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Keller Construction Company of Northwest Florida, Inc. v. Hartford Fire Insurance Co.

Alabama Court of Civil Appeals

October 26, 2018

Keller Construction Company of Northwest Florida, Inc.
v.
Hartford Fire Insurance Company

          Appeal from Baldwin Circuit Court (CV-16-900612)

          PITTMAN, JUDGE.

         Keller Construction Company of Northwest Florida, Inc. ("Keller Construction"), appeals from a judgment of the Baldwin Circuit Court ("the trial court") in favor of Hartford Fire Insurance Company ("Hartford") in an action brought against Hartford by Keller Construction. We affirm.

         Facts

         The facts material to the decision of this appeal are undisputed. In August 2012, the City of Spanish Fort ("the city") and J.F. Pate & Associates Contractors, Inc. ("Pate"), entered into a contract ("the general contract") in which Pate agreed to act as the general contractor in the construction of a community center for the city. Because the general contract was subject to § 39-1-1(a), Ala. Code 1975, [1] a part of Alabama's Little Miller Act, in October 2012, Pate, as principal, and Hartford, as surety, executed a payment bond ("the bond") in which they bound themselves, jointly and severally, "to pay for labor, materials and equipment furnished for use in the performance of the [general contract]," subject to the proviso that, with respect to subcontractors furnishing labor, materials, and equipment for performance of the general contract, "this obligation shall be null and void if [Pate] promptly makes payment directly or indirectly, for all sums due."

         In December 2012, Pate and Keller Construction executed a subcontract ("the subcontract") pursuant to which Keller Construction agreed to perform specified work ("Keller Construction's work") that was necessary for the performance of the general contract. With respect to Pate's payment of Keller Construction, Section 2 of the subcontract provided, in pertinent part:

"[Pate] shall pay [Keller Construction] for performance of the subcontract [$405, 000], subject to the additions and deductions as provided in the subcontract documents. [Pate] shall make progress payments on account of the [$405, 000] to [Keller Construction] as specified above based upon applications for payment submitted to [Pate] by [Keller Construction], corresponding to applications for payment submitted by [Pate] to the architect, and certificates for payment issued by the architect. [Pate] shall be entitled to withhold from all periodic payments and the final payment an amount as retainage which shall be equal to the same proportion of the amount of retainage held by the [city] with respect to payments made by the [city] to [Pate] and shall not be less than [5%]."

Section 2.2 of the subcontract ("Section 2.2") provided:

"[Pate] and [Keller Construction] acknowledge and agree that the source of funding for payment to [Keller Construction] for [Keller Construction's] work will be progress draws and final payment and retainage received by [Pate] from the [city]. The [city] will be billed for [Keller Construction's] work in progress payments as set out in the [general] contract between the [city] and [Pate]. The parties further agree that the receipt by [Pate] of payment from [the city] for the work performed by [Keller Construction] is a condition precedent to the obligation of [Pate] to pay [Keller Construction]. [Keller Construction] further acknowledges that it is assuming the risk of delay in payment or non-payment by the [city] to [Pate]. Both the condition precedent for payment and the assumption of this risk are bargained for considerations in this agreement, without which [Pate] would not have entered into this agreement with [Keller Construction]. The assumption of this risk is reflected in the price contained in this subcontract for the labor and material to be furnished by [Keller Construction].
"Furthermore, [Keller Construction] agrees that [Pate's] surety is intended to be a beneficiary of the provisions of this section and that any defense available to [Pate] as to claims made by [Keller Construction] hereunder shall inure to the benefit of [Pate's] surety."

(Emphasis added.)

         David Keller, the president of Keller Construction, who had executed the subcontract on behalf of Keller Construction, testified that, as a matter of company policy, Keller Construction's attorney reviews all subcontracts before Keller executes them; that the attorney provides Keller with the attorney's "comments" regarding those subcontracts; that Keller then discusses the attorney's comments with the general contractor; and that sometimes those discussions result in changes being made to the subcontract and sometimes they do not. Keller further testified that he has been in the construction business approximately 30 years; that he can read English; that Keller Construction has worked on other public-works contracts in Alabama; that he understood that Pate's receipt of payment from the city for Keller Construction's work was a condition precedent to Pate's obligation to pay Keller Construction for that work; that he understood that Keller Construction was assuming the risk that the city would not pay Pate for Keller Construction's work; that he understood that both the provision stating that the city's paying Pate for Keller Construction's work was a condition precedent to Pate's obligation to pay Keller Construction for that work and the provision stating that Keller Construction was assuming the risk that the city would not pay Pate for Keller Construction's work were bargained-for considerations in the subcontract; and that he understood that, in exchange for Keller Construction's assuming the risk that the city would not pay Pate, Pate had agreed to pay Keller Construction more than Pate would otherwise have agreed to pay Keller Construction.

         Keller Construction performed all of its obligations under the subcontract in a satisfactory and timely manner. When the general contract had been fully performed, the city did not pay Pate any of the retainage the city had withheld from the progress payments the city had made to Pate. That retainage included $12, 189.58 ("the $12, 189.58") that Pate had billed the city for work performed by Keller Construction. Because the city did not pay Pate the $12, 189.58, Pate did not pay Keller the $12, 189.58. Keller Construction conceded that it was bound by Section 2.2.

         Procedural History

         In June 2016, Keller Construction sued Hartford, claiming that Hartford was obligated to pay Keller Construction the $12, 189.58 pursuant to the bond. Hartford asserted that it was not obligated to pay Keller Construction the $12, 189.58 because, Hartford said, Pate was not obligated to pay Keller Construction the $12, 189.58 under Section 2.2 because the city had not paid Pate the $12, 189.58. Hartford further asserted that, because Pate was not obligated to pay Keller Construction the $12, 189.58 under Section 2.2, Hartford was not obligated to pay Keller Construction for two reasons: (1) because, Hartford said, Keller Construction had specifically agreed in Section 2.2 that Hartford was entitled to assert any defense to a claim by Keller Construction that Pate was entitled to assert and (2) because, Hartford said, under Alabama surety law, a surety on a payment bond is liable to a claimant, such as Keller Construction, only to the extent that the principal on the bond, which in this case was Pate, is liable to the claimant. Hartford also asserted a counterclaim alleging that Keller Construction was liable to Hartford for the attorney fees and expenses incurred by Hartford in defending Keller Construction's action because, Hartford said, Keller Construction and its counsel knew when Keller Construction commenced this action that the city had not paid Pate the $12, 189.58 and that, therefore, neither Pate nor Hartford were liable to Keller for the $12, 189.58.

         The trial court held a bench trial at which it received evidence ore tenus. Thereafter, it entered a judgment stating: "Judgment is entered in favor of the Defendant[, i.e., Hartford, ] and against the Plaintiff[, i.e., Keller Construction]." Keller Construction then timely appealed to this court.

         Finality of the Trial Court's Judgment

         The trial court's reference to the parties as "Plaintiff" and "Defendant" in its judgment, without also referring to them as "Counter-defendant" and "Counter-plaintiff" and without awarding attorney's fees to Hartford, indicates that the trial court's judgment did not expressly adjudicate Hartford's counterclaim. Moreover, the judgment did not retain jurisdiction for the trial court to adjudicate the counterclaim later. Ordinarily, the failure to adjudicate a pending claim would render a judgment nonfinal and, therefore, nonappealable. However, although the counterclaim did not expressly refer to the Alabama Litigation Accountability Act ("the ALAA"), § 12-19-270 et seq., Ala. Code 1975, the counterclaim was, in essence, a claim under the ALAA because the gravamen of the counterclaim was that Keller Construction had brought this action without substantial justification. See § 12-19-272, Ala. Code 1975 (authorizing, among other things, a trial court to award, as part of its judgment, reasonable attorney fees and costs if it finds that a civil action was brought without substantial justification). "[W]hen a trial court enters an otherwise final judgment on the merits of a case but fails to address a pending ALAA claim or to reserve jurisdiction to later consider that claim, the ALAA claim is implicitly denied by the judgment on the merits." Klinger v. Ros, 33 So.3d 1258, 1260 (Ala. Civ. App. 2009). Accordingly, in this case, we conclude that the trial court's judgment implicitly denied the counterclaim and that, therefore, the trial court's judgment is final and appealable.

         Standard of Review

         As noted above, the facts material to the decision of this appeal are undisputed. "The presumption of correctness accorded the trial court, hearing a case ore tenus, has no application where the facts are undisputed; and, under such circumstances, it is solely for the appellate court to determine whether the trial court misapplied the law to the undisputed facts." Home Indem. Co. v. Reed Equip. Co., 381 So.2d 45, 47 (Ala. 1980).

         Analysis

         Citing Federal Insurance Co. v. I. Kruger, Inc., 829 So.2d 732 (Ala. 2002), and Hartford Accident & Indemnity Co. v. Cochran Plastering Co., 935 So.2d 462 (Ala. Civ. App. 2006), Keller Construction first argues that the trial court erred because, Keller Construction says, Kruger and Cochran Plastering held that a surety cannot assert a clause such as Section 2.2 as a defense to a claim by a subcontractor on a payment bond executed pursuant to § 39-1-1(a). However, Kruger and Cochran Plastering are distinguishable from this case.

         First, in each of those cases, a general contractor and a surety asserted, as a defense to a subcontractor's claim under a payment bond executed pursuant to § 39-1-1(a), that a final-payment clause in the subcontract between the general contractor and the subcontractor made the general contractor's receipt of payment from the owner for the subcontractor's work a condition precedent to the general contractor's obligation to pay the subcontractor for that work. The final-payment clauses at issue in Kruger and Cochran Plastering are materially different from Section 2.2. The final-payment clause at issue in Kruger provided:

"'A final payment, consisting of the unpaid balance of the [price specified by Kruger's subcontract for its products and services], shall be made thirty (30) days after the last of the following to occur, (a) ... receipt of all Products [provided by Kruger to Bill Harbert Construction Company, the general contractor, ] in satisfactory condition, (b) final payment by [the water board, the owner, ] to [Harbert] on account of the Products [provided by Kruger] including retainage, (c) delivery of all guarantees, certifications and information required under Contract Documents, and (d) delivery of ...

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