United States District Court, N.D. Illinois, Eastern Division
For United States Surety Company, a Maryland corporation, Plaintiff: Michael Joseph Dudek, Leo & Weber, Chicago, IL; Stephanie M Keddy, Thomas Scott Leo, Leo & Weber P.C., Chicago, IL.
For Stevens Family Limited Partnership, an Illinois partnership, Thomas J Stevens, individually, Lillia Stevens, individually, Matthew S Stevens, individually, Edna M Howard, individually, Defendants: Karl W Roth, William P Foley, Roth Law Group LLC, Chicago, IL.
MEMORANDUM OPINION AND ORDER
Milton I. Shadur, Senior United States District Judge.
Defendants Stevens Family Limited Partnership, Thomas Stevens, Lillia Stevens, Matthew S. Stevens and Edna M. Howard (collectively " Indemnitors" ) have filed their Second Amended Answer & Affirmative Defenses (" ADs" ) to Surety's First Amended Complaint (" FAC" ) that seeks their performance of collateralization and indemnification. Most recently Surety has moved to strike the ADs, and that motion has been fully briefed by the parties and is ripe for decision. For that purpose this opinion will draw upon, without any need to repeat, this Court's statement of the background facts and its analysis of the Agreement and of the parties' rights and obligations in its November 26, 2012 memorandum opinion and order (" Opinion," 905 F.Supp.2d 854 ).
Before this second opinion turns to substantive issues, something needs to be said about a purported fundamental premise that Indemnators' counsel impermissibly advance on their clients' behalf. It is inexplicable (and frankly inexcusable) for any lawyers who devote any part of their practice to federal court litigation to continue to cite the now discredited formulation in Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957) -- see defendants' Response at 5 -- as the standard for federal pleadings. Nearly seven years have elapsed since the Supreme Court held in Bell A. Corp. v. Twombly, 550 U.S. 544, 562-63, 127 S.Ct.
167 L.Ed.2d 929 (2007) that the Conley v. Gibson formulation was overly generous and had outlived its usefulness -- and as every federal practioner must know, two years later Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) repeated and reinforced Twombly's addition of the requirement of " plausibility" to federal pleadings. Counsel ought to realize that such citation of overruled authority can cast a cloud on their general credibility.
That aside, however, when indemnitors' ADs are scrutinized through the proper lens of plausibility, they clearly fail to survive. Opinion at 858 explains that California law provides the substantive rules of decision here. And California law recognizes the reality that a surety that puts up its own major money commitment through a bond is entitled to define and enforce the remedies specified in its agreement with the indemnitors on whose liabilities it has had to make good -- a relationship inherently different fro that created by the issuance of an insurance contract (see the extended -- and extensive -- analysis in Cates Constr., Inc. v. Talbot Partners, 21 Cal.4th 28, 86 Cal.Rptr.2d 855, 980 P.2d. 407, 418-25 (Cal. 1999)). Indeed, the intermediate appellate California decision on which Indemnitors seek to place their principal reliance -- Arntz Contracting Co. v. St. Paul Fire & Marine Ins. Co., 47 Cal.App.4th 464, 54 Cal.Rptr.2d 888, 899 (Cal.App. 1996), decided three years before Cates -- also held that quite unlike the obligation of an insurer to its insured, a surety is not required to give a heightened degree of consideration to the interests of its indemnitor -- there is no fiduciary-like special relationship between those parties.
In this instance Agreement ¶ 3.1 is unambiguous in vesting sole and unequivocal discretion in Surety as to such enforcement:
Surety shall have the right in its sole and absolute discretion to determine whether any claims under any Bond or Bonds shall be paid, compromised, adjusted, defended, prosecuted or appealed.
So both Cates and Arntz (as well as a group of other California cases cited in Surety's memoranda that state and apply the same principle) uniformly reject the position that Indemnitors try to promote here.
Indemnitors are not alone in having placed their bet on Arntz as the asserted authority supporting their ADs 1 and 2, each of which asserts that Surety should have undertaken a different course of action other than making good on a bond claim by paying $440,000 in settlement -- and consequently asserts that Surety's handling of the matter amounted to a failure to mitigate its damages. Just as Indemnitors seek to call Arntz to their aid by ...