Shirley's Iron Works, Inc. v. City of Union, 4637.

CourtCourt of Appeals of South Carolina
Citation397 S.C. 584,726 S.E.2d 208
Decision Date20 May 2010
Docket NumberNo. 4637.,4637.
PartiesSHIRLEY'S IRON WORKS, INC., and Tindall Corporation, Appellants, v. CITY OF UNION, South Carolina, Gilbert Group, LLC and William E. Gilbert, Respondents.


Boyd Benjamin Nicholson, N. Ward Lambert and R. Patrick Smith, all of Greenville; for Appellants.

Andrew Lindemann, and Gilbert Bagnell, both of Columbia and William Whitney, Jr., of Union; for Respondents.


In this case, we must determine whether the circuit court erred in granting summary judgment in favor of the City of Union (the City) as to Shirley's Iron Works, Inc. and Tindall Corporation's (Appellants) claims. We reverse in part and affirm in part.


In 2000, the South Carolina Legislature enacted the Subcontractors' and Suppliers' Payment Protection Act (SPPA). S.C.Code Ann. §§ 29–6–210 to –290 (Supp.2008). The SPPA states, in pertinent part:

(1) When a governmental body is a party to a contract to improve real property, and the contract is for a sum in excess of fifty thousand dollars, the owner of the property shall require the contractor to provide a labor and material payment bond

in the full amount of the contract.


(3) For the purposes of any contract covered by the provisions of this section, it is the duty of the entity contracting for the improvement to take reasonable steps to assure that the appropriate payment bond is issued and is in proper form.

(4) “governmental body” means ... all local political subdivisions.

S.C.Code Ann. § 29–6–250 (Supp.2008) (emphasis added).

On or about February 26, 2002, the City issued a request to general contractors for proposals for the design and construction of a building (the Project). The City chose the proposal of Gilbert Group, LLC (Gilbert). On June 4, 2002, the City and Gilbert entered into a general contract 1 (the Contract) to build the Project. Gilbert, in turn, entered into various subcontracts, including agreements with Shirley's Iron Works, Inc. and Tindall Corporation (collectively the Appellants). However, the City did not require Gilbert to furnish a payment bond for the Contract. The Appellants claim they performed their work under their subcontracts, but Gilbert has still not paid them in full.

On June 11, 2003, the Appellants filed a complaint against the City in which they alleged the City failed to obtain a payment bond from Gilbert as required by section 29–6–250. In response, the City filed an answer and third-party complaint on July 15, 2003. In their answer, the City denied the allegations in the complaint and presented a third-party complaint against Gilbert and William E. Gilbert 2 for breach of contract, breach of contract accompanied by a fraudulent act, negligence, and fraud.

In an order dated April 19, 2004, Judge Paul E. Short granted the City's motion to redesignate Gilbert and William E. Gilbert as defendants because they, along with the City, were “joint tortfeasors whose alleged acts combined and concurred to cause the harm for which the Plaintiffs seek to recover.” In the order, the circuit court held, “the Plaintiffs' cause of action against the City sounds in tort,” and was, therefore, “necessarily brought pursuant to the South Carolina Tort Claims Act....” (SCTCA). That same day, the circuit court granted the City's motion to strike the Appellants' prayer for recovery of attorneys' fees. In that order, Judge Short again held the Appellants had alleged a cause of action that sounded in tort. The Appellants did not appeal either of Judge Short's rulings.

On August 17, 2005, the Appellants filed an amended complaint against the City, Gilbert, and William E. Gilbert. In the amended complaint, the Appellants alleged Gilbert had failed to pay all the monies owed to them under their respective contracts. They also alleged the City failed to secure a payment bond from Gilbert, as required by section 29–6–250. The Appellants asserted causes of action for violation of section 29–6–250, violation of section 27–1–15 of the South Carolina Code, negligence, quantum meruit, and attorneys' fees. The Appellants also alleged for the first time in the amended complaint they were third-party beneficiaries of the Contract because the bonding requirements of section 29–6–250 are “legislatively mandated contractual obligations” that were incorporated into the Contract by operation of law.

On December 12, 2005, Judge Steven H. John granted the City's motion to strike the Appellants' causes of action for attorneys' fees and prejudgment interest as set forth in the amended complaint. In his order, Judge John found because Judge Short ruled the Appellants' claims sounded in tort, and the Appellants had not appealed Judge Short's order, that ruling became the law of the case. The Appellants did not appeal Judge John's order.

Both parties moved for summary judgment, and the circuit court heard the motions on January 23, 2006. After the hearing, but before the circuit court ruled on the motions, this court issued its opinion in Sloan Construction Co. v. Southco Grassing, Inc., 368 S.C. 523, 629 S.E.2d 372 (Ct.App.2006) on April 24, 2006. In that case, this court held South Carolina Code sections 29–6–250 and 57–5–1660(a)(2) do not provide a subcontractor a private right of action against a governmental entity for failure to ensure a contractor is properly bonded. Id. In light of this court's holding in Sloan Construction, the circuit court granted summary judgment in favor of the City as to the Appellants' tort, third-party beneficiary breach of contract,3 and quantum meruit claims on September 24, 2007. The circuit court did not rule on the Appellants' cause of action for attorneys' fees.

On March 24, 2008, however, our supreme court reversed this court's holding in Sloan Construction. See Sloan Constr. Co. v. Southco Grassing, Inc., 377 S.C. 108, 113, 659 S.E.2d 158, 161 (2008). While acknowledging “the SPPA does not expressly provide for a right of action between the subcontractor and the contracting government body,” the supreme court nevertheless held an implied right of action for subcontractors exists under the SPPA because the Legislature “must have intended for [suppliers and subcontractors] to be able to vindicate their rights under a statute enacted for their special benefit.” Id. at 114–16, 659 S.E.2d at 162.

In a footnote, the supreme court held although it did not agree with this court's analysis of the SPPA, it nevertheless agreed:

[A] claim for failure to enforce the bonding requirements of the SPPA is not properly brought pursuant to the [ (SCTCA) ] because the [SCTCA] does not act as a waiver of sovereign immunity when a governmental entity fails to enforce a statute. [citations omitted]. Therefore, the [SCTCA] is not relevant to the government's liability for failure to comply with a duty under the SPPA.”

Id. at 118 n. 5, 659 S.E.2d at 164 n. 5 (citing S.C.Code Ann. § 15–78–60(4) (2005)) (emphasis added).

The supreme court further held the government's failure to comply with the SPPA's bond requirements also gives rise to a third-party beneficiary breach of contract claim by the subcontractor against the government entity. Id. at 118, 659 S.E.2d at 164. In arriving at this conclusion, the Court adopted the reasoning of the Seventh Circuit in A.E.I. Music Network v. Bus. Computers, Inc., 290 F.3d 952 (7th Cir.2002). At issue in that case was whether the bond requirement of the Illinois Bond Act gave rise to a third-party beneficiary breach of contract action against a public entity for failing to acquire bonds from contractors on public construction contracts. Id. at 953–54. The Illinois court held whereas the existence of a direct third-party beneficiary to a contract is normally determined by the intentions of the actual contracting parties, the relevant intentions in cases falling under the Illinois Bond Act were those of the Illinois Legislature alone. Id. at 955–56. Thus, because the Illinois Legislature intended the bond requirement term in the Illinois Bond Act to protect subcontractors, the bond requirement became a term in every construction contract involving a public entity. Id. at 955. In view of A.E.I. Music, our Supreme Court concluded because our Legislature intended the SPPA to bestow a special benefit to subcontractors, the bond requirements of the SPPA are, therefore, incorporated into all construction contracts governed by the SPPA. Sloan Constr., 377 S.C. at 120, 659 S.E.2d at 165.

Finally, having found section 29–6–250 gives rise to a private right of action against the government, the court held the government's liability for failure to comply with the SPPA's bonding requirements was not open-ended. Id. at 121, 659 S.E.2d at 165. Rather, the government's liability would be limited to the remaining balance on the contract with the general contractor when the subcontractor notifies the governmentof the general contractor's non-payment. Id. at 121, 659 S.E.2d at 165–66.

In light of our supreme court's decision in Sloan Construction, the Appellants argue the circuit court erred in granting the City's motion for summary judgment as to its claims in tort, breach of contract, quantum meruit, and violation of section 27–1–15. This appeal followed.


I. Standard of Review

“An appellate court reviews the granting of summary judgment under the same standard applied by the trial court under Rule 56(c), SCRCP. Bovain v. Canal Ins., 383 S.C. 100, 105, 678 S.E.2d 422, 424 (2009). Rule 56(c), SCRCP, provides that a trial court may grant a motion for summary judgment “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Id. (quoting ...

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