Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_04-cv-01977/USCOURTS-cand-3_04-cv-01977-9/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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 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. 

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAFECO INSURANCE COMPANY OF

AMERICA,

Plaintiff,

 v.

LORI CHIANG, ROBERT CHIANG, and

CHIANG CM CONSTRUCTION COMPANY,

INC.,

Defendants. 

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No. C-04-1977-SC

AMENDED FINDINGS OF

FACT AND 

CONCLUSIONS OF LAW

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.

(collectively, "Defendants" or "CM"), alleging causes of action

for, inter alia, breach of an indemnity agreement and equitable

indemnity.1

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¶¶ 1-4. Also, the amount in controversy is alleged to be greater

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

2

A two-day bench trial was held on August 1 and 2, 2006 on the

legal and factual issues in this case. 

II. BACKGROUND

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").

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

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

trial, Bruce S. Echigoshima, an employee of Safeco, testified that

he informed Defendants about the pending litigation, but never

received a response. Default was entered against Safeco for

failure to file timely responsive pleadings. Safeco then retained

its own counsel, who was able to have the default vacated. Pl's.

Mem. at 5. Eventually, 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. 

Safeco insists that it should be compensated, per the

contract, for the money it paid in attorney, investigator, and

consultant fees to have the default removed, and 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. 

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. 

Again, Safeco insists that it should be compensated, per the

contract, for the money it paid in attorney, investigator, and

consultant fees. 

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At trial, Robert Chiang testified that he has settled the KiMan Song case. The Court has heard since then that Robert Chiang

has paid the settlement amount in full. 

 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. 

Again, Safeco insists that it should be compensated, per the

contract, for the money it paid in attorney, investigator, and

consultant fees. 

At trial, Robert Chiang testified that the Chong Duk Kim

action, which has essentially the same plaintiffs as the Wong

Woong action, has settled. The Court has heard since then that

Robert Chiang has paid the settlement amount in full. 

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."). 

At trial, Safeco asserted that Defendants owe Plaintiff

$25,529.33. 

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2

 The Court determined 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. Furthermore, the parties

stipulated that they believed the contract to be governed by

California law. 

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III. FINDINGS OF FACT AND CONCLUSIONS OF LAW

The Court finds that Defendants have breached the Indemnity

Agreement by (1) failing to pay for the costs associated with the

litigation of the Suits and (2) failing to give collateral

security when Plaintiff demanded it. 

A. Attorney, Investigator, and Consultant 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 6.2

The parties do not dispute that there is a contract (the

Indemnity Agreement) nor that Plaintiff performed under the

contract by issuing the Bonds to CM. The question for the Court

is whether Defendants breached the contract and whether this

breach resulted in damages to the Plaintiff. 

The Indemnity Agreement, cited above, grants Plaintiff quite

broad coverage for "[a]ll loss, costs and expenses of whatsoever

kind and nature including reasonable attorney fee...consultant

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fees, investigative costs" incurred by Plaintiffs "by reason of

having executed any Bond." 

The parties don't dispute that Plaintiff incurred expenses

for attorneys, consultants, and investigators. The issue in

dispute, as stated in the papers and at trial, was whether these

expenses and the amount of the demand were reasonably incurred and

whether the amounts themselves were reasonable. 

The Court finds that the Defendant breached the contract and

this breach caused damage to the Plaintiff by requiring it to hire

attorneys, investigators, and consultants. The Court finds that

it was reasonable for Plaintiff to hire attorneys, investigators,

and consultants to participate in and monitor the on-going Suits. 

Because of Defendants' failure to take up Plaintiff's side in the

Romak action, default was entered against Plaintiff. After such

an action, any reasonable party would be concerned that its

interests were being properly taken care of. From that point,

Plaintiff's decision to hire counsel and others to assist in and

monitor the litigation of the Suits was reasonable. Also, because

Safeco's potential exposure on the Suits was enormous, Plaintiff's

cautionary measures were entirely reasonable. Furthermore, the

Court finds that the amounts spent on those cases were reasonable. 

Accordingly, the Court AWARDS Plaintiff $25,529.33.

The Indemnity Agreement also states that, upon demand,

Defendants shall pay the Plaintiff "all loss, costs and expenses

of whatsoever kind and nature, including court costs and attorneys

fees . . ., consultant fees, investigation costs and any other

losses, costs or expenses . . . incurred by it on account of any

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Default under this agreement by any of the Undersigned." 

Indemnity Agreement (Admitted into Evidence as Plaintiff's Ex. 1)

at 1 (emphasis added). The Indemnity Agreement defines "default"

to include, inter alia, in situations in which the undersigned

"[b]reaches, fails to perform, or comply with any provision of

this agreement." Id. Having found that Defendants breached the

Indemnity Agreement, the Court FINDS as a matter of law that

Defendants are jointly and severally liable to Plaintiff for

reasonable attorneys fees incurred in Plaintiff's prosecution of

this action. 

B. Collateral Security

Though Defendants have made statements at various times

indicating that the Ki-Man Song case and the Chong Duk Kim case

have both settled, the Court has yet to receive official

confirmation of the settlement of either case. The Court

therefore finds that Plaintiff is entitled under the Indemnity

Agreement to demand collateral security from Defendants in the

amount of $500,000.00 to protect Plaintiff from any possible

liability flowing from these cases. Accordingly, the Court AWARDS

Plaintiff $500,000.00 in collateral security.

IV. CONCLUSION

The Court finds that Defendants breached the Indemnity

Agreement and therefore Plaintiff is owed damages in the amount of

$25,529.33, collateral security in the amount of $500,000.00, and

attorney's fees in the amount listed in the Amended Judgment. The

Court finds that these Defendants are jointly and severally liable

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for paying these damages. 

Accordingly, the Court finds in favor of Plaintiff Safeco

Insurance Company of America and against Defendants Lori Chiang,

Robert Chiang, and Chiang CM Construction Company, Inc. 

IT IS SO ORDERED.

Dated: February 7, 2007

 

UNITED STATES DISTRICT JUDGE

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