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Old Republic Insurance Co. v. City Plan Development, Inc.,

United States District Court, D. Nevada

January 3, 2018

OLD REPUBLIC INSURANCE COMPANY, Plaintiff(s),
v.
CITY PLAN DEVELOPMENT, INC. dba SAVI CONSTRUCTION, et al., Defendant(s).

          ORDER

         Presently before the court is plaintiff Old Republic Insurance Company's motion for sanctions. (ECF No. 92). Defendants City Plan Development, Inc., Ernesto Savino and Cynthia Wilson (collectively, “defendants”) filed a response (ECF No. 95), to which plaintiff replied (ECF No. 96).

         Also before the court is plaintiff's motion for attorney's fees. (ECF No. 143). Defendants filed a response (ECF No. 145), to which plaintiff replied (ECF No. 146).

         Also before the court is defendants' motion for attorney's fees. (ECF No. 130). Plaintiff filed a response (ECF No. 137), to which defendants replied (ECF No. 144).

         Also before the court is defendants' motion for leave to file a surreply. (ECF No. 147). Plaintiff filed a response (ECF No. 148), to which defendants replied (ECF No. 149).

         Also before the court is an unopposed motion to continue calendar call. (ECF No. 113).

         I. Facts

         Defendant City Plan Development, Inc. (d/b/a Savi Construction) is a construction contractor that is licensed and operates in the state of Nevada. Defendant entered into a contract with Clark County to serve as general contractor on a public works project to construct a fire station. In connection with the project, plaintiff entered into a general agreement of indemnity[1](“GAI”) with defendant and issued a labor and material payment bond on behalf of defendant as principal and contractor in the sum of $4, 196, 500.

         The GAI contains an indemnification provision that reads as follows:

Indemnification - The Indemnitor shall continually indemnify and save the Surety harmless from and against every claim, demand, liability loss, cost and expense which the Surety may pay, sustain or incur in consequence of having executed or procured the execution of bond(s), or the failure of the Indemnitor, to perform or comply with the covenants and conditions of this Agreement to enforce the right of the Surety to any collateral taken specifically or otherwise, to enforce any and/or all obligations of the Indemnitor under this Agreement, or to defend any action(s) against the Surety arising out of the execution of any bond(s) on behalf of the Principal of the Surety's exercise of any rights under this Agreement.

(ECF No. 143-2 at 4).

         The GAI also contains a settlement provision, granting the surety discretion to settle and compromise bond claims:

The Surety shall have the exclusive right for itself, the Principal and the other Indemnitors to determine whether any claim, demand, suit or judgment brought against the Principal and/or Surety upon bond executed by the Surety shall on the basis of liability, expediency or otherwise, be paid, settled, defended or appealed and its determination shall be conclusive upon the Principal and/or Indemnitor. Payment shall be made by the Indemnitor to the Surety for 1. all loss, cost and expenses as soon as the Surety becomes liable there for whether actually paid by the Surety in whole, any part thereof, or not, and; 2. Interest on any payments made by Surety referred to in 1. above from the date of payment by Surety until Surety is reimbursed by Indemnitor. The Indemnitor agrees to accept the voucher or other evidence of such payment as prima facie evidence of the propriety thereof, and of the Indemnitor's liability therefore to the Surety.

(ECF No. 143-2 at 4).

         During the course of the project, plaintiff received claims against the payment bond from subcontractors and suppliers, alleging non-payment by defendant. (ECF No. 143). Plaintiff retained counsel (Jennings, Strouss & Salmon, PLC) in order to investigate the claims and fulfill plaintiff's bond obligations. Id.

         Plaintiff requested a subcontractor payables list. Id. On October 18, 2016, defendant provided plaintiff with a list detailing subcontractor payables for the project. Id. The list showed how much defendant owed each subcontractor that defendant believed had a valid claim for payment. Id. On November 4, 2016, defendant provided plaintiff with a document entitled “Fire Station #16 Liabilities, ” dated October 25, 2016. Id. The document detailed Savi Construction's subcontractor liabilities for the contract. Id.

         During this time, the parties were engaged in settlement negotiations. Id. After receiving the “Fire Station #16 Liabilities” list, plaintiff alleges that it received payment demands from parties not on the list, and from a party on the list for an amount in excess of the amount listed. Id. Thereafter, settlement negotiations broke down. Id. The parties were later instructed to participate in a mandatory settlement conference in front of Magistrate Judge Koppe. Id. Plaintiff alleges that on the eve of the settlement conference, it received a payment bond claim for $120, 369, which was not contained in the previously mentioned subcontractor payables lists. Id.

         Plaintiff contends that it paid payment bond claims filed by subcontractors of Savi Construction and incurred bond losses totaling $272, 819.03. Id.

         On May 4, 2017, the parties reached a binding settlement agreement. (ECF No. 106). The agreement created a system whereby bonded contract funds held by Clark County would be distributed to plaintiff, defendant City Plan and the subcontractors on the contract. (ECF No. 143). Plaintiff reserved its indemnification claim against defendants which seeks to recover expenses (including attorney's fees and costs) resulting from claims made against the payment bond and plaintiff's enforcement of its rights under the GAI and the resulting litigation. (ECF No. 143).

         II. Legal Standard

         a. Motion for sanctions

         “Rule 11 is an extraordinary remedy, one to be exercised with extreme caution.” In re Keegan Mgmt. Co., Sec. Litig., 78 F.3d 431, 437 (9th Cir. 1996) (quoting Operating Eng'rs Pension Trust v. A-C Co., 859 F.2d 1336, 1345 (9th Cir. 1988)). The purpose of Rule 11 is to deter baseless filings and litigation abuses. See Smith & Green Corp. v. Trs. of Constr. Indus. & Laborers Health & Welfare Tr., 244 F.Supp.2d 1098, 1103 (D. Nev. 2003). Further, Rule 11 addresses two separate problems: “first, the problem of frivolous filings; and second, the problem of misusing judicial ...


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