Hayes Pipe Supply, Inc. v. Aegis Sec. Ins. Co. (In re Pinnacle Constructors, Inc.)
| Decision Date | 17 November 2022 |
| Docket Number | Case No. 3:22-bk-00670 (Jointly Administered),Adv. Proc. No. 3:22-ap-90072 (Lead Adversary), Adv. Proc. No. 3:22-ap-90083 |
| Citation | 647 B.R. 352 |
| Parties | IN RE: PINNACLE CONSTRUCTORS, INC., and Kevin Webb, Debtors. Hayes Pipe Supply, Inc., Plaintiff, v. Aegis Security Insurance Company, and Hawkins & Price, LLC, Defendants. Hawkins & Price, LLC, Plaintiff, v. Aegis Security Insurance Company, Defendant. |
| Court | U.S. Bankruptcy Court — Middle District of Tennessee |
Michael G. Abelow, Sherrard Roe Voigt & Harbison, PLC, Nashville, TN, for Plaintiff Hayes Pipe Supply, Inc. in 3:22-ap-90072.
Justin Timothy Campbell, Thompson Burton PLLC, Franklin, TN, for Defendant Milliken Corporation in 3:22-ap-90072.
Melissa Jane Lee, Manier & Herod, Nashville, TN, for Defendant Aegis Security Insurance Company in 3:22-ap-90072.
John Bradfield Scarbrough, BuildLaw, PLC, Nashville, TN, for Defendant Hawkins & Price, LLC in 3:22-ap-90072.
Glen Coy Watson, Watson Law Group PLLC, Nashville, TN, Trustee, Pro Se.
John M. Gillum, Melissa Jane Lee, Manier & Herod PC, Nashville, TN, for Defendant Aegis Security Insurance Company in 3:22-ap-90083.
John Bradfield Scarbrough, BuildLaw, PLC, Nashville, TN, for Plaintiff Hawkins & Price, LLC in 3:22-ap-90083.
ORDER AND MEMORANDUM OPINION ON MOTION FOR PARTIAL SUMMARY JUDGMENT
A determination about the nature of surety bonds issued in connection with two of Debtor's construction projects will help move this litigation a step closer toward a resolution. A critical state law issue – whether the surety bonds are "common law bonds" or "statutory bonds" – is the primary question in competing requests for partial summary judgment. Tennessee law applied to undisputed facts dictates a finding that the bonds are common law bonds.
Plaintiffs Hayes Pipe Supply, Inc. and Hawkins & Price, LLC filed a joint motion for partial summary judgment on three issues that the parties agreed were threshold issues that the Court should hear early in the case. The motion was opposed by defendant Aegis Security Insurance Company, who sought a contrary resolution of those threshold issues. The parties fully briefed the issues, and the Court heard argument on November 8, 2022.
None of the issues is fully dispositive of the claims, but instead the parties agreed that the resolution of the issues will shape the cases and the parties’ discussions going forward. (Pretrial Order, Doc. 21.) The first issue, whether bonds issued by Aegis are common law bonds or statutory bonds, could be determinative of the other two issues, which the parties agreed would only apply if the Court determines the bonds to be statutory. Since the Court finds the bonds to be common law bonds, it is not necessary to address the other two issues.
The facts relative to the Court's decision regarding the nature and scope of the bonds are minimal and not disputed. Hayes Pipe and Hawkins & Price have asserted claims on a certain payment bond, Bond No. B10037030, that Aegis issued in connection with Debtor Pinnacle Constructors, Inc.’s project for Consolidated Utility District, in Rutherford County, Tennessee, at the Rocky Fork Road Water Line Replacement – Phase 2 (the "CUD Bond"). (CUD Bond, Doc. 25, Ex. 2/Doc. 25-2.)
Hawkins & Price asserts a claim on another payment bond, Bond No. B100337031, that Aegis issued in connection with Debtor's project for Water Line Additions for the Marshall County Board of Public Utilities (the "Marshall County Bond"; collectively with the CUD Bond, the "Bonds"). (Marshall County Bond, Doc. 25, Ex. 8/Doc. 25-8, pp. 4-6.)
There is no dispute that the Bonds were issued in connection with public works projects, or that the Bonds were required by Tennessee law, Tenn. Code Ann. § 12-4-201(a)(1).
Aegis issued the Bonds as "Surety," with Debtor being the "Contractor" and "Principal" under the Bonds. Aegis agreed to be bound "subject to the terms printed on the" CUD Bond and "subject to the terms set forth" in the Marshall County Bond. The terms of the Bonds are integral to the Court's determination of whether they are common law or statutory bonds.
At the heart of the parties’ dispute is the meaning and effect of a single paragraph – number 13 – in the Bonds, which states:
13. When this Bond has been furnished to comply with a statutory or other legal requirement in the location where the construction was to be performed, any provision in this Bond conflicting with said statutory or legal requirement shall be deemed deleted herefrom and the provisions conforming to such statutory or other legal requirement shall be deemed incorporated herein. The intent is that this Bond shall be construed as a statutory bond and not a common law bond.
(Bonds, ¶ 13, "Paragraph 13".)
Although the parties agreed to a scheduling process involving the Plaintiffs filing a motion for summary judgment and Aegis responding (see Pretrial Order), both sides are seeking a determination that would be dispositive of the threshold issue. As agreed by the parties, the Court is treating the Plaintiffs and Aegis as cross movants for partial summary judgment. A movant is entitled to summary judgment upon a showing that there is "no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a) ; Fed. R. Bankr. P. 7056. Once a summary judgment movant has met its burden, the "opponent must do more than simply show that there is some metaphysical doubt as to the material facts."
Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The nonmoving party must cite to "specific facts showing that there is a genuine issue for trial." Haddad v. Gregg , 910 F.3d 237, 243 (6th Cir. 2018) (citation omitted).
There are no disputed facts affecting resolution of the bond issue. The parties agree that partial summary judgment may be entered on that point, although obviously they argue for differing conclusions.
Bonds issued in connection with public works projects may be either common law bonds or statutory bonds. The Tennessee Supreme Court explained the distinction and its significance as follows:
Koch v. Constr. Tech., Inc. , 924 S.W.2d 68, 74 (Tenn. 1996).
Thus, the starting point is that Tennessee dictates that government construction projects cannot proceed without a surety bond in place to ensure that the labor and materials get paid. As further explained in the Koch decision, the statute also includes several specific minimum standards that the bonds must satisfy:
Id. Stated differently, as a general rule, "a bond, whether required by statute or not, is good at common law if entered into voluntarily for a valid consideration, and if it is not repugnant to law or that policy of the law, the surety is bound according to its terms [and] such bond is treated as simply a contract." National Surety Corp. v. Fischer Steel Corp. , 213 Tenn. 396, 374 S.W.2d 372, 375 (1964) (quoting Day v. Walton , 199 Tenn. 10, 281 S.W.2d 685, 691 (1955) ).
Thus, under Tennessee law, if a bond is merely a statutory bond, the statute supplies the terms and the statute controls. If the bond is a common law bond, then the express contractual terms will govern so long as they meet the minimum statutory requirements. In that case, the bond is enforced as written and its contractual terms will be enforced.
It is clear from the Koch case and other governing Tennessee decisions that this state recognizes what the Court will refer to as the "greater rights" factor – that there is nothing wrong with a surety providing more extensive rights to the bond beneficiaries than what the statute would dictate. When that occurs, it will be considered a common law bond.
The Tennessee Supreme Court in Koch also found these two additional factors relevant to its determination that the bond in question was a common law bond: that (i) the bond made "no explicit reference to the Tenn. Code Ann. § 12-4-201 – 12-4-206," and (ii) "it neither expressly set[ ] forth any notice requirements nor limit[ed] the time for bringing an action on the bond." Koch , 924 S.W.2d at 74 ; see also White's Elec., Heating, Air and Plumbing v. Lewis Constr. Co. , 1999 WL 605654, at *10 (Tenn. Ct. App. Aug. 11, 1999) ...
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