Federal Ins. Co. v. I. Kruger, Inc.

• Decision Date: 15 March 2002
• Citation: 829 So.2d 732
• Parties: FEDERAL INSURANCE COMPANY and Bill Harbert Construction Company v. I. KRUGER, INC.
• Court: Alabama Supreme Court

829 So.2d 732

FEDERAL INSURANCE COMPANY and Bill Harbert Construction Company v. I. KRUGER, INC.

1001096.

Supreme Court of Alabama.

March 15, 2002.

Edward P. Meyerson and Susan S. Wagner of Berkowitz, Lefkovits, Isom & Kushner, P.C., Birmingham; and Edward C. Greene of Frazer, Greene, Upchurch & Baker, L.L.C., Mobile, for appellants.

W. Craig Hamilton and W. Alexander Moseley of Hand Arendall, L.L.C., Mobile, for appellee.

On Application For Rehearing

STUART, Justice.

The no-opinion order of affirmance of December 7, 2001, is withdrawn and the following is substituted therefor.

Bill Harbert Construction Company ("Harbert") and Federal Insurance Company ("Federal") appeal from a summary judgment entered by the Mobile Circuit Court in favor of I. Kruger, Inc. ("Kruger"), awarding Kruger $129,918.03. We affirm.

Facts

Harbert and the Board of Water and Sewer Commissioners of the City of Mobile ("the Water Board") entered into a contract, pursuant to which Harbert was to upgrade a wastewater treatment plant owned and operated by the Water Board. Federal Insurance Company acted as the surety and provided a labor and material payment bond ("the payment bond") in connection with this contract, with Harbert acting as the principal.

Harbert subcontracted with Kruger for the purchase from Kruger of a "reactor basin oxygen dissolution system," for the purchase of certain related parts, and for start-up and training services associated with the dissolution system. The total purchase price of the subcontract was $963,200. The subcontract called for Harbert to make monthly progress payments to Kruger during Kruger's performance, but also allowed Harbert to retain 10% of the total purchase price, or $96,320, until the following conditions were met:

"A final payment, consisting of the unpaid balance of the Price, shall be made thirty (30) days after the last of the following to occur, (a) Purchaser's receipt of all Products in satisfactory condition, (b) final payment by Owner to Purchaser on account of the Products including retainage, (c) delivery of all guarantees, certifications and information required under the Contract Documents, and (d) delivery of a general release, in a form satisfactory to Purchaser, executed by Seller running to and in favor of Purchaser and Owner."

Kruger did, in fact, supply the dissolution system and all related parts to Harbert, as required under the subcontract. Subsequent to this delivery, but before the completion of the subcontract, however, a dispute arose between Harbert and the Water Board. Although Kruger repeatedly notified Harbert that it was ready to perform its duties under the subcontract, Harbert never requested any further services or assistance from Kruger. The Water Board subsequently terminated Harbert's contract. Thus, Kruger was unable to fulfill the terms of its subcontract with Harbert.

On September 22, 1998, after more than a year had elapsed without Harbert's requesting Kruger to perform the start-up or training services referenced in the Harbert-Kruger subcontract, Kruger billed Harbert for one-half of the remaining 10% due under the subcontract ("the retainage"). On December 18, 1998, Kruger billed Harbert for the other one-half of the retainage. When Harbert did not pay the amounts billed, Kruger notified Federal, the surety, of its claim under the payment bond.

Kruger later instituted this action against Harbert and against Federal, seeking to collect the $96,320 retainage. Kruger's claims were premised on the language of the payment bond and on Ala.Code 1975, § 39-1-1 et seq., known as Alabama's "little Miller Act."¹

Kruger filed a motion for a summary judgment on its claim for payment. Federal filed no opposition to Kruger's motion for a summary judgment. Harbert, however, opposed Kruger's summary-judgment motion on two grounds.

Harbert first contended that Kruger had not fully performed under its subcontract with Harbert. In support of this argument, Harbert submitted the affidavit of Michael E. Lamb, the division manager of Harbert's utility and industrial division. In that affidavit, Lamb attested that "[a]s a result of the Board's wrongful termination of the Upgrade and Modifications Contract, Kruger's obligations under the Kruger Subcontract have not been and cannot be satisfied." In particular, Lamb testified that Kruger had not fully provided the "construction assistance," "testing," "demonstrations," "start-up," and "training," specified in the subcontract and had not met the "requirements for guarantees, certifications and information."

Second, Harbert relied on the "pay-when-paid" clause in the Harbert-Kruger subcontract for the proposition that Kruger was not due payment of the retainage until the Water Board paid Harbert. As authority for this position, Harbert relied upon the cases of James E. Watts & Sons Contractors, Inc. v. Nabors, 484 So.2d 373 (Ala.1985), and A.G. Gaston Construction Co. v. Hicks, 674 So.2d 545 (Ala.Civ.App. 1995). The trial court entered a summary judgment in favor of Kruger against both Harbert and Federal. Harbert and Federal appealed, and we initially affirmed the trial court's judgment without an opinion. Harbert filed an application for rehearing, which we are overruling.

Standard of Review

In Jefferson County Commission v. ECO Preservation Services, L.L.C., 788 So.2d 121 (Ala.2000), this Court addressed the standard applicable to our review of a ruling on a summary-judgment motion. The ECO Preservation Services Court stated:

"When reviewing a ruling on a motion for a summary judgment, this Court uses the same standard of review the trial court used `in determining whether the evidence before the court made out a genuine issue of material fact.' Bussey v. John Deere Co., 531 So.2d 860, 862 (Ala.1988). When a party moving for a summary judgment makes a prima facie showing that there is no genuine issue of material fact and that the movant is entitled to a judgment as a matter of law, the burden shifts to the nonmovant to present substantial evidence creating a genuine issue of material fact. Bass v. SouthTrust Bank of Baldwin County, 538 So.2d 794, 797-98 (Ala.1989). Substantial evidence is `evidence of such weight and quality that fair-minded persons in the exercise of impartial judgment can reasonably infer the existence of the fact sought to be proved.' West v. Founders Life Assur. Co. of Florida, 547 So.2d 870, 871 (Ala.1989). In reviewing a ruling on a motion for a summary judgment, this Court views the evidence in the light most favorable to the nonmovant and entertains such reasonable inferences as the [fact-finder] would have been free to draw. Renfro v. Georgia Power Co., 604 So.2d 408 (Ala. 1992)."

788 So.2d at 126-27.

Analysis

We must determine whether Kruger is entitled to recover under the payment bond. The payment bond states that it was given pursuant to § 39-1-1, Ala.Code 1975, the little Miller Act. The little Miller Act provides, in pertinent part:

"(a) Any person entering into a contract with an awarding authority in this state for the prosecution of any public works shall, before commencing the work, execute a performance bond, with penalty equal to 100 percent of the amount of the contract price. In addition, another bond, payable to the awarding authority letting the contract, shall be executed in an amount not less than 50 percent of the contract price, with the obligation that such contractor or contractors shall promptly make payments to all persons supplying labor, materials, or supplies for or in the prosecution of the work provided in the contract and for the payment of reasonable attorneys' fees incurred by successful claimants or plaintiffs in civil actions on the bond.

"(b) Any person that has furnished labor, materials, or supplies for or in the prosecution of a public work and payment has not been made may institute a civil action upon the payment bond and have their rights and claims adjudicated in a civil action and judgment entered thereon.... In the event the surety or contractor fails to pay the claim in full within 45 days from the mailing of [written notice to the surety of the amount claimed to be due and the nature of the claim], then the person or persons may recover from the contractor and surety, in addition to the amount of the claim, a reasonable attorney's fee, based on the result, together with interest on the claim from the date of the notice."

The trial court noted that the purpose of a payment bond required under the little Miller Act is to "shift the ultimate risk of nonpayment from workmen and suppliers to the surety." (citing American Sur. Co. v. Hinds, 260 F.2d 366, 368 (10th Cir. 1958)). Thus, Kruger, as a subcontractor and a supplier on the Water Board-Harbert project, is a member of the class the little Miller Act was intended to protect. The Act is to be liberally construed to effect the purpose of the statute. Sparks Constr., Inc. v. Newman Bros., 51 Ala. App. 690, 288 So.2d 749 (1974). Where a payment bond shows on its face that it was executed in compliance with the Act, a court is authorized to read into the bond the provisions of the statute and to give the bond the form and effect the statute contemplated, regardless of the contents of the bond. American Cas. Co. v. Devine, 275 Ala. 628, 157 So.2d 661 (1963); Water Works, Gas & Sewer Bd. of Oneonta, Inc. v. P.A. Buchanan Contracting, Inc., 294 Ala. 402, 318 So.2d 267 (1975).

In A.G. Gaston Construction Co. v. Hicks, 674 So.2d 545 (Ala.Civ.App.1995), the Court of Civil Appeals quoted the United States Court of Appeals for the Eleventh Circuit and identified four elements that must be proven before a supplier or a subcontractor is entitled to recover under a payment bond issued pursuant to the little Miller Act:

"`(1) that materials or labor were supplied for work on the public project at issue; (2) that the supplier was not paid for the materials or labor supplied; (3) that the

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