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Developers Surety and Indemnity Co. v. DKSL, LLC.

United States District Court, D. Hawaii

March 6, 2018

DEVELOPERS SURETY AND INDEMNITY COMPANY, Plaintiff,
v.
DKSL, LLC dba Paramount Builders; et al., Defendants AND RELATED THIRD-PARTY CLAIMS, COUNTERCLAIMS AND CROSSCLAIMS.

          ORDER GRANTING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT, ECF NO. 47

          J. MICHAEL SEABRIGHT CHIEF UNITED STATES DISTRICT JUDGE.

         I. INTRODUCTION

         Defendant DKSL, LLC dba Paramount Builders (“DKSL”) was the contractor on three construction projects that were not completed, or were cancelled, after problems arose related to DKSL's contractor's license. Plaintiff Developers Surety and Indemnity Company (“Developers” or “Plaintiff”) issued surety bonds on those projects, with DKSL as the principal. DKSL, as well as co- Defendants Steven Lee, Daniel Kim, Julia Kim, and Patricia Lee, individually (collectively, “Indemnitors” or “Defendants”) agreed to indemnify Developers for claims made on those surety bonds. After Indemnitors failed to perform on the indemnity agreement, Developers brought this diversity action, and has now filed a Motion for Partial Summary Judgment, ECF No. 47, seeking to enforce the agreement.

         Based on the following, Developers' Motion is GRANTED. Defendants are required to post collateral security in the amount of $260, 000 in accordance with the “Reserve Account” provisions of the indemnity agreement. Developers, however, may not expend or disburse any of this security without further order from the court.

         II. BACKGROUND

         A. Factual Background

         Plaintiff's Motion is supported by a concise statement of facts (“CSF”) filed pursuant to Local Rule 56.1. ECF No. 48. In response, DKSL, Steven Lee, Daniel Kim, and Julia Kim (joined by Patricia Lee, who is represented separately) forthrightly “do not dispute any of the facts proffered in Plaintiff's [CSF], ” at least for purposes of this Motion. Defs.' Opp'n CSF at 3, ECF No. 62 at 3. They do, however, proffer evidence supporting additional facts for their position that other “genuine issues exist that are necessary to be litigated, ” id., arguing that it is premature to grant relief. Accordingly, the essential facts as proffered by Plaintiff are established, and are summarized as follows:

         The Indemnitors executed a General Indemnity Agreement (“GIA”) with Developers on June 18, 2007. Pl.'s CSF ¶ 6. Under the GIA, the Indemnitors agreed, among other matters, to indemnify Developers for claims or liabilities on surety bonds (performance or payment bonds) that Developers issued on behalf of DKSL as principal. Specifically, regarding indemnification, the GIA provides:

I. INDEMNIFICATION. In consideration of the execution and delivery by Surety [Developers] of a Bond or any Bonds on behalf of Principal [DKSL], Principal and Indemnitor shall pay all premiums charged by Surety in connection with any Bond (including extensions, renewals or modifications) issued by Surety on behalf of Principal and shall indemnify and hold harmless Surety from and against any and all liability, loss, claims, demands, costs, damages, attorneys' fees and expenses of whatever kind or nature, together with interest thereon at the maximum rate allowed by law, which Surety may sustain or incur by reason of or in consequence of the execution and delivery by Surety of any Bond on behalf of Principal, whether or not Surety shall have paid any amount on account thereof[.]

GIA at 1, Compl. Ex. 1, ECF No. 1-1 (emphasis added). The GIA also has the following terms regarding a reserve account by Developers:

3. RESERVE ACCOUNT. If Surety shall establish a reserve account to cover any liability, claim asserted, suit or judgment under any Bond, the Indemnitor shall, immediately upon demand and whether or not Surety shall have made any payment therefor, deposit with Surety a sum of money equal to such reserve account and any increase thereof as collateral security on such Bond, and such sum and other money and property which shall have been or shall thereafter be pledged as collateral security on any such Bond shall be available, at the discretion of Surety, as collateral security on all Bonds coming within the scope of this Agreement or for any other indebtedness of Indemnitor or Principal to Surety. If Indemnitor shall fail, neglect or refuse to deposit with Surety the collateral demanded by Surety, Surety may seek a mandatory injunction to compel the deposit of such collateral together with any other remedy at law or in equity that Surety may have. Surety shall have the right to retain such collateral until Surety has received evidence satisfactory to Surety of Surety's complete discharge and exoneration from any claim or potential claim under all Bonds and until Surety has been fully reimbursed for any and all liability incurred or for claims, demands, damages, costs, loss, expense and attorneys' fees.

Id. at 2 (emphases added).

         Three surety bonds issued by Developers, with DKSL as the principal, are at issue in this action: (1) “the Ala Wai project, ” regarding improvements at Ala Wai Elementary School, with a bond amount of $266, 430 (and with the State of Hawaii as obligee); (2) “the Kalakaua project, ” regarding improvements at Kalakaua Middle School, with a bond amount of $2, 097, 900 (and with the State of Hawaii as obligee); and (3) “the Kokea project, ” regarding improvements at a Kokea Street maintenance facility building, with a bond amount of $733, 000 (and with the City and County of Honolulu as obligee). Pl.'s CSF ¶¶ 7 to 9.

         DKSL “has failed and/or has been unable to meet its obligations” for all three projects. Id. ¶ 13. The State of Hawaii, Department of Education (“DOE”), terminated the Ala Wai and Kalakaua projects by letters dated May 29, 2015. Id. ¶¶ 10 & 11. The termination letters both stated, among other things, that “[w]e have been made aware that effective October 1, 2014 DKSL LLC dba Paramount Builders contractor's license and RME Daniel Kim's license has been terminated, ” and that under Hawaii laws “any contractor engaged on a State of Hawaii public works project is required to have a current state of Hawaii contractor's license and be in good standing.” Pl.'s Ex. 6 at 1, ECF No. 48-5; Pl.'s Ex. 7 at 1, ECF No. 48-6. Likewise, they both declared the surety bonds forfeited, stating, “If the work required to complete the remaining contract items are greater than what will remain, the Contractor and Surety will be liable for all expenses to complete the project. . . . The bond is hereby forfeited.” Pl.'s Ex. 6 at 7; Pl.'s Ex. 7 at 2. Similarly, by letter to DKSL dated August 3, 2017, the City and County of Honolulu issued a notice of default and intent to terminate the Kokea project. Pl.'s CSF ¶ 12.

         Developers has incurred actual expenses under its bonds and has set reserves for future expenses. Developers has paid claims and expenses on the Bonds totaling over $85, 000 as of October 27, 2017. Id. ¶ 15. The evidence indicates that (1) on March 29, 2016, Developers paid $2, 000 to the DOE to settle the outstanding bond claim for the Ala Wai project, (2) on May 12, 2016, Developers paid $17, 329.00 to Ala Kai Mechanical Corporation, and (3) on January 23, 2015, Developers paid $12, 021.31 to Ted's Wiring Service. Pl.'s Ex. 9, ECF No. 48-8; Svitenko Decl. ¶¶ 6 to 10, ECF No. 78-1; Pl.'s Exs. 13 & 14, ECF Nos. 78-2 & 78-3. Developers has also paid attorneys' fees and costs of over $49, 000 (as of June 2017), apparently related only to the bond claims. Pl.'s Supp. CSF ¶¶ 25, 27, ECF No. 77; Svitenko Decl. ¶¶ 10, 11; Ogawa Supp. Decl. ¶ 6, ECF No. 78-6. It also paid a consultant $18, 629.34 on January 10, 2018, for ...


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