Liberty Mutual v. Devere Construction

8/19/2019 Liberty Mutual v. Devere Construction

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IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF MICHIGAN

Liberty Mutual Insurance Company, )a Massachusetts Corporation )

))Plaintiff, ) Case No. 1:16-CV-10421

)vs. ) Judge

)DeVere Construction Co., Inc., a Michigan )Corporation, Crittenden Construction Co., Inc., )a Michigan Corporation, Reds Traders Limited, )a foreign corporation, a Belize Company, )Richard Lee Crittenden, a Michigan Individual, )

Michael Bruce Crittenden, a Michigan Individual, )Cynthia Sue Gabara,a Michigan Individual, )Cheryl Jean Lumsden, a Michigan Individual, )DeVere Swepco JV, LLC, a Louisiana Limited )

Liability Company, DeVere Construction )Company – MI, LLC, a Michigan Limited Liability )Company, )

Defendants. ) _________________________________________ )

COMPLAINT

Liberty Mutual Insurance Company (“Liberty”), by and through its attorney John E.

Sebastian of Watt, Tieder, Hoffar & Fitzgerald, L.L.P., sets forth the following complaint against

Defendants DeVere Construction Co., Inc., Crittenden Construction Co., Inc., Reds Traders

Limited, Richard Lee Crittenden, Michael Bruce Crittenden, Cynthia Sue Gabara, Cheryl Jean

Lumsden, DeVere Swepco JV, LLC, and DeVere Construction Company – MI, LLC

(collectively “Defendants” or “Indemnitors”).

PARTIES

1. Liberty is a Massachusetts corporation and citizen organized and existing under

the laws of the State of Massachusetts, with its principal place of business at 175 Berkeley Street,

Boston, MA 02116.

1:16-cv-10423-TLL-PTM Doc # 1 Filed 02/05/16 Pg 1 of 62 Pg ID 1


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2. DeVere Construction Co., Inc. (“DeVere Construction” or “DeVere”), is a

Michigan corporation and citizen existing under the laws of the State of Michigan, with its

principal place of business at 1030 DeVere Drive, Alpena, MI 49707, and can be served care of

its registered agent Richard Lee Crittenden at the same address.

3. Crittenden Construction Co., Inc. (“Crittenden Construction”), is a Michigan

corporation and citizen existing under the laws of the State of Michigan, with its principal place

of business at 1030 DeVere Drive, Alpena, MI 49707 and can be served care of its registered

agent Bruce D. Crittenden at the same address.

4. Reds Traders Limited has its principal place of business at 40A Central America

Boulevard, Belize City, Belize, and can be served care of Richard Lee Crittenden.

5. Richard Lee Crittenden is a Michigan citizen and resident located 1921 Long

Rapids Road, Alpena, MI 49707.

6. Michael Bruce Crittenden is a Michigan citizen and resident located in 4515 Long

Rapids Road, Alpena, MI 49707.

7. Cynthia Sue Gabara is a Michigan citizen and resident located at 101 Bernice

Lane, Alpena, MI 49707.

8. Cheryl Jean Lumsden is a Michigan citizen and resident located at 6251 Leer

Road, Lachine, MI 49753.

9. DeVere Swepco JV, LLC is a Louisiana limited liability company with its

principal place of business at 8126 One Calais Ave, Suite 2-C, Baton Rouge, LA 70809 and can

be served care of its registered agent John E. Seago at 8126 One Calais Ave., Suite 2-C, Baton

Rouge, LA 70809.



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10. DeVere Construction Company – MI, LLC, is a Michigan limited liability

company with its principal place of business at 1030 DeVere Drive, Alpena, MI 49707 and can

be served care of its registered agent Richard Lee Crittenden at the same address.

JURISDICTION AND VENUE

11. This court has jurisdiction over this cause under 28 U.S.C. §1332(a)(1) in that the

matter in controversy, exclusive of interest and costs, exceeds the sum or value of $75,000.00,

and is between citizens of different states.

12. Venue is proper in this Court under 28 U.S.C. § 1391(b) in that a substantial part

of the events or omissions giving rise to the claim occurred in this District and several

Defendants reside in this District.

FACTS COMMON TO ALL COUNTS

A. The Bonds and Indemnity Agreement.

13. DeVere Construction is in the business of providing construction services for

public and private construction projects located in the State of Michigan and elsewhere.

14. In accordance with its contracts between DeVere Construction and the various

Project owners for the Projects, and the governing bond acts, DeVere Construction was required

to obtain and provide payment and performance surety bonds for the Projects identified in

Paragraph 15 (referred to as the “Projects”) to guarantee DeVere Construction’s performance

obligations under the contracts and to secure DeVere Construction’s payment obligations to its

subcontractors and materialmen that it engaged for the Projects, subject to the terms of the

Bonds, the contracts and law.



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15. Pursuant to and at the request of DeVere Construction and the Indemnitors,

Liberty, as surety, issued payment and performance bonds on behalf of DeVere Construction as

principal, in connection with the Projects as follows:

Principal Project Obligee Bond No. Penal Sum

DeVereConstructionCo., Inc.

C203044 NC DOTBridge #156 Over CSXRailroad

NorthCarolinaDepartment of Transportation

013124963 1,897,666.00


US-221 from SouthCarolina Line to Southof Floyd's Creek


013023593 35,855,177.00

DeVere

ConstructionCo., Inc.

Contract No. C202265

NCDOT RutherfordPhase II

North

CarolinaDepartment of Transportation

013124066 $30,438,069.00


Sanford Bypass NorthCarolinaDepartment of Transportation

013124115 30,181,609.00


Contract No. C202583 NCDOT RolesvilleBypass

NorthCarolinaDepartment of

Transportation

013124193 $24,956,388.00


NCDOT C202847Bridge #36 at US-301on I-95 (Robeson)


013125048 12,662,052.00


NCDOT C202880Bridges #235 & #238(Buncombe County)


013125079 11,947,609.00

DeVereConstruction

Co., Inc.

Contract No. C203133Jackson County NC-

166 to NC107

NorthCarolina

Department of Transportation

013125344 $15,939,043.00


NCDOT C202824Mecklenburg CountyIndependence Blvd.


013125523 51,669,285.00

DeVereConstruction

NCDOT DN00178Bridge #251 & #253

NorthCarolina

013126077 990,087.00



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Co., Inc. Jackson County Department of Transportation


NCDOT C202573Wake Co. Bridge Over Beaver Creek


Transportation

013126113 3,927,599.00


NCDOT C203347Henderson Co. Bridge#42 - Saconon Creek


013126115 1,024,949.00


C203284 Bridges #147& 140 Over MallardCreek


013126237 4,393,837.00

DeVereConstruction

Co., Inc.

Northeast RemoteOperations Facility

City of Raleigh

013125247 $17,193,000.00


Bridge #69 over CCSXRailroad on SR-1576


013125226 1,288,601.00


Wilkes Bridge 302Reddies River -C203303


013126083 972,073.00

DeVereConstruction

Co., Inc.

Ctawba Bridge 83 -C203299

NorthCarolina

Department of Transportation

013126084 894,894.00


Falls of Nuese Phase IIRoadway


013124100 6,516,956.00


NCDOT C202842Henderson CountyBridges #75 & #76


013125404 1,317,685.00

DeVere

ConstructionCo., Inc.

Richmond County US

220 Bypass Waterline

Richmond

County

013125200 3,722,258.00


Union County East SideSewer SystemImprovements

Union County 013124656 7,222,781.00

DeVereConstruction

Fayetteville AnnexationPhase V, Shenandoah

City of Fayetteville

013125400 2,712,339.00



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Co., Inc. Subdivision


Henderson Water Reclamation FacilityImprovements

City of Henderson

013125412 $15,519,000.00


Chestnut ParkwayPhase 1B - Indian Trail Town of Indian Trail 013125893 1,415,527.00


Lynwood Lakes Water & Sewer Improvements

City of Greensboro

013125966 10,768,026.00


Leesille Road WideningPW 2011-05

City of Raleigh

013125978 5,561,233.00

DeVereConstruction

Co., Inc.

Albemarle Water Transmission Line

Contract 2 Division 1 &2

City of Concord

013125845 17,816,599.00


Millennium One UNCCMillenniumLLC

013125733 28,675,182.00


Highland Creek Relief School - Sitework

Clancy &TheysConstructionCo.

013126261 2,019,882.00


WestgateDevelopment/ParkwoodPlace Subdivision

WestgateDevelopment,Inc.

013125877 $2,200,000.00

Swepco, Inc. SRPP-2522-24 N. TontiStreet-Reconstruction

Louise Lefloreand State of Louisiana

013125402 276,510.00

DeVereConstruction

Co., Inc.

Cypress Grove Homesof Warren

CGH of Warren AR

2011, L.P.

013125544 4,144,875.00


Cypress Grove Homesof McGehee

CGH of McGeHee AR 2011, L.P.

013125690 3,880,500.00

DeVereConstruction

Cypress Grove Homesof Lake Village

CGH of LakeVillage AR

013125547 4,049,400.00



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Co., Inc. 2011, L.P.


Bay River Medical 4C'sAcquisitions,Inc.

013126454 3,442,200.00


ARMC EmergencyDepartment & EnablingProjects Phases 1-5

AlpenaRegionalMedicalCenter

013125951 3,942,641.00


M00216; IBA-US TollPlaza Redevelopment

MichiganDepartmentOf Transportation

013126390 8,889,575.00

TOTAL $380,325,107.00

The Bonds in the above referenced table will be collectively referred to as the “Bonds.” The

Obligees in the above referenced table will be referred to as the “Obligees.” The Projects in the

above referenced table will be referred to as the “Projects.”

16. As a condition for Liberty’s issuance of Bonds on behalf of DeVere Construction,

Liberty first required that the Indemnitors enter into a General Agreement of Indemnity.

17. On or about March 14, 1995, a General Agreement of Indemnity was executed,

between DeVere Construction, Crittenden Construction., Reds Traders Limited, Richard

Crittenden, Cynthia S. Gabara, Cheryl Lumsden and Michael B. Crittenden, as indemnitors, and

Liberty, as surety (“1995 GAI”). A true and correct copy of the 1995 GAI is attached hereto as

Exhibit A.

18. On or about July 29, 2010, DeVere Construction., Crittenden Construction,

DeVere/FCC, LLC; Flaherty & Collins Construction, Inc., Anson Member I, LLC, Richard Lee

Crittenden, Michael Bruce Crittenden, Cynthia Sue Gabara, and Cheryl Jean Lumsden executed



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a second General Agreement of Indemnity in favor of Liberty, (“Indemnity Agreement”). A true

and correct copy of the Indemnity Agreement is attached hereto as Exhibit B

19. The Indemnity Agreement limits the liability of DeVere/FCC, LLC, Flaherty &

Collins Construction, Inc., and Anson Member I, LLC, to only those bonds issued for

DeVere/FCC, LLC, as Principal.

20. On or about March 28, 2011, Amendment No. 1 to the Indemnity Agreement was

executed to add the following entities DeVere Swepco JV, LLC, DeVere Construction Company

– MI, LLC, and Swepco, Inc. as indemnitors to the Indemnity Agreement. Amendment No. 1

added Swepson Chaney as an indemnitor to the Indemnity Agreement but limited Swepson

Chaney’s liability under the Indemnity Agreement to the extent that DeVere Swepco JV, LLC or

Swepco, Inc., are principals on a bond. A true and correct copy of Amendment No. 1 is attached

hereto as Exhibit C.

21. Amendment No. 2 to the Indemnity Agreement adds D.A. Thomas Construction

Company, Inc., and David Thomas as indemnitors to the Indemnity Agreement but limits

liability to bonds that D.A. Thomas Construction Company, Inc., and/or David Thomas are

identified as principals or in a joint venture with any other party to the Indemnity Agreement. A

true and correct copy of Amendment No. 2 is attached hereto as Exhibit D.

22. On or about January 11, 2012, Amendment No. 3 to the Indemnity Agreement

was executed to add Chapel Place Homes I, L.P., and Gary Gibbs as indemnitors to the

Indemnity Agreement but limits liability to bonds that Chapel Place Homes I, L.P., and/or Gary

Gibbs are the principals or in a joint venture with any other party to the Indemnity Agreement. A

true and correct copy of Amendment No. 3 is attached hereto as Exhibit E.



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23. On or about October 15, 2012, Amendment No. 4 to the Indemnity Agreement

was executed to add HICAPS, Inc., Daniel M. Hood, R. Wayne McGee, and Peyton Fairbank as

indemnitors to the Indemnity Agreement but limits liability for bonds issued for HICAPS, Inc.,

Daniel M. Hood, R. Wayne McGee, and Peyton Fairbank as Principal, either alone or in joint

venture with another indemnitor or principal. A true and correct copy of Amendment No. 4 is

attached hereto as Exhibit F.

24. On or about October 22, 2012, Amendment No. 5 to the Indemnity Agreement

was executed to add Consultech Environmental, LLC, Consultech DeVere JV, LLC, Pragna R.

Shah and Rajesh B. Shah as indemnitors to the Indemnity Agreement but limits liability to bonds

issued for Consultech Environmental, LLC, Consultech DeVere JV, LLC, and/or any joint

venture to which either is a party. A true and correct copy of Amendment No. 5 is attached

hereto as Exhibit G.

25. As for the Defendants, the Indemnity Agreement requires, in part, the Indemnitors

to indemnify and hold Liberty harmless from any and all liability, loss, costs and expenses of

whatsoever kind and nature, Liberty incurs by reason of having executed any Bond, including the

Bonds, on behalf of DeVere Construction or as a result of any default under the Indemnity

Agreement, as detailed below.

The Indemnitors shall exonerate, hold harmless, indemnify, andkeep indemnified the Surety from and against any and all liabilityfor losses, fees, costs and expenses of whatsoever kind or natureincluding, but not limited to, pre- and post-judgment interest at themaximum rate permitted by law accruing from the date of a breachof this Agreement or a breach of any other written agreements

between or for the benefit of the Surety and the Idemnitor(s) and/or Principal(s), court costs, counsel fees, accounting, engineering andother outside consulting fees and from and against any and all suchlosses, fees, costs and expenses which the Surety may sustain or incur: (1) by reason of being requested to execute or procure theexecution of any Bond; or (2) by having executed or procured the



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execution of any Bond; or (3) by reason of the failure of theIndemnitors or Principals to perform or comply with any of thecovenants and conditions of this Agreement or Other Agreements;or (4) in enforcing any of the covenants and conditions of thisAgreement or Other Agreements.

Exhibit B, ¶2.

26. The Indemnity Agreement also requires, in part, the Indemnitors to deposit and

pay to Liberty upon demand as collateral security as follows:

If Surety determines, in its sole judgment, that potential liabilityexists for losses and/or fees, costs, and expenses for which theIndemnitors and Principals will be obliged to indemnify the Surety,

promptly upon demand, a sum of money equal to an amountdetermined by the Surety or collateral security of a type and valuesatisfactory to the Surety, to cover that liability, whether or not theSurety has: (a) established or increased any reserve; (b) made any

payments; or (c) received any notice of any claims therefor. At theSurety’s sole option, such collateral shall be in addition to and notin lieu of any other collateral that has been previously provided tothe Surety. The Surety shall have the right to use any collateral, or any part thereof, in payment or settlement of any such liabilities for which the Indemnitors and Principals would be obliged toindemnify the Surety under the terms of this Agreement or Other Agreements.

Exhibit B, ¶2.

27. The Indemnity Agreement also requires, in part, the Indemnitors provide access to

Indemnitors books and records and failure to do so is an express breach of the Indemnity

Agreement. The Indemnity Agreement provides in relevant part:

In addition to the foregoing, at any time, and until such time as theliability of the Surety under any and all Bonds is terminated, or theSurety is fully reimbursed all amounts due to it under this

Agreement or Other Agreements, the Surety shall have the right of reasonable access to the books, records and/or accounts of theIndemnitors and Principals…Failure to provide the informationrequired in this paragraph shall be a breach of this Agreement, andshall entitle Surety to demand, in its sole discretion, cash collateralup to the penal sum of any outstanding Bond(s).

Exhibit B, ¶8.



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28. The Indemnity Agreement also provides that the Indemnitors’ interest, title and

rights in Bonded Contracts, including, but not limited to, accounts receivables for Bonded

Contracts, are held as a trust fund that Liberty has an express interest in. The Indemnity

Agreement provides, in relevant part:

To the extent permitted under applicable law, the Indemnitors andPrincipals covenant and agree that all of their interest, title andrights in any contract or undertaking referred to in any Bond, or in,or growing in any manner out of any Bond, including but notlimited to payments for or on account of any contract, shall be heldas a trust fund and/or as a constructive or equitable trust in whichthe Surety has an interest, and shall inure to the benefit of theSurety for any liability or loss it may have to sustain under any

Bond including but not limited to the payment of obligationsincurred in the performance of any contract and for labor,materials, and services furnished in the prosecution of the work

provided in any contract or any authorized extension or modification thereof; and, further, it is expressly understood anddeclared that all monies due and to become due under any contractcovered by any Bond are trust funds, whether in the possession of the Indemnitors or Principals or otherwise, for the benefit of andfor payment of all such obligations in connection with any suchcontract for which the Surety would be liable under any Bond; saidtrust also inures to the benefit of the Surety for any liability or lossit may have or sustain under any Bond, under this Agreement, or under any Other Agreements, and this Agreement constitutesnotice of such trust.

Exhibit B, ¶11.

B. Indemnitors’ Representations Inducing Liberty’s Subsequent Issuance of Bonds.

29. In addition to executing the Indemnity Agreement, as a condition precedent to

Liberty issuing Bonds on behalf of the DeVere Construction, Liberty required that the

Indemnitors submit certain financial information to Liberty revealing the assets which would be

available to indemnify Liberty for any loss, costs or expenses related to the Bonds. 1

1 All financial statements submitted by various Indemnitors and as discussed in the instant Complaint will be provided to Defendants and the Court under seal in order to preserve the Indemnitors’ confidentiality of personalfinancial information.



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30. Liberty reasonably and justifiably relied upon the financial information the

Indemnitors provided Liberty.

a. The Individual Indemnitors’ 2010 Financial Statements

i. Richard Crittenden’s Personal Financial Statements

31. Richard Crittenden and his wife, Tamyra Crittenden, submitted to Liberty a

personal financial statement dated December 31, 2010.

32. Crittenden’s 2010 Personal Financial Statement provided that his net worth was

Eight Million Eight Hundred Seventy-Four Thousand Thirty-Nine and 91/100 Dollars

($8,874,039.91). Of that amount, Crittenden claimed to have assets of the following:

Category Amount

Cash $135,306.72

Note Receivable from DeVere $1,120,000.00

Stocks/Equity $6,569,209.00

Real Estate $700,000.00

Personal Property $80,000.00

Retirement Accounts $415,117.00

Total Assets $9,019,632.72

33. Based upon the Crittenden’s representations made to Liberty as set forth in his

respective 2010 Personal Financial Statements, Liberty agreed to issue the Bonds.

34. Liberty reasonably and justifiably relied upon the accuracy of the 2010 Personal

Financial Statements provided by Crittenden. Such financial statements were material to

Liberty’s decision to issue the Bonds.



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35. In reliance upon Crittenden’s representations of his assets made to Liberty as set

forth in his respective 2010 Personal Financial Statements and subject to the execution of the

Indemnity Agreement, Liberty agreed to issue and continue to issue surety credit to DeVere

Construction.

ii. Cynthia Gabara’s Personal Financial Statements

36. Cynthia Gabara and her husband, Merton Gabara, submitted to Liberty a personal

financial statement dated December 31, 2010.

37. The Gabara’s 2010 Personal Financial Statement provided that her net worth was

Four Million Nine Hundred Sixty-One Thousand Fifteen and 81/100 Dollars ($4,927,357.81). Of

that amount, Garbara claimed to have assets of the following:

Category Amount

Cash $101,453.49

Note Receivable from DeVere $320,000.00





Life Insurance $151,339.57


38. Based upon Garbara’s representations made to Liberty as set forth in her




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Financial Statements provided by Gabara. Such financial statements were material to Liberty’s

decision to issue the Bonds.

40. In reliance upon Gabara’s representations of her assets made to Liberty as set

forth in their respective 2010 Personal Financial Statements and subject to the execution of the

Indemnity Agreement, Liberty agreed to issue and continue to issue surety credit to the DeVere

Construction.

b. The Individual Indemnitors’ 2013 Financial Statements


41. Richard Crittenden and his wife, Tamyra Crittenden, submitted to Liberty a

personal financial statement dated December 31, 2013.

42. Crittenden’s 2013 Personal Financial Statement provided that his net worth was

Ten Million One Hundred Sixty-Four Thousand Seven Hundred Fifty-Two and 72/100 Dollars

($10,164,752.72). Of that amount, Crittenden claimed to have assets of the following:

Category Amount

Cash $147,610.72

Note Receivable from DeVere $1,223,750.00








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43. Based upon Crittenden’s representations made to Liberty as set forth in his



Financial Statements provided by Crittenden. Such financial statements were material to

Liberty’s decision to issue the Bonds.

45. In reliance upon Crittenden’s representations of their assets made to Liberty as set

forth in his respective 2013 Personal Financial Statements and subject to the execution of the


Construction.


46. Cynthia Gabara and her husband, Merton Gabara, submitted to Liberty a one-page

personal financial statement dated September 20, 2013.

47. Gabara’s 2013 Personal Financial Statement provided that her net worth was Four

Million Four Hundred Seventy-Eight Thousand Seventy-Four and 27/100 Dollars

($4,478,074.27). Of that amount, Garbara claimed to have assets of the following:

Category Amount

Cash $69,168.25









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48. Based upon Garbara’s representations made to Liberty as set forth in her



Financial Statements provided by Gabara. Such financial statements were material to Liberty’s


50. In reliance upon Gabara’s representations of her assets made to Liberty as set

forth in her respective 2013 Personal Financial Statements and subject to the execution of the


Construction.

iii. Cheryl Lumsden’s Personal Financial Statements

51. Cheryl Lumsden and her husband, Gary Lumsden, submitted to Liberty a one-

page personal financial statement dated December 31, 2013.

52. Lumsden’s 2013 Personal Financial Statement provided that her net worth was

Five Million Three Hundred Seventy-Five Thousand Three Hundred Eleven and 84/100 Dollars

($5,375,311.84). Of that amount, Lumsden claimed to have assets of the following:

Category Amount

Cash $284,818.00







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53. Based upon Lumsden’s representations made to Liberty as set forth in her



Financial Statements provided by Lumsden. Such financial statements were material to Liberty’s


55. In reliance upon Lumsden’s representations of her assets made to Liberty as set

forth in her respective 2013 Personal Financial Statements and subject to the execution of the


Construction.

c. The Individual Indemnitors’ 2015 Financial Statements


56. Richard Crittenden, submitted to Liberty a personal financial statement dated

November 27, 2015. Unlike Crittenden’s 2010 and 2013 Personal Financial Statements, the 2015

Personal Financial Statement excludes his wife, Tamyra Crittenden.

57. Crittenden’s 2015 Personal Financial Statement provided that his net worth had

significantly decreased to only Three Million Three Hundred Twenty-Five Thousand Five

Hundred Twenty and 27/100 Dollars ($3,325,520.27). Of that amount, the Crittenden claimed to

have only the following assets:

Category Amount



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Cash $2,306.00

Note Receivable from DeVere $0


Real Estate $0

Personal Property $400.00



58. There is a difference of approximately $7,000,000.00 in overall assets. Notably,

Crittenden no longer claims to have a Notes Receivable due from DeVere Construction and has

dissipated a significant amount of his stocks/equity in several entities, both with no indication of

receiving a reasonable equivalent value for the Note and/or stocks/equity.

59. Crittenden’s 2015 Personal Financial Statement now discloses for the first time

that over $70,000.00 is not owned by him individually, rather, it is owned by The Richard L.

Crittenden Trust U/A/D May 12, 2000, which Crittenden is identified as the Trustee of.

60. Crittenden did not notify Liberty of his significant decrease in net worth.

61. Crittenden has claimed to Liberty that he is now insolvent.

62. Had Liberty been aware of the misrepresentations and/or decrease in available

assets, Liberty would not have continued with the bonding program it had in place on behalf of

DeVere Construction.




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63. Cynthia Gabara, submitted to Liberty a personal financial statement dated

November 30, 2015. Unlike Gabara’s 2010 and 2013 Personal Financial Statements, the 2015

Personal Financial Statement excludes her husband, Merton Gabara.

64. Gabara’s 2015 Personal Financial Statement provides that her net worth has

significantly decreased to only Two Million One Hundred Fifteen Thousand Six Hundred Fifteen

and 70/100 Dollars ($2,115,615.70). Of that amount, the Gabara claimed to have only the

following assets:

Category Amount

Cash $32,205.10



Real Estate $0

Personal Property $0





Gabara no longer claims to have a Notes Receivable due from DeVere Construction and has





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66. Gabara’s 2015 Personal Financial Statement now discloses for the first time that

over $70,000.00 is not owned by her individually, rather, it is owned by The Cynthia S. Gabara

U/A/D July 24, 2000, which Gabara is identified as the Trustee of.

67. Gabara did not notify Liberty of her significant decrease in net worth.




iii. Cheryl Lumsden’s Personal Financial Statements

69. Cheryl Lumsden, submitted to Liberty a personal financial statement dated

November 30, 2015. Unlike Lumsden’s 2013 Personal Financial Statements, the 2015 Personal

Financial Statement excludes her husband, Gary Lumsden.

70. Lumsden’s 2015 Personal Financial Statement provides that her net worth has

significantly decreased to only Two Million Thirty-Seven Thousand Seven Hundred Sixty and

33/100 Dollars ($2,037,760.33). Of that amount, the Lumsden claimed to have only the

following assets:

Category Amount

Cash $5,281.90



Real Estate $0



Life Insurance $0



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Lumsden no longer claims to have a Notes Receivable due from DeVere Construction and has



72. Lumsden’s 2015 Personal Financial Statement now discloses for the first time that

over $70,000.00 is not owned by her individually, rather, it is owned by The Cheryl Lumsden

Turst U/A/D July 24, 2000, which Lumsden is identified as the Trustee of.

73. Lumsden did not notify Liberty of her significant decrease in net worth.




C. The Claims.

75. Subsequent to the issuance of the Bonds, Liberty received numerous claims, as

detailed below, on the Bonds from Obligees and/or other claimants claiming, inter alia, DeVere

Construction failed to perform pursuant to the terms of the contracts.

B on d N o. Cl ai man t

Obligee

Project Claim Amt

013124115 Site-Prep, Inc. of NC North CarolinaDepartment of

Transp.

Lee County US421 Sanford

$206,326.00

013124115 HRI Bridge Company North CarolinaDepartment of Transp.


$69,012.00

013124115 Southern Garden, Inc. North CarolinaDepartment of Transp.


$22,393.00

013124115 Reynolds Fence & North Carolina Lee County US $700.00



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Guardrail, Inc. Department of Transp.

421 Sanford

013124115 S. T. WootenCorporation

North CarolinaDepartment of Transp.


$152,559.00

013124193 Pledmont Drilling &Blasting, Inc. North CarolinaDepartment of Transp.

NCDOT RolesvilleBypass $144,133.00

013124193 Parrish Company, Inc. North CarolinaDepartment of Transp.

NCDOT RolesvilleBypass

$16,630.00

013124193 ALS of North Carolina,Inc.



$38,627.00

013124193 Southern Garden, Inc. North CarolinaDepartment of

Transp.


$50,523.00

013124193 Young ConstructionCompany, LLC



$1,789.00

013124193 Carolina ConcreteSystems, Inc.



$14,996.00

013124193 On Point LandSurveying, Inc.



Unknown

013124193 Site-Prep, Inc. of NC North Carolina

Department of Transp.

NCDOT Rolesville

Bypass

$238,861.00

013124193 FSC II, LLC d/b/a/Fred Smith Co.



$1,206,019.00

013124193 Midasco, LLC North CarolinaDepartment of Transp.


$214,784.00

013125048 Stay Alert SafetyServices Inc.


Robeson $11,393.00

013125048 Cruz BrothersConcrete, Inc.


Robeson $59,235.00

013125048 Southeastern ConcreteCompany of Lumberton, Inc.


Robeson $29,883.00

013125048 Tricor Construction, North Carolina Robeson $7,446.58



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Inc. Department of Transp.

013125079 Bear & Co. Signs &Lighting, Inc.


NCDOT C202880Bridges #235 &#238 (Buncombe

County)

$6,800.00

013125079 J. Owen Trucking, Inc. North CarolinaDepartment of Transp.

NCDOT C202880Bridges #235 &#238 (BuncombeCounty)

$47,334.00

013125079 Reynolds Fence &Guardrail, Inc.


NCDOT C202880Bridges #235 &#238 (BuncombeCounty)

$1,263.00

013125247 Keen PlumbingCompany

City of Raleigh Northeast RemoteOperations Facility

$48,081.00

013125247 CityLink Construction,LLC


$23,761.00

013125247 Proven Products, Inc. City of Raleigh Northeast RemoteOperations Facility

$1,714.00

013125247 First PetroleumServices


$68,996.00

013125247 Sears Contract, Inc. City of Raleigh Northeast Remote

Operations Facility

$30,072.00

013125247 Structural Steel of Carolina, LLC


$35,902.00

013125247 Skyrock Construction,LLC


$71,020.00

013125247 Neuse Title Service,Inc.


$9,161.00

013125247 Wayne J. GriffinElectric, Inc.


$279,445.00

013125247 The Lane Construction

Corporation

City of Raleigh Northeast Remote

Operations Facility

$43,509.00

013125344 RKC Trucking Inc. North CarolinaDepartment of Transp.

NCDOT C203133Jackson County

NC-116 to NC-107

$76,470.00

013125344 Theresa's ConcreteService, Inc.



NC-116 to NC-107

$23,195.00

013125344 High Country North Carolina NCDOT C203133 $69,978.00



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Hydroseeding Inc. Department of Transp.

Jackson County NC-116 to NC-107

013125344 APAC-Atlantic, Inc.dba HarrisonConstruction



NC-116 to NC-107

$1,045,488.00

013125344 Precast SupplyCompany



NC-116 to NC-107

$21,817.00

013125344 BREC, PA North CarolinaDepartment of Transp.


NC-116 to NC-107

$13,957.00

013125344 Gossett Concrete PipeCo., Inc.



NC-116 to NC-107

$25,205.00

013125344 McNeely's Store and

Rental

North Carolina

Department of Transp.

NCDOT C203133

Jackson County NC-116 to NC-107

$5,060.00

013125344 Southern ConcreteMaterials, Inc.



NC-116 to NC-107

$96,202.00

013125344 Mountain Creek Contractors, Inc.



NC-116 to NC-107

$33,000.00

013125344 Piling Products, aDivision of Roll Form



NC-116 to NC-107

$56,287.00

013125344 Carolina ConcreteDesigns, Inc.



NC-116 to NC-107

$24,123.00

013125344 Guaranteed SupplyCompany



NC-116 to NC-107

$4,355.00




NC-116 to NC-107

$16,213.00

013125344 E&E ContractingGroup, Inc.

North CarolinaDepartment of

Transp.


NC-116 to NC-107

$2,000.00

013125523 Kerns Trucking, Inc. North CarolinaDepartment of Transp.

NCDOT C202824Mecklenburg Co.Independence Ave

$47,007.00

013125523 Davis H. ElliotConstruction Company,Inc.



Unknown



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013125523 Concord Engineering& Surveying, Inc. dbaCESI



$30,552.00

013125523 Stay Alert SafetyServices Inc. North CarolinaDepartment of Transp.


$10,096.00

013125523 The Lane ConstructionCorporation



$1,674,595.00




$45,822.00




$366.00

013125523 Anlaan Corporation North CarolinaDepartment of Transp.


$355,715.00

013125523 P & TL Inc. North CarolinaDepartment of

Transp.

NCDOT C202824Mecklenburg Co.

Independence Ave

$23,276.00

013125523 Tricor Construction,Inc.



$56,526.99

013125845 North State Water andSewer, Inc.

City of Concord Albemarie Water Transmission LineContract 2 Division1 & 2

$48,116.00


City of Concord Albemarie Water Transmission LineContract 2 Division1 & 2

$36,760.00

013125845 Water Guard, Inc. City of Concord Albemarie Water Transmission LineContract 2 Division

$29,011.00



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1 & 2


City of Greensboro Lynwood LakesWater and Sewer Improvements

$12,915.00

013125966 Chandler Concrete, Inc. City of Greensboro Lynwood LakesWater and Sewer Improvements

$11,753.00


City of Greensboro Lynwood LakesWater and Sewer Improvements

$29,080.00

013125966 5&20, LLC City of Greensboro Lynwood LakesWater and Sewer

Improvements

$16,000.00

013125978 Stay Alert SafetyServices Inc.

City of Raleigh Leesville RoadWidening PW2011-05

$3,794.00


City of Raleigh Leesville RoadWidening PW2011-05

$258,025.00

013125978 Cruz Brothers

Concrete, Inc.

City of Raleigh Leesville Road

Widening PW2011-05

$111,067.00

013126077 APAC-Atlantic, Inc.dba HarrisonConstruction


NCDOT DN00178Bridge #251 &#253 JacksonCounty

$10,604.00

013126077 HFK Corporation North CarolinaDepartment of Transp.

NCDOT DN00178Bridge #251 &#253 Jackson

County

$9,338.00



NCDOT C202573Wake Co. Bridgeover Beaver Creek

$38,369.00


North CarolinaDepartment of

NCDOT C202573Wake Co. Bridge

$40,392.00



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Transp. over Beaver Creek



C203284 Bridges#147 & 140 Over Mallard Creek

$48,383.00




$5,786.00

013126237 Red Clay Industries,Inc.



$19,863.00

013126237 Kerns Trucking, Inc. North CarolinaDepartment of

Transp.

C203284 Bridges#147 & 140 Over

Mallard Creek

$3,983.00

013126237 Crane & RiggingCorporation



$30,000.00




$3,598.00

013126390 M & M Excavating

Co., Inc.

Michigan

Department Of Transportation

M00216 IBA - US

Toll PlazaRedevelopment

$280,138.00

013126390 S. A. Morman & Co. MichiganDepartment Of Transportation

M00216 IBA - USToll PlazaRedevelopment

$10,660.00



NCDOT -RutherfordRoadwork

$17,611.00

013124066 Buffington & SmithContracting



$27,388.00

013124066 Rogers Group, Inc. North CarolinaDepartment of Transp.


$615,705.00

013124066 Midasco, LLC North CarolinaDepartment of


$23,454.00



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76. Pursuant to the terms of the Indemnity Agreement, Liberty retained legal counsel

and consultants to assist Liberty in investigating, defending and resolving the Claims and in

enforcing the terms of the Indemnity Agreement.

77. Several of the foregoing Claims are currently in pending litigation.

78. Liberty has continually notified the Indemnitors of the Claims asserted against the

Bonds.

79. On or about November 20, 2015, Liberty made its first demand in writing that the

Indemnitors post collateral and indemnify Liberty from current losses, pursuant to the terms of

the Indemnity Agreement. A true and correct copy of Liberty’s written demand is attached

hereto as Exhibit H.

80. Simultaneously, Liberty and its consultants demanded access to DeVere’s books

and records.

81. To date, the Indemnitors have not indemnified Liberty.

82. To date, the Indemnitors have not posted collateral security in the amount

demanded by Liberty.

83. The Indemnitors denied Liberty and its consultants reasonable access to its books

and records.

D. Indemnitors’ Request for Financial Assistance.

84. On or about November 24, 2015, DeVere advised Liberty of DeVere’s financial

difficulties, inability to perform their obligations under the contracts for the Bonded Projects, and

inability to pay bills or other indebtedness incurred in, or in connection with, the performance of

the Bonded Contracts, the Bonds, and the Indemnity Agreement, each of which constitutes an



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express default pursuant to the terms of the Indemnity Agreement. A true and correct copy of

DeVere’s November 24, 2015 Letter is attached hereto as Exhibit I.

85. In its November 2015 Letter, Indemnitors represented that they were unable to

complete the Bonded Projects and/or pay claims for labor and materials furnished in connection

with the Bonded Projects without the assistance of Liberty. Consequently, the Indemnitors have

requested that Liberty provide financial assistance in paying such Claims.

E. Memorandum of Understanding.

86. In response to the Indemnitors’ request, on or about December 23, 2015, Liberty

proposed certain financing terms set forth in a Memorandum of Understanding (“MOU”). The

Indemnitors executed the MOU which extended financial assistance to the Indemnitors in the

amount of Two Million Five Hundred Thousand Dollars ($2,500,000.00). A true and correct

copy of the MOU is attached hereto as Exhibit J.

87. The Indemnitors agreed, among other things, to reaffirm their obligations under

the Indemnity Agreement. Specifically, the Indemnitors agreed that any funds it receives from

Liberty through financing are trust funds pursuant to the Indemnity Agreement. The MOU

provides, in relevant part:

Indemnitors hereby acknowledge and reaffirm their obligationsunder the Indemnity Agreement. Indemnitors expresslyacknowledge that any funds received by Liberty pursuant to theIndemnity Agreement, this Request for Financial Assistance,and/or a letter of direction, are trust funds pursuant to and ascontemplated by Paragraph Eleventh Trust Fund of the IndemnityAgreement. All sums paid on the account of the Indemnitors or otherwise, less any amounts received by Liberty on account of money due, or to become due on the Bonded Projects or liquidation of pledged initial collateral shall conclusively bedeemed a loss covered under the Indemnity Agreement. Nothingcontained herein will constitute a waiver of limitation of saidobligations.

Exhibit J, pg. 3.



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88. The Indemnitors also agreed to cooperate with Liberty in its investigation of

DeVere Construction’s operations. Indemnitors again acknowledged that it is required to

reimburse and indemnity Liberty for any and all losses incurred as a result of investigating and

handling Claims that arise under the Bonds. MOU provides in relevant part:

Indemnitors acknowledge that it is reasonable and necessary for Liberty to conduct an investigation into DeVere’s operations andthe status of the projects related to the Bonds and BondedContracts. Indemnitors will cooperate with Liberty in itsinvestigation and provide Liberty documentation and informationrequested by Liberty to assist Liberty in its evaluation of thisRequest for Financial Assistance and of the projects related to theBonded Contracts. Indemnitors further agree and acknowledge that

reimbursement and indemnification by the Indemnitors of theexpenses (including, but not limited to, fees of third party professionals) incurred by Liberty in its investigation and handlingof claims arising under the Bonds are obligations under theIndemnity Agreement which obligations are hereby reaffirmed.

Exhibit J, pgs. 5-6.

89. The Indemnitors also agreed to execute and deliver certain documents within

fourteen days of execution of the MOU. The MOU states in relevant part:

Except for the letters of default and direction the Principal andIndemnitor shall execute and deliver the following documentswithin fourteen days of execution of this Agreement:

Concurrently herewith, as partial consideration for Liberty'sfunding of certain and limited payment obligations, theIndemnitors will grant to Liberty a security interest in all real

property owned, excluding property held in its entirety betweenany Indemnitor and his or her spouse, and personal property assets,wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof, including, but not

limited to, the following: all goods (including inventory,equipment and any accessions thereto), instruments (including

promissory notes), documents, accounts, chattel paper, depositaccounts, letter-of-credit rights, securities and all other investment

property, supporting obligations, any contractor or contract rightsor rights to the payment of money, insurance claims and proceeds,and all general intangibles (collectively, "Collateral").



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The Indemnitors agree to execute all necessary documents to perfect Liberty’s security interest in the Collateral.

Mortgages on all real property of the Indemnitors, excluding property held in its entirety between any Indemnitor and his or her spouse.

Assignments to all of the following:

Any and all Income Tax Refunds due to DeVereConstruction Company, Inc., Crittenden Construction Co.,Inc., Reds Traders Limited, DeVere Swepco JV, LLC, andDeVere Construction Company MI, LLC.

Any and all insurance premium refunds.

Assignment of rents for any real property leased by the

Indemnitors.

Provide all documents related to bank note.

Provide all documents regarding affirmative claims.

Provide a 3 month cash flow projection.

Key DeVere personnel and DeVere’s attorney(s) handling claimsto meet with Liberty to review affirmative claims and provideLiberty all supporting documentation for each claim(s).

DeVere to contact each of the bonded owner(s) and each of thesuppliers and subcontractors by bonded project in an attempt to setup meetings with Liberty for Liberty to review the financials of each respective contract(s), the remaining scope of work and thesame for each subcontract(s)/purchase order(s).

Provide all documentation requested by Liberty related to all assetsand the bonded projects.

Letters of Direction and Default to be executed contemporaneouslyupon the execution of this Agreement attached hereto as Group

Exhibit J.

Exhibit J, pgs. 5-6.



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90. In addition to the above referenced MOU obligations, DeVere is required under

the Bond and Contracts to complete it performance obligations and complete each Bonded

Contract.

91. To date, Liberty has advanced all of the $2,500,000.00 as agreed to under the

MOU.


93. To date, the Indemnitors have not posted collateral security in the amount

demanded by Liberty.

94. To date, the Indemnitors have failed to provide and execute all of the

aforementioned documents as required by the MOU. See Exhibit j, pgs. 5-6.

F. Indemnitors’ Request for an Additional $4,092,784.02 Loan and Addendum No. 1.

95. On or about January 5, 2016, Indemnitors requested additional funding from

Liberty in the amount of Four Million Ninety-Two Thousand Seven Hundred Eighty-Four

02/100 Dollars ($4,092,784.02). A true copy of January 5, 2016 Letter is attached hereto as

Exhibit K. Indemnitors advised Liberty that they needed additional financial assistance for

paying overhead, payroll, vendors, suppliers, equipment rentals, and other potential claimants

that may have the ability to file on any of the Bonds. Indemnitors represented without such

additional financial assistance from Liberty they will be unable to satisfy their obligations on the

projects bonded by Liberty.

96. In order to fund the Indemnitors the additional $4,092,784.02 financing request,

Liberty required certain terms and conditions of the Indemnitors as set forth in Addendum No. 1.

Liberty sent Addendum No. 1 to Indemnitors on January 14, 2016. A true and correct copy of

Addendum No 1 is attached hereto as Exhibit L.



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97. Liberty required, in part, the Indemnitors to agree to the following:

Contemporaneously with execution of Addendum No. 1, executethe attached Promissory Note, attached hereto as Exhibit 1;

Contemporaneously with execution of Addendum No. 1, executethe attached Cognovit, attached hereto as Exhibit 2;

Within 14 days from execution of Addendum No. 1, theIndemnitors shall prepare, execute, and record mortgages in favor of Liberty for all real estate owned by the Indemnitors as pledged

by the MOU;

Within 14 days from execution of Addendum No. 1, assignment of Crittendon Notes to Liberty

Crittenden Construction Company Inc. holds two unsecured

demand notes with Hazel J. Crittenden Marital Inter-Vivos Trust($100,051) and Bruce D. Crittenden ($100,000) issued December 31, 2012, with an interest paid annually at the rate of .82%;

Within 14 days from execution of Addendum No. 1, payment of allPNC Stock Account owned by Richard Crittenden to Liberty;

Within 14 days from execution of Addendum No. 1, theIndemnitors shall have prepared and deliver to Liberty a currentAccounts Receivable for Crittenden Construction and Letters of Direction for all Crittenden Accounts Receivables;

Within 14 days of the execution of the Addenda, liens on title onthe following property shall be executed, recorded, and deliveredto Liberty by the Indemnitors:

a. 1999 Pop Up Campber owned by Cynthia Gabara

b. 2008 Fifth Wheel Camper owned by Cynthia Gabara

c. 2006 Jayco Trlr Coach owned by Cynthia Gabara

d. 2000 Coleman Tr Coach owned by Cynthia Gabara

e. 1995 Camaro owned by Cheryl Lumsden

f. 2005 Motorcycle owned by Cheryl Lumsden

g. 1971 Oday Yingling Sailboat owned by Richard Crittenden

h. 1992 Polaris Snowmobile owned by Richard Crittenden



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Liberty will furnish a $4.2 million bond to the North Carolina StateLicensing Board so that DeVere can retain their generalcontractors license to complete Liberty bonded projects.

DeVere will provide estimates of payroll, approved companyoverhead, equipment payments and rentals, legal fees and job costoverhead. These must be paid one week in advance of DeVereincurring these costs. DeVere must be reimbursed for the sameitems since December 15, 2015 for items not previously funded.

No further deliverables will be furnished.

No further documents will be furnished.

A true and correct copy of Indemnitors’ Response is attached hereto as Exhibit M.

99. Indemnitors demanded that Liberty provide its reply to the Indemnitors’ Response

by noon that same day or threatened to demobilize from all Projects. See Exhibit M.

100. Liberty took Indemnitors’ Response under advisement to determine whether such

terms were acceptable.

H. Liberty’s Rejection of Indemnitors’ Response and Notice of Default.

101. On or about January 27, 2016, Indemnitors followed up with their continued

request that Liberty issue a contractors bond in the amount of Four Million Two Hundred

Thousand and 00/100 ($4,200,000.00) to keep DeVere’s license active in North Carolina. A true

and correct copy of Email Correspondence is attached hereto as Exhibit N.

102. On that same day, January 27, 2016, Liberty declined Indemnitors’ request for the

contractor bond but continued to offer financing to DeVere upon the execution of Addendum

No. 1. Liberty reasoned that it stopped issuing bonds for DeVere some time ago and that DeVere

has a bonding program with a different surety from which it should obtain its contractor bond.

See Exhibit N.



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103. DeVere refused to execute Addendum No. 1 and informed Liberty that it would

be demobilizing from all of its Bonded Projects wishing Liberty “good luck in finishing this

work.” See Exhibit N.

104. Liberty again tried to reason with DeVere by informing DeVere that walking off

of the Bonded Projects is not DeVere’s only option. Liberty informed DeVere that a bond may

not even be necessary under the law as long as DeVere can demonstrate working capital of

$150,000.00. Liberty rationally stated that requesting $150,000 in working capital as compared

to increasing Liberty’s exposure by $4,200,000.00 is more reasonable. See Exhibit N.

105. The Indemnitors responded that they do not have the ability to show $150,000 in

working capital. The Indemnitors explained that the “company overhead is about 700k per

month” and in order to pay that the Indemnitors “have begged, borrowed and taken from other

projects to pay this overhead to remain in business to try to get Liberty bonded work [] done,

meaning Arch subcontractors have not been paid…the equipment vendors are due…etc.” See

Exhibit N.

106. Given this exchange of correspondence, Liberty sent a Notice of Default under

Memorandum of Understanding and Indemnity Agreement (“Notice of Default”) dated January

27, 2016, to the Indemnitors rejecting Indemnitors required financing conditions in their

Response and formalizing its last notice of default of the MOU and Indemnity Agreement. A true

and correct copy of Liberty’s Notice of Default Letter dated January 27, 2016, is attached hereto

as Exhibit O.

107. In the event that the Indemnitors did not withdraw and rescind their required

conditions to Addendum No. 1, Liberty demanded that the Indemnitors post collateral in the



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amended amount of Twelve Million Five Hundred Thousand and 00/100 Dollars

($12,500,000.00) by the close of business on January 29, 2016.

108. The Indemnitors failed to rescind their required conditions to Addendum No. 1

and failed to post collateral in the amount of Twelve Million Five Hundred Thousand and 00/100

Dollars ($12,500,000.00) by the close of business on January 29, 2016.


110. To date, the Indemnitors have not posted collateral security in the amended

amount demanded by Liberty.

111. To date, in order to discharge its obligations under the Bonds, Liberty has

incurred costs in excess of $2,500,000.00 in Claim payments, costs and fees in connection with

Claims against the Bonds and financing and will continue to incur such costs.

112. Simultaneously, Liberty renewed its previous document request to the

Indemnitors by sending Document Request List dated January 28, 2016. A true and accurate

copy of Liberty’s Document Request list is attached as Exhibit P.

113. Liberty has continually requested that Indemnitors comply with the Document

Request List. To date, Liberty has not received all of the documents it requested.

I. NCDOT’s Notice of Default

114. In four separate letters dated January 29, 2016, the North Carolina Department of

Transportation issued its own notice of default letters to DeVere. A true and correct copy of

NDOT’s Notice of Default Letters are attached hereto as Exhibit Q.

115. The Notice of Default letters are directed for the following Projects:



NCDOT C202880Bridges #235 & #238(Buncombe County)


013125079 11,947,609.00



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Transportation


Contract No. C203133Jackson County NC-166 to NC107


013125344 $15,939,043.00


NCDOT C202824Mecklenburg CountyIndependence Blvd.


013125523 51,669,285.00


C203284 Bridges #147& 140 Over MallardCreek


013126237 4,393,837.00

See Exhibit Y.

116. NDOT’s Notice of Default letters state that DeVere is in default of Article 108-1

of the Standard Specifications of the Contractor because DeVere has effectively shut down the

Project as of January 29, 2016. See Exhibit Q.

117. NDOT’s Notice of Default letters provide DeVere the opportunity to cure this

default by February 8, 2016. Upon DeVere’s failure to timely cure its default, it would be

terminated from the Project “placing the bonding company the responsibility for completion of

the work.” See Exhibit Q.

118. To date, DeVere has not cured its defaults under the contracts.

COUNT I

BREACH OF CONTRACT

119. Liberty re-alleges and incorporates paragraphs 1 through 118 for Count I as

though fully set forth herein.

120. There was, at all relevant times, a valid and enforceable contractual relationship

between Liberty and the Indemnitors by virtue of the Indemnity Agreement and MOU.

121. The Indemnitors owed certain duties to Liberty as set forth in the Indemnity

Agreement and MOU which are outlined elsewhere in this Complaint.



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122. Due to DeVere’s defaults under the Bonds, the Indemnity Agreement, and on the

Bonded Projects, Liberty, as surety, has been required to perform its obligations under the Bonds

issued for the Bonded Projects.

123. In satisfying its obligations under the Bonds and in accordance with the Indemnity

Agreement, Liberty has made and will continue to make expenditures to investigate, settle, or

otherwise satisfy Claims and/or demands by subcontractors, suppliers, and obligees.

124. As a result of DeVere’s defaults under the Bonds issued for the Bonded Projects

and under the Indemnity Agreement, Liberty has incurred and will continue to incur losses, costs

and damages arising from, but not limited to, investigating, defending and resolving actual and

potential Bond claims.

125. As a result of DeVere’s defaults under the Bonds issued for the Bonded Projects

and under the Indemnity Agreement, Liberty has incurred losses, costs, attorneys’ fees and

damages pursuing its rights under the Indemnity Agreement and MOU.

126. Under the Indemnity Agreement and MOU, the Indemnitors have a duty to and

are obligated to indemnify Liberty from all losses, costs, expenses and attorneys’ fees Liberty

has incurred in connection with the Bonds and in enforcing the terms of the Indemnity

Agreement and MOU.

127. Under the Indemnity Agreement and MOU, Indemnitors also have a duty to and

are obligated to hold Liberty harmless from any liability which may be asserted against Liberty

as a result of the issuance of any Bonds and in connection with the Indemnity Agreement and

MOU.

128. Under the Indemnity Agreement and MOU, Indemnitors are further required to

provide Liberty access to their books and records and any information requested to investigate



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Liberty’s exposure to loss until such time as Liberty’s liability under the Bonds it issued on

behalf of DeVere is terminated and Liberty has been reimbursed for all of its losses, costs, and

expenses.

129. To date, the Indemnitors have failed and/or refused to indemnify, exonerate, or

hold Liberty harmless from Liberty’s existing losses, costs, expenses, and fees incurred as a

result of issuing the Bonds on behalf of DeVere and in enforcing the Indemnity Agreement and

MOU.

130. Despite Liberty’s written demands, the Indemnitors have breached the Indemnity

Agreement and MOU by failing and refusing to comply with the Indemnity Agreement and

MOU and to post collateral with Liberty in order to hold Liberty harmless from the amounts

claimed.

131. Liberty and its consultants have demanded access to Indemnitor’s books and

records and have provided a concise list of documents needed. To date, the Indemnitors have

failed to provide all of the documents it has requested in Exhibit P.

132. Despite Liberty and its consultants demands, the Indemnitors have breached the

Indemnity Agreement by failing and refusing to comply with the Indemnity Agreement and

MOU and to allow Liberty and its consultants full access to the Indemnitors books and records.

133. Pursuant to the Indemnity Agreement and MOU, Liberty is entitled to recover in

any action from the Indemnitors all costs and expenses, including attorneys’ fees, incurred by

Liberty in any action to enforce any of the covenants or conditions of the Indemnity Agreement

and MOU.

134. Liberty has satisfied all conditions precedent to bringing this action and enforcing

the Indemnity Agreement and MOU.



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135. As a direct and proximate result of Indemnitors’ material breaches of the

Indemnity Agreement and MOU, Liberty has been damaged, which may continue to increase due

to additional claims against the Bonds, as well as legal fees, costs, and expenses, interest form

the dates of Liberty’s payments, and any other recoverable damages to which Liberty may be

entitled.

136. Liberty is likely to continue to incur losses, costs and damages in pursuit of its

rights under the Indemnity Agreement and MOU, including costs and expenses of this action,

which are recoverable from Indemnitors under the Indemnity Agreement and MOU.

PRAYER FOR RELIEF

WHEREFORE, Liberty Mutual Insurance Company prays for:

A. Order the Indemnitors to indemnify and exonerate Liberty for allliabilities, losses, and expenses incurred by Liberty as a result of Libertyhaving executed the Bonds;

B. Order the Indemnitors to pay for Liberty’s costs incurred to-date;

C. Order the Defendants to provide Liberty complete access to inspect their books and records;

D. Order the Defendants to post collateral in the amount of $12,500,000.00;

E. For such additional relief as this Court deems appropriate.

COUNT II

EXONERATION AND QUIA TIMET

137. Liberty adopts and re-alleges paragraphs 1 through 136 for Count II as though

fully set forth herein.

138. Liberty has previously demanded in writing that the Indemnitors post collateral in

order to hold Liberty harmless from the Claims asserted in the amended amount of

$12,500,000.00 This amount will continue to increase as Liberty incurs further fees and expenses



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in enforcing Liberty’s rights under the Indemnity Agreement and in resolving the pending claims

against the Bonds.

139. As the principal of the Bonds, DeVere Construction and the Indemnitors owe

Liberty the duty of exoneration, requiring DeVere Construction and the Indemnitors to perform

their obligation before Liberty is called upon to perform its obligations under the Bonds.

140. Liberty is entitled to a remedy known as quia timet . This remedy secures a surety

from loss when it appears that the principal is reasonably likely to fail or refuse to perform or to

protect the surety from loss.

141. The Indemnitors have failed and refused to meet their obligations under the

Indemnity Agreement and MOU by failing to post collateral to Liberty relating to the claims

asserted and fees and expenses Liberty will incur in resolving the Claims.

142. Liberty is entitled to be reimbursed for the attorneys’ fees it has currently paid and

to be fully collateralized by the Indemnitors for its potential liability in order to discharge its

obligations under the Bonds.

143. Liberty lacks an adequate remedy at law to secure its right of exoneration from

the Indemnitors and is without a plain, speedy remedy at law, and will be irreparably and

permanently injured unless this Court grants the injunctive and equitable relief requested herein.

PRAYER FOR RELIEF

WHEREFORE, Liberty Mutual Insurance Company respectfully requests this Court grant

the following relief:

A. Order the Indemnitors to indemnify and exonerate Liberty for allliabilities, losses, and expenses incurred by Liberty as a result of Libertyhaving executed the Bonds;




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C. Order the Defendants to provide Liberty complete access to inspect their books and records;



COUNT III

SPECIFIC PERFORMANCE OF THE INDEMNITY AGREEMENT

144. Liberty re-alleges and incorporates paragraphs 1 through 143 for Count III as


145. Liberty has demanded in writing on two separate occasions that the Indemnitors

post collateral in order to indemnify and hold Liberty harmless from any and all costs resulting

from the Bonds Liberty issued for the Projects. To date, the Indemnitors have failed to indemnify

Liberty.

146. Liberty has demanded in writing that the Indemnitors post collateral in the amount

of $12,500,000.00. To date, the Indemnitors have failed to post collateral.

147. Liberty and its consultants have demanded to have access to Indemnitor’s books

and records but have been denied reasonable access. To date, the Indemnitors have failed to

provide such reasonable access to inspect their books and records.

148. Liberty lacks an adequate remedy at law and will suffer irreparable harm if any

relief sought in this litigation consistent with Liberty’s rights under the Indemnity Agreement is

not granted.

PRAYER FOR RELIEF

WHEREFORE, Liberty Mutual Insurance Company respectfully requests the Court grant

the following relief:

A. Order the Indemnitors to indemnify and exonerate Liberty for allliabilities, losses, and expenses incurred by Liberty as a result of havingexecuted the Bonds;



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B. Order the Indemnitors to reimburse Liberty for its current costs;

C. Order the Defendants to provide Liberty reasonable access to inspect their books and records;



COUNT IV

BREACH OF TRUST FUND PROVISIONS

149. Liberty re-alleges and incorporates paragraphs 1 through 148 for Count IV as


150. There was, at all relevant times, a valid and enforceable contractual relationship

between Liberty and the Indemnitors by virtue of the Indemnity Agreement.

151. Pursuant to paragraph 11 of the Indemnity Agreement, the Indemnitors agreed

and had a duty to treat all funds received under any Bonded Project as trust funds for the benefit

and payment of all obligations under the Bonded Contract. Paragraph 11 of the Indemnity

Agreement provides, in relevant part:

To the extent permitted under applicable law, the Indemnitors andPrincipals covenant and agree that all of their interest, title andrights in any contract or undertaking referred to in any Bond, or in,or growing in any manner out of any Bond, including but notlimited to payments for or on account of any contract, shall be heldas a trust fund and/or as a constructive or equitable trust in whichthe Surety has an interest, and shall inure to the benefit of theSurety for any liability or loss it may have to sustain under anyBond including but not limited to the payment of obligationsincurred in the performance of any contract and for labor,materials, and services furnished in the prosecution of the work

provided in any contract or any authorized extension or modification thereof; and, further, it is expressly understood anddeclared that all monies due and to become due under any contractcovered by any Bond are trust funds, whether in the possession of the Indemnitors or Principals or otherwise, for the benefit of andfor payment of all such obligations in connection with any suchcontract for which the Surety would be liable under any Bond; saidtrust also inures to the benefit of the Surety for any liability or loss



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it may have or sustain under any Bond, under this Agreement, or under any Other Agreements, and this Agreement constitutesnotice of such trust.

Exhibit B, ¶11.

152. Under each of the Bonded Projects, the Indemnitors agreed and had a fiduciary

duty under the Indemnity Agreement to ensure and to use the contract funds received from

Project Owners to pay Project vendors and to complete each Bonded Project.

153. Liberty received numerous Claims from various subcontractors, suppliers and

obligees. During Liberty’s investigation of such Claims, Liberty discovered that the remaining

contract balances on the Bonded Projects were significantly depleted and not sufficient to

discharge Liberty’s obligations under the Bonds.

154. On or about December 3, 2015, Liberty hosted a meeting with several

Indemnitors, including but not limited to, Richard Lee Crittenden. During that meeting, in

response to Liberty’s counsel’s question regarding an approximate Ten Million and 00/100

Dollars ($10,000,000.00) shortfall in Bonded receivables, in relation to Bonded payables, Mr.

Crittenden stated the reason for the shortfall was because the Indemnitors had to utilize contract

funds from Bonded Projects to help pay for overhead and other costs for other projects not

bonded by Liberty.

155. As further evidence of such conduct by the Indemnitors, in an email dated January

28, 2016, Mr. Crittenden again admitted that the Indemnitors are using Bonded Contract

receivables to pay for obligations other than what the Indemnitors have a contractual and legal

obligation to satisfy. See January 28th Email, attached hereto as Exhibit N.

156. The Indemnitors willfully breached their fiduciary duty as trustee under the

Indemnity Agreement and Bonded Contracts by failing to treat the contract funds as trust funds



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and pay the contract funds to the Project vendors and to use the funds to complete the underlying

Bonded Project.

157. Pursuant to the trust fund provision in the Indemnity Agreement, the Indemnitors

were required to hold, in trust, all contract funds it received for the use and benefit of the Project

vendors that DeVere engaged on the Bonded Projects and to use the contract funds to complete

the Projects.

158. Based solely upon the Claims received by Liberty and the Indemnitors’ own

admissions on two separate occassions, the Indemnitors did not use the contract funds as trust

funds to pay DeVere’s Project vendors and to complete the Projects. Instead, Indemnitors

breached such the Indemnity Agreement by utilizing the Bonded receivables to pay for projects

not bonded by Liberty.

159. Indemnitors harmed Liberty by obtaining contract funds from the Bonded

obligees and not using those monies as contractually required to – Indemnitors did not pass on

those monies to DeVere’s Project vendors and did not use the contract funds to complete each

Bonded Project.

160. As a direct and proximate result of Indemnitors’ material breach of the executed

Indemnity Agreement, Liberty has been damaged, which may continue to increase due to

additional claims against the Bonds, as well as legal fees, costs, and expenses, interest form the

dates of Liberty’s payments, and any other recoverable damages to which Liberty may be

entitled.

161. Liberty is likely to continue to incur losses, costs and damages in pursuit of its

rights under the Indemnity Agreement and MOU, including costs and expenses of this action,

which are recoverable from Indemnitors under the Indemnity Agreement and MOU.



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PRAYER FOR RELIEF

WHEREFORE, Liberty Mutual Insurance Company prays for:

A. Order the Indemnitors to indemnify and exonerate Liberty for all

liabilities, losses, and expenses incurred by Liberty as a result of Libertyhaving executed the Bonds;


C. Order the Defendants to post collateral in the amount of $12,500,000.00;

D. For such additional relief as this Court deems appropriate.

COUNT V

BREACH OF STATUTORY TRUST FUND PROVISION

162. Liberty -re-alleges and incorporates paragraphs 1 through 161 for Count V as


163. Mich. Comp. Laws Ann. §570.151, et seq., the Michigan Building Contract Fund

Act treats all contact funds paid by any person to the contractor on a private project as trust funds

for the benefit and payment of all obligations under the particular project for which payment to

the contractor was issued. Violation of this statute imposes civil and criminal liability.

164. The Indemnitors were engaged in the following private Project located in

Michigan:



Bay River Medical 4C'sAcquisitions,Inc.

013126454 3,442,200.00

165. The Indemnitors were obligated by law to ensure and to use the contract funds

received from 4C’s Acquisitions, Inc., to pay vendors of t

Liberty Mutual v. Devere Construction

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