Court Opinion

ID: 7375124
Source: CourtListenerOpinion
Date Created: 2022-07-28 23:10:58.53661+00
Date Added: 2024-06-11T16:21:06.735384
License: Public Domain

USCA4 Appeal: 20-2253     Doc: 91         Filed: 01/27/2022    Pg: 1 of 27

                                             PUBLISHED

                               UNITED STATES COURT OF APPEALS
                                   FOR THE FOURTH CIRCUIT

                                              No. 20-2253

        RLI INSURANCE COMPANY,

                            Plaintiff - Appellee,

                     v.

        NEXUS SERVICES, INC.; LIBRE BY NEXUS, INC.; HOMES BY NEXUS, INC.,

                            Defendants - Appellants.

        Appeal from the United States District Court for the Western District of Virginia, at
        Harrisonburg. Michael F. Urbanski, Chief District Judge. (5:18-cv-00066-MFU-JCH)

        Argued: October 28, 2021                                     Decided: January 27, 2022

        Before GREGORY, Chief Judge, QUATTLEBAUM, Circuit Judge, and FLOYD, Senior
        Circuit Judge.

        Affirmed by published opinion. Senior Judge Floyd wrote the opinion in which Judge
        Gregory joined. Judge Quattlebaum wrote an opinion concurring in parts I, II, III, V, and
        VI and in the judgment.

        ARGUED: Carl August Anderson, ROCK SPRING LAW GROUP, PLLC, Washington,
        D.C., for Appellants. Vivian Katsantonis, WATT, TIEDER, HOFFAR & FITZGERALD,
        LLP, McLean, Virginia, for Appellee. ON BRIEF: Mario B. Williams, NDH LLC,
        Atlanta, Georgia; John M. Shoreman, MCFADDEN & SHOREMAN, Washington, D.C.,
        for Appellants.
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        FLOYD, Senior Circuit Judge:

               This case concerns relatively straightforward obligations of a bond surety, RLI

        Insurance Company (RLI), and its indemnitor, Nexus Services, Inc. (Nexus), under a

        standard Commercial Surety General Indemnity Agreement (the Agreement). Because

        surety is a zero-loss industry, the Agreement contains several clauses designed to keep RLI

        whole. One obligates Nexus to provide collateral sufficient to cover all of RLI’s exposure,

        and the parties task us with resolving what kinds of risk “exposure” means to capture. What

        makes our task unique is that, unlike the familiar commercial or construction relationships

        that typically contemplate only a handful of guarantees, this Agreement involves nearly

        2,500 bonds RLI issued to the U.S. government on behalf of individual immigrant

        detainees. Nexus insists that we must nonetheless measure RLI’s exposure on each bond

        individually and that RLI is not actually “exposed” to any risk—and Nexus

        correspondingly does not need to deposit collateral—until the parties have reason to

        believe that RLI will have to pay out that particular bond. The first tangible evidence of

        that, Nexus continues, comes about when an immigrant fails to appear in court on the

        designated date, breaching the bond. In short, Nexus suggests it should deposit collateral

        only up to the sum of the already-breached bonds. RLI objects the Agreement is not so

        limited. Although we do not know which particular immigrant will breach, we can be

        certain some will. It follows that the Agreement must secure against aggregate risk—that

        is, the likelihood Nexus will be able to (timely) indemnify RLI for all future breached

        bonds. Because Nexus’s financial condition, its willingness to indemnify RLI so far, and

        historical rate of bonds breached all bear on that likelihood, they should likewise inform

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        the collateral calculus. The district court sided with RLI, and after reviewing the plain

        terms of the Agreement, we agree. We also affirm the district court’s calculation of the

        collateral amount as a sound exercise of its discretion to order equitable relief.

                                                      I.

               An immigration bond, much like a criminal bond, allows the release of a detained

        individual from custody based on a surety’s contractual undertaking to the United States to

        either deliver the individual as demanded or forfeit the penal sum specified in the bond.

        Nexus runs the bonds program: It screens the immigrants likely to keep their promise to

        appear in court and maintains contact with them throughout their release. But Nexus lacks

        the Department of Treasury’s commercial-surety certification, and so needs another surety

        to take on the liability to the government. RLI agreed to perform that function in exchange

        for a set fee upfront, and Nexus agreed to indemnify RLI for all losses. Specifically, Nexus

        agreed to pay upon demand:

                2(a)(i)   all losses, costs, damages, attorneys’ fees and expenses of whatever
                          kind or nature which arise by reason of, or in consequence of, the
                          Surety having executed any Bond on behalf of the Principal, or in
                          enforcing this agreement against any of the Indemnitor(s) . . . .

                2(a)(ii) an amount sufficient to discharge any claim made against Surety
                         on any Bond. This sum may be used by Surety to pay such claim
                         or be held by Surety as collateral security against loss on any Bond.

        J.A. 53. Nexus also agreed that:

                3(c) [u]ntil Surety has been furnished with conclusive evidence of its
                     discharge without loss from any Bonds, and until Surety has been
                     otherwise fully indemnified . . . , Surety shall have the right of access
                     to the books, records and accounts of the Indemnitor(s) . . . .

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                3(d) Surety shall have every right, defense, and remedy allowed by law
                     including the rights of exoneration and subrogation. Indemnitor(s)
                     will, upon the request of the Surety, procure the discharge of Surety
                     from any Bond and all liability by reason thereof. If such discharge is
                     unattainable, Indemnitor(s) will, if requested by Surety, either deposit
                     collateral with Surety, acceptable to Surety, sufficient to cover all
                     exposure under such Bonds or Bonds, or make provisions acceptable
                     to Surety for the funding of the bonded obligations[ ].

        Id. at 54. Illinois law governs the Agreement. Id.

               While the parties have always differed as to what the Agreement requires, they have

        never disputed the basic facts of how their relationship progressed. See RLI Ins. Co. v.

        Nexus Servs. Inc., 470 F. Supp. 3d 564, 571 (W.D. Va. 2020). Between February 2016 and

        February 2017, RLI issued 2,486 immigration bonds totaling $30 million at Nexus’s

        request. From the start, RLI insisted on collateral, and Nexus agreed to deposit $500,000.

        But it never did. Over the course of the year, Nexus’s performance only continued to

        deteriorate. It repeatedly allowed several invoices from the government to become past

        due, forcing RLI to pay hundreds of thousands of dollars from its own pocket to avert

        referral to the Departments of Treasury and Justice. At one point, the unpaid invoices

        totaled $709,789.37. When RLI reached out to Nexus to resolve this crisis, Nexus refused

        to answer for weeks at a time, denied access to most of its financial records, misrepresented

        when checks were sent to the government, and failed to indemnify RLI until RLI brought

        several enforcement actions—which Nexus protracted by “cloak[ing] two of its affiliate

        companies” and obstructing discovery. RLI Ins. Co. v. Nexus Servs. Inc., No. 5:18CV66,

        2020 WL 6262967, at *12 (W.D. Va. Oct. 23, 2020).

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                      Nexus also misrepresented the risk RLI was undertaking.               During contract

        negotiations, it assured RLI that its proactive screening and tracking techniques would

        result in only about 2% of the bonds being breached. By the start of this suit, however,

        immigrants had breached about 48% of the discharged bonds. 1 Meanwhile, Nexus has

        been investigated by states, the federal government, and insurance companies. And has

        had several liens placed on its assets for failing to satisfy creditors. All of this led RLI to

        finally invoke ¶ 3(d) of the Agreement and request Nexus to discharge its liability on all

        outstanding bonds or deposit $10 million in collateral. Nexus refused to do either, and RLI

        turned to the courts. Nexus counterclaimed that RLI requested the $10 million in bad faith.

                      Before the district court, RLI argued it has absolute discretion to request any amount

        of collateral up to its then-current liability, $20 million. Nexus countered that ¶ 3(d)

        secures only existing government claims or, at most, the penal value of the already-

        breached bonds, even if the government has yet to send a final claim. The district court

        rejected all of those readings as inconsistent with the plain text of ¶ 3(d). RLI Ins., 470 F.

        Supp. 3d at 583–84. The clause, it reasoned, mentions neither the sole discretion RLI

        seeks, nor the specific limitations Nexus proposes. Id. Rather, “exposure” encompasses

        all sources of risk. Some of that risk stems from the number of bonds breached, yes; but

        that is not the only consideration. Nexus’s poor accounting and questionable financial

        1
          Discharged bonds refer to finally resolved bonds. Some bonds are resolved when an
        immigrant appears in court as directed, is granted legal status, or is deported—all of which
        result in the bond’s cancellation. Alternatively, RLI may resolve a bond by satisfying the
        government claim on a breached bond.              So RLI calculates the 48% rate as
          𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏ℎ𝑒𝑒𝑒𝑒 𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏
                                     .
        𝑎𝑎𝑎𝑎𝑎𝑎 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑ℎ𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎 𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏

                                                                   5
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        health endanger RLI, too, and the amount of collateral must account for those

        shortcomings. The court also rejected Nexus’s bad-faith counterclaim, holding that RLI

        merely sought to enforce the Agreement as RLI understood it.

               The court then held a separate evidentiary hearing to determine the amount of

        collateral that reasonably reflects RLI’s anticipated losses, ultimately directing Nexus to

        deposit only $2.4 million. And it awarded RLI $3.4 million for litigation costs as damages

        Nexus must indemnify under ¶ 2(a)(i).

               Nexus now appeals. It has walked back its most extreme position as to the meaning

        of “exposure”—that ¶ 3(d) encompasses only final claims—but maintains that collateral is

        appropriate only up to the value of the already-breached bonds. Alternatively, Nexus

        contends it did not have to deposit collateral at all because RLI did not fulfill the condition

        precedent of requesting it in good faith. Puzzlingly, Nexus does not appeal the district

        court’s on-point finding that RLI acted in good faith; it asks instead that we take the district

        court’s paring down of the collateral to $2.4 million to imply the court found RLI’s original

        demand for $10 million “unreasonable as a matter of law.” Opening Br. 36. Nexus finally

        disputes the district court’s method of calculating the collateral and cursorily requests we

        reconsider the district court’s costs determination.       RLI defends the district court’s

        judgment; it does not argue for its original interpretation of “exposure” or seek a higher

        deposit. 2 We take these arguments in turn.

        2
          Apart from requesting collateral, RLI sought several injunctions to compel Nexus to
        indemnify its payments on past-due bonds, pay for future invoices as they arise, and open
        its books and records for inspection. Those requests led, in turn, to protracted discovery
        (Continued)
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                                                     II.

               We begin with the district court’s ruling that “exposure” reaches all sources of risk,

        not just risk associated with a particular breached bond. Because this decision comes to us

        on summary judgment, we review de novo and draw all inferences in in the light most

        favorable to Nexus, Denzler v. Questech, Inc., 80 F.3d 97, 101 (4th Cir. 1996).

               To affirm, we must agree not only that the Agreement conveys the meaning

        espoused by the district court but that the Agreement does so unambiguously, for

        “questions of contractual ambiguity” in Illinois must be “given to the trier of fact.” Cont’l

        Cas. Co. v. Nw. Nat. Ins. Co., 427 F.3d 1038, 1041 (7th Cir. 2005) (citation omitted). We

        agree and affirm.

                                                       A.

               In Illinois, as elsewhere, indemnity agreements are governed by the usual principles

        of contract interpretation. Hanover Ins. Co v. Smith, 538 N.E.2d 710, 796 (Ill. App. Ct.

        1989), aff’d, 561 N.E.2d 14 (Ill. 1990). We thus begin by looking “to the language of [the]

        contract” because it provides “the best indication of the parties’ intent.” Minn. Life Ins.

        Co. v. Kagan, 724 F.3d 843, 849 (7th Cir. 2013) (quotation marks and emphasis omitted).

        Recall that ¶ 3(d) obligates Nexus, “upon the request of the Surety, [to] procure the

        discharge of Surety from any Bond and all liability by reason thereof.” J.A. 54 ¶ 3(d). And

        if “such discharge is unattainable,” Nexus must “either deposit collateral with Surety,

        disputes and litigation over what companies should be considered Nexus’s alter egos. The
        parties do not appeal the district court’s decisions on any of those issues.

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        acceptable to Surety, sufficient to cover all exposure under such Bonds or Bonds or make

        provisions acceptable to Surety for the funding of the bonded obligations.” Id. The clause

        does not define “exposure,” but Black’s Law Dictionary instructs the term refers to “[t]he

        amount of liability or other risk to which a person is subject.” Exposure, Black’s Law

        Dictionary (11th ed. 2019). Commonly understood, then, “exposure” broadly comprises

        all sources of risk that open RLI up to liability.

               The surrounding text of ¶ 3(d) further confirms this common understanding. Again,

        ¶ 3(d) directs Nexus to secure collateral “sufficient to cover all exposure under such Bonds

        or Bonds.” J.A. 54. We take “such Bonds” to refer to the bonds mentioned earlier in the

        provision—bonds that RLI specifically requested Nexus to discharge.           The second,

        unqualified “Bonds” must then reference bonds generally as defined in ¶ 1 of the

        Agreement:     “Any contractual obligation, and any modification(s) or amendment(s)

        thereto, undertaken by Surety for Principal, before or after the date of this Agreement and

        any renewal or extension of said obligation.” Id. at 53. Read together, ¶¶ 1 and 3(d) thus

        mandate Nexus to provide collateral “sufficient to cover all exposure under” “[a]ny

        contractual obligation . . . undertaken by” RLI to the U.S. government. Id. at 53–54

        (emphases added). That language is as broad as it can be. It does not limit exposure in

        time or scope. It does not condition the obligation on occurrence of any triggering event.

        It makes no mention whatever of breached bonds, non-appearance, or non-performance.

               Our interpretation does not change if we focus only on “such Bonds,” as Nexus asks

        us to do, because RLI indeed requested Nexus to discharge all outstanding bonds. Either

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        way, Nexus must still secure collateral “sufficient to cover all exposure under [all

        outstanding] Bonds.” Id. at 54.

               Had the parties intended to narrow the scope of exposure solely to breached bonds,

        they had many tools in their belt. They could have limited RLI to collateral on a specific

        bond and only after an immigrant fails to attend court. They could have tethered the

        amount of collateral to the penal sum of currently breached bonds. Or even condition

        collateral on receipt of some sort of notice from the Department of Homeland Security.

        Compare Am. Motorists Ins. Co. v. United Furnace Co., 876 F.2d 293, 301 (2d Cir. 1989)

        (discussing a “collateral security provision,” which “provided that the triggering event

        would be . . . the making of a ‘demand’ by the United States against” a surety); Hanover

        Ins. Co. v. Clark, No. 05-C-2162, 2006 WL 2375428, at *6 (N.D. Ill. Aug. 15, 2006)

        (interpreting an agreement that required payments “as soon as liability exists or is asserted

        against the Surety”). The parties did none of that.

               The neighboring provisions point in the same direction. As the district court

        observed, ¶ 2(a)(ii) already directs Nexus to pay “an amount sufficient to discharge any

        claim made against Surety on any Bond.” RLI Ins., 470 F. Supp. 3d at 585. Cabining

        ¶ 3(d) to breached bonds would “nullify” and “render . . . meaningless” that claim-based

        obligation in violation of the basic tenets of contractual interpretation. See Smith v. Burkitt,

        795 N.E.2d 385, 389 (Ill. App. Ct. 2003). Nexus maintains that “claim” differs from “an

        initial determination that the bond has been breached” because “the bond obligor(s) . . .

        have the right to appeal” that determination. Opening Br. 24. But the district court did not

        mean to imply that every initial determination will necessarily result in a final claim. It

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        merely reasoned that, if Nexus provided collateral for each and every breached bond in the

        amount of the full penal sum upon initial notice, there would be nothing left for Nexus to

        pay when the final claim arrives. So ¶ 3(d) must contemplate a different kind of risk.

               Paragraph 2(a)(ii) helps elucidate the parties’ intentions in yet another way.

        Because it calls for “an amount sufficient to discharge any claim,” J.A. 53, it confirms the

        parties understood how to draft a provision that chains payments to a specific bond. Had

        they intended to condition ¶ 3(d)’s “exposure” solely on breached bonds, they could have

        easily mirrored ¶ 2(a)(ii) to require collateral in the “amount sufficient to discharge any

        [breached Bond].” Instead, Nexus agreed to deposit collateral “sufficient to cover all

        exposure.” Id. at 54.

               That is also why Nexus agreed, in ¶ 3(c), to furnish RLI with books, records, and

        accounts “until [RLI] has been otherwise fully indemnified.” Id. RLI would have no need

        for this extended financial information had ¶ 3(d) reached only breached bonds. And ¶ 3(e)

        further decouples collateral from specific bonds by allowing RLI to use “all collateral

        deposited” as “security on any or all Bonds.” Id. In the end, surety bonds are not insurance;

        they aim to prevent all loss, not allocate risk. Absent any indication that the parties sought

        to narrow collateral obligations, ¶ 3(d) plainly and unambiguously reaches all risk, whether

        it stems from the number of bonds currently in breach, Nexus’s historic unwillingness to

        pay, or Nexus’s troubling financial records.

               And that is exactly what other courts have concluded when interpreting similar

        contractual provisions on motions for summary judgment. Of particular interest is Safeco

        Ins. Co. of Am. v. M.E.S. Inc., No. 09-CV-3312, 2010 WL 3928606 (E.D.N.Y. Oct. 4,

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        2010), a case both parties urged the district court to consider because it involved a virtually

        identical indemnity agreement, obligating the indemnitor, “on request of Surety, [to]

        procure discharge of Surety from any Bond” and, “[i]f such discharge is unattainable,” to

        “deposit collateral with Surety, acceptable to Surety, sufficient to cover all exposure under

        such bond or bonds.” Id. at *2. As here, the Safeco agreement did not define “exposure.”

        Id. But the court did not think that lack of definition “render[ed] the term ambiguous”

        because there was “no reasonable basis for a difference of opinion”; the agreement plainly

        entitled Safeco to “specific performance to enforce a collateral security provision” for all

        “losses under a bond that are uncertain but anticipated at some point in the future.” Id. at

        *2–3. And when the Safeco court came back to ascertain the amount of collateral

        appropriate, it required the indemnitor to deposit $875,000 to cover projected legal and

        consulting fees based on the parties’ history of protracted enforcement litigation—risk

        arising from the surety arrangement generally, not any bond in particular. Safeco Ins. Co.

        of Am. v. M.E.S., Inc., No. 09-CV-3312 ARR ALC, 2010 WL 4828103, at *9 (E.D.N.Y.

        Nov. 22, 2010), aff’d sub nom. Safeco Ins. Co. of Am. v. Hirani/MES, JV, 480 F. App’x

        606 (2d Cir. 2012).

               Reading ¶ 3(d) to condition collateral on an immigrant’s non-appearance would also

        create an unwritten condition precedent to Nexus’s obligations. But Illinois law generally

        disfavors conditions precedent and requires them to be expressly spelled out in the contract.

        See Liu v. T&H Mach., Inc., 191 F.3d 790, 798 (7th Cir. 1999) (“A condition precedent

        must be stated expressly and unambiguously.”); Premier Elec. Const. Co. v. Am. Nat. Bank

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        of Chic., 658 N.E.2d 877, 885 (Ill. App. Ct. 1995) (“conditions precedent are not generally

        favored”). We decline to imply one here.

               At bottom, the text and context of ¶ 3(d) agree that Nexus must deposit sufficient

        collateral to secure RLI against all anticipated losses, not just losses on the already-

        breached bonds.

                                                       B.

               Nexus acknowledges that, generally speaking, “exposure” encompasses anticipated

        losses, but insists that, in the immigration industry, losses become anticipated only when

        an immigrant fails to appear. Nexus accordingly urges us to consider trade-usage evidence

        in determining the scope of “exposure” under the Agreement. RLI strenuously objects,

        contending Illinois follows the four-corner contract interpretation principle. RLI is correct

        in that Illinois will not consider subjective evidence like “the testimony of the parties

        themselves as to what they believe the contract means” when a contract is unambiguous on

        its face. AM Int’l, Inc. v. Graphic Mgmt. Assoc., Inc., 44 F.3d 572, 574–75 (7th Cir. 1995)

        (discussing Illinois law). But as Judge Posner prudently observed, “an ordinary reader of

        English would not know about . . . special trade usage, and so [could mistakenly] suppose

        the contract unambiguous.” Id. There must therefore exist “a means by which the law

        allows these surfaces to be penetrated.” Id. That is why “objective” evidence, like that

        “there was more than one ship called Peerless,” “is admissible to demonstrate that

        apparently clear contract language means something different from what it seems to mean.”

        Id.

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               That Illinois law permits us to look at trade usage, however, does not help Nexus

        here. For one, the Agreement was RLI’s first foray into immigration bonds, so we decline

        to ascribe to it any immigration-specific knowledge of “exposure.” More fundamentally,

        Nexus did not (and still does not) offer any evidence of trade usage. Nexus leans on just

        one expert who testified that “[t]here is no risk of financial loss on these bonds absent a

        nonappearance notice.” J.A. 2523 (emphasis added). Setting aside any admissibility

        issues—for the expert was a lawyer with only one prior surety contracts experience—that

        testimony merely reiterates Nexus’s arguments about this Agreement and these bonds. The

        expert does not survey, for example, how other industry agreements use the term

        “exposure” or what kinds of losses other agreements deem anticipated. He does not offer

        any industry dictionaries or templates. He does not cite any court cases. Yet that is what

        Illinois law requires: For a term to be “established as part of contract by custom and usage,”

        it “must be well-settled and uniformly acted upon, and must be established by several

        witnesses”; “it must have existed for a sufficient length of time to become generally

        known.” Gord Indus. Plastics, Inc. v. Aubrey Mfg., Inc., 469 N.E.2d 389, 392 (Ill. App.

        Ct. 1984) (citation omitted). 3 The expert opinion therefore adds nothing for us to consider

        3
         The expert opinion is wrong even on its terms. Like Nexus, the expert believes collateral
        obligations reach only “bonds on which nonappearance notices have been received”
        because ¶ 3(d) “does not say all bonds, but expressly limits collateral security to exposure
        under ‘such’ bonds under which discharge is unattainable.” Opening Br. 15 (quoting J.A.
        2523). As explained, that reading ignores ¶ 3(d)’s plain text, which requires collateral
        “sufficient to cover all exposure under such Bonds or Bonds,” meaning ¶ 3(d) encompasses
        all bonds RLI has issued on Nexus’s behalf. J.A. 54 (emphasis added); see supra pp. 8–9.

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        on top of the arguments Nexus already made about the structure and purpose of the

        Agreement.

               But even had we recognized some limited value in the expert opinion, Nexus gives

        the game away when it insists that “[g]eneral knowledge further confirms this trade

        interpretation of exposure.” Opening Br. 16; see id. at 17, 33–34. By definition, trade-

        usage evidence can alter the interpretation of an agreement only when it “give[s] particular

        meaning to” or “qualif[ies] terms of an agreement.” 810 Ill. Comp. Stat. § 5/1-303(d). But

        where the trade meaning does no work, where it merely recites what lay persons can already

        learn from the text, we have no reason to examine trade usage at all; we can determine

        whether an agreement is ambiguous on its face.

               That Nexus does not muster any evidence of a different meaning in the trade is no

        surprise. Nexus props its argument—that there can be no risk to RLI until an immigrant

        defaults—on the unique structure of immigration bonds. Unlike in other industries, Nexus

        reasons, RLI does not deposit any money when it “issues” a bond, it merely promises to

        pay if the immigrant fails to appear. But that difference in structure does not translate into

        a difference of risk. Even though RLI’s money is not tied up in a government account

        today, RLI must eventually pay for all breached bonds just the same.

               If anything, the immigration context confirms the parties intended to evaluate risks

        more broadly. Unlike in a typical construction or commercial surety agreement, RLI here

        issued thousands of bonds. So while RLI cannot predict that a particular immigrant will

        breach a particular bond, there is no question some immigrants will default and RLI will

        have to pay those claims. Nexus’s collateral must therefore secure against that future

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        aggregate loss. Consider a simple scenario where RLI issues ten bonds. A month in, two

        immigrants default and Nexus considers filing for bankruptcy. Fast forward another

        month, Nexus files for bankruptcy and four more immigrants default. On Nexus’s view,

        RLI’s only risk at the end of the first month flows from the two defaulted bonds. RLI can

        consequently request collateral only on those two bonds and must wait to request further

        collateral until the four other immigrants default. But by the time they do, RLI may receive

        nothing at all, or at best may need to wait months for bankruptcy proceedings to conclude.

        That defeats the very point of collateral: to secure RLI’s obligations before it incurs them.

        Nexus itself appears to realize that exposure “is a function of total coverage.” Opening Br.

        17. Yet it fails to carry that principle to its logical conclusion: financial resources and

        ability to pay bear directly on RLI’s exposure.

               That Nexus must secure RLI against the loss on all outstanding bonds of course does

        not mean Nexus must deposit collateral totaling the penal sum on all those bonds. In that

        sense, Nexus is correct that we must measure collateral against some anticipated loss, and

        the district court appropriately rejected RLI’s initial position that it could demand collateral

        up to $20 million. But we see no principled reason to hold that losses do not become

        anticipated until an immigrant fails to appear. We hold instead that “exposure” comprises

        all risks, such as Nexus’s poor financial records and its historical failure to timely

        indemnify RLI.

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                                                   III.

              Apart from challenging the district court’s interpretation of “exposure,” Nexus also

        argues the district court erred in ordering Nexus to deposit collateral when RLI had not

        properly requested it. See J.A. 54 (directing Nexus, in ¶ 3(d), to deposit collateral “if

        requested by Surety”). To be sure, Nexus does not contest that RLI asked it to pay—RLI’s

        $10 million demand is the reason the parties have come before this Court. Rather, Nexus

        maintains that RLI requested $10 million in bad faith and so did not fulfill a condition

        precedent to Nexus’s collateral obligations. As proof, Nexus observes the district court

        ruled the amount of collateral must be reasonable and then disallowed RLI’s demand for

        $10 million as unreasonable, directing Nexus to deposit $2.4 million instead.

              Unreasonableness is not “the test of good faith” in Illinois, Original Great Am.

        Chocolate Chip Cookie Co. v. River Valley Cookies, Ltd., 970 F.2d 273, 280 (7th Cir.

        1992), and this case helps understand why. After several rounds of briefing, and with the

        help of multiple experts, the district court concluded, in hindsight, that $10 million was

        unreasonably high. But RLI did not have the benefit of that guidance when it made its

        initial request, for Nexus repeatedly refused to disclose its books, carry on a meaningful

        dialogue, or propose a lower amount. In those circumstances, there was nothing sinister

        about requesting $10 million to secure a $20 million liability. Indeed, while the district

        court disapproved of the precise figure RLI requested, it rejected Nexus’s bad faith

        counterclaim because Nexus failed to show that RLI “both intended to and did actually

        attempt to contravene the purpose of the agreement”—especially “because any collateral

        requested merely represents funds held in trust for Nexus, and not for RLI’s profit.” RLI

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        Ins., 470 F. Supp. 3d at 592–93. RLI, the district court concluded, merely sought to enforce

        the Agreement as it understood it. Id. And Nexus’s failure to appeal the district court’s

        good-faith ruling may alone foreclose this argument.

                 But Nexus also misapprehends the nature of this action. This is not a breach-of-

        contract claim, where RLI seeks to collect damages for Nexus’s failure to provide collateral

        and Nexus defends by demonstrating RLI did not fulfill the condition precedent. This is a

        request for an equitable remedy. The only consequence of RLI’s unreasonable request is

        that the district court must adjust the collateral amount consistent with equitable principles,

        as the court did here.

                                                       IV.

                 That brings us to Nexus’s objections over the process the district court used to arrive

        at $2.4 million. Nexus contends the district court performed “an incredibly specific

        calculation” inappropriate for summary judgment and that “any determination of

        reasonableness” should instead “have been reserved for a trier of fact.” Opening Br. 37–

        38. Nexus also resists the court’s authority to impose any reasonable collateral when the

        Agreement called for an “objective” measure by tying collateral to RLI’s exposure. Id. at

        31–32.

                                                         A.

                 Here, too, Nexus confuses actions for breach of contract with requests for specific

        performance. Because Nexus failed to provide any collateral, it breached the Agreement.

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        But RLI did not sue for damages flowing from that breach, such as compensation for some

        “certain” losses it suffered in paying past-due bonds out of its own pocket. Safeco, 2010

        WL 3928606, at *3. Instead, RLI requested a specific-performance decree obligating

        Nexus to provide collateral going forward. In making that request, RLI had “no legal

        remedy,” only “an equitable” one. Am. Motorists Ins. Co. v. United Furnace Co., 876 F.2d

        293, 300 (2d Cir. 1989), cited with approval in, Hanover, 2006 WL 2375428, at *5; accord

        Eakin v. Cont’l Ill. Nat. Bank & Tr. Co. of Chi., 121 F.R.D. 363, 366 (N.D. Ill. 1988)

        (explaining that collateral decrees comprise equitable remedies because “to date, there

        simply are no damages to award”), aff’d, 875 F.2d 114 (7th Cir. 1989); cf. Com. Ins. Co.

        of Newark v. Pac.-Peru Constr. Corp., 558 F.2d 948, 954 (9th Cir. 1977) (holding specific

        performance “not available” when a plaintiff has “an adequate remedy at law”).

               Like any grant of specific performance, then, the district court’s order to deposit

        collateral constitutes “a matter of sound judicial discretion controlled by established

        principles of equity and exercised upon a consideration of all the facts and circumstances

        of a particular case.” Schwinder v. Austin Bank of Chi., 809 N.E.2d 180, 196 (Ill. App. Ct.

        2004) (citation omitted). In that capacity, Illinois courts “balance the equities between the

        parties” and “may refuse to grant specific performance where the remedy would cause a

        peculiar hardship or inequitable result.” Id. (citation omitted). Outside Illinois, courts, too,

        uniformly understand their “function” in such actions as “determin[ing], in light of the

        circumstances of the case and the supporting documentation submitted by the parties,

        whether [a surety]’s demand is a reasonable estimate of its anticipated losses.” Safeco,

        2010 WL 4828103, at *4; accord Am. Motorists, 876 F.2d at 303 (“leav[ing] to the district

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        court the question of how much collateral security [the indemnitor] is obligated to

        provide”); Travelers Cas. & Sur. Co. of Am. v. Sw. Contracting, Inc., No. 4:05CV99-DJS,

        2006 WL 276942, at *3 (E.D. Mo. Feb. 2, 2006) (granting specific performance where

        collateral sought was “reasonable and not excessive”); U.S. Fid. & Guar. Co. v. J. United

        Elec. Contracting Corp., 62 F. Supp. 2d 915, 922 (E.D.N.Y. 1999) (“a collateral security

        clause is enforceable as long as the amount demanded by a surety is reasonable”); U.S. Fid.

        & Guar. Co. v. Feibus, 15 F. Supp. 2d 579, 588 (M.D. Pa. 1998), aff’d, 185 F.3d 864 (3d

        Cir. 1999) (same, because “there is no windfall for the surety”). What courts do not do is

        assess “demand[s] for collateral security” “under the summary judgment standard.”

        Safeco, 2010 WL 4828103, at *4.

               Disputed facts and conflicting assessments of risk therefore do not defeat the district

        court’s authority to order specific performance. After all, “[i]f it were a prerequisite for

        the surety and indemnitors to agree upon all the material facts pertaining to future

        payments,” “no surety would ever succeed in enforcing its interim right to collateral.” Id.

        (internal quotation marks and citation omitted). And, if taken seriously, the logic of

        Nexus’s argument would require us to send any factual disputes inherent in requests for

        injunctions or restraining orders to the jury. We decline to so undermine the very

        foundation of the law-equity divide and instead hold that the district court correctly

        approached the task before it by scrutinizing the reasonableness of the collateral amount.

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                                                       B.

               Because the district court applied the principles of equity, we review its

        determination of the collateral amount for abuse of discretion. Klein v. PepsiCo, Inc., 845

        F.2d 76, 78 (4th Cir. 1988). Finding no abuse, we affirm.

               After ruling on the contractual-interpretation question above, the district court

        dedicated a separate round of briefing to ascertaining the appropriate amount of collateral.

        It then held a two-day hearing, where both parties had an opportunity to present fact and

        expert witnesses. RLI called an actuary with experience in the surety industry, a forensic

        accountant, and a more general expert on surety and insurance contracts. The actuary

        identified four characteristics predictive of bond breach: bond amount, date of the

        immigrant’s last contact with Nexus, the immigrant’s last payment to Nexus, and the

        immigrant’s country of origin. RLI Ins., 2020 WL 6262967, at *3 & n.5. Based on those

        characteristics, she calculated a future breach risk to RLI on the outstanding bonds to

        constitute approximately $10 million—the amount RLI first requested as collateral. Id.

        The forensic accountant identified several areas of Nexus’s financial records which caused

        him concern, such as multiple six- and seven-figure debts, hundreds of thousands of dollars

        in bounced checks, and repeated failures to conform financial records to standard industry

        practice—most troublingly, underreporting liabilities. Id. at *4–5. Building upon that

        testimony, RLI’s industry expert explained that often times, when “the books are a mess

        and they are inaccurate,” “that is a sure sign that . . . down the road, . . . the indemnitors

        lose their ability to pay.” Id. at *6. That means even a zero-loss situation can quickly turn

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        into losses on “some 80 percent of the claims.” Id. So the appropriate amount of collateral

        must account for “what the losses could be in the future.” Id. at *7 (emphasis added).

               RLI also offered a factual witness, its Assistant Vice President of Claims. He began

        by outlining the basic facts about the bonds. RLI, he explained, has issued a total of 2,486

        bonds on Nexus’s behalf. Id. at *3. By the date of the hearing, 393 of those bonds had

        been breached, causing RLI to pay $4,460,000 to the U.S. government. 4 Id. Comparing

        that figure to the 424 bonds that have been cancelled—bonds for immigrants who appeared

        in court or have been deported, relieving RLI of liability—yields a historic breach rate of

        about 48%. Id. And 48% of the current outstanding bond amount again yields about $10

        million. Id.

               The same witness also reviewed Nexus’s financial and operating documents and

        identified eight risk factors flowing from Nexus’s financial decisions that affect its ability

        to pay, including Nexus’s historic failure to timely indemnify RLI for breached bonds, its

        unreliable and inconsistent financial records, a recent—and unrecorded—real estate sell-

        off, and ongoing investigations and enforcement actions. Id.

               Nexus called no expert witnesses during this evidentiary hearing. Its Vice President

        of Operations conceded that “its books and records were a mess” but proffered that Nexus

        “was taking affirmative steps to bringing them in order.” Id. at *6. He also admitted to

        various investigations and lawsuits, offering only that there was no “money Nexus owed

        4
          As discussed, the parties do not contest that Nexus eventually reimbursed RLI the full
        sum of the breached bonds.

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        on other ongoing investigations.” Id. at *7. Nexus’s Vice President of Risk Management

        testified that Nexus “made efforts to contact its RLI-bonded program participants during

        the past few weeks and obtained declarations from 219 participants stating that they fully

        intended to appear.” Id. But Nexus’s CEO conceded that Nexus no longer uses GPS

        monitoring because the GPS company terminated its services in light of Nexus’s $7 million

        debt. Id. at *5. Nexus’s only quarrel with RLI’s testimony was the formula used to

        calculate the historic breach rate—and the end result of 48%. Rather than compare

        breached bonds to bonds cancelled so far, Nexus insisted that the court should compare

        breached bonds to all pending bonds because “RLI faces no risk” on “bonds for which

        principals have demonstrated a history of compliance.” Id. at *3. That analysis would

        yield a breach rate of roughly 5%. Id.

               The district court carefully considered this testimony in a 13-page opinion,

        ultimately ordering Nexus to deposit just $2.4 million, a quarter of RLI’s originally-

        requested $10 million. Id. at *9. The court explained that it based that sum on the amount

        of outstanding bonds, Nexus’s “historic failure to timely pay breached bonds,” Nexus’s

        continued refusal “[t]o this day . . . to make available accurate financial records,” and

        Nexus’s deteriorating financial condition, evidenced by “the myriad investigations into

        [its] business practices by various state attorneys general and bureaus of insurance, claims

        made by large creditors, its recent sell-off of real estate[,] and diminished cash flow.” Id.

        We find no abuse in that detailed, well-reasoned order.

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                                                       C.

               Nexus tries one last argument. It observes ¶ 3(d) does not leave collateral amount

        to RLI’s sole discretion but ties collateral to RLI’s “exposure.” That language, Nexus

        insists, invites “objective” assessments of collateral due, precluding the kind of open-ended

        reasonableness evaluations the court conducted below. Opening Br. 32. And because the

        only “objective” measure happens to be the penal sums on the bonds breached, the district

        court should have limited collateral to that amount. As discussed, that is simply not how

        courts approach requests for collateral—courts uniformly apply a reasonableness standard,

        including in contracts identical to the one here that tie collateral to a surety’s “exposure.”

        See Safeco, 2010 WL 4828103, at *4; see supra pp. 17–19. And with good reason: RLI

        will not retain the $2.4 million “as its property” but will hold it “in trust” for Nexus. Am.

        Motorists, 876 F.2d at 300. If Nexus’s “misgivings regarding the amount of money held

        in collateral prove to be correct, [it] will be entitled to have [its] money returned.”

        Hanover, 2006 WL 2375428, at *6 (internal quotation marks omitted).

               Cases that calculate damages for breach of contract are thus beside the point. See

        Opening Br. 31 (citing Boyd v. Tornier, Inc., No. 07-cv-0751-MJR, 2009 WL 1657900, at

        *7 (S.D. Ill. June 12, 2009), which refused to calculate quotas under a “reasonability”

        principle because the contract provided specific guidelines for quota calculations). Same

        with cases that decline to imply a duty of good faith and fair dealing to override express

        contractual language. See id. at 31–32 (citing Fields v. Thompson Printing Co., 363 F.3d

        259, 271 (3d Cir. 2004); Paulus Sokolowski & Sartor, LLC v. Cont’l Cas. Co., No. Civ.A.

        12-7172 MASTJ, 2013 WL 11084770, at *7 (D.N.J. Aug. 30, 2013)). Those cases apply

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        to courts sitting in law, deciding damages for breach of contract on summary judgment.

        Sitting in equity, the court below was not only permitted but obligated to conduct a

        reasonableness inquiry, so as to ensure that its grant of specific performance would not

        “cause a peculiar hardship or inequitable result.” Schwinder, 809 N.E.2d at 196 (citation

        omitted).

               That is presumably why RLI does not appeal the district court’s winnowing of the

        collateral to $2.4 million, even though ¶ 3(d) directs Nexus to “deposit collateral with

        Surety, acceptable to Surety, sufficient to cover all exposure.” J.A. 54 (emphasis added).

        Even sureties that contractually have “sole discretion” over the amount of the collateral

        must, at day’s end, satisfy the courts “the sum demanded is reasonable.” BIB Constr. Co.,

        Inc., v. Fireman’s Ins. Co. of Newark, 214 A.D.2d 521, 523 (N.Y. App. Div. 1995). That

        is, a surety can sue for damages when an indemnitor breaches its contractual obligation to

        deposit the amount the parties have agreed to—here, an amount “acceptable to” RLI. J.A.

        54. But, when it comes to specific performance, courts can no more order an indemnitor

        to deposit an unreasonable amount of collateral than order an employee to stay in a job she

        wishes to leave.

               Even setting those foundational principles aside, Nexus’s argument proves too

        much. That the Agreement anchors the collateral amount in RLI’s “exposure” rather than

        allow RLI to singlehandedly name the price does suggest some objective evaluation of how

        much risk RLI faces. But it does not follow that the only objective measure of that risk is

        the value of breached bonds. Outside experts’ evaluations, financial documents, and

        historic rate of default offer objective gauges, as well. Nothing in such a reasonableness

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        analysis requires—or allows—the court to take RLI at its word. We accordingly decline

        Nexus’s invitation to circumscribe the court’s traditional equity function, affirm the district

        court’s interpretation of the contract as a matter of law, and affirm its collateral decree as

        a sound exercise of discretion.

                                                      V.

               Nexus finally asks us to reconsider the district court’s award of litigation costs

        “assuming that Nexus’s interpretation of its obligations under the Indemnity Agreement

        prevails before this court, or if the District Court’s summary judgment rulings are

        remanded for further proceedings.” Opening Br. 39. Because we affirm, we have no need

        to reach this question. 5

                                                     VI.

        For the foregoing reasons, the district court’s judgment is

                                                                                         AFFIRMED.

        5
          We clarify, however, that where an indemnitor expressly agrees to compensate for “all
        losses, costs, damages, attorneys’ fees and expenses of whatever kind or nature which arise
        . . . in enforcing this agreement,” J.A. 53, the award of costs and fees constitutes direct
        damages under the agreement, not fee shifting. E.g., Lamp, Inc. v. Int’l Fid. Ins. Co., 493
        N.E.2d 146,149 (Ill. App. Ct. 1986). So we would ask whether RLI incurred its costs and
        fees “in enforcing this agreement,” J.A. 53—not whether RLI is entitled to them as a
        prevailing party. See Hanover Ins. Co. v. Smith, 561 N.E.2d 14, 18 (Ill. 1990) (assessing
        whether a surety sustained attorney’s fees “in consequence” of the execution of a bond
        agreement); Fid. & Deposit Co. of Md. v. Rosenmutter, 614 F. Supp. 348, 352 (N.D. Ill.
        1985) (declining to indemnify litigation expenses where an action “was unnecessary to
        enforce the contract”).

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        QUATTLEBAUM, Circuit Judge concurring:

               I am pleased to join in sections I, II, III, V and VI of Judge Floyd’s excellent opinion.

        I write separately only concerning section IV.

               There, the majority concludes the district court did not err in examining the amount

        of collateral RLI requests from Nexus for “reasonableness.” According to the majority,

        RLI sought equitable relief which the district court is afforded discretion to provide. I agree

        that, in equity, a court has discretion in fashioning an appropriate remedy. But that

        discretion does not include remedies that are inconsistent with the express terms of the

        contract. “Courts have traditionally analyzed the plain language of the indemnity

        agreement to determine a surety’s right to obtain specific performance of collateral

        security.” Hanover Ins. Co. v. Clark, No. 05 C 2162, 2006 WL 2375428, at *5 (N.D. Ill.

        Aug. 15, 2006).

               Here, the express terms allowed RLI to seek collateral “acceptable to [RLI].” Given

        that language, I would not have imposed an objective standard of reasonableness. To me,

        that judicially modifies a term on which the parties agreed and reduced to writing. Words

        have meaning and, as I understand Illinois law, that meaning does not evaporate just

        because a party brings a claim in equity. Butler v. Kent, 655 N.E.2d 1120, 1127 (Ill. App.

        Ct. 1995) (“The province of a court in a specific performance action is to enforce the

        contract which the parties have made.”); Snyder v. Spaulding, 57 Ill. 480, 484 (1870)

        (“Equity does not propose to relieve against the express contract of parties.”).

               For those reasons, I agree with Nexus that the district court erred in imposing a

        reasonableness standard to the amount of collateral RLI could request when the contract

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        permitted collateral “acceptable to [RLI].” However, despite my agreement with Nexus on

        this point, the relief Nexus seeks for this error—as ably explained by the majority in section

        II of its opinion—contravenes the plain language of the contract. Ironically, the party

        prejudiced by the district court’s imposition of a non-contractual objective standard of

        reasonableness was RLI, not Nexus. But RLI did not appeal the district court’s

        reasonableness inquiry and finding. Therefore, I concur in the majority’s ultimate

        conclusion that Nexus’ arguments on appeal must be rejected.

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