United States District Court, E.D. Wisconsin
DECISION AND ORDER
ADELMAN, UNITED STATES DISTRICT JUDGE.
2010, defendant Edward E. Gillen Company
(“Gillen”), a marine construction firm, became
part of a joint venture with other companies. The Public
Building Commission of Chicago selected the joint venture as
the general contractor for a harbor construction project,
which the parties refer to as the “31st Street Harbor
Project.” The plaintiff here, Fidelity & Deposit
Company of Maryland (“F&D”), issued a surety
bond to ensure the joint venture's performance. The
amount of the bond is more than $30 million.
complete the project, the joint venture subcontracted some of
the construction work to Gillen. Gillen, in turn, entered
into agreements with other subcontractors, who supplied labor
and materials. F&D alleges that, in 2012, Gillen
defaulted on its obligations by failing to pay the
subcontractors. Following the default, the unpaid
subcontractors filed at least seventeen separate lawsuits
against Gillen in the Circuit Court of Cook County. F&D,
as the surety, was named as a defendant in each of the suits.
Many of those suits have since been resolved. However,
several suits remain pending, and F&D alleges that the
remaining plaintiffs in those suits claim that Gillen owes
them a total of $2, 563, 207.96.
commenced this action against Gillen and other defendants in
2013, alleging that the defendants had breached various
obligations to protect F&D as the surety for the 31st
Street Harbor Project. Since then, the parties have settled a
large portion of the case, including all claims against the
defendants other than Gillen. The sole remaining claim is
F&D's claim against Gillen based on the equitable
doctrine of quia timet. The parties have filed
cross-motions for summary judgment on this claim, which I
address in this order.
timet is a somewhat obscure equitable doctrine that
applies in the suretyship context, along with the doctrines
of exoneration and reimbursement. All of these doctrines
relate to a surety's right to require the principal
obligor (which in this case is Gillen, as one of the parties
to the joint venture) to perform the underlying obligation.
See Peter A. Alces, The Law of Suretyship and
Guarantee § 6:6 (Westlaw 2018). The doctrine that
applies depends on the timing of the surety's action.
Reimbursement, as the name implies, is asserted after a
surety has already made payments under the bond. See
Id. § 6:13. But the law does not require a surety
to wait until it has made payment to seek relief against the
principal, and this is where the doctrines of exoneration and
quia timet step in. See Admiral Oriental Line v.
United States, 86 F.2d 201, 204 (2d Cir. 1936) (a surety
“is not obliged to make inroads into his own resources
when the loss must in the end fall upon the
principal”). The doctrine of exoneration applies at the
time when the performance of the underlying obligation is
due, but has not been paid. See Alces, supra, §
6:13. In an action for exoneration, a surety seeks to compel
the principal to satisfy the obligation before the creditor
calls upon the surety to do so. See Dobie v. Fid. &
Cas. Co. of New York, 95 Wis. 540, 483 (1897) (“It
seems to be well settled that a surety against whom a
judgment has been rendered may, without making payment
himself, proceed in equity against his principal to subject
the estate of the latter to the payment of the debt, in
exoneration of the surety.”). Quia timet, in
contrast, is available to the surety before payment of the
underlying obligation is even due. See Alces, supra,
§ 6:13. In general, an action for quia timet,
which is Latin for “because he fears, ” can be
brought when the surety fears that the principal will not
perform the obligation when it comes due. The object of a
claim for quia timet is to require the principal to
provide cash collateral to the surety to secure the
principal's future performance. See Borey v.
Nat'l Union Fire Ins. Co., 934 F.2d 30, 32 (2d Cir.
1991) (“Quia timet is the right of a surety to
demand that the principal place the surety ‘in
funds' when there are reasonable grounds to believe that
the surety will suffer a loss in the future because the
principal is likely to default on its primary obligation to
present case, F&D pleaded claims for both exoneration and
quia timet. See Third Am. Compl., Count IV,
ECF No. 98. However, in one of its summary-judgment briefs,
F&D states that it is no longer seeking exoneration. Br.
in Supp. of Cross-Mot. for Summ. J. at 9, ECF No. 150. Thus,
the only question remaining is whether F&D is entitled to
the equitable remedy of quia timet.
seeking quia timet, F&D contends that it
reasonably fears having to pay, at some point in the future,
more than $2 million to Gillen's subcontractors. F&D
believes that when Gillen's liability to the
subcontractors is finally determined, Gillen will be unable
to pay the amounts owed because it is insolvent and, as of
February 2012, “had no assets.” See
Reply Br. at 9, ECF No. 155; see also Br. in Supp.
at 6-8 (identifying facts suggesting that Gillen is insolvent
and cannot pay the underlying obligations). But if F&D is
correct, then it would be impossible for Gillen to now
provide F&D with the collateral it seeks, namely,
“$2, 349, 582.97 in cash or cash equivalents.”
Cross-Mot. for Summ. J. at 1, ECF No. 146. Simply put, if
Gillen has no asserts and cannot now pay the amounts that it
will eventually owe to the subcontractors, then it is too
late for F&D to obtain quia timet, as the whole
point of the doctrine is to prevent a principal from
absconding with cash that it currently has. See,
e.g., Escrow Agents' Fid. Corp. v. Superior Court, 4
Cal.App.4th 491, 496 (1992) (stating that purpose of quia
timet is to prevent the principal from
“abscond[ing] with the very funds which could have been
used to satisfy the bond”).
has not explained how it expects a company with no assets to
pay more than $2 million in cash. Perhaps F&D suspects
that Gillen has the ability to post the collateral. But if
that is so, then how could F&D reasonably fear that
Gillen will not pay the obligations when they are due?
F&D does not point to any facts suggesting that Gillen is
in the process of depleting its assets, or that, once the
smoke clears in the Illinois litigation, Gillen will refuse
to pay the subcontractors what they are owed. F&D's
only stated concern is that Gillen is broke and therefore
can't pay the subcontractors. But if Gillen is broke,
then quia timet is not an available remedy.
Accordingly, F&D is not entitled to relief.
reasons stated, IT IS ORDERED that
Gillen's motion for summary judgment (ECF No. 136) is
IS FURTHER ORDERED that F&D's motion for
summary judgment (ECF No. 146) is DENIED.
IT IS ORDERED that the Clerk of Court shall enter
final judgment. Dated: Milwaukee, ...