Loney v. MHA v. Aetna

• Court: District Court, D. New Hampshire
• Decided: August 18, 1995
• Docket: CV-92-461-B
• Status: Published

Opinion

Loney v. MHA v. Aetna CV-92-461-B 08/18/95 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

H. Loney Construction Co., Inc.

v.

Manchester Housing and Redevelopment Authority

v. Civil No. 92-461-B

Aetna Casualty and Surety Corporation

O R D E R

Manchester Housing and Redevelopment Authority ("MHRA")

moves for summary judgment on its claim for attorney's fees

pursuant to a performance bond. Specifically, MHRA argues that

it is entitled to the costs associated with defending against H.

Loney Construction's claims for extra compensation due to a

differing site condition because those costs resulted from

honey's breach of the conditions of the bond. Defendants, Loney

and Aetna Casualty and Surety Company, object to MHRA's motion

and also move to have the claim for attorney's fees dismissed

because of unfair prejudice. For the following reasons, I deny

MHRA's motion for summary judgment and also deny the defendants'

motion to dismiss.

I. BACKGROUND

A. The Renovation Proiect

MHRA awarded a construction contract to Loney, a general

contractor, that included heating renovations and the

construction of new boiler rooms in several of MHRA's properties. The buildings were constructed by MHRA in the early 1950's. The

design of the buildings included a central heating system with

lines running underground to each building. None of the

buildings were constructed with basements. Instead, each

building had a small crawl space under the first floor surrounded

by a poured concrete foundation. MHRA experienced water problems

in the crawl spaces between 1968 and 1972. It installed several

sump pumps in the buildings in order to correct the problem. In

1988, MHRA decided to renovate the heating systems in these

buildings.

The design for the renovations called for the construction

of a boiler room in each building by excavating in the crawl

space and constructing the boiler room in that space. In 1989,

MHRA invited bids for the project. The bid documents reguired

the excavation in the crawl space and the placement of sump pumps

in each excavated boiler room below the floor slab to pump out

water. The bid documents also provided that each bidder "assumed

responsibility for all dewatering [sic] and shoring during

construction of the project."

B. The Contract and Performance Bond

MHRA awarded Loney the project and the parties executed a

contract which included general conditions, specific conditions. specifications, and drawings. The contract required the

contractor to furnish all labor, materials, equipment, and

services, and perform all the work required for the renovations

as contained in the bid documents. The contract was based on a

lump sum fee.1 Further, the contract required the contractor to

provide "all necessary protection and pumping work required to

keep the excavated area free of water."

In addition, the contract required Loney as principal, and

Aetna as surety, to execute a performance bond for the benefit of

MHRA, the sole obligee, binding them to perform all obligations

under the contract. The performance bond provided that Loney and

Aetna were obligated to MHRA in the amount of $1,545,666.00, the

contract price. Further, it stated that this obligation would be

void if the principal satisfied the conditions of the bond.

Specifically, it stated: "if [the principal] ... shall well and

1Lump sum contracts stipulate a sum for the entire cost of meeting the requirements of the contract. Any overruns are born by the contractor unless they fall within the equitable adjustments provision of the contract or some other exception. Article 2 of the contract states in pertinent part: Article 2 . The Contract Price. [MHRA] shall pay the Contractor [Loney] for the performance on the Contract, in current funds, subject to additions and deductions as provided in the Specifications, the sum of One Million Five Hundred Forty-Five Thousand Six Hundred Sixty-Six and 00/100 Dollars ($1,545,666.00).

3 truly indemnify and save harmless said Manchester Housing

Authority against all counsel fees paid or incurred by said

Authority as a result of a breach of any condition of this bond,

. .. , then this obligation shall be void ... ."2 In addition, the

bond provided that if the principal performed all agreements,

terms, and conditions of the underlying contract, then the

obligation to pay MHRA the contract price would also be void.

2This portion of the performance bond states in its entirety:

NOW, THE CONDITION of this obligation is such that if the same principal and his subcontractors shall well and truly keep and perform all agreements, terms and conditions in said contract set forth and specified to be by said principal kept and performed, and shall well and truly indemnify and save harmless said Manchester Housing Authority against all counsel fees as a result of a breach of any condition of this bond, and against all claims and suits for damage to person or property arising from carelessness or want of due care or any act or omission on the part of said principal during the performance of said contract, then this obligation shall be void; otherwise it shall remain in full force and virtue.

The performance bond itself consists of a one page, standard form, obligating Aetna and Loney to MHRA for the full contract price. In addition, the bond reguires Aetna, upon MHRA's written reguest, to complete the contract if Loney abandons the contract or MHRA terminates the contract.

4 C. The Ground Water Problem and Lonev's Claim for Extra Compensation

In the course of excavating for the new foundations, Loney

encountered seepage problems as a result of surface and

groundwater in the area. Contrary to MHRA's suggestions, Loney

did not employ a pump or berm around the excavation to alleviate

the problem. Instead, it used different methods and incurred

additional costs and delays due to the groundwater.

Subseguently, Loney informed MHRA that, pursuant to the differing

site conditions and eguitable adjustment clause of the contract,

it was seeking to have each excavation done on a time and

materials basis because of the differing conditions that would be

encountered with respect to each excavation. MHRA refused to

make any payments to Loney for the additional costs incurred.

Loney then sued MHRA to recover the costs claiming that the

expenses incurred were not part of the original contract and

therefore they were entitled to an eguitable adjustment. MHRA

raised several defenses and counterclaimed for breach of warranty

with respect to the installation of the boilers and failure to

complete the work specified in the contract. Specifically, MHRA

asserted that Loney was obligated under the contract to handle

any groundwater problems and any extra cost incurred by Loney

5 resulted from their failure to address the problems in a

workmanlike manner as required by the contract. In its

counterclaim, MHRA sought to recover damages plus costs and

attorney's fees.3 In addition, MHRA unsuccessfully sought to

have Aetna impleaded as a necessary party.

The suit was bifurcated so that the issue of MHRA's

liability for the extra costs due to differing site conditions

was adjudicated first. After a three-day bench trial, Loney was

unsuccessful in proving that it was entitled to an equitable

adjustment.4 The sole issue at trial was whether the contract

provided for the contractor to be responsible for any

3In its pretrial statement, MHRA stated that the contested issues on its counterclaim would be: (1) whether Loney failed to rectify or complete the precise items the Authority requested it to do, which were in its contract; and (2) whether the sum sought by the Authority for rectifying and completing honey's work is the fair and reasonable charge for that work. In Section J of that statement, the MHRA stated with respect to attorney's fees: "The Authority currently has pending before this Court a Motion to add plaintiff's Surety Company as a party. Pursuant to the terms of said Bond, the Surety is responsible for legal fees due to failure of honey's performance."

4The court announced its findings and rulings orally on June 28, 1994. A partial transcript of that hearing is part of the case file (document no. 71). The court also concluded that MHRA was not liable for the additional costs incurred by Loney under the other theories raised in honey's claim, i.e. negligent misrepresentation and breach of the duty of good faith and fair dealing.

6 groundwater. Basing its decision on the contract documents, the

court concluded that Loney should have reasonably anticipated the

groundwater as part of the contract reguirements. Therefore,

Loney was not entitled to any additional compensation above the

lump sum contract price. The court did not address whether Loney

should have handled the groundwater differently or whether its

actions constituted a breach of the contract.

D. MHRA's Suit Against Aetna

After the court issued its decision, MHRA filed suit against

Aetna, Case No. 94-394-B, seeking judgment against Aetna as

surety for Loney pursuant to the performance bond, for honey's

failure to meet the obligations of that bond. The complaint also

sought consolidation with the original suit filed by Loney. MHRA

claimed that as surety Aetna was liable for legal fees under the

performance bond, as well as the costs of completion, because

Loney breached its obligations under the contract by failing to

complete its work, failing to rectify deficient work, and failing

to perform in a workmanlike manner. Subseguently, the court

ordered that the two cases be consolidated and that a

consolidated complaint be filed by MHRA.

In its consolidated complaint MHRA claims that Loney

breached the obligations of the contract in handling the water

7 conditions. Based on this alleged breach, MHRA claims that Loney

and Aetna are liable for the costs associated with MHRA's defense

of the equitable adjustment claim pursuant to the plain language

of the performance bond.

II. DISCUSSION

MHRA argues it is entitled to summary judgment because Loney

and Aetna are liable under the performance bond for its

attorney's fees incurred in defending against honey's prior claim

for extra compensation. Aetna and Loney argue that the plain

language of the performance bond does not provide for the payment

of the disputed attorney's fees. Defendants also seek to have

MHRA's claim for attorney's fees dismissed. I address the

defendants' motion to dismiss first.

A. Motion to Dismiss Due to Unfair Prejudice

Defendants argue that they are unfairly prejudiced by MHRA's

delay in raising its claim for attorney's fees based on the bond.

Defendants cite no authority to demonstrate that any delay should

bar the claim. Further, the defendants had notice of the claim

from the first stages of the litigation. MHRA asserted in its

initial counterclaim against Loney and its subsequent claim

against Aetna that it would be seeking attorney's fees associated with its defense of honey's extra compensation claim. Therefore

I conclude that Aetna and Loney had adequate notice that MHRA

would be seeking to recover its legal costs from the initial

stages of this lawsuit. Thus, I deny defendants' motion to

dismiss MHRA's claim for attorney's fees.

B. Motion for Summary Judgment5

MHRA argues that Loney failed to perform all the agreements

terms, and conditions of the underlying contract, including the

following requirements: (1) that the groundwater be handled by

placing a pump below the excavation site; (2) that the walls of

excavation be shored up; and (3) that the excavation holes be

bermed. It then points to the language in the bond which states

that Loney shall "save harmless [MHRA] against all counsel fees

as a result of a breach of any condition of this bond..."

5Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c) Where the movant bears the burden of proof at trial "that party must show affirmatively the absence of a genuine issue of material fact: it must support its motion with credible evidence ... that would entitle it to a directed verdict if not controverted at trial." Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1115 (11th Cir. 1993) (internal quotations and citations omitted) . (emphasis added). Finally, MHRA concludes that because honey's

performance of the contract's requirements is a "condition of the

bond" as that phrase is used in the provision quoted above, and

the leqal fees incurred in defendinq aqainst honey's claim flow

directly from honey's failure to perform under the contract, the

plain lanquaqe of the bond entitles them to recover their defense

costs. Based on the foreqoinq, MHRA arques that it is entitled

to summary judqment.

It is well settled that in the absence of a statute or

contract providinq for the allowance of attorney's fees, the

prevailinq party is not entitled to recover such costs. Smith v.

Town of Wolfeboro, 136 N.H. 337, 347 (1992); Maguire v. Merrimack

Mut. Ins. C o ., 133 N.H. 51, 55 (1990). Therefore, the issue

presented by plaintiff's motion is whether the performance bond

and the construction contract provide for the recovery by MHRA of

reasonable attorney's fees incurred in defendinq aqainst honey's

claims.6

6Neither party relies upon any statutory authority to support their arqument. Therefore, I rely solely upon the lanquaqe of the contract to determine whether MHRA is entitled to its attorney's fees incurred in the prior action.

10 A contract should be interpreted to reflect the intention of

the parties at the time it was made. Parkhurst v. Gibson, 133

N.H. 57, 61 (1990); R. Zoppo Co. v. City of Dover, 124 N.H. 666,

671 (1984). The parties' intentions are derived from objective

and external criteria, not their unexpressed states of mind.

Tentindo v. Locke Lake Colony Ass'n, 120 N.H. 593, 599 (1980).

The starting point, therefore, is the contract language itself.

See Parkhurst, 133 N.H. at 62 (absent fraud, duress, mutual

mistake or ambiguity, must glean parties' intent from words in

contract). In construing contract language, that language is

given its common meaning and is construed from the perspective of

the reasonable person. Gamble v. University Svs., 136 N.H. 9, 13

(1992); Logic Assocs., Inc. v. Time Share Corp., 124 N.H. 565,

572 (1984). The clear and unambiguous language of the

performance bond limits reimbursement for attorney's fees to

those incurred by MHRA as a result of breaches of the conditions

of the bond and the terms of the contract by Loney. Thus, there

must be a breach in order for MHRA's right to attorney's fees to

arise.

The basis of the action for which MHRA seeks attorney's fees

was confined to the issue of whether the contract reguired Loney

to be responsible for a potential groundwater problem. The court

11 concluded that the contract required Loney to be responsible for

the groundwater and therefore Loney was not entitled to extra

compensation. Loney's breach of the contract was not an issue in

the prior proceedings and no determination as to honey's

performance under the contract was made or needed to be made.

Therefore, MHRA's characterization of the prior adjudication of

honey's equitable adjustment claim as resulting from a breach of

the contract is not tenable.

Further, MHRA cites no authority for interpreting the

language in the performance bond in a way that entitles them to

attorney's fees under these circumstances. In the only cases

that MHRA does cite, the court necessarily determined that the

principal or one of its subcontractors had breached its

obligations under the contract. E.g., City of Grandvier v.

Hudson, 377 F.2d 694, 697 (8th Cir. 1967) (court concluded that

bond language encompassed fees incurred by owner as result of

surety's suit to determine liability for subcontractor's failure

to perform under the contract); Mason v. City of Albertville, 158

So. 2d 924, 927 (Ala. 1963) (owner entitled to counsel fees

incurred in defending action by surety to recover liquidated

damages withheld by owner because owner suffered loss under bond

as result of principal's breach of the underlying contract); B &

12 H Constr. & Supply Co. v. District Bd. of Trustees of Tallahassee

Community College, 542 So. 2d 382, 387 (Fla. Dist. C t . Ap p . 1989)

(defendant entitled to attorney's fees because contract provided

for recovery of attorney's fees if contractor breached contract

and defendant showed contractor had breached); accord Turner

Constr., Inc. v. American States Ins., 579 A.2d 915, 919 (Pa.

Super. C t . 1990) (no right of action under performance bond until

principal fails to perform in accordance with underlying

agreement). None of the cases support the proposition that the

language at issue here would entitle MHRA to attorney's fees

where no breach or failure to perform on the part of Loney was

part of the prior action. Therefore, I deny MHRA's motion for

summary judgment on their claim for attorney's fees. See Fed. R.

Civ. P. 56; Fitzpatrick, 2 F.3d at 1115.

III. CONCLUSION

For the foregoing reasons, I deny MHRA's motion for summary

judgment (document no. 80) and also deny defendants' motion to

dismiss (document no. 89).

13 SO ORDERED.

Paul Barbadoro United States District Judge

August 18, 1995

cc: James W. Craig, Esg. Frank P. Spinella, Jr., Esg. Joseph W. Corwin, Esg.