SUING A PAYMENT BOND SURETY IN DIFFERENT VENUE THAN SET FORTH IN THE SUBCONTRACT

Posted on July 18, 2021July 18, 2021 by Edward Garber

The venue to file a lawsuit can be an important issue for a variety of reasons, whether for convenience or the prospect of a more favorable outcome. Oftentimes, there is a venue provision in a contract that provides where the exclusive venue for any dispute arising out of the contract must be brought.

In a recent case, Southeastern Concrete Constructors, LLC v. Western Surety Company, 2021 WL 2557297 (Fla. 2d DCA 2021), dealing with a Florida Department of Transportation (FDOT) project, a subcontractor filed suit against the general contractor’s FDOT payment bond issued under Florida Statute s. 337.18. The subcontractor did not file suit against the general contractor. The subcontractor filed suit in Hillsborough County, Florida. However, the subcontract contained a venue provision requiring disputes under the subcontract to be brought in Levy County, Florida. Based on this venue provision in the subcontract, the trial court granted a motion to transfer the venue of the dispute to Levy County. This, however, was reversed on appeal.

The Second District Court of Appeal explained that the payment bond is a separate and distinct instrument –a separate agreement—than the subcontract. The payment bond, unlike the subcontract, did NOT contain a venue provision. The subcontract also did NOT include any language that provided that the exclusive venue of Levy County applied to any claims brought by the subcontractor against the payment bond. Finally, Florida Statute s. 337.18 (dealing with FDOT payment and performance bonds) permits a claimant, such as the subcontractor, to bring a claim against the general contractor or the surety. This is customary as a claimant does not need to join the general contractor, or the principal of the payment bond, in order to assert a claim against the payment bond; it is common for a claimant to only sue the payment bond surety.

This leads to a worthy consideration. A general contractor should include language in the subcontract that provides that its payment bond surety can enforce the venue provision as it pertains to any claims brought against the surety and any claims against the general contractor’s payment bond surety must be brought in the exclusive venue set forth in the subcontract–the venue provision shall be deemed incorporated into the bond for purposes of any claim asserted by the subcontractor against the bond. The purpose of this is to maximize the argument that the surety is an intended beneficiary of the exclusive venue provision in the subcontract. See Southeastern Concrete Constructors, supra, at *3 (“In the absence of any venue selection clause in the Bond or language otherwise incorporating the terms of the venue selection clause of the Subcontract into the Bond, in this action brought by [subcontractor] against [payment bond surety] pursuant to the Bond under section 337.18(1)(b), the trial court’s order granting the motion to transfer venue was error.”).

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.

VENUE FOR MILLER ACT PAYMENT BOND WHEN PROJECT IS OUTSIDE OF US

Posted on September 1, 2019September 1, 2019 by Edward Garber

The proper venue for a Miller Act payment bond claim is “in the United States District Court for any district in which the contract was to be performed and executed, regardless of the amount in controversy.” 40 U.S.C. s. 3133(b)(3)(B).

Well, there are a number of federal construction projects that take place outside of the United States. For these projects, where is the correct venue to sue a Miller Act payment bond if there is no US District Court where the project is located? A recent opinion out of the Southern District of Florida answers this question.

In U.S. ex. rel. Salt Energy, LLC v. Lexon Ins. Co., 2019 WL 3842290 (S.D.Fla. 2019), a prime contractor was hired by the government to design and construct a solar power system for the US Embassy’s parking garage in Burkina Faso. The prime contractor hired a subcontractor to perform a portion of its scope of work.

The subcontractor remained unpaid in excess of $500,000 and instituted a Miller Act payment bond claim against the payment bond surety in the Southern District of Florida, Miami division. The surety moved to transfer venue to the Eastern District of Virginia arguing that the Southern District of Florida was an improper venue. The court agreed and transferred venue. Why?

Initially, because the project is outside of the US, the subcontractor could NOT sue the surety where the project is located. Under the Miller Act, the venue provision was enacted for the benefit of the prime contractor and surety and, therefore, “the final site of the government project is dispositive of the [venue] matter.” US ex. rel. Salt Energy, LLC, 2019 WL at *4 (rejecting the subcontractor’s argument that venue for a Miller Act payment bond claim can be at a venue independent of jobsite activities.)

Therefore, to determine the appropriate venue provision (as the venue set forth under the Miller Act would be inapplicable to a project outside of the US), the Court had to look at general venue standards governing federal courts. The Court adopted the general venue provision in 28 U.S.C. s. 1391 finding that appropriate venue would be “wherever any defendant resides or wherever a substantial part of the events or omissions giving rise to the claim occurred.” U.S. ex. rel. Salt Energy, LLC, 2019 WL at *4.

The surety resided in Tennessee. However, the surety did not attempt to transfer the case to an applicable District Court in Tennessee, but instead, moved to transfer to the Eastern District of Virginia. The surety argued, and the Court agreed, that the Eastern District of Virginia is appropriate because this is where the government executed the prime contract, where the awarding agency is located, where invoices were sent, and where the prime contractor submitted deliverables. The subcontractor countered that a substantial portion of its work occurred in the Southern District of Florida where it is located, making the Southern District of Florida an appropriate venue. Unfortunately for the subcontractor, the Court was not buying this argument because the activities the subcontractor claimed it performed in the Southern District of Florida were in relation to its subcontract, not the prime contract, and were largely administrative or ministerial in nature – substantial performance did not occur in the Southern District of Florida.

The surety would have been able to transfer venue to the appropriate district court in Tennessee (where it resided) or Virginia (where a substantial part of the events giving rise to the claim at issue took place).

The subcontractor’s argument to keep venue in the Southern District of Florida was a worthy argument. However, the Court perceived many of the activities the subcontractor performed in the Southern District (coordinating, billing, phone calls, etc.) were not a substantial part of the events giving rise to the claim. The Court was more focused on activities in relation to the prime contract, and because the prime contract and awarding agency were in the Eastern District of Virginia, that was a more appropriate venue.

Venue is an important consideration in any dispute, including a Miller Act payment bond dispute when a foreign project is involved and the venue provision in the Miller Act does not apply.

VENUE FOR SUING PUBLIC PAYMENT BOND

Posted on June 9, 2017June 9, 2017 by Edward Garber

Public payment bonds (excluding FDOT payment bonds) are governed under Florida statute s. 255.05. As it pertains to venue—the location to sue a public payment bond–the statute provides in relevant portion:

(5) In addition to the provisions of chapter 47, any action authorized under this section may be brought in the county in which the public building or public work is being construction or repaired.

***

(1)(e) Any provision in a payment bond…which restricts venue of any proceeding relating to such bond…is unenforceable.

Now, what happens if a subcontractor sues only a payment bond but its subcontract with the general contractor contains a mandatory venue provision? For example, what if the general contractor is located in Lee County and the subcontract contains a venue provision for Lee County, the project is located in Collier County, the subcontractor is located in Miami-Dade County, and the surety issues bonds in Miami-Dade County? Does venue have to be in Lee County per the mandatory venue provision?

According to the decision in Travelers Casualty and Insurance Co. of America v. Community Asphalt Corp., 42 Fla. L. Weekly D1318a (Fla. 3d DCA 2017), a claimant can sue a public payment bond anywhere where venue is permitted irrespective of a mandatory venue provision in a subcontract. In this case, the project was in Collier County and the subcontract contained a mandatory venue provision for Lee County. However, the subcontractor sued the public payment bond in Miami-Dade County. The Third District held that the subcontract’s venue provision could not be read into the bond because it would be unenforceable since Florida Statute s. 255.05 renders such language that restricts venue unenforceable.

The Third District, however, did importantly note that this ruling may likely have been different if the subcontractor also sued the general contractor in the lawsuit. Because the subcontractor only sued the public payment bond, the venue provision in the subcontract did not apply.

Strategically, there are reasons why a payment bond claimant (e.g., subcontractor) does not want to sue the general contractor. One such reason is venue, as in the instant case. The subcontractor did not want to sue in Lee County and had a strong argument to sue the public payment bond in Miami-Dade County, a more preferable and convenient venue to it, and was able to do so notwithstanding the venue provision in the subcontract.

LITTLE KNOWN FLORIDA VENUE STATUTE BENEFITTING RESIDENT CONTRACTORS

Posted on June 28, 2016June 28, 2016 by Edward Garber

When it comes to venue, there is a rather unknown venue statute that benefits resident contractors, subcontractors, and suppliers working on Florida projects. This statute, Fla. Stat. s. 47.025, states:

Any venue provision in a contract for improvement to real property which requires legal action involving a resident contractor, subcontractor, sub-subcontractor, or materialman, as defined in part I of chapter 713, to be brought outside this state is void as a matter of public policy. To the extent that the venue provision in the contract is void under this section, any legal action arising out of that contract shall be brought only in this state in the county where the defendant resides, where the cause of action accrued, or where the property in litigation is located, unless, after the dispute arises, the parties stipulate to another venue.

Believe it or not, there is not a lot of case law discussing the application of this statute. In a 2000 case, Kerr Const., Inc. v. Peters Contracting, Inc., 767 So.2d 610, 613 (Fla. 5^th DCA 2000), the Fifth District explained:

In applying the above rules of construction to section 47.025, we note that section 47.025 provides that forum selection clauses in contracts for improvements to real property are void if they require that legal action involving a resident contractor or subcontractor be instituted outside Florida. Thus, the statute merely requires that venue lie in Florida for disputes arising under these specific types of contracts. Accordingly, the statute does not affect the substantive rights of the parties. It merely requires that those substantive rights be adjudicated by a Florida court.

While this statute does not affect any choice of law provision in the contract, it does benefit a resident contractor, subcontractor, or supplier working on a Florida project by requiring such dispute to be litigated in a Florida court. This is certainly beneficial to a Florida contractor, subcontractor, or supplier that enters into a contract for a Florida job that requires the entity to litigate in a jurisdiction outside of Florida. Litigating in your home state is probably better than being required to litigate in a foreign jurisdiction.

A FORUM SELECTION PROVISION IN A SUBCONTRACT CAN BENEFIT A MILLER ACT PAYMENT BOND SURETY

Posted on October 10, 2015October 10, 2015 by Edward Garber

The recent opinion in U.S. ex rel. Galvin Bros., Inc. v. Fidelity and Deposit Co. of Maryland, 2015 WL 5793346 (E.D.N.Y. 2015) illustrates when a forum selection provision in a subcontract can benefit a Miller Act payment bond surety.

The subcontract in this case contained the following forum selection provision:

6.4 Notwithstanding the foregoing, and in consideration of $100 paid to the Subcontractor, the receipt whereof is acknowledged as part of the Subcontract Sum, at the sole option of the Contractor, any controversy, dispute or claim between the Contractor and the Subcontractor related in any way to this Agreement or the Project may be determined by a separate action in court or by a separate arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association then pertaining, whichever the Contractor may elect in its sole discretion. The parties expressly agree that the venue of any such court action or arbitration shall be Boston, Massachusetts. Any award rendered by the arbitrator or arbitrators shall be final and judgment may be entered upon it in accordance with the applicable law in any court having jurisdiction.

6.8 The Subcontractor, on behalf of itself and its assignees, sureties and agents, if any, agrees that the dispute resolution procedure in this Article shall inure to the benefit of, and be enforceable by, the Contractor and its sureties or assignees, and that such terms shall be deemed incorporated into any payment, labor and material or other similar bond issued by or for the Subcontractor regarding the Project.

Galvin Bros., supra, at *1.

The bolded language is key as this language is designed to allow the Miller Act payment bond surety to reap the benefit of the forum selection provision in the subcontract. This makes sense since the prime contractor routinely defends and indemnifies its surety.

The subcontractor in this case sued the prime contractor’s Miller Act payment bond surety where the project was located. The Miller Act requires a claimant to sue the surety in the federal district court where the contract is performed. Notwithstanding, the surety moved to dismiss the action or transfer venue to Boston, Massachusetts in accordance with the forum selection provision in the subcontract.

The federal district court dismissed the lawsuit for numerous reasons.

First, the court held that even though the Miller Act requires the lawsuit to be brought in the federal district court where the contract was to be performed, such “venue” can be modified by contract and, particularly, by a forum selection provision.

Second, the language bolded above in the forum selection provision allows the surety to enforce the forum selection provision in the subcontract.

Third, although all witnesses are located outside of Boston and are instead located where the project is located (and it would be more expensive to litigate in Boston), this alone is not enough to render meaningless a forum selection provision in a negotiated subcontract. In other words, the subcontractor cannot demonstrate that it would be deprived of a fair opportunity to litigate its Miller Act payment bond claim in Boston.

And, fourth, because the forum selection provision allows the parties to arbitrate at the sole option of the contractor, transferring venue would not be appropriate since the contractor / surety may elect to arbitrate this dispute. For this reason, the court dismissed the lawsuit. (To me, dismissing this action makes no sense other than to potentially create a statute of limitations argument when the subcontractor elects to re-file the lawsuit in a federal district court in Boston. And, to the extent the surety or prime contractor want to compel arbitration, they can certainly file a motion to compel arbitration pursuant to the forum selection provision once the action is transferred.)

If you are a prime contractor, the bolded language is language that you may consider incorporating into your subcontracts so that your surety can enforce a forum selection provision in the subcontract. And, if you are a subcontractor, be mindful of such a provision when electing where to file a lawsuit such as a Miller Act payment bond lawsuit.

COMPELLING REASONS NOT TO ENFORCE SUBCONTRACT VENUE PROVISIONS IN MULTI-PARTY CONSTRUCTION DEFECT CASES

Posted on September 13, 2014September 13, 2014 by Edward Garber

Subcontracts oftentimes contain venue provisions as to the exclusive venue for lawsuits. These venue provisions or forum selection clauses are consistent with the general contractor’s preferred venue; the venue, however, may be in a location unrelated to the project site. Sometimes the general contractor is sued by an owner (or association) for construction defects in a venue different than the venue included in the subcontracts. The general contractor, as it should, will third-party into the lawsuit those subcontractors that are implicated by the owner’s complaint for breach of contract, indemnification, etc.

Certain subcontractors will move to transfer venue based on the venue provision in their subcontract. Despite the venue provision, transferring venue is really in no one’s best interest since it is more efficient and economical to have multi-party construction defect cases tried and adjudicated in the same action versus many separate actions. The recent case of Love’s Window & Door Installation, Inc. v. Acousti Engineering, Etc., 39 Fla. L. Weekly D1963a (Fla. 5^th DCA 2014) supports this position. In this multi-party construction defect case, a sub-subcontractor that was sued by the subcontractor that hired it moved to transfer venue. The trial court denied the motion and the sub-subcontractor appealed. The Fifth District Court of Appeal agreed with the trial court that there were compelling reasons not to enforce the venue provision (e.g., to prevent multiple lawsuits, minimize judicial labor, avoid inconsistent results, and reduce expenses).

Yes, venue provisions are important and routinely enforceable. But, there are times where it is in the interests of justice and the parties NOT to enforce a venue provision, such as a multi-party construction defect case.

Notwithstanding, I always like to include a joinder provision in a construction contract that allows the hiring party (e.g., general contractor) to sue the hired party (e.g., subcontractor) in any forum and venue that the hiring party is sued. For example, in a subcontract, I would want a provision that allows the general contractor to sue (or third-party / join) the subcontractor in any venue and forum the general contractor is sued by any third-party, association, or owner. Such a provision ensures that even if the hired party (subcontractor) wants to rely on the venue provision, there is a joinder provision in the subcontract that negates the application of the venue provision in this context.

LIEN TRANSFER BONDS AND VENUE

Posted on August 12, 2013August 12, 2013 by Edward Garber

The Fourth District Court of Appeals in Attaway Electric, Inc. v. Kelsey Construction, Inc., 38 Fla. L. Weekly D1693a (Fla. 4th DCA 2013) recently ruled that an action on a lien transfer bond (posted pursuant to Fla. Stat. s. 713.24 in the county where the project is located and lien recorded) needs to be initiated in the county where the bond is recorded. This means that even if there is a contract between the parties that requires a different venue outside of where the lien transfer bond is posted, that venue provision will not be enforced so that an action as to the lien transfer bond and an action under the contract can both be brought in the same county, i.e., where the lien transfer bond is posted.
In Attaway Electric, a subcontractor recorded liens for alleged nonpayment on Broward County projects with the same general contractor. The liens were transferred to lien transfer bonds by the general contractor. The subcontractor moved to foreclose the liens in Broward County and also sued the general contractor for breach of contract. The general contractor then moved to transfer venue to Orange County pursuant to a forum selection provision in the subcontract. The trial court granted the motion and transferred venue. The Fourth District, however, reversed finding that an action on a lien transfer bond must be brought in the county where it is recorded and “contract claims involving the same matters should be brought in the same place to avoid inconsistent rulings.” Attaway Electric.

This recent decision is important because contractors that want to obtain the benefit of a forum selection provision in a subcontract probably need to have a payment bond and ensure in the subcontract that the forum selection provision covers claims as to the payment bond surety. If there is no payment bond, specifically for a private project, a subcontractor can lien the private project for monies owed. If the general contractor (or even perhaps the owner) then transfers the lien to a lien transfer bond, the subcontractor will be able to foreclose the lien as to the lien transfer bond in the county where the bond is recorded as well as pursue a breach of contract claim against the contractor in the same county, even if the subcontract contains a forum selection provision with a different venue.

VENUE FOR PAYMENT BOND DISPUTES IN FLORIDA

Posted on July 9, 2013July 9, 2013 by Edward Garber

Two main Florida payment bond statutes are Florida Statute s. 713.23 (payment bonds for private projects) and Florida Statute s. 255.05 (payment bonds for Florida public projects-not federal projects). Both statutes prohibit a payment bond issued after October 1, 2012 from restricting venue. In other words, if the payment bond contains a venue provision after this date, it is not enforceable.

This prohibition is important because there are times where the project is located in a venue that is not where the subcontractor resides and/or is contrary to the venue provision in the subcontract (typically, a venue where the general contractor resides).

It is good practice for the general contractor to include in its subcontract a venue provision that applies to its surety such that the subcontractor must sue the payment bond in the same venue that governs the subcontract. While it is uncertain how the new prohibition from restricting venue in a payment bond will apply in this context, the counter-argument is that the payment bond is not restricting venue, rather the “negotiated” subcontract governs the venue of any and all disputes between the parties including claims against the general contractor’s surety (and the general contractor is indemnifying and defending the surety). Worst case scenario is that the venue provision is deemed inapplicable to the surety. However, courts do not favor splitting causes of action (due to, among other things, the concern for conflicting results over the same facts) and should not favor a subcontractor lawsuit against the general contractor in one venue and a simultaneous subcontractor lawsuit against the general contractor’s payment bond surety in another venue. Indeed, courts have refused to enforce venue provisions in subcontracts in order to avoid splitting of causes of action. See, e.g., Miller & Solomon General Contractors, Inc. v. Brennan’s Glass Co., Inc., 837 So.2d 1182 (2003) (refusing to enforce subcontract venue provision when action as to lien transfer bond was filed in correct venue). Including a venue provision that also covers claims against the payment bond surety is useful in the event the general contractor wants to countersue the subcontractor or simply wants to create an argument that its subcontractor disputes should be confined to its preferred venue versus the subcontractor’s preferred venue.

On the other hand, there are situations where a subcontractor may not want to sue the general contractor and strategically prefers to just sue the payment bond surety. One situation may be the subcontractor knows the general contractor was not paid and the subcontract contains a pay-when-paid provision which would be enforceable as to the general contractor, but not against the payment bond surety. Another situation may be due to the venue provision in the subcontract; the subcontractor prefers to sue in a venue outside of the venue provision in the subcontract and has a better argument around the venue provision if it does not join the general contractor. There is caselaw that supports an argument to sue a payment bond surety in a venue where the subcontractor (lienor) resides that, depending on the dispute, could be appealing to the subcontractor. See, e.g., American Insurance Co. v. Joyner Electric, Inc., 618 So.2d 799 (Fla. 1st DCA 1993) (finding that action under s. 255.05 public payment bond was proper where lienor / subcontractor resided); Coordinated Constructors v. Florida Fill, Inc., 387 So.2d 1006 (Fla. 3d DCA 1980) (finding that venue was proper under s. 713.23 private payment bond action where lienor / supplier resided).

Venue is a pretty heavily litigated procedural strategic issue. Just like any dispute, venue as to a payment bond claim should not be ignored and should absolutely be considered at the onset of a dispute.

For more information on venue provisions, please see:

https://floridaconstru.wpengine.com/venue-provisions-read-what-you-sign/

and

https://floridaconstru.wpengine.com/subcontractors-read-and-understand-the-implications-of-venue-provisions/

SUBCONTRACTORS – READ AND UNDERSTAND THE IMPLICATIONS OF VENUE PROVISIONS

Posted on May 15, 2013May 15, 2013 by Edward Garber

Subcontracts often have venue provisions. However, these are often overlooked until a dispute arises. In many instances, the venue provision requires disputes to be brought in a court in a different venue than where the project is located. This could have the adverse effect of exposing a subcontractor, in particular, to disputes in multiple forums. The recent case of East Coast Metal Decks, Inc. v. Boran Craig Barber Engel Construction Co., Inc., 38 Fla. L. Weekly D1061a (Fla. 2d DCA 2013), explains the undesirable dynamics of venue provisions.
In East Coast Metal Decks, the general contractor hired the subcontractor on two public projects in Brevard County and Sarasota County. The general contractor, however, sued the subcontractor in Collier County due to a venue provision in the subcontract. The subcontractor brought the general contractor’s payment bond surety into the fold and then tried to transfer the venue to Brevard County because the subcontractor was being sued by material suppliers in that County. The trial court denied the transfer of venue because of the Collier County venue provision in the subcontract.

On appeal, the Second District affirmed the trial court’s ruling. The Second District found that (i) the parties were bound by the subcontract venue provision as there was not a compelling reason not to enforce the provision and (ii) because the payment bond was a public payment issued under Florida Statute s. 255.05, venue for a claim against the bond did not have to lie in Brevard County (where the project was located).

What does this case mean? Well, it means that the subcontractor needs to litigate with the suppliers in Brevard County and litigate with the general contractor in Collier County even though the disputes are related. Most likely, the suppliers sued the subcontractor because they were not paid and the general contractor did not pay the subcontractor due to the facts related to the general contractor’s claim against the subcontractor in Collier County.
Litigation in different counties over a related dispute can become expensive and undesirable. It is important to understand and consider the impact of venue provisions in contracts. Sometimes, it makes sense to argue the compelling reasons why the venue provision should not be enforced. However, courts do favor venue provisions because that is what parties negotiated and agreed to on the front-end. Other times, it makes sense to resolve the smaller lawsuits or lawsuits where the facts may not be in your favor (such as a subcontractor’s lawsuit with a supplier) to focus on the lawsuit with more upside (the subcontractor’s lawsuit with the general contractor or payment bond surety).

VENUE PROVISIONS – READ WHAT YOU SIGN!

Posted on November 16, 2012November 16, 2012 by Edward Garber

Venue provisions, also known as forum selection provisions, are commonly included in contracts. These provisions state that if there is a dispute arising out of or relating to the contract, the dispute must be brought in the exclusive venue of a certain locale. (For example, the provision might say disputes must be brought in the exclusive venue of Miami-Dade County.) Parties should be aware of this provision when executing a contract.

In Espresso Disposition Corp. 1 and Rowland Coffee Roasters, Inc., 37 Fla. L. Weekly D2643a (Fla. 3d DCA 2012), the parties entered into a contract. However, the party that prepared the contract cut-and-pasted the venue provision / forum selection provision from another contract. In doing so, there was no realization that the venue provision required disputes to be brought in Illinois. When a dispute arose, the drafter filed suit in Miami and argued that the Illinois venue provision was in error because it was simply cut-and-pasted. The problem was that venue provisions are enforceable and presumptively valid. The Third District Court of Appeal ruled that the drafter’s lawsuit must be dismissed because according to the parties’ contract, disputes could only be brought in Illinois. In entering this ruling and enforcing the cut-and-pasted venue provision, the Third District maintained “be careful what you ask for!” In other words, review the contract you are preparing and executing.

This case stands for the important proposition that parties need to review the contracts they are executing. Failure to do so could result in you being required to resolve your dispute in a different state and inconvenient forum as was the circumstance in the above case.