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Liberty Mutual Insurance Co. v. Sumo-Nan LLC

United States District Court, D. Hawaii

March 1, 2017

LIBERTY MUTUAL INSURANCE COMPANY, a Massachusetts corporation, Plaintiff,
v.
SUMO-NAN LLC, a Hawaii limited liability company; NAN, INC., a Hawaii corporation, et al. Defendants.

          ORDER DETERMINING DEFENDANTS' REMAINING OBLIGATIONS TO LIBERTY MUTUAL

          Derrick K. Watson United States District Judge.

         INTRODUCTION

         Plaintiff Liberty Mutual Insurance Company (“Liberty Mutual”) seeks a determination of Defendants' remaining obligations pursuant to the parties' April 22, 2016 Stipulation. Dkt. No. 207. Under the Stipulation, the Court is to determine the amount of interest, fees and costs that Defendants[1] owe to Liberty Mutual following Defendants' April 2016 payment of principal. Because the terms of the Stipulation and governing indemnity agreement are clear and unambiguous, the Court determines that Liberty Mutual is entitled to the following amounts of interest, fees and costs:

Category

Amount

Interest on Payment Bond claim payments

$243, 817.22

Attorneys' Fees

$434, 418.48

Consulting Fees

$16, 631.50

Travel Expenses

$1, 293.51

Additional Litigation Costs

$7, 251.58

TOTAL

$703, 412.29

         Liberty Mutual is additionally entitled to interest on its fees and costs, which shall accrue until payment of Liberty Mutual's fees and costs, as set forth in this order.

         BACKGROUND

         I. Procedural Background

         Because the parties are familiar with the proceedings in this protracted litigation, the Court briefly recounts only those matters relevant to the instant Motion. Liberty Mutual's claims arise from a Miller Act bond it issued on behalf of Sumo-Nan in connection with a construction project at Tripler Army Medical Center (“TAMC Project”). On May 26, 2011, Liberty Mutual, as surety, issued to Sumo-Nan, as principal, a Performance and Labor & Material Payment Bond No. 023-017-103, in the penal sum of $15, 996, 619.00, naming the United States of America as obligee. As partial consideration for its agreement to furnish bonds on behalf of Sumo-Nan, Liberty Mutual and Defendants executed General Agreements of Indemnity, including certain Amendments (collectively, “GAI”). Under the GAI, each of the Defendants, jointly and severally, agreed to indemnify Liberty Mutual against any liability for losses, fees, costs, and expenses that Liberty Mutual incurred as a consequence of issuing bonds on behalf of Sumo-Nan or as a consequence of a breach of the GAI.

         Sumo-Nan was unable to meet its obligations on the TAMC Project, and, as a result, Liberty Mutual received and paid claims on the Bond, including demands from Sumo-Nan's subcontractors and suppliers. Liberty Mutual also made a demand to Defendants to deposit cash or other property as collateral security to protect Liberty Mutual from claims on the Bond. When Defendants did not comply with that demand, and did not indemnify Liberty Mutual for claims paid, Liberty Mutual filed suit for: (1) Breach of Contract of Indemnity; (2) Unjust Enrichment; and (3) Quia Timet (by means of an injunction preventing the transfer of assets). Defendants then counterclaimed.

         Following several rounds of dispositive motions, the parties entered into a Stipulation (1) to Dismiss Su-Mo Builders, Inc., Su Yong Yi and Maureen Dee Yi's Second Amended Counterclaim against Liberty Mutual Insurance Company [Dkt. No. 163], (2) to Dismiss Second Amended Counterclaim of Defendants and Counterclaim Plaintiffs Sumo-Nan, LLC, Nan, Inc., Laumaka LLC, Patrick Shin, Mariko Kaneko Shin and Patrick Shin, Trustee of the Patrick Shin Trust [Dkt. No. 164] and (3) Regarding Remaining Issues for Trial (“Stipulation”). Dkt. No. 207. Pursuant to the Stipulation, Defendants paid Liberty Mutual the principal amount owed ($1, 866, 989.29) and agreed that Liberty Mutual is entitled to an unspecified amount of interest, fees and costs pursuant to the GAI. See Stipulation ¶¶ 6-8. The Stipulation provides:

5. All Defendants stipulate and agree that each of them are jointly and severally liable under the various General Agreements of Indemnity (including the General Agreement of Indemnity, dated October 10, 2003, as amended) and are bound by all terms of the various General Agreements of Indemnity. This stipulation only applies to the claims of Liberty Mutual in this case and is without prejudice to any of All Defendants regarding the applicability of the various General Agreements of Indemnity with respect to any possible future claim.
6. On April 11, 2016, Nan Defendants delivered to Liberty Mutual a cashier's check in the amount of $1, 866, 989.29 on behalf of All Defendants as partial payment of Defendants' obligations under the various General Agreements of Indemnity. All Defendants agree that this amount was the correct amount due to Liberty Mutual on the principal amount paid by Liberty Mutual.
7. The Parties agree that in addition to the partial payment, there are additional amounts owed by All Defendants to Liberty Mutual under the various General Agreements of Indemnity.
8. The Parties agree that the partial payment by Nan Defendants DOES NOT resolve the Nan Defendants' or Sumo Defendants' joint and several obligations under the General Agreements of Indemnity regarding (a) Liberty Mutual's claim of interest owed from the date that Liberty Mutual made payments under the Payment Bond, which Liberty Mutual claims is $246, 237.58 (up through April 11, 2016), (b) the fees and costs incurred by Liberty Mutual, and (c) Liberty Mutual's claim of interest owed on the fees and costs paid by Liberty Mutual from the date that Liberty Mutual made such payments, which Liberty Mutual claims is approximately $24, 951.80 (calculated up through April 15, 2016), which Liberty Mutual claims will continue to accrue until paid (collectively referenced as “remaining obligations”).
9. Liberty Mutual and All Defendants agree that they will attempt to resolve the remaining obligations of All Defendants to Liberty Mutual through direct settlement negotiations or mediation (if agreed by all Parties).
10. If the Parties are unable to reach a resolution on the above within thirty (30) days from the date of filing of this stipulation, the Parties agree to proceed to a jury-waived trial or hearing before the Honorable Derrick K. Watson for a determination of the amount of All Defendants' remaining obligations. All Defendants further agree that they will only challenge the reasonableness of the amounts of the fees and costs and explicitly waive any right to challenge the reason why those fees and costs were incurred. All Defendants agree not to appeal the Court's ruling on their remaining obligations. Nan, Inc. will pay to Liberty Mutual on behalf of All Defendants the amount determined to be due on All Defendants' remaining obligations by cashier's check.

         Stipulation ¶¶ 5-10. Unable to reach agreement among themselves, or after several settlement conferences with the Magistrate Judge, Liberty Mutual filed the instant Motion. Liberty Mutual asserts that Defendants are obligated to pay it: (1) $245, 726.83 in interest from the date Liberty Mutual made payments under the Payment Bond; (2) $477, 569.29 in fees and costs, including attorneys' fees and experts' fees; and (3) $40, 657.15 in interest on the fees and costs. Defendants oppose the request.

         II. GAI Indemnity Provision

         Under the GAI, each of the Defendants, jointly and severally, agreed to indemnify Liberty Mutual against any liability for losses, fees, costs, and expenses that Liberty Mutual incurred as a consequence of issuing bonds on behalf of Sumo-Nan or as a consequence of a breach of the GAI. The GAI indemnity provision states, in relevant part:

SECOND: INDEMNITY - The Indemnitors shall exonerate, hold harmless, indemnify, and keep indemnified the Surety from and against all liability for losses, fees, costs and expenses of whatsoever kind or nature including, but not limited to, pre- and post-judgment interest at the maximum rate permitted by law accruing from the date of a breach of this Agreement or a breach of any other written agreements between or for the benefit of the Surety and the Indemnitor(s) and/or Principal(s) (hereinafter referred to as “Other Agreements”), court costs, counsel fees, accounting, engineering and any other outside consulting fees and from and against any and all such losses, fees, costs and expenses which the Surety may sustain or incur: (1) by reason of being requested to execute or procure the execution of any Bond; or (2) by having executed or procured the execution of any Bond; or (3) by reason of the failure of the Indemnitors or Principals to perform or comply with any of the covenants and conditions of this Agreement or Other Agreements; or (4) in enforcing any of the covenants or conditions of this Agreement or Other Agreements.

         GAI (emphasis added).[2] Despite the plain language of the Stipulation and the GAI, Defendants generally dispute any obligation to pay interest, fees, or costs to Liberty Mutual.

         DISCUSSION

         The Court first addresses Liberty Mutual's request for interest on the principal amount of Payment Bond claims. Liberty Mutual's requests for fees and costs, and for interest on fees and costs, are discussed thereafter.

         I. Interest

         Liberty Mutual seeks $245, 726.83 in interest from the dates it made various payments on Payment Bond claims. It paid $1, 866, 989.29 to subcontractors and suppliers on claims made against the Payment Bond from October 23, 2014 through March 14, 2016. See Declaration of Christine Bartholdt ¶¶ 3-6, Ex. 5 (Spreadsheet and Cancelled Checks Paid Under Bond No. 023-017-103). Liberty Mutual seeks interest at the maximum allowable rate of 10%, under Hawaii Revised Statutes (“HRS”) § 478-2, [3] from the various dates that it made the Payment Bond payments through April 11, 2016, the date that Defendants paid the principal amount of $1, 866, 989.29 pursuant to the parties' Stipulation. For the reasons set forth below, the request is granted with an interest accrual date no earlier than November 17, 2014-the date of the filing of Liberty Mutual's Complaint-and denied as to any interest accruing on Payment Bond claims paid prior to this date.

         Under the plain language of the GAI, Liberty Mutual is entitled to “pre- and post-judgment interest at the maximum rate permitted by law accruing from the date of a breach of [the GAI].” GAI at 1. Nothing in the parties' April 2016 Stipulation, which resolved some of the parties' claims, and established a process for resolving the balance, alters Liberty Mutual's entitlement to such interest.

         Defendants' assertion to the contrary is bewildering. According to Defendants, “the GAI specifically does not obligate Defendants to pay any interest on any payments thereunder.” Defs.' Am. Mem. In Opp. at 5 (Dkt. No. 222-2). Defendants explain that they “did not agree to pay such interest, nor can such an agreement be implied, because, unlike a promissory note, an indemnity agreement promises reimbursement of all losses and expenses and does not seek to enrich the surety by bearing interest.” Id. But Defendants certainly did agree to pay such interest. The indemnity clause of the GAI says so. The only possible way to read the GAI in the manner urged by Defendants is to ignore the GAI. Moreover, because the obligation is an express one, there is no need to imply or conjure an interest obligation.

         Because Liberty Mutual is entitled to interest on its Payment Bond payments, the applicable interest rate and the date on which interest began to accrue must be determined. The former is straightforward; the latter, less so. The GAI does not prescribe the specific interest rate to apply in this context, other than to state that it shall be the “maximum rate permitted by law.” HRS § 478-2 fills the void: “When there is no express written contract fixing a different rate of interest, interest shall be allowed at the rate of ten per cent a year.” Defendants do not quarrel with the application of HRS § 478-2, other than to repeat their plainly invalid, and already rejected, assertion that they are not obligated to pay interest. See Defs.' Am. Mem. In Opp. at 7 (“HRS §478-2 is not applicable because the GAI specifically does not [] obligate Defendants to pay any interest on any payments made thereunder.”). Accordingly, the Court finds that interest should be awarded on Liberty Mutual's Payment Bond payments at the statutory rate of 10%.

         The interest to which Liberty Mutual is entitled accrues, according to the GAI, on the date Defendants breached the agreement. See, e.g., Eastman v. McGowan, 86 Hawai‘i 21, 28-29, 946 P.2d 1317, 1324-25 (1997) (Affirming prejudgment interest awarded “at the rate of 10 percent per annum [in which] the date the interest was computed from was the date of the breach of the [agreement].”); Sun v. Makainai, 14 Haw. 495, 496 (1902) (“The general rule is that interest as damages for the breach of a contract should be computed from the date of the breach, or, in other words, from the accrual of the right of action.”).

         Liberty Mutual acknowledges that such a breach occurred when Defendants “failed and/or refused to exonerate or indemnify Liberty [Mutual].” Complaint ¶ 28; see also id. ¶ 33 (“Liberty [Mutual] has made repeated demands of the Defendants to comply with their indemnity obligations under the terms of the GAI, but Defendants failed and refused to perform those obligations.”). Because Liberty Mutual does not identify the precise date when Defendants “failed and/or refused” to comply with Liberty Mutual's demands for compliance with Defendants' indemnity obligations, the Court determines the date of accrual as November 17, 2014-the date Liberty Mutual filed its Complaint, declaring Defendants in breach. This date is almost certainly a conservative one. Liberty Mutual, for instance, made a payment demand to Defendants as late as October 31, 2014, before filing this lawsuit on November 17, 2014. Complaint ¶ 29, Ex. C (10/31/14 Demand Letter). Clearly, no lawsuit would have been necessary if Defendants had made payment on a date prior to November 17, 2014, as they ultimately did on April 11, 2016 after disavowing their obligation to do so throughout the course of the litigation. But because the present record does not indicate when Defendants' refusal to comply with their indemnity obligations first surfaced, the Complaint date is the best approximation the Court can identify. See Declaration of Sam Barker ¶¶ 7-10 (attached as Ex. 3 to Liberty Mutual Mem. In Supp. of Mot.).

         In sum, Liberty Mutual's request for interest owed pursuant to the GAI is granted in part. The Court awards Liberty Mutual interest on its Payment Bond claims at the requested rate of 10%. Because five such payments totaling $799, 280.50 occurred prior to November 17, 2014, the earliest date by which the Court is certain of Defendants' refusal to meet their indemnity obligations, interest on these five payments must be recalculated using a November 17, 2014 accrual date. The recalculated interest amount owing on these five payments is set forth in Table 1 below:

         TABLE 1

Check Date

Payee

Payment Amount

Interest*

10/23/2014

O&E Matias Electrical Service, LLC

$647, 704.69

$90, 678.66

10/29/2014

JBL Hawaii, Ltd.

$7, 100.00

$994.00

10/31/2014

TAB Engineers, LLC

$53, 000.00

$7, 420.00

11/13/2014

Hirota Painting Company, Inc.

$65, 428.70

$9, 160.02

11/13/2014

Pacific SBS, LLC

$26, 047.11

$3, 646.60

TOTAL

$799, 280.50

$111, 899.28

         *Interest calculations are based on a November 17, 2014 accrual date and a principal payment date of April 11, 2016. See Bartholdt Decl., Ex. 5 (Spreadsheet).

         Interest on the balance of Liberty Mutual's Payment Bond claims, all of which post-date the November 17, 2014 Complaint, accrue on the date of payment, as requested by Liberty Mutual, and are undisturbed by the Court's accrual findings. These interest amounts are set forth in Table 2 below:

         TABLE 2

Check Date

Payee

Payment Amount

Interest

11/18/2014

Allied Pacific Builders, Inc.

$323, 858.77

$45, 251.50

11/26/2014

Aloha Steel Corp.

$31, 680.00

$4, 357.08

12/03/2014

Tu's Plumbing & Contracting

$132, 066.80

$17, 910.43

12/03/2014

Tu's Plumbing & Contracting & Hawaii Energy Systems, LLC

$21, 463.20

$2, 910.76

12/04/2014

TAB Engineers, LLC

$40, 500.00

$5, 481.37

12/11/2014

Arcadia

$110, 451.82

$14, 737.00

12/22/2014

CB Tech Services, Inc.

$102, 098.00

$13, 314.70

01/30/2015

Hako Plumbing, Inc.

$60, 940.50

$7, 296.16

03/11/2015

Contract Decor, Inc.

$1, 870.20

$203.42

03/16/2015

Pacific Recreation Co., LLC

$19, 651.25

$2, 110.49

04/15/2015

Hako Plumbing, Inc.

$28, 847.19

$2, 861.01

04/27/2015

Solid Surface Technologies

$13, 530.75

$1, 297.47

04/30/2015

Resort Management Group, LLC

$113, 967.36

$10, 834.71

05/15/2015

Sok Su, Inc.

$9, 300.00

$845.92

08/19/2015

Pacific Preferred Contractors Corp.

$10, 800.00

$698.30

08/21/2015

Road Builders Corporation

$25, 682.95

$1, 646.52

03/14/2016

Resort Management Group

$21, 000.00

$161.10

TOTAL

$1, 067, 708.79

$131, 917.94

         The total amount of interest owing to Liberty Mutual on its Payment Bond claims is therefore $243, 817.22.[4]

         II. Attorneys' Fees And Costs

         Liberty Mutual seeks $477, 569.29 in fees and costs, including attorneys' fees and experts' fees, either as “damages” under the GAI or as the prevailing party pursuant to HRS §§ 607-14 and 607-14.5. See Liberty Mutual Mem. In Supp. of Mot. at 7 n.2. Liberty Mutual requests attorneys' fees for two law firms that worked on this matter: Bronster Fujichaku Robbins and Ogawa, Lau, Nakamura & Jew. It divides the work performed into two categories: (1) matters relating to Payment Bond claims; and (2) litigation related to Defendants' obligations under the GAI. Liberty Mutual notes that a significant portion of its fees was incurred defending against Defendants' Counterclaims, which were voluntarily dismissed with prejudice pursuant to the Stipulation.

         Defendants deny that Liberty Mutual is entitled to any fees or costs, despite the plain language of the GAI and Stipulation. As discussed below, the Court determines that Liberty Mutual's fees and costs are (1) authorized by the GAI and the parties' Stipulation; and (2) subject to the Court's traditional lodestar analysis to ascertain the reasonableness of the request.[5]

         A. Relevant Law

         A federal court sitting in diversity must apply state law in determining whether a party is entitled to attorneys' fees. See Farmers Ins. Exch. v. Law Offices of Conrado Joe Sayas, Jr., 250 F.3d 1234, 1236 (9th Cir. 2001). Under Hawaii law, “[o]rdinarily, attorneys' fees cannot be awarded as damages or costs unless so provided by statute, stipulation, or agreement.” Stanford Carr Dev. Corp. v. Unity House, Inc., 111 Hawai‘i 286, 305, 141 P.3d 459, 478 (2006) (citation and quotation marks omitted); DFS Group, L.P. v. Paiea Props., 110 Hawai‘i 217, 219, 131 P.3d 500, 502 (2006) (quoting TSA Int'l, Ltd. v. Shimizu Corp., 92 Hawai‘i 243, 263, 990 P.2d 713, 733 (1999) (“Generally, under the ‘American Rule, ' each party is responsible for paying his or her own litigation expenses. A notable exception to the ‘American Rule, ' however, is the rule that attorneys' fees may be awarded to the prevailing party where such an award is provided for by statute, stipulation, or agreement.”)). Because Liberty Mutual is the prevailing party here within the meaning of HRS § 607-14, and the GAI provides the contractual basis by which fees and costs should be awarded, Liberty Mutual's request is granted, as set forth below.[6]

         B. Liberty Mutual Is Entitled To Fees And Costs

         Liberty Mutual is entitled to fees under the GAI by operation of HRS § 607-14, a statutory exception to the American Rule. DFS, 110 Hawai‘i at 219, 131 P.3d at 502. The statute mandates the recovery of fees when a contract, such as the GAI, provides for the same, in writing, ...


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