The opinion
IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
THE GUARANTEE COMPANY OF §
NORTH AMERICA USA, §
§
Plaintiff, §
§
v. § Civil Action No. 3:20-CV-3366-L
§
RKM UTILITY SERVICES, INC.; §
SHI MACHINERY, LLC; §
KMR TRANSPORTATION, LLC; §
2105 WATERVIEW REALTY, LLC; §
and RYAN DOWDY, §
§
Defendants. §
MEMORANDUM OPINION AND ORDER
Before the court is Plaintiff’s Motion for Preliminary Injunction (“Motion”) (Doc. 10),
filed by The Guarantee Company of North America USA (“Guarantee” or “Plaintiff” or “Surety”)
on December 18, 2020. After considering the Motion, the parties’ briefs, evidence, and pleadings,
the court denies the Motion (Doc. 10) for the reasons herein explained.
I. Factual and Procedural Background
On November 11, 2020, Guarantee brought this action as a surety against RKM Utility
Services, Inc. (“RKM”); SHI Machinery, LLC (“SHI”); KMR Transportation, LLC (“KMR”);
2105 Waterview Realty, LLC (“2105 Waterview”); and Ryan Dowdy (“Mr. Dowdy”). Except for
Mr. Dowdy, the court refers to all Defendants in this case collectively as “Defendants” or
“Indemnitors.” Plaintiff seeks indemnity, equitable relief, and other relief against Defendants, as
“Indemnitors of a General Agreement of Indemnity” (“Indemnity Agreement” or “Agreement”)
executed on August 16, 2007, by RKM, SHI, and Mr. Dowdy. Riders to the Indemnity Agreement
were executed by 2105 Waterview on April 17, 2018, and KMR on June 26, 2019, adding 2105
Waterview and KMR as additional Indemnitors under the Indemnity Agreement.
Guarantee asserts claims for breach of the Indemnity Agreement; specific performance of
the Indemnity Agreement; common law indemnity; exoneration; and collateralization or quia
timet.1 Guarantee’s Original Complaint also includes a request for a preliminary injunction against
Defendants, which it contends is necessary to prevent it from suffering irreparable harm and to
preserve the status quo while this action is pending. Plaintiff summarizes the relief it seeks in this
action as follows:
(a) For entry of a preliminary injunction and permanent injunction for the
following relief: (1) that Indemnitors be required to specifically perform their
obligation to deposit cash collateral with the Surety in the minimum amount of
$6,400,000 to reimburse the Surety; (2) that Indemnitors provide the Surety with
access to their books and records; (3) prohibiting Indemnitors (or any person on
behalf of or directed by Indemnitors) from altering, modifying, destroying, and/or
tampering with Indemnitors’ books and records; and (4) prohibiting Indemnitors
(or any person on behalf of and/or directed by the Indemnitors) from transferring,
conveying, or selling any of their assets without prior written consent or approval
of the Surety;
(b) For the entry of judgment compelling Indemnitors to specifically perform
their obligation to reimburse and collateralize the Surety in the minimum amount
of $6,400,000, which is the amount determined by the Surety as sufficient to
discharge any losses, and compelling Indemnitors to provide the Surety with
immediate access to books and records;
(c) For the entry of judgment against the Indemnitors in an amount sufficient
to fully exonerate, indemnify, and save the Surety harmless from and against all
loss as required by the Indemnity Agreement;
(d) Judgment against Indemnitors for the Surety’s reasonable attorneys’ fees
and expenses;
(e) Judgment against Indemnitors for all costs of court;
1 Quia timet is: “[a] legal doctrine that allows a person to seek equitable relief from future probable harm to a specific
right or interest.” Liberty Mut. Ins. Co. v. CL Carson, Inc., A-11-CA-543-SS, 2013 WL 12392522, at *1 (W.D. Tex.
June 19, 2013) (quoting Black’s Law Dictionary (9th ed. 2009)).
(f) Judgment against Indemnitors for prejudgment and post judgment interest
at the highest rate allowed by law; and
(g) For such further relief, both general and specific, as may be deemed
appropriate by this Court.
Pl.’s Orig. Compl. 15.
In support of its request for injunctive relief, Plaintiff alleges as follows in its Motion
regarding the losses it contends are covered by the Indemnity Agreement and Riders but have yet
to be paid by Defendants:
In reliance upon its rights under the Indemnity Agreement, the Surety
executed numerous construction surety performance, payment, and maintenance
bonds (“Bonds”) on behalf of or at the request of Indemnitors for construction
projects throughout the State of Texas (“Projects”). After executing the Bonds, the
Surety began to receive notices of claim for payment under the Bonds from several
of RKM Utility’s subcontractors and suppliers on the respective projects. These
subcontractors and suppliers sought payment for work they performed and/or
materials they delivered to the Projects. To date, the Surety has established a reserve
of over $8,000,000 to cover claims against the Bonds and incurred losses of over
$6,500,00.00 to resolve those claims, including fees and expenses of approximately
$175,000 incurred to investigate the claims. Specifically, the Surety has received
claims on the Bonds listed in the table included in the Appendix as Exhibit 6.
Pl.’s Br. 3 (footnotes omitted). The amount of the losses claimed or sustained form the basis for
Plaintiff’s request for injunctive relief, as well as its request to recover monetary damages in this
action as a result of Defendants’ failure to perform their payment obligations under the Indemnity
Agreement.
On November 24, 2020, Mr. Dowdy filed a Notice of Bankruptcy (Doc. 6). The next day,
Plaintiff filed its Notice of Partial Dismissal of Claims Against Ryan Dowdy pursuant to Federal
Rule of Civil Procedure 41(a)(1)(A)(i). Accordingly, Mr. Dowdy is no longer a party to this action.
On December 4, 2020, RKM and 2105 Waterview filed a joint Answer. SHI and KMM
have yet to file an answer. Defendants, however, did file a joint response in opposition to the
Motion for Preliminary Injunction that Plaintiff filed on December 18, 2020.2 In its Motion,
Plaintiff requests the same injunctive relief as set forth in its earlier Complaint. For the reasons
that follow, the court determines that issuing a preliminary injunction that includes the injunctive
relief sought Plaintiff is not appropriate based on the facts of this case.
II. Standard for Preliminary Injunction
There are four prerequisites for the extraordinary relief of a preliminary injunction. A court
may grant such relief only when the movant establishes that:
(1) there is a substantial likelihood that the movant will prevail on the merits; (2)
there is a substantial threat that irreparable harm will result if the injunction is not
granted; (3) the threatened injury [to the movant] outweighs the threatened harm to
the defendant[s]; and (4) the granting of the preliminary injunction will not disserve
the public interest.
Clark v. Prichard, 812 F.2d 991, 993 (5th Cir. 1987); Canal Auth. of the State of Fla. v. Callaway,
489 F.2d 567, 572 (5th Cir. 1974) (en banc). The party seeking such relief must satisfy a
cumulative burden of proving each of the four elements enumerated before a temporary restraining
order can be granted. Mississippi Power and Light Co. v. United Gas Pipeline, 760 F.2d 618, 621
(5th Cir. 1985); Clark, 812 F.2d at 993. Otherwise stated, if a party fails to meet any of the four
requirements, the court cannot grant the preliminary injunction.
III. Analysis
Plaintiff contends that it is entitled to a preliminary injunction requiring Defendants to
“provide the Surety with access to their books and records” and require Defendants to “specifically
perform their [contractual] obligation to deposit cash collateral with the Surety in the minimum
2 The court originally delayed ruling on the Motion in light of questions it had regarding subject matter jurisdiction.
Those issues, however, were adequately addressed in and resolved by Plaintiff’s Amended Complaint (Doc. 16).
Plaintiff’s Amended Complaint does not include any new claims or requests for relief that differ from the claims and
relief sought in its Original Complaint.
amount of $6,400,000 to reimburse Surety” for its losses, which Plaintiff refers to as “post[ing]
collateral.” Pl.’s Br. 1, 13.
A. Whether There is a Substantial Likelihood of Plaintiff’s Success of the Merits
The thrust of Plaintiff’s argument is that Defendants agreed to “reimburse and
collateralize” the surety (Guarantee) upon demand, and by executing the Indemnity Agreement,
they “‘confirm[ed] and acknowledge[ed] that [Guarantee as] the Surety is entitled to injunctive
relief for specific performance’ of their indemnity and collateral obligations.” Pl.’s Br. 1-2
(emphasis added).
Plaintiff is correct that the Indemnity Agreement provides and Defendants “agree[d] to pay
to Surety upon demand . . . [a]ll loss, cost and expenses of whatsoever kind and nature” and “[a]ny
amount sufficient to discharge any claim made against Surety on any Bond” in an amount deemed
sufficient by the Surety to protect it from loss. Pl.’s App. 6 (emphasis added). The Indemnity
Agreement further provides that the sum paid by Defendants “may be used by Surety to pay such
claim or be held by Surety as collateral security against loss on any Bond.” Id. The court, however,
does not read Guarantee’s option of holding any payments as collateral security as a “collateral
obligation” or requirement that Defendants “collateralize” Guarantee under the Indemnity
Agreement.
Defendants, instead, agreed to pay Guarantee “upon demand” for losses in an amount
determined and demanded by Guarantee. While the Indemnity Agreement gave Guarantee the
option of using any money demanded and paid by Defendants to pay claims or hold the money as
“collateral security,” this option does not obligate Defendants to “collateralize” Guarantee or
provide it with collateral in the amount demanded by it under the section of the Agreement titled
“INDEMNITY TO SURETY.” Id. at 6. Rather, a separate section of the Agreement titled
“SECURITY TO SURETY” sets forth Defendants’ obligation to provide “collateral security to
Surety,” but only in the form of providing Guarantee with an assignment of their rights for such
things as contracts, equipment, cash, bank accounts, licenses, claims, and partnership interests, and
their obligation in this regard would only be enforceable if they defaulted under the Indemnity
Agreement. Id. at 7.
Plaintiff acknowledges that Defendants’ payment obligation is only triggered under the
Indemnity Agreement upon demand by Guarantee because it alleges in its pleadings and asserts in
its Motion that it demanded payment in accordance with the Indemnity Agreement, but Defendants
failed to pay upon demand. For support, Plaintiff relies on the declaration of Jeffrey Jubera, the
Vice President of Claims for Guarantee, who states, based on a September 24, 2020 letter from
Guarantee to Defendants, that Guarantee “demand[ed]” that Defendants “collateralize and
reimburse” it against losses incurred as a result of executing bonds, but Defendants failed to
respond to its “demand.” Pl.’s App. 3.
Mr. Jubera does not specify the amount demanded, and, contrary to Plaintiff’s and Mr.
Jubera’s assertion, the September 24, 2020 letter attached to Mr. Jubera’s declaration does not
include a demand for payment in any amount. The letter, instead, simply: (1) states that its
“purpose . . . is to address the obligations of the Indemnitors under the [Indemnity Agreement]
including their obligation to reimburse the Surety for loss already incurred on the Bonds”; (2)
quotes the contract language requiring Defendants to pay Guarantee “upon demand” and notes that
failure to pay qualifies as an “Event of Default” under the Agreement; and (3) “requests a meeting
with the Indemnitors to discuss their collective plan of action for reimbursing the Surety for the
loss pursuant to their obligations under the [Indemnity Agreement],” which the letter indicates is
“$6,772.641.83.” Id. at 17-18. Nowhere in this letter is there a “demand” for payment by
Guarantee in the amount of “$6,772.641.83,” which appears to be a typographical error, or any
other amount. Absent evidence that Guarantee demanded $6,400,000, the amount sought in its
pleadings and Motion, Plaintiff has not demonstrated its likelihood of succeeding on the merits of
its claims in this action that pertain to the parties’ rights and obligations under the Indemnity
Agreement.
As noted, Plaintiff also requests access to Defendants’ books and records and contends that
it is entitled to such access under the Indemnity Agreement. Defendants respond that, pursuant to
a separate funds control agreement, they essentially turned over all financial control and oversight
of their construction operation to Guarantee and, as a result, it obtained and continues to have
regular access to Defendants’ financial records. Defendants further assert that Plaintiff and its
counsel are fully aware that all equipment and property of Defendants is already pledged as
collateral to other perfected lenders and has been foreclosed upon, seized, or in the process of
being seized by secured lenders. Plaintiff replies that its right to “free access” of all books and
records under the Indemnity Agreement is different or distinct from its right to access books and
records under the funds control agreement referenced by Defendants.
The Indemnity Agreement does provide Plaintiff with “the right to free access at reasonable
times to the books, records, and accounts of each of the Indemnitors for the purpose of examining,
copying, or reproducing them.” Pl.’s App. 8. It is unclear, however, from Plaintiff’s pleadings,
briefing, and evidence whether it ever requested or was denied such access. Without evidence that
it was denied access, there is no basis for concluding that Plaintiff is substantially likely to succeed
on the merits of any claim for breach of the Indemnity Agreement on this ground. Additionally,
Plaintiff can obtain this information through discovery and, thus, there is no indication that there
is a substantial threat irreparable harm will result if an injunction is not granted requiring
Defendants to provide access to their books and records.
B. Whether There is a Substantial Threat of Irreparable Harm to Plaintiff
Plaintiff argues that it will suffer irreparable injury through the permanent loss of its
contractual rights to “indemnity and collateralization” if the requested injunctive relief does not
issue. Pl.’s Br. 8. Plaintiff contends that Defendants’ agreeing to include the following language
in the Indemnity Agreement satisfies the second irreparable harm requirement for injunctive relief:
“The Indemnitors acknowledge that their failure to pay, immediately upon demand, that sum
demanded by Surety will cause irreparable harm for which Surety has no adequate remedy at law.”
Pl.’s Br. 2 (quoting Pl.’s App. 6) (emphasis added).
A preliminary injunction, however, is an “extraordinary and drastic remedy” that “should
not be granted unless the movant clearly carries the burden of persuasion.” Canal Auth. of State of
Fla., 489 F.2d at 573. For this reason, some courts, including the undersigned, have concluded that
a stipulation of irreparable harm in a contractual agreement is insufficient to support a finding of
irreparable harm to justify the imposition of a preliminary injunction. See, e.g., Tex. Health &
Human Servs. Comm’n v. United States, 166 F. Supp. 3d 706, 712 (N.D. Tex. 2016); Dickey’s
Barbecue Restaurants, Inc. v. GEM Investment Grp., LLC, 2012 WL 1344352, at *4 (N.D. Tex.
Apr. 18, 2012) (quoting Traders Int’l, Ltd. v. Scheuermann, 2006 WL 2521336, *8 (S.D. Tex.
Aug. 30, 2006)). In any event, Plaintiff’s evidence does not establish that it made a demand for
payment on Defendants in accordance with the Indemnity Agreement. Thus, the irreparable harm
language in the Agreement relied on by Plaintiff does not come into play or support a finding of
irreparable harm.
In response to Defendant’s contention that it will not suffer irreparable harm because a
money judgment will be available if it prevails, Plaintiff attempts to distinguish its claims from
those in which a money judgment is available for run-of-the-mill breach of contract claims.
According to Plaintiff, a money judgment does not prevent a surety from suffering irreparable
harm when an indemnitor refuses to meet its “collateral obligations” because, in the absence of
injunctive relief requiring the indemnitor to provide “security on demand” as agreed upon, the
surety will suffer permanent loss of its bargained-for right to specific performance in the form of
security on demand. For support, Plaintiff relies on a May 19, 2020 opinion entered by United
States District Judge Amos L. Mazzant, III in Philadelphia Indemnity Insurance Company v. RKM
Utility Services, Incorporated, Civil Action No. 4:19-CV-676. See Pl.’s Reply (citing Defs.’ App.
32-33).
This argument fails for the reasons already explained in discussing Plaintiff’s likelihood of
succeeding on the merits of its claims. As noted, the court disagrees that the Indemnity Agreement
in this case requires Defendants to provide Guarantee with “security on demand” or collateral in
the form of payment upon demand for losses incurred. Instead, the Agreement contains a separate
section dealing with “collateral security to Surety” that is limited to the assignment, in the event
of Defendants’ default, of certain interests and rights. Pl.’s App. 7. The Agreement also includes
another provision that sets forth “SURETY’S REMEDIES IN EVENT OF DEFAULT” and
allows Guarantee, among other things, to take possession of work under contracts; assume all
rights under Defendants’ contracts; assume licenses/patents; and assert and prosecute claims
against Defendants. Thus, “collateral security’ under the parties’ Agreement is not synonymous
with the requirement that Defendants make payments for losses upon demand by Guarantee.
Accordingly, the parties’ Agreement does not support Guarantee’s assertion regarding the
parties’ rights and obligations; nor does the Agreement support Guarantee’s contention that it will
suffer irreparable harm if the court does not order Defendants to pay $6,400,000 immediately as
injunctive relief, which is the same amount of damages that it seeks to recover for its claims of
breach of contract and specific performance in this case.
Further, ordering Defendants to pay $6,400,000 now as injunctive relief would not, as
Plaintiff contends, preserve the status quo pending resolution of the parties’ claims and defenses
in this case. Instead, such an order would essentially award all money damages sought by Plaintiff
in this action under the guise of injunctive relief before it has established its entitlement to such
relief as the prevailing party. If the court were to proceed in this manner, there would be no point
in the case continuing, except for purposes of determining whether Plaintiff is also entitled to
recover attorney’s fees and expenses and interest on any amount awarded.
Finally, Plaintiff argues for the first time in its reply that Defendants’ insolvency or
inability to pay a money judgment strengthens its showing of irreparable harm:
Contradicting their position that a money judgment is available,
Indemnitors also argue that an injunction would be pointless because they have no
money or assets to post collateral. Indemnitors emphasize Ryan Dowdy’s
declaration that neither he, RKM, nor SHI Machinery have sufficient assets to
comply with the Eastern District of Texas’ prior injunction.
Pl.’s Reply 4 (footnotes omitted). Plaintiff contends that similar evidence of a “party’s possible
inability to pay a post-trial judgment [has been] found sufficient to constitute irreparable harm.”
Id. (quoting Radius Bank v. Stafford Transport of Louisiana, Inc., 2020 WL 3129639 at *4 (N.D.
Tex. 2020) (citing Texas Black Iron, Inc. v. Arawak Energy Int’l, Ltd., 527 S.W.3d 579 (Tex.
App.— Houston [14th Dist.] 2017, no pet.); and RWI Construction, Inc. v. Comerica Bank, 583
S.W.3d 269 (Tex. App.—Dallas 2019, no pet.)).
“[A] plaintiff’s inability to obtain monetary compensation from an insolvent defendant”
may constitute irreparable harm. Aspen Tech., Inc. v. M3 Tech., Inc., 569 F. App’x 259, 273 n.56
(5th Cir. 2014) (citing Molex, Inc. v. Nolen, 759 F.2d 474, 477 (5th Cir. 1985)). Arguments such
as this, though, that are made for the first time in a reply are generally not appropriate for
consideration. Perez v. Bruister, 823 F.3d 250, 273 n.31 (5th Cir. 2016) (citation omitted). The
court, therefore, declines to consider Plaintiff’s insolvency argument in determining whether it is
entitled to the injunctive relief requested or is likely to suffer irreparable harm if its Motion is
denied.
Moreover, the court does not interpret Defendants’ response—that they “Do Not Possess
Funds or Other Property to Respond to Guarantee’s Motion” or funds to “respond to Guarantee’s
pre-judgment request currently advanced before the Court and mischaracterized as ‘injunctive’
relief, even if granted by this Court”—in the same way Plaintiff suggests. Defs.’ Resp. 9. Whether
Defendants lack funds to comply with a prejudgment preliminary injunction order requiring them
to immediately pay the amount sought by Plaintiff (in this case or the case against them in the
Eastern District of Texas) is quite different from whether they will be able to satisfy a judgment
postjudgment, if one is entered against them in this case.
C. Remaining Requirements for a Preliminary Injunction
Regarding the last two requirements—whether the threatened harm to Plaintiff outweighs
the harm to Defendants and whether granting the preliminary injunctive relief sought by Plaintiff
will not disserve the public interest—Plaintiff contends that the balance of harms weighs in its
favor because it will suffer irreparable harm, whereas Defendants will simply be required to do
what they already agreed to do under the Indemnity Agreement. In addition, Plaintiff contends
that granting the relief it seeks will further the public interest in seeing that contractual agreements
between parties are upheld and surety companies remain solvent. The court disagrees and
determines that its discussion of various matters so far supports contrary findings as to these
requirements for injunctive relief.
Moreover, Plaintiff’s Motion and reply brief do not address another potential concern and
issue raised by Defendants regarding the effect, if any, of Mr. Dowdy’s bankruptcy on them and
the proceedings in this case. The first page of RKM’s and 2105 Waterview’s Answer alleges as
follows regarding Mr. Dowdy’s bankruptcy:
1. On November 24, 2020, a voluntary petition was filed by Defendant Ryan
Dowdy (“Dowdy”) seeking relief under Chapter 7 of the United States Bankruptcy
Court for the Eastern District of Texas, under cause no. 20-42346. See Dowdy’s
Suggestion of Bankruptcy (DN 6).
2. Section 362 of the United States Bankruptcy Code stays all actions,
including the above-captioned matter, against the Debtor Dowdy and his property.
3. Dowdy is the controlling majority owner of the over 95% of the equity
interests in both Defendant RKM and 2105 Waterview and, correspondingly, the
administration of Dowdy’s estate before that U.S. Bankruptcy Court necessarily
involves the treatment, management, and operations of those entities. Therefore,
the protections afforded under the automatic stay in bankruptcy should be applied
to Defendants as well as to Dowdy.
Answer 1-2 (Doc. 8). In response to Plaintiff’s Motion, Defendants similarly assert:
As previously brought to this Court’s attention, Ryan Dowdy filed for
bankruptcy relief on November 24, 2020. Ryan Dowdy is the sole shareholder of
RKM and the 99% member of 2105 Waterview. As such, Guarantee’s Motion
necessarily requests that this Court enter an order enjoining and otherwise
controlling the activity of and turnover of funds, if any, of two entities owned by a
debtor who is the subject of a pending, active bankruptcy proceeding, thereby
depleting any value remaining in those assets of the debtor to the detriment of his
creditors.
Defs.’ Resp. 12 (footnotes omitted).
As noted by Defendants, the filings in Mr. Dowdy’s Chapter 7 case allege that he is the
sole shareholder of RKM and a 99% member of 2105 Waterview. RKM is also identified as a
codebtor in the bankruptcy. Generally, codebtors are not protected by the automatic stay, which
only bars proceedings against the debtor. GATX Aircraft Corp. v. M/V COURTNEY LEIGH, 768
F.2d 711, 716 (Sth Cir.1984). There may, however, be “circumstances whe[n] the debtor and the
nonbankrupt party can be considered one entity or as having a unitary interest” such that “a section
362(a)(1) stay may suspend an action against a nonbankrupt codefendant,” for example, when the
action “seeks to obtain or exercise control over the property of the debtor.” See In re SUI.
Acquisition, Inc., 817 F.2d 1142, 1148-1151 (Sth Cir. 1987). Without further information and
briefing by the parties, it is unclear whether RKM and 2105 Waterview fall under this exception.
This issue is relevant to the court’s analysis regarding the third and fourth requirements for
injunctive relief. As the movant, it was Plaintiffs burden to flesh out this issue, which it has not
done to the court’s satisfaction. Accordingly, this too weighs against issuance of a preliminary
injunction order containing the relief sought by Plaintiff.
IV. Conclusion
For the reasons explained, the court denies Plaintiff's Motion for Preliminary Injunction
(Doc. 10).
It is so ordered this 23rd day of September, 2021.
United States District Judge
Memorandum Opinion and Order-Page 13