Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_12-cv-00617/USCOURTS-caed-2_12-cv-00617-17/pdf.json

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

---

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

1

UNITED STATES DISTRICT COURT 

FOR THE EASTERN DISTRICT OF CALIFORNIA 

ARCH INSURANCE COMPANY, a 

Missouri corporation, 

Plaintiff, 

v. 

SIERRA EQUIPMENT RENTAL, INC., a 

California corporation; MELVIN R. 

WEIR, an individual; CAROLYN S. 

SCAROLA, as trustee of the Dry Creek 

Ranches Trust; CAROLYN S. SCAROLA, 

an individual, 

Defendants. 

No. 2:12-cv-00617-KJM-KJN 

ORDER 

This matter is before the court on the motion for partial summary judgment 

brought by plaintiff Arch Insurance Company (Arch), on its breach of contract claim against 

defendant Sierra Equipment Rental, Inc. (Sierra). Mot., ECF No. 154. The motion is unopposed, 

as Sierra is without counsel.1

 The court held a hearing on May 6, 2016, and neither party 

appeared. The court subsequently ordered the parties to show cause as to why they should not be 

sanctioned for failing to appear. ECF No. 170. Arch responded, indicating it did not appear at 

 1

 The court has previously addressed the problem posed by the lack of counsel for Sierra 

given its corporate status. ECF Nos. 163, 167. 

Case 2:12-cv-00617-KJM-DB Document 177 Filed 07/25/16 Page 1 of 10
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

2

the hearing due to a calendaring error compounded with the confusion over Sierra’s lack of 

representation. ECF No. 171. For reasons explained below, the court GRANTS Arch’s motion 

for partial summary judgment and DISCHARGES the order to show cause as to Arch. Sierra’s 

OSC is also DISCHARGED, given that nothing before the court indicates it could enforce any 

monetary sanctions ordered, and in light of the adverse decision by the court against Sierra in the 

resolution of this motion. 

I. FACTUAL BACKGROUND 

In 2012, Sierra was a corporate entity in good standing with rights to conduct business in 

California. Stmt. of Undisputed Material Facts (SUMF) No. 23, ECF No. 155. Previously, on 

August 12, 2005, Sierra and others, including Melvin Weir and Carolyn Scarola (collectively, 

“Indemnitors”), executed a General Indemnity Agreement (GIA) as partial consideration for 

Arch’s issuance of bonds covering Sierra’s construction contracts for the two projects at issue 

here: the Lake County and Shasta County Projects. See SUMF Nos. 1, 2, 8; Pearce Decl., Ex. A, 

ECF No. 157 at 12.2

 In consideration of Arch’s issuance of the payment and performance bonds, 

the GIA requires Sierra to indemnify and hold Arch harmless for any “loss” as defined in the 

GIA, which includes 

Any and all liability, losses, costs, expenses, and fees of whatever 

kind or nature, that [Arch] may sustain or incur as a result of 

executing any [b]ond or as a result of the failure of [Sierra] or 

Indemnitors to perform or comply with [the GIA]. Loss includes 

but is not limited to: (a.) sums posted by [Arch] as a reserve for the 

payment of potential losses and / or expenses, (b.) all costs and 

expenses incurred in connection with investigating, paying or 

litigating any claim, and / or enforcing [the GIA], including but not 

limited to legal fees and expenses, professional and consulting fees, 

technical and expert witness fees and expenses, (c.) all accrued and 

unpaid premiums owing to [Arch] for the issuance, continuation or 

renewal of any [b]onds or for any policy of insurance issued by 

[Arch] for [Sierra] or Indemnitors, (d.) funds advanced by [Arch] to 

[Sierra] in connection with a Bonded Contract, and (e.) all other 

amounts payable to [Arch] according to the terms and conditions of 

[the GIA] . . . . 

SUMF No. 4; Pearson Decl., Ex. A at 9. 

 2

 All page numbers in this order cite to the ECF pagination unless otherwise stated. 

Case 2:12-cv-00617-KJM-DB Document 177 Filed 07/25/16 Page 2 of 10
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

3

The GIA also requires the following: 

4. Posting of Collateral – Indemnitors agree to deposit with [Arch], 

immediately upon demand by [Arch], an amount equal to the 

greater of (a.) the amount of any reserve established by [Arch] to 

cover any actual or potential Loss, or (b.) the amount of any claim 

or claims or other liabilities asserted against [Arch] as a result of 

issuing any [b]ond . . . . 

. . . 

8. Discharge of Surety – Upon the request of [Arch], [Sierra] and 

Indemnitors will procure the discharge of [Arch] from any [b]ond, 

and all liability arising therefrom, and provide evidence to [Arch] 

regarding the same. 

9. Access to Books & Records – [Arch], including its designated 

agents, shall, at any and all times, have unrestricted access upon 

reasonable notice to review all books and records of [Sierra] and 

Indemnitors . . . . 

SUMF Nos. 4, 5, 6; Pearson Decl., Ex. A at 9–10. Lastly, the GIA also provides that Sierra and 

the Indemnitors agree to accept vouchers or other evidence of payments made by Arch for any 

Loss sustained or incurred by reason of having executed any Bond. SUMF No. 26; Pearson 

Decl., Ex. A at 9. 

In reliance on Sierra and Indemnitors’ representations in the GIA, Arch issued 

bonds guaranteeing Sierra’s performance of two contracts, and Sierra’s payments to 

subcontractors and suppliers in connection with those contracts: (1) Sierra’s contract with the 

California Department of Transportation (CalTrans) for construction on Route 53 in Lake County 

(the Lake County Project) (payment and performance bonds, with penal sums of $11,311,521.95 

and $5,655,768.98, respectively to cover alternative performance of the contract if needed); and 

(2) Sierra’s subcontract with Tutor-Saliba Corporation (Tutor) for construction on Antler’s Bridge 

located in Shasta County (the Shasta County Project) (payment and performance bonds, with a 

penal sum of $6,532,874.00 to cover alternative performance of the subcontract if needed). 

SUMF Nos. 8–9. The bonds are collectively referred to as the “Bonds” in this order. 

By January 2012, Sierra had failed to pay a number of subcontractors on the Lake 

County Project, resulting in numerous claims on the Bonds for that project. SUMF No. 10. At 

Case 2:12-cv-00617-KJM-DB Document 177 Filed 07/25/16 Page 3 of 10
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

4

the same time, Sierra requested financial assistance from Arch. SUMF No. 11. In mid-February 

2012, Arch demanded that Sierra fulfill its obligations under the GIA, including exonerating Arch 

from potential liabilities, indemnifying Arch, and providing collateral in the amount of 

$1,461,918.83, the total amount in claims asserted against Arch’s Bonds at the time. SUMF No. 

15. However, by the end of February 2012, Sierra defaulted not only on its contract for the Lake 

County Project but also for the Shasta County Project contract, resulting in claims against both 

Projects’ Bonds by the Project owners, CalTrans and Tutor, and $6,737,855.98 in losses to Arch 

as of January 12, 2016. SUMF No. 10–13; Pearce Decl. ¶ 9, Ex. E. Tutor, with whom Sierra 

subcontracted for the Shasta County Project, filed a civil action against both Sierra and Arch as a 

result of the default, alleging damages in excess of $6,532,874.00. Id. at 13–14. At the time Arch 

filed its motion, the civil action was pending in Los Angeles Superior Court. Id. 

Since 2012 Arch has made numerous requests to inspect Sierra’s books and 

records. SUMF No. 25. Sierra has refused, and Arch retained legal counsel to gain access. Id. 

Arch has recovered $2,821,915.45 in credits against its losses under the Bonds. SUMF No. 27. 

As of January 12, 2016, Sierra’s corporate status with the California Secretary of State was 

forfeited, meaning Sierra has not filed its franchise tax return or paid the tax due thereunder. 

SUMF No. 28; Van Ornum Decl. ¶ 5 & Ex. B, ECF No. 156; see also Business Search – Field 

Descriptions and Status Definition, California Secretary of State web page, available at 

http://www.sos.ca.gov/business-programs/business-entities/cbs-field-status-definitions/ (last 

visited May 2, 2016 16:17GMT). Arch’s counsel has attempted to secure a stipulated judgment 

from Sierra but has been unsuccessful. 

II. PROCEDURAL HISTORY 

Arch filed the complaint in this action on March 9, 2012. Compl., ECF No. 2. On 

May 18, 2012, the court granted Arch’s ex parte application for a right to attach order and writ of 

attachment against Sierra and the Indemnitors in the amount of $1,661,980 based on California 

Code of Civil Procedure section 487.010. See May 2012 Order, ECF No. 36. Subsequently on 

November 13, 2012, the court granted Arch’s motions for leave to amend the complaint and for a 

preliminary injunction freezing the assets of Sierra and Indemnitors. See November 2012 Order, 

Case 2:12-cv-00617-KJM-DB Document 177 Filed 07/25/16 Page 4 of 10
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

5

ECF No. 71. In the same order, the court denied Arch’s request for a temporary restraining order 

to prevent Scarola individually, among other defendants who have since been dismissed from the 

case, from dissipating or concealing any assets she received from Sierra or the Indemnitors. Id. at 

9–11. 

The First Amended Complaint alleges a total of eleven claims for relief, some 

against all defendants, and some against only certain defendants. See generally First Am. Compl. 

(FAC), ECF No. 68. Arch moves for summary judgment only on the first cause of action: breach 

of contract against Sierra and the Indemnitors. FAC ¶¶ 36–48. 

As noted, Arch indicated it did not appear at hearing on the motion due to a 

calendaring error compounded with the confusion over Sierra’s lack of representation. ECF No. 

171. Given Arch’s response to the order to show cause and the court’s interest in reaching the 

merits of the case, the order to show cause against Arch is DISCHARGED. Sierra’s OSC is also 

DISCHARGED. 

III. SUMMARY JUDGEMENT 

A. Legal Standard 

As noted, Arch’s motion for partial summary judgment is unopposed. While “[a] 

district court may not grant a motion for summary judgment solely because the opposing party 

has failed to file an opposition,” Cristobal v. Siegel, 26 F.3d 1488, 1494–95 & n.4 (9th Cir. 

1994), “[t]he court may . . . grant an unopposed motion for summary judgment if the movant’s 

papers are themselves sufficient to support the motion and do not on their face reveal a genuine 

issue of material fact.” United States v. Real Property at Incline Village, 47 F.3d 1511, 1520 (9th 

Cir. 1995) (local rule cannot mandate automatic entry of judgment for moving party without 

consideration of whether motion and supporting papers satisfy Federal Rule of Civil Procedure 

56). 

The court does not weigh evidence or assess the credibility of witnesses; rather, it 

determines which facts are undisputed, then draws all inferences and views all evidence in the 

light most favorable to the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 

(1986); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587–88 (1986). 

Case 2:12-cv-00617-KJM-DB Document 177 Filed 07/25/16 Page 5 of 10
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

6

“Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no ‘genuine issue for trial.’” Matsushita, 475 U.S. at 587 (quoting First 

Nat’l Bank of Arizona v. Cities Serv. Co., 391 U.S. 253, 289 (1968)). 

The moving party bears the initial burden of “informing the district court of the 

basis for its motion, and identifying those portions of [the record] which it believes demonstrate 

the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 

(1986). “Only disputes over facts that might affect the outcome of the suit under the governing 

law will properly preclude the entry of summary judgment.” Anderson, 477 U.S. at 247–48. 

B. Breach of Contract 

The surety contracts of the kind at issue here are construed according to the same 

rules that govern interpretation of all contracts. Pacific Employers Ins. Co. v. City of Berkeley, 

158 Cal. App. 3d 145, 150 (1984). To prevail on a breach of contract claim under California law, 

which applies in this case, a plaintiff must prove (1) the existence of a contract, (2) the plaintiff’s 

performance of its obligations under the contract or excuse for nonperformance, (3) the 

defendant’s breach, and (4) resulting damage to the plaintiff. Richman v. Hartley, 224 Cal. App. 

4th 1182, 1186 (2014). The court looks first at whether a contract existed between Arch and 

Sierra. 

1. Existence of a Contract 

In California, to prove the existence of a contract, a plaintiff must show: (a) parties 

capable of contracting, (2) the parties’ consent, (3) a lawful object, and (4) consideration. See 

Cal. Civ. Code § 1550. “Every contract requires the mutual assent or consent of the parties.” 

Meyer v. Benko, 55 Cal. App. 3d 937, 942 (1976) (citing Cal. Civ. Code §§ 1550, 1565). Consent 

may be manifested in several ways—in writing, through speech or by conduct—and “may be 

implied through action or inaction.” Knutson v. Sirius XM Radio Inc., 771 F.3d 559, 565 (9th Cir. 

2014). Ultimately, “[t]he existence of mutual consent is determined by objective rather than 

subjective criteria, the test being what the outward manifestations of consent would lead a 

reasonable person to believe.” Meyer, 55 Cal. App. 3d at 943. Parties consent when they “all 

Case 2:12-cv-00617-KJM-DB Document 177 Filed 07/25/16 Page 6 of 10
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

7

agree upon the same thing in the same sense.” Cal. Civ. Code § 1580; Bustamante v. Intuit, Inc., 

141 Cal. App. 4th 199, 209 (2006). 

First, a corporation has the power to enter into contracts in conducting its 

activities, and Sierra, at the time of contract was a corporate entity in good standing with the 

ability to conduct business lawfully in California. Cal. Corp. Code § 9140(i); see also Bates v. 

Coronado Beach Co., 109 Cal. 160, 162 (1895) (corporation has the power to enter into any 

contract essential to the transaction of its ordinary affairs). Second, the GIA was a six-page 

document, including the signature pages, with each provision clearly titled and numbered. See 

generally Pearce Decl., Ex. A. Sierra signed the GIA, and the signature was witnessed. Id. at 12–

15. Objectively, a reasonable person would find that Sierra consented to the GIA. Cf. Silicon 

Valley Self Direct, LLC v. Paychex, Inc., No. 14-1055, 2015 WL 4452373, at *3 (N.D. Cal. July 

20, 2015) (mutual consent is determined by objective outward manifestation); see also Marin 

Storage & Trucking, Inc. v. Benco Contracting & Eng’g, 89 Cal. App. 4th 1042, 1049 (2001) 

(“ordinarily one who signs an instrument which on its face is a contract is deemed to assent to all 

its terms,” and “[a] party cannot avoid the terms of a contract on the ground that he or she failed 

to read it before signing.”). Third, California recognizes surety contracts as lawful instruments. 

Pacific Employers Ins. Co., 158 Cal. App. 3d at 150. Lastly, in return for Arch’s issuance of the 

Bonds covering Sierra’s construction contracts, Sierra agreed to indemnify and hold Arch 

harmless for certain losses as defined by the GIA, post collateral, procure Arch’s discharge from 

any Bond issued under the GIA, and provide Arch with access to its financial books and records 

if Arch requested. SUMF Nos. 1–6; Pearce Decl., Ex. A at 9–10. In other words, the GIA was 

supported by consideration. See Steiner v. Thexton, 48 Cal. 4th 411, 420-21 (2010) (for 

consideration to be valid, recipient of promise must provide bargained-for benefit or suffer 

prejudice in exchange for promise). 

The court finds as a matter of law that a contract existed between Arch and Sierra. 

2. Plaintiff’s Performance or Excuse from Non-Performance 

The court next looks at whether Arch performed or was excused from nonperformance. Here, Sierra agreed to the requirements in the GIA as consideration in exchange for 

Case 2:12-cv-00617-KJM-DB Document 177 Filed 07/25/16 Page 7 of 10
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

8

Arch’s issuance of performance and payment bonds for Sierra’s construction projects. Arch 

issued the Bonds covering Sierra’s contracts for both the Lake County and Shasta County 

Projects. SUMF Nos. 8–9. Accordingly, the court finds that as a matter of law, Arch has 

performed its obligation under the GIA. Cf. American Express, F.S.B., Federal Sav. Bank v. 

Wright, No. 11-4492, 2012 WL 2343674, at *2 (N.D. Cal. June 20, 2012) (summary judgment 

granted where no genuine dispute of material fact exists as to whether plaintiff performed). 

3. Defendants’ Breach 

The third element of a breach of contract claim is the defendant’s breach of the 

contract, or in this case, Sierra’s breach of the GIA. Arch argues Sierra breached its obligation to 

(1) indemnify, (2) provide collateral, (3) exonerate Arch, and (4) provide access to its books and 

records. Mot. at 8–10. 

Here, in terms of indemnification, Sierra agreed in the GIA to indemnify and hold 

Arch harmless for any “loss” as defined in the agreement, which includes, “Any and all liability, 

losses, costs, expenses, and fees of whatever kind or nature, that [Arch] may sustain or incur as a 

result of executing any [b]ond or as a result of the failure of [Sierra] or Indemnitors to perform or 

comply with [the GIA].” SUMF No. 4; Pearson Decl., Ex. A at 9. Sierra has yet to indemnify 

Arch for its defense costs arising from the claims asserted against the Bonds, and Arch’s 

payments on the Bonds to CalTrans, subcontractors, materialmen, and laborers. SUMF Nos. 12–

22. 

With respect to providing collateral, Sierra agreed, 

[T]o deposit with [Arch], immediately upon demand by [Arch], an 

amount equal to the greater of (a.) the amount of any reserve 

established by [Arch] to cover any actual or potential Loss, or 

(b.) the amount of any claim or claims or other liabilities asserted 

against [Arch] as a result of issuing any [b]ond . . . . 

SUMF No. 4; Pearson Decl., Ex. A at 9. On February 17, 2012, Arch demanded that Sierra post 

$1,461,918.83 in collateral, the total amount in claims asserted against Arch’s Bonds at the time. 

SUMF No. 15. Sierra did not deposit the requested collateral. SUMF No. 20. Sierra also did not 

deposit any collateral for Tutor’s claim against Arch in connection with the Shasta County 

project, in the sum of $6,532,874.00 after Arch demanded it do so. SUMF No. 9, 13–14, 15. As 

Case 2:12-cv-00617-KJM-DB Document 177 Filed 07/25/16 Page 8 of 10
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

9

discussed above, Tutor has filed a civil action against Arch, and in connection with that action, to 

date, Sierra has not “procure[d] the discharge of [Arch] from any Bond, and all liability arising 

therefrom, and provide[d] evidence to [Arch] regarding same.” SUMF No. 5; Pearson Decl., Ex. 

A at 10. 

Finally, Sierra agreed at the time of contracting to provide access to its books and 

records under the GIA at Arch’s request. SUMF No. 6; Pearson Decl., Ex. A at 10. Since 2012 

Arch has made numerous requests to inspect Sierra’s books and records, in vain. SUMF No. 25. 

Arch has had to retain legal counsel to advance its interests in the face of Sierra’s refusal. Id. 

As a matter of law, the court finds Sierra has breached its obligations with respect 

to indemnification, collateralization, exoneration, and provision of access to books and records. 

4. Damages 

Once a breach of contract has been shown, California law applies a liberal rule in 

allowing a court or jury to determine the amount of damages. Hunt Foods v. Phillips, 248 F.2d 

23, 33 (9th Cir. 1957); Cal. Lettuce Growers v. Union Sugar Co., 45 Cal. 2d 474, 486–87 (1955). 

California law also limits contract damages to damages reasonably within the contemplation of 

the parties as a probable result of a breach at the time the contract was formed. Brandon & Tibbs 

v. George Kevorkian Accountancy Corp., 226 Cal. App. 3d 442, 457 (1990). The California Civil 

Code provides that “[n]o damages can be recovered for a breach of contract which are not clearly 

ascertainable in both their nature and origin.” Cal. Civ. Code § 3301. 

Here, the GIA provides that Sierra, among others, “agree[s] to indemnify and hold 

harmless [Arch] for any and all Loss sustained or incurred by reason of having executed any and 

all Bonds.” SUMF No. 3; Pearce Decl., Ex. A at 9. As a result, Arch can recover, based on 

Sierra’s breach of contract, the $6,737,855.98 it incurred in losses paid for claims on the Bonds, 

loss adjustment expenses, consulting fees, attorney’s fees and related costs, less the 

$2,821,915.45 recovered from other Indemnitors or defendants since the beginning of this action, 

for a total of $3,915,940.53. SUMF No. 10–13; Pearce Decl. ¶ 9, Ex. E. However, with respect 

to the additional $6,532,874.00 Arch may suffer as a result of Tutor’s pending civil action arising 

from Sierra’s breach of contract, that amount is not currently recoverable, because it has not been 

Case 2:12-cv-00617-KJM-DB Document 177 Filed 07/25/16 Page 9 of 10
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

10

finally determined. See StreamCast Networks, Inc. v. IBIS LLC, No. 05-04239, 2006 WL 

5720345, at *4 (C.D. Cal. 2006) (Where the underlying action to a claim is not final and a breach 

of contract claim will not settle all of the contractual issues on which plaintiff seeks relief, 

declaratory relief is appropriate). 

IV. CONCLUSION 

Arch’s motion for summary judgment is GRANTED. Arch is awarded 

$3,915,940.53 in damages. 

The order to show cause issued on May 12, 2016 is DISCHARGED as to Arch and 

Sierra. 

IT IS SO ORDERED. 

DATED: July 25, 2016. 

Case 2:12-cv-00617-KJM-DB Document 177 Filed 07/25/16 Page 10 of 10