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May 2018

Dallas Team Scores Summary Judgment Win for Surety Brokers in Eight-Figure Case

Gordon Rees Scully Mansukhani Dallas Partner Bob Bragalone and Senior Counsel John Nevins represented a major surety bond broker and its independent consultant as third-party defendants in a case brought by a major surety company against personal guarantors on a construction bond. The surety had sued the personal guarantors in the U.S. District Court for the Northern District of Oklahoma after having had to make good on the bond.  The guarantors turned around and sued the firm’s broker clients in a third-party complaint, claiming they had been induced to execute the guaranty based on the brokers’ false representation in an email that the surety had agreed to exclude certain of their personal assets from the guaranty. The potential magnitude of the claim was more than $10 million.

In fact, the brokers had made such an email statement and it was incorrect.  However, Bob and John were able to prove that the guarantors did not receive that statement until after they had executed the guarantees, and thus could not have detrimentally relied on it as required for constructive fraud.  It also negated causation on the negligence claim. 

Seeing their third-party claim circling the drain, the guarantors changed their story in mid-motion, asserting that they had received oral reports of the incorrect statement before executing the guaranties. The firm’s reply argued (accompanied by a colorful chart of the chain of alleged representations) that the guarantors’ new assertions, even if creditable, were at least double hearsay and improper summary judgment evidence.

The federal court agreed on both arguments and granted the firm’s motion for summary judgment on the third-party claim.

Dallas Partner Steve Lawson assisted on the briefing.

Robert A. Bragalone