International Fidelity Ins. Co. v. Bank of America CA3

Background to IFIC’s Cross-Complaint Highlands Hotel Company, LLC (Highlands) was the developer of a resort hotel and condominium project at Northstar. To finance the acquisition, development and construction of the project, the Bank made a $147,000,000 construction loan to Highlands, secured by a deed of trust recorded against the project. Highlands entered into sales contracts with various individuals to purchase residential units at the project (purchasers). These purchasers deposited earnest money in escrow. As required by Business and Professions Code sections 11013.2 and 11013.4, Highlands and its development partner, East West Resort Development IX (East West IX), requested that IFIC issue a blanket surety bond to secure return of the deposits. IFIC issued a surety bond on behalf of Highlands in the amount of $3,000,000. Highlands and East West IX executed an indemnity agreement in favor of IFIC. Highlands defaulted on the construction loan and the Bank initiated foreclosure proceedings, causing the court to appoint a receiver to take control of the project. Several purchasers (plaintiffs) who had deposited earnest money for the purchase of condominiums brought suit against…