SOUTH FLORIDA AGC PRESS RELEASE

Eleventh Circuit Reverses Attorneys’ Fee Award to Performance Bond Sureties in Dispute

with Contractor Arising from Claim Against Subcontractor Performance Bond

On October 26, 2018, the United States Court of Appeals for the Eleventh Circuit (the “Eleventh Circuit”) issued a decision which reversed an award of prevailing party attorneys’ fees to performance bond sureties in their dispute with a contractor arising from the contractor’s claim against a subcontractor’s performance bond.  This decision is significant to The South Florida Chapter of the Associated General Contractors of America (“The South Florida AGC”) and the Florida construction industry because, had the lower tribunal’s decision been affirmed, it would have established inequitable legal precedent contrary to Florida’s public policy and in conflict with decades of established risk assessment and mitigation practices of Florida contractors.

The underlying case arose from the construction of Brickell City Centre in Miami. Americaribe-Moriarty JV (the “Contractor”) asserted a claim against a performance bond procured by a defaulted subcontractor and issued by International Fidelity Insurance Company and Allegheny Casualty Company (collectively, the “Sureties”).  The Sureties filed a declaratory judgment action against the Contractor in the United States District Court for the Southern District of Florida (the “District Court”), seeking a declaration that the Contractor failed to satisfy conditions precedent to invoke the Sureties’ obligations under the performance bond.  The District Court entered final summary judgment in favor of the Sureties and the Sureties thereafter filed a motion for award of prevailing party attorneys’ fees against the Contractor.  The District Court entered a final judgment of prevailing party attorneys’ fees against the Contractor and the Contractor thereafter filed a timely appeal to the Eleventh Circuit.

The South Florida AGC played a significant role in the Contractor’s successful appeal.  The issue to be decided on appeal was whether the District Court erred in its determination that the non-performing Sureties were entitled to an award of prevailing party attorneys’ fees against the Contractor in their declaratory judgment action pursuant to the indemnity provision of the underlying subcontract and the reciprocal ‘prevailing party’ fee provisions of Fla. Stat. § 57.105(7).  At the request of the Contractor, The South Florida AGC,[1] through attorneys Gary M. Stein and K. Stefan Chin, with the law firm of Peckar & Abramson, P.C., filed an Amici Curiae Brief in the appellate proceeding in support of the Contractor and seeking reversal of the District Court’s decision.

The Amici Curiae Brief explained that the case presented an issue of great public importance to the Florida construction industry for two primary reasons.  First, allowing the Sureties to recover prevailing party attorneys’ fees where they were not parties to the subject subcontract and where the subcontract did not contain a prevailing party attorneys’ fee provision is contrary to Florida’s public policy of freedom to contract, because doing so would impermissibly alter the agreed and bargained-for contractual relationships between the parties.  Second, if the District Court’s ruling were allowed to stand as precedent, the Florida construction industry would be forced to alter decades of established risk assessment and mitigation practices with respect to construction contracting, bonding, and insurance, as parties to construction contracts would no longer be able to effectively assess and manage their risks by negotiating the bonding and insurance terms of said contracts, if the parties’ plain intent could simply be rewritten by the courts in the manner advocated by the Sureties and endorsed by the District Court’s decision.  Further, sureties issuing performance bonds in connection with Florida construction projects would be incentivized to file declaratory judgment actions and seek prevailing party attorneys’ fees – even where the underlying construction contract does not contain a prevailing party attorneys’ fee provision – in order to deter otherwise valid claims against the bonds they issued.  The Amici Curiae Brief further explained that the foregoing repercussions would likely have a chilling effect on the construction industry, as owners and other construction participants would have to account for the increased risks when considering whether and how to proceed with a construction project in Florida.

In its October 26, 2018 decision, the Eleventh Circuit reversed the District Court and found that:  (1) the indemnity provision of the underlying subcontract was a general indemnity clause that on its face applied only to third-party claims, and not to suits between the Contractor and the subcontractor; (2) the indemnity provision was not a prevailing party attorneys’ fee provision; and, therefore, (3) the reciprocal effect of Fla. Stat. § 57.105(7) was inapplicable.  Accordingly, as the subcontractor had no right to prevailing party attorneys’ fees under the subcontract, neither did the Sureties who stepped into the shoes of the subcontractor.  The award of prevailing party attorneys’ fees to the Sureties was therefore denied.  This decision is consistent with Florida’s public policy and with established risk assessment and mitigation practices of those in the Florida construction industry.

The appellate proceeding is styled International Fidelity Insurance Company and Allegheny Casualty Company v. Americaribe-Moriarty JV, Case No. 17-10814.  Feel free to contact us for more information.

[1] The Amici Curiae Brief was also filed on behalf of the Florida AGC Council, Inc. and the Associated General Contractors Inc. Florida East Coast Chapter.

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