Great American Ins. Co. v. J.R. Conkey & Assoc., Inc.

[7] 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA [10] 11 GREAT AMERICAN INSURANCE No. 2:19-cv-02522-JAM-DB COMPANY, an Ohio corporation, [12] Plaintiff, 13 ORDER DENYING PLAINTIFF’S v. APPLICATION FOR RIGHT TO ATTACH 14 ORDERS J.R. CONKEY & ASSOCIATES, 15 INC., a California corporation; MARY L. CONKEY, 16 an individual, 17 Defendants. [18] 19 Great American Insurance Company (“GAIC” or “Plaintiff”) 20 sued J.R. Conkey & Associates (“JRCA”) and Mary Conkey 21 (collectively “Defendants”) for allegedly breaching the terms of 22 their indemnity agreement. Compl., ECF No. 1 ¶ 13. Soon after, 23 Plaintiff filed two Applications for Right to Attach Orders 24 against Defendants. See Attach Order against Mary Conkey 25 (“Conkey’s Attach Order”), ECF No. 11, see also Attach Order 26 against JRCA (“JRCA’s Attach Order”), ECF No. 12. Defendants 27 opposed attachment. See Conkey’s Opp’n, ECF 26, and ECF 23; See 28 also JRCA’s Opp’n, ECF No. 21 and 25. Defendant Mary Conkey 1 also filed a claim of exemption of personal property. Claim of 2 Exemption, ECF No. 26-3. 3 On June 16, 2020, the Court held a video hearing on the 4 Applications for Right to Attach Orders (“Applications”). 5 Minutes from June 16, 2020 Video Hearing, ECF 35. After 6 arguments, the Court took this matter under submission. Id. 7 For the reasons stated below, the Court DENIES Plaintiff’s 8 Applications.1 [9] 10 I. FACTUAL ALLEGATIONS AND PROCEDURAL BACKGROUND 11 Plaintiff entered into a General Indemnity Agreement 12 (“Indemnity Agreement”) with JRCA, Mary Conkey, and James R. 13 Conkey, on January 25, 2017. Attach Order Memo at 2. The 14 agreement was made in consideration for Plaintiff issuing bonds 15 on behalf of JRCA as principal. Id. In return, Defendants 16 promised to indemnify Plaintiff from any and all liability, loss, 17 cost, damages, expenses, counsel and attorney’s fees, claim 18 demands, suits, judgments, orders and adjudications. Id. at 2-3. 19 As surety, Plaintiff issued payment and performance bonds No. 20 2159922 (“Bonds”) on behalf of JRCA, in connection with a 21 construction project in New York known as the “Northport Project” 22 (“Project”). Id. at 3; see also Opp’n at 3. JRCA entered into a 23 general contract as a sub-contractor on the Project with the [24] 1 Although there are separate filings for each brief, each filing [25] has the same brief. Only the briefs involving arguments as to Defendant Mary Conkey have additional sections addressing those [26] arguments. Therefore, when referring generally to each brief, 27 the Court will be citing to the following briefs: Attach Order, ECF No. 11; Attach Order Memo, ECF No. 11-2; Opp’n, ECF No. 23; 28 Reply, ECF No. 28. 1 general contractor Noresco LLC. Opp’n at 3. James R. Conkey 2 passed away in March of 2018, but JRCA and Mary Conkey remained 3 responsible for the indemnity agreement. Attach Order Memo at 4. 4 The parties dispute the series of events leading to 5 Plaintiff’s collateral demand. According to Plaintiff, the 6 general contractor on the Project, Noresco LLC, made a claim 7 against the Bonds on November 21, 2019. Id. at 4. Plaintiff 8 alleges at least 10 other subcontractors and suppliers of JRCA 9 have also made claims on the Bonds between December 3, 2019 and 10 January 2020, totaling $8,667,895.05. Id. In response, 11 Plaintiff demanded collateral from Defendants in the amount of 12 $6,427, 291 on December 3, 2019. Id. at 5. Defendants refused 13 Plaintiff’s demand. Id. Plaintiff filed its Applications 14 seeking to attach that amount plus anticipated attorney fees. 15 Defendants dispute that Plaintiff received any bond claims 16 prior to demanding collateral on December 3, 2019. Opp’n at 3. 17 Defendants concede that the Project was “plagued with a number of 18 significant cost-overruns” caused by external factors that led 19 them to fall behind on payments on its sub-contractors and 20 suppliers. Opp’n at 3. While they tried to establish a payment 21 arrangement with sub-contractors, one of the suppliers, Rovanco, 22 refused to cooperate and asserted it was due $2,382,665. Id. 23 But Defendants argue there is no evidence that this claim or the 24 Noresco, LLC claim were made prior to Plaintiff’s demand letter. 25 Id. 26 /// 27 /// [28] 1 II. OPINION 2 A. Legal Standard 3 Federal Rule of Civil Procedure 64(a) governs prejudgment 4 attachment and other prejudgment remedies. This rule prescribes 5 that parties are entitled to every prejudgment remedy available 6 “under the law of the state where the court is located.” Fed. 7 R. Civ. Proc. 64(a). This remedy may include a writ of 8 attachment. Id. “Attachment is an ancillary or provisional 9 remedy to aid in the collection of a money demand by seizure of 10 property in advance of trial and judgment.” VFS Financing, Inc. 11 v. CHF Express, LLC, 620 F. Supp. 2d 1092, 1095 (C.D. Cal. 12 2009)(citations omitted). This is a “harsh remedy because it 13 causes defendant to lose control of his property before the 14 plaintiff’s claim is adjudicated.” Id. (internal citations 15 omitted). 16 California’s attachment law is purely statutory and must 17 therefore be strictly construed. Id. Plaintiff has the burden 18 of establishing that attachment is warranted. Id. An order of 19 attachment may only be issued if: (1) the claim is based upon a 20 contract; (2) it is a fixed or readily ascertainable amount not 21 less than $500.00; (3) the claim is not secured by an interest 22 in real property; and (4) if the action is against a natural 23 person, it may only be issued on a claim arising out of the 24 conduct by the defendant of a trade, business, or profession. 25 Cal. Code Civ. Proc. § 483.010(a)-(d). Moreover, the Court must 26 also find: (1) the claim upon which attachment is based is one 27 upon which an attachment may be issued; (2) the plaintiff 28 established the probable validity of the claim upon which the 1 attachment is based; (3) the attachment is not sought for a 2 purpose other than recovery on the claim upon which the 3 attachment is based; and (4) the amount to be secured by the 4 attachment is greater than zero. Cal. Code Civ. Proc § 5 484.090(a)(1)-(4). 6 B. Analysis 7 Plaintiff seeks to attach a total of $6,432, 291 from 8 Defendants--$6,427,291 for anticipated losses, plus $5,000 in 9 anticipated attorneys’ fees. Attach Order at 2. Defendants’ 10 oppose attachment, arguing Plaintiff’s application does not 11 comply with California law because: (1) the claim amount is not 12 “fixed or readily ascertainable,” (2) Plaintiff has not 13 established the probable validity on its breach of contract 14 claim, and (3) Plaintiff has not met its burden of proof in 15 establishing that its claim against Mary Conkey arises out of 16 her “continuous” activity in connection with a trade or 17 business. Opp’n at 3. The Court finds Plaintiff’s Applications 18 fail because Plaintiff had not established the probable validity 19 of the claim at the time the Applications were filed. 20 To establish the “probable validity” of the claim, the 21 applicant must show “it is more likely than not” that it will 22 obtain a judgment against the defendant on its claim. Cal. Code 23 Civ. Proc. § 481.190. Here, Plaintiff’s collateral demand was 24 premature and therefore did not establish that there was a 25 breach of contract. 26 At the hearing, Plaintiff argued the indemnity agreement 27 requires Defendants to indemnify them not just for claims that 28 have been made, but also for any claims that may be made. But 1 the term “may” is nowhere to be found in the agreement’s 2 indemnity clause. Instead, the indemnity provision states in 3 relevant part: 4 (3)In enforcing any of the terms, covenants and conditions of this Agreement . . . Payment by reason 5 of the aforesaid causes shall be made to the Surety by the Undersigned, upon demand by the Surety, as soon as 6 liability exists or is asserted against the Surety, whether or not the Surety shall have made any payment 7 therefor. 8 Attach Order Memo at 3 (emphasis added). Thus, the plain 9 language of the agreement makes clear that liability needed 10 to exist before Plaintiff made its collateral demand on 11 December 3, 2019. Id. As Defendants correctly argued, no 12 liability actually existed at that time. 13 Plaintiff relied instead on a letter from Noresco 14 stating it was considering declaring default on November 21, 15 2019 and from alleged admissions by JRCA concerning 16 anticipated project losses and past due balances. Reply at 17 5. But these events merely supported the inference that 18 liability could exist—not that it presently existed. In 19 fact, Noresco did not actually make a claim against the bond 20 until January 13, 2020—more than a month after Plaintiff’s 21 collateral demand. Opp’n at 11. And while Plaintiff states 22 Rovanco Piping Systems, Inc. made a claim for $2,382, 665.01 23 on December 3, 2019, Plaintiff did not include that letter 24 in their demand or in their attachments to this suit. 25 Attach Order Memo at 4. The evidence therefore does not 26 support Plaintiff’s argument that it was aware of this claim 27 prior to making its collateral demand on Defendant. And 28 even if Plaintiff had been made aware of that claim prior to WwOAOW 2.497 VV VEIVCO VAANIVE Lb MYVUULLICIIL UY VirVvorey raye i vil 1 demanding collateral, the amount Rovanco claimed is more 2 than $3,000,000 less than what Plaintiff sought in its 3 collateral demand letter. Opp’n at 8. 4 Accordingly, Plaintiff’s collateral demand was pre5 mature—-there was no breach of contract. Hanson v. Fox, 155 6 Cal. 106 , 108 (1909) (Finding plaintiff’s attempt to hold 7 defendant “in default by a tender made in advance of the 8 tine, and circumstances, not contemplated by contract ... 9 | was unavailing and nugatory.”). Plaintiff’s Applications 10 are therefore DENIED. All other arguments made in the 11 briefs are moot and need not be addressed by the Court. [12] 13 Til. ORDER 14 For the reasons set forth above, the Court DENIES 15 Plaintiff’s Applications for Right to Attach Orders. 16 IT IS SO ORDERED. 17 Dated: July 7, 2020 18 he Me 19 teiren staves odermacr 7008