United States of America v. Sauer, Inc. et al
Filing
116
ORDER denying Counter Defendant Hartford Fire & Insurance Company's 104 Motion for Summary Judgment. Signed by District Judge Keith Starrett on December 7, 2016 (dsl)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF MISSISSIPPI
SOUTHERN DIVISION
UNITED STATES OF AMERICA,
FOR THE USE OF S. H. ANTHONY, INC.
V.
PLAINTIFF
CIVIL ACTION NO. 1:15-CV-128-KS-RHW
SAUER INCORPORATED, et al.
DEFENDANTS
MEMORANDUM OPINION AND ORDER
For the reasons below, the Court denies Hartford Fire & Insurance Company’s
Motion for Summary Judgment [104].
I. BACKGROUND
On August 3, 2012, Sauer Inc. contracted with NASA to upgrade the potable water
system at the John C. Stennis Space Center in Hancock County, Mississippi. On August
14, 2012, Sauer entered into a subcontract with S. H. Annthony, Inc. (“SHA”), and SHA
agreed to perform a portion of the work under Sauer’s contract with NASA. On
September 7, 2012, SHA obtained a performance bond from The Hartford Fire Insurance
Company with respect to its obligations under the subcontract with Sauer.
On September 30, 2014, NASA and Sauer modified the primary contract,
extending the project completion date to December 1, 2014. On October 8, 2014, Sauer
sent a “cure notice” to SHA that referred to a “lengthy list of deficiencies” in the work and
specifically mentioned several items. See Exhibit G to Motion for Summary Judgment,
USA ex rel. S. H. Anthony, Inc. v. Sauer, Inc., No. 1:15-CV-128-KS-RHW (S.D. Miss. Sept.
9, 2016), ECF No. 104-7. Sauer gave SHA three days to cure the deficiencies or be
declared in default. A copy of the letter was sent to Hartford.
On October 13, 2014, Sauer sent SHA a “notice of default.” See Exhibit H to
Motion for Summary Judgment, USA ex rel. S. H. Anthony, Inc. v. Sauer, Inc., No. 1:15CV-128-KS-RHW (S.D. Miss. Sept. 9, 2016), ECF No. 104-8. Sauer represented that
SHA’s response to the “cure notice” failed to address all of the concerns outlined therein.
Sauer declared SHA to be in default under the subcontract, and represented that it
intended to exercise its supplementation rights with respect to several of the alleged
deficiencies.
On November 25, 2014, SHA completed the project, and NASA began using the
upgraded potable water system. In December 2014, Sauer discovered certain alleged
problems with the upgrades. Without notice to SHA or Hartford, Sauer hired another
subcontractor to fix the problems. In February 2015, Sauer wrote Hartford and
demanded payment under the performance bond for SHA’s default on the subcontract
and its resulting cost in supplementing SHA’s work.
In April 2015, SHA filed its Complaint [1] against Sauer. SHA alleged that it
completed the work required by the subcontract, but that Sauer failed to pay it
$754,406.28 due thereunder. SHA asserted the following claims: breach of contract,
quantum meruit, and a claim on the payment bond under the Miller Act. See 40 U.S.C.
§ 3133. It seeks compensatory damages of $754,406.28, plus interest, costs, and
attorney’s fees.
Sauer later filed its own Amended Counterclaim [22] against SHA and Hartford.
Sauer alleges that SHA breached the subcontract in various ways, and that Hartford
breached the performance bond by failing to meet its obligations as surety. Sauer
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asserted the following counterclaims: breach of contract and breach of performance bond.
It seeks compensatory damages, interest, costs, and attorney’s fees. It also seeks a
declaratory judgment that the performance bond issued by Hartford obligates both SHA
and Hartford to indemnify Sauer for any damages incurred as a result of SHA’s failure
to perform the work required by the subcontract.
Hartford filed a Motion for Summary Judgment [104] as to Sauer’s counterclaim
against it. The motion is ripe for review.
II. STANDARD OF REVIEW
Rule 56 provides that “[t]he court shall grant summary judgment if the movant
shows that there is no genuine dispute as to any material fact and the movant is entitled
to judgment as a matter of law.” FED. R. CIV. P. 56(a); see also Sierra Club, Inc. v. Sandy
Creek Energy Assocs., L.P., 627 F.3d 134, 138 (5th Cir. 2010). “An issue is material if its
resolution could affect the outcome of the action.” Sierra Club, Inc., 627 F.3d at 138. “An
issue is ‘genuine’ if the evidence is sufficient for a reasonable jury to return a verdict for
the nonmoving party.” Cuadra v. Houston Indep. Sch. Dist., 626 F.3d 808, 812 (5th Cir.
2010).
The Court is not permitted to make credibility determinations or weigh the
evidence. Deville v. Marcantel, 567 F.3d 156, 164 (5th Cir. 2009). When deciding whether
a genuine fact issue exists, “the court must view the facts and the inference to be drawn
therefrom in the light most favorable to the nonmoving party.” Sierra Club, Inc., 627
F.3d at 138. However, “[c]onclusional allegations and denials, speculation, improbable
inferences, unsubstantiated assertions, and legalistic argumentation do not adequately
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substitute for specific facts showing a genuine issue for trial.” Oliver v. Scott, 276 F.3d
736, 744 (5th Cir. 2002).
III. DISCUSSION
Hartford argues that it is not liable under the performance bond because Sauer
failed to provide sufficient notice of SHA’s default, citing L & A Contracting Co. v. S.
Concrete Servs., Inc., 17 F.3d 106 (5th Cir. 1994). There, the Fifth Circuit held that a
“declaration of default sufficient to invoke [a] surety’s obligations under [a] bond must
be made in clear, direct, and unequivocal language. The declaration must inform the
surety that the principal has committed a material breach . . . of the subcontract, that
the obligee regards the subcontract as terminated, and that the surety must immediately
commence performing under the terms of its bond.” Id. at 111. Sauer sent copies of both
the October 8, 2014, “cure notice” and the October 13, 2014, “notice of default” to
Hartford. But neither letter was addressed to Hartford or included a demand that
Hartford “immediately commence performing under the terms of its bond.” Id.
Accordingly, Hartford argues that Sauer provided insufficient notice of SHA’s default.
The “issuance of a surety bond creates a contractual relationship between the
surety and its principal.” Fid. & Guar. Ins. Co. v. Blount, 63 So. 3d 453, 460 (Miss. 2011).
“Accordingly, the suretyship relationship, being contractual in nature, is governed by the
familiar rules of contract law.” Id. at 461.
Mississippi courts employ “a three-tiered approach to contract interpretation.”
Tupelo Redevelopment Agency v. Abernathy, 913 So. 2d 278, 284 (Miss. 2005). “First, the
‘four corners’ test is applied, wherein the reviewing court looks to the language that the
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parties used in expressing their agreement.” Id. The court should “read the contract as
a whole, so as to give effect to all of its clauses.” Royer Homes of Miss., Inc. v. Chandeleur
Homes, Inc., 857 So. 2d 748, 752 (Miss. 2003). “When an instrument’s substance is
determined to be clear or unambiguous, the parties’ intent must be effectuated.” Pursue
Energy Corp. v. Perkins, 558 So. 2d 349, 352 (Miss. 1990). Second, a court should look to
“the discretionary canons of contract construction” if the parties’ intent remains unclear
or illusive after reading the instrument. Austin v. Carpenter, 3 So. 3d 147, 150 (Miss. Ct.
App. 2009). Third, “if the contract continues to evade clarity as to the parties’ intent, the
court should consider extrinsic or parol evidence.” Royer Homes, 857 So. 2d at 753. Strict
adherence to this framework is not required in all circumstances, see Pursue Energy, 558
So. 2d at 351, but “[t]he primary purpose of all contract construction principles and
methods is to determine the intent of the contracting parties.” Houston v. Willis, 24 So.
3d 412, 419 (Miss. Ct. App. 2009).
Here, the Court does not need to look beyond the plain language of the
performance bond. The bond provides, in relevant part:
Whenever Principal [SHA], shall be, and be declared by Obligee [Sauer] to
be in default under the subcontract, the Obligee having performed
Obligee’s obligations thereunder:
(1)
Surety [Hartford] may promptly remedy the default subject
to the provisions of paragraph 3 herein, or;
(2)
Obligee after reasonable notice to Surety may, or Surety upon
demand of Obligee may arrange for the performance of
Principal’s obligation under the subcontract subject to the
provisions of paragraph 3 herein;
(3)
The balance of the subcontract price, as defined below, shall
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be credited against the reasonable cost of completing
performance of the subcontract. If completed by the Obligee,
and the reasonable cost exceeds the balance of the
subcontract price, the Surety shall pay to the Obligee such
excess, but in no event shall the aggregate liability of the
Surety exceed the amount of this bond. If the Surety arranges
completion or remedies the default, that portion of the
balance of the subcontract price as may be required to
complete the subcontract or remedy the default and to
reimburse the Surety for its outlays shall be paid to the
Surety at the times and in the manner as said sums would
have been payable to Principal and there been no default
under the subcontract.
Therefore, according to the performance bond, Hartford’s obligations are triggered by 1)
SHA’s default on the subcontract, 2) Sauer’s declaration of SHA’s default, and 3) Sauer
having performed its obligations under the subcontract. If those three conditions are met,
there are three options: 1) Hartford may remedy the default; 2) Sauer may arrange for
another party to perform SHA’s obligations under the subcontract; or 3) Hartford may,
upon Sauer’s demand, arrange for another party to perform SHA’s obligations under the
subcontract. Each option is subject to the payment provisions of paragraph 3, cited
above.
The performance bond did not impose any additional requirements on Sauer
beyond the ones cited above. It did not require Sauer to formally demand that Hartford
“immediately commence performing under the terms of its bond.” L & A Contracting, 17
F.3d at 111. L & A Contracting, Co. v. S. Concrete Servs., Inc., 17 F.3d 106 (5th Cir.
1994), is distinguishable in that it was decided under Florida law. Id. at 109 n. 2.1 The
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To the extent other District Judges in this state have applied L & A
Contracting in cases decided under Mississippi law, the undersigned judge
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parties agree that Mississippi law applies, and under Mississippi law, performance bonds
are “governed by the familiar rules of contract law.” Blount, 63 So. 3d at 461.
Accordingly, the Court declines to impose extra-contractual duties on performance bond
claimants, as Hartford urges.
Hartford also argues, in the alternative, that it is not liable for any damages that
arose prior to the October 13, 2014, notice of default sent to SHA. Again, the Court looks
to the terms of the contract to determine Hartford’s obligations. Id. Paragraph 3 of the
performance bond, quoted above, addresses the terms of payment under the performance
bond. Neither party adequately addressed this contract language in briefing or applied
it to the actual facts of the case. Therefore, the Court declines to address the question
here.
IV. CONCLUSION
For these reasons, the Court denies Hartford Fire & Insurance Company’s Motion
for Summary Judgment [104].
SO ORDERED AND ADJUDGED, on this, the 7th day of December, 2016.
s/Keith Starrett
UNITED STATES DISTRICT JUDGE
respectfully disagrees with them. See, e.g. C & I Entm’t, LLC v. Fid. & Deposit Co. of
Maryland, No. 1:08-CV-16-DMB-DAS, 2014 WL 3640790 (N.D. Miss. July 22, 2014).
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