United States District Court, D. Nevada
FIDELITY AND DEPOSIT COMPANY OF MARYLAND, a Maryland corporation, Plaintiff,
TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA, et al., Defendants.
ORDER RE: MOTION TO DISQUALIFY (ECF NO. 252)
FOLEY, JR., United States Magistrate Judge
matter is before the Court on Defendant Travelers Casualty
and Surety Company's Motion to Disqualify Counsel (ECF
No. 252) filed on July 11, 2017. Plaintiff Fidelity and
Deposit Company filed its Opposition (ECF No. 257) on July
25, 2017, and Defendant filed its Reply (ECF No. 263) on
August 1, 2017. The Court conducted a hearing in this matter
on August 14, 2017.
Travelers Casualty and Surety Company
(“Travelers”) moves to disqualify Plaintiff's
counsel, the law firm of Kolesar & Leatham and attorneys
employed by that law firm, based on an alleged conflict of
interest arising from related litigation.
Clark County School District (“School District”
or “CCSD”) filed a civil complaint in this court
against Travelers on June 21, 2013, and thereafter filed an
amended complaint on August 19, 2013. See Clark County
School District v. Travelers Casualty and Surety Co.,
Case No. 2:13-cv-1100-JCM-PAL, ECF Nos. 1 and 9. The School
District was represented in that action by the law firm of
Kolesar & Leatham. The School District alleged that it
contracted with Big Town Mechanical Company (“Big
Town” or “BTM”) pursuant to the competitive
bid process, to perform modernization work on fifteen
elementary schools. The modernization work included the
heating, ventilating and air conditioning
(“HVAC”) systems in the schools. Amended
Complaint (ECF No. 9), at ¶ 5. Defendant Travelers
issued performance bonds on behalf of Big Town, naming the
School District as obligee. Id. at ¶¶ 12,
15. The School District alleged that beginning in the fall of
2010, Big Town began defaulting on its obligations to timely
and sufficiently complete work on some of the schools,
including failing to program the HVAC systems in some of the
schools. Id. at ¶¶ 18-23. Eventually by
November 2012, Big Town defaulted on all of the fifteen
school modernization contracts. Id. at ¶¶
26-27. In May 2013, Big Town filed for bankruptcy.
Id. at ¶ 32. The School District alleged that
Travelers caused delays and contributed to Big Town's
defaults by contending that it was entitled to the remaining
contract monies. Id. at ¶¶ 28-30. The
School District further alleged that Travelers breached its
duty to perform, repair and complete Big Town's work
under the contracts as guaranteed by the performance bonds.
Id. at ¶¶ 32-45. The School District
sought a mandatory injunction to compel Travelers'
performance under its bond, and damages for breach of
contract, contractual breach of the covenant of good faith
and fair dealing, tortious breach of the covenant of good
faith and fair dealing, and declaratory relief. Id.
at ¶¶ 46-78.
filed an amended counterclaim against the School District on
August 6, 2015 in which it alleged that Big Town's
ability to perform under its contracts was impaired by the
acts or omissions of the School District. Travelers alleged
that the School District failed to pay all amounts due under
the contracts and for change order work and extra work;
delayed and disrupted Big Town's work; issued defective
and/or deficient contract documents; and caused delays and
disruptions and additional costs associated therewith.
Amended Counterclaim (ECF No. 107), ¶ 12.
Travelers alleged that but for the delays and disruptions
caused by the School District, Big Town “fulfilled all
obligations under each of the Contracts, or was excused by
the actions and omissions of CCSD from doing so.”
Id. at ¶ 21.
February 1, 2016, the School District and Travelers entered
into a written Settlement Agreement and Release. Motion
to Disqualify (ECF no. 252), Exhibit 1
(“Settlement Agreement”). The Settlement
Agreement recited that the School District and Travelers
entered into a takeover agreement on December 19, 2013
regarding Travelers' completion of the work, and that
Travelers entered into a contract with Sletten Construction
Co. on that same date to complete the projects, and that the
projects were now fully complete. Id. at
¶¶ E and F. Pursuant to the Settlement Agreement,
Travelers agreed to pay $5 million to the School District in
addition to the contract retention amount(s) which the School
District was entitled to keep. Id. at pg. 2, ¶
2(a). The Settlement Agreement further stated:
Assignment. In exchange for and effective ten (10)
business days after Travelers' payment to CCSD of the
Settlement Payment and retroactive to the Effective Date,
CCSD assigns, transfers, and conveys to Travelers all of
CCSD's rights arising out of or related to the Contracts
with BTM, the Projects, the BTM Claims, on the Projects, and
the Action (as well as all related damages in connection
therewith), including but not limited to all direct costs,
resultant damages, liquidated damages (including the LDs set
forth in Exhibit C), interest and fee claims thereon. The
purpose of this assignment is to give Travelers the ownership
of and the right to assert any and all claims that CCSD has
asserted and/or could have asserted in any ongoing or future
dispute/litigation that Travelers is or may eventually be
involved in. The Parties agree that this assignment does not
affect CCSD's ownership of equipment and renovations that
BTM installed/performed on the projects.
Id. at ¶ 2(c).
School District also agreed to use its best efforts to make
its current employees reasonably available to Travelers so
long as it does not impose an undue burden on the School
District. Id. at ¶ 2(d).
Fidelity and Deposit Company of Maryland
(“Fidelity” or “ F&D”) filed its
complaint in this action against Big Town and Travelers on
March 6, 2013. Complaint (ECF No. 1). The complaint
was filed on Fidelity's behalf by attorneys Kurt C. Faux
and Willi Siepmann of The Faux Law Group who continue to be
counsel of record in this lawsuit. Fidelity alleged that it
issued performance and payment bonds on behalf of F.A.S.T.
Systems, Inc. (“FAST”) which had entered into
subcontracts with Big Town to perform the modernization work
on the HVAC systems in five of the schools subject to the
general contracts between the School District and Big Town.
FAST subsequently defaulted on its subcontracts and Big Town
demanded that Fidelity meet its obligation under its bonds.
Fidelity thereafter arranged for the completion of FAST's
work on the subcontracts and made payments under the bonds
issued on behalf of FAST. Fidelity alleged that while
completing FAST's work on the subcontracts, it
“repeatedly demanded that Big Town provide an
accounting of the balance of the subcontract price as
required by the [bonds]” and that Big Town refused to
provide an accounting or pay Fidelity the balance of the
subcontract prices as required by the bonds. Id. at
¶¶ 14, 15, 20, 21, 26, 27, 32, 33, 38, 39. Fidelity
asserted causes of action for an accounting and for breach of
contract, and a claim against Travelers on its bonds.
18, 2014, Travelers filed a counterclaim against Fidelity.
Counterclaim (ECF No. 47). Travelers alleged that
Fidelity was obliged to complete the entirety of FAST's
subcontract work without regard to the penal sums of its
bonds. Id. at ¶ 16. Travelers further alleged
that FAST's subcontract work was not complete and did not
comply with the project plans and specifications. Travelers
alleged that as a result, it “has or will have to pay
an estimate in excess of $1, 000, 000 to repair and replace
work performed by FAST/Perini and to complete FAST's
Subcontract scope of work on the Projects.”
Id. at ¶ 20.
February 2, 2017, Fidelity, Travelers, and Third Party
Defendant Controlco participated in a private mediation
conference in an effort to settle this case. The mediation
was not successful. Statement re Unsuccessful
Mediation (ECF No. 145). Thereafter on March 16, 2017,
attorneys Alan J. Lefebvre, William D. Schuller and Colby L.
Balkenbush of the law firm of Kolesar & Leatham entered
their appearance as counsel for Fidelity. Notice of
Appearance (ECF No. 148). That same day, Mr. Balkenbush
sent Travelers' counsel a lengthy letter addressing
alleged deficiencies in Travelers' discovery responses
and other discovery issues. See Motion to Compel
(ECF No. 168), Exhibit 3. On March 24, 2017,
Travelers' counsel sent an email to Fidelity's
attorney Kurt Faux stating that Travelers would be filing a
motion that day to disqualify Kolesar & Leatham.
Opposition to Motion to Disqualify (ECF No. 257),
Exhibit 2, pg. 4. Also on March 24th, Mr. Balkenbush
sent an email to Travelers' counsel stating that Fidelity
would not agree to stay or postpone discovery pending the
filing and decision on a motion to disqualify counsel.
Id. at Exhibit 2, pg. 2.
March 28, 2017, Mr. Balkenbush sent an email to
Travelers' counsel regarding matters discussed by them on
March 27th. The email states: “Finally, you indicated
that while Travelers is still considering filing a motion to
disqualify Kolesar & Leatham from representing F&D in
this litigation for the time being Travelers has elected not
to file said motion. You indicated ...