Seaboard Surety Co. v. Richard F. Kline, Inc.

MOTZ, Judge. The case presents the question of whether a subcontractor who contracts with a joint venturer has a “direct contract” with the joint venture itself so that the subcontractor is a “claimant” under a surety bond obtained by the joint venture. Because it is undisputed that when contracting with the subcontractor the joint venturer was acting on behalf and with the authorization of the joint venture, we hold that the subcontractor had a “direct contract” with the joint venture and so was a “claimant” under the surety bond. Accordingly, we affirm the order of the Circuit Court for Frederick County (Dwyer J.) granting the subcontractor summary judgment.

(i) On December 18, 1985, Carrollton Associates Limited Partnership (“the Owner”) entered into a construction contract (“the Prime Contract”) with American International Construction Corp. and Elion Concrete Inc. Joint Venture (“the Joint Venture”) pursuant to which the Joint Venture would act as prime contractor and build a United States Department of Housing and Urban Development (“HUD”) subsidized garden apartment project in Frederick, Maryland. The members of the Joint Venture were two corporations: American International Construction Corp. (“AIC”) and Elion Concrete, Inc. (“Elion”). The prime contract, as is mandated in HUD-financed projects, required the Joint Venture to assure completion of the work in the form of performance and payment bonds. The joint venture agreement between AIC and Elion provided that AIC “would construct the Project for the Joint Venture, entering into contracts in fAIC’s own name and paying all expenses of construction” and Elion would be responsible for obtaining surety bonds for the project and supplying additional capital that might be needed.

Appellant, Seaboard Surety Company (“Seaboard”) refused to ²³⁹ issue the bonds unless Elion pledged its credit. Elion pledged its credit, and on December 18, 1985, Seaboard issued the surety bonds to the Joint Venture. The price of the bonds was a reimbursable expense, i.e., a cost which, under the Prime Contract, would be reimbursed by the Owner. AIC actually paid for those bonds but was reimbursed for that cost by the Owner.

The payment bond provides in pertinent part: Know All Men By These Presents, THAT WE American International Construction Corp./Elion Concrete, Inc., Joint Venture of Baltimore Maryland os Principal, (hereinafter called the Principal) and Seaboard Surety Company, a New York Corporation as Surety, (hereinafter called the Surety) are held and firmly bound unto Carrollton Associates Limited Partnership, DBA Carroll-ton X Associates Limited Partnership as Obligee, (hereinafter called the “Owner”), for the use and benefit of claimants as hereinafter defined, in the sum of Eight Million One Hundred Sixteen Thousand Seven Hundred Twenty and 00/100 Dollars ($8,116,720.00), lawful money of the United States of America, for the payment of which Principal and Surety bind themselves, their heirs, executors, administrators, successors and assigns, jointly and severally, firmly by these presents. ****** NOW, THEREFORE, THE CONDITIONS OF THIS OBLIGATION is such that, if Principal shall promptly make payment to all claimants as hereinafter defined, for all labor and material used or reasonably required for use in the performance of the Contract, then this obligation shall be void; otherwise it shall remain in full force and effect, subject, however, to the following conditions: 1. A claimant is defined as one having a direct contract with the Principal or with a subcontractor of the Principal for labor, material, or both, used or reasonably required for use in the performance of the contract, labor and material being construed to include that part of water, gas, power, light, heat, oil, gasoline, telephone ²⁴⁰ service, or rental of equipment directly applicable to the Contract. 2. The above named Principal and Surety hereby jointly and severally agree with the Owner that every claimant as herein defined, who has not been paid in full before the expiration of a period of ninety (90) days after the date on which the last of such claimant's work or labor was done or performed, or materials were furnished by such claimant, may sue on this bond for the use of such claimant, prosecute the suit to final judgment for such sum or sums as may be justly due claimant, and have execution thereon____ 3. No suit or action shall be commenced hereunder by any claimant: (a) Unless claimant, other than one having direct contract with the Principal, shall have given written notice to any two of the following: The Principal, the Owner, or the Surety above named, within ninety (90) days after such ... performed the last of the work ... stating with substantial accuracy the amount claimed and the name of the party to whom materials were furnished, or for whom the work or labor was done or performed.

Such notice shall be served by mailing the same by registered mail or certified mail, postage prepaid ... or served in any manner in which legal process may be served in the state in which the aforesaid project is located____ (emphasis added.) On March 18, 1986, AIC (not the Joint Venture) entered into a subcontract with appellee, Richard F. Kline, Inc. (“Kline”), pursuant to which Kline would furnish and install all bituminous paving on the project. In that subcontract, AIC identified itself as the Contractor; the cover of the specifications book identified the contractor as being “American Int’l Const., Inc./Elion Concrete Incorporated.” The subcontract contains no signature line for Elion or the Joint Venture. Nothing in the text of the subcontract purports to bind the Joint Venture. The subcontract does ²⁴¹ refer to the Prime Contract and arguably incorporates it by reference into the subcontract.

Kline performed paving work under the subcontract. Following a dispute over payment, Kline commenced an arbitration proceeding against AIC which resulted in an award for Kline against AIC in the amount of $140,000. On May 21, 1990, that award was confirmed by the Circuit Court for Baltimore City and judgment was entered for Kline against AIC. Kline was unsuccessful in collecting from AIC on this judgment.

Ultimately, Kline attempted to collect from Seaboard on the payment bond. Seaboard refused to pay. On September 13,1990, Kline then filed this action against Seaboard in the Circuit Court for Frederick County where the project is located. On May 13, 1991, the Circuit Court issued a short order granting summary judgment for Kline.

On appeal, Seaboard raises three questions: 1. Whether one who contracts with a single member of a joint venture, rather than the joint venture itself, can qualify as a “claimant” on a payment bond that names the joint venture as principal and then defines “claimant” as one having a direct contract with the named principal. 2. In the alternative, whether any genuine factual dispute exists as to Kline’s lack of contractual privity with the Joint Venture. 3. Whether any genuine factual dispute exists as to Kline’s failure to provide the notice required by the payment bond to be given by one who claims under a contract with a sub-contractor.

(«) The facts set forth above are not disputed. There are, however, several other facts (discussed within) which are disputed. In light of Seaboard’s claim that those facts prevent the grant of summary judgment to Kline, we state the appropriate principles to be applied in granting or denying summary judgment. ²⁴² At one time, summary judgment was regarded by state and federal courts as a sort of procedural step-child, disfavored and not permitted out in polite society. Because summary judgment is, of course, not a substitute for trial, some appellate courts carelessly proclaimed that summary judgment was to be denied if there was any factual dispute or even any inference adverse to the movant which could be drawn from the facts.

Indeed, appellate courts so constantly and consistently warned of the dangers of improperly granting summary judgment that trial courts became understandably reluctant to grant the remedy unless the litigants agreed on or stipulated to every fact. The Court of Appeals, however, has for many years recognized that the summary judgment rule, Md. Rule 2-501 (1992 Repl. Vol.), means precisely what it says. 1 Thus, only a “genuine dispute” as to a “material fact” is relevant in opposing a motion for summary judgment. See, e.g., King v. Bankerd, 303 Md. 98, 111 , 492 A.2d 608 (1985); Washington Homes, Inc. v. Inter Land Dev., 281 Md. 712, 716 , 382 A.2d 555 (1978); Lynx v. Ordnance Prods., Inc., 273 Md. 1, 8 , 327 A.2d 502 (1974); Salisbury Beauty Schools v. State Board of Cosmetologists, 268 Md. 32, 40 , 300 A.2d 367 (1973).

A material fact is one which will “somehow affect the outcome of the case.” King, 303 Md. at 111 , 492 A.2d 608 ; Washington Homes, 281 Md. at 717 , 382 A.2d 555 ; Lynx, 273 Md. at 8 , 327 A.2d 502 ; Salisbury, 268 Md. at 41 , 300 A.2d 367 . A dispute as to a fact “relating to grounds upon which the decision is not rested is ²⁴³ not a dispute with respect to a material fact and such dispute does not prevent the entry of summary judgment.” Salisbury, 268 Md. at 40 , 300 A.2d 367 (emphasis in original). Accord Shaffer v. Lohr, 264 Md. 397, 404 , 287 A.2d 42 (1972); Daniel v. Kensington Homes, 232 Md. 1, 13 , 192 A.2d 114 (1963). Moreover, in order to defeat a motion for summary judgment, the opposing party must proffer material facts which would be admissible in evidence.

Shaffer, 264 Md. at 404 , 287 A.2d 42 ; Melbourne v. Griffth, 263 Md. 486, 491 , 283 A.2d 363 (1971) (reversing jury verdict for nonmovant and granting summary judgment to movant). When a moving party has set forth sufficient grounds for summary judgment, the party opposing the motion must show with “some precision” that there is a genuine dispute as to a material fact. King, 303 Md. at 112 , 492 A.2d 608 ; Washington Homes, 281 Md. at 717 , 382 A.2d 555 . Formal denials or general allegations are insufficient to prevent the award of summary judgment.

Id. See Davis v. Montgomery County, 267 Md. 456, 472 , 298 A.2d 178 (1972). In 1986, the Supreme Court interpreted the very similar federal summary judgment rule, Fed R.Civ.P. 56, and issued a now famous trilogy of cases in which it confirmed many of the above principles. See Celotex Corp. v. Catrett, 477 U.S. 317 , 106 S.Ct. 2548 , 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Ltd., 477 U.S. 242 , 106 S.Ct. 2505 , 91 L.Ed.2d 202 (1986); Matsushita Elec.

Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574 , 106 S.Ct. 1348 , 89 L.Ed.2d 538 (1986). 2 The Court expressly stated that sum ²⁴⁴ mary judgment was not a “disfavored procedural shortcut.” Celotex, 477 U.S. at 327 , 106 S.Ct. at 2555 . Thus, the “mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact.” Anderson, All U.S. at 247-248, 106 S.Ct. at 2510 (emphasis in original). “Factual disputes that are irrelevant or unnecessary will not be counted,” Id. at 248, 106 S.Ct. at 2510, and when a movant has carried its burden, the party opposing summary judgment “must do more than simply show there is some metaphysical doubt as to the material facts.” Matsushita Elec., 475 U.S. at 586 , 106 S.Ct. at 1356 . The Supreme Court explained that the summary judgment standard is akin to that of a directed verdict, i.e., whether a fair-minded jury could return a verdict for the plaintiff on the evidence presented.

Anderson, All U.S. at 248, 106 S.Ct. at 2510. The mere existence of a scintilla of evidence in support of plaintiffs claim is insufficient to preclude the grant of summary judgment; rather, there must be evidence on which the jury could reasonably find for the plaintiff. Thus, in Anderson , the Supreme Court defined a “genuine” issue of “material fact” as follows: If the defendant in a run-of-the-mill civil case moves for summary judgment or for a directed verdict based on the lack of proof of a material fact, the judge must ask himself not whether he thinks the evidence unmistakably favors one side or the other but whether a fair-minded jury could return a verdict for the plaintiff on the evidence presented. The mere existence of a scintilla of evidence in support of the plaintiffs position will be ²⁴⁵ insufficient; there must be evidence on which the jury could reasonably find for the plaintiff. 477 U.S. at 252, 106 S.Ct. at 2512 (emphasis added). 3 With these principles in mind, we turn to the question of whether the controversy at hand was properly resolved by grant of summary judgment.

(iii) In its payment bond, Seaboard, the surety, and its principal, the Joint Venture, contracted with the Owner. They agreed that if a “claimant” was not paid for his work or labor under the prime contract, claimant could sue “on this bond for the use of such claimant.” A “claimant” is defined in the payment bond “as one having a direct contract with the Principal or with a subcontractor of the Principal 4 for labor, material, or both, used in the perform ²⁴⁶ anee of” the Prime Contract. Seaboard, quoting General Builders Supply Co., Inc. v. MacArthur, 228 Md. 320, 326 , 179 A.2d 868 (1962), acknowledges that the “liability of a surety is coextensive with that of the principal, and it is clear that the liability of the surety is measured by the contract of the principal.” Further, Seaboard concedes that Kline had a direct contract with one joint venturer, AIC, and that the two joint venturers agreed that “AIC would construct the Project for the Joint Venture, entering into contracts in AIC’s own name and paying all expenses of construction.” Seaboard insists, however, that at the very least, 5 factual disputes exist as to whether Kline, because it had a direct contract with one of the two joint venturers, AIC, also had a direct contract with the Joint Venture itself, which was the principal on the bond. Specifically, Seaboard claims that the following factual disputes prevent the grant of summary judgment for Kline: 1.

Whether AIC intended to