Opinion ID: 739933
Heading Depth: 2
Heading Rank: 7

Heading: Liability for Payment of Attorneys' Fees Under Performance Bond

Text: 49 On cross-appeal the surety argues that it constituted a prevailing party under the subcontract as incorporated by the surety bond and, therefore, liability for its attorneys' fees falls on the contractor instead of the subcontractor. In the alternative, the surety argues that the magistrate judge mistakenly refused to award the surety attorneys' fees against the contractor because the contractor brought its claim against the surety in bad faith. We reject both of these arguments. 50 The contractor was not a party to the performance bond entered between the subcontractor and the surety and, therefore, owed no contractual obligation under the bond to the surety. Although the surety's obligations under the bond run toward the contractor, the reverse is not true. Essentially, the subcontractor paid the surety to guarantee the contractor that the subcontractor would perform. Although the subcontractor and surety decided to incorporate the subcontract, that decision did not affect the rights of the contractor or any other non-party to the bond. 51 In addition, we disagree with the surety's assertion that the contractor brought its claim in bad faith. Although the magistrate judge appropriately granted the surety judgment as a matter of law on the contractor's claim for damages because the contractor's claim failed to exceed the amount the contractor withheld from the subcontractor, see Appellant App. at 177 (Jan. 31, 1995 Dist. Ct. Order), the magistrate judge retained jurisdiction over the surety for purposes of determining liability for attorneys' fees. See Peerless Br. at 10. As a result, although the contractor failed to raise a claim for damages against the surety, the contractor's claim for attorneys' fees was reasonable and not in bad faith. Accordingly, we affirm the magistrate judge's decision to order the subcontractor, rather than the contractor, to pay the surety's attorneys' fees.