Jsi Commc'ns v. Travelers Cas. & Sur. Co. of Am.

• Decision Date: 08 December 2017
• Docket Number: No. 17-60233,17-60233
• Parties: JSI COMMUNICATIONS, Plaintiff - Appellant v. TRAVELERS CASUALTY & SURETY COMPANY OF AMERICA, Defendant - Appellee
• Court: U.S. Court of Appeals — Fifth Circuit

JSI COMMUNICATIONS, Plaintiff - Appellant v. TRAVELERS CASUALTY & SURETY COMPANY OF AMERICA, Defendant - Appellee

No. 17-60233

UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

December 8, 2017

Appeal from the United States District Court for the Southern District of Mississippi

USDC No. 3:13-CV-104

Before HIGGINBOTHAM, JONES, and GRAVES, Circuit Judges.

PER CURIAM:^*

This is the second appeal to arise out of a dispute between a second-tier subcontractor, Plaintiff JSI Communications, and a contractor's surety, Defendant Travelers Casualty & Surety Company of America. Previously, we reversed the district court's grant of summary judgment in favor of Travelers, finding that Travelers incorrectly denied JSI's claim on a payment bond. We remanded the action for the district court's consideration of JSI's bad faith and punitive damages claim. On remand, the district court granted summaryjudgment in favor of Travelers, denying JSI's bad faith and punitive damages claim. JSI appeals. We affirm.

I.

In 2010, McMillan-Pitts Construction Company, LLC, ("McMillan-Pitts"), the prime contractor on a public project to construct the New Stone Office Building, Mississippi State University Delta Research and Extension Service located in Stoneville, Mississippi, (the "Project"), obtained a Payment Bond from Defendant Travelers Casualty & Surety Company of America, ("Travelers"), to ensure payment to those who worked on the Project. Accordingly, Travelers served as a surety for the Project, and McMillan-Pitts served as the principal.

During the Project, McMillan-Pitts subcontracted with Tackett Electric Company, LLC, ("Tackett"). In February 2011, Tackett entered into an oral subcontract with Plaintiff JSI Communications, ("JSI"), for JSI to install and test voice and data cabling as well as fiber optic cabling for the Project.

Meanwhile, in March 2012, a Tackett creditor, unrelated to the Project, served a writ of garnishment on McMillan-Pitts. As a result, McMillan-Pitts initiated an interpleader action in the Chancery Court of Leflore County, Mississippi, depositing the remaining contract funds, $19,445.16, owed to Tackett on the Project. McMillan-Pitts named the following entities as defendants: Tackett, the unrelated Tackett creditor, and two Tackett subcontractors (not JSI) on the Project that had entered joint check agreements with McMillan-Pitts and Tackett. On August 30, 2012, the Chancery Court entered a judgment releasing McMillan-Pitts from liability on its subcontract with Tackett, the writ of garnishment, and the two joint check agreements.

In September 2012, after completing its work on the Project, JSI submitted an invoice to Tackett in the amount of $36,346.09, which Tackett refused to pay. Shortly thereafter, JSI notified Travelers that it was seeking payment under the Bond. Travelers responded to JSI, requesting a claim form to "facilitate [Travelers's] independent investigation." Travelers additionally notified McMillan-Pitts that JSI presented a claim on the Payment Bond and requested "[d]etailed input" for its "independent investigation and understanding of the claim." In October 2012, JSI submitted its claim form to Travelers.

On October 25, 2012, McMillan-Pitts moved to amend its complaint for interpleader to include JSI and all "persons or entities supplying materials and/or labor to [Tackett] on the [Project]." That same day, the Chancery Court granted McMillan-Pitts's motion to amend, extending the previous release of liability to "any claim made by any other claimant made a party to th[e] action for sums due and owing from [Tackett] for materials, supplies and/or labor provided to [Tackett] on the [Project]."

Also on that same day, Travelers, again, wrote to JSI and McMillan-Pitts. In its letter to JSI, Travelers acknowledged receipt of JSI's claim form and explained that it would "communicate the initial results of [its] independent investigation" upon receiving McMillan-Pitts's response. In its letter to McMillan-Pitts, Travelers reiterated its request for McMillan-Pitts's "input and active involvement" with Travelers's "independent investigation" and requested, again, a "detailed written response" to JSI's claim. McMillan-Pitts responded, contending, among other things, that JSI's claim is not valid because the Chancery Court released "McMillan-Pitts and the bonding company" from "any claim associated with Tackett."

On November 8, 2012, Travelers, having "reviewed documents and information provided by both [JSI] and McMillan-Pitts," denied JSI's claim on the Payment Bond.¹ Travelers explained that "McMillan-Pitts's interpleading of Tackett's subcontract funds acts as an absolute release of both McMillan-Pitts and Travelers as to any obligation related to Tackett's subcontract funds and JSI's claim."²

II.

On January 30, 2013, JSI filed suit against Travelers in the Circuit Court of Hinds County, Mississippi, First Judicial District. JSI alleged that Travelers breached the terms of the Payment Bond and acted in bad faith when it denied JSI's claim. JSI sought to recover the amount owed, $36,346.09, along with punitive damages in an amount not less than $100,000, plus pre- and post-judgment interest, late payment interest and all attorneys' fees, costs, and expenses. Travelers removed JSI's Complaint to the Southern District of Mississippi.

Both parties moved for summary judgment. On March 13, 2014, the district court granted summary judgment in favor of Travelers, finding that under Mississippi law Travelers's liability as a surety could not exceed that of its principal, McMillan-Pitts, which had been discharged from liability by the Chancery Court. JSI appealed.

On December 4, 2015, we reversed the court's summary judgment ruling.³ First we explained that Mississippi's Little Miller Act provides that sub-subcontractors, like JSI, "'shall have a right of action upon the . . . payment bond upon giving written notice to [the] contractor within ninety (90) days from the date on which such person did or performed the last of the labor or furnished or supplied the last of the material for which such claim is made.'"⁴ Accordingly, we ruled that the Chancery Court's release of McMillan-Pitts had "no effect on JSI's ability to recover under the Bond."⁵

We next examined the nature of interpleader proceedings to determine whether the Chancery Court judgment discharged Travelers's bond obligations.⁶ We observed that Rule 22(b) of the Mississippi Rules of Civil Procedure provides that "the discharge of liability the interpleader receives is defined by the scope of the funds interpleaded;" applied here, the proceeds of the contract between McMillan-Pitts and Tackett.⁷ Therefore, we concluded, "[a]ny funds relating to McMillan-Pitts's bond obligation (and that of Travelers) were clearly not included in the interpleader action."⁸ As a result, we reversed the court's grant of summary judgment in favor of Travelers; rendered judgment in favor of JSI in the amount of $36,346.09; and remanded the action for the district court's consideration of "other fees and costs" and "JSI's bad faith claim."⁹

On remand, the parties filed cross-motions for summary judgment on JSI's bad faith and punitive damages claim. On March 16, 2017, the court granted summary judgment in favor of Travelers. JSI appeals.

III.

We review a district court's grant of summary judgment de novo, applying the same standard as the trial court.¹⁰ Summary judgment is appropriate where there is no genuine dispute of material fact and the movant is entitled to judgment as a matter of law.¹¹ On summary judgment, a court must view the evidence in the light most favorable to the non-movant and draw all reasonable inferences in the non-movant's favor.¹² To survive summary judgment, the non-movant must supply evidence "such that a reasonable jury could return a verdict for the nonmoving party."¹³

IV.

JSI first argues that Travelers did not have an arguable basis to deny its claim on the Payment Bond. "Mississippi law does not favor punitive damages."¹⁴ They should be imposed with "caution and within narrow limits as an example and warning."¹⁵ A "plaintiff has a heavy burden when seeking punitive damages based on a bad faith insurance claim."¹⁶ "The issue of punitive damages should not be submitted to the jury unless the trial court determines that there are jury issues with regard to whether: (1) The insurer lacked an arguable or legitimate basis for denying the claim, and (2) Theinsurer committed a willful or malicious wrong, or acted with gross and reckless disregard for the insured's rights."¹⁷

"If an insurance company fails to pay a claim based upon an arguable or legitimate reason . . . punitive damages will not lie."¹⁸ In determining whether an insurer possessed an arguable or legitimate reason, the initial burden is placed on the insurer: it "'need only show that it had reasonable justifications, either in fact or in law,' for its actions."¹⁹ "Once an insurance company articulates an arguable or legitimate reason . . . the insured bears the burden of demonstrating that the insurer had no arguable reason."²⁰

The district court determined that Travelers demonstrated an arguable reason for denying JSI's claim and that JSI failed to meet its burden to show otherwise. The court explained that Travelers relied on Mississippi's long-standing doctrine that a surety's liability is measured by that of its principal to conclude that the Chancery Court's release of McMillan-Pitts from liability included Travelers's liability.²¹ Although we rejected that argument in JSI I, the court determined that Travelers satisfied its low burden of showing a reasonable justification for its actions because, at the time Travelers deniedJSI's claim, Mississippi neither barred application of the general rule that a surety's liability is co-extensive with that of its principal to claims asserted under its Little Miller Act nor discussed effects of a judicial discharge of a principal's...