Federal Court Enforces Settlement Agreement in Favor of Surety
It’s an old story: the surety settles a payment bond claimant’s Miller Act claim; enters into a settlement agreement with its indemnitors; and then gets stiffed by the indemnitors. But it all came right in United States v. Colston Construction Inc., et al., 2024 U.S. LEXIS 83200 (E.D. La. May 7, 2024), in which the court enforced the settlement agreement filed by the surety. Please read on for the background and the court’s analysis in this case.
Background
Defendant Colston Construction Inc. (Colston) contracted with the U.S. to perform construction work on the VA Hospital in New Orleans. Colston then subcontracted with Fabricari, LLC (Fabricari) to perform work on the project.
Defendant/Cross Claimant/Third-Party Plaintiff Developers Surety and Indemnity Company (Developers) issued payment and performance bonds on behalf of Colston for the project. To induce Developers to issue the bonds, on September 13, 2018, Colston and Third-Party Defendant Jacob Colston executed an Indemnity Agreement in favor of Developers, agreeing to “fully and continuously indemnify Developers against any and all loss or expenses of every kind or nature relating to the bonds.”
On January 11, 2022, Fabricari filed suit against Colston and Developers related to the outstanding amounts due to it under its subcontract with Colston. On March 20, 2023, Developers filed a cross-claim against Colston seeking, under the Indemnity Agreement, payment for sums it had paid to Fabricari under the payment bond.
On April 25, 2023, Fabricari settled with Developers, dismissing all its claims against Colston and Developers. On July 7, 2023, Developers entered into a settlement agreement with Colston for payment. Under the Settlement Agreement, the parties agreed to an amount of $150,000 to be paid by Colston to Developers in four installments. The first installment, for $50,000, was due on June 30, 2023. The second installment, for $50,000, was due on July 31, 2023. The third installment, for $25,000, was due on September 30, 2023. And, the fourth installment, for $25,000, was due on November 30, 2023.
On November 1, 2023, Developers filed the Notice of Settlement with the court. The court issued an Order dismissing the case, without prejudice, allowing Developers “upon good cause shown, to reopen the action to seek summary judgment enforcing the compromise if settlement is not consummated within a reasonable time.” After Colston failed to make timely payments to Developers, Developers filed a motion for summary judgment to enforce the Settlement Agreement.
Analysis
The court’s analysis focused on the enforceability of certain terms in the Settlement Agreement. Developers argued that Colston had failed to make all four payments by the due dates agreed to in the Settlement Agreement. Developers argued that it gave Colston several notices after it repeatedly defaulted on its payments and only partially paid the funds it owed to Developers. Developers further argued that, even though it gave Colston additional time to make the payments and Colston agreed that it would cure its deficiencies, Colston still failed to make payments, which constituted a breach of the Settlement Agreement. Developers stated that it had only received $60,000 from Colston, with a default amount owed of $90,000.
Under the terms of the Settlement Agreement, if the indemnitors failed to make timely payments of the compromised settlement amount ($150,000), the indemnitors would be liable to Developers for the full amount owed under the Indemnity Agreement, as well as “attorney’s fees, interest, costs, and expenses of litigation.” The amount, as originally pled by Colston, totaled $182,051.62, plus the continuing costs, fees, and interest. Developers noted that Colston would be entitled to $60,000 credit on that balance, resulting from the partial payments it had paid to Developers.
Interestingly, Colston filed no response in opposition to Developer’s summary judgment motion.
The court granted Developers’ motion for summary judgment, finding as follows:
Developers is entitled to the entire remaining Amounts Owing of $122,051.62, plus interest, attorney’s fees, costs, and litigation expenses [as allowed under the Settlement Agreement]. Because the award of interest, attorney’s fees, and litigation expenses cannot be determined on the present record, the Court will hold a hearing to calculate these amounts.
As a side note, the court, in its Order granting Developer’s Motion for Summary Judgment to Enforce Settlement Agreement, set the date for the hearing to determine the award of interest, attorney’s fees, costs, and litigation expenses and directed Developers to:
. . . submit time records and other relevant documents to justify such an award for the Court to review [prior to the hearing]. Additionally, Developers must justify the date at which amounts in the Settlement Agreement became overdue to guide the Court in making its findings on awarding legal interest.
Is there a takeaway from this opinion? I think so, and it is very simple: a surety should, as the one in this case, protect itself with prudent and unambiguous terms, not only with the language in its indemnity agreement but also with the language in any settlement agreement with its indemnitors. Doing so makes it much more likely that courts will deem the terms in these documents enforceable.
The author of this article is Martha Perkins, General Counsel at NASBP. She can be reached at mperkins@nasbp.org or 240.200.1270.
This article is provided to NASBP members, affiliates, and associates solely for educational and informational purposes. It is not to be considered the rendering of legal advice in specific cases or to create a lawyer-client relationship. Readers are responsible for obtaining legal advice from their own counsels and should not act upon any information contained in this article without such advice.