this amount." Defs.' Mem. at 11. 

The Indemnity Agreement requires CM to give Safeco upon

demand an "amount sufficient to discharge any claim made against"

Safeco, an amount Safeco may use to "pay such claim," or hold 

Safeco "as collateral security against loss on any bond." Ho

Decl., Ex. A at 1. 

The plain language of the contract indicates that CM must

give Safeco an amount of money to discharge or pay for "any claim

made." Id. The Indemnity Agreement reserves to Safeco the

"exclusive right...to determine in good faith whether any claim or

suit upon any Bond shall, on the basis of belief of liability,

expediency or otherwise, be paid, compromised, defended or

appealed." Id.

The Court finds that there is a genuine issue as to material

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fact whether Plaintiff determined in good faith that claims

existed and, thereby, whether Defendants breached the Indemnity

Agreement by failing to post such collateral security. 

C. Second Cause of Action: Specific Performance

Plaintiff asks that the Court enforce the collateral security

provision. See Compl. ¶¶ 25-29. Specifically, Plaintiff asks

that the Court order Defendants to post $500,000.00 in collateral

security to cover any past or future expenses arising from

litigation over the Bonds. 

Under reasoning similar to that outlined above, there is a

genuine question whether Plaintiff has determined in good faith

that claims will exist and, thereby, whether the Court should

order Defendants to specifically perform its duty under the

Indemnity Agreement. 

D. Third Cause of Action: Statutory Reimbursement

Plaintiff asserts that, under California Civil Code § 2847,

Defendants owe it for the current and future expenses arising from

its issuance of the Bonds. Compl. ¶¶ 30-32.

California Civil Code § 2847 states that 

[i]f a surety satisfies the principal obligation, or any part

thereof, whether with or without legal proceedings, the

principal is bound to reimburse what he has disbursed,

including necessary costs and expenses.

"Necessary" is the key word here. The Court finds that it is

a question of material fact whether the expenses Safeco incurred

in removing the default arose from its lack of diligence. There

is also a question of material fact whether the costs of

monitoring the litigation and investigating the claims are

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"necessary."

E. Plaintiff's Fourth, Fifth, Sixth and Seventh Causes of

Action

These claims are invalid as a matter of law. All these

remaining causes of action (equitable indemnification,

exoneration, money paid, and quia timet) are actions in quasicontract. Under California law "an action in quasi-contract...

does not lie when an enforceable, binding agreement exists

defining the rights of the parties." Paracor Finance, Inc. v.

General Electric Capital Corp., 96 F.3d 1151, 1167 (9th Cir.

1996). Because the Indemnity Agreement is an enforceable, binding

agreement that defines the rights of the parties, these actions

for quasi-contract cannot stand as a matter of law.

The Court can, sua sponte, dismiss causes of action under

Federal Rule of Civil Procedure 12(b)(6) that fails to state a

claim for relief. 

Based on the foregoing, the Court DISMISSES Plaintiff's

fourth, fifth, sixth, and seventh causes of action.

F. Eighth Cause of Action: Costs for This Action

Plaintiff contends that Defendants, under the Indemnity

Agreement, must pay for Safeco's costs in pursuing the instant

action. Reply at 7. 

California law does not favor such a contention. Absent a

contractual provision specifying an award of attorney fees in an

action to enforce an indemnity agreement, current California law

holds that an indemnity agreement does not include recovery of

attorney fees incurred in enforcing the agreement. See Campbell

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v. Scripps Bank, 78 Cal. App. 4th 1328 (Cal. Ct. App. 2000) and

Building Maintenance Service Company v. All Systems, Inc., 55 Cal.

App. 4th 1014 (Cal. Ct. App. 1997). 

Based on the foregoing, the Court DISMISSES Plaintiff's

eighth cause of action. 

V. CONCLUSION

The Court finds that there are genuine issues of material

fact. Accordingly, Plaintiff's motion for summary judgment is

DENIED.

Furthermore, the Court DISMISSES Plaintiff's fourth, fifth,

sixth, seventh and eighth causes of action. 

IT IS SO ORDERED.

Dated: July 6, 2006

 

UNITED STATES DISTRICT JUDGE

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