Sonoma Springs Limited Partnership v. Fidelity and Deposit Company of Maryland

• Court: District Court, D. Nevada
• Decided: August 14, 2019
• Docket: 3:18-cv-00021
• Status: Unknown

Opinion

1 2 3 4 5 6 UNITED STATES DISTRICT COURT

7 DISTRICT OF NEVADA

8 * * * 9 SONOMA SPRINGS LIMITED Case No. 3:18-cv-00021-LRH-CBC PARTNERSHIP, a Nevada limited 10 partnership, and SONOMA SPRINGS ORDER ASSOCIATES, LLC, a Nevada limited 11 liability company,

12 Plaintiffs,

13 v.

14 FIDELITY AND DEPOSIT COMPANY OF MARYLAND, a Maryland Corporation and 15 ZURICH AMERICAN INSURANCE COMPANY OF ILLINOIS, a Maryland 16 Corporation and DOES 1-20, inclusive,

17 Defendants. 18 19 Defendants Fidelity and Deposit Company of Maryland (“Fidelity”) and Zurich 20 American Insurance Company of Illinois (“Zurich”) (collectively “Surety” or “defendants”) 21 move this court for summary judgment. ECF No. 60. Sonoma Springs Limited Partnership and 22 Sonoma Springs Associates, LLC (collectively “plaintiffs” or “Sonoma Springs”) opposed the 23 motion (ECF Nos. 69, 71) and defendants replied (ECF No. 73). The court now grants in part 24 and denies in part defendants’ motion. 25 /// 26 /// 27 /// 1 I. BACKGROUND 2 Sonoma Springs owns real property in Humboldt County, Nevada. ECF No. 2, Ex. A, ¶ 3 10. In June 2015, Sonoma Springs contracted with Ascent Construction, Inc. (“Ascent”) to build 4 an apartment complex on the property. Id. at ¶ 11. Ascent, as the contractor, was required to 5 obtain a payment and a performance bond. Id. at ¶ 12. Ascent obtained two bonds. Id. at ¶ 13–16. 6 The parties executed the performance bond using the standard Document A312-2010 7 from the American Institute of Architects. ECF Nos. 61-1;1 71-5. Pursuant to the performance 8 bond terms, Fidelity is listed as the Surety, Ascent is the Contractor, and Sonoma Springs 9 Limited Partnership is the Owner. Id. Sections 3 through 6 of this bond are particularly relevant, 10 providing how the owner invokes the Surety’s obligation should the Contractor default, the 11 obligations of the Surety if the Contractor defaults, the Owner’s remedies, and the nature of 12 damages available for default. Id. 13 The parties also executed the payment bond using the same Document A312-2010 form 14 bond. ECF Nos. 61-2; 71-4. Pursuant to the payment bond terms, Fidelity is again listed as the 15 Surety, Ascent the Contractor, and Sonoma Springs as the Owner. Id. Sections 2 through 5 of 16 this bond are particularly relevant, providing when the Surety’s obligation is fulfilled, how the 17 owner invokes the Surety’s obligations should the Contractor default, and the Surety’s obligation 18 under the contract. Id. 19 The Surety bound itself, jointly and severely with the Contractor under the express terms 20 of the bonds, to Sonoma Springs to “pay for labor, materials and equipment furnished for use in 21 the performance of the Construction Contract,” and “for the performance of the Construction 22 Contract.” See ECF Nos.71-4; 71-5. Sonoma Springs alleges that Ascent breached the terms of 23 the Construction Contract, triggering the Surety’s obligations under both the performance and 24 payment bonds. ECF No. 2, Ex. A ¶ 19. Contrarily, Ascent claims that Sonoma Springs breached 25 the contract and sued Sonoma Springs in the Sixth Judicial District Court of the State of Nevada 26

27 1 Defendants’ payment and performance bond cover sheets appear to have been inadvertently switched— ECF No. 61-1 is the performance bond and ECF No. 61-2 is the payment bond. As these forms are based 1 for the County of Humboldt in May 2017. See ECF No. 30-1. In that action (“state court 2 action”), Ascent asserted six claims: breach of contract, foreclosure of mechanic’s lien, 3 declaratory judgment for priority of encumbrances, violation of the implied covenant of good 4 faith and fair dealing, unjust enrichment, and account stated. Id. Ascent also recorded a lien 5 against the property. ECF No. 47 at 4. The lien has since been reduced by order of the state court 6 (ECF No. 71-2) and substituted by a surety bond obtained from Hartford Fire Insurance 7 Company (ECF No. 47 at 6). 8 After the contractual dispute arose between Sonoma Springs and Ascent, Sonoma Springs 9 demanded multiple times that the Surety assume the contractual obligations they argue were 10 required by the bonds. ECF No. 2, Ex. A ¶¶ 20–27. The demands were unsuccessful. Id. 11 Thereafter, on December 18, 2017, Sonoma Springs filed suit against the Surety in the Sixth 12 Judicial District Court of the State of Nevada for the County of Humboldt. Id. On January 12, 13 2018, defendants removed the action to this Federal Court. ECF No. 1. This suit includes thirteen 14 claims, including breach of contract claims, tortious and contractual breach of the implied 15 covenant of good faith and fair dealing claims, breach of fiduciary duty and bad faith claims, a 16 claim for violation of Nevada’s Unfair Claims and Settlement Practices Act, and claims for 17 misrepresentation and unjust enrichment. ECF No. 2, Ex. A. 18 On March 5, 2018, the Surety moved to stay this action pending the outcome of the state 19 court action between Ascent and Sonoma Springs (ECF No. 30); however, after finding that the 20 Colorado River doctrine did not warrant a stay, the court denied the motion (ECF No. 53). 21 Defendants now move this court for summary judgment arguing that plaintiffs’ claims fail as a 22 matter of law. ECF No. 60. 23 II. LEGAL STANDARD 24 Motion for Summary Judgment Pursuant to Civil Procedure Rule 56 25 Summary judgment is appropriate only when the pleadings, depositions, answers to 26 interrogatories, affidavits or declarations, stipulations, admissions, and other materials in the 27 record show that “there is no genuine issue as to any material fact and the movant is entitled to 1 the evidence, together with all inferences that can reasonably be drawn therefrom, must be read in 2 the light most favorable to the party opposing the motion. Matsushita Elec. Indus. Co. v. Zenith 3 Radio Corp., 475 U.S. 574, 587 (1986); County of Tuolumne v. Sonora Cmty. Hosp., 236 F.3d 4 1148, 1154 (9th Cir. 2001). 5 The moving party bears the initial burden of informing the court of the basis for its 6 motion, along with evidence showing the absence of any genuine issue of material fact. Celotex 7 Corp. v. Catrett, 477 U.S. 317, 323 (1986). On those issues for which it bears the burden of 8 proof, the moving party must make a showing that is “sufficient for the court to hold that no 9 reasonable trier of fact could find other than for the moving party.” Calderone v. United States, 10 799 F.2d 254, 259 (6th Cir. 1986) (quotation and citation omitted); see also Idema v. 11 Dreamworks, Inc., 162 F. Supp. 2d 1129, 1141 (C.D. Cal. 2001). 12 To successfully rebut a motion for summary judgment, the nonmoving party must point 13 to facts supported by the record which demonstrate a genuine issue of material fact. Reese v. 14 Jefferson Sch. Dist. No. 14J, 208 F.3d 736, 738 (9th Cir. 2000). A “material fact” is a fact “that 15 might affect the outcome of the suit under the governing law.” Anderson v. Liberty Lobby, Inc., 16 477 U.S. 242, 248 (1986). Where reasonable minds could differ on the material facts at issue, 17 summary judgment is not appropriate. See v. Durang, 711 F.2d 141, 143 (9th Cir. 1983). A 18 dispute regarding a material fact is considered genuine “if the evidence is such that a reasonable 19 jury could return a verdict for the nonmoving party.” Liberty Lobby, 477 U.S. at 248. “The mere 20 existence of a scintilla of evidence in support of the [party’s] position [is] insufficient” to 21 establish a genuine dispute; there must be evidence on which a jury could reasonably find for the 22 party. See id. at 252. 23 Surety bonds are contracts; as such the court interprets them pursuant to Nevada contract 24 law. United States for the Use and Benefit of Agate Steel, Inc., v. Jaynes Corporation, Case No. 25 2:13-cv-01907-APG-NJK, 2016 WL 8732302, at *2 (D. Nev. June 17, 2016). In contract 26 disputes, interpretation of the contract is a question of law with the objective of giving effect to 27 the intent of the parties. Am. First Fed. Credit Union v. Soro, 359 P.3d 105, 106 (Nev. 2015). If 1 meaning and enforced as written. Id.; see Intermec, Inc. v. IBM, No. 11-165-BJR, 2014 WL 2 6472854, at *4 (W.D. Wash. Nov. 18, 2014) (quoting Mellon Bank, N.A. v. United Bank Corp. of 3 New York, 31 F.3d 113, 115 (2d Cir. 1994) (summary judgment is appropriate “if the language of 4 the contract is ‘wholly unambiguous.’”)). “A contract is ambiguous when it is subject to more 5 than one reasonable interpretation.” Anvui, LLC v. G.L. Dragon, LLC, 163 P.3d 405, 407 (Nev. 6 2007). However, a contract is not deemed ambiguous simply because the parties disagree on how 7 to interpret it. Galardi v. Naples Polaris, LLC, 301 P.3d 364, 366 (Nev. 2013); United States v. 8 King Features Entm’t, Inc., 843 F.2d 394, 398 (9th Cir. 1988) (“Summary judgment is 9 appropriate when the contract terms are clear and unambiguous, even if the parties disagree as to 10 their meaning.”). 11 III. DISCUSSION 12 A. Removal was proper and the court has subject matter jurisdiction over this action. 13 Civil actions brought in state court may be removed to the United States District Court of 14 the district or division that embraces the state court if the district court has original jurisdiction. 15 28 U.S.C. § 1441(a). This court has "original jurisdiction"—there is complete diversity between 16 the parties2 and the amount in controversy exceeds $75,000.00.3 See 28 U.S.C. § 1332. 17 Removal was likewise timely: defendants were originally served with the summons and 18 complaint on December 19, 2017, via the Nevada Department of Business and Industry, Division 19 of Insurance, and later served on CSC on December 26, 2017. ECF Nos. 1; 2, Ex. B. Defendants 20 filed a notice of removal on January 12, 2018, and on January 16, 2018, filed the required civil 21 cover sheet and paid the filing fee. ECF Nos. 1, 11, 12. As removal was complete within 30 days 22

23 2 Plaintiffs are citizens of Nevada and Idaho. The named defendants are citizens of Maryland and Illinois. The citizenship of the fictitious “Doe” defendants named in the complaint are not considered for purposes 24 of assessing proper removal based on diversity jurisdiction. 28 U.S.C. § 1441(b)(1); see also Bryant v. Ford Motor Co., 886 F.2d 1526, 1528 (9th Cir. 1989) cert. denied, 493 U.S. 1076 (1990). 25

3 Pursuant to Nevada Rule of Civil Procedure 8, the complaint filed in state court only requested damages 26 “in excess of $15,000.” However, it is "facially apparent" from the complaint that the jurisdictional amount 27 in controversy requirement is met. Singer v. State Farm Mut. Auto. Ins. Co., 116 F.3d 373, 377 (9th Cir. 1997). First, plaintiffs' demand letter to defendants of July 5, 2017, detailed an amount in controversy of 1 of either December 19 or 26, 2017, defendant’s notice of removal was timely under 28 U.S.C. 2 § 1446(b).

3 B. Plaintiffs’ second cause of action for breach of the performance bond fails because the conditions precedent to trigger the Surety’s obligation were not satisfied. 4 5 A performance bond creates a unique three-party relationship where the surety guarantees 6 that in the event the principal (here, Ascent) defaults on its obligations in the underlying 7 construction contract, the surety will step in and perform. See 17 Am. Jur. 2d Contractors’ Bonds 8 § 1 (2019). Performance bonds are not insurance and do not indemnify the contractor, but rather, 9 the bonds simply protect the owner. Id. Performance bonds specify conditions precedent that the 10 owner must complete prior to invoking the surety’s obligations under the bond. See 1 11 Christopher R. Ward, Brett D. Divers, Matthew M. Horowitz, and Kevin L. Lybeck, New 12 Appleman on Insurance Law Library Edition § 139.01 (2019) (“New Appleman”). Traditionally, 13 courts have found that an owner’s failure to comply with these conditions is fatal to an owner’s 14 claim. See e.g., Jaynes, 2016 WL 8732302, at *7-8; Stonington Water St. Assoc., LLC v. Hodess 15 Bldg. Co., 792 F. Supp.2d 253, 262-63 (D. Conn. 2011) (“[C]ompliance with the conditions 16 precedent is necessary in order to invoke the surety’s obligation under the performance bond and 17 failure to do [so] is fatal to the obligee’s claim for coverage.”); CC-Aventura, Inc. v. Weitz Co., 18 LLC, 492 Fed.Appx. 54, 56-57 (11th Cir. 2012) (the obligee was required to “first give notice to 19 the surety before [it] undertook to remedy the default itself,” and therefore, the surety was not 20 liable on the bond); L & A Contracting Co. v. S. Concrete Servs., 17 F.3d 106, 111 (5th Cir 21 1994)) (“A declaration of default sufficient to invoke the surety’s obligations under the bond 22 must be made in clear, direct, and unequivocal language. The declaration must inform the surety 23 that the principal has committed a material breach or series of material breaches of the 24 subcontract, that the obligee regards the subcontract as terminated, and that the surety must 25 immediately commence performing under the terms of the its bond.”); Hunt Constr. Grp., Inc. v. 26 Nat’l Wrecking Corp., 542 F. Supp.2d 87, 95 (D.D.C. 2008) (“When an obligee fails to provide 27 timely notice to a surety so it can exercise its options . . ., the obligee has breached the contract 1 Here, the parties’ performance bond, which conforms with the American Institute of 2 Architects AIA Document 312-2010,4 provides the following conditions precedent:

3 § 3 If there is no Owner Default under the Construction Contract, the Surety’s obligation under this Bond shall arise after 4 .1 the Owner first provides notice to the Contractor and the Surety that the Owner is considering declaring a Contractor Default. Such notice shall 5 indicate whether the Owner is requesting a conference among the Owner, Contractor and Surety to discuss the Contractor’s performance. If the 6 Owner does not request a conference, the Surety may, within five (5) business days after receipt of the Owner’s notice, request such a conference. 7 If the Surety timely requests a conference, the Owner shall attend. Unless the Owner agrees otherwise, any conference requested under this Section 8 3.1 shall be held within ten (10) business days of the Surety’s receipt of the Owner’s notice. If the Owner, the Contractor and the Surety agree, the 9 Contractor shall be allowed a reasonable time to perform the Construction Contract, but such an agreement shall not waive the Owner’s right, if any, 10 subsequently to declare a Contractor Default; .2 the Owner declares a Contractor Default, terminates the Construction 11 Contract and notifies the Surety; and 12 .3 the Owner has agreed to pay the Balance of the Contract Price in accordance with the terms of the Construction Contract to the Surety or to 13 a contractor selected to perform the Construction Contract.

14 § 4 Failure on the part of the Owner to comply with the notice requirement in Section 3.1 shall not constitute a failure to comply with a condition precedent to 15 the Surety’s obligations, or release the Surety from its obligations, except to the extent the Surety demonstrates actual prejudice. 16 17 ECF No. 71-5. 18 The parties dispute, and the issue is currently being litigated in state court, whether the 19 first condition is met—was the Owner in default under the terms of the construction contract. 20 Under the performance bond, owner default is defined as “[f]ailure of the Owner, which has not 21 been remedied or waived, to pay the Contractor as required under the Construction Contract or to 22 perform and complete or comply with the other material terms of the Construction Contract.” Id. 23 §14.4. From the plain language of the bond, if the owner was in default, the Surety was under no 24 obligation to perform on the bond. 25 26

4 This form bond was initially crafted in 1984 and the majority of the case law surrounds this version. The 27 2010 version, at issue here, differs some from the 1984 version, including not requiring a conference be 1 However, additional conditions precedent must also have been satisfied by the plaintiffs 2 to trigger the Surety’s obligation under the bond. First, Sonoma Springs was to provide notice to 3 Ascent and the Surety that it was considering declaring Contractor Default. Plaintiffs also were 4 required to declare Contractor Default, terminate the Construction Contract,5 and notify the 5 Surety. And finally, the Owner was required to agree to pay the Balance of the Contract Price to 6 the Surety. By the bond’s plain language, the parties agreed that a failure to comply with § 3.1 7 does not automatically release the Surety from its obligation unless the Surety can show actual 8 prejudice. Id. § 4. However, § 4 specifically excludes §3.2 or §3.3 from this provision; therefore, 9 a failure to comply with one of these sections “is a material breach that renders the bond null and 10 void.” Jaynes, 2016 WL 8732302, at *7. 11 The record shows that plaintiffs declared Ascent in default and gave notice to the Surety 12 of this fact. In an email from plaintiffs’ counsel to defendants’ counsel on June 6, 2017, 13 plaintiffs’ counsel stated, “As delineated in our telephone conversation, past conversations, and 14 written documentation, the Contractor is in default,” and demanded the Surety step in to carry 15 out the terms of the Construction Contract. ECF No. 61-3. In further correspondence on the issue 16 from June 9, 2017, plaintiffs’ counsel stated that it had previously “tendered to the Surety the 17 claims and Owner’s position/defenses addressing Ascent’s performance, lack of performance, 18 delayed performance.” ECF No. 61-5, Ex. 1. Plaintiffs articulated that by recording its lien 19 against the property, Ascent was in breach of the Construction Contract. Id. This letter does 20 specifically reference “default,” but the court would note that plaintiffs use the term 21 5 Under the terms of the Construction Contract, the Contract “may be terminated by the Owner or the 22 Contractor as provided in Article 14 of AIA Document A201-2007.” ECF No. 75-1 at 6. Section 14.2.1 provides: 23 The Owner may terminate the Contract if the Contractor .1 repeatedly refuses or fails to supply enough properly skilled workers or 24 proper materials; .2 fails to make payment to Subcontractors for materials or labor in 25 accordance with the respective agreements between the Contractor and the Subcontractors; 26 .3 repeatedly disregards applicable laws, statutes, ordinances, codes rules 27 and regulations, or lawful orders of a public authority; or .4 otherwise is guilty of a substantial breach of a provision of the Contract 1 interchangeably with breach.6 The record also shows that plaintiffs agreed to pay the balance of 2 the construction price to the Surety: “Please remember, the Owner will tender payment 3 immediately for the unpaid balance within the Construction Contract terms, once Ascent 4 complies with the Contract terms.” Id. 5 While this correspondence may meet §3.3 and a portion of the §3.2 condition of the 6 performance bond—specifically, declaration of a Contractor Default—the record is devoid of 7 any indication that plaintiffs terminated the construction contract as required under the bond. 8 This is fatal to plaintiffs’ claim. See Jaynes, 2016 WL 8732302, at *8 (“Janyes failed to comply 9 with the condition precedent in section 3.2 of the performance bond and its failure to do so is a 10 material breach that excuses Ohio Casualty’s performance.”); Stonington, 792 F. Supp.2d at 267 11 (The obligee’s “failure to terminate [the Contractor] when reason to do so arose and then to 12 properly comply with the notice procedures set forth . . . is a material breach of the bond and 13 underlying contract.”). Plaintiffs failed to satisfy the §3.2 condition precedent, and that failure 14 was a material breach of the performance bond that excuses the Surety’s obligation. 15 Accordingly, the court grants summary judgment as to plaintiffs’ second cause of action.

16 C. The court grants defendants’ motion for summary judgment on plaintiffs’ fourth, fifth, eighth, ninth, and tenth causes of action for tortious breach of the implied 17 covenant of good faith and fair dealing, breach of fiduciary duty, bad faith, and violation of NRS § 686A.310. 18 19 In 1975, the Nevada Supreme Court first approved and adopted a cause of action in tort 20 for breach of an implied covenant of good faith and fair dealing. U.S. Fidelity & Guaranty Co. 21 v. Peterson, 540 P.2d 1070, 1071 (Nev. 1975). The Peterson Court held that “where an insurer 22 fails to deal fairly and in good faith with its insured by refusing without proper cause to 23 compensate its insured for a loss covered by the policy such conduct may give rise to a cause of 24 action in tort for breach of an implied covenant of good faith and fair dealing.” Id. Subsequently, 25 6 The court notes that, “[n]ot every breach of a construction contract, not even every material breach, 26 constitutes a default under the contract as to justify termination and the involvement of a surety, if there is one. A default which would involve the surety is believed to require a material breach or series of breaches 27 which are sufficient to justify termination of the contract by the owner/obligee.” L & A Contracting Co., 17 F.3d at 110 n. 11 (quoting James A. Knox, Representing the Private Owner, in Construction Defaults: 1 the Nevada Supreme Court has limited application of tort liability under the covenant. See e.g., 2 Aluevich v. Harrah’s, 660 P.2d 986, 986 (Nev. 1983) (declining to extend the tort claim to 3 “commercial leases between two sophisticated parties who are not otherwise bound by a special 4 element of reliance or fiduciary duties.”). 5 The Nevada Supreme Court has explicitly declined to extend liability to a surety for the 6 tortious breach of the covenant. See Great American Ins. Co. v. General Builders, Inc., 934 P.2d 7 257, 263 (Nev. 1997) (After the surety’s revocation of the contractor’s bonds, the project owner 8 declined to award the contract to the contractor. On these facts, the court determined that “this 9 case [does] not raise the same public policy concerns implicated where an insurance company 10 refuses to compensate a policyholder for losses covered by the policy;” therefore, punitive 11 damages were not appropriate.); Insurance Co. of West v. Gibson Tile Co., Inc., 134 P.3d 698, 12 702 (Nev. 2006) (The general contractor required its subcontractor take out a bond on the 13 project. Because the subcontractor “transacted most of its business with [the surety] through a 14 bond agent,” and the parties had equal bargaining power, the Court held that, as a matter of law, 15 the subcontractor and the surety had no special relationship that would allow a tortious breach of 16 the covenant of good faith and fair dealing claim.). While the Nevada Supreme Court’s rulings 17 have been confined to cases by a principal against a surety, this District has held that the Court’s 18 rulings extend broadly to all tortious bad faith claims against sureties. See e.g., Clark County 19 Sch. Dist. v. Travelers Cas. And Sur. Co. of Am., Case No. 2:13-cv-01100-JCM-PAL, 2015 WL 20 139399, at *3-4 (D. Nev. Jan. 12, 2015), denied reconsideration and denied certifying question 21 to the Nevada Supreme Court, 2015 WL 1578163, at *3-6 (April 8, 2015) (“Travelers II”) 22 (declining to confine Gibson Tile and General Builders to plaintiffs reasoning because “reading 23 these cases to bar all tortious bad faith claims against sureties conforms with the Nevada 24 Supreme Court’s broad language and reasoning presented” in these cases.). 25 The court agrees and finds that under Nevada law, plaintiffs’ claims for tortious breach 26 of the implied covenant of good faith and fair dealing fail because, as a matter of law, these 27 claims are not maintainable against a surety. See Gibson Tile, 134 P.3d at 702 (“A surety cannot 1 Builders, 934 P.2d at 263 (finding no special relationship between the contractor and the surety 2 that would support a claim for tortious breach of the covenant). The Nevada Supreme Court’s 3 broad language in Gibson Tile must be read as prohibiting tort liability for bad faith against the 4 surety by both the principal and the obligee. Gibson Tile, 134 P.3d at 702. Had the Court wished 5 to limit its ruling to claims by a principal against a surety it would have done so. See Travelers 6 II, 2015 WL 1578163, at *4. 7 Further, there is a similar factual basis here as in Gibson Tile and General Builders that 8 supports finding plaintiffs’ claims for tortious breach are inapplicable—the owner-surety 9 relationship simply does not raise the same public policy concerns implicated in Fidelity. See 10 General Builders, 934 P.2d at 263. Here, unlike most insurance contracts, the parties are both 11 sophisticated—one an owner of a multi-million-dollar project and the other a national surety. See 12 Aluevich, 660 P.2d at 987. Moreover, one party did not hold “vastly superior bargaining 13 power”—the parties used a form performance bond and payment bond used routinely by parties 14 in these relationships. See id; General Builders, 934 P.2d at 263 (“[T]he parties, both 15 experienced commercial entities . . . were never in inherently unequal bargaining positions.”); 16 Travelers II, 2015 WL 1578163, at *4-5 (“[U]nlike in cases of insurance, surety bonds are by no 17 means ‘adhesion contracts.’ . . . Indeed, the obligee may have an even weaker argument than the 18 principal to sue a surety for tortious bad faith, as the obligee was not even a contracting party to 19 the bonds obtained by the principal.”). Accordingly, plaintiffs’ fourth and fifth claims fail as a 20 matter of law. 21 Additionally, “because a surety’s role in providing bonds on behalf of a principal is 22 distinct from that of an insurance company providing a policy to protect its insured, a surety is 23 not held to owe the same fiduciary duty . . ..” Gibson Tile, 134 P.3d at 703 (finding the lower 24 court erred in instructing the jury that the surety owed a fiduciary duty to the principal). “[A] 25 surety simply lends its credit and agrees to step in where the principal defaults on its contract. 26 This is not a fiduciary relationship, and therefore does not present the same concerns as the 27 insured-insurer relationship.” Travelers II, 2015 WL 1578163 at *5. Accordingly, plaintiffs’ 1 Similarly, NRS § 686A.310, Unfair practices in settling claims; liability of insurer for 2 damages, is a statute pertaining directly to insurers, not sureties. This statute, part of what is 3 commonly referred to as the Unfair Insurance Practices Act (NRS § 686A.010 et seq.), was 4 enacted for the benefit of insured persons against insurers. See Crystal Bay Gen. Imp. Dist. v. 5 Aetna Cas. & Sur. Co., 713 F. Supp. 1371, 1376 (D. Nev. 1989), rev’d in part on other grounds, 6 No. 90-16417, 959 F.2d 239, 1992 WL 68269 (9th Cir. April 7, 1992) (unpublished). The 7 legislative history, provides that the sponsor of A.B. 811, which amended the statute in 1987, 8 stated that the statute “would benefit the people of Nevada by codifying existing law that was 9 recognized as common law in the sense of the right of a person to sue his insurance company for 10 an act of bad faith.” Crystal Bay, 713 F. Supp. at 1376 (quoting Minutes of Nevada State 11 Legislature Assembly Committee on Commerce, May 25, 1987) (emphasis in original). While 12 this District subsequently held that it was not the intent of the Nevada Legislature to codify the 13 common law tort of bad faith, the two do overlap. See Hart v. Prudential Prop. & Casualty Ins. 14 Co., 848 F. Supp. 900, 904-05 (D. Nev. 1994). 15 Specifically, the statute applies more narrowly than the common law tort: the statute is 16 limited to proscribing “specific actions taken by an insurer,” while the Nevada Supreme Court 17 has allowed tortious bad faith claims to proceed in actions dealing with partnerships, insurance, 18 and franchise agreements. See id. at 904 (emphasis added); Aluevich, 660 P.2d at 987. As the 19 court has articulated above, the surety-owner relationship is distinguishable from that of the 20 insurer-insured relationship, and the court will not simply apply insurance law in the surety 21 context. Consequently, defendants cannot not be held to have violated a statute intended to 22 benefit the insured when plaintiffs are an owner in a surety relationship. For the same reasons, 23 plaintiffs’ claim for bad faith must also fail. See Ming Chu Wun v. North Am. Co. for Life and 24 Health Ins., Case No. 3-11-cv-00760-KJD-CWH, 2012 WL 893750, at *4 (D. Nev. March 15, 25 2012) (“Nevada’s definition of bad faith is (1) insurer’s denial of (or refusal to pay) an insured’s 26 claim (2) without any reasonable basis and (3) the insurer’s knowledge or awareness of the lack 27 of any reasonable basis to deny coverage, or the insurer’s reckless disregard as to the 1 unreasonableness of the denial.” (emphasis added)). Accordingly, plaintiffs’ ninth and tenth 2 causes of action for bath faith and violation of NRS § 686A.310 must fail as a matter of law. 3 Therefore, for all of the above reasons, the court grants defendants’ motion for summary 4 judgment as to plaintiffs’ fourth, fifth, eighth, ninth, and tenth causes of action.

5 D. The court grants defendants’ motion for summary judgment on plaintiffs’ seventh cause of action for breach of the implied covenant of good faith and fair dealing 6 under contract law. 7 Distinct from the tort discussed above, all contracts, including commercial contracts, 8 “impose upon the parties an implied covenant of good faith and fair dealing, which prohibits 9 arbitrary or unfair acts by one party that work to the disadvantage of the other.” Nelson v. Heer, 10 163 P.3d 420, 427 (Nev. 2007); Ainsworth v. Combined Insurance Company of Am., 763 P.2d 11 673, 676 n.1 (1988), cert. denied 493 U.S. 958 (1989) (the covenant is “implied into every 12 commercial contract.”). Under Nevada law, even if there is no breach of contract, a plaintiff 13 “may still be able to recover damages for breach of the implied covenant of good faith and fair 14 dealing,” under a contract law theory when “the terms of a contract are literally complied with 15 but one party to the contract deliberately countervenes the intention and spirit of the 16 contract . . ..” Hilton Hotels Corp. v. Butch Lewis Productions, Inc., 808 P.2d 919, 922 (Nev. 17 1991); contra Nelson, 163 P.3d at 427 (“Since Nelson bore no contractual duty to disclose the 18 water damage, Nelson’s omission did not constitute an arbitrary or unfair act that worked to 19 Heer’s disadvantage;” therefore, his claim for breach of implied covenant of good faith and fair 20 dealing was insufficient as a matter of law.). 21 As discussed above, the defendants did not breach the performance bond. Therefore, the 22 court must determine whether, although the defendants complied with the literal terms of the 23 contract, they deliberately or intentionally hindered the performance of the contract. The record 24 is devoid of any such evidence. Unlike in Hilton, where evidence in the record supported 25 plaintiff’s allegation that the defendants intentionally and purposefully undermined the contract 26 “in a manner that [was] unfaithful to the purpose of the contract,” and a trial was required, the 27 facts here do not suggest a similar result. 808 P.2d at 922-23. Rather, as discussed above, it was 1 its obligations under § 3.2. Accordingly, the court grants defendants’ motion for summary 2 judgment on plaintiffs’ seventh cause of action.

3 E. Defendants’ first cause of action, breach of payment bond, is granted in part and denied in part. Accordingly, the corresponding claims for contractual breach of 4 implied covenant of good faith and fair dealing, plaintiffs’ sixth cause of action, and breach of the Construction Contract, plaintiffs’ third cause of action are granted in 5 part and denied in part. 6 “A ‘payment bond’ is an undertaking whereby a surety guarantees to the obligee that all 7 bills for labor and materials contracted for and actually used by a contractor will be paid if the 8 contractor defaults.” 17 Am. Jur. 2d Contractors’ Bonds § 1 (2019). Unlike the performance 9 bond obligations, discussed above, “payment bonds are intended to ensure that laborers and 10 material suppliers will be paid in the event of a default.” Id. (emphasis added). 11 The payment bond provides in relevant part:

12 § 2 If the Contractor promptly makes payment of all sums due to Claimants, and defends, indemnifies and holds harmless the Owner from claims, demands, liens or 13 suits by any person or entity seeking payment for labor, materials or equipment furnished for use in the performance of the Construction Contract, then the Surety 14 and the Contractor shall have no obligation under this Bond.

15 § 3 If there is no Owner Default under the Construction Contract, the Surety’s obligation to the Owner under this Bond shall arise after the Owner has promptly 16 notified the Contractor and the Surety (at the address described in Section 13) of claims, demands, liens or suits against the Owner or the Owner’s property by any 17 person or entity seeking payment for labor, materials or equipment furnished for use in the performance of the Construction Contract and tendered defense of such 18 claims, demands, liens or suits to the Contractor and the Surety.

19 § 4 When the Owner has satisfied the conditions in Section 3, the Surety shall promptly and at the Surety’s expense defend, indemnify and hold harmless the 20 Owner against a duly tendered claim, demand, lien or suit.

21 . . .

22 § 5.1 Claimants, who do not have a direct contract with the Contractor,

23 . . .

24 § 5.2 Claimants, who are employed by or have a direct contract with the Contractor, have sent a Claim to the Surety (at the address described in Section 13). 25 . . . 26 27 1 § 16.2 Claimant. An individual or entity having a direct contract with the Contractor or with a subcontractor of the Contractor to Furnish labor, materials or equipment 2 for use in the performance of the Construction Contract. The term Claimant also includes any individual or entity that has rightfully asserted a claim under an 3 applicable mechanic’s lien or similar statute against the real property upon which the Project is located. The intent of the Bond shall be to include without limitation 4 in the terms “labor, materials or equipment” that part of water, gas, power, light, heat, oil, gasoline, telephone service or rental equipment used in the Construction 5 Contract, architectural and engineering services required for performance of the work of the Contractor and the Contractor’s subcontractors, and all other items for 6 which a mechanic’s lien may be asserted in the jurisdiction where the labor, materials or equipment were furnished. 7 8 ECF No. 71-4. 9 Plaintiffs’ complaint raises several issues regarding breach of this payment bond by the 10 Surety. See ECF No. 2, Ex. A. Plaintiffs argue that defendants are required to step in and defend 11 Sonoma Springs against Ascent’s mechanics lien. Id. ¶ 19(a). Plaintiffs also argue that 12 defendants were required under the bond to pay off liens filed by JM Mechanical and Exclusive 13 Landscape, but due to defendants’ failure, plaintiffs were forced to pay these liens off 14 themselves, a total of $27,218.78. Id. ¶ 34. The record also includes a Notice of Lien for 15 $131,808.36 due to Donald Woo Construction brought by Progressive Services Corporation. 16 ECF No. 2, Ex. A(8) & (9). The record provides that Ascent requested the lien be released and 17 executed a Release of Lien Bond for $197,712.54 on August 15, 2016. Id. Correspondence 18 between the parties indicates that Weigle Concrete also filed a lien against the property, but the 19 Surety articulated, and plaintiffs have not refuted, that this lien has since been released. Id., Ex. 20 A(8). 21 First, the court disagrees with plaintiffs that the plain terms of the payment bond force 22 defendants to step in and pay off a mechanics lien filed by the bond’s principal, here Ascent, 23 against the owner. Neither party cites to any case law and the court is likewise unaware of any 24 that would support this reading of a payment bond. Neither can plaintiffs cite to any evidence 25 that the parties intended the word “claimant” to include Ascent. See Reno Club v. Young Inv. 26 Co., 182 P.2d 1011, 1016 (Nev. 1947) (“In the absence of clear evidence of a different intention, 27 words must be presumed to have been used in their ordinary sense, and given the meaning 1 Further, a plain reading of the payment bond indicates that a “claimant,” as defined in the 2 bond, cannot be the principal. For example, reading § 5.2 of the payment bond as plaintiffs 3 suggest would create the following: “[Contractor], who are employed by or have a direct contract 4 with the Contractor, have sent a Claim to the Surety.” Such a reading would lead to an absurd 5 result of not only § 5.2, but also sections 2, 5.1, and 16.2. See Young, 182 P.2d at 1017 (“A 6 contract should not be construed so as to lead to an absurd result,” and “[a] contract should be 7 given a reasonable and fair interpretation.” (citations omitted)); Royal Indem. Co., Inc. v. Special 8 Serv. Supply Co., 413 P.2d 500, 502 (Nev. 1966) (“If we accept appellant’s argument that 9 materialmen’s defaulted bills were not included in the bond, there appears no purpose for Royal 10 expressly denying liability for prior materials . . ..”). 11 Second, plaintiffs contend that they were forced to pay two subcontractors, JM 12 Mechanical and Exclusive Landscape, after they filed liens against the property and the 13 defendant failed to indemnify and hold plaintiffs harmless. Under the payment bond, if the 14 Owner is not in default, the Surety’s obligations arise when the Owner promptly notifies the 15 Contractor and the Surety of the claim or lien against the property, and any defense to such claim 16 or lien. ECF No. 71-4 § 3. As discussed above, it is a materially disputed fact whether the Owner 17 was in default. Additionally, correspondence from the Surety’s counsel to plaintiffs’ counsel 18 indicates that the Surety determined that the filing of liens against the project was not a default 19 under the Construction Contract. ECF No. 2, Ex. A(8). Rather, it was the Surety’s position that 20 §§ 2.1.2, 15.2.8, and 9.10.2 of the Construction Contract permit the Surety to “bond off” the liens 21 but do not require it to. Id. (emphasis added). The Surety then stated it was unable to take further 22 action because it appeared to them that there was a legitimate dispute. Id. 23 The relevant provisions of the Construction Contract provide:

24 § 2.1.2 The Owner shall furnish to the Contractor within fifteen days after receipt of a written request, information necessary and relevant for the Contractor to 25 evaluate, given notice of or enforce mechanic’s lien rights. Such information shall include a correct statement of the record legal title to the property on which the 26 Project is located, usually referred to as the site, and the Owner’s Interest therein.

27 . . . 1 § 9.10.2 Neither final payment nor any remaining retained percentage shall become due until the Contractor submits to the Architect (1) an affidavit that payrolls, bills 2 for materials and equipment, and other indebtedness connected with the Work for which the Owner or the Owner’s property might be responsible or encumbered (less 3 amounts withheld by Owner) have been paid or otherwise satisfied, (2) a certificate evidencing that insurance required by the Contract Documents to remain in force 4 after final payment is currently in effect and will not be canceled or allowed to expire until at least 30 days’ prior written notice has been given to the Owner, (3) 5 a written statement that the Contractor knows of no substantial reason that the insurance will not be renewable to cover the period required by the Contract 6 Documents, (4) consent of surety, if any, to final payment, and (5), if required by the Owner, other data establishing payment or satisfaction of obligations, such as 7 receipts, releases and waivers of liens, claims, security interests or encumbrances arising out of the Contract, to the extent and in such form as may be designated by 8 the Owner. If a Subcontractor refuses to furnish a release or waiver required by the Owner, the Contractor may furnish a bond satisfactory to the Owner to indemnify 9 the Owner against such lien. If such lien remains unsatisfied after payments are made, the Contractor shall refund to the Owner all money that the Owner may be 10 compelled to pay in discharging such lien, including all costs and reasonable attorneys’ fees. 11 . . . 12 § 15.2.8 If a Claim relates to or is the subject of a mechanic’s lien, the party 13 asserting such Claims may proceed in accordance with applicable law to comply with the lien notice of filing deadlines. 14

15 ECF No. 75-1. 16 On plain reading of both the Construction Contract and the payment bond, the court 17 agrees with plaintiffs that there is a legitimate material dispute as to whether the Surety was 18 required to “bond off” the liens filed by the above noted subcontractors. The contract provides 19 that “the Contractor may furnish a bond satisfactory to the Owner to indemnify the Owner 20 against such lien.” Id. § 9.10.2 (emphasis added). However, under the payment bond, when the 21 Owner is in full compliance, “the Surety shall promptly and at the Surety’s expense defend, 22 indemnify and hold harmless the Owner against a duly tendered claim, demand, lien, or suit. 23 ECF No. 71-4 § 4 (emphasis added). Based on the conflicting language, there is a material 24 dispute of fact and summary judgment is inappropriate. 25 Therefore, because the reasonable interpretation of the payment bond is that “Claimant” 26 does not include the principal under the bond, the court grants defendants’ motion for summary 27 judgment on this portion of plaintiffs’ first cause of action, breach of payment bond. However, 1 breached its contract under the payment bond and incorporated Construction Contract for 2 refusing to “bond off” the liens filed by the subcontractors. Because there is a legitimate dispute 3 as to whether the Surety was required to bond off these lien holders, whether the failure to do so 4 would constitute a contractual breach of the covenant of good faith and fair dealing is also 5 disputed. Therefore, the court denies defendants’ motion for summary judgment as to plaintiffs’ 6 sixth cause of action cause of action to the extent it is applicable in this limited context.

7 F. The court grants defendants’ motion for summary judgment as to plaintiffs’ eleventh and twelfth causes of action for Fraudulent or Intentional and Negligent 8 Misrepresentation. 9 Under Nevada law, “[i]ntentional misrepresentation is established by three factors: (1) a 10 false representation that is made with either knowledge or belief that it is false or without a 11 sufficient foundation, (2) and intent to induce another’s reliance, and (3) damages that result 12 from this reliance.” Nelson, 163 P.3d at 426 (citing Collins v. Burns, 741 P.2d 819, 821 (Nev. 13 1987)). “[T]he damage alleged must be proximately caused by reliance on the original 14 misrepresentation or omission.” Id. Similarly, to succeed on a claim for negligent 15 misrepresentation, the plaintiff must prove “(1) a false representation made by defendant; (2) the 16 representation was made in the course of the defendant’s business; (3) the representation was for 17 the guidance of others in their business transactions; (4) plaintiff’s justifiable reliance upon the 18 misrepresentation; (5) the reliance resulted in pecuniary loss to plaintiff; and (6) defendant failed 19 to exercise reasonable care or competence in obtaining or communicating the information.” 20 McDonald v. Palacios, Case No. 2:09-cv-01470-MMD-PAL, 2016 WL 5346067, at *14 (D. 21 Nev. Sept. 23, 2016). 22 Plaintiffs argue that “Defendants knew, at the time Plaintiffs entered into the Agreement, 23 that it could not fulfill and was not going to attempt to fulfill its own statutory obligations.” ECF 24 No. 71 at 27. However, the record is devoid of any evidence of this assertion. Further, plaintiffs 25 fail to cite to and the court has failed to find any evidence in the record that supports either a 26 claim for intentional or negligent misrepresentation. Accordingly, the court grants defendants’ 27 motion for summary judgment on plaintiffs’ eleventh and twelfth causes of action. 1 G. The court grants defendants’ motion for summary judgment as to plaintiffs’ thirteenth cause of action for unjust enrichment. 2 3 “An action based on a theory of unjust enrichment is not available when there is an 4 express, written contract, because no agreement can be implied when there is an express 5 agreement.” LeasePartners Corp. v. Brooks Trust, 942 P.2d 182, 187 (Nev. 1997). Defendants 6 argue that because there is an express contract, the payment and performance bonds, the claim 7 for unjust enrichment must fail as a matter of law. The court agrees and finds that the bonds are 8 an express contract between Fidelity and plaintiffs; therefore, any claim for unjust enrichment as 9 to Fidelity fails as a matter of law. 10 Plaintiffs argue that there is a dispute as to material fact as to whether Zurich was a party 11 to the bonds, and therefore, the claims for unjust enrichment must survive, even if only against 12 Zurich. Defendants, in contrast, argue that even though Zurich was not a party to the bonds, the 13 claim must fail because the record does not show that (1) plaintiffs conferred a specific benefit 14 on Zurich, (2) Zurich appreciated no benefit, and (3) that Zurich accepted and retained no 15 specific benefit. See Unionamerica Mortg. And Equity Trust v. McDonald, 626 P.2d 1272, 1273 16 (Nev. 1981) (quoting Dass v. Epplen, 424 P.2d 779, 780 (Colo. 1967) (articulating the elements 17 of unjust enrichment). Defendants argue that because Fidelity, not Zurich issued the bond, it was 18 Fidelity that was conferred the benefit of and appreciated the bond premiums. 19 First, the court is not convinced that Zurich was not a party to the contract. The record 20 provides that on the cover page of the payment bond, under “Surety,” the mailing address for 21 notices and claims is listed as “Zurich North America Claims.” Additionally, attached to the 22 performance bond is a Power of Attorney that lists the same Vice President for both Zurich 23 American Insurance Company and Fidelity and Deposit Company of Maryland. From this 24 record, the court could find that Zurich was also a party to the express contract; and accordingly, 25 any claim for unjust enrichment as to Zurich would also fail as a matter of law. However, even if 26 Zurich was not a party to the contract, plaintiffs have failed to point to any evidence in the record 27 that shows premiums paid to Fidelity under the bonds were conferred on or appreciated by 1 || Zurich. The court therefore grants defendants’ motion for summary judgment on plaintiffs’ 2 || thirteenth cause of action. 3 || IV. CONCLUSION 4 IT IS THEREFORE ORDERED that defendants’ motion for summary judgment (ECF 5 || No. 60) is GRANTED in part and DENIED in part in accordance with this Order. Defendants’ 6 |} motion as to plaintiffs’ first and third causes of action is granted in part and denied in part. 7 || Defendants’ motion as to plaintiffs’ sixth cause of action is denied. Defendants’ motion as to 8 || plaintiffs’ second, fourth, fifth, seventh, eighth, ninth, tenth, eleventh, twelfth, and thirteenth 9 || claims is granted. 10 IT IS FURTHER ORDERED that that parties shall submit a proposed joint pretrial order 11 || in compliance with Local Rules 16-3 and 16-4 within 45 days of the entry of of this order. 12 13 IT IS SO ORDERED. 14 DATED this 14th day of August, 2019.

16 LAR . HICK UNITED STATES DISTRICT JUDGE

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