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IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

HESS FENCE & SUPPLY :

CO., INC., :

: Civil Action No. 4: 04-CV-2648

Plaintiff :

:

v. :

: (Judge McClure)

UNITED STATES FIDELITY & :

GUARANTY CO., :

:

Defendant :

O R D E R

July 6, 2005

BACKGROUND:

On December 8, 2004, Hess Fence & Supply Co., Inc. (“Hess”), a

corporation organized under the laws of West Virginia and having its principal

place of business in West Virginia, filed its complaint for damages against United

States Fidelity & Guaranty Co. (“USF&G”), a surety organized and established

under the laws of Maryland and having its principal place of business in Maryland. 

The complaint arises out of a payment bond that USF&G entered into with

Lycoming Supply Inc. of Williamsport, Pennsylvania. Hess seeks relief pursuant to

Pennsylvania’s Public Works Contractors’ Bond Law of 1967, 8 Pa. C.S.A. § 191

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et seq. The payment bond was for work to be performed by Lycoming Supply

within the Middle District of Pennsylvania, and on behalf of the Department of

Conservation and Natural Resources of the Commonwealth of Pennsylvania. The

bond was to ensure money payment to third parties with whom Lycoming Supply

contracted to perform said work.

On May 9, 2005, USF&G filed its motion to dismiss pursuant to Federal

Rule of Civil Procedure 12(b)(6). The motion is now fully briefed and ripe for our

decision. For the following reasons we will grant the motion in part.

DISCUSSION:

I. Motion to Dismiss Standard

When considering a motion to dismiss under Federal Rule of Civil Procedure

12(b)(6), the court must view all allegations stated in the complaint as true and

construe all inferences in the light most favorable to plaintiff. Hishon v. King &

Spaulding, 467 U.S. 69, 73 (1984); Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir.

1993). In ruling on a motion to dismiss the court primarily considers the allegations

of the pleading, but is not required to consider legal conclusions alleged in the

complaint. Kost, 1 F.3d at 183. At the motion to dismiss stage, the court

considers whether plaintiff is entitled to offer evidence to support the allegations in

the complaint. Maio v. Aetna, Inc., 221 F.3d 472, 482 (3d Cir. 2000). A complaint

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should be dismissed only if the court, from evaluating the allegations in the

complaint, is certain that under any set of facts relief cannot be granted. Conley v.

Gibson, 355 U.S. 41, 45-46 (1957); Morse v. Lower Merion School Dist., 132

F.3d 902, 906 (3d Cir. 1997); Markowitz v. Northeast Land, Co., 906 F.2d 100,

103 (3d Cir. 1994).

The failure-to-state-a-claim standard of Rule 12(b)(6) “streamlines litigation

by dispensing with needless discovery and factfinding.” Neitzke v. Williams, 490

U.S. 319, 326-27 (1989). A court may dismiss a claim under Rule 12(b)(6) where

there is a “dispositive issue of law.” Id. at 326. If it is beyond a doubt that the

non-moving party can prove no set of facts in support of its allegations, then a

claim must be dismissed “without regard to whether it is based on an outlandish

legal theory or on a close but ultimately unavailing one.” Id. at 327.

II. Statement of Relevant Facts

On or about March 20, 2003, plaintiff entered into a subcontract with

Lycoming Supply. Hess was to perform construction work as a subcontractor on

the Pine Creek Rail-Trail on behalf of the Department of Conservation and Natural

Resources of the Commonwealth of Pennsylvania.

 Lycoming Supply, as a condition for being awarded the bid for construction

on the Pine Creek Rail-Trial, was required to submit to the owner a payment and

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performance bond to assure that it would perform the construction contract and to

ensure that Lycoming Supply’s subcontractors and material suppliers performing

work or supplying materials would be paid. (Rec. Doc. No. 1, Ex. A.)

Hess asserts that its subcontract is valued at $175,290.00. Hess avers that it

has performed work in accordance with the subcontract, but is still owed a balance

of $125,290.00. Hess avers that it has not been paid in full for a period in excess

of ninety (90) days after the date on which it performed the last work (or provided

materials) for which such payment is due and owing. In the complaint’s ad

damnum clause Hess requests: “that the Court enter judgment against Defendant

USF&G on the claim on the Payment Bond made by Hess herein, and all other

forms of damages, interest and attorney’s fees, as well as any penalties and interest

available to Hess under any applicable statute, contract, rule or other source of legal

right.” (Rec. Doc. No. 1 , at 4.)

Bond Language

The bond that USF&G entered into with Lycoming Supply in relevant part

stated:

NOW, THEREFORE, the joint and several conditions of

these Contract Bonds are such:

. . . . 

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B. That if the above bounden Principal shall

and will promptly pay or cause to be paid sums of money

which may be due by the Principal or any of his subcontractors to any individual, firm, partnership,

association or corporation for all material furnished and

labor supplied or performed in prosecution of the

contract work, whether or not the said material or labor

enter into and become component parts of the work or

improvement contemplated, and for rental of equipment

used and services rendered by public utilities in, or in

connection with, the prosecution of such work, then this

part of this obligation shall be void; otherwise it shall be

and remain in full force and effect.

. . . .

The Principal and Surety hereby jointly and

severally agree with the COMMONWEALTH that every

individual, firm, partnership, association or corporation

who, whether as sub-contractor or otherwise, has

furnished material or supplied or performed labor or

rented equipment in prosecution of the work as above

provided and any public utility which has rendered

services in, or in connection with, the prosecution of

such work, and who has not been paid therefor, may sue

in assumpsit on the bond obligation set forth in Paragraph

“B” hereof, in his, their, or its name for his, their or its

use and prosecute the same to final judgment for such

sum or sums as may be jointly due him, them or it and

have execution thereon; provided, however, that the

COMMONWEALTH shall not be liable for payment of

any costs or expenses of such suit.

(Rec. Doc. No. 1, Ex., CB2-3.)

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In a footnote, Hess has alternatively requested leave, should we deem it

necessary, to amend its complaint to clarify its request for both pre-judgment and

post-judgment interest. (Rec. Doc. No. 6, at 5 n.2.) Such clarification is

unnecessary: post-judgment interest is mandated by statute. See 28 U.S.C. §

1961(a). 

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III. USF&G’s Motion to Dismiss

USF&G, in its motion to dismiss, takes issue with the relief Hess requests

and asserts that USF&G is entitled to the dismissal of Hess’ s claim to the extent

that it seeks relief in excess of the alleged contract balance. Hess’s brief in

opposition implicitly concedes USF&G’s argument for dismissal of Hess’s request

for attorney’s fees and penalties, and focuses its argument on persuading us to

leave intact Hess’s request for interest, which Hess clarifies is for both prejudgment and post-judgment interest.1

 The parties’ current dispute requires us to

delineate if and when pre-judgment interest is available to a creditor suing a surety

under Pennsylvania law. A federal court with diversity jurisdiction over a state

claim must apply the substantive law of that state as set forth by the state’s highest

court, and “may not impose its view of what the state law should be.” Carrasquilla

v. Mazda Motor Corp., 197 F. Supp. 2d 169, 172 (M.D. Pa. 2002) (quoting Walsh

v. Strenz, 63 F. Supp. 2d 548, 551 (M.D. Pa. 1999) (citations omitted)) (McClure,

J.).

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Defendant relies heavily on a series of federal court decisions interpreting

sureties’ obligations under Pennsylvania law. We agree that under Pennsylvania law

a surety’s obligation to a creditor is limited by the language of the bond. Ragan v.

Tri-County Excavating, 62 F.3d 501, 513 (3d Cir. 1995) (citing Reliance Universal,

Inc. v. Ernest Renda Contracting Co., Inc., 454 A.2d 39, 45 (Pa.Super.Ct. 1982)). 

The Third Circuit in Ragan, was interpreting a bond that provided the surety could

be sued for “such sum or sums as may be justly due the claimant.” Id. at 513. 

However, the Ragan court’s discussion only addressed whether the surety was

obligated to pay attorney’s fees and liquidated damages in the absence of a specific

bond provision to the contrary, and not interest. See id. In R.W. Sidley, Inc. v.

United States Fidelity & Guaranty Co., the Western District of Pennsylvania, while

interpreting a bond that also included the language “such sum or sums as may be

justly due him,” found that because the bond was silent as to interest payments the

court could not impute an intent to cover such payments; i.e., interest payments

which the contractor had independently agreed to provide to the plaintiff. 319 F.

Supp. 2d 554, 559 (W.D. Pa. 2004). In R.W. Sidley, the court used the terms

“finance charges” and interest interchangeably in its analysis of the bond language

“sums justly due.” Id. We are not persuaded by the Sidley court, particularly

since the court did not address or reconcile its reasoning with the Pennsylvania

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2The Sidley court cited to J.C. Snavely & Sons, Inc. v. WEB M&E Inc., 594

A.2d 333 (Pa.Super.Ct. 1991), but as part of a string citation addressing the issue

of recovering attorney fees and finance charges from sureties under Pennsylvania

law. 319 F. Supp. 2d at 559. The Sidley court did not address the footnote in

Snavely where the court, citing Fort Pitt Bridge Works v. Continental Casualty Ins.

Co., 240 A.2d 493 (Pa. 1968), stated that a “surety bond claimant is entitled to

interest on his claim, notwithstanding absence in the bond of any language

providing for the recoupment of interest.” Snavely, 594 A.2d at 336 n.2.

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decisions we address in the following paragraph.2

Plaintiff has directed the court to two state appellate decisions that

distinguish pre-judgment interest from other forms of additional relief, Romand

Mosaic & Tile Co. v. Thomas P. Carney, Inc., 729 A.2d 73 (Pa.Super.Ct. 1999)

and J.C. Snavely & Sons, Inc. v. WEB M&E Inc., 594 A.2d 333 (Pa.Super.Ct.

1991). In both cases the Pennsylvania Superior Court cited to the Pennsylvania

Supreme Court’s decision in Fort Pitt Bridge Works v. Continental Casualty Ins.

Co., 240 A.2d 493 (Pa. 1968) for the proposition that pre-judgment interest may be

recovered from a surety in the absence of explicit language in the bond, as included

within the language “sum justly due” in the bond. In relevant part, the Pennsylvania

Supreme Court in Fort Pitt stated:

The fact that the bond does not specifically refer to

interest is not controlling; what is controlling is that the

surety has expressly agreed to make good the ‘sum justly

due’ by the defaulting principal.

If the surety had wished to curtail the amount of

interest which would accrue without the surety’s

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knowledge, the surety could easily have inserted the

requirement of notice of the principal’s default [in the]

bond.

Fort Pitt Bridge Works, 240 A.2d at 494-95.

We must think that in Ragan, the Third Circuit was aware of this distinction

made for pre-judgment interest, as in the same sentence in which the court stated

that Pennsylvania law “limits a surety’s obligations to those detailed in the bond

itself,” the court cited to Snavely. Ragan, 62 F.3d at 513. Defendant notes that the

language of the bonds in Roman Mosaic, Snavely, and Fort Pitt Bridge Works

differs from the instant bond, which states that a creditor may sue for the “sums as

may be jointly due him.” However, we find that there is no material distinction

between “jointly due” and “justly due.” In short, at this time we find no basis for

precluding plaintiff from pursuing pre-judgment interest as a matter of Pennsylvania

law. 

NOW, THEREFORE, IT IS HEREBY ORDERED THAT:

1. USF&G’s motion to dismiss is granted in part. (Rec. Doc. No. 3.) 

2. Hess cannot recover attorney’s fees, finance charges, penalty charges

or any other additional charges beyond those detailed in the bond. At

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this time, however, this does not preclude Hess from continuing to

pursue a claim for pre-judgment interest.

 s/ James F. McClure, Jr. 

James F. McClure, Jr.

United States District Judge

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