Angelo Iafrate Const. v. Potashnick Const.

• Decision Date: 01 June 2004
• Docket Number: No. 03-2425.,No. 03-2306.,03-2306.,03-2425.
• Citation: 370 F.3d 715
• Parties: ANGELO IAFRATE CONSTRUCTION, LLC, Plaintiff/Appellant, v. POTASHNICK CONSTRUCTION, INC.; Travelers Casualty and Surety Company, Defendants/Appellees. Angelo Iafrate Construction, LLC, Plaintiff/Appellee, v. Potashnick Construction, Inc., Defendant, Travelers Casualty and Surety Company, Defendant/Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

370 F.3d 715

ANGELO IAFRATE CONSTRUCTION, LLC, Plaintiff/Appellant, v. POTASHNICK CONSTRUCTION, INC.; Travelers Casualty and Surety Company, Defendants/Appellees.

Angelo Iafrate Construction, LLC, Plaintiff/Appellee, v. Potashnick Construction, Inc., Defendant, Travelers Casualty and Surety Company, Defendant/Appellant.

No. 03-2306.

No. 03-2425.

United States Court of Appeals, Eighth Circuit.

Submitted: February 9, 2004.

Filed: June 1, 2004.

COPYRIGHT MATERIAL OMITTED

Murphy J. Foster III, argued, Baton Rouge, LA (Steven B. Loeb, John M. Madison, on the brief), for appellant/cross-appellee.

Michael E. Wilson, argued, St. Louis, MO (Jackson D. Glisson III, on the brief), for appellee/cross-appellant.

Before LOKEN, Chief Judge, BOWMAN, and WOLLMAN, Circuit Judges.

WOLLMAN, Circuit Judge.

Angelo Iafrate Construction, LLC (Iafrate) appeals from the district court's¹ grant of Travelers Casualty and Surety Company's (Travelers) motion for partial summary judgment and the judgment entered in favor of Travelers after trial on the remaining contract claims. Travelers cross-appeals, arguing that the district court erred in entering a default judgment against Potashnick and abused its discretion when it failed to award attorneys' fees.² We affirm.

I.

The Arkansas State Highway Commission (the Commission) contracted with Potashnick to do grading and structural work on three portions of highway, known as Jobs 51, 52 and 53. Delay of the work on the second portion of the highway, Job 52, forms the basis of this dispute. The contracts incorporated the Arkansas Standard Specifications for Highway Construction, Edition of 1991 (1991 Standard Specifications). Aetna, now Travelers (as Aetna's successor in interest), served as surety for the contracts, signing performance and payment bonds for each of the jobs. The Commission later contracted with T.L. James & Co., Inc., now Iafrate (as T.L. James' successor in interest), to complete base work and do surfacing work on the same portions of highway addressed in Potashnick's contracts (Jobs 56 and 57). Job 56 included the segments from both Job 51 and Job 52.

Potashnick faced financial problems in 1997, and Travelers began receiving notice of its difficulties in August 1997. Work at the contract site slowed to a halt, and by December 31, 1997, Potashnick informed the state's chief engineer that it lacked the financial ability to continue Jobs 52 and 53. The Commission acknowledged the voluntary default, and Travelers received the termination notice in January 1998. The Commission issued a suspension order, as required by the performance bond, allowing Travelers 60 days in which to prepare to resume work on Job 52. The Commission granted Travelers an extension and ultimately delayed the resumption of the assessment of working days until May 7, 1998. During the suspension, Travelers hired Barrington Consulting, Inc. to negotiate with contractors and to supervise the completion of the projects. Travelers hired several contractors to complete different aspects of the work. The work was completed and accepted by the Commission on July 24, 1998.

The Commission then assessed liquidated damages against Travelers as specified in the Potashnick contracts. Travelers followed the administrative appeals process and filed a complaint before the Arkansas State Claims Commission to seek reassessment of the liquidated damages. The parties reached a settlement under which Travelers paid $37,532.11, and its complaint was dismissed with prejudice.

The delay in work on Job 52 affected Iafrate's ability to complete Job 56. Iafrate therefore filed an administrative complaint against the Commission for delay damages. A stay order was entered and the Commission negotiated an agreement with Iafrate in which it assigned to Iafrate its rights as obligee under the performance and payment bonds. Iafrate then filed a complaint against Travelers and Potashnick. Potashnick failed to appear, and a clerk's default was issued against it. Travelers litigated the case, and the district court granted partial summary judgment in its favor, holding that Iafrate's theory of liability based on its contract rights as a third party beneficiary failed as a matter of law and finding that there was no breach of an implied contract. The remaining breach of contract claims proceeded to a bench trial, following which the district court concluded that Travelers was not liable. The court found that Iafrate had failed to show that Travelers "breached any duty under the performance bond," that Travelers had no duty under the bond to disclose its knowledge of the principal's potential financial difficulties prior to default, and that once default had been declared, "Travelers took all reasonable steps to effect the completion of the job in a timely manner." D.Ct. Judgment of Sept. 19, 2002, at 12. The district court later denied Travelers' motion for attorneys' fees. D.Ct. Order of May 29, 2003.

Iafrate later moved for a default judgment against Potashnick, which the court granted in the amount of $989,200.93.³ Travelers filed an opposition to Iafrate's motion for judgment against Potashnick, arguing that the district court would be taking an incongruous position if it found on the merits for Travelers but entered a default judgment against the primary obligor, Potashnick. The district court concluded in its order, however, "that the entry of default against Potashnick is not inconsistent with the rulings of the Court regarding the liability of Separate Defendant, Travelers. The facts which were presented at trial to exonerate Travelers do not necessarily exonerate Potashnick on all claims." D.Ct. Order of April 29, 2003.

II.

This case is in federal court based on diversity jurisdiction. We conclude that we have subject matter jurisdiction under the recent holding in GMAC Commercial Credit LLC v. Dillard Dep't Stores, 357 F.3d 827 (8th Cir.2004), in which we held that an LLC's citizenship is the citizenship of its members. Id. at 829. Through supplemental briefing, Iafrate has established that its two members, Angelo E. Iafrate and Dominic Iafrate, are both citizens of Michigan. Because Travelers is incorporated and has its principal place of business in Connecticut and Potashnick has citizenship only in Missouri, diversity of citizenship exists under the holding announced in GMAC. 28 U.S.C. § 1332. Arkansas law controls this diversity action. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).

A.

We review the district court's grant of summary judgment de novo. Credit Card Debt Solutions, Inc. v. Home Fed. Bank, 363 F.3d 805, 808 (8th Cir.2004). Summary judgment is appropriate if there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. Id. We review the district court's factual findings for clear error and its legal conclusions de novo. Consolidated Elec. & Mechs., Inc. v. Biggs Gen. Contracting, Inc., 167 F.3d 432, 434 (8th Cir.1999). We conclude that the district court properly disposed of these contract claims.

Iafrate contends that Travelers breached its performance bond obligations both to the Commission, enforceable by Iafrate through assignment, and to Iafrate directly. The performance bond is a contract signed by three parties: the Commission as the obligee, Potashnick as the principal obligor, and Travelers as the secondary obligor. Under the contract, Potashnick and Travelers owed a duty to the state to complete performance according to the project contracts. Travelers' duty is established by the language of the bond. See New Amsterdam Casualty Co. v. Detroit Fidelity & Surety Co., 187 Ark. 97, 58 S.W.2d 418, 419 (1933). Under the bond, Travelers' duty was to complete the project according to the contract in the event Potashnick defaulted.

Summary judgment was appropriate on Iafrate's third party beneficiary claims because no material issue of fact exists as to whether Iafrate was an intended beneficiary under the contract. Iafrate argues that because they knew that Iafrate would be affected by the timeliness of Potashnick's work, Travelers and Potashnick owed it a contractual duty. It is a general rule under Arkansas contract law, however, that a contract "will not be construed as having been made for the benefit of a third party unless it clearly appears that such was the intention of the parties." Howell v. Worth James Constr. Co., 259 Ark. 627, 535 S.W.2d 826, 828 (1976). The party does not have to be named in the contract, but the parties to the contract must have intended to confer a direct benefit upon the third party. Id. at 828-29 (citing Carolus v. Ark. L & P Co., 164 Ark. 507, 262 S.W. 330 (1924)). Construction contracts may include other prime contractors as third party beneficiaries, but such an intent must be evidenced in the language of the contract. See, e.g., Little Rock Wastewater Util. v. Larry Moyer Trucking, 321 Ark. 303, 902 S.W.2d 760, 763-64 (1995).

Iafrate contends that several sections of the Standard Specifications create a duty for Potashnick to work with other contractors, thereby establishing an intent to make such contractors beneficiaries. Section 105.08, entitled "Coordination and Cooperation Between Contractors" states that "[w]hen separate contracts are let adjacent to or within the limits of any one project, the work of each Contractor shall be conducted so as not to interfere with or hinder the progress or completion of the work being performed by other Contractors." 1991 Standard Specifications § 105.08. The specifications also state, however, that they are "not intended" to make "the public or any member thereof a third party beneficiary thereunder, or to authorize anyone not a party to the contract to maintain a suit for personal injuries or property damage pursuant to the terms or provisions of the contract." 1991 Standard Specifications § 107.14.

Performance obligations due under a...