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Aug 19, 2022

Feeding the Beast: In a Payment Bond, "All Sums Justly Due" May Include Attorneys' Fees

ABSTRACT: Sureties must pay attorneys' fees on private construction projects where payment bond contains provision calling for payment of "all sums justly due," says 8th Circuit.

In Owners Insurance Company v. Fidelity and Deposit Company of Maryland, the Eighth Circuit was asked to determine whether a private construction payment bond containing the phrase “all sums justly due” requires a commercial surety to pay attorneys’ fees incurred by the bond claimant. Its holding was a resounding Yes, at least where the underlying contract between the bond principal and the bond claimant contains an attorneys’ fee provision.

As the court stated, this matter involved “a construction project gone wrong.” Ben F. Blanton, Inc. was hired by BCC Partners, LLC to build luxury apartments in the St. Louis area. As is standard on most large construction projects, BCC required Blanton to obtain a payment bond that would protect BCC if Blanton failed to pay its subcontractors or material suppliers. Fidelity and Deposit Company of Maryland (“F&D”), a commercial surety, provided the payment bond. The bond provided that if Blanton did not pay subcontractors or material suppliers, they could file suit and recover from F&D “all sums as may be justly due.”

Blanton failed to pay Stark Truss (a material supplier) and Lindberg Waterproofing (a subcontractor) for materials supplied and services rendered on the projects. Both entities obtained arbitration awards against Blanton including significant attorneys’ fees that, in one instance, exceeded the award for labor and materials supplied. Importantly, the fee awards were made pursuant to terms in the contracts with Blanton that explicitly provided for recovery of attorneys’ fees.

After the awards were issued, Blanton declared bankruptcy. Pursuant to the payment bond, F&D paid Stark Truss and Lindberg for labor and materials but refused to pay any of the awarded attorneys’ fees. Stark Truss and Lindberg brought suit. F&D moved for summary judgment, which was granted by the district court. Stark Truss and Lindberg appealed, and the 8th Circuit reversed.

The court’s reasoning was straightforward. First, it noted that the phrase “all sums justly due” was not limited by any qualifying language that would exclude attorneys’ fees from F&D’s obligation. Next, it noted that this phrase was taken from a prior iteration of the Miller Act, 40 U.S.C. §3131, which requires payment bonds on federal public construction projects. This language had been construed under the Miller Act to allow for recovery of attorneys’ fees where the underlying bonded contract allowed for recovery of attorneys’ fees. In this case, the underlying contract, while not involving a public project subject to the Miller Act, did allow for recovery of attorneys’ fees. Thus, reasoned the court, F&D was on the hook for the attorneys’ fees awarded by the arbitrator.

Clearly, where the underlying contract between the bond principal and the bond claimant contains an attorneys’ fees provision, the Eighth Circuit is willing to give this particular and commonly used phrase “all sums justly due” an expansive reading, even where such fees outstrip the actual damages awarded to a bond claimant. Thus, commercial sureties should expect an uphill battle avoiding claims for such fees under a payment bond that calls for payment of “all sums justly due.”