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Nat'l Fire Ins. Co. v. Fortune Constr. Co.

Nat'l Fire Ins. Co. v. Fortune Constr. Co.

United States Court of Appeals for the Eleventh Circuit

February 7, 2003, Decided

No. 01-15124

Opinion

 [*1263]  VINSON, District Judge:

The primary issue presented by this appeal is whether a surety on construction contract performance and payment bonds issued on behalf of a subcontractor has superior rights to retained contract balances in the possession of the general contractor when the general contractor completed the performance and has unsatisfied claims against the defaulting subcontractor.

I. BACKGROUND

This case arises out of two construction projects - - - the Winston Park project in Coconut Creek, Florida, and the West Brickell project in Miami, Florida. As general contractor on the projects, Fortune Construction Company ("Fortune") entered into two separate subcontracts with Arkin Construction Company ("Arkin") to build the two apartment complexes, the Winston Park Subcontract and the West Brickell Subcontract. National [**2]  Fire Insurance Company ("National Fire"), as surety, issued on behalf of Arkin, as principal, performance and payment bonds for the two construction projects. The performance bond and payment bond documents for the Winston Park project were standard forms issued by the American Institute of Architects. 2 The performance bond and payment bond documents for the West Brickell project were drafted by National Fire with language that materially differed from the Winston Park bonds. Each of the performance bonds and each of the payment bonds incorporated the appropriate subcontract between Fortune and Arkin by reference.

During construction of the two projects, Arkin began experiencing financial difficulty. National Fire provided financing to Arkin for a short time, but later refused to continue to finance Arkin. Both projects were behind schedule by this time. Arkin's financial difficulties prompted Fortune and National Fire to enter into negotiations about what to do when Arkin defaulted. There [**3]  was some discussion about National Fire procuring a completion contractor and about the possibility that Fortune could complete construction. The West Brickell project was near completion, but a substantial amount of work still needed to be done on the Winston Park project. Negotiations were still ongoing when, on May 29, 1997, Arkin abandoned both construction projects. On June 12, 1997, Fortune declared Arkin in default and notified National Fire accordingly.

A flurry of letters between the attorneys for Fortune and National Fire ensued. During this increasingly acrimonious exchange, National Fire contends that it tendered, or offered to tender, a completion contractor. While National Fire asserts that Fortune rejected this tender because Fortune wanted to complete construction itself, Fortune maintains that the tender was never made. Fortune demanded that National Fire perform its obligations under both performance bonds by completing the subcontracts. National Fire did not do so. While National Fire made payments to payment bond claimants on both projects, both of the construction projects were actually completed by Fortune as the  [*1264]  general contractor, and Arkin is now a dissolved [**4]  corporation.

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320 F.3d 1260 *; 2003 U.S. App. LEXIS 2164 **; 16 Fla. L. Weekly Fed. C 300

NATIONAL FIRE INSURANCE COMPANY OF HARTFORD, Plaintiff-Counter-Defendant-Appellee, versus FORTUNE CONSTRUCTION COMPANY, Defendant-Counter-Claimant-Third-Party-Plaintiff-Appellant, ARKIN CONSTRUCTION COMPANY, INC., Third-Party-Defendant.

Subsequent History: US Supreme Court certiorari denied by Nat'l Fire Ins. Co. v. Fortune Constr. Co., 540 U.S. 873, 124 S. Ct. 221, 157 L. Ed. 2d 133, 2003 U.S. LEXIS 6978 (2003)

Appeal after remand at, Remanded by Nat'l Fire Ins. Co. v. Fortune Constr. Co., 2007 U.S. App. LEXIS 8234 (11th Cir. Fla., Apr. 9, 2007)

Prior History:  [**1]  Appeal from the United States District Court for the Southern District of Florida. D.C. Docket No. 97-02439-CV-JLK.

Disposition: Affirmed in part, reversed in part, remanded.

CORE TERMS

surety, performance bond, subcontract, contractor, payment bond, completion, default, obligee, district court, delay damages, contract balance, equitable subrogation, completed construction, complete construction, rights, terms, obligations, electrical, liquidated, bonds, laborers, set-off, damages, costs, shoes, letter agreement, contract price, projects, arrange, reasonable cost

Civil Procedure, Appeals, Standards of Review, De Novo Review, Summary Judgment, Summary Judgment Review, General Overview, Standards of Review, Substantial Evidence, Sufficiency of Evidence, Entitlement as Matter of Law, Appropriateness, Discovery, Methods of Discovery, Judgments, Burdens of Proof, Movant Persuasion & Proof, Motions for Summary Judgment, Genuine Disputes, Supporting Materials, Discovery Materials, Criminal Law & Procedure, De Novo Review, Remedies, Bonds, Business & Corporate Compliance, Contracts Law, Types of Contracts, Guaranty Contracts, Sureties, Liability, Contracts Law, Third Parties, Subrogation, Real Property Law, Construction Law, Contractors & Subcontractors, Perfections & Priorities, Liens, Mechanics' Liens, Insurance Law, Claim, Contract & Practice Issues, Subrogation, Governments, Courts, Judicial Precedent, Standards of Performance, Creditors & Debtors, Construction Contracts, Execution of Bonds, Measurement of Damages, Foreseeable Damages, Wage & Hour Laws, Statutory Application, Davis-Bacon Act, Public Contracts Law, Labor Laws, Partial Summary Judgment, Scope & Definitions, Prevailing Wages, Labor & Employment Law, Damages, Backpay, Business Aids & Assistance, Financial Assistance, Judgment Interest, Prejudgment Interest, Commercial Law (UCC), Sales (Article 2), Form, Formation & Readjustment, Types of Damages, Compensatory Damages