Great Am. Ins. Co. v. Fountain Eng'g, Inc.

GREAT AMERICAN INSURANCE COMPANY, Plaintiff, v. FOUNTAIN ENGINEERING, INC; FOUNTAIN UNDERGROUND CONSTRUCTION, INC.;AMY M. FOUNTAIN; and ERNEST M. BROWN Defendants.

CASE NO. 15-CIV-10068-JLK

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF FLORIDA KEY WEST DIVISION

October 22, 2015

ORDER DENYING PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION

THIS MATTER comes before the Court upon Plaintiff Great American Insurance Company's Motion for Preliminary Injunction (DE 30), which was filed on September 11, 2015. The matter has been fully briefed.¹

I. INTRODUCTION

Plaintiff's Motion for Preliminary Injunction (DE 32) seeks an order compelling the specific performance of a provision contained in an Agreement of Indemnity ("Agreement") alleged to have been executed by Plaintiff and Defendants Amy M. Fountain ("Fountain") and Ernest M. Brown ("Brown"), characterized by Plaintiff as a collateral security provision."As one federal court of appeals has succinctly explained, '[a] collateral security provision provides that once a surety . . . receives a demand on its bond, the indemnitor must provide the surety with funds which the surety is to hold in reserve. If the claim on the bond must be paid, then the surety will pay the loss from the indemnitor's funds; otherwise, the surety must return the funds to the indemnitor.' " Travelers Cas. & Sur. Co. of Am. v. Indus. Commercial Structures, Inc., No. 6:12-CV-1294-ORL-28, 2012 WL 4792906, at *2 (M.D. Fla. Oct. 9, 2012) (quoting Safeco Ins. Co. of Am. v. Schwab, 739 F.2d 431, 433 (9th Cir. 1984)). This particular clause requires Fountain and Brown to post funds as prospective cover for Plaintiff's actual and potential losses "as soon as liability exits or is asserted . . . whether or not [Plaintiff] shall have made payment therefore." Plaintiff is able to set the amount of collateral at its discretion.

Plaintiff urges that Fountain and Brown must now deposit collateral while claims against the underlying bonds are investigated, adjusted, contested, or litigated and seeks a preliminary injunction ordering Defendants to deposit with Great American $500,000.00 in cash, cash equivalents, or other immediately available funds as collateral within fifteen days of the Court's order, prohibiting Defendants from selling, transferring, alienating, improving or encumbering any real or personal property until the collateral deposit has been made, requiring that Defendants perform a full accounting of all assets owned and the disposition of any assets since February 1, 2015, and waiving the requirement for Great American to post an injunction bond.

II. LEGAL STANDARD

This case is before the Court on diversity grounds pursuant to 28 U.S.C. § 1332; therefore, Florida choice-of-law rules apply. See Attorney's Title Ins. Fund, Inc. v. RegionsBank, 491 F.Supp.2d 1087, 1093 (S.D.Fla.2007) ("Florida law indisputably governs the substantive issues in a case where the federal court's jurisdiction is based on diversity of citizenship."); Mazzoni Farms v. E.I. Dupont De Nemours & Co., 166 F.3d 1162, 1164 (11th Cir. 1999) (applying Florida's choice-of-law rules in a diversity case). Since the Agreement was executed in Florida for work to be performed in Florida, under Florida choice-of-law rules, Florida substantive law applies. Morgan Walton Prop. v. Int'l City Bank & Trust Co., 404 So.2d 1059, 1061 (Fla.1981) ("Florida's established rule for choice of law governing the validity and interpretation of contracts looks to the law of the place of contracting and the law of the place of performance.").

The Eleventh Circuit has explained that in diversity cases, "[i]n the absence of definitive guidance from the Florida Supreme Court, we follow relevant decisions from Florida's intermediate appellate courts." State Farm Fire & Cas. Co. v. Steinberg, 393 F.3d 1226, 1231 (11th Cir.2004) (citing 17A James Wm. Moore, et al., Moore's Federal Practice § 124.22[3]. 124-87, 124-88). Florida District Courts of Appeal are the law of Florida unless and until overruled by the Florida Supreme Court. Pardo v. State, 596 So.2d 665, 666 (Fla.1992). Thus, "[a] federal court applying state law is bound to adhere to decisions of the state's intermediate appellate courts absent some persuasive indication that the state's highest court would decide the issue otherwise." Silverberg v. Paine, Webber, Jackson & Curtis, Inc., 710 F.2d 678, 690 (11th Cir. 1983) (citations omitted). Only "[i]n the absence of precedents from Florida's intermediate appellate courts ... may [we] consider the case law of other jurisdictions that have examined similar [issues]." State Farm Fire, 393 F.3d at 1231. The objective is for the Federal Court to determine the issues of state law as it believes the Florida Supreme Court would. While neither the Florida Supreme Court nor Florida'sintermediate appellate courts have spoken definitively on all the issues raised by the instant motion, Florida cases guide the decision in this case.

To obtain a preliminary injunction, Plaintiff must demonstrate: "(1) a substantial likelihood of success on the merits; (2) that irreparable injury will be suffered if the relief is not granted; (3) that the threatened injury outweighs the harm the relief would inflict on the non-movant; and (4) that the entry of relief would serve the public interest." Schiavo ex rel. Schindler v. Shiavo, 403 F.3d 1223, 1225-26 (11th Cir. 2005). "[A] preliminary injunction is an extraordinary remedy not to be granted unless the movant clearly established the 'burden of persuasion' as to each of the four prerequisites." Siegel v. LePore, 234 F.3d 1163, 1176 (11th Cir. 2000) (citation omitted).

III. DISCUSSION

A. Substantial Likelihood of Success on the Merits

Plaintiff argues that the specific performance of this kind of collateral security clause is routine and mentions in support the common law doctrines of exoneration and quia timet. Taken together with the contractual language, Plaintiff argues that it has clearly established a substantial likelihood of success on the merits.

Preliminarily, the Court notes that the equitable remedies of specific performance and preliminary injunction are distinct.² Specific performance, like all equitable remedies,requires the absence of an adequate remedy at law. Castigliano v. O'Connor, 911 So. 2d 145, 148 (Fla. Dist. Ct. App. 2005). Nonetheless, judgment on the merits is required prior to the issuance of a decree of specific performance. See Humphrys v. Jarrell, 104 So. 2d 404, 408 (Fla. Dist. Ct. App. 1958) ("[D]ecree is permissible only where the pleadings, depositions, or admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the movant is entitled to judgment or decree as a matter of law. The burden of proof is upon the party moving for . . . decree to show lack of a genuine issue of material fact, and all doubts as to the existence of such fact must be resolved against the movant."). On the other hand, the issuance of a preliminary injunction is procedurally truncated, occurring prior to judgment on the merits, and, for that reason, it is an extraordinary remedy requiring both the absence of adequate remedy at law and the clear establishment of the burden of persuasion as to each of the four prerequisites. See Siegel, 234 F.3d at 1176. In sum, there is "no automatic connection . . . between the ordinary remedy of specific performance and the extraordinary remedy of a preliminary injunction"; to find otherwise "would be to create a per se rule that would eliminate the crucial . . . test for preliminary conjunctions, in such cases where specifically enforceable contractual provision are at issue." Firemen's Ins. Co. of Newark, New Jersey v. Keating, 753 F. Supp. 1146, 1151 (S.D.N.Y. 1990).

As to substantial likelihood of success on the merits, Plaintiff must cite facts that clearly establish a legal right to specific performance. While it might be undisputed that Defendants Brown and Fountain have not provided collateral, both deny the validity of the underlying Agreement. See DE 14 at ¶¶ 10, 17, 18, 23; DE 15 at ¶¶ 10, 17, 18, 23. In addition, both assert as affirmative defenses, among others, that Plaintiff lacks legal capacity, that Plaintiff has waived its rights, and that the guarantee was given without consideration. See DE 14 at ¶¶ 49, 50, 54; DE 15 at ¶¶ 49, 50, 54. Whether any such denial or defense is valid is the subject of the instant case and controversy. The legal truism that sureties are routinely entitled to the specific performance of validly executed collateral security clauses does not impact upon whether the provision in the instant case is substantially likely to be valid.³ Especially on a motion for preliminary injunction, "[i]t is not enough that a merely colorable claim is advanced." S. Wine & Spirits of Am., Inc. v. Simpkins, No. 10-21136-CIV, 2011 WL 124631, at *2 (S.D. Fla. Jan. 14, 2011).

Aside from referencing contractual language, Plaintiff cites no facts and ignores the Defendants' defenses and denials. At best, Plaintiff cites the Agreement itself, which seems to bare the signatures of Defendants Brown and Fountain. In Response, Defendants do not contest the veracity of their signatures but do emphasize that the "contractual clauses [remain] subject to the answer and affirmative defenses," which repeatedly deny the validity of the underlying Agreement. Failure to respond to those denials and defenses with requisite factual support leads to the conclusion that Plaintiff has not clearly established its burden ofpersuasion as to substantial likelihood of success on the merits. See Wood v. Hammel, 132 Fla. 164, 167 (1937) ("[W]hether the specific performance of a contract will be granted depends in a large measure on the facts in the case."); Daubmyre v. Hunter, 86 Fla. 326, 328 (1923) ("The consideration being denied, the burden of proving it rested upon the complainant.").

B. Irreparable Injury

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