Claims

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

The Supreme Court of Canada announced Thursday it will hear an appeal from a subcontractor on an oilsands project who is trying to sue a general contractor for failing to inform it of the existence of a surety bond. Court records indicate that Langford Electric Ltd. was a subcontractor to Bird Construction Company, which required Langford to obtain a labour and material payment bond. Langford was issued a bond by the Guarantee Company of North America. Bird Construction was general contractor to Suncor Energy on a project near Fort McMurray, Alberta. A third contractor – Valard Construction Ltd. – was a subcontractor to Langford Electric. Valard was not fully paid for its services and tried to make a claim on the bond, but The Guarantee “denied the claim on the basis that Valard had not provided timely notice,” wrote Mr. Justice Gerald Verville, of the Alberta Court of Queen’s Bench, in a ruling released Feb. 27, 2015. Valard sued Bird, claiming that Bird “had a fiduciary duty” to inform Valard of the existence of the bond. The lawsuit was dismissed by the Alberta Court of Queen’s Bench. Valard was unsuccessful on appeal to the provincial appeal court, which issued a divided ruling last year. “Bird was not obliged to provide notice” to Valard of the existence of the bond, Justice Verville ruled. “In any event, a simple standard inquiry by Valard would be a more reliable means of obtaining the information. While it may be that employees of subcontractors may not always be aware of the possibility of a bond, this does not explain why a large and sophisticated entity such as Valard would not have in place a mandatory protocol under which bond information is requested on all subcontracts, especially given the state of the law on the issue. In this case, we are not dealing with the disadvantaged and infirm, but rather with a large sophisticated company with five or six hundred employees in Canada which has its own surety or bonding company.” Valard applied in October, 2016 for leave to appeal to the Supreme Court of Canada, which announced March 9, 2017 that leave to appeal is granted. Neither Langford nor The Guarantee are parties in the case. Valard was contracted by Langford to perform directional drilling between March and May, 2009. The following year, Valard filed a statement of claim against Langford and obtained a default judgment of $660,000.17. “On April 19, 2010, Valard made an inquiry of Bird as to whether there was a Bond,” Justice Verville wrote. “Bird responded in the affirmative and provided contact information” for The Guarantee. Valard then submitted a claim to The Guarantee in 2010, which The Guarantee denied because Valard failed to provide notice “within 120 days after the date upon which it performed the last of the work.” Valard sued The Guarantee and added Bird as a defendant and then discontinued its suit against The Guarantee. The bond uses a form issued by the Canadian Construction Documents Committee and is “explicit that the respondent obligee/trustee is not obliged to do or take any act, action or proceeding against the surety on behalf of the claimants to enforce the provisions of the bond,” wrote Madam Justice Frederica Schutz of the Alberta Court of Appeal. “The bond imposes no positive obligations of any other kind upon the respondent.” Concurring in that ruling, released Aug. 29, 2016, was Madam Justice Patricia Rowbotham. “Canadian courts have rejected the appellant’s proposition that the trustee/obligee under a labour and material payment bond has a positive legal duty to take steps to bring the existence of a labour and material payment bond to the attention of potential claimants,” Justice Schutz wrote on behalf of herself and Justic Rowbotham. Dissenting was Mr. Justice Thomas Wakeling. “The fundamental principle is that a trustee has a duty of loyalty,” Justice Wakeling wrote. “This includes the duty to undertake reasonable measures to make available to a sufficiently large segment of beneficiaries or potential beneficiaries information that announces the existence of the trust and the markers of a beneficiary if a beneficiary or potential beneficiary would derive a benefit from knowing that a trust existed and the criteria defining a beneficiary.” http://www.canadianunderwriter.ca/commercial-lines/supreme-court-canada-hear-appeal-subcontractor-arguing-trustee-must-notify-potential-claimants-existence-surety-bond-1004109956/

Workers who built the Southmost Hike and Bike Trail in Brownsville claim they haven’t been paid. Jorge Contla said he worked on the hike and bike trail project as a subcontractor for ARRCO General Construction Group. The city of Brownsville, though, provided documents to CBS 4 News showing Contla presented himself as a representative of ARRCO. Contla and other workers claim ARRCO hasn’t paid them in months. ARRCO didn’t respond to a request for comment Monday. “The city says ‘Yes, you are going to get paid’ but we haven’t seen any results,” Contla said. When ARRCO submitted a bid for the project, the company included standard paperwork for what’s called a performance bond. A performance bond is basically an insurance contract for the construction project. If ARRCO couldn’t complete the job, the insurance company would hire a new contractor to complete the work. ARRCO submitted records to the city showing a performance bond from a company called Texas Indemnity Contractor. CBS 4 News called the Texas Department of Insurance, which couldn’t find any record of a company called Texas Indemnity Contractor. In response to questions from CBS 4 News, the city of Brownsville released a statement about ARRCO and Contla: The city provided CBS 4 News a business card that identifies Contla as a project manager for ARRCO, a photo showing Contla wearing an ARRCO hard hat, and a sign-in sheet where Contla listed himself as a representative of ARRCO. Contla said he worked as a subcontractor for ARRCO; he flatly denied ever working directly for ARRCO. To document his claim, Contla provided a subcontractor agreement between a company called Ziur Corporation and ARRCO. Brownsville referred the matter to the Cameron County District Attorney’s Office for investigation. http://valleycentral.com/news/local/city-contractor-submitted-forged-bond-for-brownsville-construction-project

Once again, the University Estates development in northwest Athens is the subject of litigation, with a bonding company called Developers Surety & Indemnity filing a complaint against UE and its former developer Dr. Richard Conard, along with secretary Elizabeth Conard. During Conard’s time developing University Estates, the allotment off Ohio Rt. 682 and Armitage Road was the subject of multiple lawsuits either filed by Conard or against him. In 2009, Conard, who lives in Palmetto, Florida, filed suit against the city of Athens after officials signed a memorandum of understanding with another developer that had agreed to purchase a mortgage note on more than 600 acres of UE’s mixed-use development site. Eventually, that lawsuit was dismissed without prejudice in U.S. District Court. In 2010, Citizens Bank of Logan acquired the property after the bank said a default had occurred. In early 2014, H2 Development LLC, which is co-owned by local businessman Brent Hayes, purchased 566 acres of land that had not been platted for homes from Citizens Independent Bankcorp Inc. for slightly over $1.1 million. On Jan. 6, Developers Surety & Indemnity Co., of Irvine, California, filed its lawsuit against the Conards in Athens County Common Pleas Court, seeking $55,943. This amount, according to the lawsuit, was paid to the city of Athens as settlement of a claim the city made on the bond. The city did this in an effort to complete streets within the development. That work was completed in 2013 after a struggle with road issues since the land was annexed into the city in 2000. Athens had refused to accept the UE roads into the city until all of the roadways were completed to meet city standards. Eventually, an agreement was struck to assess UE property owners to pay for the road-improvement project, which cost $715,700. In addition to the $55,943 bond settlement, Developers Surety claims in the lawsuit that they have incurred “costs, expenses and attorneys fees” in the past and will continue to do so, requesting the court to award both the settlement and the other costs, as well as any other relief deemed just and appropriate. As of Friday, Conard had not filed an answer to the complaint. http://www.athensnews.com/news/local/lawsuit-filed-against-university-estates/article_85ce1780-db50-11e6-a898-cf62482b3c6a.html

EVANSVILLE, IN (WFIE) – Court documents show Peyronnin Construction filed for Chapter 7 bankruptcy on Monday. That means several multi-million dollar construction projects are in the lurch, including the McLean County Regional Water Treatment Plant, the International Blue Grass Museum, Owensboro Community and Technical College, and a gravity-fed sewer line in Mt. Vernon. Owensboro Community and Technical College – $12-million contract International Bluegrass Museum – $9.6-million contract McLean County water treatment plant – $8.5-million contract Mt. Vernon gravity-fed sewer line – $860,000 contract Owensboro city attorney Ed Ray says as of Tuesday morning construction on the museum was shut down and the project will be turned over to the surety company, The Great American Insurance Company. He says they will be responsible for finding a “new contractor at the contractor price.” Ray says the city gets a lot of pushback over using performance bonds for projects like this, but he says this is the perfect example of why they exist. The bond is like an insurance policy and it means Owensboro won’t be out any money now that the contractor hired to do the project has folded. Museum Project Director Ted Lolly says the news came as a “total surprise” because the company has been in business for at least 70 years. Lolly says construction of the museum is only 20 percent done, but he says the city has a surety bond for this type of situation. He says while Peyronnin’s bankruptcy will ultimately slow construction, the city will be okay financially. McLean County Judge Executive Kelly Thurman says the water plant project engineer called him Tuesday morning and told him about the bankruptcy filing. He says he was shocked by the news. Work on the plant has come to a halt and Judge Thurman expects crews to pack up and leave in the next few days. The bankruptcy isn’t going to impact the project getting done or add any extra cost because the county has a performance bond in place. A new contractor will be selected to finish the work. Judge Thurman says the water plant is almost finished. It was supposed to be completed this spring, but with the bankruptcy filing, Thurman expects the plant to be up and running this fall. http://m.wave3.com/wave/pm_/contentdetail.htm?contentguid=od:hdBWupfS

TAMPA — The Tampa Housing Authority thought it had seen the last of the Siltek Group when in July it fired the contractor building a signature $25.6 million The Tempo at Encore was behind schedule and had fallen prey to shoddy workmanship and poor management, said Housing Authority officials. And Siltek owner Ana Silveira-Sierra continued to let her husband, Rene Sierra, work as project manager even after he had pleaded guilty in a multi-million dollar kickback scheme involving affordable housing in South Florida. So Housing Authority officials were outraged to learn that Berkley Surety Group, the firm that underwrote the project, has hired a new company owned by Silveira-Sierra to finish the seven-story building. Officially Berkley has contracted with Tron Construction. But records show that the firm was established by Silveira-Sierra less than one month after Siltek was terminated from the Tempo project and operates out of the same Plantation office. It means that completion of the 203-unit building intended to provide affordable housing will effectively be in the hands of the same developer that the Housing Authority and its development partner, Banc of America Community Development Corp., are suing for botching construction. Housing Authority attorney Felix Rodriguez expressed frustration at Berkley’s decision in an October letter. He said the underwriting agreement gives the New Jersey firm the right to choose its own contractor. “The Housing Authority was extremely disappointed with the surety’s selection,” he said. “We can’t do anything about it without losing our rights to surety.” The letter sent to Berkley by Rodriguez put it more bluntly: “In short, the owner has no confidence in Siltek’s or Tron’s ability to complete the job.” Silveira-Sierra declined to comment on the selection of her new firm. The decision to go back to the same developer is likely about protecting the bottom line, said Jack Neu, a surety bonding specialist with Nielson, Wojtowicz, Neu & Associates. “If they brought in someone new, that entity would have to investigate everything that was put in place previously,” Neu said. Still, he expects Berkley to keep close tabs on Tron’s work. Originally scheduled to open fall 2016, Tempo is part of a 28-acre, $450 million mixed-income housing development replacing Central Park Village. It will include public housing and market-priced apartments. The development partnership opted to fire Siltek with the project about 80 percent complete, stating in a letter to the firm that it was not employing enough construction workers or complying with inspectors. Siltek had also created an adversarial relationship with its subcontractors, the letter stated. Among other problems, drywall had been installed before the building had been closed off to rain, said Housing Authority chief operating officer Leroy Moore. After Siltek was fired, some drywall had to be removed because of dampness. Housing Authority officials were also concerned that Silveira-Sierra’s husband was still involved in Tempo even after he admitted to federal investigators that he conspired with Miami developers to inflate construction costs to earn additional federal tax credits and grants through his company, Siltek Affordable Housing. Sierra was officially removed from the project, but Housing Authority emails show that he returned to Tampa to work as project manager on Tempo. In December, he was sentenced to three years of probation including six months of home detention with electronic monitoring. He was also ordered to repay $1.2 million to the government. Tempo, which was partly funded through a Choice Neighborhood Grant awarded by the U.S. Department of Housing and Urban Development, is unlikely to be finished until at least the summer, said Rodriguez, the Housing Authority attorney. But after sitting vacant for months, the construction site is now bustling with about 60 workers each day. http://www.tampabay.com/news/against-tampa-housing-authority-wishes-fired-developer-gets-another-crack/2308312

The Arch Insurance Co. has filed a federal lawsuit against the former Hartford ballpark developer to recover what it describes as more than $8.4 million in losses as it pursues completion of the stadium. Arch last week sued Centerplan Development Co. of Middletown, the former developer of the Dunkin’ Donuts ballpark along with a host of related development companies associated with Centerplan CEO Robert Landino, over liability the surety insurer says it has incurred with respect to the ballpark, and potentially with a phase two of the Storrs Center mixed-use development near UConn. Centerplan was the original developer of the Hartford minor-league baseball stadium, which didn’t open on time this year, forcing the Yard Goats to play their inaugural 2016 season entirely on the road. Centerplan was eventually fired as the stadium developer by Hartford Mayor Luke Bronin after construction delays and cost overruns. Arch in mid-October signed an agreement with the city of Hartford to complete the stadium, and said it had hired Baltimore-based Whiting-Turner Contracting Co. to finish the job. As early as 2010, and at different points later on, Centerplan and Landino in his various capacities at related companies signed “General Indemnity Agreements” that guarantee Arch Insurance would be reimbursed for out-of-pocket costs. In its Nov. 16 complaint, filed in the U.S. District Court’s Connecticut District, Arch, the surety for the two projects, asserts that it anticipates more than $18 million worth of potential liability for them, and has made payments so far exceeding $8.4 million to resolve some of the claims associated with the bonds issued for the stadium. Those bond claims have not been resolved, the complaint states, and Arch state it continues to incur losses, fees, costs and expenses, while also facing potential liability. Arch is seeking monetary damages and injunctions to force the developers to honor collateral security provisions and disclose financial information related to their current assets. Centerplan attorney Raymond Garcia declined comment. http://www.hartfordbusiness.com/article/20161121/NEWS01/161129994/hartford-ballpark-surety-insurer-sues-former-developer

A new contractor has been chosen to finish Dunkin’ Donuts Park, and work is expected to resume next week, an Arch Insurance official said Wednesday. The new contractor will be Baltimore-based Whiting-Turner Contracting Co., which has extensive experience in building sports venues, said Patrick Nails, a senior vice president with Arch Insurance, the company guaranteeing completion of the ballpark. Whiting-Turner officials have already been on-site to review the work that still needs to be done, Nails said in an email to The Courant on Wednesday afternoon. Both Whiting crews and subcontractors who have previously worked on the stadium should be on the job beginning next week, he said. Nails said Whiting-Turner brings extensive experience with sports and recreational facilities “which it will use to complete construction of the ballpark so that we can bring baseball to Hartford next year.” The company’s construction portfolio features more than a dozen sports and fitness projects. They include the home of the NFL’s Baltimore Ravens; Rensselaer Polytechnic Institute’s East Campus Athletic Village, which includes an outdoor football stadium and an indoor basketball arena; and a basketball practice facility at Baylor University in Texas. In Connecticut, the company has worked on the Connecticut Science Center, Hartford’s Front Street and the Hartford Classical Magnet School, as well as on projects at Yale, Middlesex Hospital and Norwalk Community College. “These were complex negotiations, and Arch Insurance appreciates the cooperation of the city of Hartford, the mayor’s office, and Eastern League to bring them to conclusion,” Nails said. “A lot of work remains to be done to complete the park, but we look forward to working with all parties to bring baseball to Hartford in April 2017.” Hartford Mayor Luke Bronin said Wednesday that the city was pleased that Arch had selected a contractor with extensive construction experience, including the construction of sports facilities and stadiums. “We look forward to working closely with Whiting-Turner Contracting Co., with the Yard Goats, and with the Eastern League in the months ahead,” Bronin said. The team is scheduled to play its first game in Dunkin’ Donuts Park on April 13, 2017, after spending its inaugural Hartford season on the road because of construction delays and cost overruns at the $71 million minor league baseball stadium. Those delays resulted in the city terminating the developers, Centerplan Construction Co. and DoNo Hartford in June. It has been nearly four months since work ceased on the publicly financed project. In the meantime, the former developers sued the city, claiming wrongful termination, and sought an injunction preventing another company from completing the work. The dispute is in court-ordered mediation. The Eastern League has threatened to move the team out of Hartford if the 6,000-seat stadium is not ready for next season. Earlier this month, Bronin announced that the city and Arch had agreed in principle to have Arch oversee completion of the project. Nails did not say how much the work is expected to cost or how long the job will take to finish, but a report earlier this month from Jonathan O’Neil Cole, the ballpark’s architect, painted a picture of widespread workmanship problems. Raymond Garcia, an attorney for the former developers, declined to comment Wednesday. Attempts to reach Whiting-Turner officials after business hours Wednesday were unsuccessful. http://www.courant.com/news/connecticut/hc-dunkin-donuts-park-takeover-agreement-reached-0929-20160928-story.html

ITT Technical Institute suddenly shut down all of its campuses and online courses on September 6, 2016. By doing so, it puts approximately 8,000 employees out of work without warning. Those employees are fighting back. Former ITT Tech employee lawsuits have been filed in Delaware and Indiana. At least one of those lawsuits has requested class action certification. ITT Tech operated 130 campuses in 38 states and also offered online courses. In April 2016 it received a show cause letter from the Accrediting Council for Independent Colleges and Schools, ACICS, to prove that ITT Tech was serving its students in compliance with ACICS standards. That notice prompted the U.S. Department of Education, DOE, to issue a letter to ITT Tech in June 2016 requiring it to increase its surety to 20 percent of Title IV Funding it had received in the fiscal year ending December 2015. Title IV funds are used for federal student loans. ACICS held a hearing and determined that ITT Tech was still not in compliance with hits standards and was not likely to become compliant. This prompted DOE to issue another letter on August 25 that, among other requirements, increased the required surety to 40 percent of the Title IV Funding resulting in a total of $247,292,364. DOE gave the institute 30 days to pay over $152 million that was needed to bring the surety on file up to that amount. Rather than meet the additional requirements, ITT Tech closed the doors of its campuses and online classes. The employee lawsuits allege that ITT Tech was in violation of the federal Worker Adjustment Retraining and Notification Act. That Act requires employers to give at least 60 days notice before mass layoffs. The employees are seeking all of the wages and benefits they would have received during the 60 days after they should have received notice of the closing. It is not clear whether ITT Tech campuses that have less than 50 employees on site fall under that Act. The closure has left thousands of students nationwide hanging. Some had invested years in their education, and owe thousands of dollars in student loans for degrees they will not receive. For those that were fortunate enough to have just finished their degrees, ITT stated that they will receive their diplomas, but graduation ceremonies have been cancelled. The DOE has stated that ITT Tech students that have federal student loans can file a claim to have those debts erased. But, if they do, they cannot transfer any credits they may have received from ITT Tech to other schools. It should be noted that there are very few schools or colleges that will accept ITT Tech credits. http://www.legalreader.com/former-itt-tech-employee-lawsuits/