Article

Note: As part of an underlying construction project known as the Sunrise Ridge Subdivision in Arkansas, USA, (the Project), Arkansas Construction Solutions, LLC (Contractor) was engaged by Sunrise Developers, Inc. (Principal) to complete substantial works. To assure its performance, Contractor was required to provide performance bonds in favor of Principal. While Merchants Bonding Co. (Mutual) (Guarantor) agreed to issue bonds on behalf of Contractor, Guarantor required Contractor to indemnify it for all claims under the bonds. Unable to fully indemnify Guarantor by itself, Contractor approached R.L. Stockett & Associates, LLC, as well as the two individual owners of Stockett & Associates (the Stockett Defendants) regarding an Indemnity Agreement whereby the Stockett Defendants would serve as surety for Contractor.

Subsequently, several disputes arose between Contractor and subcontractors regarding work on the Project. After the situation had deteriorated significantly, Guarantor sought to be fully indemnified by Contractor and the Stockett Defendants regarding claims on the bonds. When Guarantor sued Contractor and the Stockett Defendants for specific performance on the Indemnity Agreement and for injunctive relief, the trial court granted motions in favor of Guarantor and ordered Contractor and the Stockett Defendants to provide collateral for USD 500,000 in favor of Guarantor. When the Stockett Defendants failed to so provide collateral, Guarantor moved for sanctions and civil contempt, which were ordered by a Magistrate Judge. The Stockett Defendants, however, objected to that order under Fed. R. Civ. Pro. 72(a). The United States District Court for the Western District of Arkansas, Brooks, J., overruled the objection.

The Judge noted that the Stockett Defendants had been ordered to “post collateral in the form of a cashier’s check or a letter of credit” by a certain date and, if failing to do so, would subsequently be faced with a contempt finding and civil sanctions. While noting that a party may challenge a Magistrate Judge order under the appropriate civil rule, the Judge concluded that the objection filed by the Stockett Defendants was “frivolous.” Stockett Defendants argued that they had complied with the order by “offering” to post collateral, but the Judge rejected that notion stating that “offering to post collateral is not the same thing as posting collateral.” Guarantor requested that the Stockett Defendants post a letter of credit; while repeatedly claiming that they approached Chase Bank to apply for an LC, the Judge noted that “the Defendants have dragged their feet, offered excuses, pointed the finger at the bank or at other entities, and generally not accepted responsibility for failing to comply with a valid court order.” Additionally, in overruling their objection to the Magistrate Judge Order, the Judge noted that the Stockett Defendants’ “legal obligation in this case is not to apply for a letter of credit; it is to obtain a letter of credit to secure [USD]500,000.00 of collateral or else provide [USD]500,000.00 in the form of cash or a cashier's check.”

[MJK]

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