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Cincinnati Insurance Co. v. Gilbert

United States District Court, N.D. Alabama, Middle Division

June 18, 2019




         This matter comes before the court on Plaintiff Cincinnati Insurance Company's “Motion for Preliminary Injunction.” (Doc. 6). Cincinnati seeks a preliminary injunction compelling Defendants Gina Gilbert, Theodore Cook, and Richard Rhea to deposit $2, 000, 000.00 with Cincinnati to collateralize a loss reserve per the indemnity agreement between the parties. The parties fully briefed the motion, and the court held a hearing on the motion on May 16, 2019.

         I. Background

         This case arises from an underlying probate proceeding. The Probate Court for Etowah County, Alabama appointed Ms. Gilbert and Mr. Cook, two siblings, as co-guardians and co-conservators for their mother, Mrs. Patricia Jerome (“the Ward”), on August 1, 2014. As a condition of their appointment as co-conservators, Cincinnati issued a surety bond on their behalf. The bond was signed by Ms. Gilbert, Mr. Cook, and Mr. Rhea-their attorney-as principals, with Cincinnati as the surety. In the bond agreement, the principals agreed to indemnify Cincinnati from any liability, loss, cost, attorneys' fees, and expenses. The bond also included a clause stating that Ms. Gilbert, Mr. Cook, and Mr. Rhea would “[u]pon demand by the Company in the event it deems necessary to establish a reserve, . . . deposit cash funds with the Company in an amount sufficient to satisfy any claim against the Company by reason of such suretyship.” (Doc. 1-1 at 4).

         On November 10, 2014, Mr. Rhea, on behalf of Mr. Cook and Ms. Gilbert, filed an inventory in the probate court, which represented that the Ward's estate had $8, 584, 465.23 in assets. On August 28, 2017, Mr. Rhea filed a petition for partial settlement in the probate court. Mr. Rhea included with the petition an affidavit of income and expenditures, which showed that Mr. Cook and Ms. Gilbert spent $6, 669, 500.96 of the Ward's assets. At that point, the probate court appointed Krystal Padula as guardian ad litem (“GAL”) for the Ward.

         On February 13, 2018, Andy Cook, another sibling acting as next friend of the Ward, petitioned the Circuit Court for Etowah County to remove the guardianship and conservatorship action from probate court to the circuit court. The court granted that motion on February 16, 2018. Cincinnati received notice of a potential claim against the bond by being named an “interested party” in the circuit court proceeding.

         On March 6, 2018, the GAL for the Ward filed a motion to remove Ms. Gilbert and Mr. Cook[1] as conservators. Ms. Gilbert “propose[d] to deposit with the Court certain amount to which the [GAL] and interested parties have made objection thereto, ” including deposits such as American Express credit card payments totaling $305, 899.71, funds from the Ward's e-trade account totaling $760, 000.00, and other “[c]onservatorship fees which are pending approval of the Court.” (Doc. 1 at 6-7). She ultimately deposited $1, 340, 899.71 in the circuit court's registry.

         Mr. Rhea subsequently withdrew from representing Ms. Gilbert and Mr. Cook on March 20, 2018.

         On April 12, 2018, the circuit court accepted Ms. Gilbert's and Mr. Cook's resignations as co-conservators, and appointed a successor conservator. The successor conservator then challenged 567 separate disbursements of the Ward's assets and asserted claims against Ms. Gilbert and Mr. Cook for breach of fiduciary duty, statement of account, conversion, money had and received, claim against interplead funds, and accounting and removal of custodians under the Alabama Uniform Transfers to Minors Act. The successor conservator sought to recover more than $7, 615, 174.12, including the money already deposited by Ms. Gilbert into the circuit court's recovery, and would seek to recover some or all of those damages from Cincinnati under the surety bond.

         On October 29, 2018, Cincinnati sent a letter to Ms. Gilbert, Mr. Cook, and Mr. Rhea reminding them of their obligations under the indemnity agreement and that Cincinnati would require them to deposit collateral to equal the loss reserve once Cincinnati established a loss reserve for the successor conservator's claim against the bond.

         Cincinnati established a loss reserve for $2, 000, 000.00, and sent a letter to the Defendants on December 31, 2018, demanding that they deposit the cash collateral within five business days. The Defendants refused to post the collateral.

         Cincinnati filed this action on February 11, 2019, raising three counts: (1) specific performance of the indemnity agreement; (2) breach of the indemnity agreement; and (3) equitable indemnity, reimbursement, and exoneration. (Doc. 1). On March 1, 2019, it filed this motion for preliminary injunction seeking the court to compel the Defendants to post $2, 000, 000 to equal the loss reserve Cincinnati established. (Doc. 6).

         II. Discussion

         Cincinnati seeks extraordinary relief in moving for a preliminary injunction. See Bloedorn v. Grube, 631 F.3d 1218, 1229 (11th Cir. 2011) (“We begin our analysis with the unremarkable observation that a preliminary injunction in advance of trial is an extraordinary remedy.”). But “[t]he purpose of the preliminary injunction is to preserve the positions of the parties as best [the court] can until a trial on the merits may be held.” Id.

         The court uses a four-part test to determine if a preliminary injunction is appropriate. The plaintiff must clearly establish:

(1) [the plaintiff] has a substantial likelihood of success on the merits; (2) irreparable injury will be suffered unless the injunction issues; (3) the threatened injury to the movant outweighs whatever damage the proposed injunction may cause the opposing party; and (4) if issued, the injunction would not be adverse to the public interest.

Am. Civil Liberties Union of Fla., Inc. v. Miami-dade Cty. Sch. Bd., 557 F.3d 1177, 1198 (11th Cir. 2009) (quoting Siegel v. LePore, 234 F.3d 1163, 1176 (11th Cir. 2000) (en banc)). The court will ...

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