Opinion
Civil Action No. 3:02-CV-1341-K
March 24, 2004
AMENDED MEMORANDUM OPINION AND ORDER
This Amended Memorandum Opinion and Order supersedes the Court's order filed on March 23, 2004, granting Plaintiff's summary judgment motion. The Court's prior opinion is hereby VACATED.
Before the Court is Plaintiff's Liberty Mutual Insurance Company, Liberty Mutual Fire Insurance Company, and Liberty Insurance Corporation's (collectively "Plaintiff's" or "Liberty") Motion for Summary Judgment as to Defendants Odyssey Business Services of Nevada, Inc., Odyssey Safety, L.L.C., Patems, L.L.C., Patio Service Station, Inc., Staf USA, Inc., Staff USA, Inc., SUSA, L.L.C., Windsor Safety, L.L.C., and Windsor Staff Management, Inc. (collectively "Defendants"). Because in a January 27, 2004, order the Court stayed the instant action as to Defendants Patems, L.L.C., and Patio Service Station, Inc., the summary judgment motion is MOOT as to these two defendants only. However, with respect to the remaining Defendants, the Court GRANTS the motion for the following reasons.
I. Factual Background
Defendants are professional employer organizations ("PEOs") which offer "leased" employees to various types of businesses in many states. These PEOs must offer workers' compensation insurance, among other things, to their employees. Nations Personnel of Texas, Inc. ("Nations"), a bankrupt defendant in this case, purchased workers' compensation insurance policies ("Policies") from Liberty. The Policies included a "Pledge and Security Agreement for Insurance Subject to Cash Flow Plan" ("Amended Stein Roe"), in which Nations agreed to provide collateral security equal to the unpaid total estimated premium ultimately due under the Policies. This premium was to be put in a Cash Funding Schedule ("Schedule"), which would be amended periodically. A provision in the Amended Stein Roe provided that any named insured of the Policies is "jointly and severally liable for performance of the terms" of the Amended Stein Roe. The Amended Stein Roe also set forth specific "events of default" which, were any one to occur, would require the insured to provide a clean, irrevocable letter of credit in an amount equal to the total estimated premium due under the Policies. The Amended Stein Roe also provided that if Nations did not maintain sufficient collateral security, Liberty would be entitled to specific performance as well.
While the Policies were in effect, Defendants became subsidiaries of Nations. Defendants authorized Nations to make decisions and take actions on their behalf. This included entering into a settlement agreement on behalf of Defendants in a Texas state court action in which Nations sued Liberty to prevent termination of the insurance coverage provided by Liberty on behalf of Nations and Defendants. Pursuant to the settlement agreement, Liberty issued insurance policies on behalf of Defendants and began paying claims on behalf of their employees. At a later point in time, Nations cancelled two payments for two separate collateral deposits due from all Defendants. Liberty then exercised its rights under the Policies and the Amended Stein Roe, including issuing a new Schedule indicating the minimum value of the required collateral to be $7,023,665, and demanding Defendants (including Nations) either deposit that amount in the Stein Roe Account or tender to Liberty a clean, irrevocable letter of credit in that amount. Soon thereafter, Nations filed for bankruptcy. None of the Defendants to date have deposited that amount in the Stein Roe Account or tendered the required letter of credit.
II. Summary Judgment Standards
Summary judgment is appropriate when the pleadings, affidavits and other summary judgment evidence show that no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. FED.R.CIV.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The moving party bears the burden of identifying those portions of the record it believes demonstrate the absence of a genuine issue of material fact. Celotex, 477 U.S. at 322-25. Once a movant makes a properly supported motion, the burden shifts to the nonmovant to show that summary judgment should not be granted; the nonmovant may not rest upon allegations in the pleadings, but must support the response to the motion with summary judgment evidence showing the existence of a genuine fact issue for trial. Id. at 321-25; Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255-57 (1986). All evidence and reasonable inferences must be viewed in the light most favorable to the nonmovant. United States v. Diebold, Inc., 369 U.S. 654, 655 (1962).
III. Specific Performance of Collateral Security Clause
Liberty asks the Court to grant summary judgment in its favor and order Defendants to provide Liberty with a clean, irrevocable letter of credit in the amount of $7,023,665.
A party may be entitled to specific performance if: (1) the contract is reasonably certain, unambiguous, and based on valuable consideration; (2) the contract is fair in every section, void of misrepresentation, misapprehension, fraud, mistake, imposition, or surprise; (3) the parties are so situated that specific performance will not be harsh or oppressive; and (4) the party seeking specific performance must come into court with clean hands. Condovest Corp. v. John Street Builders, Inc., 662 S.W.2d 138, 140 (Tex.App.-Austin 1983, no writ), quoting Nash v. Conatser, 410 S.W.2d 512, 519 (Tex.Civ.App. 1966, no writ). In this case, there is a collateral security clause. Courts have generally granted specific performance to enforce collateral security clauses based on the premise such remedy is required to protect the surety's bargain. United States Fidelity Guaranty Co. v. Feibus, et al., 15 F. Supp.2d 579, 588 (M.D. Pa. 1998), aff'd by, 185 F.3d 864 (3rd Cir. 1999); see Safeco. Ins. Co. of America v. Schwab, et al., 739 F.2d 431, 433 (9th Cir. 1984), quoting Marine Midland Trust Co. v. Alleghany Corp., 28 F. Supp. 680, 683-84 (S.D. N.Y. 1939) (`"if a creditor is to have the security position for which he bargained, the promise to maintain the security must be specifically enforced.'").
The evidence is this case clearly establishes specific performance enforcing the collateral security clause is the appropriate remedy. Defendants became subsidiaries of Nations which enabled them to obtain workers' compensation insurance coverage under Nations insurance policies with Liberty. Once subsidiaries, the Defendants requested, through Nations, this same coverage from Liberty. In addition, Defendants were aware of the Texas state court lawsuit in which Nations sued Liberty to prevent termination of Defendants' coverage. Documents from Defendants to Nations during settlement negotiations of the state trial confirm Nations' majority ownership of Defendants. Furthermore, Defendants signed letters authorizing Nations to settle the claims involved in the state court lawsuit. The settlement agreement signed by Nations was done so on behalf of Nations and the Defendants, as evidenced by the language of the agreement itself. The agreement requires Liberty to name Defendants as the "named insureds" under the Policies, which in turn made them "policyholders" under the Amended Stein Roe, thereby making them responsible for fulfilling the terms of the Amended Stein Roe. Finally, Defendants received the benefits of insurance policies covering their employees and claims paid out by Liberty on behalf of Defendants' employees, without fulfilling their obligations.
Nations, having filed for bankruptcy, has not satisfied any of its obligations. It has defaulted under the terms of the Amended Stein Roe. The language of the Amended Stein Roe clearly indicates that any named insured of the Policies is "jointly and severally liable for performance of the terms." Once a defaulting event occurred, Defendants were required to provide Liberty with a clean, irrevocable letter of credit in the amount of $7,023,665. There is no ambiguity about this contract. See American Motorists Ins. Co., 983 F. Supp. at 440, quoting Sayers v. Rochester Tel. Corp. Supplemental Mgt. Pension Plan, 7 F.3d 1091, 1095 (2nd Cir. 1993) ("`no ambiguity exists when contract language has a definite and precise meaning, unattended by danger of misconception in the purport of the [contract] itself, and concerning which there is no reasonable basis for a difference in opinion.'"). However, Defendants have failed to pay amounts due under the Policies, failed to maintain sufficient shares in the Stein Roe Account, failed to perform the terms of the Amended Stein Roe, and have not renewed the Policies. These too are all qualifying "events of default" under the terms of the Amended Stein Roe. The Court concludes all the requirements entitling Liberty to specific performance have been met. See Condovest Corp., 662 S.W.2d at 140.
Consequently, Liberty is entitled to summary judgment and the specific performance it requests.
IV. Conclusion
For the reasons stated above, the Court GRANTS Plaintiff's' motion for summary judgment.