Opinion
Case No. 5:22-cv-798-LCB
2022-12-19
ARGONAUT INSURANCE CO., Plaintiff, v. SUMMIT CONCRETE, INC.; Douglas Jack; Kathryn Jack; Mark Meyer; and Laura Meyer, Defendants.
Joshua K. Chesser, Krebs Farley & Dry, Huntsville, AL, Steven K. Cannon, Pro Hac Vice, Krebs, Farley & Dry, PLLC, Plano, TX, for Plaintiff. Charles A. Ray, IV, Charles Ray PC, Huntsville, AL, for Defendants.
Joshua K. Chesser, Krebs Farley & Dry, Huntsville, AL, Steven K. Cannon, Pro Hac Vice, Krebs, Farley & Dry, PLLC, Plano, TX, for Plaintiff. Charles A. Ray, IV, Charles Ray PC, Huntsville, AL, for Defendants. OPINION & ORDER LILES C. BURKE, UNITED STATES DISTRICT JUDGE
This is a breach-of-contract case. In short, Argonaut Insurance Company, as a surety, claims that Summit Concrete, Inc. and four of its corporate representatives have failed to deposit collateral and provide access to their books and records in breach of an indemnity agreement. (Doc. 25 at 9-11). Argonaut now moves for a preliminary injunction requiring Summit Concrete to perform its obligations under the agreement. (Doc. 26 at 29). In sum, the evidence shows that Argonaut is entitled to injunctive relief pending a full trial on the merits of this case. The Court therefore grants Argonaut's motion for preliminary injunction.
I. BACKGROUND
Kohler Co. designs and manufactures kitchen and bath products. In early 2020, Kohler hired Burns & McDonnell Engineering Company, Inc. to build a warehouse in Huntsville, Alabama. (Doc. 35-2 at 1-2). Burns later subcontracted a portion of the project to Summit Concrete, Inc. Id. at 1. To guarantee performance of the subcontract, Argonaut Insurance Company issued a payment and performance bond of $6,320,902, with Burns as the obligee and Summit Concrete as the principal. Id. at 1, 6. In exchange, Summit Concrete—along with four of its corporate representatives—entered into a written indemnity agreement with Argonaut. (Doc. 35-1 at 1).
Kohler Co. Announces Completion of Plumbing Products Warehouse to Support Growth and Enhance Supply Chain Agility, KOHLER CO., https://www.kohlercompany.com/press-room/press-releases/kohler-co-announces-completion-of-plumbing-products-warehouse-to-support-growth-and-enhance-supply-chain-agility/ (last visited Dec. 7, 2022).
A performance bond and a payment bond serve two distinct purposes: the former ensures a project will be completed, while the latter ensures laborers and suppliers receive payment for their goods and services. The bonds at issue here share a single bond number, and Argonaut considers them to be one bond. (Doc. 35-2 at 1-6). Accordingly, the Court treats them as a single bond for purposes of this opinion.
The four corporate representatives who signed the indemnity agreement—Douglas Jack, Kathryn Jack, Mark Meyer, and Laura Meyer—are also named as defendants in Argonaut's amended complaint. Compare (Doc. 35-1 at 6-8) (indemnity agreement), with (Doc. 25 at 2) (Argonaut's amended complaint). For the balance of this opinion, the Court uses the term "Summit Concrete" to refer to all defendants in this matter.
That agreement forms the basis of this suit. Essentially, the agreement requires Summit Concrete to indemnify Argonaut against any loss or expense arising under the bond. Id. The agreement also contains a collateral security provision, requiring Summit Concrete "to deposit with [Argonaut], upon demand, an amount of money or other collateral security acceptable to [Argonaut], as soon as liability exists or is asserted against [Argonaut], whether or not [Argonaut] shall have made any payment therefor, equivalent to such amount that [Argonaut], in its sole judgment, shall deem sufficient to discharge" any claim asserted against the bond. Id. The agreement also requires Summit Concrete to provide Argonaut with access to its books and records should liability arise under the bond. Id. at 2. Finally, the agreement states that its terms shall be interpreted pursuant to Texas law. Id. at 3.
The indemnity agreement defines "loss" as follows:
[A]ny and all (a) sums paid by [Argonaut] to claimants under the Bonds (b) sums required to be paid to claimants by [Argonaut] but not yet, in fact, paid by [Argonaut], by reason of execution of such Bonds, (c) all costs and expenses incurred in connection with investigating, undertaking the performance of obligations, arranging for and/or completion of work, paying, or litigating any claim under the Bonds, including but not limited to consultant and legal fees and expenses, technical and expert witness fees and expenses, (d) all costs and expenses incurred in connection with enforcing the obligations of [Defendants] under this Agreement including, but not limited to interest, consultant and legal fees and expenses, (e) all accrued and unpaid premiums owing to [Argonaut] for the issuance, continuation or renewal of any Bonds and/or (f) all other amounts payable to [Argonaut] according to the terms and conditions of this Agreement.(Doc. 35-1 at 1).
Summit Concrete ultimately failed to perform on its contract with Burns. (Doc. 35-12 at 2). As a result, nine claims—totaling $1,279,106.15—were filed against the bond. (Doc. 35-14 at 1). Argonaut sent Summit Concrete two letters demanding that it deposit collateral and furnish access to its books and records in accordance with the terms of the indemnity agreement. (Doc. 35-12 at 1-3); (Doc. 35-13 at 1-4). Summit Concrete neither answered nor complied with Argonaut's demands. (Doc. 26-5 at 6). As of November 2022, Argonaut has paid $59,520.78 to discharge two of the claims and, in the process, incurred at least $54,849.44 in attorneys' fees. (Doc. 35-14 at 1). Four claims—totaling $952,207.52—remain pending against the bond. Id.
For context, Burns paid the three other claims against the bond. (Doc. 35-14 at 1). Those claims are not relevant to this suit.
II. LEGAL STANDARD
A preliminary injunction is a form of equitable relief that preserves the parties' positions pending trial. Bloedorn v. Grube, 631 F.3d 1218, 1229 (11th Cir. 2011). To receive a preliminary injunction, a movant must show four things: (1) he has a substantial likelihood of success on the merits; (2) he will suffer irreparable injury absent injunctive relief; (3) the threatened injury outweighs any damage the requested injunction may have on the nonmovant; and (4) the requested injunction is not adverse to the public interest. Siegel v. LePore, 234 F.3d 1163, 1176 (11th Cir. 2000) (en banc). The movant bears the burden of persuasion on each element. State of Fla. v. Dep't of Health & Hum. Servs., 19 F.4th 1271, 1279 (11th Cir. 2021).
III. DISCUSSION
Argonaut sues Summit Concrete for breach of the indemnity agreement. (Doc. 25 at 9-11). To that end, Argonaut moves for a preliminary injunction requiring Summit Concrete to post collateral in the amount of $1,066,577,74 and furnish a copy of its books and records pursuant to the terms of the indemnity agreement. (Doc. 26 at 29). The Court turns to whether Argonaut makes the four showings necessary to receive injunctive relief.
This amount equals the fees and expenses that Argonaut has incurred as of September 30, 2022, along with the total amount that remains pending against the bond. (Doc. 35-14 at 1).
A. Substantial Likelihood of Success On the Merits
Argonaut is substantially likely to succeed on the merits of its breach-of-contract claim. An indemnity agreement is a promise to "hold the indemnitee harmless against either existing and/or future loss liability." Dresser Indus., Inc. v. Page Petroleum, Inc., 853 S.W.2d 505, 508 (Tex. 1993). An indemnity agreement is also a contract, subject to the general rules of contract construction. Associated Indem. Corp. v. CAT Contracting, Inc., 964 S.W.2d 276, 284 (Tex. 1998). As such, courts strictly construe such agreements in favor of the indemnitor, giving full effect to the parties' intent as expressed in the agreement. Claybar v. Samson Expl., LLC, 2018 WL 651258, at *3 (Tex. App. Feb. 1, 2018).
Under Texas law, a claim for breach of an indemnity agreement constitutes a claim for breach of contract. See, e.g., Levitin v. Michael Grp., L.L.C., 277 S.W.3d 121, 123 (Tex. App. 2009) (analyzing a claim for breach of an indemnity agreement as a breach-of-contract claim); Crowder v. Scheirman, 186 S.W.3d 116, 118-19 (Tex. App. 2005) (same). Breach of contract has four elements: "(1) the existence of a valid contract; (2) performance or tendered performance by the plaintiff; (3) breach of the contract by the defendant; and (4) damages sustained by the plaintiff as a result of the breach." Smith Int'l, Inc. v. Egle Grp., LLC, 490 F.3d 380, 387 (5th Cir. 2007) (quoting Valero Mktg. & Supply Co. v. Kalama Int'l, 51 S.W.3d 345, 351 (Tex. App. 2001)).
The parties agree that, pursuant to the terms of the indemnity agreement, the substantive law of Texas governs Argonaut's breach-of-contract claim. (Doc. 26 at 7, 11); (Doc. 33 at 5).
Argonaut is substantially likely to prove each of these elements. First, the indemnity agreement is a valid, enforceable contract. (Doc. 35-1 at 1-8). Second, Argonaut performed its end of the agreement by issuing Summit Concrete a payment and performance bond. (Doc. 35-2 at 1, 6). Third, Summit Concrete breached the agreement by failing to deposit collateral and provide access to its books and records—despite Argonaut's demands. (Doc. 26-5 at 6).
Finally, Argonaut has suffered damages as a result of Summit Concrete's breach. (Doc. 35-14 at 1). Argonaut has paid $59,520.78 to discharge two claims filed against the bond and, in the process, incurred at least $54,849.44 in attorneys' fees. Id. Additionally, four claims—totaling $952,207.52—remain pending against the bond. Id. Accordingly, Argonaut has suffered damages due to Summit Concrete's breach. Argonaut is therefore substantially likely to succeed on the merits of its breach-of-contract claim.
B. Irreparable Injury
Argonaut will suffer irreparable injury absent injunctive relief. An irreparable injury is one that is actual and imminent (not remote or speculative) and one for which there is no adequate remedy at law. Swain v. Junior, 961 F.3d 1276, 1292 (11th Cir. 2020); Bolin v. Story, 225 F.3d 1234, 1242 (11th Cir. 2000). Economic or financial injuries—those that are fully redressable at law through an award of money damages—are not generally "irreparable." Ne. Fla. Chapter of Ass'n of Gen. Contractors of Am. v. City of Jacksonville, 896 F.2d 1283, 1285 (11th Cir. 1990); Transcon. Gas Pipe Line Co. v. 6.04 Acres, More or Less, Over Parcel(s) of Land of Approximately 1.21 Acres, More or Less, Situated in Land Lot 1049, 910 F.3d 1130, 1165 (11th Cir. 2018).
That rule, however, is not absolute. See 11A CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE & PROCEDURE § 2948.1 (Rev. 3d ed. 2022). The Eleventh Circuit has repeatedly held that certain injuries—by their very nature—are irreparable even when they can be undone with money. E.g., Scott v. Roberts, 612 F.3d 1279, 1295 (11th Cir. 2010) (injuries to free speech rights); Levi Strauss & Co. v. Sunrise Int'l Trading Inc., 51 F.3d 982, 986 (11th Cir. 1995) (patent infringement). For example, the court has held that a plaintiff lacks an adequate remedy at law to collect a money judgment against an insolvent defendant. United States v. Askins & Miller Orthopaedics, P.A., 924 F.3d 1348, 1358-59 (11th Cir. 2019).
But the Eleventh Circuit has never considered the precise question at hand: whether a surety lacks an adequate remedy at law to enforce a collateral security provision of an indemnity agreement. That said, an overwhelming majority of district courts nationwide—along with the Ninth Circuit—have answered the question in the affirmative, reasoning that specific performance of a collateral security provision is necessary "to protect three interests of the surety: the bargained-for benefit of collateral security, avoidance of present exposure to liability during pending litigation against indemnitors, and avoidance of risk that, should Indemnitors become insolvent, the surety will be left as a general unsecured creditor, frustrating the purpose of the indemnity agreement.
See, e.g., Safeco Ins. Co. of Am. v. Schwab, 739 F.2d 431, 433 (9th Cir. 1984) ("If a creditor is to have the security position for which he bargained, the promise to maintain the security must be specifically enforced." (quoting Marine Midland Tr. Co. of New York v. Alleghany Corp., 28 F. Supp. 680, 683-84 (S.D.N.Y. 1939))); Auto-Owners Ins. Co. v. Randy B. Terry, Inc., 2013 WL 6583959, at *6 (N.D. Ala. Dec. 16, 2013) ("Case law nationwide has recognized the right of a surety to use the equitable remedy of specific enforcement to secure collateralization of its right to indemnification of the principal's debt."); Safeco Ins. Co. of Am. v. Lake Asphalt Paving & Const., LLC, 807 F. Supp. 2d 820, 827 (E.D. Mo. 2011) (finding that a surety was "entitled to the equitable remedy of specific performance of its contractual right to collateralization"); Great Am. Ins. Co. v. SRS, Inc., 2011 WL 6754072, at *8 (M.D. Tenn. Dec. 23, 2011) ("[C]ourts have routinely found that sureties suffer immediate, irreparable harm if they are denied receipt of collateral after liability has been asserted against them."); Liberty Mut. Ins. Co. v. Aventura Eng'g & Const. Corp., 534 F. Supp. 2d 1290, 1321 (S.D. Fla. 2008) ("[C]ourts have found that a surety's loss of its right to collateralization cannot be adequately remedied through monetary damages."); Liberty Mut. Ins. Co. v. Nat'l Pers. of Tex., Inc., 2004 WL 583531, at *2 (N.D. Tex. Mar. 24, 2004) ("Courts have generally granted specific performance to enforce collateral security clauses based on the premise such remedy is required to protect the surety's bargain.")
International Fidelity Ins. Co. v. Talbot Construction, Inc., 2016 WL 8814367, at *7 (N.D. Ga. Apr. 13, 2016) (collecting cases).
These authorities—and the conclusion they reach—are not only well reasoned, but also directly aligned with fundamental principles of equity. Long ago, the Supreme Court explained that the equitable inquiry is a practical one: "It is not enough that there is a remedy at law[;] it must be plain and adequate, or in other words, as practical and as efficient to the ends of justice and its prompt administration, as the remedy in equity." Boyce's Ex'rs v. Grundy, 28 U.S. (3 Pet.) 210, 214, 7 L.Ed. 655 (1830). The Eleventh Circuit has similarly stressed that "[t]he very nature of equitable power—the thing that distinguishes it from law—is its flexible and discretionary nature, its ability to respond to real-world practicalities, and its general aversion to rules that let bad actors capitalize on legal technicalities." Askins & Miller Orthopaedics, P.A., 924 F.3d at 1359.
Given this authority, the Court finds that the rule adopted by district courts nationwide and the Ninth Circuit is well-reasoned, practical, and founded on long-standing principles of equity. The Court therefore joins its sister courts in concluding that a surety lacks an adequate remedy at law to enforce a collateral security provision of an indemnity agreement. Any opposite conclusion would deprive sureties of the benefit for which they bargained and, in the long run, risk the solvency of sureties who issue payment and performance bonds to subcontractors like Summit Concrete.
Against this backdrop, there is no doubt that Argonaut would suffer irreparable injury absent injunctive relief. The evidence shows that, despite Argonaut's demands, Summit Concrete has failed to deposit collateral or provide access to its books and records in accordance with the terms of the indemnity agreement. (Doc. 26-5 at 6). Argonaut lacks an adequate remedy at law to enforce the indemnity agreement. Thus, Argonaut would suffer irreparable injury absent a preliminary injunction requiring Summit Concrete to deposit collateral and furnish access to its books and records.
C. Balance of Harms
The threatened harm to Argonaut outweighs any burden Summit Concrete would suffer from the requested injunction. Specific performance of a collateral security provision is necessary "to protect three interests of the surety: the bargained-for benefit of collateral security, avoidance of present exposure to liability during pending litigation against indemnitors, and avoidance of risk that, should Indemnitors become insolvent, the surety will be left as a general unsecured creditor, frustrating the purpose of the indemnity agreement. Talbot Construction, Inc., 2016 WL 8814367, at *7.
As explained supra Section III.A, Argonaut has paid $59,520.78 to discharge two claims filed against the bond and incurred at least $54,849.44 in attorneys' fees. (Doc. 35-14 at 1). Argonaut could further incur expenses of $952,207.52—not including future attorneys' fees—to discharge four other claims against the bond unless Summit Concrete deposits collateral. Id. To be sure, posting collateral of $1,066,577.74 would undoubtably burden Summit Concrete. But ultimately that is a burden for which Summit Concrete bargained when it entered the indemnity agreement. (Doc. 35-1 at 1). Thus, the threatened harm to Argonaut outweighs any burden Summit Concrete would suffer from the requested injunction.
D. Public Interest
The requested injunction is not adverse to the public interest. Upholding enforceable contracts is not adverse to the public interest. Int'l Bhd. of Boilermakers v. Loc. Lodge D238 of the Cement, Lime, Gypsum & Allied Workers Div. of the Int'l Bhd. of Boilermakers, 865 F.2d 1228, 1236 (11th Cir. 1989). Here, the requested injunction merely upholds the indemnity agreement (an enforceable contract) between Argonaut and Summit Concrete. Thus, the injunction is not adverse to the public interest.
IV. CONCLUSION
Argonaut is entitled to injunctive relief pending a full trial on the merits of this case. Accordingly, the Court GRANTS Argonaut's motion for preliminary injunction (Doc. 26) and ORDERS as follows:
1. Defendants shall perform their specific obligations to indemnify or exonerate Argonaut under the payment and performance bond;
2. Defendants shall post collateral to Argonaut in the sum of $1,066,577.74, plus additional funds necessary to secure the loss, costs, expenses, court cost, and counsel fees expended and/or to be expended as necessary in order to enforce the indemnity agreement;
3. Defendants shall not sell, transfer, alienate, or otherwise encumber any of their assets until the required collateral is posted; and
4. Defendants shall provide Argonaut with access to their books and records in accordance with terms of the indemnity agreement.
DONE December 19, 2022.