Judge: Jon R. Takasugi, Case: 23STCV10071, Date: 2024-07-18 Tentative Ruling

Case Number: 23STCV10071    Hearing Date: July 18, 2024    Dept: 17

Superior Court of California

County of Los Angeles

DEPARTMENT 17

TENTATIVE RULING

Plaintiff’s motion for summary judgment is GRANTED.  

            On 5/4/2023, Plaintiff American Contractors Indemnity Company (ACIC) filed suit against P^2MG, LLC dba P2MG, LLC, Michael E. Nelson, and Bakeyah S. Nelson, alleging: (1) specific performance; (2) breach of contract; (3) express indemnity; and (4) statutory reimbursement.

            Now, Plaintiff moves for summary judgment or, in the alternative, summary adjudication, on the Complaint.

Evidentiary Objections

            Plaintiff’s submitted Objections are sustained.

Discussion

Plaintiff argues that the undisputed material facts establish each of the necessary elements for breach of contract of the Indemnity Agreement. Plaintiff argues that this, in turn, shows their entitlement to express indemnity, statutory reimbursement, and specific performance.

Under California law, the elements necessary to establish a valid cause of action for breach of an indemnity agreement are: (1) existence of an indemnity agreement; (2) performance under the indemnity agreement; (3) breach of the indemnity agreement; and (4) resulting damage. (Reichert v. General Ins. Co. of America (1968) 68 Cal.2d 822, 830; Four Star Electric, Inc. v. F & H Construction (1992) 7 Cal.App.4th 1375, 1379 [“[A]n indemnitee seeking to recover on an agreement for indemnification must allege the parties’ contractual relationship, the indemnitee's performance of that portion of the contract which gives rise to the indemnification claim, the facts showing a loss within the meaning of the parties’ indemnification agreement, and the amount of damages sustained.”].)

In support of the first element, Plaintiff submitted evidence that:

-          Indemnitors do not dispute the fact that an indemnity agreement exists between them and ACIC. (UMF 1-3.) The express terms of the Indemnity Agreement are the measure of ACIC’s right of recovery in this action.

-          By executing the Indemnity Agreement, Indemnitors agree, jointly and severally, to indemnity and hold ACIC harmless from losses, costs, damages, attorneys’ fees and expenses, investigative fees, consultants’ fees, and “any and all other types of losses, costs, or expenses of whatsoever kind or nature” sustained or incurred by ACIC “by reason of or in any manner in consequence of, no matter how remotely,” including but not limited to, with:

(1) ACIC’s execution or procurement of the Bonds;

(2) Indemnitors’ failure to comply with the terms of the Indemnity Agreement;

(3) ACIC’s enforcement of the Indemnity Agreement;

(4) ACIC’s investigation of its alleged obligations and liabilities under the Bonds;

(5) ACIC’s attempt to obtain a release or reduction of its liability or alleged liability under the Bonds;

(6) ACIC’s prosecution or defense of any action or claim of whatsoever kind or nature in connection in connection with the Bonds or Contract; and

(7) ACIC’s attempt to determine, discharge or mitigate its loss or exposure to loss in connection with the Bonds or Contract, or to enforce any of its rights pursuant to the Indemnity Agreement.

(UMF 85.)

-          The Indemnity Agreement further provides that in the event of “any payment of any kind” by ACIC, Indemnitors agree that their liability extends to and includes, and ACIC shall be entitled to charge and recover, any and all disbursements made by ACIC in “Good Faith” under the belief that:

(1)  any Principal or Indemnitor is or has been in default under or pursuant to this Agreement; or

(2)  the Surety was or might be liable to pay the claims asserted or the sums paid, whether or not such liability actually existed; or

(3)  such payments were or are necessary or expedient, in the Surety’s sole and absolute discretion, to protect any of the Surety’s rights or interest or to avoid or lessen the Surety’s liability or alleged liability, whether or not such liability, necessity or expediency actually existed …

(UMF 86.)

-          Moreover, Indemnitors agreed, jointly and severally, that ACIC had the sole and absolute right to adjust, settle, defend, and compromise any claim in connection with the Bonds. (UMF 87.)

-          If Indemnitors desire that ACIC “consider adjusting, settling, prosecuting, defending, compromising, litigating, protesting, or appealing any claim, demand, suit, award, assessment, or judgment” against Indemnitors, Indemnitors shall:

A.    Give written notice to the Surety to this effect by certified or registered mail; and

B.    Simultaneously therewith, deposit with the Surety cash, securities or other collateral, in form and amount acceptable to the Surety in its sole and absolute discretion, to completely cover the Surety’s exposure or perceived exposure to any loss, cost or expense for which the Surety is entitled to exoneration, indemnification or reimbursement pursuant to this Agreement.

(UMF 87.)

-          Indemnitors also agreed that in the event of any payment by ACIC, “an itemized statement of the amount of such payment sworn to by any officer or authorized representative of the [ACIC], or any voucher or vouchers, invoices or other evidence of such payment shall be prima facie evidence of the fact and the amount of such payment.” (UMF 88.)

In support of the second element (i.e., Plaintiff’s performance), Plaintiff submitted evidence that:

- The terms of the Indemnity Agreement provide that in consideration of the obligations undertaken therein by Indemnitors, ACIC may execute bonds on behalf of the Indemnitors. (UMF 1-4.)

- ACIC issued the Bonds for P2MG, one of the Indemnitors, exposing itself to potential loss of $638,000.00 on both the Performance Bond and Payment Bond. (UMF 5.)

In support of the third element (i.e., Defendants’ breach), Plaintiff submitted evidence that:

-          LAUSD terminated P2MG’s right to proceed on the Project (UMF 10) and issued a Bond Claim to ACIC – demanding that ACIC perform its obligations under the Performance Bond (UMF 11; see UMF 91 [an “Event of Default” includes “5. The declaration by any Bond obligee or project owner that any Principal is in default under the Contract, irrespective of whether or not such Principal is actually in default under such Contract”].)

-          The Indemnity Agreement allows ACIC, in “its sole and absolute discretion” to take possession of P2MG’s work under the contract with LAUSD for the Project, and “at the cost and expense” Indemnitors, “to complete or to arrange for the completion” of the work. (UMF 90.)

-          Furthermore, Indemnitors “shall promptly, upon demand, pay to the Surety all costs, losses and expenses incurred” by ACIC pursuant to the Indemnity Agreement. (UMF 90.) Indemnitors have admittedly not indemnified ACIC or held ACIC harmless for its losses incurred under the Performance Bond. (UMF 74, 83.)

-          ACIC also received Payment Bond claims from vendors retained by P2MG who sought payments owed by P2MG for their services on the Project. (UMF 23-69.)

-          After providing notice to P2MG of the claims and investigating, ACIC issued payments in connection with claims under the Payment Bond. (UMF 23-69.)

-          However, Indemnitors have admittedly not indemnified ACIC or held ACIC harmless for its losses incurred under the Payment Bond. (UMF 74, 83.); see UMF 91 [an “Event of Default” includes “12. Any failure by any Principal or Indemnitor to pay or discharge, when due or as demanded by the Surety, any indebtedness of any Principal to the Surety or to any obligee, or to any subcontractor, supplier, laborer or materialman or any other claimant on any Bonded Contract or under any Bond”].)

-          Indemnitors failed to provide written notice by certified or registered mail of their desire to protest any bond claims and also failed to post collateral in connection with any of the claims under the Bonds or in response to ACIC’s demand for collateral. (UMF 73, 75, 76.)

Plaintiff’s evidence supports a reasonable inference that Defendants breached the Indemnity agreement. Accordingly, the burden shifts to Plaintiff to disclose a triable issue of material fact.

In opposition, Defendants do not dispute entering into the Indemnity Agreement, but argue that Plaintiff “breached its obligations to review and pay the third-party bond claims in good faith, in violation of its obligations under section III of the bond contract.” (Opp., 4: 27-5:2.)

In support, Defendants submitted evidence that:

-          They substantially performed the construction contract with LAUSD, and were issued substantial completion certificates and final punch list issued by LAUSD. (RSS No. 74.)

-          ACIC relied on an outdated punch list in evaluating Defendants’ performance.

-          ACIC paid the full contract sum to the third parties’ claimants by ignoring evidence of payments by P2MG of the said claims less the 5% retainage amount. (SS 59.)

-          ACIC claimed to have investigated the said contract in the absence of representatives of P2MG and LAUSD.

However, as noted by Plaintiff in reply, Defendants’ evidence does not always support the proposition it is submitted to establish. For example, Defendants

contend that Partner used an “outdated punch list,” but Indemnitors have not presented any evidence that Partner used an “outdated punch list.” In fact, ACIC’s Exhibit 24 – Partners’ “Sutter Middle School Substantial Completion Punch List Notes” reference review of the “the punch list dated 4/18/19” which is a more current version than the punch list attached as Defendants’ Exhibit L, which is dated February 28, 2019. Moreover, while Mr. Nelson references different punch list versions throughout his declaration, he admits that P2MG received the punch list dated April 18, 2019 in Paragraph 46 of his declaration – noting “P2MG received a punch-list dated 4/18/2019 and provided a completed list with pictures illustrating items to be completed.”

            (Reply, 9: 2-10.)

            Similarly, while Defendants argue that Plaintiff paid for work outside the scope of the contract with P2MG’s with LAUSD, they do not submit any evidence which actually establishes this, and Mr. Nelson admits in his declaration that the scope of the completion contract with RCCI dba Ramirez Company is unknown to P2MG. (Nelson Decl., ¶ 102.)

            Plaintiff submitted evidence via Mr. Ching’s declaration which supports a reasonable inference that that he investigated each claim, obtained counsel Lanak & Hanna to assist in investigating and evaluating the Bond claims, hired Partner to conduct an independent investigation of the Performance Bond claim, and concluded – based upon the investigation and evaluation of the at-issue Bond claims – that ACIC had an obligation and it was necessary and expedient to satisfy the claims. Defendants’ evidence, in turn, is based on conjecture and conclusory assertions unsupported by evidence which cannot support a reasonable inference of either non-performance by Plaintiff or lack of good faith. 

            Moreover, Defendants do not submit any evidence that, despite the terms of the Indemnity Agreement, they ever provided written notice by certified or registered mail of their desire to protest any bond claims or that they posted collateral in connection with any of the claims under the Bonds or in response to Plaintiff’s demand for collateral.

            Based on the foregoing, Plaintiff’s motion for summary judgment is granted.

It is so ordered.

Dated:  July    , 2024

   Hon. Jon R. Takasugi
   Judge of the Superior Court

Parties who intend to submit on this tentative must send an email to the court at smcdept17@lacourt.org by 4 p.m. the day prior as directed by the instructions provided on the court website at www.lacourt.org.  If a party submits on the tentative, the party’s email must include the case number and must identify the party submitting on the tentative.  If all parties to a motion submit, the court will adopt this tentative as the final order.  If the department does not receive an email indicating the parties are submitting on the tentative and there are no appearances at the hearing, the motion may be placed off calendar.  For more information, please contact the court clerk at (213) 633-0517.