Dadeland Depot v. St. Paul Fire and Marine Ins.

• Decision Date: 13 September 2004
• Docket Number: No. 03-13540.,03-13540.
• Citation: 383 F.3d 1273
• Parties: DADELAND DEPOT, INC., Dadeland Station Associates, Ltd., Plaintiffs-Appellants, v. ST. PAUL FIRE AND MARINE INSURANCE CO., American Home Assurance Company, Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1273

383 F.3d 1273

DADELAND DEPOT, INC., Dadeland Station Associates, Ltd., Plaintiffs-Appellants, v. ST. PAUL FIRE AND MARINE INSURANCE CO., American Home Assurance Company, Defendants-Appellees.

No. 03-13540.

United States Court of Appeals, Eleventh Circuit.

September 13, 2004.

Philip M. Burlington, Phillip M. Burlington, P.A., Jeffrey M. Liggio, Liggio, Benrubi & Williams, PA, West Palm Beach, FL, for Plaintiffs-Appellants.

Veronica Danko Vellines, Donald L. Craig, Butler Pappas, Weihmuller Katz Craig, LLP, Tampa, FL, for Defendants-Appellees.

Appeal from the United States District Court for the Southern District of Florida (No. 01-08287-CV-DTKH); Daniel T.K. Hurley, Judge.

Before BIRCH and WILSON, Circuit Judges, and DOWD^*, District Judge.

BIRCH, Circuit Judge:

Plaintiff-appellant, Dadeland Station Associates ("Dadeland") appeals the dismissal of their claim against defendants-appellees, St. Paul Fire and Marine Insurance Co. and American Home Assurance Co. (collectively, "Sureties") for bad faith in refusing to settle claims involving the performance bond they issued on the contractor of one of Dadeland's business developments. The district court dismissed Dadeland's claim for two primary reasons: (1) Dadeland did not satisfy the conditions precedent for bringing a bad-faith claim and (2) Dadeland was barred from bringing this claim under principles of res judicata because Dadeland could have included this claim in its prior arbitration proceedings against the Sureties. Because we find that this case turns on important questions of state law for which there is no controlling precedent, we defer our decision pending certification of these questions to the Supreme Court of Florida.

I. BACKGROUND

Dadeland leases and manages commercial properties in Florida. In 1995, Dadeland entered into a contract with Walbridge Contracting, Inc., for the construction of Dadeland Station, a shopping center located in Miami, Florida. Miami-Dade County owns the property and is the lessor of the land on which the project is situated. In connection with that project, the Sureties issued a standard performance bond in the amount of $26,500,000.00. Dadeland is the obligee, referred to as the "Owner" on the bond; Walbridge is the principal, referred to as the "Contractor"; and the defendant insurance companies are the Sureties. Under the terms of the bond, Dadeland must inform the Contractor and the Sureties if the contractor has failed to complete performance under the construction contract, and the Sureties are obligated to take certain steps to ensure that the construction is completed.

Walbridge started work on Dadeland Station in September or October of 1995. The project was completed, opened, and leased to commercial tenants in November of 1996. After the project was opened and the tenants had moved in, however, Dadeland's consulting engineer advised the plaintiffs about certain construction defects and urged them to have the project inspected. Dadeland brought these defects to Walbridge's attention.

Shortly thereafter, Metropolitan Dade County building officials determined that the Dadeland Station project violated a number of provisions of the South Florida Building Code. Dadeland and County officials then entered into an agreement, which set forth a timetable of tasks that Dadeland was required to perform to bring the project into compliance with the building code. Dadeland asked Walbridge to repair the defective work. Walbridge, however, asserted that certain design defects were the fault of Dadeland Station's structural engineer or its architect and that he would not repair defects that were the fault of others or were outside the scope of its responsibility.

On 24 September 1997, Dadeland's attorney wrote to Walbridge and the Sureties stating that Dadeland had reason to believe that Walbridge failed to perform its obligations under the construction contract. Dadeland informed Walbridge and the Sureties that it was considering declaring a contractor default and requested a conference to discuss repair issues. On 22 October 1997, representatives for Dadeland, Walbridge, and the Sureties attended the conference at which Walbridge agreed to make certain repairs to the project within a certain time period. On 18 March 1998, Dadeland's attorney notified Walbridge and the Sureties that Walbridge had failed to perform any of the agreed repairs and that "[Dadeland] intends to proceed with arbitration and to make arrangements to have another contractor make the necessary repairs." R2-71, Ex. 12 at 2. In its subsequent arbitration complaint, Dadeland alleged that Walbridge was required under the construction contract to submit final as-built drawings to Dadeland and Dade County officials, but failed to do so. Dadeland also alleged that Walbridge wrongfully failed and refused to perform all but a small portion of the needed repairs, and that the Sureties had failed to take any action to correct the deficiencies. Dadeland requested approximately $4.4 million in damages resulting from expenditures it made for repairs, security, legal fees, engineering fees, and administrative costs.

On 20 November 1998, Dadeland's attorney again notified Walbridge and the Sureties that Walbridge was not performing repair work it had promised to do within a reasonable time frame. Dadeland requested that Walbridge provide a work schedule by 25 November 1998, but it did not respond. On 14 December 1998, Dadeland informed Walbridge and the Sureties of its decision to formally declare a contractor default and terminate Walbridge's right to complete the contract or perform corrective work on the project. Dadeland demanded that the Sureties take action to correct Walbridge's mistakes in accordance with the surety bond, but also indicated that it would not agree to continue to use Walbridge as the contractor.

Tom Groseclose, a St. Paul bond claims specialist, responded on behalf of the Sureties, and stated that the Sureties were conducting an investigation. Four days later, Dadeland informed Groseclose that the Sureties had not taken action within the time period required under the bond and made an additional demand that the Sureties perform their obligations. Steven Grunsfeld, another surety representative, responded that the Sureties had performed as required by the contract documents. Grunsfeld also stated that, with respect to any defective work for which Walbridge and the subcontractors may have had responsibility, "Walbridge has either had the appropriate subcontractors correct the work or remains willing to have them do so. However, Walbridge is not responsible for the numerous defects on this project." Id., Ex. 20 at 1.

While Dadeland had earlier indicated that it intended to terminate its relationship with Walbridge, it nevertheless permitted Walbridge to proceed with repairs to the project. At the same time, Dadeland filed suit against its engineer, whose liability insurer settled the case for approximately $900,000.00. Dadeland did not file suit against the architect.

When this case finally went to arbitration, the arbitration proceedings involved 35 days of hearings, over 1,000 exhibits, and 25 witnesses. In an order dated 15 May 2000, the arbitration panel found that all parties, including the engineer, the architect, Dade County, Dadeland, and Walbridge, were liable for the deficient construction of Dadeland Station. The arbitration panel entered an award whereby Walbridge owed Dadeland $1,417,842 for its defective work and Dadeland owed Walbridge $261,036 for contract balances and extra work. The panel then stated that the Sureties were "bound to this award to the extent that [Walbridge] is obligated under the award and its defenses are denied." Id., Ex. 23 at 5.

On 28 February 2001, Dadeland filed this action in the Fifteenth Judicial Circuit of Florida alleging that the Sureties, the issuers of the performance bond, had engaged in bad-faith refusals to perform their duties under the bond. Dadeland alleged that, as a result of the Sureties' actions, it sustained damage by having to repair inadequate work performed and having to present their claims to arbitration. The Sureties removed the case to federal court.

The district court interpreted Dadeland's claim as being both a claim for bad-faith refusal to settle under Fla. Stat. §§ 624.155(1)(b)(1) and 626.9541(1)(a) (1999), and a breach of contract claim for the Sureties' failure to timely perform their contractual duties. The district court then found that both claims failed. As for the bad-faith claim, the district court found that it failed because Dadeland had not alleged that there had been a prior determination that the Sureties were liable for a claim on the bond. The district court also found that the bad-faith claim failed because Florida law required evidence that the Sureties' unfair claim settlement practices were frequent enough to be considered their general business practice. As for the breach of contract claim, the district court held that it was barred by res judicata because Dadeland could have brought the claim in the arbitration proceeding. Dadeland appeals the district court's decision.

II. DISCUSSION

Dadeland argues on appeal that the district court committed five errors. The first two of its arguments relate to the district court's interpretation of Florida statutory law. These arguments are: (1) that dicta in the district court's opinion, which suggests that Fla. Stat. § 624.155(1)(b)(1) does not provide a cause of action against sureties, is incorrect;¹ and (2) that Florida law does not require proof of a general business practice to bring a claim of bad-faith refusal to settle. Dadeland's remaining three arguments relate to the effect of the arbitration award on the present litigation. These arguments are: (1) that the arbitration proceedings satisfied the condition precedent that they have a prior judgment of the Sureties' liability...