Opinion
C. A. PC-2010-5654
03-17-2021
APEX DEVELOPMENT COMPANY, LLC. v. STATE OF RHODE ISLAND DEPARTMENT OF TRANSPORTATION v. S&R/PIHL, A JOINT VENTURE, LLC. ET AL.
For Plaintiff: Brent Canning, Esq.; Elizabeth M. Noonan, Esq.; Joseph D. Whelan, Esq. For Defendant: Maxford O. Foster, Esq.; Myles C. Beltram, Esq.; Paul A. Carnes, Esq. For Third-Party Holly Rao, Esq.; Michael B. Forte, Jr., Esq.; Theodore Defendants: Orson, Esq.; R. Thomas Dunn, Esq.; Nicole M. Matteo, Esq.
For Plaintiff: Brent Canning, Esq.; Elizabeth M. Noonan, Esq.; Joseph D. Whelan, Esq.
For Defendant: Maxford O. Foster, Esq.; Myles C. Beltram, Esq.; Paul A. Carnes, Esq.
For Third-Party Holly Rao, Esq.; Michael B. Forte, Jr., Esq.; Theodore Defendants: Orson, Esq.; R. Thomas Dunn, Esq.; Nicole M. Matteo, Esq.
DECISION
LANPHEAR, J.
I
Facts & Travel
Before this Court is Third-Party Defendants' Motion for Summary Judgment pursuant to Rule 56 of the Superior Court Rules of Civil Procedure and for entry of separate and final judgment pursuant to Rule 54(b) of the Superior Court Rules of Civil Procedure.
Third-Party Defendants, Western Surety Company and the Insurance Company of the State of Pennsylvania (collectively, Sureties), move this Court to enter summary judgment on all claims asserted against them in the Third-Party Plaintiff's, State of Rhode Island Department of Transportation (RIDOT), Third-Party Complaint. The RIDOT objects to the Sureties' motion for summary judgment and requests this Court to grant its cross-motion for partial summary judgment. This matter arises out of a dispute between Apex Development Company, LLC (Apex) and the RIDOT over the reconstruction of the Pawtucket River Bridge. On October 7, 2010, RIDOT and S&R/Pihl entered into RI Contract #2010-CB-004, Replacement of the Pawtucket River Bridge #550 (Contract), for the performance of certain work related to the reconstruction of a portion of Interstate Route 95 running through Pawtucket and the surrounding road and bridge infrastructure. Pursuant to the Contract, S&R/Pihl was required to obtain construction performance bonds. The Sureties issued a contract bond (Bond) to S&R/Pihl in the penal sum of $80,663,537.70, see Ploof Aff., Ex. A. The Bond does not contain any language regarding the Sureties' duties to potentially indemnify or insure RIDOT against third-party claims by tort claimants. RIDOT Aff., Ex. 6, at 2.
Here, the Bond document is titled "Contract Bond for Complete Performance and Full Payment." See Ex. 1. In pertinent part, it states:
"Now, THEREFORE, if the Contractor, its executors, administrators or successors, shall in all things well and truly keep and perform the covenants, conditions and agreements in the Contract and in any alterations thereof made as therein provided, on its part to be kept and performed, at the time and in the manner therein specified, and in all respects according to their true intent and meaning, and shall indemnify and save harmless the State, the Department of Transportation and all of its officers, agents and employees, as therein stipulated, and shall also promptly pay for all such labor performed or furnished and for all such materials and equipments furnished . . . as shall be performed or furnished for and used in the carrying on of the work covered by the Contract, or shall see that they are promptly paid for, whether or not the labor is directly performed for or furnished to the Contractor or is even directly performed upon the work covered by the Contract, and whether or not the materials are furnished to the Contractor or become component parts of the work, and whether or not the equipment is furnished to the Contractor or even directly used upon the work; and shall also pay for all Workers' Compensation, Public Liability, Fire Insurance, Federal and State Unemployment, Social Security and Compensation Taxes; then this obligation shall become and be null and void; otherwise it shall be and remain in full force and virtue.
"This Bond is subject to all such rights and powers of the State Department of Transportation and such other provisions as are set forth in the Contract and the Plans, Specifications and Proposal incorporated by reference in the Contract; and is subject also to all rights of the State and others which are set forth with respect to such a bond in Rhode Island General Laws Title 37, Chapter 12 (1956) and is subject to the provision that no extension of the time of performance of the Contract or delay in the completion of the work hereunder or any alterations thereof, made as therein provided, shall invalidate this Bond or release the liability of the Surety hereunder."
To aid in the completion of the project, the State condemned certain property and obtained easements over certain property owned by Apex. Pursuant to the terms of the Contract, S&R/Pihl was prohibited from utilizing any private property without obtaining prior permission from the property owner. Furthermore, the Contract prohibited S&R/Pihl from parking construction equipment or storing materials outside of the easements. Despite these contractual terms, S&R/Pihl allegedly trespassed on Apex's property during the performance of the project and until the project was completed on March 7, 2014. The State informed S&R/Pihl by letter, on October 26, 2011, that it was allegedly trespassing on Apex's property and directed S&R/Pihl to immediately cease and desist any trespassing.
Apex then sued the RIDOT claiming that S&R/Pihl's unauthorized use of Apex's property throughout the construction project amounted to a continuous trespass that allegedly caused damages. The RIDOT then filed a third-party complaint on November 26, 2019, claiming that if it is found liable to Apex, it is entitled to indemnification from S&R/Pihl as well as the Sureties because the RIDOT is an obligor of the Bond issued by the Sureties to S&R/Pihl. The Sureties then filed a motion for summary judgment on November 24, 2020. The RIDOT objected to the Sureties' motion and asserted a cross-motion for partial summary judgment on December 23, 2020. The Sureties filed an objection to RIDOT's cross-motion for summary judgment on January 15, 2021.
Parties' Contentions
The Sureties press for summary judgment on Counts II and III of the Third-Party Complaintclaiming that the Bond only guarantees complete performance of the work in question. Sureties' Mem. Supp. Summ. J. at 4. They contend that the plain language of the Bond has no provision that extends the scope of the Sureties' liability to cover tortious acts of others. Id. at 5. Lastly, they argue that expanding surety liability will lead to bad public policy and deter sureties from furnishing bonds in connection with public projects in Rhode Island. Id. at 7.
In Count II the RIDOT demands judgment for indemnity and contribution against Western Surety Company. In Count III the RIDOT demands judgment for indemnity and contribution against the Insurance Company of the State of Pennsylvania.
The RIDOT suggests that the Sureties are not entitled to summary judgment because the plain language of the Bond requires the Sureties to indemnify and save harmless the State. RIDOT's Reply Mem., at 5. It contends the Sureties are not entitled to summary judgment because the Bond is subject to the terms and conditions of the Contract between the State and S&R/Pihl which requires the Sureties to defend and indemnify the State from any claims. Id. at 6.
II Standard of Review
When deciding a motion for summary judgment, the trial justice must keep in mind that it '"is a drastic remedy and should be cautiously applied."' Steinberg v. State, 427 A.2d 338, 339-40 (R.I. 1981) (quoting Ardente v. Horan, 117 R.I. 254, 256-57, 366 A.2d 162, 164 (1976)). "Thus, '[s]ummary judgment is appropriate when, viewing the facts and all reasonable inferences therefrom in the light most favorable to the nonmoving party, the [C]ourt determines that there are no issues of material fact in dispute, and the moving party is entitled to judgment as a matter of law.'" Quest Diagnostics, LLC v. Pinnacle Consortium of Higher Education, 93 A.3d 949, 951 (R.I. 2014) (quotation omitted). However, only when the facts reliably and indisputably point to a single permissible inference can this process be treated as a matter of law. Steinberg, 427 A.2d at 340. When determining whether a genuine issue of material fact exists, the Court reviews "pleadings, affidavits . . . and other similar matters . . . in the light most favorable" to the nonmoving party. Saltzman v. Atlantic Realty Co., 434 A.2d 1343, 1345 (R.I. 1981).
The party who opposes the motion for summary judgment "carries the burden of proving by competent evidence the existence of a disputed material issue of fact and cannot rest on allegations or denials in the pleadings or on conclusions or legal opinions." Accent Store Design, Inc. v. Marathon House, Inc., 674 A.2d 1223, 1225 (R.I. 1996); see also McAdam v. Grzelczyk, 911 A.2d 255, 259 (R.I. 2006). The party opposing summary judgment cannot rest upon conclusions or mere allegations or denials in the pleadings; rather, the party must affirmatively set forth competent evidence that raises a genuine issue to be resolved. Sisters of Mercy of Providence, Inc. v. Wilkie, 668 A.2d 650, 652 (R.I. 1996).
III
Analysis
Rhode Island law requires that all public works projects be bonded. Pursuant to G.L. 1956 § 37-12-1:
"Every person . . . before being awarded a contract by the department of transportation or by the department of administration, . . . and every person awarded such a contract as a general contractor or construction or project manager for the construction, improvement, completion, or repair of any public road or portion thereof or of any bridge in which the contract price shall be in excess of one hundred and fifty thousand dollars ($150,000), or for a contract for the construction, improvement, completion, or repair of any public building, or portion thereof, shall be required to furnish to the respective department a bond of that person to the state, with good and sufficient surety or sureties . . . acceptable to the respective department, in a sum not less than fifty percent (50%) and not more than one hundred percent (100%) of the contract price . . ." Section 37-12-1.
Additionally, § 37-12-2 authorizes persons "who shall have performed labor and . . . furnished or supplied labor, material, or equipment in the prosecution of the work provided for in the contract, in respect of which a payment bond is furnished under § 37-12-1" to sue on the payment bond if they have not been paid in full within ninety days after the last of the labor was performed or furnished. Section 37-12-2. This statutory remedy was enacted because Rhode Island law prohibits the placing of a mechanics' lien on public works projects. See G.L. 1956 § 34-28-31. Accordingly, the general purpose of a performance bond is to secure contractor performance of all the work required in the contract and to ensure payment for materials as well as subcontractors. See Marshall Contractors, Inc. v. Peerless Insurance Co., 827 F.Supp. 91, 94 (D.R.I. 1993) (stating that the general principle is that the purpose of a performance bond is to guarantee that the work in question will be completed).
Rhode Island law is clear that "[t]he nature and extent of a surety's liability on a performance bond is governed by the terms of the bond." Id. at 93-94; see also Narragansett Pier Railroad Co. v. Palmer, 70 R.I. 298, 302, 38 A.2d 761, 764 (1944). Accordingly, a performance bond must be strictly construed. "In the absence of ambiguity, the extent of the liability of the surety on a common-law bond is determined solely by the language of the bond. Construction by implication, which will extend the surety's liability, is not permissible in such a case." Narragansett Pier Railroad, 70 R.I. at 302, 38 A.2d at 763.
"[S]uretyship is not insurance." Pearlman v. Reliance Insurance Company, 371 U.S. 132, 140 n.19 (1962). "Suretyship involves an extension of standby credit by which the surety guarantees the principal's performance of its contractual undertaking." 4A Bruner & O'Connor Construction Law (Bruner) § 12:9 (footnote omitted). "The surety is responsible for assuring completion of the bond and contract upon default of the principal, and may have recourse against the principal's insurer to the extent that insured risks impact the principal's nonperformance." Id. "Insurance, on the other hand, does not involve an extension of credit and is underwritten and priced on the basis of actuarial analysis of the risk of fortuitous loss among the insurer's population of policy holders." Id
A performance bond, such as the Bond here, is a conditional obligation that typically has three triggering circumstances: the "obligee's substantial performance of its obligations under the bonded contract . . . [the] principal's material breach of the bonded contract sufficient to warrant termination; and . . . [the] obligee's proper notice to the principal and surety of the material breach and termination of the bonded contract." Id. § 12:13 (footnotes omitted). "The surety's performance bond obligation is conditional and not absolute." Id. § 12:36 (footnotes omitted). "Procedures for triggering the performance bond surety's obligations are specific to: (1) the express and implied terms of the bond and the bonded contract and (2) the type of bond. Typically, performance bonds and bonded contracts call for some form of 'notice of default' to be given by the obligee to the surety." Id. (footnote omitted).
"The duration of the surety's performance bond liability usually is limited by express terms of the bond, contract, or statutory suit limitation provisions." Id. § 12:23 (footnotes omitted). "In the absence of such express limitations, the bond duration traditionally has been deemed to extend only to the point of 'substantial completion'-physical completion of the construction work to the point that the work can be occupied and used by the owner for its intended purposes-at which point the owner is determined to have received performance substantially as bargained for and thus is not legally justified in terminating the bonded contract for default." Id. (footnotes omitted); and L&A Contracting Co. v. Southern Concrete Services, Inc., 17 F.3d 106, 110 (5th Cir. 1994).
"Far and away the most favored theory utilized to seek performance bond protection by parties not expressly named as obligee is that of 'third-party beneficiary.'" Bruner § 12:29 (footnote omitted). "Under this theory, a party proven to be an intended beneficiary of the surety's performance guarantee is entitled to protection of the performance bond." Id. (emphasis in original) (footnote omitted). See Glassie v. Doucette, 157 A.3d 1092, 1097 (R.I. 2017) ("to prevail on a contract claim as a third-party beneficiary, the claimant must prove that he or she is an intended beneficiary of the contract") "Such third-party arguments, however, overlook the fundamental proposition that the performance bond is intended specifically to protect the named obligee against the risk of contract nonperformance, and is not intended to offer financial balm to the hurts of everyone involved with the construction project." Bruner § 12:29 (footnote omitted). "For these and other reasons, most modern performance bonds expressly provide that only the named obligee has a right of action on the bond, and such provisions routinely are upheld." Id. (footnotes omitted).
Application
Here, the Contract between RIDOT and S&R/Pihl states that S&R/Pihl "shall guarantee the following; complete performance of the Contract; full payment for all materials and equipment; and full payment of all wages of labor." (Sureties' Suppl. Mem. Tab 1 (Tab 1) 4.) The language does not discuss a surety's duty to indemnify against third party claims. Id. The language also defines the scope of the surety's duty to conclude at "complete performance of the Contract[.]" Id. The default conditions that would trigger the surety's duties do not include torts such as trespass, but rather focus on non-performance of the Contract. See id. Tab 2 (Tab 2) 5-6. There is also no evidence of RIDOT providing notice of a default. See Bruner § 12:36.
The Bond specifies that the contractor shall indemnify the State of Rhode Island. See Bond; RIDOT Aff. Ex. 6 (Ex. 6) 2-3. The "Blue Book" (a RIDOT manual for contractors) requires contractors to indemnify the State and procure and maintain workers' compensation, liability and property damage insurance. See Ex. 6 at 2-3. Neither the Bond nor the Blue Book require a surety to indemnify the State or be liable for third-party claims. See Bond; Ex. 6. There is also no language in the Bond regarding claims from third party tort claimants. Id. See Glassie, 157 A.3d at 1097 . The Blue Book specifies that the intent for a contract is for the contractor to furnish all labor, materials, equipment, tools, transportation, and supplies required to complete the work.
Thus, had RIDOT intended at the time the Contract was written that the Bond require the sureties to indemnify the State or be liable for third-party claims, RIDOT would have placed such language into the Bond. See Narragansett Pier Railroad Co., 70 R.I. at 303, 38 A.2d at 764.
Regarding "substantial completion," Steven Ploof, as Treasurer of S&R Corporation and S&R/Pihl, stated in an affidavit that S&R/Pihl "substantially completed performance" by the end of 2013. (Ploof Aff., Nov. 24, 2020 ¶ 4.) Final inspection occurred on September 25, 2013. Id. ¶ 5. The last day that any employee of S&R/Pihl charged any labor was June 20, 2014. Id. ¶ 7. Substantial completion therefore occurred sometime between September 2013 and June 2014. See id. ¶¶ 4-7.
IV
Conclusion
Suretyship is not insurance, a surety's duty to perform ends at substantial completion, RIDOT has not provided a notice of default, and the Bond did not require the Sureties to perform regarding third-party claims. Accordingly, the motion for summary judgment of Third-Party Defendants is GRANTED. The motion for summary judgment of Third-Party Plaintiff, the RIDOT, is DENIED.