Pioneer Constr., Inc. v. May (In re May)

• Citation: 518 B.R. 99
• Decision Date: 29 August 2014
• Docket Number: Adversary No. 12–06020.,Bankruptcy No. 12–60371.
• Parties: In re Jeffery A. MAY, Debtor. Pioneer Construction, Inc., Creditor/Plaintiff v. Jeffery A. May, Debtor/Defendant.
• Court: United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Southern District of Georgia

518 B.R. 99

In re Jeffery A. MAY, Debtor.

Pioneer Construction, Inc., Creditor/Plaintiff

v.Jeffery A. May, Debtor/Defendant.

Bankruptcy No. 12–60371.

Adversary No. 12–06020.

United States Bankruptcy Court, S.D. Georgia, Statesboro Division.

Signed Aug. 29, 2014.

David H. Johnson, Colby E. Longley, McCorkle & Johnson, LLP, Savannah, GA, for Plaintiff.

H. Lehman Franklin, Jr., Kimberly S. Ward, H. Lehman Franklin, PC, Statesboro, GA, for Defendant.

OPINION AND ORDER

JOHN S. DALIS, Bankruptcy Judge.

This matter came on for trial on the Complaint to Determine Dischargeability of Debt filed by Pioneer Construction, Inc. (“Plaintiff”) against Jeffery A. May (“Debtor”). (ECF No. 16; A.P. ECF No. 1.)¹ The Complaint contends that a February 7, 2012, Consent Judgment (“Consent Judgment”) entered against the Debtor by the Superior Court of Bulloch County, Georgia, held the Debtor liable for willful conversion of payments for real property improvements under O.C.G.A. §§ 16–8–15 and 51–10–6. (A.P. ECF No. 1 ¶¶ 9, 10.) According to the Plaintiff, the Consent Judgment conclusively determines that the Debtor's actions constitute a willful and malicious injury to the property of another and therefore establishes the Plaintiff's claim as nondischargeable under 11 U.S.C. § 523(a)(6). (Id. ¶ 11.)

A trial was held on April 21, 2014, after which I took the matter under advisement. I have considered the stipulated facts, testimony, documentary evidence, and oral arguments presented by the parties. For the reasons that follow, I find that Plaintiff's claim does not fall within the exception of 11 U.S.C. § 523(a)(6) and that debt is therefore dischargeable.

FINDINGS OF FACT

The Debtor is the former CEO and CFO of May Specialty Fabricators, Inc. (“May Specialty”), a structural and miscellaneous steel fabrications subcontractor. (Stip., Att. A of A.P. ECF No. 49 at 9, ¶ 4.) The Plaintiff is a general contractor that regularly engages in public works construction. The Plaintiff's claim against the Debtor arises from May Specialty's failure to pay one of its suppliers for materials used in a public construction project. (See May 16, 2011, Superior Court Compl., Pioneer Construction, Inc. v. May Specialty Fabricators, Inc. and Jeffery A. May, Civil Action No. 1B11CV–284–W, Pl.'s Ex. 17.)

On May 15, 2008, the Plaintiff entered into a contract with the Georgia Ports Authority to provide construction materials and labor to real property known as Container Berth Eight Reefer Racks, Garden City, Georgia (“Reefer Racks Project”). (Stip., Att. A of A.P. ECF No. 49 at 9, ¶ 1.) On July 21, 2008, the Plaintiff entered into two contracts with May Specialty for work on the Reefer Racks Project: a construction subcontract (“Subcontract”) and a separate purchase order (“Purchase Order”). (See Stip., Att. A of A.P. ECF No. 49 at 9, ¶ 3.) The Debtor did not personally guarantee May Specialty's performance under either agreement.

Under the Subcontract, May Specialty would be paid $160,000.00 for “Labor, Materials and Supervision for the erection of structural steel, steel stairs & railings and miscellaneous steel fabrication as per contract plans and specifications dated April 3, 2008.” (July 21, 2008, Subcontract Agreement between Pioneer Construction, Inc. and May Specialty Fabricators, Inc., Pl.'s Ex. 7 at 24.) The Subcontract also obligated May Specialty to broadly indemnify the Plaintiff:

16.1 SUBCONTRACTOR'S PERFORMANCE: The Subcontractor shall indemnify and save harmless the Owner and the Contractor, including their officers, agents, employees, affiliates, parents and subsidies, and each of them, of and from any and all claims, demands, causes of action, damages, costs, expenses, actual attorney' fees, losses or liabilities arising out of or in connection with the Subcontractor's operations to be performed under this Agreement for, but not limited to:

...

16.1.4 Claims and liens for labor performed and materials used and furnished on the job, including all incidental and consequential damages resulting to the Contractor or Owner from such claims or liens.

...

16.2 CLAIMS DEFENSE PROCEDURES: Should any claims, demands, causes of action, damages, costs, expenses, actual attorneys' fees, losses or liabilities arising out of or in connection with the Subcontractor's operations, as defined in Article 16, Paragraph 16.1, the Subcontractor shall:

16.2.1. At the Subcontractors own cost, expense and risk, defend all claims, as defined in Article 16, Section 16.1, that may be brought or instituted by third persons, including but not limited to government agencies or employees of the Subcontractor, against the Contractor or the Owner or their agents or employees or any of them.

16.2.2. Assume, satisfy and pay all costs associated with any judgment or decree that may be rendered against the Contractor or the Owner or their agents or employees, or any of them, arising out of any such claim; and/or:

16.2.3. Reimburse the Contractor or the Owner or their agents of employees for any and all legal expenses incurred by any of them in connection herewith or in enforcing the indemnity granted in this Article 16.

(Subcontract, Pl.'s Ex. 7 at 18–19) (emphasis added.)

The Purchase Order provided that May Specialty would be paid $953,500.00 to “Furnish, F.O.B. Project Site, all structural steel, miscellaneous steel fabrications, anchor belts, metal decking, epoxy kits, steel pipe bollards, metal fasteners and all other materials required for a 100% complete operational system.” (July 21, 2008, Purchase Order Agreement between Pioneer Construction, Inc. and May Specialty Fabricators, Inc., Pl.'s Ex. 6 at 5.)

May Specialty subcontracted with The Haskell Company (“Haskell”) to supply a portion of the construction materials due under the Purchase Order (“Supplier Contract”). (Stip., Att. A of A.P. ECF No. 49 at 9, ¶ 3.) The injury at issue in this case arose when May Specialty failed to pay Haskell with the proceeds from the Plaintiff's final payment on the Purchase Order. Since the Reefer Racks Project was a public construction contract, Georgia law required the Plaintiff to post a payment bond to ensure the payment of all parties contributing to the construction. (See Stip., Att. A of A.P. ECF No. 49 at 9, ¶ 2.) May Specialty's failure to pay the full amount due on the Supplier Contract allowed Haskell to make a claim against the payment bond.

Plaintiff's Payment Bond

On May 20, 2008, the Plaintiff obtained a bond from The Ohio Casualty Insurance Company (“Surety”) for the full amount due on the Reefer Racks Project, $1,963,900.00. (See Stip., Att. A of A.P. ECF No. 49 at 9, ¶ 2.) In compliance with O.C.G.A. § 13–10–63, the payment bond provided that any supplier or subcontractor who had not been paid in full for materials furnished or labor provided “shall have the right to sue on such payment bond for the amount, or the balance thereof, unpaid at the time of commencement of such action and to prosecute such action to final execution and judgment for the sum or sums due to him.” See O.C.G.A. §§ 13–10–60, et seq.; (The Ohio Casualty Insurance Company Payment Bond 3–913–375, Pl.'s Ex. 5 at 7.)

The payment bond did not require potential bond claimants to have a contractual relationship with the Plaintiff in order to collect on the bond. (See id. ) In order to maintain an action on the payment bond, Georgia law only requires a bond claimant to provide:

[W]ritten notice to the contractor within 90 days from the day on which such person did or performed the last of the labor or furnished the last of the material or machinery or equipment for which such claim is made, stating with substantial accuracy the amount claimed and the name of the party to whom the material was furnished or supplied or for whom the labor was performed or done.

O.C.G.A. § 13–10–63(a)(1).

However, a general contractor may significantly limit this otherwise broad exposure to remote bond claimants by complying with O.C.G.A. § 13–10–62(a), which requires the general contractor to, within 15 days after physical construction begins, 1) post a Notice of Commencement at the public works construction site and 2) file the same Notice of Commencement with the Superior Court in the county in which the site is located. O.C.G.A. § 13–10–62. Compliance with O.C.G.A § 13–10–62(a) bars all parties without a direct contractual relationship to the general contractor from proceeding against the bond, unless the potential bond claimant provides written notice detailing its contribution to the project “within 30 days from the filing of the notice of commencement or 30 days following the first delivery of labor, material, machinery, or equipment, whichever is later.” See O.C.G.A. § 13–10–63(a)(2).

On June 5, 2008, the Plaintiff recorded a Notice of Commencement for the Reefer Racks Project in the Superior Court of Chatham County, Georgia. (See Jan. 11, 2010, Order on Motions for Summary Judgment, The Haskell Company v. Pioneer Construction, Inc., et al., Civil Action No. CV09–171BA, Def.'s Ex. 12 at 2.) However, the Plaintiff failed to post a Notice of Commencement at the job site. (Id. ) This oversight allowed parties without a contractual relationship to the Plaintiff, such as Haskell, to proceed against the payment bond under the more relaxed notice requirements of O.C.G.A. § 13–10–63(a)(1) –90 days from the claimant's last work on the project—instead of the more stringent requirements of O.C.G.A. § 13–10–63(a)(2) –30 days from the claimant's first work on the project. (See id. ) Haskell made its first delivery to the job site on July 28, 2008. (See Pl.'s Ex. 8.) It made its last delivery on September 29, 2008. (See id. ) Haskell provided written notice of its intent to state a claim against the payment bond to the Plaintiff on November 24, 2008. See Jan. 11, 2010, Order on Motions for Summary Judgment, The Haskell Company v. Pioneer Construction, Inc., et al, Civil Action No. CV09–171BA, Def.'s Ex. 12 at 3.) Thus, had the Plaintiff posted a Notice of...