State v. Developers Sur. & Indem. Co.

• Decision Date: 28 October 2013
• Docket Number: No. A13A0969.,A13A0969.
• Citation: 750 S.E.2d 697,324 Ga.App. 371
• Parties: STATE of Georgia DEPARTMENT OF CORRECTIONS v. DEVELOPERS SURETY AND INDEMNITY COMPANY.
• Court: Georgia Court of Appeals

324 Ga.App. 371

750 S.E.2d 697

STATE of Georgia DEPARTMENT OF CORRECTIONS

v.DEVELOPERS SURETY AND INDEMNITY COMPANY.

No. A13A0969.

Court of Appeals of Georgia.

Oct. 28, 2013.

Certiorari Granted March 3, 2014.

Samuel S. Olens, Atty. Gen., Denise E. Whiting–Pack, Asst. Atty. Gen., Helen Pope Taylor, for Appellant.

Thompson & Slagle, Joseph Henry Wolenski III, Jefferson B. Slagle, for Appellee.

RAY, Judge.

This case stems from a construction contract entered between the Georgia Department of Corrections ("GDOC") and Lewis Walker Roofing ("Walker Roofing") for the purpose of re-roofing certain buildings at the Valdosta State Prison. After a nearly two-year-long delay in completing the project, GDOC declared the contract in default, and the payment and performance bonds issued by Developers Surety and Indemnity Company ("Developers Surety") for the benefit of GDOC as obligee were invoked. Developers Surety then filed the present suit against GDOC, alleging that GDOC breached the construction contract it entered into with Walker Roofing. Developers Surety also sought a declaratory judgment that, as a result of GDOC's breach of the construction contract, it had no obligation to perform its obligations under the payment and performance bond it issued to Walker Roofing on behalf of GDOC. GDOC filed a counterclaim for breach of contract. Both parties filed cross-motions for summary judgment. In its motion for summary judgment, GDOC argued that the doctrine of sovereign immunity barred Developers Surety's claims against it. GDOC appeals from the trial court's order granting Developers Surety's summary judgment motion and denying GDOC's summary judgment motion. Finding no error, we affirm.

On appeal from the grant or denial of a motion for summary judgment, "this Court conducts a de novo review of the evidence to determine whether there is a genuine issue of material fact and whether the undisputed facts, viewed in the light most favorable to the nonmoving party, warrant judgment as a matter of law." (Citation omitted.) Shekhawat v. Jones, 293 Ga. 468, 746 S.E.2d 89 (2013).

So viewed, the relevant evidence shows as follows. On April 25, 2008, GDOC posted an "Invitation to Bid" for a construction project that involved replacing the roofs on several buildings located at the Valdosta State Prison. On June 12, 2008, GDOC awarded the project to Walker Roofing. The construction contract between GDOC and Walker Roofing included two "no assignment" clauses prohibiting Walker Roofing from assigning its performance or right to payment under the contract.

As a prerequisite to contracting with GDOC, Walker Roofing was required to obtain payment and performance bonds that would assure its performance under the contract. Developers Surety issued payment and performance bonds to Walker Roofing. Walker Roofing and Developers Surety had previously signed a general agreement of indemnity in favor of Developers Surety that included a provision in which Walker Roofing assigned to Developers Surety the company's right to payment under bonded contracts as security against any losses that Developers Surety might suffer under a bond. GDOC is not a party to the indemnity agreement. The bonds required Developers Surety, upon default of Walker Roofing, to "promptly remedy the default or defaults or to promptly perform the [c]ontract in accordance with its terms and conditions." It also required Developers Surety to give GDOC notice "within twenty-five (25) days after receipt of a declaration of default of the surety's election either to remedy the default or defaults promptly or to perform the contract promptly."

Walker Roofing began work at the Valdosta State Prison on December 1, 2008. Pursuant to its construction contract, Walker Roofing was required to complete its work within 150 consecutive calendar days; however, the work was not completed as of September 23, 2010, when GDOC declared Walker Roofing in default. The contract between Walker Roofing and GDOC states that Walker Roofing shall have access to work areas on weekdays between 7:30 a.m. and 5:00 p.m. However, Walker Roofing's daily start time was delayed by at least thirty minutes and up to two-and-a-half hours because the workers experienced difficulties gaining access to the prison grounds. GDOC additionally required Walker Roofing to have their equipment properly secured and the roofers off the project site by 4:30 p.m., not 5:00 p.m. as per the contract. To exit the project site and secure their equipment by 4:30 p.m., however, the roofing crew had to stop work at 3:30 p.m. Work was further delayed because Walker Roofing was prohibited from accessing more than one roof at a time, GDOC assigned only one prison guard to monitor the roofing crew, and work was not permitted when the assigned guard was unavailable due to sickness or vacation time.

On September 23, 2010, GDOC issued a formal notice of default with respect to the performance of Walker Roofing, thus triggering Developers Surety's obligations under the performance bond. Developers Surety did not notify GDOC within 25 days of receipt of GDOC's notice of default regarding whether it would remedy the default or perform the contract. However, on January 12, 2011, approximately three months after the declaration of default, Developers Surety offered to GDOC that it "could enter into a contract with Skyline for the completion of the work on the Project (this process being sometime known as a ‘tender of completion contractors')." GDOC then contracted with Skyline to complete the project. Prior to Walker Roofing's default, Developers Surety had provided financial assistance to Walker Roofing under the payment and performance bonds in the amount of $577,118.60, and it additionally incurred $160,161.39 in costs and attorney fees arising from its investigation of its liability, if any, under the default.

On July 12, 2011, Developers Surety filed the present complaint against GDOC for breach of contract and for a declaratory judgment that it had no obligation under the payment and performance bond it issued to Walker Roofing on behalf of GDOC. The parties filed cross-motions for summary judgment. After a hearing, the trial court found that Developers Surety's claims were not barred by sovereign immunity and that GDOC had breached the construction contract as a matter of law. Thus, it granted Developers Surety's motion for summary judgment and denied GDOC's motion for summary judgment.

In the same order, the trial court entered a judgment in favor of Developers Surety in the amount of $577,118.60.¹ GDOC appeals from that order.

1. GDOC contends that the trial court's denial of its summary judgment motion was in error because Developers Surety was not a party to the construction contract between GDOC and Walker Roofing and, thus, that the State's waiver of sovereign immunity for breach of contract did not apply to Developers Surety. We disagree.

"[S]overeign immunity is a threshold issue that the trial court [is] required to address before reaching the merits of any other argument." (Footnote omitted.) Albertson v. City of Jesup, 312 Ga.App. 246, 248(1), 718 S.E.2d 4 (2011). It is axiomatic that "[t]he party seeking to benefit from the waiver of sovereign immunity bears the burden of proving such waiver." (Citations omitted.) Bd. of Regents of the Univ. Sys. of Ga. v. Doe, 278 Ga.App. 878, 881(1), 630 S.E.2d 85 (2006). It is also well settled that "the sovereign cannot be sued in its own courts, or in any other court, without its consent and permission; but it may, if it thinks proper, waive this privilege, and permit itself to be made a defendant in a suit by individuals." (Punctuation and footnotes omitted.) DeKalb County School District v. Gold, 318 Ga.App. 633, 636(1), 734 S.E.2d 466 (2012). The Georgia Constitution provides that, except as specifically provided therein, "[t]he sovereign immunity of the [S]tate and its departments and agencies can only be waived by an Act of the General Assembly which specifically provides that sovereign immunity is thereby waived and the extent of such waiver." Ga. Const. Art. I, Sec. II, Para. IX (e). One of the Constitution's exceptions to the defense of sovereign immunity is for "any action ex contractu for the breach of any written contract ... entered into by the [S]tate or its departments and agencies." Id. at (c).

GDOC contends that the waiver of the State's sovereign immunity for contract actions does not apply in the present suit because Developers Surety was not a party to the construction contract between GDOC and Developers Surety.² However, Developers Surety argues, and the trial court agreed, that GDOC waived sovereign immunity by entering into a contract with Walker Roofing and that the doctrine of equitable subrogation gave Developers Surety, as the surety, the ability to "step into the shoes" of Walker Roofing and file suit against GDOC once it incurred liability and paid the obligations of its principal under the bond. See Nova Casualty Co. v. U.S., 69 Fed.Cl. 284, 296(C)(1) (2006).

Under Georgia law, "[a] surety who has paid the debt of his principal shall be subrogated, both at law and in equity, to all rights of the creditor and, in a controversy with other creditors, shall rank in dignity the same as the creditor whose claim he paid." OCGA § 10–7–56. The right of subrogation "is not founded upon contract, express or implied, but upon principles of equity and justice." Argonaut Ins. Co. v. C & S Bank of Tifton, 140 Ga.App. 807, 811, 232 S.E.2d 135 (1976). Subrogation is a substitution of the parties, such that the substituted entity succeeds all rights of another. Cotton States Mut. Ins. Co. v. Citizens and Southern Nat.Bank, 168 Ga.App. 83, 86(1), 308 S.E.2d 199 (1983).

Georgia courts have not yet addressed waiver of sovereign immunity in the context of equitable subrogation. Accordingly, we must decide whether Developers Surety, as subrogee, may rely on the State's waiver of...