RLI Ins. v. Bank of America CA3

Background to RLI’s Cross-Complaint The Bank made a $147,000,000 construction loan to Highlands Hotel Company, LLC (Highlands) for the acquisition, development and construction of a resort hotel, including 23 condominium residences, at Truckee, California, and recorded a deed of

2 trust on the property. Highlands entered into sales contracts with various individuals to purchase residential units at the project (purchasers). These purchasers deposited earnest money in escrow. RLI issued a surety bond in favor of the purchasers in the amount of $5,000,000. A second surety, International Fidelity Insurance Company, issued a surety bond in favor of the purchasers in the amount of $3,000,000.1 Highlands defaulted on the construction loan and the Bank initiated foreclosure proceedings. Highlands declared bankruptcy and a receiver was appointed. Several purchasers (plaintiffs) who had deposited earnest money for the purchase of condominiums brought suit against Highlands and the sureties for return of their earnest money deposits. They subsequently filed a first amended complaint. RLI’s Cross-Complaint RLI filed a cross-complaint against the receiver, the other surety, and the Bank. As…