Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_05-cv-00122/USCOURTS-caed-2_05-cv-00122-10/pdf.json

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

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1

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

AMERICAN MANUFACTURERS No. 2:05-cv-00122-MCE-GGH

MUTUAL INSURANCE COMPANY

and AMERICAN MOTORISTS

INSURANCE COMPANY, 

Plaintiffs,

v. MEMORANDUM AND ORDER

CAROTHERS CONSTRUCTION INC.,

DAVID L. CAROTHERS, and

TERRI L. CAROTHERS,

Defendants.

----oo0oo----

Through the present action, Plaintiff American Motorists

Insurance Company (“American Motorists”) seeks to enforce the

provisions of a General Indemnity Agreement (the “Indemnity

Agreement”) executed by Defendants Carothers Construction, Inc. 

(“CCI”), David Carothers and Terri Carothers as a prerequisite to

American Motorists’ issuance of security bonds applicable to two

public works construction projects for the Los Rios Community

College District. (“Los Rios”). 

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The Court’s jurisdiction in this matter is predicated on 1

diversity of citizenship pursuant to 28 U.S.C. §1441(b). The

parties agree that California law applies inasmuch as the

Indemnity Agreement contains a choice of law provision

specifically providing that it “shall be interpreted under the

substantive law of the State of California, USA.” Indemnity

Agreement, Exh. 1 to the Decl. of Stephen J. Beatty, p. 4.

2

American Motorists has ultimately paid claims in excess of

$600,000.00 pursuant to is bond obligations along with various

other costs and expenses necessitated by CCI’s alleged failure to

pay subcontractors and suppliers on the two projects. American

Motorists now moves for partial summary judgment against CCI (and

David and Terri Carothers, individually) as to its First Cause of

Action, for Breach of the Indemnity Contract, and the Second

Cause of Action, for Specific Performance. American Motorists

further seeks summary adjudication as to the Third Cause of

Action, for statutory reimbursement under California Civil Code §

2847 against CCI, only. As set forth below, American Motorists’ 1

Motion is granted in part and denied in part.

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Some of the factual allegations as set forth in this 2

section are disputed by the parties. To the extent either party

has interposed evidentiary objections to these facts, however,

those objections are overruled unless otherwise noted. 

Additionally, this section incorporates the facts considered by

the Court in ruling on this motion. The Court need not rule on

objections to evidence not discussed below, and declines to do

so, because that evidence was not germane to the Court’s

decision. 

3

BACKGROUND2

On or about October 24, 2002, CCI entered into contracts

with Los Rios for construction of faculty offices located at Los

Rios’ American River College and Cosumnes River College

facilities. At CCI’s request, and as a prerequisite for award of

the contracts, American Motorists issued performance bonds on

behalf of CCI, as principal, in connection with both projects. 

Both CCI and its owners, David and Terri Carothers, were

signatories on the Indemnity Agreement executed in connection

with the issuance of those bonds. All parties to that Agreement

acknowledged that American Motorists would not have issued the

performance bond without Defendants’ commitment, as Indemnitors,

to reimburse American Motorists for all losses arising under the

bond. (See Indemnity Agreement, p. 1, attached as Exh. 1 to the

Decl. of Stephen J. Beatty). The Indemnity Agreement defines

that obligation on page 2, paragraph 1, as follows:

Indemnitors agree to indemnify and hold harmless Surety

[American Motorists] immediately upon demand for any and all

Loss sustained or incurred by reason of having executed any

and all Bonds.

The Indemnity Agreement goes on to define the term “Loss” as

follows:

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4

Loss includes all sums: (a.) paid by Surety to claimants

under the Bonds, (b.)sums required to be paid to claimants

by Surety but not yet, in fact, paid by Surety, by reason of

execution of such Bonds, (c.) all costs and expenses

incurred in connection with investigating, paying or

litigating any claim, including but not limited to legal

fees and expenses, technical and expert witness fees and

expenses and (d.) all costs and expenses incurred in

connection with enforcing the obligations of the Principal

and Indemnitors under this Agreement including, but not

limited to legal fees and expenses ... and (f.) all other

amounts payable to Surety according to the terms and

conditions of this Agreement.

Id. at p. 1, Definitions, Loss.

Significantly, the Agreement also leaves to the discretion

of American Motorists whether to pay claims submitted under its

performance bond, as well as the amount to pay on such claims:

Surety shall have the exclusive right to decide and

determine whether any claim, liability, suit or judgment

made or brought against Surety on any Bond shall or shall

not be paid, compromised, resisted, defended, tried or

appealed, and Surety’s decision thereon shall be final and

binding upon the Indemnitors.

Id. at p. 2, ¶5.

In the event of payments by Surety, Indemnitors agree to

accept the voucher or other evidence of such payments as

prima facie evidence of the fact and extent of the liability

of Indemnitors to Surety in any demand, claim or suit by

Surety against Indemnitors.

Id. at p. 2, ¶1.

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Los Rios recorded a Notice of Completion for the Cosumnes 3

project on December 8, 2003, and a similar Notice was recorded

for the American River project on January 22, 2004.

The Court notes that one subcontractor, Steeler Inc., 4

submitted claims against both the American River and Cosumnes

bonds as early as August 2003.

5

Beginning in January of 2004, after the both Los Rios

projects had been substantially completed, American Motorists 3

received numerous claims submitted by subcontractors and

suppliers on both projects who alleged that they had not been

paid by CCI. A total of twenty-one (21) claims were submitted 4

for work and materials furnished in conjunction with the Cosumnes

River project, and four of those claims resulted in lawsuits

filed against CCI, Los Rios and the surety between January and

June of 2004. Additionally, with respect to the American River

project, and additional twenty-six (26) claims and five lawsuits

were filed within the same time period. To assist with the

resolution of claims, American Motorist retained a construction

consultant experienced in surety matters, Sage Associates, Inc.,

and outside legal counsel experienced in surety matters, the law

firm of Sedgwick, Detert, Moran & Arnold LLP.

Prior to making any payment to claimants under the

performance bonds, American Motorists advised CCI of its

intention to pay claims and provided the company with a final

opportunity to resolve the claims on their own beforehand. 

Beatty Decl., ¶26, Heacock Dec., ¶12. American Motorists paid

the claims only after CCI failed to do so. Beatty Decl., ¶26.

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6

Ultimately, American Motorists alleges it paid some

$392,631.82 to settle both the claims and lawsuits submitted in

connection with the American River project. Another $222,416.81

was spent to resolve similar claims/lawsuits arising out of the

Cosumnes project, and one lawsuit, Calidad Plumbing v. Carothers

Constr., Inc., Sacramento County Superior Court No. 04AM00538,

still remains pending. In addition, because of the multiple

claims stemming from both projects, Los Rios has taken the

position that it will not release remaining funds to American

Motorists without CCI’s consent, and CCI has refused to give that

consent. That dispute has prompted the filing of an interpleader

action designed to ascertain entitlement to remaining amounts

owed by Los Rios totaling $515,798.14.

As enumerated above, the Interpleader Agreement’s definition

of “Loss” includes all costs and expenses incurred in the payment

of claims submitted against the performance bonds at issue

herein. The Indemnity Agreement goes on to define “Default” as

including “[a]n instance or condition in which Indemnitors ...

“neglect or refuse to pay for any labor or materials used in the

prosecution of a Bonded Contract”. Id. at p. 1, Definitions,

Default. If default occurs, the Agreement assigns certain rights

to American Motorists, including the right to receive bonded

contract proceeds, as follows:

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This figure included, in addition to amounts directly 5

expended to resolve claims/lawsuits stemming from unpaid

suppliers and subcontractors as enumerated above, attorneys’ fees

and costs, consults’s fees and costs, and mediation fees. 

Following additional payments made by Los Rios, the current

reimbursement demand total is $850,831.29.

7

In the event of a Default, Principal and Indemnitors do

hereby assign, transfer and set over to Surety all of their

rights under all Bonded Contract(s) including (a.) their

right, title and interest in all sub-contracts and purchase

orders let in connection therewith ... (c.) All claims and

causes of action against any parties to the Bonded

Contract(s) or against third parties relating to the Bonded

Contract(s) , (d.) any and all sums due, or to become due

under the Bonded Contract(s) at or after the time of such

default ...

Indemnity Agreement, p.3, ¶7.

By letter to Defendants dated January 11, 2005, Defendants

demanded indemnification and reimbursement of their collective

loss and expense in connection with the Los Rios claims, which at

that point totaled $1,293,937.32. Defendants’ failure to 5

indemnify and reimburse American Motorists as to the amount

claimed prompted the present lawsuit.

STANDARD

The Federal Rules of Civil Procedure provide for summary

judgment when “the pleadings, depositions, answers to

interrogatories, and admissions on file, together with

affidavits, if any, show that there is no genuine issue as to any

material fact and that the moving party is entitled to a judgment

as a matter of law.” Fed. R. Civ. P. 56(c). One of the

principal purposes of Rule 56 is to dispose of factually

unsupported claims or defenses. 

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8

Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986).

Rule 56 also allows a court to grant summary adjudication on

part of a claim or defense. See Fed. R. Civ. P. 56(a) (“A party

seeking to recover upon a claim ... may ... move ... for a

summary judgment in the party’s favor upon all or any part

thereof.”); see also Allstate Ins. Co. v. Madan, 889 F. Supp.

374, 378-79 (C.D. Cal. 1995); France Stone Co., Inc. v. Charter

Township of Monroe, 790 F. Supp. 707, 710 (E.D. Mich. 1992).

The standard that applies to a motion for summary

adjudication is the same as that which applies to a motion for

summary judgment. See Fed. R. Civ. P. 56(a), 56(c); Mora v.

ChemTronics, 16 F. Supp. 2d 1192, 1200 (S.D. Cal. 1998). 

In considering a motion for summary judgment, the court must

examine all the evidence in the light most favorable to the nonmoving party. U.S. v. Diebold, Inc., 369 U.S. 654, 655 (1962). 

Once the moving party meets the requirements of Rule 56

by showing that there is an absence of evidence to support the

non-moving party’s case, the burden shifts to the party resisting

the motion, who “must set forth specific facts showing that there

is a genuine issue for trial.” Anderson v. Liberty Lobby, Inc.,

477 U.S. 242, 256 (1986). Genuine factual issues must exist that

“can be resolved only by a finder of fact, because they may

reasonably be resolved in favor of either party.” Id. at 250. 

In judging evidence at the summary judgment stage, the court does

not make credibility determinations or weigh conflicting

evidence. See T.W. Elec. v. Pac. Elec. Contractors Ass’n, 809

F.2d 626, 630-631 (9th Cir. 1987), citing Matsushita Elec. Indus.

Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).

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9

ANALYSIS

A. Improper Service

In opposing this Motion, Defendants make a preliminary

argument that because of improper service the Motion should be

denied on that ground alone without even resorting to the merits

of American Manufacturers’ claims. Defendants argue that

American Motorists failed to timely make personal service so as

to permit a March 19, 2007 hearing date. As American Motorists

points, out, however, the Local Rules of this District permit

electronic service of documents filed during the pendency of an

action. E.D. Local Rule 5-135(a). A document is deemed filed on

a particular day if filed prior to midnight on a that business

day. Id. at Rule 5-134(b). Here, American Motorists

electronically filed and served its motion and supporting papers

on February 16, 2007, and scheduled the hearing for March 19,

2007, thirty-one (31) days later, in compliance with Local Rule

78-230(b). Hence service of this Motion was proper.

B. Breach of Contract

California law has long recognized the right of a surety,

like American Motorists, to be indemnified under the terms a

written indemnity agreement. See, e.g., Fidelity & Deposit Co.

of Md. v. Whitson, 187 Cal. App. 2d 751 (1960). 

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10

In order to demonstrate a valid claim for breach of an indemnity

agreement under California law, the existence of an indemnity

agreement and breach of the agreement following performance must

be established. See Reichert v. Gen. Ins. Co. of Am., 68 Cal. 2d

822, 830 (1968); Four Star Elec., Inc. v. F&H Constr., 7 Cal.

App. 4th 1375, 1380 (1991). The obligations of a surety are

measured by the terms of its performance bond. City of

Sacramento v. Trans Pac. Indus., 98 Cal. App. 3d 389, 400-01

(1979). 

Here, the terms of the Indemnity Agreement at issue are

clear. Defendants expressly agreed to indemnify and hold

American Motorists harmless for and any all costs and expenses,

including payment to bond claimants as well as all other costs

incurred in completing the project upon which American’s

performance bond was issued. The agreement is equally clear that

reimbursable costs include all legal, technical and expert

expenses incurred in settling claims paid by American Motorists. 

Defendants do not dispute that monies were expended by

American Motorists pursuant to its performance bond, although

they do dispute the amount of recoverable damages on American’s

part as discussed in more detail below. As to the fact of

Defendants’ liability, as opposed to the extent thereof,

Defendants’ primary argument rests with the assertion that they

cannot be liable for breach of contract because American

Motorists has not demonstrated that Defendants breached the

underlying construction contracts before stepping in and paying

claims. 

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11

As stated by Defendants: “For surety to prevail as to liability,

it must first prove that Defendants were in “default” with Los

Rios, and that Plaintiff acted appropriately” in adjusting the

claims. Opp., 19:14-16. Defendants argument is hence two

pronged. First, they contend that an assessment of their default

is a necessary prerequisite for any recovery by American

Motorists. Second, they argue that Plaintiff must establish that

it handled the bond claims submitted in a good faith manner

before they can establish any entitlement to reimbursement from

Defendants.

Defendants’ position is misplaced. The terms of the

Indemnity Agreement itself specify when a “default” occurs that

triggers American Motorists’ obligation to intervene in ensuring

that a project is completed and that payment for work and

materials in connection with a project has been made. As

enumerated above, the Agreement states that default occurs when

the indemnifying party, here CCI, neglects or refuses to pay for

any labor or materials used in connection with a bonded contract. 

Indemnity Agreement, p. 1, Definitions, Default. The surety does

not have to otherwise prove default before acting in accordance

with its obligations under a performance bond. Gen. Ins. Co. of

Am. v. Singleton, 40 Cal. App. 3d 439, 443-44 (1974). As the

Singleton court states: “To require plaintiff to establish a

case against the defendants [the indemnitors] in the same manner

that a claimant against the indemnitees would have been obligated

to do, would defeat the purposes of the clauses in the indemnity

agreement allowing the indemnitee to settle claims.” Id. at 444. 

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12

Indemnity agreements like those involved here are intended to

facilitate the handling of settlement by sureties and obviate

unnecessary and costly litigation. Id. Were the rule to be

otherwise, a performance bond surety would have no duty to act

until the bond principal and obligee litigated their respective

rights and the court determined that the principal was in breach

and the obligee was not. As American Motorists argues, this

would be an absurd result which the law does not support.

Defendants nonetheless attempt to assert that they were not

in tardy in making payment to their subcontractors because the

terms of CCI’s subcontractor agreement contain the following

conditional payment provision:

[CCI] agrees to pay to Subcontractor in monthly progress

payments of ninety percent (90%) of labor and materials

which have been placed in position, with funds received by

[CCI] from [Los Rios] for work performed by Subcontractor as

reflected in [CCI’s] applications for payment. Such monthly

progress payments shall be made ten (10) days after receipt

of payment from [Los Rios] to [CCI]. Final Payment to

Subcontractor shall be made ten (10) days after the entire

work required by the prime contract has been fully completed

in conformity with the Contract Documents and has been

delivered to and accepted by [Los Rios], Architect, and

[CCI], with funds received by [CCI] from [Los Rios] in final

payment for work under the prime contract. It is the intent

of the parties that receipt by [CCI] from [Los Rios] of

funds for work performed by Subcontractor shall be a

condition precedent to each payment to be made by the

Subcontractor pursuant to the provision of this section, and

no recourse to [CCI] or its sureties may be made except as

otherwise stated herein.

Beatty Decl., Ex. 67, p. 4, Section 4., Payment Schedule

(emphasis added). 

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13

According to Defendants, this provision required American

Motorists to wait a commercially reasonable time before stepping

in and making payment under its performance bond, apparently on

grounds that CCI itself had not been paid and that CCI did not

yet owe its subcontractors because of the above-quoted language.

The Court disagrees. First, the provision in CCI’s

subcontracts makes it clear that receipt of funds by CCI is

intended to be a “condition precedent” for CCI, in turn, to pay

its subcontractors. In Wm. R. Clarke Corp. v. Safeco Ins. Co. of

Am., 15 Cal.4th 882, 885-86 (1997), the California Supreme Court

made it clear that where payment to a general contractor is a

“condition precedent” to the general contractor’s obligation to

pay the subcontractor for work the subcontractor has performed,

the provision constitutes an unenforceable “pay if paid”

provision running counter to public policy. The Court concludes

that CCI’s language is indeed an impermissible “pay if paid”

provision, since it unequivocally states that payment to CCI

“shall be a condition precedent to each payment to the

Subcontractor.” While Defendants would argue that the clause

survives as a “pay when paid” provision by merely fixing the

usual time for payment to the subcontractor (see id. at 885),

that is not what the language of CCI’s agreement says. It is not

reasonably possible to construe the contractual provision here as

anything other than a condition precedent and consequently a pay

if paid clause, and the Clarke case holds that such provisions

are unenforceable. Defendants consequently cannot contend that

American Motorists’ payments were premature in reliance on this

provision.

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The current versions of California’s Fair Claims Settlement 6

Practices Regulations did not go into effect until after the

claims handling period relevant to this lawsuit.

14

In addition, the defense’s apparent contention that American

Motorists should have waited a “commercially reasonable” time for

Los Rios to have paid Defendants (with Defendants then being in a

position to pay its subcontractors) ignores the fact that under 

California law, American had only sixty (60) days to adjust

claims under its bonds. See Cal. Code Regs. tit. 10, §

2695.10(b)(1997). American hence could not sit back and see 6

whether the claims might ultimately resolve without its

intervention. Moreover, under the terms of the underlying

construction contracts, American, through CCI, could incur

liability for liquidated damages and interest if it did not

intervene. In addition, California Civil Code § 3250 provides

that a claimant under a public works payment bond is entitled to

a reasonable attorney’s fee, and § 3287 goes on to authorize the

award of prejudgment interest on sum certain contract claims. It

follows that by stepping forward and paying claims promptly,

American’s ultimate expenditures, and hence Defendants’ ultimate

liability, were reduced. This cannot constitute bad faith.

As indicated above, the second part of Defendants’ argument

involves the propriety of American Motorists’ claim handling. 

Defendants claim that American cannot recover for breach of the

Indemnity Agreement unless American establishes that it adjusted

the bond claims submitted in good faith. That argument is also

misplaced. 

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15

Surety indemnity agreements like the one before this Court have

been repeatedly upheld and enforced in California and elsewhere

as giving rise to a presumption of the reasonableness of the loss

and expense incurred by the surety in resolving claims, and

consequently the surety’s good faith in doing so. See, e.g.,

Gen. Ins. Co. of Am. v. Singleton, 40 Cal. App. 3d at 444; Fallon

Elec. Co., Inc. v. The Cincinnati Ins. Co., 121 F.3d 125, 128 (3d

Cir. 1997) (holding that indemnity agreement provisions shift

burden to indemnitors to prove bad faith). Consequently, any

alleged bad faith on American Motorist’s part is a defense to

liability which must be pleaded and proved by Defendants as

opposed to constituting an element of American’s prima facie case

in showing a breach of contract. Here, Defendants have not even

pled an affirmative defense of bad faith, as they must in order

to bring that issue before the Court. Failure to plead an

affirmative right with specificity waives the right to assert the

defense. See Horton v. Potter, 369 F.3d 906, 911-912 (6th Cir.

2004).

Even assuming Defendants should be permitted to assert a bad

faith defense, they have failed to produce any adequate evidence

that bad faith on American’s part precludes its recovery under

the Indemnity Agreement. To successfully establish a bad faith

defense, Defendants would had been required to prove that

American engaged in “objectively unreasonable conduct” in

handling its obligations under the performance bond. See Arntz

Contracting Co. v. St. Paul Fire and Marine Ins. Co., 47 Cal.

App. 4th 464, 483 (1996). 

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Although the parties disagree on whether American Motorists 7

agreed to a joint check proposal that allegedly could have

permitted earlier payment to suppliers/contractors, American

Motorists was under no obligation to agree to such a proposal in

any event because the terms of the Indemnity Agreement between

the parties authorize payment solely to them.

While Defendants also argue that American Motorists 8

“overpaid” certain claims, given Defendants’ unquestionable

default they cannot question American Motorists’ adjustment. 

Under the Indemnity Agreement, Defendants agreed to accept

evidence of payment as prima facie evidence of the fact and

(continued...)

16

Here, despite Defendants’ best efforts, they have not shown any

such objectively unreasonable conduct. 

It was not unreasonable for American Motorists to pay

claims. It was obligated to do so under both the terms of its

performance bond and California law which, as indicated above,

established time parameters for adjusting bond claims. 

Defendants therefore cannot argue that Plaintiff paid claims

prematurely. American Motorists notified CCI of its intent to

resolve claims before it did so, yet CCI failed and/or refused to

resolve such claims. Nor was it unreasonable for American

Motorists to demand that further amounts owed under the

construction contracts be paid directly to them. The indemnity 7

agreement provides for such direct payment. In addition, 

Defendants’ argument that American Motorists was owed less than

the outstanding balances due from Los Rios at given times ignores

the fact both that the Indemnity Agreement calls for assignment

and the fact that there remained outstanding claims/lawsuits that

had not yet been resolved. Finally, contrary to Defendants’

contention, there is no evidence that American Motorists paid

time-barred claims.8

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(...continued) 8

extent of Defendants’ liability. Indemnity Agreement, Ex. 1 to

Beatty Decl., p. 2, paragraph 1. In the event of default,

American Motorists, as surety, had the exclusive right to decide

and determine whether claims should be paid. Id. at p. 2,

paragraph 5.

17

In any event, the issue of what constitutes such conduct in

the context of surety claims handling requires the specialized

knowledge of someone with relevant experience in the surety

industry. See F.R.E. 702; Randolph v. Collectramatic, Inc., 590

F.2d 844, 848 (10th Cir. 1979). Here no such proof has been

provided, either in the form of expert opinion or otherwise.

In sum, the Court finds that American Motorists has

established, as a matter of law, Defendants’ liability under the

First Cause of Action, for Breach of the Indemnity Agreement

between the parties.

C. Statutory Reimbursement

California Civil Code § 2847 establishes a statutory right

to reimbursement in favor of a surety making payments under bond

obligations. The statute provides in pertinent part as follows:

If a surety satisfies the principal obligation, or any part

thereof, whether with or without legal proceedings, the

principal is bound to reimburse he has disbursed, including

necessary costs and expenses.

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18

As a Third Cause of Action, American Motorists contend that, in

addition to having breached the Indemnity Agreement, CCI as the

bond principal is also liable for American’s disbursements under

§ 2847.

Aside from the general arguments posited by Defendants

against any finding of liability on its part in breaching the

Indemnity Agreement, CCI makes no specific argument as to why

summary judgment should not be granted as to the merits of

American Motorists’ statutory reimbursement claim. Since those

arguments have already been disposed of, the Court finds in favor

of American Motorists as to the Third Cause of Action.

D. Specific Performance

American Motorists seeks judgment on its Second Cause of

Action, for Specific Performance, thereby requiring Defendants to

immediately deposit collateral security with American Motorists

in the amount of $142,705.02. American Motorists has established

a reserve in that amount in connection with potential additional

loss and expense under the American Motorists Bonds, including,

without limitation, resolving the Calidad Plumbing Lawsuit and

the Los Rios Interpleader Action, both of which are currently

scheduled for trial in state court.

Paragraph 4 of Indemnity Agreement contains Defendants’

agreement to, upon demand, deposit collateral security in the

form of a sum of money equal to any reserve established by

American Motorists. Based on that Agreement, Defendants are

obligated to satisfy the amount of American’s reserve. 

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Significantly, Defendants have failed to oppose American’s

request for summary adjudication on this issue; nor have

defendants questioned the amount of the reserve for which

security must be posted. Summary judgment as to the Second Cause

of Action is accordingly appropriate.

E. Damages

American Motorists correctly cites provisions of the

Indemnity Agreement establishing that the amounts it paid 

are prima facie evidence of loss and expense and liability for

same. (See, e.g., Indemnity Agreement, Ex. 1 to the Beatty

Decl., p. 2, ¶1). American Motorists consequently asks the Court

to establish the amount of damages for which Defendants are

liable.

After carefully examining the evidence, the Court finds that

it is impossible to do this at the present juncture. Even if the

Court assumes that all monies paid out by American Motorists and

properly reimbursable under the terms of the Indemnity Agreement,

there are other unresolved factors bearing upon the extent of

Defendants’ liability which cannot be determined at this juncture

as a matter of law. 

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According to Defendants, Los Rios counsel Joel Levy’s 9

letter of June 8, 2005 (attached as Ex. 46 to Defendants’

Appendix) made for the first time claims for liquidated damages

($46,000.00) and offsets ($49,364.00) that were allegedly spurred

by American Motorists’ refusal to enter into a timely arrangement

to obtain contract proceeds from Los Rios. See Opp., 13:19-24.

20

Defendants contend, for example, that American Motorists’ conduct

caused payments from Los Rios to be delayed and that that delay,

in turn, made it necessary to litigate previously unknown and

unasserted claims relating to the actual construction of the

project.9

Resolution of such issues requires the assessment of factual

questions not amenable to determination on summary judgment. 

Consequently, while the Court finds that Defendants are liable to

American Motorists under both the terms of the Indemnity

Agreement and California Civil Code § 2847, an assessment of

damages cannot be made as a matter of law. Moreover, the Court

notes that an interpleader action remains pending in state court

concerning entitlement to certain Los Rios proceeds that

Defendants claim could substantially reduce, or even eliminate,

their ultimate liability in this case. Prior to adjudication of

that action it would be premature for this Court to attempt any

definitive assessment of American’s damages. Moreover, to the

extent that American Motorists is seeking reimbursement of

attorneys fees and other damages associated with the ongoing

interpleader action and Calidad Plumbing lawsuits, those items

also remain in flux. American’s damages hence cannot be

calculated by the Court at this juncture.

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Because oral argument will not be of material assistance, 10

the Court ordered this matter submitted on the briefs. E.D. Cal.

Local Rule 78-230(h).

21

CONCLUSION

Based on the foregoing, the Court grants summary

adjudication as to American Motorists’ Second Cause of Action,

for Specific Performance. Summary adjudication is also granted

with respect to Defendants’ liability under the First and Third

Causes of Action, for Breach of the Indemnity Agreement and

statutory reimbursement under California Civil Code § 2847,

respectively. Resolution of any damages pursuant to either the 10

First or Third Causes of Action, however, cannot be made on

summary judgment and that portion of American Motorist’s Motion

is accordingly denied.

IT IS SO ORDERED.

Dated: August 10, 2007

_____________________________

MORRISON C. ENGLAND, JR.

UNITED STATES DISTRICT JUDGE

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