SUIT ON SUBCONTRACTOR’S COMMON LAW PAYMENT BOND

Posted on February 15, 2020February 15, 2020 by Edward Garber

When a subcontractor furnishes a payment bond, is it referred to as a common law payment bond governed by state law. There is no federal statute (or even state statute in most jurisdictions) governing the requirements of a subcontractor’s payment bond, hence the reason it is oftentimes referred to as a common law payment bond. This is different than a prime contractor’s payment bond which is generally governed by federal or state-specific statutes.

In an opinion out of the Northern District of North Dakota, U.S. v. Western Surety Company, 2010 WL 609548 (D. North Dakota 2020), the Court discussed a painting sub-subcontractor’s claim against a subcontractor’s common law payment bond on a federal project. Here, the subcontractor hired the sub-subcontractor and a payment dispute arose. The subcontractor furnished its own payment bond. The sub-subcontractor filed a lawsuit against both the prime contractor’s Miller Act payment bond and the subcontractor’s common law payment bond. The Miller Act payment bond dispute got resolved and the case proceeded as to the subcontractor’s common law payment bond.

The common law payment bond surety moved for summary judgment claiming the painting sub-subcontractor failed to properly trigger the bond because it failed to provide notice of its claim as required by the terms of the bond. Since the bond is deemed a contract, the Court looked at principles of North Dakota contract law governing this argument. The common law bond required a claimant to give written notice within 90 days of its last day of work (which is a common requirement in such bonds). The surety wanted the Court to construe this language similar to the requirements of the federal Miller Act by requiring the sub-subcontractor to give it notice with substantial accuracy of the claim. The Court rejected this sentiment, and denied the summary judgment, as the subcontractor’s payment bond made no mention of “substantial accuracy.” The Court looked at a hodge-podge of communications finding that a reasonable jury could conclude that the painting sub-subcontractor complied with the provisions of the bond. Additionally, the Court noted that even if the notice was inadequate, the surety failed to establish how it was prejudiced based on North Dakota law that states: “A surety is exonerated…[t]o the extent to which the surety is prejudiced by an omission of the creditor to do anything when required by the surety which it is the creditor’s duty to do.” U.S., supra, at *6 (internal quotation and citation omitted).

Lastly, the Court discussed how the subcontractor’s common law payment bond mentions the obligee of the bond is the general contractor. This is how all subcontractor payment bonds are worded. However, within the bond, there is a definition for “claimants” that allows claimants to sue on the bond. The Court addressed this to reflect that the painting sub-subcontractor, meeting the definition of claimant in the payment bond, was a third-party beneficiary of the subcontractor’s payment bond and had standing to sue the bond.

This is a good case if you are dealing with a subcontractor’s common law payment bond. The requirements to sue the bond will be less rigorous than suing a payment bond governed by a statute, such as a Miller Act payment bond.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

QUICK NOTE: SUBCONTRACTOR PAYMENT BOND = COMMON LAW PAYMENT BOND

Posted on February 12, 2017February 12, 2017 by Edward Garber

What is a common law payment bond? A common law payment bond is a bond not required or governed by a statute. For example, if a prime contractor provides the owner a payment bond, that bond will be a statutory payment bond. On the other hand, if a subcontractor provides the general contractor with a payment bond, that bond will be a common law payment bond. Why? Because there is not a statute that specifically governs the requirements of a subcontractor’s payment bond given to a general contractor. The subcontractor’s payment bond is aimed at protecting the general contractor (and the general contractor’s payment bond) in the event the subcontractor fails to pay its own subcontractors and suppliers. The subcontractor’s payment bond will generally identify that claimants, as defined by the bond, are those subcontractors and suppliers the subcontractor has failed to pay. This common law payment bond is not recorded in the public records so sometimes it can be challenging for a claimant (anyone unpaid working under the subcontractor that furnished the bond) to obtain a copy of the bond. With that said, an unpaid claimant should consider pursuing a copy of this bond in certain situations, particularly if it may not have preserved a claim against the general contractor’s statutory payment bond.

Common law payment bonds have a one-year statute of limitations. This statute of limitations runs from the later of (i) one year from the claimant’s final furnishing date or (ii) one year from the general contractor’s final furnishing date if the general contractor provided a payment bond on the project.

ATTORNEY’S FEES AGAINST COMMON LAW PAYMENT BONDS

Posted on April 27, 2015April 27, 2015 by Edward Garber

On sophisticated construction projects (federal, Florida public, or Florida private projects), it is not uncommon for a prime (general) contractor to require that certain subcontractors furnish the prime contractor a payment bond. When the subcontractor furnishes the prime contractor a payment bond, this bond is a common law bond because it is not a bond furnished in accordance with a statutory requirement. Unlike a statutory payment bond (whether furnished per the Miller Act, Florida Statute s. 255.05, Florida Statute s. 713.23, or Florida Statute s. 337.18) there are no statutory prerequisites in order for a claimant to preserve rights under the common law payment bond.

For instance, if the subcontractor that furnished a payment bond has an unpaid subcontractor or supplier, these entities can pursue claims directly against the subcontractor’s payment bond instead of the prime contractor’s (statutory) payment bond. Thus, if the subcontractor’s unpaid subcontractors or suppliers failed to preserve their rights against the prime contractor’s (statutory) payment bond, they can still pursue rights against the subcontractor’s common law payment bond.

In USA f/u/b/o Vulcan Materials v. Volpe Const., 622 F.2d 880 (5^th Cir. 1980), an earthwork subcontractor furnished a payment bond on a federal project (where the prime contractor would have furnished a Miller Act payment bond). The subcontractor had an unpaid supplier of fill. Amongst other claims, the supplier sued the earthworks subcontractor’s payment bond. The Fifth Circuit found that not only was this payment bond a common law bond, but the supplier (bond claimant) was entitled to attorney’s fees pursuant to Florida Statute s. 627.756.

Florida Statute s. 627.756 provides:

(1) Section 627.428 (entitlement to attorney’s fees) applies to suits brought by owners, subcontractors, laborers, and materialmen against a surety insurer under payment or performance bonds written by the insurer under the laws of this state to indemnify against pecuniary loss by breach of a building or construction contract. Owners, subcontractors, laborers, and materialmen shall be deemed to be insureds or beneficiaries for the purposes of this section.

Thus, even if the bond is a common law payment bond, an unpaid claimant can still recover their attorney’s fees. Thus, the unpaid claimant gets the benefit of not having to comply with statutory prerequisites to preserve rights under the prime contractor’s payment bond and the recovery of attorney’s fees against a common law payment bond.