Seaboard Sur. Co. v. Town of Greenfield

• Decision Date: 09 June 2004
• Docket Number: No. 03-1453.,03-1453.
• Citation: 370 F.3d 215
• Parties: SEABOARD SURETY COMPANY, Plaintiff, Appellee, v. TOWN OF GREENFIELD, acting by and through the GREENFIELD MIDDLE SCHOOL BUILDING COMMITTEE, Defendant, Appellant.
• Court: U.S. Court of Appeals — First Circuit

Page 215

370 F.3d 215

SEABOARD SURETY COMPANY, Plaintiff, Appellee, v. TOWN OF GREENFIELD, acting by and through the GREENFIELD MIDDLE SCHOOL BUILDING COMMITTEE, Defendant, Appellant.

No. 03-1453.

United States Court of Appeals, First Circuit.

Heard January 7, 2004.

Decided June 9, 2004.

Wendy Sibbison, for appellant.

Thomas H. Hayman, with whom Bert J. Capone and Cetrulo & Capone LLP, were on brief, for appellee.

Before TORRUELLA, Circuit Judge, LIPEZ, Circuit Judge, and LISI,^* District Judge.

TORRUELLA, Circuit Judge.

Defendant-appellant Town of Greenfield, acting by and through the Greenfield Middle School Building Committee ("GMSBC")(hereinafter referred to collectively as "Greenfield"), appeals the district court's grant of summary judgment in favor of plaintiff-appellee Seaboard Surety Company ("Seaboard") discharging Seaboard from liability on a construction performance bond. After careful review, we affirm.

I. Background

We summarize the lengthy narrative of the failed relationship between the parties, relating only those facts relevant to our review. On June 18, 1998, Greenfield contracted with Interstate Construction Company ("ICC") to renovate its Middle School building. ICC provided the performance bond required by Massachusetts law, with Seaboard as surety. The bond is a standard performance bond, Form A312, issued by the American Institute of Architects in 1984. It provides that the Contractor (ICC) and the Surety (Seaboard), jointly and severally, bind themselves to the Owner (Greenfield) for the performance of the Construction Contract, which the bond incorporates by reference.

Paragraph 3 of the bond provides that the surety's obligation under the bond arises after:

3.1 The Owner has notified the Contractor and the Surety ... that the Owner is considering declaring a Contractor Default and has requested and attempted to arrange a conference with the Contractor and the Surety to be held not later than fifteen days after receipt of such notice to discuss methods of performing the Construction Contract. If the Owner, the Contractor and the Surety agree, the Contractor shall be allowed a reasonable time to perform the Construction Contract, but such an agreement shall not waive the Owner's right, if any, subsequently to declare a Contractor Default; and

3.2 The Owner has declared a Contractor Default and formally terminated the Contractor's right to complete the contract. Such Contractor Default shall not be declared earlier than twenty days after the Contractor and the Surety have received notice as provided in Subparagraph 3.1; and

3.3 The Owner has agreed to pay the Balance of the Contract Price to the Surety in accordance with the terms of the Construction Contract or to a contractor selected to perform the Construction Contract in accordance with the terms of the contract with the Owner.

Once the owner has complied with the provisions of Paragraph 3, and the surety's obligations are triggered, Paragraph 4 provides that the surety "shall promptly and at the Surety's expense" take one of a list of specified "actions." The action at issue in this case, as described in subparagraph 4.2, is to "[u]ndertake to perform and complete the Construction Contract itself, through its agents or through independent contractors."

Paragraph 5 provides that "[i]f the Surety does not proceed as provided in Paragraph 4 with reasonable promptness, the Surety shall be deemed to be in default on the Bond fifteen days after receipt of an additional written notice from the Owner to the Surety demanding that the Surety perform its obligations under this Bond, and the Owner shall be entitled to enforce any remedy available to the Owner."

In compliance with subparagraph 3.1, Greenfield notified ICC and Seaboard on November 12, 1998, and again on March 23, 2000, that it was considering declaring a Contractor Default. On August 24, 2000, after continuous struggle regarding ICC's tardiness, Greenfield sent ICC a notice of default and termination and filed suit in state court. That same day, Greenfield notified Seaboard of ICC's termination and agreed to pay the balance of the contract price to Seaboard or to a replacement contractor, as required by Paragraphs 3.2 and 3.3 of the bond.

On August 25, 2000, Seaboard responded, asserting its need for a reasonable time to investigate, requesting documentation of ICC's default, and reminding Greenfield of the owner's duty to mitigate the surety's damages. Greenfield hired an Interim Construction Management Consultant, Baybutt Construction Corporation ("Baybutt"), to evaluate and to advise the town on the emergency work needed in the interim. Greenfield notified Seaboard that moisture had caused the subflooring of the new floors to buckle and the carpets to detach, and that the allocation of responsibility for this damage (between Greenfield and ICC) was already before the state court.

On September 26, 2000, Greenfield sent Seaboard further documentation regarding ICC's termination and "formally ask[ed] the surety to undertake to perform and complete the construction itself, or through its agents or independent contractors as set forth in the surety contract, paragraph 4.2," with a response requested from Seaboard by October 20, 2000, so that work might begin by November 4, 2000.

On October 11, 2000, representatives of Greenfield, ICC, and Seaboard met. Seaboard agreed to prepare a proposal by October 18th addressing the emergency work. After some delay, Seaboard delivered a proposal to perform the emergency work — not including the floor remediation — stating that this was not an offer to perform under the bond because ICC's termination remained contested and Seaboard was still investigating its position with respect to the completion of the project and the remediation of the floors.

On October 31, 2000, Greenfield and Seaboard signed an Emergency Work Agreement to mitigate both parties' damages. Seaboard agreed to perform the emergency work, beginning on November 6th and finishing by December 31st, for which Greenfield would pay $207,000. Seaboard hired a Construction Manager, Wayne Sheridan, for the emergency work.

On November 15, 2000, Greefield's attorney faxed three letters to Seaboard's attorney. The first conveyed the conclusion of Greenfield's interim consultant, Baybutt, that work would need to be commenced by December 1st for the building to be ready for school the next fall. Estimated costs, including moisture remediation, were $5.6 million — $3.8 million more than the remaining contract funds. The second letter informed Seaboard that the Building Committee had approached the Town Council to appropriate these funds "if Seaboard declines to complete" and insisted again that work needed to commence by early December. The third letter demanded that Seaboard "soon decide if it will honor its obligations ... under the performance bond and complete the project." This letter reiterated the necessity that work begin by early December and asked Seaboard to commit by November 20th.

On November 20, 2000, Seaboard responded that, while its investigation of ICC's termination continued, Seaboard was "willing to perform the remedial and contract work," and was "prepared to take all necessary action to expeditiously arrive at a comprehensive agreement with [Greenfield] so that the remedial and contract work can be commenced as soon as possible." Seaboard requested further documentation regarding the floor remediation work.

On November 21, 2000, Greenfield sent Seaboard further documentation and, on November 22nd, objected to the Town being required to pay for the entire cost of the floor remediation. While the allocation of responsibility for the floors was still in dispute, Greenfield offered to split the costs, under reservation of rights. Greenfield also expressed concern about Seaboard's management team and timely completion. Greenfield was concerned that Seaboard's project manager, Wayne Sheridan, was frequently absent from the work site. Greenfield sought the right to review and to approve any new project management team. Greenfield warned Seaboard that if construction did not begin by December 1st, Greenfield "will be compelled to proceed with its other completion options."

Eventually, Greenfield acceded, under reservation of rights, to cover the costs of the floor remediation, and on December 1st, Seaboard sent Greenfield a draft Takeover Agreement. Greenfield proposed revisions and further negotiations ensued. On December 8th, Greenfield's attorney notified Seaboard that the Building Committee would meet on December 11th to decide how to proceed. On December 11th, Seaboard faxed Greenfield a new draft of the Takeover Agreement which identified Sheridan, the Construction Manager with whom Greenfield was dissatisfied, as the proposed Project Manager. At the Building Committee meeting that night, the Committee decided to hire Baybutt to complete the project. The next day, Greenfield notified Seaboard of the decision to proceed without Seaboard's involvement.

On December 22, 2000, Seaboard filed a complaint in the district court seeking a declaratory judgment discharging it from obligation under the performance bond on the grounds that Greenfield had materially breached the bond by hiring its own contractor. Seaboard claimed that it had elected to complete the contract, as permitted under the bond, but that Greenfield had refused to allow the takeover, and that Seaboard was thus denied the opportunity to limit its financial exposure. Greenfield filed counterclaims, alleging Seaboard's breach of the bond. After discovery, cross motions for summary judgment were filed.

On March 7, 2003, the district court granted Seaboard's motion for summary judgment. Rejecting any anticipatory repudiation defense for Greenfield as disallowed under Massachusetts law, the court held that "[b]ecause a clear and direct default notice was not served pursuant to Paragraph...