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August 5, 2004.


The opinion of the court was delivered by: PAUL PLUNKETT, Senior District Judge


Plaintiff seeks a preliminary injunction under Rule 65 of the Federal Rules of Civil Procedure requiring defendants to post certain collateral with plaintiff and prohibiting the transfer of all defendants' assets. For the following reasons, the injunction is granted in part and denied in part.


  Plaintiff issued payment and performance bonds on behalf of Ockerlund Construction Company ("Ockerlund"), securing Ockerlund's obligations to perform construction work on various Illinois public projects in accordance with the Illinois Public Construction Bond Act, 30 ILCS 550/1 et seq. As a condition for plaintiff to issue the bonds on Ockerlund's behalf, plaintiff required that defendants sign an indemnity agreement, agreeing to indemnify and hold plaintiff harmless from all liability under the bonds it issues ("Indemnity Agreement"). The Indemnity Agreement specifically provides:
Indemnitor(s) jointly and severally agree to indemnify Surety from and against any and all Loss and to this end Indemnitor(s) promise:
(a) To promptly reimburse Surety for all Loss and it is agreed that: (1) originals or photocopies of claim drafts or payment records kept in the ordinary course of business, including computer print-outs, verified by affidavit, shall be prima facie evidence of the fact and amount of such Loss; (2) Surety shall be entitled to reimbursement for any and all disbursements made by it in good faith under the belief that it was liable, or that such disbursement was necessary or prudent.
(b) To deposit with Surety on demand the amount of any reserve against Loss which Surety is required or deems it prudent to establish, whether on account of an actual liability or one which is, or may be asserted against it.*fn1
(Compl. Ex. A.) The Indemnity Agreement is signed by defendants and Ockerlund and dated June 14, 1995. (Compl. Ex. A.)

  As of May 11, 2004, plaintiff has been sued and/or received bond claims totaling $500,000 against the payment and performance bonds it issued on behalf of Ockerlund. (Mot. Prelim. Inj. Ex. A.) Plaintiff notified defendants of the bond claims and requested that defendants post collateral in accordance with the terms of the Indemnity Agreement. As of May 21, 2004, defendants had not deposited any collateral with plaintiff. Plaintiff estimates its exposure under the bonds at $500,000 and has set a reserve in that amount. (Compl. ¶ 12.) Plaintiff brought suit against defendants alleging breach of contract and seeking exoneration, quia timet,*fn2 specific performance of the Indemnity Agreement and a preliminary injunction. Before us now is plaintiff's motion for a preliminary injunction. Plaintiff seeks an order requiring defendants to post collateral in the amount of $500,000, and until that time, enjoining and restraining defendants from selling, transferring, disposing or creating a lien on their assets and property and granting to plaintiff a lien upon all assets and property owned by defendants and in which defendants have an interest. Plaintiff also seeks an order requiring defendants to indemnify and exonerate plaintiff for all liabilities, losses and expenses incurred by plaintiff as a result of plaintiff having issued the bonds.


  As a first matter, we must address defendants' argument that under the Supreme Court decision of Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc., 527 U.S. 308 (1999), we lack to power to enter an order seizing, freezing or restraining the use of defendants' property prior to judgment. We do not agree that the Grupo decision impacts our ability to grant the relief plaintiff requests under these circumstances.

  In Grupo, the Court held that a district court does not have the power to issue a preliminary injunction preventing a defendant from transferring assets pending adjudication of a contract claim for money damages. 527 U.S. at 333. In that case, the Grupo plaintiffs purchased unsecured notes issued by Grupo Mexicano de Desarrollo, S.A. ("GMD"), a Mexican holding company. GMD fell into financial trouble and missed an interest payment on the notes. The Grupo plaintiffs accelerated the principal amount due on the notes and sued for the amount due in federal district court. In their complaint, the Grupo plaintiffs alleged that "GMD is at risk of insolvency, if not insolvent already," that GMD was dissipating its most significant asset and that GMD was preferring its Mexican creditors. Id. at 312. They sought breach of contract damages and requested a preliminary injunction restraining GMD from assigning its assets so that it would be able to pay its debts. The Grupo plaintiffs claimed that without the preliminary injunction, GMD's actions would frustrate any judgment they could ultimately obtain. The district court issued a preliminary injunction restraining GMD from "dissipating, disbursing, transferring, conveying, encumbering or otherwise distributing or affecting" its assets. See 527 U.S. at 310-314. The Second Circuit affirmed.

  The Supreme Court reversed the Second Circuit and held that the district court was without the power to grant such a preliminary injunction. The Court looked to The Judiciary Act of 1789, which gave the federal courts jurisdiction over all suits in equity, and reaffirmed its position that the federal courts have the "authority to administer in equity suits the principles of the system of judicial remedies which had been devised and was being administered by the English Court of Chancery at the time of the separation of the two countries." Id. at 318 (internal quotations and citation omitted). The Court found that the relief the Grupo plaintiffs requested was not the kind traditionally conferred by courts of equity. Finding that the district court did not have the power to issue the preliminary injunction, the Court adhered to the established general rule that "a judgment establishing the debt was necessary before a court of equity would interfere with the debtor's use of his property." 527 U.S. at 321.

  Defendants contend that this case falls squarely under Grupo because, regardless of how it styles its request for relief, plaintiff ultimately seeks money from them. But the facts of this case differ from those of Grupo in significant ways. Plaintiff here does not seek only money damages; it seeks equitable relief and that relief is recognized under the law of suretyship. See Western Cas. & Sur. Co. v. Biggs, 217 F.2d 163, 165 (7th Cir. 1954) (court of equity will, at surety's request, seize funds due principal if surety can show debts are currently due, principal is unable to or refuses to pay them and, if they are not paid, surety will become liable). In addition, plaintiff is not simply an unsecured creditor of defendants seeking to freeze defendants' assets before judgment can be obtained. Plaintiff specifically bargained for a collateral security provision pursuant to which defendants contractually agreed to post collateral with plaintiff in the event plaintiff establishes a reserve against losses and demands such amount from defendants. Courts have granted specific performance in cases where indemnitors have failed to comply with collateral security agreements. See Safeco Ins. Co. v. Schwab, 739 F.2d 431, 433 (9th Cir. 1984); Safeco Ins. Co. v. Dematos Enters., Inc., No. 02-C2899, 2003 WL 21293825, at *4 (E.D. Pa. Apr. 10, 2003). To do otherwise would deny a surety of the security position for which he specifically bargained. See Safeco Ins. Co., 739 F.2d at 433.

  Defendants also rely on a district court decision in the Eastern District of Virginia in support of its argument that a preliminary injunction under these circumstances is inappropriate. In Travelers Cas. & Sur. Co. v. Beck Dvlp. Corp., 95 F. Supp. 2d 549 (E.D. Va. 2000), a surety sought an injunction preventing an indemnitor from spending the life insurance proceeds of her recently-deceased husband, also an indemnitor. In denying the motion for a temporary restraining order, the court applied the two-step analysis articulated by the Fourth Circuit in United States ex rel. Rahman v. Oncology Assocs., P.C., 198 F.3d 489 (4th Cir. 1999).*fn3 First, the court asked whether the plaintiff had an equitable interest in the insurance proceeds. The court found that the plaintiff did not have such an interest because it could not demonstrate a nexus "between the ultimate relief sought and the specific assets in question." Beck, 95 F. Supp. 2d at 554. The indemnity agreement, which contained a collateral security provision pursuant to which the indemnitors agreed to pay "an amount sufficient to discharge any claim," was too broad and the lack of specificity was "fatal to the [p]laintiff's claim of a direct interest in any identifiable asset." Id. That essentially ended the court's inquiry. In closing, the court also said: "the [p]laintiff has asked the Court to order the specific performance of contractual duties of indemnity, but such duties involve nothing more than the payment or pledging of money. Accordingly, specific performance is an improper remedy generally. . . ." Id.*fn4

  We decline to take the position of the Beck court. In that case, the plaintiff sought proceeds from a life insurance policy, which the court noted was not something the surety had counted on when it entered into the indemnity agreement with the defendant. See Beck, 95 F. Supp. 2d at 554-55. Here, however, plaintiff has not identified such an asset. It is not unreasonable to assume that plaintiff examined defendants' entire financial situation before it entered into the Indemnity Agreement and that it relied on the information provided by defendants when making its decision to act as surety on the bonds. (Mot. Prelim. Inj. at 3; Reply Mot. Prelim. Inj. at 8.) We also note that other courts have found it appropriate to grant a preliminary injunction to enforce a collateral security provision in an indemnity agreement.*fn5 See Travelers Cas. & Sur. Co. v. P.B. Verdico, Inc. et al., No. 03-C6985 (N.D. Ill. Nov. 26, 2003) (order granting preliminary injunction); United States Fidelity & Guaranty Ins. Co. v. Cler Constr. Servs., Inc., No. 03-C1405, 2003 WL 1873926 (N.D. Ill. Apr. 11, 2003).

  We now move on to the familiar standard governing motions for preliminary injunctions. In order to grant a preliminary injunction, we must first find: (1) some likelihood of success on the merits; (2) no adequate remedy at law; and (3) that the plaintiff will suffer irreparable harm if the injunction is not granted. Abbott Labs. v. Mead Johnson & Co., 971 F.2d 6, 11 (7th Cir. 1992). If these three conditions are met, we then consider: (1) the harm to defendants if the injunction is granted, weighed against the harm to plaintiff if the injunction is denied; and (2) the public interest, i.e. the consequences to non-parties of granting or denying the injunction. Id. at 11-12.

  As for the first prong, plaintiff need only show that it has a "better than negligible" chance of success on the merits of its claim. See Platinum Home Mortgage Corp. v. Platinum Fin. Group, Inc., 149 F.3d 722, 726 (7th Cir. 1998). We find that it has made this showing. Under paragraph 2 of the Indemnity Agreement, defendants have agreed to "deposit with Surety on demand the amount of any reserve against Loss which Surety is required or deems it prudent to establish, whether on account of an actual liability or one which is, or may be asserted against it." (Compl. Ex. A ¶ 2(b).) The conditions precedent to defendants' obligations under this provision are plaintiff's establishment of a reserve and plaintiff's demand that defendants fulfill their obligation under the provision by posting ...

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