Kidder Elec. of Florida, Inc. v. U.S. Fidelity & Guar. Co.

• Decision Date: 01 September 1988
• Docket Number: No. 88-528,88-528
• Citation: 13 Fla. L. Weekly 2058,530 So.2d 475
• Court: Florida District Court of Appeals
• Parties: 13 Fla. L. Weekly 2058 KIDDER ELECTRIC OF FLORIDA, INC., Appellant, v. UNITED STATES FIDELITY & GUARANTY CO., Appellee.

Page 475

530 So.2d 475

13 Fla. L. Weekly 2058

KIDDER ELECTRIC OF FLORIDA, INC., Appellant, v. UNITED STATES FIDELITY & GUARANTY CO., Appellee.

No. 88-528.

District Court of Appeal of Florida,

Fifth District.

Sept. 1, 1988.

Joseph A. Lane of Lowndes, Drosdick, Doster, Kantor & Reed, Professional Ass'n, Orlando, for appellant.

Jon M. Wilson and Andrew V. Showen of Foley & Lardner, Van Den Berg, Gay Burke, Wilson & Arkin, Orlando, for appellee.

COWART, Judge.

A general contractor (Jendoco) provided an owner (Healthnet) with a payment bond (with the contractor as principal) and USF & G as surety, for the use and benefit of persons supplying labor and material in performance of a construction contract to improve the owner's real property. (See § 713.23(1)(a), Fla.Stat.). An electrical subcontract between the general contractor and a subcontractor (appellant Kidder Electric of Florida, Inc.) contained a provision for arbitration of controversies arising between the parties thereto.

When a controversy arose between the subcontractor and the general contractor, the subcontractor instituted an arbitration proceeding by filing an appropriate demand for arbitration with a designated arbitration association to which the general contractor responded. Apparently because the general contractor did not neglect to or refuse to comply with the provision for arbitration, the subcontractor did not need to, and therefore did not, "make application to the court for an order directing the parties to proceed with arbitration" as permitted under section 682.03(1), Florida Statutes. Thereafter, to toll the statute of limitations (§ 713.23(1)(f), Fla.Stat.) the subcontractor filed its action against the surety on the payment bond. In its complaint the subcontractor moved to stay the bond action against the surety until the conclusion of the pending arbitration proceeding.

The general contractor, as intervenor in the bond action, and the surety company jointly moved to stay the arbitration proceeding until the conclusion of the bond litigation. In this joint motion to stay, it was alleged that because the general contractor, as principal on the bond, was liable to the surety in the event the subcontractor recovered on the surety bond, the general contractor was a real party in interest in the bond litigation and had agreed to defend the bond action on behalf of the surety. The trial court granted the motion of the general contractor and surety and ordered a stay of the arbitration proceeding. The subcontractor appeals. We reverse.

The ultimate issue in the arbitration proceeding is whether the subcontractor is entitled to payment from the contractor for labor and materials furnished by the subcontractor to improve the owner's real property under the construction contract between the contractor and the owner. Because, in this case, the surety has actual notice of the arbitration proceeding whether or not the surety chooses to participate in the arbitration proceeding--the surety will be bound by an arbitration determination that its principal (the contractor) is liable to the subcontractor and the subcontractor will be entitled to an order confirming any arbitration award in its favor, not only as against the contractor but also against the surety ( see Von Engineering Co. v. R.W. Roberts Construction Co., Inc., 457 So.2d 1080 (Fla. 5th DCA 1984)) and the need for litigation on the bond will be obviated. See also Graham Contracting, Inc. v. Flagler County, 458 So.2d 418 (Fla. 5th DCA 1984). On the other hand, because the surety is responsible on the payment bond only if the subcontractor is entitled to payment from the contractor for labor and material improving the owner's real property, a determination in the arbitration proceeding that the contractor is not liable to the subcontractor will necessarily be a determination that the subcontractor is not entitled to recover on the payment bond under the doctrine of collateral estoppel, and that determination will bind the subcontractor in the bond action and the need for litigation on the bond will be obviated. ¹ Thus, in this case, in either turn of events, the arbitration determination will eliminate the issue in the bond litigation. Therefore, in order to effectuate the arbitration provision in the contract between the contractor and the subcontractor and to permit the subcontractor to toll the statute of limitations on its cause of action on the bond and to avoid unnecessary litigation, the arbitration proceeding should be permitted to proceed and the bond litigation should be stayed. While the surety has never agreed to arbitrate any claim against it on its bond, nevertheless, the surety's principal (the contractor) has agreed with the subcontractor to arbitrate what is essentially the same claim.

By filing action on the bond, the subcontractor neither waived its contractual right to arbitrate its controversy with the contractor, nor did it make any election of remedies. ²

Section 682.03(3), Florida Statutes, is inapplicable to this litigation for several reasons, including the fact that no order for arbitration or...