McGuinness v. Colonial Am. Cas. & Sur. Co.

• Decision Date: 17 August 2012
• Docket Number: No. 11–P–661.,11–P–661.
• Citation: McGuinness v. Colonial Am. Cas. & Sur. Co., 82 Mass.App.Ct. 1110, 972 N.E.2d 1063 (Mass. App. 2012)
• Parties: Jamie McGUINNESS & another v. COLONIAL AMERICAN CASUALTY & SURETY COMPANY.
• Court: Appeals Court of Massachusetts

82 Mass.App.Ct. 1110

972 N.E.2d 1063

Jamie McGUINNESS & another¹

v.COLONIAL AMERICAN CASUALTY & SURETY COMPANY.

No. 11–P–661.

Appeals Court of Massachusetts.

August 17, 2012.

OPINION TEXT STARTS HEREBy the Court(VUONO, GRAINGER & CARHART, JJ.).

MEMORANDUM AND ORDER PURSUANT TO RULE 1:28

In this appeal the plaintiffs, Jamie McGuinness and New England Excavation & Demolition, LLC(NEED), primarily dispute the denial of their motions to compelthe defendant surety, Colonial American Casualty & Surety Company(Colonial), to arbitrate or to be bound by the arbitration award against Colonial's principal, C & O Enterprises, Inc.(C & O), pursuant to a payment bond issued by Colonial in connection with a school construction project in Lakeville.Colonial's cross-appeal challenges the jury verdict for the plaintiffs on their claims for recovery under the bond.

For background and the facts as the jury could have found them, we refer to the plaintiffs' brief at pages 2–12.

1.Arbitration.The plaintiffs argue that Colonial was required to arbitrate their claims or should be bound by the arbitration award against C & O, but they failed to establish that Colonial agreed to arbitrate their claims.“[A]rbitration is a matter limited to parties who have agreed, by contract, to avail themselves of such a remedy.”Travelers Cas. & Sur. Co. of Am., Inc. v. Long Bay Mgmt. Co.,58 Mass.App.Ct. 786, 792(2003).See generallyBrothers Bldg. Co. of Nantucket, Inc. v. Yankow,56 Mass.App.Ct. 688, 693(2002).“[I]t is fundamental that a party has no right or obligation to demand arbitration if there is no contract provision providing for it.”Unisys Fin. Corp. v. The Allan R. Hackel Org., Inc.,42 Mass.App.Ct. 275, 280(1997).SeeComputer Corp. of Am. v. Zarecor,16 Mass.App.Ct. 456, 459–460(1983);Constantino v. Frechette,73 Mass.App.Ct. 352, 355–356(2008).The plaintiffs' motion to compel Colonial to arbitrate was properly denied, pursuant to the plain language of the parties' July 15, 2003, settlement agreement (the second agreement), in which only the plaintiffs and C & O agreed to arbitrate their disputes.The second agreement also undercuts the plaintiffs' argument that Colonial should be bound by the arbitration award against C & O even in the absence of an express agreement to participate.Massachusetts cases providing that an arbitration award against a contractor may be enforced against the contractor's surety do so not by virtue of the bond itself, but by the surety's consent to arbitrate through arbitration agreements incorporated by reference into the bond.The cases holding that the surety may be bound by an arbitration award against its principal uniformly involved a bond that incorporated by reference an arbitration agreement made by its principal that governed the claims at issue.See, e.g., Kearsarge Metallurgical Corp. v. Peerless Ins. Co.,383 Mass. 162, 166–167(1981)(applying New Hampshire law);Powers Regulator Co. v. United States Fid. & Guar. Co.,7 Mass.App.Ct. 913, 913–914(1979);Massachusetts Elec. Sys., Inc. v. R.W. Granger & Sons,32 Mass.App.Ct. 982(1992);Travelers Cas. & Sur. Co. of Am., Inc. v. Long Bay Management Co.,58 Mass.App.Ct. at 790–792.CompareC & I Steel, LLC v. Travelers Cas. & Sur. Co. of Am.,70 Mass.App.Ct. 653, 661(2007)(surety not bound where record failed to establish that the bond incorporated a construction contract containing an arbitration agreement that governed the disputed claim).

Here, the record on appeal fails to provide a basis to bind Colonial to the outcome of the arbitration.As noted, in the second agreement, the plaintiffs and C & O expressly agreed to arbitrate their disputes, and Colonial did not.Nor do the plaintiffs contend that an arbitration provision in the subcontract between Peabody and C & O, which in the record appears to be incorporated by reference into the bond, provided the requisite consent.²Accordingly, the principle that an arbitration award may be enforced against a surety, based on incorporation by reference into the bond of an underlying arbitration agreement involving its principal, does not apply to these facts.

As to the plaintiffs' remaining arguments, the plaintiffs' reliance on cases involving enforcement of default judgments against sureties, based on the surety's obligations under the bond, does not persuade us to abandon the requirement that the surety agree to arbitration in order to be bound by an award.The plaintiffs' additional argument that the stipulation of dismissal filed by Colonial, that was made subject to the terms of the second agreement, bound Colonial to C & O's agreement to arbitrate contained therein, misconstrues the principle of incorporation by reference in the context of a surety bond.Simply put, by agreeing to the stipulation of dismissal, Colonial did not insure C & O's obligations under the second agreement.

2.Denial of plaintiffs' motion to amend.The plaintiffs' motion to amend their complaint to add a claim seeking to enforce the arbitration award against Colonial was properly denied, for the reasons stated above.SeeCastellucci v. United States Fid. & Guar. Co.,372 Mass. 288, 290(1977)(futility of amendment among grounds justifying denial).The plaintiffs also proposed to add a claim for unfair or deceptive practices in violation of G.L. c. 93A, for Colonial's alleged failure to properly investigate the plaintiffs' claim and failure to pay when liability was reasonably clear.

As to the delay in payment, Colonial reserved all rights and defenses as part of the second agreement, and therefore was within its rights to litigate the plaintiffs' claims rather than pay based on the outcome of the arbitration.On that basis, the plaintiffs' proposed amendment to add a claim regarding late payment was futile and the motion was properly denied.

The plaintiffs' proposed amended complaint failed to include factual allegations to support their new count against Colonial for unfair or deceptive practices in connection with Colonial's investigation of their claims.The facts now alleged in the plaintiffs' brief on appeal—that Colonial improperly relied on certain documents but not others in the course of its investigation—were not set out in their proposed amended complaint, and they cite no authority for their argument that the judge should have anticipated that the requisite factual support for the claim would eventually emerge in the course of the trial.As such, the...