No. 03 C 1405 Page 4

principal refuses to pay them, and that, if they refuse to pay or perform, the surety will become

liable. Western Cas. and Sur. Co. v. Biggs, 217 F.2d 163, 165 (7" Cir. 1954). See also
Restatement (Third) of Suretyship & Guaranty § 21(2), comments j, k and ]. Moreover, such
an action recognizes that any subsequently available legal relief is inadequate and that a
plaintiff would suffer irreparable harm when forced to defend a lawsuit absent the
contractually promised indemnity. See United Fire & Cas. Co. v. Coggeshall Const. Co., 1991
WL 169147, *2 (C.D. Ill. 1991). To find otherwise would remove plaintiff from the security
position for which it bargained. See United States Fidelity & Guar. Co. v. Feibus, 15 F. Supp.
2d 579, 588 (M.D. Pa. 1998). Plaintiff is entitled to protect itself by receiving preliminary
injunctive relief ordering the defendants to perform pursuant to the contract.

Balancing the potential harms leads us to grant the injunction in this case. Any funds
posted by the defendants can be easily returned by plaintiff if they are not needed to defend

AF
the claims or pay on the claims. If the injunction is wrongfully denied, however, plaintiff will
be forced to use its own resources to defend claims against alleged defaults of the defendants
despite defendants’ promises to the contrary. Finally, public policy also encourages protecting
the surety and specifically enforcing explicit promises.

There is no apparent reason however to order an accounting or to freeze all of
defendants’ assets at this point. If defendants are ordered to post collateral and do so,
plaintiff's interests will be adequately protected. There will be no irreparable harm in forcing
plaintiff to wait until a full hearing before investigating defendants’ finances. Likewise, the

harm in wrongfully allowing such an invasion into defendants’ business outweighs the



No. 03 C 1405 Page 3

DISCUSSION
We will grant a motion for preliminary injunction only if plaintiffs demonstrate a
likelihood of prevailing on the merits, that they have no adequate remedy at law, and that they

will suffer irreparable harm if we do not grant the relief. Promatek Industries, Ltd. v.

Equitrac Corp., 300 F.3d 808, 811 (7 Cir. 2002). If they meet these threshold requirements,
we then balance the harm that a wrongfully-granted injunction would cause the defendants
against the harm that a wrongfully-denied injunction would cause the plaintiff. Id. Finally,
we weigh the potential harms that the injunction will have on the public. Jd.

Plaintiff clearly demonstrates a likelihood of prevailing on the merits as defendants
offer no defense to plaintiff's breach of contract claim. There is no dispute as to the terms of
the surety agreement or as to whether defendants have fulfilled their part of the bargain.
Defendants’ only argument is that plaintiff itself, rather than Osman or one of the other
obligees, discovered the allegedly defective work. They claim that there was dispute over
whether defendants needed to use a licensed surveyor under the terms of the subcontract.
Following this dispute, Osman declared a default and plaintiff performed an inspection of
defendants’ work, discovering the defaults. This does not excuse defendants from payment
under the terms of the surety agreement. In executing the contract, defendants promised to
indemnify plaintiff for all losses arising from claims against the bonds. Moreover, the contract
explicitly provides that plaintiff may demand that defendants post collateral,

Plaintiff's claim is in the nature of a guia timet action. Such an action allows a court,

in this situation, to impose an equitable remedy if plaintiff can show that debts are due, the



No. 03 C 1405 Page 5

potential benefit of allowing such an inspection at this point in the litigation.
CONCLUSION
For the foregoing reasons, plaintiffs motion for a preliminary injunction is granted in
part and denied in part. Defendants are ordered to post within seven days collateral sufficient

to hold plaintiff harmless from the claims against the bonds.

JAMES B. MORAN
ior Judge, U. S. District Court

Degek Jo , 2003.



A Minute Cr Form (06/97)

United States District Court, Northern District of Illinois

(5

Name of Assigned Judge Sitting Judge if Other
or Magistrate Judge James B. Moran than Assigned Judge
CASE NUMBER 03 C 1405 DATE 4/10/2003
CASE United States Fidelity etc. Vs. Cler Construction etc. et al.
TITLE
[In the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented.)
Memorandum Opinion and Order
DOCKET ENTRY:
(1) a Filed motion of [ use listing in “Motion” box above.]
(2) i) Brief in support of motion due
(3) Oo Answer brief to motion due. . Reply to answer brief due
(4) Qa Ruling/Hearing on set for _ at
(5) OQ Status hearing[held/continued to] [set for/re-set for] on set for at
(6) Qa Pretrial conference[held/continued to] [set for/re-set for] on set for at :
Q) o Trial[set for/re-set for] on at
(8) Oo (Bench/Jury trial] [Hearing] held/continued to at
(9) Oo This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
OFRCP4(m) (OLocal Rule 41.1 COFRCP41{a)(1) [ FRCP41(a)(2).

ao [Other docket entry] Enter Memorandum Opinion and Order. Plaintiff’s motion for a preliminary

injunction is granted in part and denied in part. Defendants are ordered to post within seven days collateral

sufficient to hold plaintiff harmless from the claims against the bonds.
(1) ff [For further detait see order attached to the original minute order.]

No notices required.

Notices mailed by judge’s staff.

Notified counsel by telephone.

ov | Docketing to mail notices.

Mail AO 450 form.

Copy to judge/magistrate judge.

courtroom
deputy's
initials

WAH

No notices required, advised in open court.

Date/time réceived in
central Clerk’s Office

nurmber of notices

fate ds

APR 7.1 2083

dockcting deputy initials

dash major

mailing deputy initials



IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

UNITED STATES FIDELITY AND GUARANTY
INSURANCE COMPANY, a Maryland corporation,

Plaintiff,

vs. No. 03 C1405
CLER CONSTRUCTION SERVICES, INC., an
Illinois corporation, PRECISE INDUSTRIAL
SERVICES, INC., an Illinois corporation, EDWARD
H. FORTE, CORDIA R. FORTE, and ROLAND G.
SIMON,

)
)
)
)
)
)
)
)
)
)
APR IE 7099
)

)

Defendants.

MEMORANDUM OPINION AND ORDER

Plaintiff United States Fidelity and Guaranty Insurance Company (USF&G) brought
suit against defendants alleging breach of a surety contract. Plaintiff then filed a motion
seeking a preliminary injunction requiring specific performance of the agreement. For the
following reasons, plaintiff's motion is granted in part and denied in part.

BACKGROUND

Plaintiff issued performance and payment bonds on behalf of defendant Cler
Construction Services, Inc. (Cler), securing Cler’s obligations to perform construction work
under a subcontract with Osman Construction Corporation (Osman). As part of the surety
agreement between USF&G and Cler, defendants executed contracts on August 14, 2000, and
November 26, 2001, agreeing to indemnify USF&G from any and all liability arising from

claims on the bonds. These agreements specifically provided:



No. 03 C 1405

4, The UNDERSIGNED shall indemnify SURETY and hold it harmless from
and against all claims, damages, expenses, losses, costs, professional and
consulting fees, disbursements, interests and expenses of every nature (including
premiums and fees due for the issuance and continuance of any BOND or
BONDS) which the Surety may sustain, incur or become liable for by reason of
having executed or procured the execution of any BOND or BONDS, or by
making any investigation of any matter concerning any BOND or BONDS, or
by prosecuting or defending any action in connection with any BOND or
BONDS, or by recovering any salvage or enforcing this Agreement...

5(A) At SURETY’s sole discretion, SURETY may demand and upon
SURETY’s demand, the UNDERSIGNED shall deliver over to SURETY
collateral security acceptable to SURETY and equal in value to any reserve set
up by SURETY to cover any contingent losses and any subsequent increase
thereof. SURETY shall return to the UNDERSIGNED any unused portion of
collateral upon termination of the liability of SURETY on any BOND or
BONDS and satisfaction by the UNDERSIGNED of its obligations to SURETY
under this Agreement ....

REK

7. The UNDERSIGNED shall furnish to the SURETY such information as it
may request concerning any BONDED CONTRACT, and the CONTRACTOR
hereby authorizes those with whom such contracts are made to furnish to the
SURETY all information concerning such contracts and the work thereunder.
The SURETY may from time to time, in its sole discretion, examine the books
and records of the CONTRACTOR,

Page2

In September 2002, Osman asserted a claim against the bonds based on defaults in

performance by Cler. Other claimants have subsequently demanded payments on the bonds.

USF&G has demanded that defendants indemnify it from these claims but defendants have

refused. Plaintiffs now seek the entry of a preliminary injunction order requiring defendants

to post collateral to hold USF&G harmless from any losses attributable to the claims; provide

that they are available for creditors.

a full accounting of all assets; allow USF&G access to records; and freeze all assets to assure