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Travelers Casualty and Surety Co. v. Paderta

United States District Court, Seventh Circuit

July 8, 2013

TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA, a Connecticut corporation, Plaintiff,
v.
JOHN P. PADERTA, an Illinois citizen, Defendant. FIFTH THIRD BANK, an Ohio banking corporation, Intervening Defendant.

MEMORANDUM OPINION AND ORDER

JAMES B. ZAGEL, District Judge.

The Undisputed Facts

Fifth Third Bank ("Fifth Third") is an Ohio banking corporation with its principal place of business in Cincinnati, Ohio. Travelers is a Connecticut corporation with its principal place of business in Hartford, Connecticut. John P. Paderta is a citizen of Illinois.

This Court has jurisdiction over the parties pursuant to 28 U.S.C. ยง 1332, as the matter in controversy exceeds $75, 000, exclusive of interest and costs, and is between citizens of different states.

Venue is proper in this District because the events giving rise to the claims took place within the District and Travelers is subject to personal jurisdiction in this District.

The Events

Krahl Fails

Prior to January, 2010, Krahl Associates, Inc. d/b/a Krahl Construction ("Krahl") was a general contractor providing its services for public and private construction projects located throughout Illinois and Colorado.

Prior to January, 2010, Rush and NMH, two well-known Chicago medical and hospital services, each entered into various contracts with Krahl to perform improvements on their respective properties located in Chicago.

Krahl was to act as general contractor on some, but not all, of these projects. Some contracts between Rush, NMH and Krahl required Krahl to obtain performance and payment bonds ("Bonds"). Krahl engaged Travelers (as surety), to provide Bonds on behalf of Krahl (as bonded principal) for the Bonded Projects involving Rush and NMH (as project owners/bond obligees). Travelers issued payment and performance bonds ("Bonds") on behalf of Krahl for the Rush and NMH Bonded Projects.

In exchange for Travelers issuing these Bonds, Krahl and Defendant John P. Paderta entered into and executed a General Agreement of Indemnity with Travelers on or about October 26, 2007 ("Krahl Indemnity Agreement"). All of the bond and indemnity agreements are incorporated by reference in the record as are the Fifth Third loan documents.

Between May 2004 and June 2009, Fifth Third loaned in excess of $6 million to Krahl pursuant to certain Revolving Note Loan Agreements ("Loan Agreements"). By September 2002, Fifth Third filed a UCC-1 Financing Statement and Security Agreement with the Illinois Secretary of State and continued its UCC-1 coverage on new financing extended to Krahl. Travelers did not perfect a security interest under UCC but rather relied on its remedies as surety.

Around January 5, 2010, FBI agents raided Krahl's main office and obtained papers, records and computers from Krahl.

On January 6, 2010, pursuant to terms of the Loan Agreements, Fifth Third declared Krahl in default. On January 8, 2010, Fifth Third exercised its claimed legal, equitable and contractual rights of setoff with respect to the balance of funds remaining in Krahl's operating business checking account, $2, 720, 019. Krahl ceased doing business around the same time. Whether Krahl ceased business because of the declaration of default or for some other ...


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