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United States Surety Co. v. Stevens Family Ltd. Partnership

United States District Court, N.D. Illinois, Eastern Division

November 26, 2012

UNITED STATES SURETY COMPANY, Plaintiff,
v.
STEVENS FAMILY LIMITED PARTNERSHIP, et al., Defendants.

Page 855

Stephanie M. Keddy, Thomas Scott Leo, Leo & Weber, P.C., Chicago, IL, for Plaintiff.

Karl W. Roth, William P. Foley, Roth Law Group LLC, Chicago, IL, for Defendants.

Page 856

MEMORANDUM OPINION AND ORDER

MILTON I. SHADUR, Senior District Judge.

United States Surety Company (" Surety" ) brought this contractual action against Stevens Family Limited Partnership and four individual defendants (collectively the " Partnership" [1]) to seek enforcement of a general indemnity agreement (" Agreement" ) entered into by the parties. More precisely Surety requests both indemnification against certain claims and specific performance of a related collateral security provision, both in connection with payment and performance bonds issued by Surety on Partnership's behalf.

Surety now asks for judgment on the pleadings under Fed.R.Civ.P. (" Rule" ) 12(c). As explained here, Surety's pleading-based motion is denied as to the first of those contentions but granted as to the second.

Standards of Construction

As with Rule 12(b)(6) motions, Rule 12(c) motions call for the factual allegations in a complaint to be viewed in the light most favorable to the nonmovant plaintiff, drawing all reasonable inferences in its favor ( Emergency Servs. Billing Corp. v. Allstate Ins. Co., 668 F.3d 459, 464 (7th Cir.2012)). Hence for purposes of the current motion assertions in Surety's First Amended Complaint (" Complaint" ) will be considered untrue if Partnership has denied those assertions in its Answer. Moreover, Partnership's Rule 8(b)(5) disclaimer that it lacks sufficient knowledge or information to form a belief about any of Surety's assertions has the effect of a denial.[2] What follows is a summary of the facts as perceived through the lens of the Rule 12(c) standards.

Background Facts[3]

Partnership owns a construction company— Architectural Specialties Trading Company, Inc. (" Architectural Specialties" )— that specializes in architectural millwork (Ans. ¶ 9). Two construction projects are relevant to this action, each of them including Architectural Specialties as a subcontractor ( id. ¶¶ 14, 16). First, in May 2008 Architectural Specialties contracted to help build an armed forces retirement home— a project run by general contractor W.G. Yates & Sons Construction Co. (" Yates" ) ( id. ¶ 14). Second of the projects was one to build the Dental Sciences Building for the University of North Carolina at Chapel Hill— an undertaking that began in June 2009 and was led by BE & K Building Group, LLC (" BE & K" ) ( id. ¶ 16). Both projects required Architectural Specialties to provide its general contractors with payment and performance bonds ( id. ¶¶ 15, 17). Partnership purchased those bonds (together the " Bonds" ) from Surety— Bond No. 10000825985 was issued to Yates in the penal sum of $1,368,000, and Bond No. 1000825982 was issued to BE & K in the penal sum of $1,251,234 ( id. ).

Page 857

In conjunction with Partnership's purchase of the Bonds, the parties executed the Agreement, which includes this indemnification provision (Agreement ¶ 2):

In consideration of the execution and delivery by the Surety of a Bond or any Bonds on behalf of the Principal [Architectural Specialties], the Undersigned [Partnership as defined at the outset of this opinion] agree to indemnify and hold the Surety harmless from and against any and all demands, liabilities, losses, costs, damages, attorneys' fees and expenses of whatever kind or nature together with interest thereon at the maximum rate allowed by law, which arise by reason of, or in consequences of, the execution by the Surety of any Bond on behalf of the Principal and whether or not the Surety shall have paid any sums in partial or complete payment thereof....

That provision is coupled with this collateral security provision (Agreement ¶ 6):

If a claim is made against Surety, whether disputed or not, or if Surety deems it necessary to establish a reserve for potential claims, and upon demand from Surety, the Undersigned shall deposit with Surety cash or other property acceptable to Surety, as collateral security, in a sufficient amount to protect Surety with respect to such claim or potential claims and any expense or attorneys' fees.... If said collateral, or collateral previously deposited with Surety, is deemed insufficient by Surety, the Undersigned agrees to deposit additional or substitute collateral in an amount and type acceptable to Surety. This may include the Surety's demand for cash collateral in substitution for Trust Deed collateral. The Undersigned further agrees to reimburse the Surety for all attorney's fees, costs, expenses, etc., including any in-house attorney's fees, in the Surety's defense of any action brought by the Undersigned or anyone to effect the return or turnover of the collateral.

Surety alleges that it has received claims on both Bonds (Compl. ¶ 18-19). It asserts that it has incurred $7,931.42 of claim investigation costs in connection with the Retirement Home Project ( id. 18). But Partnership responds that it does not have sufficient information to determine whether that is accurate (Ans. ¶ 18). As to the Dental Building Project, Partnership admits that BE & K sent Surety several letters discussing Architectural Specialties's alleged default as well as a claim on the Bond issued in connection with the Project ( id. ¶ 19). Included in those letters was a June 2011 " Notice of Default" letter, a July 2011 " Failure to Cure Default" letter and an August 2011 letter demanding payment of $439,030 ...


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