U.S. for Use & Benefit of Thomas Indus. Coatings v. W. Sur. Co.

• Decision Date: 07 February 2020
• Docket Number: Case No. 1:18-cv-00174
• Parties: United States for the Use and Benefit of Thomas Industrial Coatings; and Thomas Industrial Coatings, Plaintiffs, v. Western Surety Company, Defendant.
• Court: U.S. District Court — District of North Dakota

United States for the Use and Benefit ofThomas Industrial Coatings; andThomas Industrial Coatings, Plaintiffs, v. Western Surety Company, Defendant.

Case No. 1:18-cv-00174

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NORTH DAKOTA

February 7, 2020

ORDER DENYING MOTION FOR SUMMARY JUDGMENT

This case arises from a disagreement regarding payment for sandblasting and painting work performed on the Garrison Dam.The Plaintiffs, United States for the Use and Benefit of Thomas Industrial Coatings and Thomas Industrial Coatings ("TIC"), claim that the Defendant, Western Surety Company("Western"), breached an obligation to pay TIC for that work under a subcontract payment bond.Western counters with this motion for summary judgment, filed on November 9, 2018, contending that TIC failed to tender notice of its claim, as the bond's terms require, before filing suit.Doc.Nos. 23-24.TIC responded in opposition to the motion on November 30, 2018, and Western filed a reply brief on December 14, 2018.Doc. Nos. 28, 32-33.For the reasons below, Western's motion for summary judgment is denied.

I.BACKGROUND

The controversy began to form in 2012, when the U.S. Army Corps of Engineers ("Corps") designated S&S Coatings, Inc.("S&S") to act as the general contractor for a project on the Garrison Dam.Doc. No. 1, ¶ 3.Upon receiving the contract, S&S obtained a Miller Act¹ payment bond from Western ("S&S Bond").Id.¶ 4.That bond obligated Western to pay subcontractors S&S hired for the labor and materials they contributed to the project if S&S failed to do so.Id.With the bond in hand, S&S subcontracted part of the project to Dix Corporation("Dix").Id.¶ 6.Western issued a separate subcontract payment bond to Dix ("Dix Bond"), similarly promising to cover labor and material costs, this time for second-tier subcontractors, if Dix did not.Id.¶ 8.Dix then subcontracted gate sandblasting and painting work to TIC.Id.¶ 6.TIC furnished labor and materials in furtherance of the project, completing its work on August 22, 2017.²Id.¶¶ 14-15.

Two distinct, but related, series of events prompted TIC to file the present action against Western.First, TIC had instituted a separate lawsuit against Dix regarding the Garrison Dam project in Washington state court on August 7, 2017, asserting breach of contract, fraud, and breach of warranty claims.SeeDoc.No. 30-25.On August 23, 2017, Dix informed TIC that it intended to withhold $525,000³ in funds owed to TIC to cover litigation expenses in the Washington lawsuit.Doc.No. 30-5.On September 5, 2017, TIC sent a letter to representatives of both Dix and S&S challenging Dix's decision to withhold the funds.Doc.No. 30-6.In the letter, TIC referenced the $525,000 amount withheld and stated, "Dix'[s] action . . . will, unless immediate action is taken to prevent it, give rise to TIC taking legal action involving not only Dix, but also [S&S] . . . andthe sureties on this project."Id. at 2.TIC also requested that S&S and Dix "notify the sureties on this project of TIC's claim."Id. at 3.

Second, due to unforeseen delays and cost overruns associated with the project, S&S, in conjunction with Dix and TIC, submitted three claims to the Corps for equitable adjustment - in other words, claims for more money than what the original contract allowed for to compensate the contractors for the extra work required to finish the project.Doc.No. 30-3.The three claims totaled $3,124,056: $1,077,826 for "Paint Thickness"; $1,349,783 for "Stoplog Design Review/Delay"; and $696,447 for "Out of Scope Dewatering."Id.On August 21, 2017, the Corps "found partial merit" to the claims and proposed to settle them.Id.S&S accepted the Corps' offer and received $1,410,000.Doc. No. 30, ¶ 16.

Divvying up the $1.41 million the Corps paid to S&S, Dix sent an email on September 6, 2017—the day after TIC sent the letter regarding the Washington litigation—that proposed to pay TIC $419,089. Doc.No. 30-4.The payment breakdown earmarked TIC to receive $328,947 for the "Paint Thickness" claim; $90,142 for the "Out of Scope Dewatering" claim; and nothing for the "Stoplog Design Review/Delay" claim.Id.On October 5, 2017, Dix sent TIC a proposed change order to effectuate the $419,089 payment.Doc.No. 30-13.TIC then objected to the change order in a letter sent to representatives of both Dix and S&S dated October 9, 2017.Doc.No. 30-14.

In an email sent two days later, TIC detailed its objections.Doc.No. 30-16, p. 1.TIC contended that it was owed a total of $659,534 for the "Paint Thickness" and "Out of Scope Dewatering" claims, not the proposed $419,089.Id.As support, TIC pointed to previous statements Dix and S&S had made that represented TIC would receive a larger percentage of the Corps' equitable adjustment payment.Id.TIC also argued that S&S and Dix had improperlyrefused to allocate any funds to TIC for the "Stoplog Design Review/Delay" claim.Id.The email did not specify what TIC believed it was owed on this final claim.Because of the dispute, TIC requested that S&S and Dix withhold the $419,089 payment and again notify their sureties.Doc.No. 30-14.

Western, as the surety on both the S&S Bond and the Dix Bond, sent two substantively identical letters to TIC in November 2017 confirming receipt of TIC's September 5, 2017 letter.Doc.Nos. 30-20, 30-23.In particular, a November 29, 2017 letter regarding the Dix Bond stated, "Western Surety Company is in receipt of your correspondence dated September 5, 2017 claiming that Thomas Industrial Coatings, Inc., is due payment for labor and material provided to the [Garrison Dam] Project."Doc.No. 30-23.Both letters sought additional documentation from TIC regarding its claims, noting the letters were sent for investigative purposes and did not confirm compliance with the bonds' requirements.Doc.Nos. 30-20, 30-23.TIC did not further respond to Western's letters.

The Plaintiffs filed this action on August 15, 2018, seeking "in excess of $2,244,817.46" in damages.Doc. No. 1, ¶ 18.Count I alleges that TIC is entitled to payment from the S&S Bond under the Miller Act, and Count II alleges a state-law claim for breach of Western's obligation on the Dix Bond.Id.¶¶ 19-31.On January 2, 2019, the Plaintiffs moved to voluntarily dismiss Count I after resolving their claim against S&S.Doc. No. 34.The Court entered an order to that effect on January 17, 2019.Doc. No. 35.Remaining for disposition is Western's motion for summary judgment on Count II.

II.DISCUSSION

A brief word on jurisdiction is necessary at the outset.With the dismissal of Count I, federal question jurisdiction pursuant to 28 U.S.C. § 1331 is no longer available.Under the supplemental jurisdiction statute, however, the Court retains jurisdiction over state-law claims even after the dismissal of all claims over which it has original jurisdiction.See28 U.S.C. § 1367(a), (c)(3).Therefore, the Court continues to possess subject matter jurisdiction over TIC's state-law claim against Western for payment on the Dix Bond.

A.Summary Judgment Standard and Principles of Contract Interpretation

Turning now to the pending motion, summary judgment is required "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law."Fed. R. Civ. P. 56(a);see alsoCelotex Corp. v. Catrett, 477 U.S. 317, 322(1986)."An issue is 'genuine' if the evidence is sufficient to persuade a reasonable jury to return a verdict for the nonmoving party."Schilf v. Eli Lilly & Co., 687 F.3d 947, 948(8th Cir.2012)(citingAnderson v. Liberty Lobby, Inc., 477 U.S. 242, 248(1986))."A fact is material if it 'might affect the outcome of the suit.'"Dick v. Dickinson State Univ., 826 F.3d 1054, 1061(8th Cir.2016)(quotingAnderson, 477 U.S. at 248).Courts must afford "the nonmoving party the benefit of all reasonable inferences which may be drawn without resorting to speculation."TCF Nat'l Bank v. Mkt. Intelligence, Inc., 812 F.3d 701, 707(8th Cir.2016)(quotingJohnson v. Securitas Sec. Servs. USA, Inc., 769 F.3d 605, 611(8th Cir.2014))."At summary judgment, the court's function is not to weigh the evidence and determine the truth of the matter itself, but to determine whether there is a genuine issue for trial."Nunn v. Noodles & Co., 674 F.3d 910, 914(8th Cir.2012)(citingAnderson, 477 U.S. at 249).If the movant demonstrates the absence of a genuine issue of material fact, "[t]he nonmovant 'must do more than simply show that there is some metaphysical doubt asto the material facts,' and must come forward with 'specific facts showing that there is a genuine issue for trial.'"Torgerson v. City of Rochester, 643 F.3d 1031, 1042(8th Cir.2011)(en banc)(quotingMatsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87(1986)).

Western makes a single argument for summary judgment on Count II—that TIC failed to provide notice of its claim, as the Dix Bond's terms require, before filing suit.As a subcontract payment bond, ordinary principles of contract law, not the Miller Act, govern the Dix Bond.SeeLarson v. Granite Re, Inc., 532 F.3d 724(8th Cir.2008).The parties agree that North Dakota law controls.Accordingly, the Court will apply North Dakota Supreme Court precedent and attempt to predict how that court would decide any state-law questions it has yet to resolve.SeeStuart C. Irby Co., Inc. v. Tipton, 796 F.3d 918, 922(8th Cir.2015).

The North Dakota Supreme Court recently explained its approach to contract interpretation this way:

The interpretation of a written contract to determine its legal effect is a question of law. . . .The language of a contract is to govern its interpretation if the language is clear and explicit and does not involve an absurdity.When a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone if possible.A contract is

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