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Travelers Casualty & Surety Company of America v. Alambry Funding Inc.

December 8, 2011

TRAVELERS CASUALTY & SURETY COMPANY OF AMERICA,
PLAINTIFF,
v.
ALAMBRY FUNDING INC., ET AL.,
DEFENDANTS.



The opinion of the court was delivered by: Baylson, J.

MEMORANDUM RE: MOTION TO DISMISS FOR FAILURE TO JOIN INDISPENSABLE PARTIES

Plaintiff Travelers Casualty and Surety Company of America ("Plaintiff") seeks reimbursement from Defendants Alambry Funding Inc., Alambry Funding LLC, Orleans Investment Land Associates, L.P. ("Orleans"), and OILA, Inc. ("OILA") (collectively, "Defendants") under a General Contract of Indemnity (the "Indemnity Agreement") executed by Plaintiff and Defendants, among others, for payments Plaintiff made to third-party claimants in its capacity as surety under the terms of various surety bonds. Pending before the Court is a motion to dismiss filed by Defendants Orleans and OILA (collectively, the "OILA Defendants"), pursuant to Rule 12(b)(7) of the Federal Rules of Civil Procedure, for failure to join indispensable parties.

For the reasons that follow, the OILA Defendants' motion to dismiss is denied.

I. Factual and Procedural Background

Plaintiff issued several surety bonds, under which Defendants' affiliates are principals, in connection with residential subdivisions being developed by Defendants' affiliates. (Cplt. ¶ 11.) On or about May 14, 2003, as an inducement for Plaintiff to execute the bonds, Defendants and Plaintiff entered into the Indemnity Agreement, under which Defendants, among others, agreed to indemnify and exonerate Plaintiff, as well as its parents, subsidiaries, and affiliates, from all losses and expenses connected in any way with the bonds. (Id. ¶¶ 12, 18.) Each Defendant is a named Indemnitor under the agreement. (Cplt. Exh. B ¶ 16.) Defendants waived to the fullest extent permitted by law any right to contest any payments made by Plaintiff on claims under the bonds. (Cplt. ¶ 19.)

In mid-2010, certain affiliates of Defendants reduced or suspended work on certain projects bonded by Plaintiff. (Id. ¶ 13.) Certain of those affiliates also filed for bankruptcy protection. (Id.)

As a result of the reduced or suspended operations, Plaintiff received numerous claims under the bonds for several of the projects. (Id. ¶ 14.) On May 21, 2010, Plaintiff served a letter on Defendants, reminding them of their obligations under the Indemnity Agreement and advising them of pending bond claims. (Id. ¶ 15.) Because certain bonded projects were rejected in the bankruptcy proceedings instituted by Defendants' affiliates, Plaintiff faces the prospect of additional claims under the bonds. (Id. ¶ 16.)

In March 2011, Plaintiff resolved two of the pending bond claims for $196,532.11 and $280,445.17, respectively. (Id. ¶ 17.) Plaintiff has set a reserve against future claims in the amount of $200,085.31. (Id. ¶ 26.) Plaintiff expects that amount to grow as it processes existing claims and receives new claims. (Id.) The Indemnity Agreement requires Defendants to deposit with Plaintiff collateral funds sufficient to cover any reserves set by Plaintiff. (Id. ¶ 27.)

On May 13, 2011, Plaintiff served an indemnity demand letter on Defendants, seeking reimbursement for payments Plaintiff made on certain bonds, as well as for attorneys' fees incurred by Plaintiff. (Id. ¶ 21.) In that letter, Plaintiff also sought the opportunity to examine Defendants' books and records, as provided in the agreement in the event of a potential claim. (Id. ¶¶ 23, 24.) On June 30, 2011, Plaintiff served a collateral demand on Defendants, seeking funds to cover the reserves set by Plaintiff. (Id. ¶ 28.) To date, Defendants have failed to indemnify Plaintiff or grant Plaintiff access to their books and records, though they have agreed to collateralize Plaintiff and have placed funds in the amount of $100,000 into escrow. (Id. ¶¶ 22, 25; ECF No. 20, at 5.)

On July 28, 2011, Plaintiff filed this lawsuit against Defendants, alleging causes of action for indemnity (Count I), exoneration and quia timet (Count II), specific performance (Count III), and declaratory relief (Count IV). On that date, Plaintiff also filed a motion for a preliminary and permanent injunction, compelling Defendants to post collateral to cover the reserves set by Plaintiff. (ECF No. 2.) On July 29, 2011, after being informed by Plaintiff's counsel that the parties resolved the motion, the Court issued an order denying Plaintiff's motion as moot. (ECF No. 5.)

On October 11, 2011, the OILA Defendants filed a motion to dismiss the complaint for failure to join indispensable parties pursuant to Rule 12(b)(7) of the Federal Rules of Civil Procedure. (ECF No. 16.) On October 25, 2011, Plaintiff filed a response to the OILA Defendants' motion. (ECF No. 20.) The OILA Defendants did not file a reply in further support of their motion.

II. Parties' Contentions

The OILA Defendants contend that the complaint should be dismissed because Plaintiff is required to join (1) the bond claimants and (2) the current owners of the bonded projects -- absent parties that the OILA Defendants insist are indispensable to the action. The OILA Defendants contend that, in the absence of these parties, the Court cannot accord complete relief to the existing parties. According to the OILA Defendants, Plaintiff's right to reimbursement under the Indemnity Agreement depends on the validity of the bond claims -- an issue that can only be resolved if the bond claimants and owners are joined because Defendants are not parties to the bonds. In addition, the OILA Defendants contend that even if a judgment is rendered in Defendants' favor, it could impair or impede the ability of the bond claimants and owners to protect their interests. Finally, the OILA Defendants contend that, regardless of the outcome of this action, the owners could unjustifiably suffer a detriment or, alternatively, reap a benefit. In the OILA Defendants' view, if Plaintiff is not required to honor the bond claims, the owners could suffer a detriment because the bond claimants could proceed against them to complete the projects themselves. On the other hand, if Plaintiff is required to honor the bond claims, the owners will benefit from the financing at no cost.

In response, Plaintiff contends that the bond claimants and current owners of the projects are not indispensable parties. Contrary to the OILA Defendants' argument, Plaintiff contends that, in the absence of these parties, the Court can indeed accord complete relief to the existing parties because this action relates solely to Plaintiff's rights under the Indemnity Agreement and, thus, the validity of the underlying bond claims is irrelevant. Moreover, Plaintiff contends that the absence of the bond claimants and the current owners will not impair their ability to protect their interests because they are not parties to the Indemnity Agreement and they have no interest in whether or not Plaintiff is reimbursed for claims that Plaintiff pays. According to Plaintiff, regardless of whether Defendants must indemnify Plaintiff under the agreement, the bond claimants will get paid for claims that Plaintiff determines to be legitimate under the bonds. Last, Plaintiff contends that the absence of the bond claimants and the current owners ...


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