807 F. Supp. 2d 820
E.D. Mo.2011Background
- Safeco issued performance and payment bonds for Lake Asphalt Paving & Construction, LLC under an Indemnity Agreement with collateral provisions.
- Lake Asphalt defaulted on two bonded projects (Route 54 and Route 36); Safeco completed the work via Magruder, incurring losses and costs.
- Safeco established a reserve for potential liability, initially $2,890,270, later reduced to $1,990,070.
- Safeco demanded indemnitors provide cash or collateral in the amount of the reserve; defendants did not comply.
- Safeco moved for partial summary judgment on Count IV for specific performance to enforce collateralization; court granted in favor of Safeco.
- Court ordered defendants to pay or deposit collateral in the amount of $1,990,070 by a fixed deadline.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether collateralization can be compelled by specific performance | Safeco argues Indemnity Agreement entitles specific enforcement of collateral. | Lake Asphalt argues relief should be relief at law or not enforceable by specific performance. | Yes; court grants specific performance to enforce collateral. |
| Whether specific performance is appropriate when an adequate remedy at law exists | Damages inadequate to protect ongoing collateral interests of the surety. | Damages could compensate later; no need for equitable relief. | Equitable relief appropriate; damages insufficient to protect collateral position. |
| Whether the amount of the reserve justifies collateral | Reserve reflects anticipated losses and expenses; collateral is warranted. | Reserve is excessive and may overstate actual completion costs in dispute with general contractors. | Reserve-supported; collateral required in the amount of $1,990,070. |
Key Cases Cited
- Schwab v. Safeco Ins. Co. of Am., 739 F.2d 431 (9th Cir. 1984) (collateral security after demand as enforceable)
- American Motorists Ins. Co. v. United Furnace Co., Inc., 876 F.2d 293 (2d Cir. 1989) (collateral security after demand supported)
- Marine Midland Tr. Co. v. Alleghany Corp., 28 F. Supp. 680 (S.D.N.Y. 1939) (early authority recognizing collateral arrangements)
- Laclede Gas Co. v. Amoco Oil Co., 522 F.2d 33 (8th Cir. 1975) (adequate remedy at law as a limiting factor)
- Kopp v. Franks, 792 S.W.2d 413 (Mo.App. 1990) (specific performance discretionary in equity)
- Zoellner v. Carty, 585 S.W.2d 289 (Mo.App. 1979) (equitable relief assessed against contract enforcement)