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Allied World Specialty Ins. Co. v. Abat Lerew Constr., 2017 U.S. Dist. LEXIS 61794 (D. Neb. Apr. 24, 2017) Abat Lerew Construction (“ALC”) entered into multiple construction projects which required it to obtain surety bonds guaranteeing its performance. ALC obtained the bonds from Allied World Specialty Insurance Company (“Allied”) and also entered into an indemnity agreement with Allied. In that agreement ALC agreed to indemnify and hold Allied harmless from and against all liability and to deposit with Allied collateral in an amount determined by Allied to be sufficient to cover liability for any claims under the bonds. During ALC’s performance of the bonded contracts, Allied received claims on the bonds in excess of $300,000. Invoking the terms of its indemnity agreement with ALC, Allied demanded that ALC post collateral security in the amount of $400,000 to cover liability for the claims. ALC refused and Allied commenced an action seeking equitable relief requiring ALC to deposit the demanded collateral security. Upon commencement of the litigation, Allied asked the court to issue a preliminary injunction requiring ALC to post the $400,000 security and restraining ALC from transferring assets. The court surveyed case law from several jurisdictions and noted that money damages are generally inadequate to a surety whose demand for collateral security is refused. The court thus found that sureties are often entitled to specific performance enforcing a principal’s promise to post collateral. However, the court held that a surety’s entitlement to specific performance of the collateral obligation does not also automatically include the right to have the obligation enforced at the outset of proceedings by way of preliminary injunction. Most critically, the court found that the surety had not shown that it would be irreparably harmed in the absence of the requested relief. To make such a showing, the surety would have had to demonstrate that it lacked sufficient funds to investigate or pay the bond claims without the security, or that the principal is insolvent or secreting assets. Absent such proof, the surety’s investigation and payment of claims from its own accounts does not constitute irreparable harm because the surety can be made whole in an action for money damages against the principal. Although the absence of irreparable harm was dispositive, the court further noted other elements for injunctive relief were lacking. It found that Allied did not clearly establish that its claim for specific performance would succeed on the merits because ALC raised colorable affirmative defenses of equitable estoppel and unclean hands. The court further found that the balance of harms favored ALC because its ability to continue its operations would be put in peril if it were required to post the $400,000 collateral. Allied, on the other hand, did not contend that it lacked sufficient funds to investigate and pay the bond claims, or otherwise continue its operations, without the security. http://www.jdsupra.com/legalnews/federal-court-in-nebraska-denies-surety-21968/

Law360, New York (April 24, 2017, 5:18 PM EDT) — A surety bond company has agreed to pay just under $10 million to settle claims that a customer, debt-settlement payment processor Meracord LLC, charged illegal fees to debt-relief customers. Fidelity and Deposit Co. of Maryland will pay $9.875 million to the class if the settlement is approved, according to a motion for approval filed Friday in the U.S. District Court for the Western District of Washington. F&D, as it’s known, had written surety bonds in 19 states for Meracord, a payment processor accused of charging illegal fees. “The proposed settlement easily clears the hurdles for preliminary approval. This court is aware of the risk faced by settlement class members of no recovery, especially considering that Meracord is no longer in business and has no remaining assets — including insurance policies — with which to compensate settlement class members. The surety bonds represent the last remaining avenue of recovery,” the document said. The deal will hand out money “based in large part on [class members’] proportionate losses and according to the amounts available under the surety bonds issued in each relevant state,” the document said. The 153-page complaint, filed in February 2016, says that Meracord fleeced customers of $400 million but that the surety bond companies had not paid out on the bonds that Meracord was required to carry for cases just like this. The suit had its roots in another one filed against Meracord in July 2011 by one of the same lead plaintiffs here, Amrish Rajagopalan. That was originally against NoteWorld LLC, which later changed its name to Meracord, and was joined with another suit filed in July 2012. That consolidated action yielded a $1.45 billion settlement in March 2015, according to the motion. The settlement class here covers anyone who had a Meracord account from which debt-settlement fees were deducted and who lived in certain states. F&D wrote surety bonds for Meracord in 19 states and codefendant Platte River in 28 states. A settlement with Platte River was given final approval in August 2016, according to the document. Class reps — there are 28 — will get $500 to $1000 each under the plan. The document also said the class fulfills all necessary requirements under Rule 23, including commonality and typicality. “All settlement class members were injured by the Meracord enterprise’s illegal activity, and this court already found that Meracord’s ‘violations of Washington consumer protection laws are typical of class members,’” the document said. A lawyer for F&D was not immediately available for comment. This was not the only lawsuit over Meracord’s fees. In October 2013, the Consumer Financial Protection Bureau and Meracord agreed to settle allegations that the company helped collect more than $11 million in illegal up-front fees from debt-settlement customers. The CFPB said that Meracord had charged more than 11,000 consumers up-front fees since 2010. That’s illegal under the Telemarketing Sales Act because customers aren’t guaranteed any actual debt settlement relief when they pay. The CFPB alleged that 5,000 customers charged fees did not have any of their debts settled. It was a continuation of the CFPB’s “chokepoint” strategy, which has aimed to curb illegal upfront payments in the debt-settlement industry. According to CFPB officials, payment processors are the “lifeblood” of the market. The plaintiffs are represented by Steve Berman and Thomas Loeser of Hagens Berman Sobol Shapiro LLP and Stuart Paynter and Celeste Boyd of The Paynter Law Firm PLLC. Fidelity and Deposit Co. is represented by Bert Markovich and Claire Rootjes of Schwabe Williamson & Wyatt. The case is Rajagopalan, et al. v. Fidelity and Deposit Co. of Maryland, case number 3:16-cv-05147, in the U.S. District Court for the Western District of Washington. https://www.law360.com/articles/916170/insurer-agrees-to-pay-9-9m-to-end-fee-suit