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.

WORKING WITH CONSTRUCTION COUNSEL ON YOUR CONSTRUCTION CONTRACT IS VALUE-ADDED

Posted on February 7, 2021February 7, 2021 by Edward Garber

It is always good practice to have construction counsel assist you with your construction contract. This may mean drafting your contract. This may mean negotiating your contract. This may mean advising you as to provisions in your contract that shift risk to you. This may mean providing red-lined suggestions to the contract. Or, this may mean all of the above, or a combination. The point is having construction counsel work with you will allow you to appreciate risk you are assuming and risk you are allocating to the other party. It will also allow you to consider provisions or language to provisions you should consider. I cannot emphasize the importance of working with construction counsel when it comes to your construction contracts. This is a value-added service.

One consideration is the forum selection provision. This is the provision in the construction contract that may dictate the exclusive venue for disputes. The forum selection provision is not a provision that should be cast aside because if there is a dispute it will be one of the first provisions your attorney will want to review. Dismissing this provision could result in you being required to litigate your dispute or portions thereof in a non-preferred destination, as seen in this non-construction case, that may be more costly or disadvantageous to you for a variety of reasons. A forum selection provision and the provisions in your contract dealing with dispute resolution are important provisions as these provisions advise you how to navigate disputes that may occur during the performance of the construction contract.

TRANSFERRING VENUE OF MILLER ACT PAYMENT BOND LAWSUIT PER MANDATORY FORUM SELECTION PROVISION

Posted on February 16, 2020February 16, 2020 by Edward Garber

Many construction contracts contain a forum selection provision that requires disputes to brought in a particular jurisdiction. A mandatory forum selection provision will use words of exclusivity, like “shall,” that unequivocally requires disputes to be brought in that jurisdiction. On the other hand, a permissive forum selection provision will not use words of exclusivity meaning a dispute “may” be brought in that jurisdiction. Where to file a lawsuit is an initial, important consideration. (For a further discussion on how Florida deals with forum selection provisions, check this posting.)

Under the federal Miller Act, governed under federal law, lawsuits are to be brought in the district where the contract was to be performed and executed, i.e., typically where the project is located. 40 USC s. 3133. However, this does not mean that there is not a valid basis to sue in another jurisdiction, or move to transfer venue to another jurisdiction, such as when the underlying mandatory forum selection provision requires a jurisdiction different than the where the contract is to be performed or executed.

For example, in U.S. f/u/b/o John E. Kelly & Sons Electrical Construction, Inc. v. Hartford Fire Ins. Co., 2020 WL 704899 (D. Maryland 2020), a subcontractor filed a Miller Act payment bond lawsuit in Maryland against the prime contractor and prime contractor’s surety. The federal project was performed in Maryland which is why the lawsuit was filed in Maryland. The subcontract, however, required that lawsuits “shall be brought in Morgan County, Alabama.” The prime contractor and its Miller Act payment bond surety moved to transfer venue from Maryland to Alabama. The federal district court agreed to transfer venue finding that “as with any statutory venue provision [such as in the Miller Act], parties way waive its protections by agreeing to a mandatory forum selection provision.” U.S., supra, at *3.

Mandatory forum selection provisions are given signifiant weight because this is the forum that parties bargained for prior to the occurrence of any dispute. This is why examining forum selection provisions prior to filing a lawsuit is an initial, important consideration.

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.

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.

TRANSFERRING A LIEN TO A LIEN TRANSFER BOND DURING A LIEN FORECLOSURE LAWSUIT

Posted on May 18, 2012May 18, 2012 by Edward Garber

When a construction lien is recorded, the lien can be transferred to a lien transfer bond (thereby removing the encumbrance or cloud on the property caused by the lien). The procedure to transfer a lien to a lien transfer bond is statutory in nature and governed under Florida Statute §713.24.

A lien does not necessarily have to be transferred to a bond immediately after the lien is recorded. Rather, an owner (or other person with interest in the property) can transfer the lien to a bond after the entity or person that recorded the lien (referred to as the “lienor”) files a lien foreclosure lawsuit. In this circumstance, it is important for the lienor to know that they must amend their lien foreclosure action to assert a claim against the lien transfer bond; otherwise, the lienor will essentially lose its lien rights. The lienor will not be able to foreclose the lien as to the property (because it was transferred to a bond) and the lienor will not be able to pursue its claim against the lien transfer bond.

This is exactly what happened in The Cool Guys, LLC d/b/a Paragon Indoor Air Quality v. Jomar Properties, LLC, 2012 WL 716084 (Fla. 4th DCA 2012). In this case, the lienor recorded a construction lien and filed a lien foreclosure lawsuit. While the lawsuit was pending, the owner transferred the lien to a lien transfer bond. Under Florida Statute §713.24, if a lien is transferred to a bond during the pendency of a lien foreclosure lawsuit, the lienor must commence an action against the lien transfer bond within 1 year after the transfer. The lienor in this case, however, did not amend its lawsuit to assert a claim against the lien transfer bond until two years after it was transferred. The owner moved for summary judgment arguing that the lienor could no longer assert a claim against the bond because it waited more than one year after the lien was transferred to the bond to assert its claim on the bond. The trial court agreed which was affirmed by Florida’s Fourth District Court of Appeal. Thus, the lienor was neither able to foreclose its lien on the property or the bond.

Therefore, as an owner, it is important to know that a construction lien recorded on your property can be transferred to a lien transfer bond immediately or during the course of a lien foreclosure lawsuit. As the lienor moving to forclose the lien, it is important to know that when a lien is transferred to a lien transfer bond, the recourse is against the bond and not the real property.