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.

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).