Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_10-cv-02503/USCOURTS-casd-3_10-cv-02503-2/pdf.json

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

---

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

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

TRAVELERS CASUALTY AND SURETY

COMPANY OF AMERICA,

Plaintiff,

v.

HIGHLAND PARTNERSHIP, INC., et al.,

Defendants. 

)

)

)

)

)

)

)

)

)

Case No.10cv2503 AJB (DHB)

ORDER DENYING PLAINTIFF’S 

EX PARTE APPLICATION FOR A

TEMPORARY RESTRAINING ORDER

AND ORDER TO SHOW CAUSE RE

PRELIMINARY INJUNCTION

[Doc. No. 94]

Presently before the Court is Plaintiff Travelers Casualty and Surety Company of America’s

(“Travelers’”) ex parte application for a temporary restraining order and order to show cause regarding

issuance of a preliminary injunction. (Doc. No. 94.) Travelers seeks to restrain and enjoin Defendant

Highland Partnership, Inc. (“Highland”), pending trial of this action, from “spending, squandering,

depleting or otherwise disposing of” the $500,000 settlement proceeds to be received from Merrit &

Harris, Inc. (“M&H”) in settlement of a related proceeding against M&H in the United States

Bankruptcy Court, Central District of California.1

On August 9, 2012, the Court held a hearing on Travelers’ ex parte application. For the reasons

set forth below, the ex parte application is DENIED.

1

 That proceeding is entitled In re 5th Avenue Partners, LLC, Case No. 8:11-Ap-01095-ES. It is

unknown when the settlement proceeds will be disbursed.

1 10cv2503

Case 3:10-cv-02503-AJB-DHB Document 100 Filed 08/10/12 Page 1 of 5
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

I.

BACKGROUND

On August 18, 2004, Highland entered into a contract with First Avenue Partners (“FAP”) for

the construction of a project called the Diegan Hotel in downtown San Diego. Highland was the general

contractor for construction, and FAP was the developer and owner of the hotel. To finance the

construction, FAP obtained a loan of $67,815,000 from WestLB, a banking corporation. 

In April 2006, Highland obtained a payment bond and a performance bond from Travelers in

connection with the project. Travelers required Highland to enter into an Indemnity Agreement, in

which Highland agreed to cover any contingent losses or expenses incurred in connection with the

bonds that Travelers issued on Highland’s behalf. On May 8, 2008, Highland terminated the

construction agreement with FAP because of numerous alleged breaches by FAP, including nonpayment and failure to provide the financial assurances as required by the agreement. As a result,

Travelers claims it has been sued by no fewer than nineteen subcontractors or suppliers of Highland who

are seeking to recover payments due to them under Travelers’ bonds.

Travelers filed its Complaint on December 6, 2010, seeking indemnity from Highland for

payments it made to settle bond claims, as well as fees and costs incurred.2 (Doc. No. 1.) To date,

Travelers alleges that it has paid various subcontractors and suppliers a total amount of $1,546,646 as a

result of the claims on Travelers’ bonds. Travelers claims it has also incurred significant attorneys’ fees

in defending against the numerous lawsuits brought by the claimants.

II.

LEGAL STANDARD

In order to obtain a temporary restraining order or preliminary injunction, a plaintiff “must

establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the

absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the

public interest.” Marlyn Nutraceuticals, Inc. v. Mucos Pharma GmbH & Co., 571 F.3d 873, 877 (9th

2

 Specifically, Travelers alleges claims for statutory indemnity, breach of contract, quia timet, declaratory relief, and specific performance. (Doc. No. 1.)

2 10cv2503

Case 3:10-cv-02503-AJB-DHB Document 100 Filed 08/10/12 Page 2 of 5
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

Cir. 2009) (quoting Winter v. Natural Resources Defense Council, Inc., 555 U.S. 7, 20 (2008)); see also

Sierra Forest Legacy v. Rey, 577 F.3d 1015, 1021 (9th Cir. 2009). A preliminary injunction is an

“extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is entitled to

such relief.” Winter, 555 U.S. at 22. A temporary restraining order requires a likelihood of irreparable

injury in every case. Stormans, Inc. v. Selecky, 586 F.3d 1109, 1127 (9th Cir. 2009). 

III.

DISCUSSION

Travelers believes that if Highland receives the settlement proceeds, it will immediately

attempt to remove them from Travelers’ reach, inhibiting Travelers’ ability to collect any amount from

Highland pursuant to the Indemnity Agreement. Travelers requests that the Court prohibit Highland

from spending, squandering, depleting or otherwise disposing of settlement proceeds, pending trial of

the action. Without this relief, Travelers claims it will be left without any remedy if Highland absconds

or transfers the funds to avoid its alleged obligations under the Indemnity Agreement. 

Travelers asserts that it has met the requirements for injunctive relief because (1) it has

established the likely success of its claims against Highland, (2) it will suffer imminent irreparable

injury if Highland is not restrained and enjoined from spending, squandering or otherwise disposing of

the settlement proceeds, and (3) the balance of equities tips sharply in favor of Travelers. 

Highland responds with several arguments. It claims a court may not issue an injunction

freezing a defendant’s assets prior to a judgment fixing the amount of the debt. See Grupo Mexicano De

Desarrollo v. Alliance Bond Fund, 527 U.S. 308, 321, 333 (1999) (holding that a “District Court had no

authority to issue a preliminary injunction preventing petitioners from disposing of their assets pending

adjudication of respondents’ contract claim for money damages”). Travelers replies that Grupo

Mexicano is inapplicable because Travelers has claims for equitable relief as well as money damages,

and injunctive relief would be consistent with its quia timet claim.

Highland also argues that Travelers has not demonstrated the requisite likelihood of irreparable

harm, for at least two reasons. First, it claims Travelers lacks evidence for its assertion that Highland has

ceased doing business or is on the brink of insolvency. To the contrary, Highland contends that it

3 10cv2503

Case 3:10-cv-02503-AJB-DHB Document 100 Filed 08/10/12 Page 3 of 5
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

remains an active business and continues to pursue new projects. Second, Highland argues that there is

no irreparable harm because Travelers is not entitled to the settlement proceeds. Instead, Highland

claims the settlement proceeds are already due and owing to Highland’s counsel pursuant to perfected

attorneys’ liens, and that Travelers will not suffer irreparable harm when the funds it seeks to freeze are

not and never were available to satisfy its alleged monetary damages in this action. See Fletcher v.

Davis, 33 Cal. 4th 61, 66 (2004); Carroll v. Interstate Brands Corp., 99 Cal. App. 4th 1168, 1172 (Cal.

Ct. App. 2002) (determining that an attorney’s lien is a “secret lien” that is created, and protected, at the

time the fee agreement is executed).

The Court agrees with Highland that Travelers has not met its burden of establishing

irreparable harm absent injunctive relief. Travelers has failed to provide sufficient evidence of

Highland’s actual or pending insolvency. It relies only on a speculative declaration regarding

Highland’s failure to pay certain debts to subcontractors and Travelers in connection with the

construction project. This is not enough to demonstrate that irreparable harm is likely in the absence of

an injunction. As noted above, a temporary restraining order or preliminary injunction may be awarded

only upon a “clear showing” that the plaintiff is entitled to such relief. In reply, Travelers seems to

suggest that Highland must produce evidence of its solvency, including money or other assets, but that is

not Highland’s burden to bear.

Here, without more, the Court is not convinced that Highland has ceased doing business or is

on the brink of insolvency, which undermines Travelers’ entire premise for injunctive relief—namely,

that the settlement proceeds are its sole hope for recovery against Highland and thus must be frozen.

Consequently, Travelers has not demonstrated the requisite likelihood of irreparable harm absent

injunctive relief, and its ex parte application fails for that reason. Because this issue is determinative, the

Court need not reach a finding on the parties’ other arguments involving attorneys’ liens or the doctrine

of quia timet.

3

3

 The Court notes, however, that if the insolvency issue were not determinative, further

documentation would be needed to establish the existence and priority of any attorneys’ liens. The Court

also notes that the doctrine of quia timet is not an appropriate basis for a temporary restraining order.

See Hudson Ins. Co. v. Simmons Constr., LLC, 2012 U.S. Dist. LEXIS 33907 at *8-9 (D. Az. March 14,

2012) (“Plaintiffs have provided no case, and the Court has not found one, in which the extraordinary

4 10cv2503

Case 3:10-cv-02503-AJB-DHB Document 100 Filed 08/10/12 Page 4 of 5
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

IV.

CONCLUSION

For the reasons set forth above, the Court DENIES Plaintiff’s ex parte application for a

temporary restraining order and order to show cause regarding issuance of a preliminary injunction. 

IT IS SO ORDERED.

DATED: August 10, 2012

Hon. Anthony J. Battaglia

U.S. District Judge

remedy of a Temporary Restraining Order has been issued based on the doctrine of quia timet.”). Rather,

courts should use the traditional standard for preliminary injunctive relief. See id. at *9 n.1 (“District

Courts have issued TROs granting sureties collateralization. These courts have relied upon the standards

for issuing a TRO as set forth in the Federal Rules of Civil Procedure, not on the common-law doctrine

of quia timet.”). Under this standard, as explained above, Travelers has failed to demonstrate the

requisite likelihood of irreparable harm, and the Court need reach no further than that.

5 10cv2503

Case 3:10-cv-02503-AJB-DHB Document 100 Filed 08/10/12 Page 5 of 5