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United States Sur. Co. v. Stevens Family Ltd. P'ship

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

March 5, 2014

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

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.

OPINION

Page 872

MEMORANDUM OPINION AND ORDER[1]

Milton I. Shadur, Senior United States District Judge.

Stevens Family Limited Partnership and individuals Thomas Stevens, Lillia Stevens, Matthew Stevens and Edna Howard (all collectively referred to here as " Indemnitors" ) have again sought to inject into this action, via an affirmative defense, the issue of good faith and fair dealing on the part of United States Surety Company (" U.S. Surety" ) in connection with the $440,000 settlement payment that it made after a mediation with BE& K Building Group LLC (" BE& K" ) (BE& K had been the general contractor for the University of North Carolina at Chapel Hill Dental School Annex Project, and it had let the subcontract for architectural millwork with Indemnitors' company Architectural Specialties Trading Company, Inc. (" Architectural Specialties" )). As Indemnitors would have it, U.S. Surety has not met the good faith and fair dealing standard and is therefore precluded from seeking recoupment of its $440,000 outlay from Indemnitors.

But Indemnitors' basic problem is that California law, which provides the substantive rules of decision between the litigants under the June 18, 2008 General Indemnity Agreement (" Agreement" ) between the parties, provides otherwise. Here, stated in brief compass, are the relevant facts that control this litigation:

1. Agreement ¶ 3.1 vests U.S. Surety with 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."
2. When Architectural Specialties entered into its subcontract with BE& K, U.S. Surety issued a bond on its behalf and in favor of BE& K in the amount of $1,251,234.
3. On August 31, 2010 Architectural Specialties notified BE& K that it was going to cease operations. It then failed to comply with U.S. Surety's demands to post collateral as the Agreement required and, after then filing a Chapter 11 bankruptcy case, it notified both BE& K and U.S. Surety that it did not have the funds to complete its' subcontract. BE& K responded with (a) a notice of default under the subcontract on June 30, 2011 and (b) a July 12, 2011 Failure To Cure Default Letter stating that it would be supplementing the incomplete work under the Architectural Specialties Subcontract.
4. Less than a month later BE& K made a bond claim of $439,030 for the incomplete work and added

Page 873

costs, stating that it would use a company called Nycom to complete the work at a figure some $500,000 higher than the Architectural Specialties contract price. Although both U.S. Surety and Architectural Specialties objected to Nycom as the replacement subcontractor, BE& K promptly entered into a subcontract with Nycom.
5. U.S. Surety filed this action some two months later (on October 21, 2011) seeking both specific performance of the Agreement's collateral deposit provision (Complaint Count I) and indemnification for any claims paid (Complaint Count II). On November 26, 2012 this Court issued a memorandum opinion and order (905 F.Supp.2d 854) that in part (id. at 858-59) denied the latter component of U.S. Surety's claim ...

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