United States District Court, W.D. Arkansas, Fayetteville Division
MERCHANTS BONDING COMPANY (MUTUAL) and MERCHANTS NATIONAL BONDING, INC. PLAINTIFFS
v.
ARKANSAS CONSTRUCTION SOLUTIONS, LLC; R.L. STOCKETT & ASSOCIATES, LLC; RICK L. STOCKETT; and DIANA STOCKETT DEFENDANTS
MEMORANDUM OPINION AND ORDER
TIMOTHY L. BROOKS JUDGE
Now
before the Court is a motion for preliminary injunction,
styled “Application for Injunctive Relief” (Doc.
3), filed by Merchants Bonding Company (Mutual) and Merchants
National Bonding, Inc. (collectively,
“Merchants”). Defendants R.L. Stockett &
Associates, LLC, Rick L. Stockett, and Diana Stockett
(collectively, “the Stockett Defendants”) filed a
Response in Opposition to the motion (Doc. 44), and Merchants
filed a Reply (Doc. 47).[1]The motion is
GRANTED.[2]
I.
BACKGROUND
The
parties do not dispute the following background facts.
Merchants filed the instant case, requesting declaratory and
injunctive relief and damages for breach of contract, on May
14, 2018. All Defendants entered into an Indemnity Agreement
(Doc. 1-1) with Merchants to cover losses associated with
certain payment and performance bonds that Merchants issued
on behalf of ACS in connection with the Sunrise Ridge
Subdivision construction project. ACS had been selected as
the contractor on the construction project, and the
developer, Sunrise Developers, Inc. (“Sunrise”),
required ACS to obtain payment and performance bonds to
insure its work. ACS approached Merchants for the bonds. In
exchange, Merchants required ACS to fully indemnify Merchants
against any and all losses that might be claimed against the
bonds, as well as provide Merchants, upon demand, with
collateral security “to cover any liability for any
loss or expense for which [Merchants] may be obligated to
indemnify the Company . . . .” (Doc. 1-1, p. 5). The
Stockett Defendants agreed to serve as indemnitors on the
payment and performance bonds.
The day
after all Defendants signed the Indemnity Agreement,
Merchants formally issued the payment and performance bonds
on behalf of ACS as principal, and for the benefit of Sunrise
as developer. See Doc. 29-1, p. 32. At some point,
problems arose on the construction site of the Sunrise Ridge
Subdivision, and some subcontractors began making claims
against ACS and Sunrise for payment. One of those
subcontractors, Del-Sha Construction, LLC,
(“Del-Sha”) filed a lawsuit against ACS, Sunrise,
and Merchants in Benton County, Arkansas Circuit Court, Case
Number 04CV-17-1370, requesting payment under the Merchants
payment bond for work Del-Sha performed on the Sunrise Ridge
subdivision. See Doc. 29-1. Then ACS filed a
mechanics lien against Sunrise, and Sunrise filed a
cross-claim against ACS and Merchants.
In an
earlier Order issued in the case at bar (Doc. 42), this Court
found that the federal case before it (concerning the
Indemnity Agreement) and the Del-Sha case currently
being litigated in state court (concerning the amounts
disputed and allegedly owed under the payment and performance
bonds), are not parallel, and this Court was therefore not
required to abstain from ruling on the issues before it. The
Court explained its reasoning as follows:
The state court is currently being asked to adjudicate the
parties' rights under the payment and performance bonds
and determine who should be paid and in what amounts. These
claims are not at issue in the federal lawsuit. The Stockett
Defendants also contend that the “preliminary issue of
whether the construction contract was breached by S.D.
[Sunrise] or by ACS . . . must be decided first” by
this Court, [Doc1. 29] at 10. Their thinking on this point,
apparently, is that if ACS is eventually absolved of all
liability in state court on the bond issues, then any action
by this Court to require the Stockett Defendants to pony up
collateral to secure the bonds will end up being a waste of
time. Certainly, the Stockett Defendants prefer not to
indemnify Merchants and not to post any collateral. They
would much rather wait and see how the state court action
plays out, and then, perhaps a year or more from now, after
all obligations under the payment and performance bonds have
been fully resolved, permit Merchants to then proceed with
their federal claims under the Indemnity Agreement. But
surely this “wait-and-see” strategy was not
contemplated by the parties when they signed the Indemnity
Agreement.
Contrary to the Stockett Defendants' position, the Court
believes that deciding Merchants' claims in the instant
lawsuit will not require the Court to decide “the
preliminary issue of whether the construction contract was
breached by S.D. [Sunrise Developers] or by ACS.” (Doc.
29, p. 10). It is the state court that is tasked
with resolving the parties' claims under the payment and
performance bonds, not the federal court. It is therefore
also the state court's task to determine the validity and
enforceability of those bonds, if called upon to do so.
Accordingly, if any party to this action requests that this
Court make rulings concerning the validity, enforceability,
or obligations owed under the payment and performance bonds,
the Court will abstain from doing so in favor of
allowing the state court to rule on those issues. Further, if
the state court eventually determines that the bonds are null
and void (as Mr. Stockett contends), such a decision will not
adversely affect the rulings made by this Court with respect
to the Indemnity Agreement or otherwise result in a net waste
of judicial resources.
(Doc. 42, pp. 9-10)
The
issue that is now ripe for decision is whether Merchants is
entitled to a preliminary injunction that would require the
Stockett Defendants to provide collateral to Merchants in the
sum of $700, 000. Although the full penalty sum of the
payment bond at issue is only $500, 000, it appears Merchants
is demanding $700, 000 in collateral because it estimates
that its total current outstanding exposure under the bonds,
including its projected attorney's fees, is $200, 000 in
excess of the full penalty sum of the bonds.
There
are four factors that a court must consider, generally, in
ruling on a motion for preliminary injunction. The Stockett
Defendants contend that none of the four factors weighs in
favor of issuing the preliminary injunction. Below, the Court
will explain the four factors and consider whether they do,
indeed, weigh in favor of granting preliminary injunctive
relief.
II.
LEGAL STANDARD
It is
well established that “a preliminary injunction is an
extraordinary and drastic remedy, one that should not be
granted unless the movant, by a clear showing,
carries the burden of persuasion.” Mazurek v.
Armstrong, 520 U.S. 968, 972 (1997) (citing 11A C.
Wright, A. Miller, & M. Kane, Federal Practice and
Procedure § 2948, pp. 129-130 (2d ed. 1995))
(emphasis in original).
Although
the factors to be considered when deciding whether this
burden has been met are similar nationwide, district courts
in the Eighth Circuit should consider: (1) the threat of
irreparable harm to the movant in the absence of injunctive
relief; (2) the movant's likelihood of success on the
merits; (3) the balance between this harm and the injury that
granting the injunction will inflict on the other party; and
(4) whether the injunction is in the public interest.
Dataphase Sys., Inc. v. C L Sys., Inc., 640 F.2d
109, 114 (8th Cir. 1981). While no single factor is
determinative, id., the Eighth Circuit has made
clear that in weighing whether to grant a preliminary
injunction, the “likelihood of success on the merits is
most significant.” Minn. Ass'n of Nurse
Anesthetists v. Unity Hosp., 59 F.3d 80, 83 (8th Cir.
1995) (quoting S & M Constructors, Inc. v. Foley
Co., 959 F.2d 97, 98 (8th Cir. 1992)). Despite the
importance of the likelihood of success on the merits, the
inquiry should focus on “whether the balance of the
equities so favors the movant that justice requires the court
to intervene to preserve the status quo until the merits are
determined.” Dataphase, 640 F.2d at 113.
III.
DISCUSSION
A.
Threat of Irreparable Harm
The
Court begins its discussion of the Dataphase factors
by considering whether Merchants would face a threat of
irreparable harm if the Court refused to grant a preliminary
injunction. The Court takes up this argument first because it
is the one that is the most hotly contested by the parties,
and it can be resolved by the Court as a matter of law,
without reference to any evidence or disputes of fact. First,
the Stockett Defendants contend that Merchants' demand
for preliminary injunctive relief is for the payment of
collateral, which is a demand that is solely monetary in
nature. They argue that since the demand is for monetary
relief, there is an adequate remedy at law available to
Merchants, and a preliminary injunction-which is ordinarily
available only for equitable relief-would not be warranted.
Second, the Stockett Defendants maintain that Merchants
delayed in seeking relief from this Court, which tends to
undercut Merchants' argument that it will suffer
irreparable harm unless it obtains preliminary relief.
The
Court agrees with the Stockett Defendants that, in the
ordinary case, a party's ability to be fully compensated
through an award of damages means that its harm is neither
“irreparable” nor equitable in nature. See
Watkins Inc. v. Lewis, 346 F.3d 841, 844 (8th Cir. 2003)
(“When there is an adequate remedy at law, a
preliminary injunction is not appropriate.”). But here,
the Court is persuaded that even if Merchants were to fully
recover its monetary damages at the end of the litigation, it
still would not be made whole for the Stockett
Defendants' breach of the collateral security provision
of the Indemnity Agreement. The issue is not simply one ...