The opinion of the court was delivered by: ALESIA
This matter is before the Court on appeal, pursuant to Federal Rule of Civil Procedure 73(d) and 74, from a judgment entered by United States Magistrate Judge Edward Bobrick granting in part and denying in part Defendants/Appellants/Cross-Appellees' motion for summary judgment and granting in part and denying in part Plaintiff/Appellee/Cross-Appellant's motion for summary judgment. For the reasons discussed below, Magistrate Judge Bobrick's decision is affirmed in part and reversed and remanded in part.
Towards the end of 1989, two of Ramco's subcontractors, claiming nonpayment by Ramco, served payment bonds on Hyman. In early 1990, the two Ramco subcontractors filed suit naming Ramco, Hyman, and others as defendants (the "Ramco litigation"). The jury returned a verdict against all defendants in the amount of $ 371,883.13. Pursuant to the State Office Building contract, Hyman withheld, and continues to withhold, $ 100,000 due and owing to Ramco to protect itself from exposure in the Ramco litigation.
In 1990, Hyman and Defendant/Appellant/Cross-Appellee M.A. Mortenson Company ("Mortenson"), also a general contractor on construction projects, formed a joint venture known as Hyman/Mortenson. Despite Hyman's problems with Ramco, in April 1990, Hyman/Mortenson, as general contractor, subcontracted with Ramco for fabrication and erection of metal structures for the construction of the Los Angeles Convention Center expansion (the "Convention Center" contract). The Convention Center contract was similar to the State Office Building contract in that it permitted Hyman/Mortenson to withhold amounts due Ramco in the event Hyman/Mortenson incurred liability for which Ramco was responsible regarding the instant contract or any other agreement between the parties. Hyman/Mortenson is withholding $ 220,580 due and owing to Ramco under the Convention Center contract to protect Hyman from exposure in the Ramco litigation.
From April 1990 to April 1993, Ramco was indebted over $ 1,000,000 to Plaintiff/Appellee/Cross-Appellant Southwest Financial Bank and Trust Company ("Southwest") pursuant to several promissory notes. The indebtedness was secured by various items of collateral, including Ramco's accounts receivables--Southwest filed the appropriate Uniform Commercial Code (UCC) financing statements with the Illinois Secretary of State.
In the meantime, Ramco declined to pay the $ 371,883 jury verdict from the Ramco litigation, but instead desired to appeal. Ramco, however, was financially incapable of posting a supersedeas bond in the statutory required amount of 150% of judgment pending the appeal. So, Ramco asked Hyman to post the supersedeas bond on Ramco's behalf. Hyman agreed. The only documentary evidence memorializing the agreement (the "appeal bond agreement") is a letter from Ramco to Hyman dated February 5, 1993. The letter reads, in pertinent part, as follows:
I am writing to confirm our agreement regarding posting of an appeal bond for all defendants in the above-referenced matters. In return for the George Hyman Construction Company ("Hyman") posting the appeal bond, Ramco Industries, Inc. ("Ramco") agrees:
3. Hyman shall have the right to withhold amounts due to Ramco under any agreement between Ramco and Hyman, The George Hyman Construction Company and M. A. Mortenson Company, A Joint Venture or the George Hyman Construction Company & Power Contracting and Engineering Corp., A Joint Venture to cover Hyman's reasonable estimate of any costs or liability Hyman has incurred or may incur for which Ramco may be responsible.
Thereafter, Ramco sought arbitration of payments due from Hyman/Mortenson regarding the Convention Center contract. In April 1995, the arbitration panel awarded against Hyman/Mortenson and in favor of Ramco in the amount of $ 617,000. Hyman/Mortenson is withholding $ 277,946.99 of the award to protect Hyman from exposure in the Ramco litigation.
Hyman's exposure in the Ramco litigation was $ 585,352. Additionally, both Hyman and Hyman/Mortenson were each subjected to garnishments of $ 13,105. To review, to protect Hyman from exposure in the Ramco litigation: Hyman withheld $ 100,000 due and owing Ramco on the State Office Building contract; Hyman/Mortenson withheld $ 220,580 due and owing Ramco on the ...