1

United States Court of Appeals,

Fifth Circuit.

No. 94-20734.

TACON MECHANICAL CONTRACTORS, INC., et al., Plaintiffs,

Tacon Mechanical Contractors, Inc. and the Walsh & Albert

Company, Plaintiffs-Appellants,

v.

AETNA CASUALTY AND SURETY COMPANY, Defendant-Appellee.

The WALSH & ALBERT COMPANY, Plaintiff-Appellant,

v.

AETNA CASUALTY AND SURETY COMPANY, Defendant-Appellee.

Oct. 4, 1995.

Appeal from the United States District Court for the Southern

District of Texas.

Before SMITH, BARKSDALE and BENAVIDES, Circuit Judges.

BENAVIDES, Circuit Judge:

The central issue of this appeal is whether a subcontractor

has a cause of action against a contractor's surety for alleged

delays in payment under Texas state law. Because Texas does not

recognize such a claim, we affirm.

FACTUAL AND PROCEDURAL BACKGROUND

This controversy has its genesis in a construction project at

the Naval Reserve Readiness Center in Houston. Menendez, Donnell

& Associates ("Menendez") contracted with the United States to make

certain improvements to the facility. Menendez subcontracted with

appellant Tacon Mechanical Contractors, Inc. ("Tacon") for labor

and materials. In turn, Tacon subcontracted with appellant The
 

1The Texas Insurance Code prohibits unfair claim settlement

practices including failure to adopt and implement reasonable

standards for prompt investigation of claims and not attempting

in good faith to effectuate prompt settlement. Tex.Ins.Code Ann.

art. 21.21-2, §§ 2(b)(3), (4) (West Supp.1995). 

 

2The record reflects that at the September 9, 1993 hearing,

the exact amount of the Miller Act claims was undetermined. 

However, it was undisputed that Aetna owed at least $167,000. 

The district court, reducing the sum for margin of error, ordered

Aetna to pay at least $140,000 by September 13, 1993. On

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Walsh & Albert Company ("Walsh") for sheetmetal ductwork. In

accordance with the Miller Act, Menendez obtained a payment bond

from a surety, appellee Aetna Casualty and Surety Co. ("Aetna").

See 40 U.S.C. §§ 270a-270d (1993).

When Menendez failed to make prompt payment, Tacon and Walsh

made a claim for payment with the surety Aetna. When Aetna was

tardy in making payment on the bond, Tacon and Walsh each filed

suit in district court as provided under the Miller Act. 40 U.S.C.

§ 270b(b). These suits were later consolidated into this action.

In addition to Miller Act claims for payment on the bond, Tacon and

Walsh also sued Aetna for various state law causes of action

arising from Aetna's alleged bad faith in handling the dispute.

Specifically, Tacon alleged breach of a common law duty of good

faith and fair dealing, violation of article 21.21 of the Texas

Insurance Code,1 vexatious failure to pay the Miller Act claim, and

tortious interference with business relations. Walsh also raised

the good faith and fair dealing and Insurance Code violations.

Following a hearing on September 9, 1993, the district court

ordered Aetna to pay the Miller Act claims; Aetna eventually

complied.2 Following the elimination of the Miller Act claims,
November 15, 1993, Aetna paid $186,915.92 on the Miller Act

claims, leaving a disputed balance of $7,850.92 at the time of

partial summary judgment. 

3

Aetna moved for summary judgment on the state law claims on two

independent grounds: (1) federal preemption of state law claims by

the Miller Act; and (2) the absence of Texas state law causes of

action for a surety's "bad faith" handling of a claim. The

district court granted partial summary judgment on all the state

law claims on both grounds. 860 F.Supp. 385, 389 (S.D.Tex.1994).

Following final judgment disposing of all remaining issues, Tacon

& Walsh appeal asserting that the district court erred in

dismissing their state law claims.

STATE LAW BAD FAITH CLAIMS

Because the district court dismissed the state law bad faith

claims by way of summary judgment, we review its decision de novo

under well-established standards. See Celotex Corp. v. Catrett,

477 U.S. 317, 323-24, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265

(1986); Sterling Property Management, Inc. v. Texas Commerce Bank,

Nat'l Ass'n, 32 F.3d 964, 966 (5th Cir.1994).

The district court rendered a take nothing judgment for Aetna

on each of the state law claims because Texas law does not

recognize a cause of action for a surety's failure to promptly pay

a claim. Recent authority from the Texas Supreme Court makes clear

the correctness of the district court's decision. In Great

American Insurance Co. v. North Austin Municipal Utility District

No. 1, 1995 WL 358834, at *1, --- S.W.2d ----, ---- (Tex. June 15,

1995), the Texas Supreme Court specifically held that "there is no
 

3In reaching its conclusion on the absence of a common law

duty of good faith and fair dealing, the Texas Supreme Court

cited approvingly the district court's published opinion. Great

American, 1995 WL 358834, *4, --- S.W.2d at ---- (citing Tacon

Mechanical Contractors, Inc. v. Aetna Casualty & Sur. Co., 860

F.Supp. 385, 388 (S.D.Tex.1994)). This confirms the validity of

the district court's approach to this issue. 

 

4Walsh's complaint does not specifically contain allegations

of vexatious failure to pay or tortious interference. 

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common law duty of good faith and fair dealing between [a] surety

and [a] bond obligee." Likewise, the court held that given the

unique character of suretyship, a surety has no liability to an

obligee under article 21.21 of the Texas Insurance Code. Id. at

*9, --- S.W.2d at ----. These two explicit holdings dictate our

conclusion that the district court was correct in concluding that

appellants' common law bad faith and Insurance Code claims are not

available under Texas law.3

Tacon maintains, however, that Great American does not

dispose of its vexatious failure to pay or tortious interference

claims.4 It contends that these claims are separate and distinct

from the common law and statutory bad faith claims. We disagree.

There is no authority for the existence of a vexatious failure to

pay cause of action in Texas. Any such allegation is clearly

subsumed into the holding of Great American that no common law duty

of good faith and fair dealing exists between a surety and obligee.

 While Texas does recognize a tortious interference cause of

action, see Holloway v. Skinner, 898 S.W.2d 793, 794-95 (Tex.1995),

we agree with the district court that, in this case, Tacon's claim

is not distinct from its bad faith claim. Tacon admitted in oral
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argument that there is no Texas authority applying a tortious

interference claim in a surety context. Tacon's tortious

interference claim is based upon the same factual allegation that

Aetna was slow to pay on the surety bond and due to this delay

Tacon's relationship with other subcontractors deteriorated. This

is no more than a restatement of the bad faith claim. Under Texas

law, an attempt such as this to fracture one cause of action into

three or four by massaging the labels and language is

impermissible. Ross v. Arkwright Mut. Ins. Co., 892 S.W.2d 119,

133 (Tex.App.—Houston [14th Dist.] 1994, no writ); cf. Sledge v.

Alsup, 759 S.W.2d 1, 2 (Tex.App.—El Paso 1988, no writ). Likewise,

our own federal summary judgment procedure requires us to pierce

through the pleadings and their adroit craftsmanship to reach the

substance of the claim. See Matsushita Elec. Indus. Co. v. Zenith

Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d

538 (1986); Professional Managers, Inc. v. Fawer, Brian, Hardy &

Zatzkis, 799 F.2d 218, 222-23 (5th Cir.1986); see also United

Nat'l Ins. Co. v. Tunnel, Inc., 988 F.2d 351, 354 (2d Cir.1993).

We conclude, as did the district court, that Tacon's tortious

interference claim, at its core, merely reiterates the bad faith

claim. As a result, the district court did not err in granting

summary judgment for Aetna on each of the state law claims.

ATTORNEY'S FEES

In the wake of the disintegration of its state law claims,

Tacon gamely contends that Aetna's alleged vexatious failure to pay

can still provide the basis for attorneys' fees. Specifically,
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Tacon argues that because there are "fact issues" surrounding

Aetna's bad faith, summary judgment was inappropriate. The

resolution of Tacon's claim requires a proper understanding of the

award of attorneys' fees stemming from a Miller Act claim and the

appropriate standard of review.

The Supreme Court specifically addressed the availability of

attorneys' fees in the context of the Miller Act in F.D. Rich Co.

v. United States ex rel. Industrial Lumber Co., 417 U.S. 116, 94

S.Ct. 2157, 40 L.Ed.2d 703 (1974). Under the American Rule,

attorneys fees are not generally recoverable in the absence of

statute or contract. F.D. Rich, 417 U.S. at 129, 94 S.Ct. at 2165.

Characterizing Miller Act suits as "plain and simple commercial

litigation," the Court refused to obviate the American Rule and

held that the Miller Act does not specifically provide for an award

of attorneys' fees. Id. at 130-31, 94 S.Ct. at 2165-66; see

United States ex rel. Howell Crane Serv. v. U.S. Fidelity & Guar.

Co., 861 F.2d 110, 112 (5th Cir.1988).

The Court noted, however, that as one of the long-recognized

exceptions to the general rule, a district court may award

attorneys' fees to a successful party "when his opponent has acted

in bad faith, vexatiously, wantonly, or for oppressive reasons."

F.D. Rich, 417 U.S. at 129, 94 S.Ct. at 2165. Critical to an

understanding of this exception is that an award of attorneys' fees

under this exception stems from the district court's inherent power

to sanction abusive and egregious behavior by a litigant by

awarding attorneys' fees, not from any substantive provision of the
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Miller Act. United States ex rel. Treat Bros. Co. v. Fidelity &

Deposit Co., 986 F.2d 1110, 1120 (7th Cir.1993); United States ex

rel. C.J.C., Inc. v. Western States Mechanical Contractors, Inc.,

834 F.2d 1533, 1543 (10th Cir.1987); see Chambers v. NASCO, Inc.,

501 U.S. 32, 45-46, 111 S.Ct. 2123, 2133, 115 L.Ed.2d 27 (1991).

While the district court may sanction a party in a Miller Act case

under its inherent authority, the decision is solely within the

discretion of the district court. Fidelity, 986 F.2d at 1120.

In this case, the district court, in the exercise of its

discretion, chose not to sanction Aetna by awarding attorneys' fees

to Tacon. The district court noted that while Aetna should have

paid the claims more quickly, its conduct did not warrant an award

of attorneys' fees. While the rationale for the district court's

denial of attorneys' fees is contained in its opinion on summary

judgment, it is clear to this Court that we review its decision not

to exercise its inherent power to sanction under an

abuse-of-discretion standard. See Chambers, 501 U.S. at 55, 111

S.Ct. at 2138 ("We review a court's imposition of sanctions under

its inherent power for abuse of discretion."); Elliott v. Tilton,

1995 WL 513324, *4, --- F.3d ----, ---- (5th Cir. Sept. 15, 1995);

Fidelity, 986 F.2d at 1119. Our review of the record reflects no

abuse of discretion.

CONCLUSION

The district court properly granted summary judgment because

Texas law does not recognize a tort-based cause of action for a

surety's failure to promptly pay a claim. Given our holding, we
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need not address and express no opinion with respect to the

district court's alternative conclusion on federal preemption.

Additionally, we find no abuse of discretion in the court's

decision not to sanction Aetna by awarding attorneys' fees. The

district court's judgment is AFFIRMED.