SECOND DIVISION BARNES, P. J., MILLER and RAY, JJ.
NOTICE: Motions for reconsideration must be physically received in our clerk’s office within ten days of the date of decision to be deemed timely filed. http://www.gaappeals.us/rules/
October 28, 2013
In the Court of Appeals of Georgia A13A0969. STATE OF GEORGIA DEPARTMENT OF CORRECTIONS v. DEVELOPERS SURETY AND INDEMNITY COMPANY.
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, __ Ga. __ (746 SE2d 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
2 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
3 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,
4 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 Suretys 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
5 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 SE2d 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 SE2d 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
1 The trial court based the amount of damages it awarded on an affidavit by Gary Perkins, a representative of Developers Surety. The trial court admitted the affidavit over GDOC’s objections and held that the Perkins affidavit was sufficient to establish Developers Surety’s damages as a matter of law because GDOC provided no affidavit or other evidence raising a question of material fact as to damages. GDOC does not challenge the amount of damages awarded on appeal.
6 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 SE2d 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 be waived only be 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
2 In making this argument, GDOC cites to case law discussing the elements of a contract and determining whether or not a written contract with a State agency exists. See Kennedy v. Ga. Dept. of Human Resources Child Support Enforcement, 286 Ga. App. 222, 224 (1) (648 SE2d 727) (2007); Bd. of Regents of the Univ. Sys. of Ga. v. Tyson, 261 Ga. 368, 369-370 (1) (404 SE2d 557) (1991). In the present case, there is no dispute that a written contract between GDOC and Walker Roofing exists.
7 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 SE2d 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 SE2d 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 sovereign immunity for the
breach of any contract entered into by a state agency after it steps into the shoes of
8 Walker Roofing. In doing so, we find the reasoning set forth in the United States
Court of Appeals for the Federal Circuit’s opinion, Ins. Co. of the West v. U. S., 243
F.3d 1367, 1367 (C.A. Fed., 2001), to be persuasive.
In Ins. Co. of the West, the surety of a contractor had financed the completion
of a government contract after the contractor defaulted, and the surety then sued the
government directly to recover the remaining funds. Id. at 1369 (I). In that case, the
appellate court held that the federal government’s waiver of sovereign immunity
under the Tucker Act3 for “any claim against the United States founded . . . upon any
express or implied contract with the United States” was not limited to claims asserted
by the original parties to the contract, but that the waiver of sovereign immunity
applied to subrogees as well. Id. at 1372-1374 (IV). In doing so, the court reasoned
that the language of the Tucker Act was not “limited to claims asserted by the original
claimant,” but instead that the language of the act “contain[ed] an unequivocal
expression waiving sovereign immunity as to claims, not particular claimants.”
(Emphasis supplied.) Id. at 1373-1374 (IV). Thus, the Ins. Co. of the West court held
that “waivers of sovereign immunity applicable to the original claimant are to be
construed as extending to those who receive assignments, whether voluntary
3 28 U.S.C. § 1491 (a) (1).
9 assignments or assignments by operation of law, where the statutory waiver of
sovereign immunity is not expressly limited to waivers for claims asserted by the
original claimant.” Id. at 1373 (IV).
Similar to the federal government’s waiver of sovereign immunity under the
Tucker Act, the language of the Constitution of Georgia does not limit the waiver of
the State’s sovereign immunity for breach of contract actions to particular claimants.
Rather, our Constitution provides that “[t]he state’s defense of sovereign immunity
is hereby waived as to any action ex contractu for the breach of any written contract
. . . entered into by the state or its departments or agencies.” (Emphasis supplied.) Ga.
Const. Art. I, Sec. II, Para. IX (c). Accordingly, we find that Developers Surety, a
subrogee stepping into the shoes of Walker Roofing, may rely upon the waiver of
sovereign immunity that applied to the government contractor.4 See also, Nova Cas,
supra at 293-295 (B), 296 (C) (1). Thus, we find no error in the trial court’s denial of
GDOC’s motion for summary judgment on sovereign immunity grounds.
4 If the rule were otherwise, what rational business would agree to issue a payment or performance bond to benefit the State government? Under the rule proposed by the GDOC, if a dispute arose under such a bond, only the government or the government contractor would have a right of action. The business issuing the bond would not.
10 2. GDOC next contends that the anti-assignment clauses contained in the
construction contract rendered any assignment by Walker Roofing to Developers
Surety ineffectual and, thus, that the trial court’s grant of summary judgment to
Developers Surety was in error. We disagree.
The construction contract between GDOC and Walker Roofing contained two
anti-assignment clauses, which provide that: “[t]his Agreement and the proceeds of
this Agreement may not be assigned nor may the performance thereunder be assigned,
except with the prior written consent of the [GDOC],” and that “[n]either party to the
contract shall assign the contract or sublet it as a whole nor shall the Contractor
assign any moneys due or to become due to him hereunder.” GDOC argues that these
anti-assignment clauses prohibited Walker Roofing from assigning its rights under
the construction contract to Developers Surety. However, in its order, the trial court
held that the anti-assignment clauses contained in the construction contract were
unenforceable because “the Uniform Commercial Code [“UCC”] at OCGA § 11-9-
406 . . . nullifies these [a]nti-[a]ssignment provisions.”
GDOC argues the that OCGA § 11-9-406 (d), the UCC provision prohibiting
no-assignment clauses in contracts, does not apply in the present case because the
construction contract between GDOC and Walker Roofing was not a “secured
11 transaction” as defined by OCGA § 11-9-109 (a). Alternatively, GDOC argues that
even if the underlying construction contract could be found to be a “secured
transaction,” OCGA § 11-9-109 (d) (16) states that “[t]his article does not apply to
. . . [a] security interest created by or affecting property of this state or any
governmental unit of this state in any public finance transaction. . . .” However, these
arguments are unavailing.
We agree with Developers Surety’s contention that its security interest was not
in the construction contract or the personal property or fixtures of the State, as GDOC
argues, but rather that, under the indemnity agreement, Developers Surety had a
security interest in accounts comprised of the amounts payable to Walker Roofing
pursuant to any contract subsequently bonded by Developers Surety. OCGA § 11-9-
406 (d) (1) renders any restriction on the assignment of accounts unenforceable. That
subsection provides that “a term in an agreement between an account debtor and an
assignor . . . shall be ineffective to the extent that it . . . [p]rohibits, restricts, or
requires the consent of the account debtor. . . to the assignment or transfer of . . . the
account, chattel paper, [or] payment intangible. . .” An “account” is defined as a
“right to payment of a monetary obligation, whether or not earned by performance .
. . for services rendered or to be rendered.” OCGA § 11-9-102 (a) (2). An “account
12 debtor” is “a person obligated on an account.” OCGA § 11-9-102 (a) (3). In the
present scenario, the “account” is the right to receive payment from GDOC under the
construction contract; GDOC, as the entity obligated to pay money due on the
account, is the “account debtor.” Thus, the security interest in the accounts owed by
GDOC to Walker Roofing is covered by the UCC, and to the extent that the anti-
assignment clauses of the construction contract could be construed to prohibit Walker
Roofing from assigning its right to these accounts to Developers Surety, we find that
they are unenforceable as a matter of law under OCGA § 11-9-406 (d) (1).
3. GDOC next contends that the trial court erred by granting Developers
Surety’s summary judgment motion and finding that GDOC “materially breached the
[construction contract] by imposing restrictions on [Walker Roofing’s] access to the
project site that were contrary to the terms of the [construction contract].” We
disagree.
The trial court’s finding that GDOC breached the construction contract was
based largely upon matters deemed admitted after GDOC failed to submit a timely
response to Developers Suretys’ request for admissions, and the trial court denied
GDOC’s motion to withdraw the admissions. See OCGA § 9-11-36 (a) (2) (“Each
matter of which an admission is requested . . . is admitted unless, within 30 days after
13 service of the request or within such shorter or longer time as the court may allow, the
party to whom the request is directed serves upon the party requesting the admission
a written answer or objection. . .”). On appeal, GDOC does not argue that the trial
court erred in denying its motion to withdraw admissions. Rather, GDOC argues that
its actions “were permitted under the terms of the Construction Contract” and, thus,
that the trial court’s grant of summary judgment was in error. Developers Surety, on
the other hand, contends that the facts deemed admitted supports the trial court’s
grant of summary judgment in its favor.
In order “[t]o affirm a grant of summary judgment, it must affirmatively appear
from the record that no question of material fact exists and [that] the moving party is
entitled to judgment as a matter of law.” (Citation omitted.) Crown Ford v. Crawford,
221 Ga. App. 881, 882 (473 SE2d 554) (1996). In the case at bar, the trial court’s
grant of summary judgment was based on facts deemed admitted as a consequence
of GDOC’s failure to respond timely to requests for admission. A party’s failure to
respond timely to requests for admission conclusively establishes as a matter of law
each of the matters addressed in the requests. See OCGA § 9-11-36 (b). “This is true
even if the requested admissions require opinions or conclusions of law, so long as
the legal conclusions relate to the facts of the case.” (Citation and punctuation
14 omitted.) Robinson v. Global Resources, Inc., 300 Ga. App. 139, 140 (684 SE2d 104)
(2009). Among the matters deemed admitted by GDOC as a matter of law are the
following statements: “[a]t no point during the work period was [Walker Roofing]
allowed access to the work as provided in the contract documents” ; “the contract
documents do not state that the contractor will be limited to access only one roof at
a time” ; “the contract documents do not state that security for the work will be
provided by only one guard at a time . . . and [Walker Roofing] was not allowed to
work when the assigned guard was unavailable due to sickness or vacation time” ;
Walker Roofing “experienced gate interferences and delays that prevented access to
prison grounds” ; and that GDOC “materially breached their contract with [Walker
Roofing].” Because these “admissions covered all the essential claims presented in
[Developers Surety’s] verified complaint, the trial court did not err in granting
summary judgment to [Developers Surety] on the issue[s] of [breach of contract and
declaratory judgment].” See Turner v. Mize, 280 Ga. App. 256, 259 (2) (633 SE2d
641) (2006).
4. GDOC contends that trial court erred in dismissing GDOC’s counterclaim
asserting breach of the performance bond by Developers Surety because it did not
comply with the terms of the performance bond. We disagree.
15 The performance bond issued by Developers Surety required it to give GDOC
notice “within twenty-five (25) days after receipt of a declaration of default of the
[s]urety’s election to either remedy the default or defaults promptly or to perform the
contract promptly.” Although the GDOC issued its formal notice of default on
September 23, 2010, Developers Surety did not respond until nearly three months
later when it offered on January 12, 2011, that “GDOC could enter into a contract
with Skyline for completion of work on the [p]roject.” GDOC’s counterclaim sought
damages for breach of this provision of the performance bond claiming that it had
“sustained substantial damages, including but not limited to delay damages, the cost
of repairing or replacing deficient work, completion and remediation costs, extended
personnel costs, and other damages to be demonstrated at trial.”
The trial court dismissed GDOC’s counterclaim for breach of this provision of
the performance bond, holding that the fact that GDOC breached its contract with
Walker Roofing “as a matter of law[] preclud[ed] GDOC’s counterclaim from going
forward.” In support of this conclusion, the trial court cited to OCGA § 10-7-2 for the
rule that the liability of a surety on a bond is secondary to that of its principal. Thus,
the trial court reasoned, “if [Walker Roofing] is not liable to GDOC, then
[Developers’ Surety] cannot be liable to GDOC.”
16 OCGA § 10-7-2 provides that “[t]he obligation of the surety is accessory to that of his
principal; and, if the latter from any cause becomes extinct, the former shall cease of
course, even though it is in judgment. . . .” Since Developers Surety had no liability
to GDOC under the bond, as we have found herein, then any delay of Developers
Surety in giving notice to GDOC that it should proceed to hire Skyline to finish the
job could not be the basis of any claim by GDOC against it. See McWhirter Material
Handling Co. v. Ga. Paper Stock Co., 118 Ga. App. 582, 584 (2) (164 SE2d 852)
(1968) (finding that a surety could not be held liable when it’s principal was found
to be not liable). Accordingly, we find that the trial court’s dismissal of the GDOC’s
counterclaim was in not in error.
Judgment affirmed. Barnes, P. J., and Miller, J., concur.