Opinion
CASE NO. 01-8287-CIV-HURLEY/LYNCH
June 13, 2003
THIS MATTER came before the court upon the plaintiffs' motion for partial summary judgment, and the defendants' motion for judgment on the pleadings or for summary judgment. This case concerns three parties to a construction project — the developer, the general contractor, and the sureties who issued and executed a performance bond to secure performance of the construction contract. This court concludes that plaintiffs1 bad faith refusal-to-settle claim against the sureties fails to state a claim because, among other things, there has been no underlying determination of liability or assessment of damages against the sureties for their supposed breach of their contractual duties under the performance bond. Moreover, to the extent that plaintiffs are attempting to pursue claims against the sureties for their alleged failure to perform their duties with reasonable promptness, those claims are barred by the affirmative defense of res judicata. Accordingly, defendants' motions will be granted, and plaintiffs' motion will be denied.
BACKGROUND
Plaintiff Dadeland Station Associates is a limited partnership established for the purpose of leasing and managing certain commercial property in Miami, Florida. Dadeland Depot, Inc., a corporation, is the general partner of Dadeland Station Associates. Jeffery Berkowitz is the president of Dadeland Depot, Inc. Defendants St. Paul Fire and Marine Insurance Company and American Home Assurance Company are insurance companies that conduct business in a number of states, including Florida.On August 31, 1995, Dadeland Station Associates ("Dadeland") entered into a contract with Walbridge Contracting, Inc., a general contractor based in Tampa, Fla., for the construction of Dadeland Station, a shopping center presently located at S.W. 70th Avenue and Dadeland North Metrorail Station in Miami, Fla. Miami-Dade County owns the property and is the lessor of the land on which the project is situated.
In connection with the project, the defendants issued a performance bond, a standard form bond issued by the American Institute of Architects, in the amount of $26,500,000.00. Dadeland is the obligee on the bond, which refers to the partnership as "Owner." Walbridge is the principal on the bond, and is referred to as the "Contractor." The defendant insurance companies are the sureties. Under the terms of the performance bond, the developer-obligees must inform the contractor and the sureties if the contractor has failed to complete performance under the construction contract, and the sureties are obligated to take certain steps to ensure that the construction is completed. The Bond provides, in pertinent part:
1. . . . the Construction Contract . . . is incorporated herein by reference.
3. If there is no Owner Default, the Surety's obligation under this Bond shall arise after:
3.1 The Owner has notified the Contractor and the Surety . . . that the Owner is considering declaring a Contractor Default and has requested and attempted to arrange a conference with the Contractor and the Surety to be held not later than fifteen days after receipt of such notice to discuss methods of performing the Construction Contract . . . and
3.2 The Owner has declared a Contractor Default and formally terminated the Contractor's right to complete the contract. . . . and
3.3 The Owner has agreed to pay the Balance of the Contract Price to the Surety . . .
4. When the Owner has satisfied the conditions of Paragraph 3. the Surety shall promptly and at the Surety's expense take one of the following actions:
4.1 Arrange for the Contractor, with consent of the Owner, to perform and complete the Construction Contract: or
4.2 Undertake to perform and complete the Construction Contract itself . . . or
4.3 Obtain bids or negotiated proposals from qualified contractors acceptable to the Owner for a contract for performance and completion of the Construction Contract . . .; or
4.4 Waive Us right to perform and complete, arrange for completion, or obtain a new contractor and with reasonable promptness under the circumstances:
. . .
2. Deny liability in whole or in part and notify the Owner citing the reasons therefor.
Walbridge started work on the construction project in September or October 1995, The project, commonly known as Dadeland Station North Retail Stores, was completed, opened, and leased to commercial tenants in November 1996. The facility consists of two main structures — the major retail structure with an attached walkway, and the adjacent parking garage. The tenants at the Dadeland Station include commercial entities such as Target, Best Buy, Sports Authority, and Bed, Bath Beyond. The County, as lessor of the facility, receives both a guaranteed minimum rent and a percentage of the gross income from the project.
After the project was opened and tenants had moved in, however, it was discovered that the building had numerous structural, safety, and other construction deficiencies. In May 1997, Dadeland's consulting engineer, Lawrence Brill, told the plaintiffs about certain construction defects and urged them to have the project inspected. Dadeland brought these construction defects to the attention of the contractor. On July 24, 1997, Dadeland and Walbridge entered into a settlement agreement wherein the parties acknowledged that the project was complete and released each other and the sureties from future liability, except for certain limited, specifically identified items. Pursuant to the terms of the agreement, plaintiff's paid Walbridge a final payment of $1.5 million.
Shortly thereafter, Metropolitan Dade County building officials determined that the project violated a number of provisions of the South Florida Building Code, including regulations governing the ability of the structures to withstand hurricane-force winds. On August 21. 1997, plaintiffs, along with their consultants, legal counsel, and representatives of Walbridge, met with County building officials. The following day, plaintiffs and County officials entered into an agreement which allowed the facility to remain open and set forth a timetable of tasks that plaintiffs were required to perform to bring the project into compliance with the building code. The agreement stated that if plaintiffs failed to perform their obligations, the County would "immediately order the [Project] to be vacated and . . . commence an unsafe structures case. . . ."
Dadeland asked Walbridge to repair the defective work. However, Walbridge indicated that it would not commence repairs of construction deficiencies it felt were the fault of others or were outside the scope of its responsibility. Walbridge asserted that certain design defects were the fault of plaintiffs' structural engineer, Richard Klein, or the plaintiffs' architect, Robin Bosco. On August 22, 1997, Dadeland's counsel, Mitchell R. Bloomberg, Esq., of Adorno Zeder, sent letters to Mr. Klein and Mr. Bosco, informing them that Dadeland intended to hold their Finns responsible for any and all sums that the plaintiffs expended "due to your firm's negligence and failure to comply with the specifications of the contract documents."
On September 24, 1997, plaintiffs' attorney, Julie Feigeles, Esq., of Adorno Zeder, wrote to Walbridge and the sureties stating that Dadeland had reason to believe that Walbridge failed to perform its obligations under the construction contract. Dadeland informed them that it was considering declaring a contractor default, pursuant to paragraph 3.1 of the bond, and requested a conference to discuss repair issues
On October 1, 1997, Steven Grunsfeld, a bond claims representative with St. Paul, advised that St. Paul, as the lead surety, would represent the sureties at the conference. On October 22, 1997, representatives of the plaintiffs, the contractor, and Mr. Grunsfeld attended the conference, held at the building site in Miami. At the conference, Walbridge agreed to make certain repairs to the project within a certain time period. A second meeting was held on January 15, 1998, between the plaintiffs and Walbridge, but no representative of the sureties attended the meeting.
On March 18, 1998, Ms. Feigeles wrote to Walbridge and Mr. Grunsfeld, stating that Walbridge had failed to perform any of the agreed repairs. She stated that: "[t]he Owner intends to proceed with arbitration and to make arrangements to have another contractor make the necessary repairs." On March 20, 1998, Dadeland, pursuant to Article 4.5 of the construction contract, filed a complaint for arbitration with the American Arbitration Association against Walbridge and the sureties. In the complaint, plaintiffs alleged that Walbridge was required under the construction contract to submit final, accurate as-built drawings to the plaintiffs and Dade County officials, but failed to do so. Plaintiff's alleged that Walbridge wrongfully failed and refused to perform all but a small portion of the needed repairs, and that the sureties had failed to take any action to correct the deficiencies. Plaintiff's demanded approximately $4.4 million in damages resulting from expenditures they made for repairs, security, legal fees, engineering fees, and administrative costs (Pltf's Complaint. Ex. C).
On March 23, 1998, Mr. Grunsfeld informed the plaintiffs that Walbridge was willing to make the agreed-upon repairs: however, based on his investigation, before Walbridge could begin making the repairs, plaintiffs had to perform certain tasks, including having plaintiffs' engineers prepare an appropriate set of plans that would enable Walbridge to obtain the required county building permit. Subsequently, Walbridge agreed to make certain repairs based upon a list of construction deficiencies.
Walbridge and the sureties filed suit in the Eleventh Judicial Circuit of Florida on May 6, 1998, asserting claims of breach of contract against Dadeland, and seeking to enjoin the arbitration in favor of civil litigation. Walbridge and the sureties contended that under the terms of the performance bond, Dadeland was required to bring its claims in a civil lawsuit, and not an arbitration proceeding.
On November 20, 1998, Ms. Feigeles wrote to Walbridge and the sureties that Walbridge was not performing repair work it had promised to do within a reasonable time frame, including repairs to the exterior and interior steel stairs and tic columns of exterior walls. (Pltf's Complaint Ex. D). She stated that with the exception of handrail posts for the interior stairs, the steel joist bridging and certain other minor repairs of the interior stairs and door frames, no other work had been performed by Walbridge or its subcontractors. She requested that Walbridge provide a work schedule by November 25, 1998, but the contractor did not respond.
On December 14, 1998. Ms. Feigeles wrote to Mr. Grunsfeld and Walbridge, formally declaring a contractor default and terminating the contractor's right to complete the contract or perform corrective work on the project. In the letter. Dadeland demanded that "the Sureties immediately take action in accordance with paragraph 4 of the Bond within five (5) business days of the dale of this letter." Ms. Feigeles stated, however, that Dadeland would not agree to continue to use Walbridge as the contractor.
Tom Groseclose, a St. Paul bond claims specialist, wrote to Ms. Feigeles on December 18, 1998, on behalf of the sureties, and stated that the sureties were conducting an investigation. Four days later, on December 22, 1998, Ms. Feigeles wrote Mr. Groseclose, stating that: "[A]s of today, the Sureties' [sic] have not taken action or advised of the action they intend to take. Therefore, in accordance with paragraph 5 of the Bond, we make this additional demand that the Sureties perform their obligations under the Bond." (Pltf's Complaint Ex. F),
On January 18, 1999, Mr. Grunsfeld responded that the sureties had performed as required by the contract documents. Mr. Grunsfeld slated that with respect to any defective work for which Walbridge and the subcontractors may have had responsibility, "Walbridge has either had the appropriate subcontractors correct the work or remains willing to have them do so. However, Walbridge is not responsible for the numerous design defects on this project."
While Dadeland had earlier indicated that it intended to terminate its relationship with Walbridge, it permitted Walbridge to work on making repairs to the project. Dadeland, at the same time, filed suit against its engineer, Mr. Klein. Mr. Klein's liability insurer settled the case for approximately $900,000,00u.OU. Plaintiff's did not file suit against the architect, Mr. Bosco.
On February 17, 1999, during the pendency of the arbitration. Dadeland filed a civil remedy notice of insurer violation with the Department of Insurance. In that notice, it alleged claim delay and unfair trade practices, in violation of Fla. Stat §§ 624.155(1)(h)(1) and 626 9541(1)(i) Specifically, the notice alleged that the contractor failed to perform the construction contract in accordance with the South Florida Building Code, and failed to make the required repairs, causing the plaintiffs damages. Plaintiff's also alleged that they notified the sureties of the repair problems, but the sureties, without any investigation, refused to perform any of their obligations under the bond.
On March 3, 1999, the sureties responded to the DOI filing that they had investigated the matter and determined that the project covered by the bond was complete. They stated that Walbridge disputed responsibility for items which it deemed the result of design problems or otherwise the responsibility of the owners, the plaintiffs, and that the dispute was currently the subject of an arbitration proceeding.
Meanwhile, the Eleventh Judicial Circuit court, on April 15, 1999, denied Walbridge and the sureties' petition to enjoin the arbitration proceedings in favor of civil litigation, and ordered the case to arbitration. The court found that while the performance bond, paragraph 9, permitted the parties to bring a lawsuit "in any court of competent jurisdiction," the bond also incorporated the terms of the construction contract, which stated that arbitration was "required."
The arbitration proceedings, which involved 35 days of hearings, over 1,000 exhibits, and 25 witnesses, ended in April 2000. By an order dated May 15, 2000, the arbitration panel set forth the following relevant findings of fact:
1. The design engineer for this project made many omissions from the plans, and failed in his capacity as both the design engineer and threshold inspector. As a result of the deficiencies, the panel is aware that his license to practice engineering in the State of Florida has been relinquished.
2. The General Contractor on the project proceeded with construction without permitted plans and has had its license suspended in Dade County.
3. The Contractor, Engineer, and Architect all signed affidavits attesting that the work was completed in accordance with the plans, specifications and Code and thus, each bear a share of the responsibility for problems on the project.
4. [Dade] County was negligent in reviewing the plans, reviewing the shop drawings, inspecting during construction, and supervising the special inspector,
7. Under the construction contract dated August 31, 1995, section 19, the developer undertook the responsibility to submit and process permits to the Dade County Department of Planning, Development Regulation, and therefore bears some responsibility for lapses in obtaining the required permits.
The arbitrators entered an award, which stated, in relevant part:
1. [Walbridge] owes [Plaintiff's] the amount of $1,417,842 for defective workmanship and costs incurred by [Plaintiff's], as detailed in the attached summary.
2. Plaintiff's [owe] [Walbridge] the sum of $261,039 for contract balances and extra work as detailed in the attached summary.
. . .
5. The Surety is bound to this award to the extent that its principal is obligated under the award and its defenses are denied.
The panel declared that the award "is in full settlement of all claims and counterclaims submitted to this arbitration." Walbridge timely paid the award with interest.
On February 28, 2001, plaintiffs filed this action in the Fifteenth Judicial Circuit of Florida, alleging that the defendant sureties, the issuers of the performance bond, engaged in bad-faith refusals to perform their duties under the bond. Plaintiff's allege that as a result of the defendants' actions, they sustained damage in having to repair inadequate work performed and having to present their claims to arbitration. Defendants removed the case to federal court.
By order dated July 27, 2001, Judge Ryskamp denied the defendants' motion to dismiss. Judge Ryskamp held that the plaintiffs could state a claim against these insurers under the Florida insurer civil remedy statute, Fla. Stat, § 624.155, despite the fact that in this case, the defendants issued a performance surety bond with the plaintiffs as obligee, rather than an insurance policy.
After this case was filed, plaintiffs petitioned in state court for an award of attorneys' fees incurred in the arbitration. Plaintiff's and Walbridge settled the attorneys' fees dispute for $725,000. Plaintiff's released Walbridge and the sureties from all liability for fees through April 10, 2002.
JURISDICTION AND VENUE
This court has diversity of citizenship jurisdiction pursuant to 28 U.S.C. § 1332 because the plaintiffs are citizens of Florida, defendant St. Paul Fire Marine Insurance Company is a citizen of Minnesota, its state of incorporation and principal place of business, and defendant American Home Assurance Company is a citizen of New York, its state of incorporation and its principal place of business. Based on the plaintiff's claimed damages, the court finds, by a preponderance of the evidence, that the amount-in-controversy exceeds $75,000.00, the jurisdictional threshold. Defendants conduct business in Florida and are thereby subject to personal jurisdiction under Fla, Stat. § 48.193(1)(a).Venue is proper in I his district pursuant to 28 L.S.C. 1441(a) because the Southern District of Florida is the judicial district embracing the place where the state court case was filed and the proper district to which this case was removed
DISCUSSION A. LEGAL STANDARD
Summary judgment is warranted if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law.See Fed. R, Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The moving party bears the burden of meeting this exacting standard. See Adickes v. S.H. Kress Co., 398 U.S. 144, 157 (1970). In determining whether summary judgment is appropriate, the facts and inferences from the facts are viewed in the light most favorable to the non-moving party, and the burden is placed on the moving party to establish both the absence of a genuine issue of material fact and that it is entitled to judgment as a matter of law. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986).
The non-moving party, however, bears the burden of coming forward with evidence of each essential element of his claims, such that a reasonable jury could find in his favor. See Earley v. Champion Int'l Corp., 907 F.2d 1077, 1080 (11th Cir. 1990). In response to a properly-supported motion for summary judgment, "an adverse party may not rest upon the mere allegations or denials of the adverse party's pleadings, but . . . must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e).
"The mere existence of a scintilla of evidence in support of the [non-movant's] position will be insufficient; there must be evidence on which the jury could reasonably find for the [non-movant]."Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). The failure of proof concerning an essential element of the non-moving party's case necessarily renders all other facts immaterial and requires the court to grant the motion for summary judgment.Sec Celotex, 477 U.S. at 322. If the non-moving party fails to "make a sufficient showing on an essential element of [his] case with respect to which [he] has the burden of proof," then the court must enter summary judgment for the moving party.Gonzalez v. Lee County Hous. Auth., 161 F.3d 1290, 1294 (11th Cir. 1998).
Under Fed, R. Civ. P. 12(c), a party may move for a judgment on the pleadings after the pleadings are closed. See Strategic Income Fund, LLC v. Spear, Leeds Kellogg Corp., 305 F.3d 1293, 1295 n. 8 (11th Cir. 2002). A judgment on the pleadings is appropriate "when there are no material facts in dispute, and judgment may be rendered by considering the substance of the pleadings and any judicially noticed facts." See Horsley v. Rivera, 292 F.3d 695, 700 (11th Cir. 2002) (citingHawthorne v. Mac Adjustment, Inc., 140 F.3d 1367, 1370(11th Cir. 1998)). A district court may consider a document attached to an answer or a motion to dismiss when deciding a motion for judgment on the pleadings, without converting the motion into a motion for summary judgment, only if the attached document is central to one of the claims and the authenticity of the document is not challenged. SecHorsley v. Feldt, 304 F.3d 1125, 1134 (11th Civ. 2002).
B. MERITS OF PLAINTIFFS' CASE
Defendants contend that judgment should he entered in their favor on plaintiffs' bad faith claim for the following reasons: (1) plaintiffs' claim docs not satisfy the required conditions precedent for a bad-faith action; (2) the evidence in the record clearly indicates that the sureties did not act in bad faith; (3) plaintiffs' claim is barred by the doctrines of collateral estoppel and waiver; (4) plaintiffs' claim is an impermissible splitting of a cause of action; and (5) the claims arc outside of the scope of the surety bond.
As an initial matter, the court would note that the construction contract contains a provision requiring the parties to submit all claims arising out of the contract to arbitration. Under Florida law, a clause in a contract that requires the parties to submit their claims to arbitration is enforceable, and arbitration clauses are generally favored by the courts. See Florida Power Corp. v. City of Casselberry, 793 So.2d 1174, 1178 (Fla. 5th Dist.Ct.App. 2001). In one reported case, a Florida appellate court ruled that where a surety bond incorporates the terms of a construction contract that contains an arbitration clause, the surety may also invoke arbitration. See Henderson Inv. Corp. v. International Fid. Ins. Co., 575 So.2d 770, 772 (Fla. 5th Dist. Ct. App. 1991). It is unclear whether this case should have been brought before this court, or any court, at all. However, since the sureties have not sought to compel arbitration, and this civil case has been pending in this court for over two years, the court need not address the issue of whether the sureties have rights under the arbitration clause.
1. Performance Bond Owner-Obligee's Bad Faith Claim Against Surety.
The issue before the court is whether a performance bond surety's alleged failure to perform certain tasks it was supposedly obligated to do under the bond could conceivably be characterized as a bad faith refusal to "settle claims" under the civil remedy of Section 624.155 (1)(b)(1). Section 624.155(1)(b)(1) of the Florida Statutes slates that an insurer can be held liable for "[n]ot attempting in good faith to settle claims when, under all the circumstances, it could and should have done so, had it acted fairly and honestly toward its insured and with due regard for his interests."
A classic scenario in which a bad faith refusal-to-settle claim is raised is that in which a person injured in an automobile collision and insured under an uninsured motorist policy seeks coverage for injuries under his policy, but the claim is wrongfully denied. The insured may then file suit for recovery of insurance benefits, and if such uninsured motorist benefits are awarded, the insured may assert a first-party bad faith claim. Section 624.155(1)(b)(1) also provides a right of action to a third-party claimant, that is, a person who has won a judgment against an insured and has alleged that the insurance company failed to settle a claim against its insured in good faith, but only if the third party has obtained a judgment in excess of the policy limits. See State Farm Fire Cas. Co. v. Zebrowski, 706 So.2d 275, 277 (Fla. 1997); Auto-Owners Ins. Co. v. Conquest, 658 So.2d 928, 929 (Fla. 1995).
Florida law regulates suretyship under the general heading of "insurance." Under Florida law, an "insurer" includes sureties.See Fla. Stat. $024.03: Financial Indem. Co. v. Steele Sons, Inc., 403 So.2d 600. 601 (Fla. 4th Dist. Ct App. 1981). "Surely insurance" is defined, in relevant part, as "[a] contract bond . . . or a performance bond, which guarantees the execution of a contract other than a contract of indebtedness or other money obligation." Fla. Stat § 624.606(1)(a).
The court would note that there are important distinctions between insurance and suretyship, even though insurance companies may, and often do, engage in both selling insurance policies and issuing surety bonds. Insurance is a contract between two parties in which the insurer agrees to pay a sum to a third party (in the case of liability insurance) or a designated beneficiary (in the case of life insurance) upon the occurrence of an unknown or contingent event. See Western World Ins. Co. v. Travelers Indem. Co., 358 So.2d 602, 604 (Fla. 1st Dist.Ct.App. 1978). An insurer has no right of indemnification against the party who purchased the insurance policy.Id. A suretyship, on the other hand, is a three-party commercial relationship involving a principal, obligee, and surety. In that relationship, the principal agrees to perform an obligation and the surety agrees to undertake the performance of the obligation in the event that the principal fails to do so, in accordance with the terms of the bond, See A T Motors, Inc. v. Roemelmeyer, 158 So.2d 567, 570 (Fla. 3d Dist.Ct.App. 1963). In the event that a surety is required to perform under its bond, it is entitled to indemnification from the principal. See Western World, 358 So.2d at 604.
On a construction bond, a contract surety assumes an obligation to an obligee, also known as an owner, to complete the performance of a construction contract and to pay the direct job obligations incurred in performing the contract in the event that the principal defaults and fails to complete performance. Sec American Home Assurance Co. v. Larkin General Hosp., Ltd., 593 So.2d 195, 198 (Fla. 1992). "The intent of this guarantee is to have the financial responsibility of the surety standing behind the general contractor's completion obligations." Federal Ins. Co. v. Southwest Fla. Retirement Ctr., Inc., 707 So.2d 1119. 1121 (Fla 1998). The dollar amount of the bond is referred to as the penal sum of the bond or bond penalty, and the surety's liability generally is limited to this penal sum. See Aetna Cas. Sur. Co. v. Buck, 594 So.2d 280, 283 (Fla. 1992).
In the typical suretyship, and in this case, the surety is obligated to undertake certain tasks to ensure that the obligee is able to complete a construction project if the general contractor has defaulted on the construction contract. A performance bond is a contract, and as such a surety's obligations under a performance bond are contractual in nature. See Larkin, 593 So.2d at 197 ("A bond is a contract, and, therefore, a bond is subject to the general law of contracts."). The Florida Supreme Court has held that the obligation of a surety under a construction contract performance bond to cure defects in a contractor's performance applies to latent as well as patent defects. See Federal Ins. Co., 707 So.2d at 1121. The court also held that the five-year statute of limitations for actions against a surety under a performance bond, codified at Fla. Stat. § 95.1 l(2)(b), begins to run "on the date of acceptance of the project as having been completed according to terms and conditions set out in the construction contract." Id.
In Larkin, the Florida Supreme Court recognized that a surety's liability for damages owing to a contractor's default is limited to the terms of the bond, and should not by implication be extended beyond the terms of the contract. See Larkin, 593 So.2d at 198 (holding that under the performance bond in question, owner's damages against surely were limited to the cost of completion and the cost of curing any defective work performed by the general contractor). The Lark in court expressly stated that it was not addressing the issue of whether an owner could recover consequential delay damages for a surety's failure to fulfill its obligations under a performance bond. See id, at 196n.2.
The court finds that, where the terms of the performance bond contemplate that the surety will be liable for delay damages owing to the surety's failure to fulfill its obligations under the bond, the bond owner docs have a civil cause of action for breach of contract against the surety. In that case, if the surety fails to perform according to the terms of the bond, and the owner is harmed by the delay, the owner may sue for delay damages. The question presented here is whether an owner-obligee may sue a surety under the bad-faith insurer provision for its alleged refusal to perform its contractual duties. See generally Aron J. F rakes, Note, Surety Bad Faith: Tort Recovery For Breach of a Construction Performance Bond, 2002 U. Ill. L. Rev. 497, 524-27 (arguing that project owners alleging breach of bond obligations by sureties should be limited to traditional contract remedies). In an earlier case, this court held that a principal in a surety agreement was not an "insured" within the meaning of Section 624.155(1)(b)(1), but did not decide at the time whether an obligee qualified as an "insured," thereby permitting it to sue a surety for bad-faith claims handling. See Shannon R. Ginn Constr. Co. v. Reliance Ins. Co., 51 F. Supp.2d 1347, 1352-53 (S.D. Fla. 1999). There is nothing in the plain language of the bad-faith insurer statute, or the case law on the provision, that clearly indicates that a performance bond owner's contractual rights under a performance bond qualify as "claims" on a surety within the meaning of Section 524, 155(1)(b)(1). However, the court declines to decide the issue, and shall assume for the purposes of this case that an owner-obligee can state a claim against a surety under Section 624.155(1)(b)(1) tor failing to act promptly to fulfill its obligations under a performance bond
2. Conditions Precedent to Action for Bad-Faith Refusal to Settle Claims
This court now turns to defendants' contention that plaintiffs' claim is barred because it has not met all of the conditions required prior to filing a bad-faith action. Those conditions are as follows: First, there must be a judicial determination that the defendants breached the underlying contract and an adjudication of damages in favor of the plaintiffs and against the defendants, or some other conclusion or resolution of the plaintiffs' damages. See Fishkin v. Guardian Life Ins. Co. of Am., 22 F. Supp.2d 1365, 1367 (S.D. Fla. 1998);Talat Enters., Inc. v. Aetna Cas. Sur. Co., 952 F. Supp. 773, 776 (M.D. Fla. 1996); Vest v. Travelers Ins. Co., 753 So.2d 1270, 1276 (Fla. 2000); Blanchard v. State Farm Mut. Auto. Ins. Co., 575 So.2d 1289, 1291 (Fla. 1991). Second, under the statute, plaintiffs must give sixty days' written notice of the alleged statutory violation to the Department of Insurance and the defendants. See Fla. Stat. § 624.155(2)(a).
With respect to the second requirement, the parties do not dispute that Dadeland provided the required notice to the Department of Insurance in February 1999, and that plaintiffs filed their complaint in this action following the required sixty-day notice period. However, the court agrees with the defendants1 contention that, absent an underlying judicial finding that the plaintiffs were entitled to payment of a claim from the sureties under the performance bond, an adjudication of damages against the sureties, or a settlement of a claim by the sureties, plaintiffs cannot state a claim for insurer bad faith.
Plaintiff's argue that there has, in fact, been a finding of liability against the sureties under the performance bond, and an assessment of damages. Plaintiff's cite the arbitration panel's ruling that "[t]he Surety is bound to this award to the extent that its principal is obligated under the award and its defenses are denied." However, plaintiffs have misinterpreted the panel's decision. The arbitrators' finding that Walbridge was partially liable for breach of the construction contract did not constitute a finding that the sureties had breached their obligations under the separate performance bond. A sensible reading of the decision indicates that the sureties would be liable for the damages assessed against Walbridge only if Walbridge was unable or unwilling to pay the award. But the sureties already owed a contractual duty, under paragraph 6.1 of the performance bond, to correct defective work performed by the contractor in the event of a contractor default. The panel did not impose any liability on the sureties that did not already exist under the terms of the performance bond.
Conceivably, had the arbitration panel ruled that the sureties had breached the contract and were liable for a sum certain, then, and only then, would plaintiffs be able to state a claim for bad-faith claims handling against the sureties. Since there has been no underlying judicial finding that the sureties in-fact failed to perform their obligations under the bond, nor have the sureties tendered payment for a claim or entered into a settlement agreement with the principal or the obligees, plaintiffs cannot demonstrate that the conditions precedent to a bad-faith refusal-to-settle claim have been satisfied.
3. Res Judicata and Plaintiff's Claim of Breach of Performance Bond Obligations
Dadeland's claim in this case is probably more appropriately framed as a claim for breach of contract against the sureties for failure to perform their duties under the bond with reasonable promptness. In fact, the bond itself contemplates that the sureties may be held liable for failing to perform their duties. Paragraph 5 of the bond states:
If the Surety does not proceed as provided in Paragraph 4 with reasonable promptness, the Surety shall be deemed to be in default on this Bond fifteen days after receipt of an additional written notice from the Owner to the Surety demanding that the Surety perform its obligations under this Bond, and the Owner shall be entitled to enforce any remedy available to the Owner.
Moreover, under paragraph 6 of the bond, the parties expressly agreed that the surety may be held liable for its actions or failure to act as required under paragraph 4.
However, insofar as Dadeland attempts to assert claims against the sureties for failure to perform their obligations under paragraph 4 of the bond, those claims are clearly barred by the affirmative defense of res judicata. The Eleventh Circuit has stated: "Under res judicata, also known as claim preclusion, a final judgment on the merits bars the parties to a prior action from re-litigating a cause of action that was or could have been raised in that action." In re Piper Aircraft Corp., 244 F.3d 1289, 1296 (11th Cir. 2001). The appellate court has also held that the federal Full Faith and Credit statute, 28 U.S.C. § 1738, requires federal courts, in determining the preclusive effect of a slate-court judgment, to look to the law of the rendering court. See Webb v. Ethridge, 849 F.2d 546, 549 (11th Cir. 1988). Accordingly, to determine whether the arbitration panel's judgment would preclude some of the claims presented in this case, this court must look to Florida law.
Under Florida law, the doctrine of res judicata provides that a final judgment or decree on the merits rendered by a court of competent jurisdiction, including a duly-constituted arbitration panel, is conclusive of the rights of the parties and their privies, and constitutes a bar to a subsequent suit involving the same cause of action or subject matter. See ICC Chem. Corp. v. Freeman, 640 So.2d 92, 93 (Fla. 3d Dist.Ct.App. 1994) (citing McGregor v. Provident Trust Co., 162 So. 323 (Fla. 1935)). "To make a matter res judicata, there must be a concurrence of the following conditions: 1) identity of the thing sued for, 2) identity of the cause of action, 3) identity of the persons and parties to the actions, and 4) identity of the quality or capacity of the person for or against whom the claim is made." ICC, 640 So.2d at 93. "Res judicata applies to all matters actually raised and determined as well as to all other matters which could properly have been raised and determined in the prior action, whether they were or not." Id. (citing Hay v. Salisbury, 109 So. 617 (1926); Del Vecchio v. Del Vecchio, 179 So.2d 400 (Fla. 3d Dist.Ct.App. 1965)).
Federal courts have held that the doctrine of res judicata applies to arbitration awards as to all matters embraced in the controversy submitted to the arbitration panel Just as the doctrine would apply to a judgment entered by a court. See Greenblatt v. Drexel Burnham Lambert, 763 F.2d 1352, 1360 (11th Cir. 1985) (stating that when an arbitration proceeding affords the basic elements of adjudicatory procedure, the arbitration decision can have res judicata or collateral estoppel effect). The First Circuit held in a case involving a construction performance bond that res judicata may bar subsequent litigation of all claims that were raised or could have been raised and determined in the arbitration proceeding if the parties sought a binding and final determination of the controversy, even if the arbitrators did not address or consider a specific claim raised by a party. See Westcott Constr. Corp. v. Firemen's Fund. 996 F.2d 14, 16 17(1st Cir. 1993); see also PRG, Inc. v. Oviedo Material, Inc., 509 So.2d 913, 916 (Fla. 5th Dist.Ct.App. 1990). See generally G. Richard Shell, Res Judicata and Collateral Estoppel Effects of Commercial Arbitration, 35 UCLA L. Rev. 623, 639-47 (1988) (discussing application of res judicata to commercial arbitration awards).
In their complaint filed with the American Arbitration Association, Dadeland named Walbridge and the sureties as defendants. In the complaint, Dadeland alleged "Walbridge has failed and refused to perform all but a small portion of the repairs. The repairs performed by Walbridge were not performed on a timely basis. The Sureties have not taken any action to correct the defects and deficiencies." (Pltf's Complaint Ex. C). Plaintiff's clearly raised claims against the sureties for their alleged failure to perform their obligations under the performance bond at least as early as March 20, 1998. While the arbitration panel carefully and methodically parceled out responsibility among the parties to the arbitration proceeding, it notably did not find any wrongdoing on the part of the sureties or assess damages against the sureties. As such, it appears that the panel either did not consider any claims against the sureties for delay damages, or believed that the arbitration award sufficiently resolved the disputes among the parties.
A review of the arbitration proceedings indicates that the relief sought by Dadeland in this case could have been granted in the earlier arbitration proceeding, the facts necessary to the maintenance of the two actions are identical, and Dadeland and the sureties were parties to the prior action All conditions required for a finding of res judicata are present. Since the panics and the arbitrators intended to resolve the entire matter in controversy, and Dadeland is bound by the results of the arbitration proceedings that it initiated, plaintiffs cannot subsequently come to this court to assert the same claim against the sureties. Accordingly, the court finds that the doctrine of res judicata bars Dadeland from re-raising a claim against the sureties for damages in connection with the sureties" supposed failure to perform their contractual duties under the performance bond.
As an additional matter, the court would note that plaintiffs, throughout this case, have argued vigorously that the sureties breached their obligations under the performance bond. While the court has determined that res judicata bars subsequent re-litigation of the issue, the court would note that Dadeland's contention that the sureties owed a duty to act is belied by the facts in the record. In this case, the performance bond clearly set forth the procedure to be followed once the owner believes that the contractor has failed to perform its obligations as required by the construction contract. Specifically, the owner had to (1) notify the contractor and the surety that it was considering declaring a contractor default, and request a conference to discuss methods to complete the contract (3.1), (2) declare a contractor default and formally terminate the contractor's right to complete the contract (3.2), and (3) agree to pay the balance of the contract price to the surety (3.3). Prior to (he occurrence of these three conditions, the sureties owed no duty to act.
While Dadeland's attorneys repeatedly harangued Walbridge and the sureties from the fall of 1997 through 1998 for supposedly failing to timely perform repairs to the construction project, Dadeland tailed to follow the procedure set forth in the performance bond While Dadeland had already tendered full payment to Walbridge (as required by paragraph 3.3). and arranged for a conference to discuss repairs to the project, which took place on October 22, 1997 (as required by paragraph 3.1), it did not lake the final required step of formally declaring a contractor default until Ms. Feigeles wrote her letter dated December 14, 1998. Therefore, the sureties were not required to do anything whatsoever until December 14, 1998, when Dadeland triggered the contractor default procedure set forth in paragraph 3.
Moreover, the language of the bond does not require that the sureties undertake any corrective or completion work. The performance bond provides that, after the owner has declared a contractor default, the surety may arrange for the original contractor to perform and complete the construction contract (4.1), perform and complete the construction contract itself (4.2), or obtain bids or negotiated proposals from qualified contractors to perform and complete the contract (4.3). Alternatively, the surely may waive its right to arrange for performance and completion and instead tender payment for the cost of completion (4.4.1), or deny liability, in whole or in part, and notify the owner and give reasons for the denial (4.4.2).
Here, the record indicates that the sureties performed all that they were required to do under the bond. Once Dadeland formally declared a contractor default on December 14, 1998, the sureties apparently conducted an investigation, and on January 18, 1999, stated their belief that the contractor had performed and completed all the work for which it was responsible. Essentially, the sureties exercised their right under paragraph 4.4.2 to "deny liability in whole or in part," leaving the owner to pursue its legal remedies against the contractor or the sureties. Under paragraphs 4.4 and 5. the sureties were only required to act with "reasonable promptness" in exercising their options under paragraph 4. Given that the sureties declared their denial of liability just over one month after Dadeland declared a contractor default, in the midst of the holiday season, it cannot be said that the sureties failed to act with "reasonable promptness" under the circumstances.
Of course, the arbitration panel's finding that Walbridge was liable for defective work may be interpreted as a finding that the sureties erred in determining that neither the contractor nor the sureties were liable for the damages. However, the issue of whether the sureties' decision — to deny liability for defective construction work — was correct is separate from the issue of whether the sureties breached their duties under the performance bond. The bond set forth the procedure to be followed, and the record evidence demonstrates that the sureties followed that procedure. Plaintiffs' claim that the sureties acted in bad faith is based on the premise that the sureties failed to fulfill certain contractual duties that the terms of the bond did not require them to perform at all.
As a final matter, the court need not rule upon the sureties' contention that since the arbitration panel determined that Dadeland was itself negligent in reviewing the plans and shop drawings and supervising and inspecting the project, the plaintiffs' negligence could be deemed an "owner default," which, under the bond, would relieve the surety from liability. Moreover, since the court has ruled that plaintiffs' claim against the sureties for failure to perform is barred by the doctrine of res judicata, it need not address the sureties' contention that plaintiffs' claims for repair costs, loss of use of monies, and attorneys' fees expended are barred owing to collateral estoppel or the April 10, 2002, settlement on attorneys' fees between Dadeland and Walbridge.
4. Plaintiffs' Claim of Unfair Claim Settlement Practices
In their complaint, plaintiffs purported to also raise a claim that the sureties committed unfair claim settlement practices in violation of Fla. Stat. § 626.9541(1)(i) when they "totally ignored their duties under the terms of the performance bond they drafted," (Pltf's Complaint, ¶ 18). Section 626.9541(1)(i) prohibits an insurer from, among other things, making material misrepresentations to an insured or another person with the intent to effect a settlement on more favorable terms, or committing certain wrongful acts, such as failing to adopt and implement standards for the proper investigation of claims, and denying claims without conducting reasonable investigations, with such frequency as to indicate a general business practice. Section 624.155(1)(a) provides a right of action to a party damaged by a violation of Section 626.9541 (1)(i).
To determine an insurer's liability for unfair claim settlement practices, courts consider the totality of the circumstances, including (1) the insurer's effort to promptly resolve coverage issues or otherwise limit any potential prejudice to the insured, (2) the substance of coverage disputes or weight of legal authority on the coverage issue, and (3) the insurer's diligence or thoroughness in investigating facts specifically pertinent to coverage. See John J. Jerue Truck Broker, Inc. v. Insurance Co. of N. Am., 646 So.2d 780, 783 (Fla. 2d Dist. Ct. App. 1994).
This court has previously noted that to prevail on a claim of unfair claim settlement practices, a plaintiff must provide evidence that the defendants committed certain violations to an extent that would constitute a "general business practice." which means more than acting in the proscribed manner with respect to the plaintiff's own claim. See Shannon R. Ginn. 51 F. Supp.2d at 1353. Dadeland did not raise a claim of unfair claim settlement practices in the arbitration proceeding. In any case, plaintiffs have failed to present any evidence with respect to this claim in response to the defendants motion for summary judgment. Accordingly, the court deems this claim to be waived.
5. Plaintiffs' Motion for Partial Summary Judgment
Plaintiffs have also moved for partial summary judgment, on the ground that the arbitration panel declared the sureties to be liable to the plaintiffs, and denied the defendants' proffered defenses, and therefore defendants are collaterally estopped from raising those same defenses in this proceeding. It is unclear whether the arbitrators' purported ruling on the sureties' affirmative defenses would satisfy the requirements for application of collateral estoppel in a subsequent case involving a bad faith refusal-to-settle claim or a breach of performance bond obligations claim. In any case, plaintiffs' collateral estoppel argument has been rendered moot by this court's finding that res judicata bars the plaintiffs' claims. Plaintiffs' motion for partial summary judgment must be denied.
CONCLUSION
For the forgoing reasons, the court concludes that plaintiffs' bad faith refusal-to-settle claim fails because even if the sureties' duties to act under the performance bond quality as "claims" within the meaning of Section 624.155(1)(b)(1), plaintiffs have failed to allege that there has been a judicial determination that the sureties are liable for declaim." or some other resolution of damages. Insofar as plaintiffs attempt to assert claims against the sureties for failure to timely perform their contractual obligations under the performance bond, those claims arc barred by the doctrine of res judicata because they were raised, or could have been raised, in the prior arbitration proceeding. Finally, plaintiffs have failed to present any evidence of a "general business practice," in support of their claim of unfair claim settlement practices under Section 626.9541(1)(i), and as such that claim is deemed to be waived.
It is hereby ORDERED and ADJUDGED that defendants' motion for summary judgment and judgment on the pleadings [DE #70 135] is GRANTED. Plaintiffs' motion for partial summary judgment [DE #66] is DENIED. A final judgment will be issued in a separate order, DONE and SIGNED