Zurich American Insurance Company et al v. L.P.C.&D., Inc. et al

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
ZURICH AMERICAN INSURANCE
COMPANY, ET AL.
Plaintiffs
v.
L.P.C.&D., INC. ET AL.
Defendants
CIVIL NO. 24-1538 (RAM)
OPINION AND ORDER
This 	matter 	comes 	before 	the 	Court 	on 	Defendants 	L.P.C.&D.,
Inc. 	(“LPCD”), 	Las 	Piedras 	Construction 	Corp. 	(“Las 	Piedras”),
Tejo, 	Inc. 	(“Tejo”), 	Equipment 	Depot, 	Inc. 	(“EDI”), 	Kane
Caribbean, 	Inc. 	(“KCI”), 	Piezas 	Extra, 	Inc. 	(“PEI”), 	Equipos 	de
Boquerón, 	Inc. 	(“EBI”), 	Caribbean 	Raceway 	Park, 	Inc. 	(“CRP”),
Hacienda 	Cuco, 	Inc. 	(“HCI”), 	and 	Pedro 	Feliciano 	Benítez
(“Feliciano 	Benítez”) 	(collectively, 	“Defendants” 	or
“Indemnitors”)’s Urgent Motion to Stay Enforcement of Preliminary
Injunction 	Pending 	Appeal 	(the 	“Motion”). 	(Docket 	No. 	103). 	The
Court 	DENIES 	the 	Motion 	and 	declines 	to 	stay 	the 	Indemnitors’
obligations 	to: 	(1) 	deposit 	collateral 	with 	Zurich 	American
Insurance 	Company 	(“Zurich”), 	on 	behalf 	of 	Plaintiffs 	Zurich,
Fidelity 	and 	Deposit 	Company 	of 	Maryland 	(“F&D”), 	XL 	Specialty
Insurance 	Company 	(“XLS”), 	and 	XL 	Reinsurance 	America, 	Inc.
(“XLR”) 	(collectively, 	“Plaintiffs” 	or 	“Sureties”); 	and 	(2)
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Civil No. 24-1538(RAM) 	2
provide the Sureties with the reasonable access to books, records,
and 	accounts 	demanded 	by 	the 	parties’ 	indemnity 	agreements.
(Docket No. 73 at 21-22).
The Indemnitors’ Motion petitions the Court for a stay of the
preliminary 	injunctive 	relief 	it 	awarded 	to 	the 	Sureties 	in 	its
Opinion and Order at Docket No. 73, id., pending the resolution of
the Indemnitors’ appeal before the United States Court of Appeals
for the First Circuit. (Docket No. 103 at 1).
“While 	an 	appeal 	is 	pending 	from 	an 	interlocutory 	order 	or
final judgment that grants...an injunction, the court may suspend,
modify, restore, or grant an injunction on terms for bond or other
terms 	that 	secure 	the 	opposing 	party’s 	rights.” 	Fed. 	R. 	Civ. 	P.
62(d). However, the grant of a stay pending appeal is an “intrusion
into the ordinary processes of administration and judicial review”
and 	relief 	is 	not 	granted 	as 	“a 	matter 	of 	right.” 	New 	York 	v.
Trump, 	133 	F.4th 	51, 	65 	(1st 	Cir. 	2025) 	(quoting 	Nken 	v. 	Holder,
556 	U.S. 	418, 	427 	(2009)). 	The 	Indemnitors 	bear 	“the 	burden 	of
demonstrating 	that 	they 	are 	entitled 	to 	the 	extraordinary 	relief
that they seek.” Rhode Island v. Trump, 155 F.4th 35, 41 (1st Cir.
2025) (quoting Somerville Pub. Schs. v. McMahon, 139 F.4th 63, 68
(1st 	Cir. 	2025)) 	(internal 	quotation 	marks 	omitted). 	The 	First
Circuit 	has 	consistently 	used 	the 	Nken 	test 	to 	determine 	the
propriety of staying a preliminary injunction pending appeal. See,
e.g., 	Rhode 	Island 	v. 	Trump, 	155 	F.4th 	at 	41 	(quoting 	Nken, 	556
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Civil No. 24-1538(RAM) 	3
U.S. 	at 	434). 	Applied 	here, 	the 	Nken 	test 	asks: 	(1) 	whether 	the
Indemnitors 	have 	made 	a 	“strong 	showing” 	of 	their 	likelihood 	of
success 	on 	the 	merits; 	(2) 	whether 	the 	Indemnitors 	will 	be
irreparably harmed absent the stay; (3) whether substantial injury
accrues to the Sureties on account of the stay; and (4) where the
public interest lies. Nken, 556 U.S. at 434.
The likelihood of success lies with the Sureties.1 As outlined
in the Court’s Opinion and Order at Docket No. 73, persuasive case
law 	and 	other 	authorities 	point 	clearly 	in 	the 	direction 	of
recognizing 	that 	a 	surety’s 	loss 	of 	its 	bargained-for 	collateral
is 	not 	a 	mere 	remediable 	monetary 	injury. 	(Docket 	No. 	73 	at 	15).
The Court’s view accords with the law of suretyship and the advice
of the Restatement (Third) of Suretyship and Guaranty. RESTATEMENT
(THIRD) OF SURETYSHIP AND GUARANTY § 21. The dominant trend in the
case 	law 	favors 	the 	course 	this 	Court 	has 	charted. 	See, 	e.g.,
Safeco Ins. Co. of Am. v. Schwab, 739 F.2d 431, 433 (9th Cir. 1984)
(“Sureties 	are 	ordinarily 	entitled 	to 	specific 	performance 	of
1 The Indemnitors’ argumentation as to the likelihood of success on the merits
relies 	on 	the 	“serious 	legal 	question” 	or 	“substantial 	case 	on 	the 	merits”
standard 	borrowed 	from 	other 	circuits, 	as 	opposed 	to 	the 	“requisite 	strong
showing” standard for likelihood of success required in this Circuit. See, e.g.,
Rhode Island v. Trump, 155 F.4th at 42 (quoting Nken, 556 U.S. at 434) (internal
quotation marks omitted). In the First Circuit, the likelihood of success on
the merits is the indispensable ingredient necessary to a preliminary injunction
finding. New Comm Wireless Servs., Inc. v. SprintCom, Inc., 287 F.3d 1, 9 (1st
Cir. 	2002) 	(“[t]he 	sine 	qua 	non 	of 	this 	four-part 	inquiry 	is 	likelihood 	of
success on the merits: if the moving party cannot demonstrate that he is likely
to 	succeed 	in 	his 	quest, 	the 	remaining 	factors 	become 	matters 	of 	idle
curiosity”); Acevedo-Garcia v. Vera-Monroig, 296 F.3d 13, 16 (1st Cir. 2002)
(“[t]he 	sine 	qua 	non 	[of 	the 	stay 	pending 	appeal 	standard] 	is 	whether 	the
[movants] are likely to succeed on the merits”) (quoting Weaver v. Henderson,
984 F.2d 11, 12 (1st Cir. 1993)).
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Civil No. 24-1538(RAM) 	4
collateral security clauses”); Merchs. Bonding Co. (Mut.) v. Ark.
Constr. 	Sols., 	LLC, 	2019 	WL 	452767, 	*4 	(W.D. 	Ark. 	2019) 	(“In 	the
Court’s 	view, 	there 	are 	more 	district 	courts 	that 	come 	down
squarely on the side of granting preliminary injunctive relief in
indemnity 	agreement 	cases”). 	District 	courts 	surveying 	the 	case
law 	from 	across 	the 	country 	have 	observed 	that 	“an 	overwhelming
majority of district courts” have sided with sureties in ordering
indemnitors 	to 	furnish 	collateral. 	Argonaut 	Ins. 	Co. 	v. 	Summit
Concrete, 	Inc., 	647 	F. 	Supp. 	3d 	1228, 	1233 	(N.D. 	Ala. 	2022)
(collateralization 	“is 	necessary 	to 	protect...the 	bargained-for
benefit 	of 	collateral 	security, 	avoidance 	of 	present 	exposure 	to
liability 	during 	pending 	litigation 	against 	indemnitors, 	and
avoidance 	of 	risk 	that...the 	surety 	will 	be 	left 	as 	a 	general
unsecured 	creditor”). 	Other 	courts’ 	review 	of 	the 	precedent 	has
remarked 	that 	“case 	law 	nationwide 	has 	recognized 	the 	right 	of 	a
surety 	to 	use 	the 	equitable 	remedy 	of 	specific 	enforcement 	to
secure collateralization.” Auto-Owners Ins. Co. v. Randy B. Terry,
Inc., 	2013 	WL 	6583959, 	at 	*6 	(N.D. 	Ala. 	2013). 	Similarly, 	other
districts 	have 	noted 	that 	courts 	“routinely” 	find 	that 	“sureties
suffer 	immediate, 	irreparable 	harm 	if 	they 	are 	denied 	receipt 	of
collateral,” 	and 	“generally” 	grant 	“specific 	performance 	to
enforce 	collateral 	security 	clauses 	based 	on 	the 	premise 	[that]
such 	remedy 	is 	required 	to 	protect 	the 	surety’s 	bargain.” 	Great
Am. 	Ins. 	Co. 	v. 	SRS, 	Inc., 	2011 	WL 	6754072, 	at 	*8 	(M.D. 	Tenn.
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Civil No. 24-1538(RAM) 	5
2011); 	Liberty 	Mut. 	Ins. 	Co. 	v. 	Nat’l 	Pers. 	of 	Texas, 	Inc., 	2004
WL 583531, at *2 (N.D. Tex. 2004).
With 	this 	finding 	of 	the 	Sureties’ 	likelihood 	of 	success 	on
the merits in tow, the remaining factors are little more than “idle
curiosity.” New Comm Wireless Servs., Inc. v. SprintCom, Inc., 287
F.3d 1, 9 (1st Cir. 2002). For the sake of completeness, the Court
explores the remaining three factors below.
The 	Indemnitors 	will 	not 	be 	irreparably 	harmed 	by 	being
required to deposit collateral or provide the Sureties with access
to 	books. 	(Docket 	No. 	73 	at 	21-22). 	As 	to 	the 	Indemnitors’
complaint about the “forced disgorgement of $2.68 million in cash,”
there 	is 	no 	“irreparable 	injury 	where 	only 	money 	is 	at 	stake 	and
where 	the 	[affected 	party] 	has 	a 	satisfactory 	remedy 	at 	law 	to
recover 	the 	money 	at 	issue.” 	Foxboro 	Co. 	v. 	Arabian 	Am. 	Oil 	Co.,
805 	F.2d 	34, 	36 	(1st 	Cir. 	1986). 	That 	is 	true 	of 	deposited
collateral.
Similarly, 	to 	the 	extent 	that 	the 	Indemnitors 	fear
“irreversible 	disclosure” 	and 	the 	forfeiture 	of 	“privacy 	and
informational interests” were the Sureties to inspect their books,
these 	concerns 	may 	be 	mitigated 	through 	a 	separate 	protective
order. Fed. R. Civ. P. 26(c) exists for this purpose and authorizes
the protection of confidential commercial information by requiring
that 	such 	information 	“not 	be 	revealed 	or 	be 	revealed 	only 	in 	a
specified 	way.” 	See 	also 	Fed. 	Open 	Mkt. 	Comm. 	of 	Fed. 	Rsrv. 	Sys.
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Civil No. 24-1538(RAM) 	6
v. 	Merrill, 	443 	U.S. 	340, 	363 	(1979) 	(“orders 	forbidding 	any
disclosure of trade secrets or confidential commercial information
are 	rare. 	More 	commonly, 	the 	trial 	court 	will 	enter 	a 	protective
order 	restricting 	disclosure 	to 	counsel”); 	2 	Edward 	J.
Imwinkelried, The New Wigmore: A Treatise on Evidence: Evidentiary
Privileges 	§ 	9.2.3 	(explaining 	how, 	in 	most 	cases, 	a 	judge 	can
balance the need for information with the need for secrecy through
a 	protective 	order 	by 	“by 	carefully 	tailoring 	the 	terms 	of 	the
protective order to the needs of the case”). The Court also notes
that 	the 	indemnity 	agreement 	between 	the 	parties 	in 	the 	case 	at
bar 	specifically 	enshrined 	the 	Sureties’ 	right 	to 	reasonable
access to the Indemnitors’ books. See (Docket No. 63-4 at 3) (“[a]t
any time, and until such time as the liability of the Surety under
any 	and 	all 	said 	Bonds 	is 	terminated, 	the 	Surety 	shall 	have 	the
right to reasonable access to the books, records, and accounts”);
see 	also 	(Docket 	No. 	2-1 	at 	1) 	(indemnity 	agreement 	under 	which
the Indemnitors agreed to deposit collateral with the Sureties “as
soon 	as 	liability 	exists 	or 	is 	asserted”). 	“It 	is 	no 	appropriate
part of judicial business to rewrite contracts freely entered into
between 	sophisticated 	business 	entities.” 	RCI 	Ne. 	Servs. 	Div. 	v.
Bos. Edison Co., 822 F.2d 199, 205 (1st Cir. 1987).
A stay in this context will necessarily injure the Sureties.
As discussed above and in the Court’s Opinion and Order at Docket
No. 73, the Sureties suffer the injury of not just future dollars
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Civil No. 24-1538(RAM) 	7
paid, 	but 	also 	the 	infliction 	of 	an 	unbargained-for 	risk 	of 	loss
as 	well 	as 	the 	annulment 	of 	the 	contractual 	right 	to 	immediate
collateral that they did acquire. (Docket No. 73 at 10). As well,
the 	Indemnitors’ 	briefing 	on 	this 	point 	rests 	on 	the 	assumption
that 	adequate 	security 	for 	the 	Sureties 	“already 	exists” 	because
of 	a 	sum 	allegedly 	deposited 	as 	“retainage” 	by 	the 	Puerto 	Rico
Aqueduct 	and 	Sewer 	Authority 	(“PRASA”) 	in 	related 	state 	court
litigation. 	(Docket 	Nos. 	63 	at 	35 	n.28, 	103 	at 	9-10). 	The 	Court
cannot credit this assertion for four separate reasons.
First, Magistrate Judge Lopez’s Report and Recommendation (“R
& 	R”) 	explicitly 	considered 	the 	argument 	that 	the 	Indemnitors
restate 	here, 	ruling 	that 	it 	was 	not 	sufficiently 	developed 	to
warrant judgment:
During the hearing, Defendants inquired about
the 	fact 	that 	PRASA 	deposited 	a 	four 	million
three hundred thousand dollar ($4,300,000.00)
retainage 	amount 	in 	the 	state 	court 	for 	its
liability in the Soletanche Litigation, which
Plaintiffs 	did 	not 	consider 	during 	the
calculations 	for 	their 	loss 	reserve. 	ECF 	No.
58, 	Evid. 	Hrg., 	Aug. 	20, 	2025, 	at 	1:40:39-
1:41:58. 	Defendants 	attempted 	to 	argue 	that
Plaintiffs should have considered this deposit
when 	calculating 	their 	reserves 	as 	it 	would
impact 	the 	exposure 	risk 	Plaintiffs 	are
facing. 	3:45:46-3:46:17, 	3:46:40-3:47:25.
However, Defendants failed to explain why the
retainage amount PRASA deposited to cover its
liability in the Soletanche Litigation should
have 	been 	considered 	by 	Plaintiffs 	when
calculating 	their 	exposure 	risk, 	when 	the
Appellate 	Judgment 	clearly 	separates 	the
liability 	amount 	PRASA 	faces 	from 	the
liability 	amount 	LPCD 	and 	the 	Sureties 	face.
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Civil No. 24-1538(RAM) 	8
Exhibit 	5-t 	at 	p. 	69. 	In 	fact, 	neither 	party
elaborated this point during the hearing, nor
have 	they 	provided 	information, 	written 	or
otherwise, 	of 	the 	impact, 	if 	any, 	it 	has 	on
Plaintiffs’ 	exposure 	risk. 	ECF 	No. 	58, 	Evid.
Hrg., 	Aug. 	20, 	2025, 	at 	3:47:31-3:47:46,
3:47:55-3:48:02, 	3:48:55-3:49:09. 	With 	this
limited information, a determination cannot be
made in this regard.
(Docket No. 63 at 35 n.28)
The proper stage to contest the Magistrate’s conclusion came
when 	the 	Indemnitors 	filed 	their 	Objection 	to 	the 	R 	& 	R. 	(Docket
No. 	71). 	In 	it, 	they 	are 	altogether 	silent 	as 	to 	the 	question 	of
funds under judicial custody in state court. Id.
Second, even putting that waiver aside, the record continues
to 	remain 	undeveloped. 	For 	completeness, 	the 	Court 	has 	reviewed
it. The Indemnitors do not attach to their Motion any Commonwealth
court 	order 	conclusively 	establishing 	that 	PRASA 	funds 	are
presently 	earmarked 	for 	the 	Sureties, 	legally 	reachable 	by 	them,
or 	free 	of 	competing 	claims. 	Instead, 	the 	Indemnitors 	reiterate
the 	argument 	rejected 	by 	the 	Court 	in 	denying 	their 	Motion 	for
Reconsideration. 	(Docket 	No. 	103 	at 	8). 	The 	Indemnitors 	have 	not
answered 	the 	Magistrate’s 	query 	as 	to 	why 	a 	retainage 	amount
deposited by PRASA to cover its liability in a Commonwealth court
should 	be 	considered 	relevant 	to 	the 	Sureties’ 	exposure. 	(Docket
No. 63 at 35 n.28). For their part, the Sureties have represented,
in 	their 	Opposition 	to 	the 	Indemnitors’ 	Motion 	for
Reconsideration, 	that 	the 	motion 	for 	execution 	of 	judgment
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Civil No. 24-1538(RAM) 	9
relevant 	to 	the 	PRASA 	funds 	remains 	pending 	in 	Commonwealth
proceedings. 	(Docket 	No. 	93 	at 	6). 	The 	Indemnitors 	attach 	no
evidence of a final resolution to the contrary.
Third, the Indemnitors’ own language confirms the speculative
nature 	of 	their 	position. 	They 	state 	only 	that 	“approximately
$3,366,305.40 remains potentially available for L.P.C.&D., Inc. or
its 	sureties.” 	(Docket 	No. 	103 	at 	9) 	(emphasis 	added). 	Potential
availability does not equal collateral security. Neither does this
sort of potentiality establish that the Sureties presently possess
collateral 	equivalent 	to 	what 	the 	Court 	has 	concluded 	they 	are
entitled to from the Indemnitors.
Fourth, even if these PRASA funds exist in the manner claimed
by the Indemnitors, they are under the purview of the Puerto Rico
courts. 	Under 	longstanding 	Supreme 	Court 	precedent, 	the 	state 	or
federal 	court 	that 	first 	acquires 	jurisdiction 	“draws 	to 	itself
the exclusive authority to control and dispose of the res.” Kline
v. 	Burke 	Const. 	Co., 	260 	U.S. 	226, 	235 	(1922). 	“[B]oth 	courts
cannot possess or control the same thing at the same time, and any
attempt 	to 	do 	so 	would 	result 	in 	unseemly 	conflict.” 	Id. 	It 	is
unclear, therefore, how the Indemnitors expect this District Court
to make use of a sum allegedly deposited as “retainage” by a third
party in Commonwealth court litigation.
Given 	the 	above, 	the 	public 	interest 	does 	not 	favor 	a 	stay.
Enforcing the clear contractual obligations at issue in this case
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Civil No. 24-1538(RAM) 	10
is in the interest of the public, as is respecting the jurisdiction
of the Commonwealth courts over funds in their custody.
The 	Court 	DENIES 	the 	Motion 	and 	declines 	to 	stay 	the
Indemnitors’ obligations to (1) deposit collateral with Zurich in
the 	amount 	of 	$2,676,471.31, 	and 	(2) 	provide 	the 	Sureties 	with
reasonable access to books, records, and accounts.
IT IS SO ORDERED.
In San Juan Puerto Rico, this 5 th day of May 2026.
S/ RAÚL M. ARIAS-MARXUACH
United States District Judge
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