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Developers Surety and Indemnity Co. v. Archer Western Contractors, LLC

United States District Court, M.D. Florida, Orlando Division

May 7, 2018




         This cause is before the Court on the following:

1. Defendant Archer Western Contractors, LLC's Motion for Summary Judgment (Doc. 82), filed October 2, 2017;
2. Plaintiff Developers Surety and Indemnity Company's Memorandum in Opposition to Defendant's Motion for Summary Judgment (Doc. 92), filed November 20, 2017;
3. Defendant's Reply in Support of Motion for Summary Judgment (Doc. 112), filed December 20, 2017;
4. Plaintiff's Motion for Summary Judgment (Doc. 96), filed November 20, 2017;
5. Defendant's Response in Opposition to Plaintiff's Motion for Summary Judgment (Doc. 111), filed December 20, 2017; and
6. Plaintiff's Reply in Support of Its Motion for Summary Judgment (Doc. 115), filed January 9, 2018.

         On April 13, 2018, the Court requested supplemental briefing regarding the application of Paragraph 6 of the Performance Bond. (Doc. 125). The parties both briefed the issue. (Docs. 126, 127). With briefing complete, the Court is fully advised on the premises. Upon consideration and review of the record as cited by the parties in their respective briefs, Plaintiff Developers Surety Insurance Company's motion is due to be denied, and Defendant Archer Western Contractors, LLC's motion is due to be granted.

         I. BACKGROUND

         This case arises out of a subcontract agreement gone wrong. In February 2012, Archer Western Contractors, LLC (“Archer”) entered into a contract with the Florida Department of Transportation to work on the Central Florida Commuter Rail Transit Station Finishes Project (the “Sunrail Project”). (Doc. 82-5, p. 2).

         In May 2012, Archer entered into a Subcontract Agreement (the “Subcontract”) with Prince Land Services, Inc. (“Prince”), which required Prince, as subcontractor, to perform landscaping and irrigation work on the Sunrail Project. (Doc. 82-8, p. 2). On September 7, 2012, Developers Surety and Indemnity Company (“DSIC”), as surety, issued Subcontractor Performance Bond No. 504957P (the “Bond”). (Doc. 82-11). The Bond listed Prince as subcontractor, DSIC as surety, and Archer as obligee. (Id.). This case centers on the parties' rights and obligations vis-à-vis the Subcontract and Bond.

         By May 2014, disputes arose relating to Prince's performance under the Subcontract, eventually leading to Archer defaulting Prince. (Docs. 120, 121). Archer thereafter engaged a third party to make up for Prince's alleged shortcomings. After obtaining a June 19, 2014, proposal from LaFleur Nurseries & Garden Center (“LaFleur”), Archer retained LaFleur to perform limited landscaping services at the Sanford, Florida, Sunrail station on June 28, 2014.[1] (Docs. 82-17, 82-18). After Prince defaulted, LaFleur and Archer entered into a replacement subcontract (the “LaFleur Subcontract”), whereby LaFleur was hired to complete the work originally subcontracted to Prince. (Doc. 82-10). LaFleur and Archer exchanged communications regarding drafts of the proposed subcontract and pricing between July 14, 2014, and July 22, 2014. (Docs. 82-26, through 82-30). LaFleur signed the LaFleur Subcontract on July 25, 2014; Archer signed on July 29, 2014. (Doc. 82-10).

         In the weeks before the LaFleur Subcontract was executed, Archer notified Prince and DSIC of its default. On July 3, 2014, Archer emailed Prince a “Notice of Default” letter, notifying Prince of numerous alleged failures of performance, which put Prince in default on the Subcontract. (Doc. 82-21). The Notice further instructed that if Prince did not cure the default within seventy-two hours, Archer would “take whatever steps it deems necessary to mitigate the damages caused by Prince's default.” (Id. at p. 3).

         On July 9, 2014, Archer sent DSIC a letter making a claim on the Bond (“Bond Claim”) after Archer's default. (Doc. 82-24). DSIC received the Bond Claim on July 10, 2014. (Doc. 120, ¶ 16). In response, DSIC sent Archer a July 14, 2014, letter stating that the Bond Claim lacked sufficient documentation of Prince's alleged deficiencies and requesting more information. (Doc. 82-31). DSIC's July 14, 2014, letter also indicated that DSIC had “commenced a preliminary investigation, ” and advised that DSIC would formally respond to Archer's claim “within fifteen (15) calendar days of receipt of the [requested] documents.” (Id.). Thereafter, Archer and DSIC did not communicate for months.

         After learning of the LaFleur Subcontract, DSIC sent Archer a letter dated October 16, 2014, stating that the Bond was null and void due to Archer's (1) failure to provide the documentation requested by DSIC's July 14, 2014, letter, and (2) unauthorized, unilateral decision to replace much of the work performed by Prince under the Subcontract. (Doc. 83-32). The letter also avers that Archer's actions to replace Prince's Subcontract performance interfered with DSIC's rights under the Bond to mitigate damages caused by default. (Id.). Accordingly, DSIC formally denied Archer's Bond Claim. (Id.).

         Upon completing its work on the Sunrail Project, Archer sent DSIC a letter dated August 29, 2016, demanding DSIC reimburse Archer $631, 148.65-the cost to replace Prince's work-pursuant to the Bond. (Doc. 83-33).

         A. Surety and Bond Provisions

         The interplay between the Bond and Subcontract is critical to the question of whether either party breached their contractual obligations. The Subcontract set forth the following default protocol:


8.1 Failure of Performance and Default.
If the Contractor [Archer] determines at Its sole discretion that the Subcontractor [Prince] has: (i) refused or failed to supply enough properly skilled workers, proper materials, or maintain the Schedule of Work; (ii) failed to make prompt payment for, or failed to prevent claims of non-payment from, Its workers, subcontractors or suppliers of any tier; (iii) disregarded Laws or orders of any public authority having jurisdiction; or (iv) otherwise materially breached, a provision of this Agreement; and Subcontractor fails within seventy-two (72) hours after receipt of written notice (facsimile, email, or letter, shall constitute sufficient written notice and declaration of default) to commence and continue satisfactory correction of such default with diligence and promptness, the Contractor, without prejudice to any other rights or remedies, shall have the right to any or all of the following remedies: (i) supply such number of workers and quantity of materials, equipment and other facilities as the Contractor deems necessary for the completion of the Subcontractor's Work, or any part thereof which the Subcontractor has failed to complete or perform after the aforesaid notice, and charge the cost thereof to the Subcontractor, who shall be liable for the payment of same including reasonable overhead, profit and attorney's fees; (ii) contract with one or more additional contractors to perform such part of the Subcontractor's Work as the Contractor shall determine will provide the most expeditious completion of the total Work and charge the cost thereof to the Subcontractor who shall be liable for the payment of same including reasonable overhead and profit; (iii) discharge the claim of non-payment; and/or (iv) withhold payment of any moneys due the Subcontractor pending corrective action to the extent required by and to the satisfaction of the Contractor, Owner and the Architect/Engineer. Any costs incurred by Contractor under this article, including attorney fees, shall be deducted from funds otherwise due Subcontractor under this Agreement. Contractor may use any materials, implements, equipment, appliances or tools furnished by or belonging to the Subcontractor to complete the Subcontractor's Work. Subcontractor shall provide its surety with all notices, letters, or email, from the Contractor referred to in this paragraph. In the event of an emergency affecting the safety of persons or property, the Contractor may proceed as outlined above without notice.
8.2 Failure of Performance-Termination for Default by Contractor.
If the Subcontractor fails to commence and satisfactorily continue correction of a default within seventy-two (72) hours after the notice is issued under Paragraph 8.1, then the Contractor may, in lieu of or in addition to the remedies provided therein, terminate this Agreement or a portion thereof, and use any materials, implements, equipment, appliances or tools furnished by or belonging to the Subcontractor to complete the Subcontractor's Work. The Contractor also may furnish those materials, equipment and/or employ such workers or subcontractors as the Contractor deems necessary to maintain the orderly progress of the work.
In the event of Termination for Default, Subcontractor shall receive no further payment of any unpaid portion of the Subcontract Price until such time as the Subcontract Work is completed, at which time Subcontractor will be entitled to the unpaid portion of the Subcontract Price, less all of the costs incurred by the Contractor in so performing the Subcontractor's Work, including reasonable overhead, profit, liquidated or consequential damages, and attorney's fees, which shall be deducted from any moneys due or to become due the Subcontractor. The Subcontractor and its surety shall be liable for the payment of any amount by which such expense may exceed the unpaid balance of the Subcontract Amount.

         (Doc. 10-1, ¶¶ 8.1-8.2). The Bond outlines four alternative responses DSIC was authorized to undertake upon notice of Price's default:

         4. Whenever Obligee [Archer] has declared Subcontractor [Prince] to be IN DEFAULT OF THE SUBCONTRACT, the Surety [DSIC] shall, within fifteen (15) calendar days of its receipt of notice from Obligee that Subcontractor is in default, respond as follows:

a. Complete the Subcontract Work in accordance with the Subcontract terms and conditions; or
b. Obtain bids or offers from contractors acceptable to Obligee for completing the Subcontract in accordance with its terms and conditions, and upon determination by Obligee and the Surety jointly of the lowest responsible bidder or offeror, arrange for a subcontract between such completion contractor and the Obligee, and arrange for new performance and payment bonds for such completion contractor from a surety acceptable to the Obligee. Upon acceptance of the completion contractor by the Obligee, the Surety shall pay to the Obligee the difference between the cost to complete the Subcontract work and the balance of the Subcontract Price, including the cost of obtaining new performance and payment bonds; or
c. Tender to Obligee the penal sum of the Bond less any amounts expended by the Surety in financing the Subcontractor pursuant to Paragraphs 3, or 4(e) hereof.
d. Having made an independent investigation of the facts and circumstances of the alleged default, deny its liability in whole or in part and notify and explain to the Obligee the reasons why the Surety believes it does not have liability for the default, in which event Obligee may proceed to take such action as may be allowed under the Subcontract or at law and the Surety's liability shall be determined in accordance with Paragraph 10 hereof.

(Doc. 10-2, ¶ 4).[2]

         The Bond also provided the following provision imposing liability on DSIC for liabilities Prince may incur for the completion or correction of its Subcontract work: 6. The Surety [DSIC] shall be liable for:

a. The responsibilities of the Subcontractor for correction of defective work and completion of the Subcontract Work.
d. The Surety's liability under this Paragraph 6 shall not exceed, in the aggregate, the penal sum set forth on the cover page of this Bond, subject to Paragraph 2.

(Doc. 10-2, ¶ 6).

         Finally, the Bond explicitly incorporated the Subcontract by reference. (Doc. 10-2, p. 1).

         B. ...

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