Boldt Co. v. Thomason Elec., C/A No. 6:07–cv–00697–GRA.

• Decision Date: 27 September 2007
• Docket Number: C/A No. 6:07–cv–00697–GRA.
• Court: U.S. District Court — District of South Carolina
• Parties: The BOLDT CO., d/b/a Oscar J. Boldt Construction, Plaintiff, v. THOMASON ELECTRICAL and American Contractors Indemnity Company, Defendants.

820 F.Supp.2d 703

The BOLDT CO., d/b/a Oscar J. Boldt Construction, Plaintiff,

v.THOMASON ELECTRICAL and American Contractors Indemnity Company, Defendants.

C/A No. 6:07–cv–00697–GRA.

United States District Court, D. South Carolina, Greenville Division.

Sept. 27, 2007.

John Edward Cuttino, Steven Wayne Ouzts, Turner Padget Graham and Laney, Columbia, SC, for Plaintiff.

Cheryl S. Kniffen, Robert D. Steinberg, Thompson and Slagle, Duluth, GA, Dewitte Thompson, Jeff B. Slagle, Thompson and Slagle, Norcross, GA, Thomas E. Dudley, III, Townes Boyd Johnson, III, Kenison and Dudley, Greenville, SC, for Defendants.

ORDER

G. ROSS ANDERSON, JR., District Judge.

Before this Court for consideration is the Defendants' Motion for Partial Judgment on the Pleadings (the “Motion”). Having considered the pleadings, the briefs of the parties, and oral argument on the issues presented in the Motion, this Court finds that the Defendants' Motion is meritorious and GRANTS the Defendants' Motion for Partial Judgment on the Pleadings.

I. FACTS

This litigation concerns the electrical subcontract work on two schools that were constructed in Greenville County, South Carolina: Pelham Road Elementary School and League Academy Middle School (the “Projects,” or individually, the “Pelham Project” or the “League Project,” respectively). Plaintiff Oscar J. Boldt Construction (“Boldt”) was the general contractor for both Projects. Boldt entered into subcontract agreements with Defendant Thomason Electrical, Inc. (“Thomason”) to do the electrical work on the Projects. Defendant American Contractors Indemnity Company (“ACIC”), a commercial surety, issued separate payment and performance bonds for each of the Projects naming Thomason as principal and Boldt as obligee (the “Bonds”).

The allegations of the Complaint, taken as true for purposes of the Motion, include that Thomason defaulted in the performance of the Subcontracts, that Boldt asserted claims against the Bonds, and that ACIC refused to make payment.

The Complaint includes no fewer than eighteen claims against Thomason and its surety, ACIC. The Defendants have now filed this Motion for Partial Judgment on the Pleadings, pursuant to Fed.R.Civ.P. 12(c), seeking to dismiss: (1) Count Fourteen, which purports to state a common law cause of action, sounding in tort, for alleged “bad faith” of the surety ACIC; (2) all claims asserted by Plaintiff seeking to recover pursuant to the payment bond(s) issued by ACIC (included in Counts One through Ten and Count Twelve); (3) Count Fifteen, purporting to assert a cause of action for unjust enrichment and/or restitution; and (4) Count Seventeen, seeking a recovery of attorney's fees pursuant to S.C.Code Ann. § 38–59–40.

II. STANDARD OF REVIEW

After the pleadings are closed, any party may move for judgment on the pleadings pursuant to Fed.R.Civ.P. 12(c). A Rule 12(c) motion challenges the legal sufficiency of the opposing party's pleadings and operates in much the same manner as a motion to dismiss under Rule 12(b)(6). Irish Lesbian and Gay Org. v. Giuliani, 143 F.3d 638, 644 (2nd Cir.1998). A motion for judgment the pleadings can only be brought after the pleadings are closed. Fed.R.Civ.P. 12(c), Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir.1999). Judgment on the pleadings is appropriate if, assuming the truth of all materials facts pled in the complaint, the moving party is nonetheless entitled to judgment as a matter of law. Hal Roach Studios, Inc. v. Richard Feiner & Co., Inc., 896 F.2d 1542, 1550 (9th Cir.1989).

III. LAW/ANALYSIS

A. Bad Faith Claim

There is a split of authority from other jurisdictions that have considered whether a performance bond obligee should be able to bring a tort action for “bad faith” against a surety. Compare Cates Const. Inc. v. Talbot Partners, 21 Cal.4th 28, 980 P.2d 407, 86 Cal.Rptr.2d 855 (Cal.1999) (holding that an obligee may not recover in tort for a surety's alleged breach of the covenant of good faith and fair dealing in the context of a construction performance bond); Great American Ins. Co. v. North Austin Mun. Utility Dist. No. 1, 908 S.W.2d 415, 418–20 (Tex.1995); Institute of Mission Helpers of Baltimore City v. Reliance Ins. Co., 812 F.Supp. 72 (D.Md.1992); Republic Ins. Co. v. Board of County Comm'rs of St. Mary's County, 68 Md.App. 428, 511 A.2d 1136 (1986); Barr/Nelson Inc. v. Tonto's, Inc., 336 N.W.2d 46 (Minn.1983); with Transamerica Premier Ins. Co. v. Brighton School Dist., 940 P.2d 348 (Colo.1997) (holding a bad faith claim could be asserted due to the relationship between the surety and obligee); Dodge v. Fidelity and Deposit Co., 161 Ariz. 344, 778 P.2d 1240, 1242–3 (1989); United States for the use of Don Siegel Constr. Co., Inc. v. Atul Constr. Co., 85 F.Supp.2d 414 (D.N.J.2000); Loyal Order of Moose, Lodge 1392 v. International Fidelity Ins. Co., 797 P.2d 622 (Alaska 1990); K–W Indus. v. National Surety Corp., 231 Mont. 461, 754 P.2d 502 (1988); and Szarkowski v. Reliance Ins. Co., 404 N.W.2d 502 (N.D.1987).

Where the jurisdiction of a federal court is invoked on grounds of diversity of citizenship, as in this case, the federal court must remain within the bounds of the substantive law of the subject state. Angel v. Bullington, 330 U.S. 183, 67 S.Ct. 657, 91 L.Ed. 832 (1947). Accordingly, this Court must decide whether South Carolina has clearly aligned itself with either side of this issue to determine whether South Carolina law recognizes a bad faith tort claim against the surety on a performance contract bond.

Boldt argues that its claim in Count XIV for bad faith against ACIC is supported by South Carolina law, relying primarily on the South Carolina Supreme Court's decision in Nichols v. State Farm Mut. Auto. Ins. Co., 279 S.C. 336, 306 S.E.2d 616 (1983). In Nichols, the Court held that first party insured could bring a common law tort action for bad faith against its indemnity insurer, basing its holding on the importance of the public interest affected by the insurance business, the relative lack of bargaining power of the insured when choosing an insurance policy, and an individual insured's relative lack of position in relation to the insurer during the claim's process. See id. at 339–40, 306 S.E.2d at 619.

This Court is guided by the South Carolina appellate court decisions in which those courts have been urged to expand the reach of Nichols to actions not involving a traditional insurer and first party insured claimant. The case offering the most guidance is the South Carolina Supreme Court decision in Masterclean, Inc. v. Star Ins. Co., 347 S.C. 405, 556 S.E.2d 371 (2001), the only South Carolina case to consider whether a bad faith claim can be asserted against a surety. In Masterclean, the principal on the bond asserted a bad faith action against the surety, arguing that the Nichols rationale should be extended to include claims by principals against the surety for bad faith failure to pay a claim made against a performance bond. Masterclean presented an issue of first impression for the South Carolina appellate courts. See id. at 408, 556 S.E.2d at 374. Noting that decisions from states which had considered the issue had resulted in a split of authority, the South Carolina Supreme Court went into great detail to explain why, in light of the many important distinctions between suretyship and insurance, it would not recognize a common law tort action for bad faith against a performance bond surety. Those distinctions include:

1. South Carolina has consistently recognized that a surety bond is a financial credit product rather than an insurance product;

2. The surety has a “contractual” relationship with two parties who generally have a conflict, which requires the surety to balance those interests as it decides how to respond to a claim;

3. The form of the bond is generally provided by the obligee rather than the surety; and

4. The projects that sureties are asked to bond are typically those entered into by parties with commercial sophistication, relative parity of bargaining power and ample legal and technical advice to ensure their protection in the contractual documents.

Id. at 409–13, 556 S.E.2d at 374–6.

Boldt argues that the decision in Masterclean is not determinative of this case because Masterclean should be limited to its facts to hold only that a principal cannot maintain an action against a surety for bad faith. This Court cannot agree. Although the Masterclean Court did offer the relationship between the principal and surety as an alternative reason why South Carolina would not allow the principal to assert a bad faith cause of action against a surety, the primary rationale the Masterclean court offered for declining to extend Nichols was that the public policy reasons underlying Nichols were “either non-existent or less persuasive in the surety context.” Id. at 412, 556 S.E.2d at 375.

This Court also finds persuasive the South Carolina appellate court decisions in Rotec Services, Inc. v. Encompass Services, Inc., 359 S.C. 467, 597 S.E.2d 881 (S.C.App.2004) and Charleston Dry Cleaners & Laundry, Inc. v. Zurich American Ins. Co., 355 S.C. 614, 586 S.E.2d 586 (2003). In Rotec, the Court of Appeals refused to recognize an implied covenant of good faith and fair dealing as an independent cause of action separate from the claim for breach of contract. Essentially, Boldt's claim against ACIC is that ACIC breached its contract (the bond) with Boldt by refusing to process its claim in an appropriate manner. In Charleston Dry Cleaners, the Supreme Court was asked to extend a Nichols cause of action to a non-traditional insurance relationship, the relationship between a first party insured and an independent adjuster and the adjusting company for which he worked. The Supreme Court of South Carolina refused to recognize such a cause of action. Accordingly, this Court finds in light of the Masterclean, Rotec and Charleston Dry Cleaners decisions...