Fidelity and Deposit Company v. Edward E. Gillen Company
926 F.3d 318
7th Cir.2019Background
- Fidelity issued over $30 million in performance and payment bonds for a Chicago harbor project and obtained from Gillen a detailed indemnity agreement and a net-worth retention agreement (Gillen to maintain > $7.5M).
- Multiple subcontractors sued Gillen in Illinois state court for nonpayment and named Fidelity on its payment bond; several suits resolved, some remain pending.
- Fidelity sued Gillen in federal court asserting breach of the indemnity and net-worth agreements, seeking collateralization and other relief, and asserted a quia timet (equitable) claim seeking $2.5M cash collateral and injunctive control over Gillen’s funds; all contract claims settled at mediation except the quia timet count.
- The district court granted summary judgment to Gillen, reasoning quia timet relief was unavailable because Gillen was allegedly insolvent and thus could not provide security; the clerk taxed costs against Fidelity and Fidelity appealed both rulings.
- The Seventh Circuit affirmed summary judgment, holding that Fidelity, having negotiated and litigated explicit contractual remedies and settled them, may not obtain additional equitable quia timet relief beyond its written agreement; the court also dismissed Fidelity’s appeal of the clerk’s costs order for failure to seek district-court review.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a surety may obtain quia timet relief based on principal insolvency | Fidelity: insolvency justifies equitable quia timet relief (cash collateral, injunction) to prevent imminent harm | Gillen: insolvency undermines grounds for quia timet and precludes relief; alternative—Fidelity released claims in settlement | Court: Insolvency can justify quia timet in principle, but here quia timet unavailable because Fidelity’s contractual remedies govern and it settled those claims; cannot supplement contract with broad equitable relief |
| Whether Fidelity’s settlement released its quia timet claim | Fidelity: did not release Count IV; expressly preserved it in settlement language | Gillen: settlement released equitable claims | Held: Settlement expressly preserved Count IV; Fidelity did not release the quia timet claim, but preservation alone does not permit equitable relief beyond contract |
| Choice-of-law / scope of federal equity power: state law vs federal common law for quia timet | Fidelity: argued Illinois law applies (more developed) | Gillen: urged Wisconsin law or otherwise disputed scope | Held: Court applies Illinois law under choice rules but also concluded same result under federal equitable principles—either way contract governs and equity cannot expand negotiated rights |
| Whether appellate court may review clerk’s taxation of costs without district-court review | Fidelity: appealed clerk’s costs order to the Seventh Circuit | Gillen: Fidelity forfeited review by not moving for district-court review per local rules and Rule 54 | Held: Fidelity forfeited objections by failing to move for district-court review; appellate court lacks jurisdiction over clerk’s order without a district-court decision |
Key Cases Cited
- Western Cas. & Surety Co. v. Biggs, 217 F.2d 163 (7th Cir. 1954) (affirming quia timet relief where principal insolvency justified surety’s fear)
- Borey v. Nat’l Union Fire Ins. Co., 934 F.2d 30 (2d Cir. 1991) (distinguishing quia timet from preliminary injunction; describing surety’s right to demand security)
- McConihay v. Wright, 121 U.S. 201 (1887) (quia timet part of federal courts’ equitable jurisdiction)
- Guaranty Tr. Co. v. York, 326 U.S. 99 (1945) (federal courts’ equitable powers in diversity are bounded by traditional equity jurisdiction)
- Northwestern Nat’l Ins. Co. v. Lutz, 71 F.3d 671 (7th Cir. 1995) (rights governed by the parties’ indemnity contract rather than general equitable principles)
- Quilico v. Union Oil Co., 374 N.E.2d 219 (Ill. App. Ct. 1978) (where express indemnity exists, implied indemnity and related common-law theories are precluded)