Court Opinion

ID: 2969134
Source: CourtListenerOpinion
Date Created: 2015-09-22 12:01:00.569945+00
Date Added: 2024-06-11T15:29:22.756122
License: Public Domain

Case: 14-14698       Date Filed: 09/22/2015     Page: 1 of 8

                                                                    [DO NOT PUBLISH]

                 IN THE UNITED STATES COURT OF APPEALS

                           FOR THE ELEVENTH CIRCUIT
                            __________________________

                                   No. 14-14698
                            __________________________

                     D.C. Docket No. 4:11-cv-00102-WTM-GRS

FIDELITY AND DEPOSIT COMPANY OF MARYLAND,

                                                                      Plaintiff – Appellee,

                                          versus

C.E. HALL CONSTRUCTION, INC., et al.,

                                                                Defendants – Appellants.

                             ________________________

                     Appeal from the United States District Court
                        for the Southern District of Georgia
                           ________________________

                                  (September 22, 2015)

Before ROSENBAUM and FAY, Circuit Judges, and MIDDLEBROOKS, *
District Judge.

PER CURIAM:

*
 The Honorable Donald M. Middlebrooks, United States District Judge for the Southern District
of Florida, sitting by designation.
              Case: 14-14698     Date Filed: 09/22/2015   Page: 2 of 8

      Appellant C.E. Hall Construction (“Hall Construction”) obtained payment

and performance bonds from Appellee Fidelity and Deposit Company of Maryland

(“F&D”) in connection with its contract to construct the Southside Baptist Church

(the “Church”) Community Outreach Center (the “Project”) in Savannah, Georgia.

In return, Appellants Hall Construction, Charles E. Hall, and C.E. Hall, Inc.

(collectively, the “Halls”) promised to indemnify F&D against loss on the bonds

(the “Indemnity Agreement”).

      Problems arose between the Church and Hall Construction soon after

construction began. The Church refused to pay Hall Construction the entire

amount sought under a pay request and, as a result, Hall Construction was unable

to pay its subcontractors in full. The City of Savannah also placed a hold on the

building permit due to revisions to the original construction plans. Construction on

the Project ceased thereafter. The Church terminated its contract with Hall

Construction and formally demanded that F&D perform under the performance

bond. F&D also received claims against the payment bond from three

subcontractors.

      The Halls requested that F&D not pay the claims. F&D asked the Halls to

post collateral but the Halls declined to do so. F&D settled the subcontractors’

claims under the payment bond and the Church’s claim under the performance

bond. F&D sought indemnity from the Halls, but the Halls refused to indemnify

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F&D. As a result of the Halls’ refusal, F&D filed this action in the Southern

District of Georgia.

      The district court initially denied F&D’s motion for summary judgment. On

motion to reconsider, the district court granted F&D’s motion for summary

judgment, concluding there were no genuine issues of material fact as to whether

F&D acted in good faith in settling the claims and F&D was, thus, entitled to

indemnity. The Halls appeal the district court’s judgment.

                                          I.

      We review de novo a district court’s grant of summary judgment. McCullum

v. Orlando Reg’l Healthcare Sys., Inc., 768 F.3d 1135, 1141 (11th Cir. 2014).

                                         II.

      The Halls argue that the district court erred in granting summary judgment

in favor of F&D. The Halls raise three issues, which are addressed below.

      First, the Halls argue the district court ignored genuine issues of material

fact as to whether F&D acted in good faith. We disagree.

      The Indemnity Agreement requires the Halls to jointly and severally

indemnify F&D against

      liability for losses and/or expense of whatsoever kind or nature
      (including, but not limited to, interests, court costs and counsel fees)
      and from and against any and all such losses and/or expenses which
      the Surety may sustain and incur: (1) By reason of having executed or
      procured the execution of the Bonds, (2) By reason of the failure of
      the [Halls] to perform or comply with the covenants and conditions of
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                Case: 14-14698       Date Filed: 09/22/2015       Page: 4 of 8

       this Agreement or (3) In enforcing any of the covenants and
       conditions of this Agreement.

“In the event of any payment” by F&D, F&D may

       charge for . . . disbursements made by it in good faith in and about the
       matters herein contemplated by this Agreement under the belief that it
       is or was liable for the sums and amounts so disbursed, or that it was
       necessary or expedient to make such disbursements, whether or not
       such liability, necessity or expediency existed.

Paragraph 13 of the Indemnity Agreement also gives F&D the right to settle claims

against the bonds:1

       The Surety shall have the right to adjust, settle or compromise any
       claim, demand, suit or judgment upon the Bonds, unless the [Halls]
       shall request the Surety to litigate such claim or demand, or to defend
       such suit, or to appeal from such judgment, and shall deposit with the
       Surety, at the time of such request, cash or collateral satisfactory to
       the Surety in kind and amount, to be used in paying any judgment or
       judgments rendered or that may be rendered, with interest, costs,
       expenses and attorneys’ fees, including those of the Surety.

As provided above, F&D’s right to settle is limited only if the Halls request that

F&D litigate the claim and deposit collateral with F&D.

       The Halls do not dispute they did not post collateral. Thus, F&D is entitled

to indemnity on disbursements for claims settled in good faith.

       The Halls rely heavily on the district court’s initial order denying summary

judgment. In that order, the district court identified factual disputes concerning the

adequacy of F&D’s investigation, which the court found relevant to the issue of

1
  Should F&D settle a claim, “vouchers or other evidence of any such payments . . . shall be
prima facie evidence of the fact and amount of the liability.”
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whether F&D settled in good faith. The court also identified factual disputes as to

whether Hall Construction defaulted on the contract with the Church and whether

there were reasons outside of Hall Construction’s control that prevented it from

paying its subcontractors.

         However, on reconsideration, the district court found that “[the Halls] have

not identified anything in the record to suggest that [F&D] acted unreasonably by

settling the performance bond and payment bond claims . . . .” It also noted that

the exercise of a contractual right, without more, cannot form the basis for bad

faith.

         On appeal, the Halls rely on their defenses to the claims in support of their

contention that F&D settled in bad faith. The Indemnity Agreement, however,

provides that F&D may settle claims “under the belief that it is or was liable . . . or

that it was necessary or expedient to make such disbursements, whether or not such

liability, necessity or expediency existed.” Even if F&D determined that the Halls’

defenses were valid, F&D had the contractual right to settle claims where it

determined it was necessary or expedient to do so. Exercise of a contractual right

is not evidence of bad faith.

         The Halls also rely on the alleged inadequacy of F&D’s investigation of the

claims to show lack of good faith. “[W]here a decision is left to the discretion of a

designated entity, the question is not whether it was in fact erroneous, but whether

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                Case: 14-14698      Date Filed: 09/22/2015      Page: 6 of 8

it was in bad faith, arbitrary or capricious so as to amount to an abuse of that

discretion.” MacDougald Constr. Co. v. State Highway Dep’t, 188 S.E.2d 405,

406 (Ga. Ct. App. 1972). “Bad faith is not simply bad judgment or negligence, but

it imports a dishonest purpose or some moral obliquity, and it implies conscious

doing of wrong, and means breach of known duty through some motive of interest

or ill will.” Nguyen v. Lumbermens Mut. Cas. Co., 583 S.E.2d 220, 223 (Ga. Ct.

App. 2003) (internal quotation marks omitted). F&D conducted an investigation

into the claims but the Halls disagree with the results of the investigation.

Disagreement with an investigation is not evidence of bad faith. See Fidelity and

Deposit Co. of Maryland v. Douglas Asphalt Co., 338 F. App’x 886, 887 (11th Cir.

2009). 2 The district court, therefore, did not err in concluding there was no

evidence of bad faith.

       Second, the Halls correctly argue that the district court erred in finding that

they failed to request that F&D contest the default. However, it is undisputed that

the Halls did not post collateral. Absent a request to litigate and the posting of

collateral, F&D had the contractual right to settle claims so long as they were

settled in good faith. Therefore, the district court’s error was harmless.

2
  See also Auto-Owners Ins. Co. v. Southeast Floating Docks, Inc., 571 F.3d 1143, 1146 (11th
Cir. 2009) (an inadequate investigation “must be accompanied by other evidence of improper
motive, such as a self-interested settlement,” to show bad faith under Florida law).
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       Finally, the Halls argue that the district court erred in concluding that F&D

owed no fiduciary duty to them. The Halls cite to McLendon v. Hartford Acc. &

Indem. Co., in which the Georgia Court of Appeals found that “the [surety] held a

fiduciary relationship with [the principal] and was required to act in good faith and

with loyalty.” 167 S.E.2d 725, 726 (Ga. Ct. App. 1969). That determination,

however, was based on contractual language, which the court interpreted made the

surety the agent of the principal because it gave the surety the right “to decide and

determine whether any claim, demand, liability, suit, action, judgment or

adjudication, made, brought, or entered against the surety or principal . . . shall, or

shall not, be defended, tried, appealed, or settled . . . .” Id.

       The Halls rely on an attorney-in-fact provision in the Indemnity Agreement

to impose a fiduciary duty:

       Contractor and Indemnitors hereby irrevocably nominate, constitute,
       appoint and designate the Surety as their attorney-in-fact with the
       right, but not the obligation, to exercise all of the rights of the
       Contractor and Indemnitors assigned, transferred and set over to the
       Surety in this Agreement, and in the name of the Contractor and
       Indemnitors to make, execute, and deliver any and all additional or
       other assignments, documents or papers deemed necessary and proper
       by the Surety in order to give full effect not only to the intent and
       meaning of the within assignments, but also to the full protection
       intended to be herein given to the Surety under all other provisions of
       this Agreement.

This provision merely designates F&D as the attorney-in-fact for the purpose of

exercising the Halls’ rights to provide protection to F&D. In settling the claims

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              Case: 14-14698    Date Filed: 09/22/2015   Page: 8 of 8

against the bonds, F&D exercised its rights under Paragraph 13 of the Indemnity

Agreement, not the Halls’ rights under the attorney-in-fact provision. Thus, the

district court did not err in determining F&D did not owe a fiduciary duty to the

Halls under the Indemnity Agreement.

                                        III.

      We affirm the district court’s grant of summary judgment in favor of F&D.

      AFFIRMED.

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