Court Opinion

ID: 160988
Source: CourtListenerOpinion
Date Created: 2010-08-14 06:57:35+00
Date Added: 2024-06-11T17:15:45.692540
License: Public Domain

F I L E D
                                                                 United States Court of Appeals
                                                                         Tenth Circuit
                      UNITED STATES COURT OF APPEALS
                                                                         APR 13 2001
                                   TENTH CIRCUIT
                                                                    PATRICK FISHER
                                                                             Clerk

ST. PAUL FIRE AND MARINE
INSURANCE COMPANY, a
Minnesota corporation,

          Plaintiff - Appellee,

v.

CITY OF GREEN RIVER,
WYOMING, CITY OF ROCK
SPRINGS, WYOMING,
                                                        No. 00-8024
SWEETWATER COUNTY, STATE
                                                   (District of Wyoming)
OF WYOMING JOINT POWERS
                                                 (D.C. No. 98-CV-1007-B)
WATER BOARD, a governmental
entity,

          Defendant - Appellant.

SURETY ASSOCIATION OF
AMERICA; AMERICAN
INSURANCE ASSOCIATION,

          Amici Curiae.

                              ORDER AND JUDGMENT *

      *
        This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
Before SEYMOUR and BRISCOE, Circuit Judges, and OWEN, District Judge. **

      In this diversity case, Defendant-Appellant Wyoming Joint Powers Water

Board (“Board”) appeals from the District Court’s entry of summary judgment in

favor of Plaintiff-Appellee St. Paul Fire and Marine Insurance Company (“St.

Paul”) on its declaratory judgment complaint, discharging St. Paul from any

further obligation under a performance bond in a public construction project. 1

Our jurisdiction arises under 28 U.S.C. § 1291. We affirm substantially for the

reasons stated by the district court.

      This is a dispute arising from a $28.6 million public construction project

gone bad. Chronic water shortages in the summer months creating water

rationing in Green River, Wyoming prompted the Board to plan for the

construction of a 32 million-gallon per day water treatment plant in 1997. The

Board entered into a contract with Westates Construction Company (“Westates”)

to build the new plant and St. Paul, as surety, issued a performance bond to

guarantee Westates’ performance. The February 1997 construction agreement

required substantial completion of the project by December 1, 1998 and included

      **
         The Honorable Richard Owen, United States District Judge, United
States District Court for the Southern District of New York, sitting by
designation.
      1
        The District Court granted summary judgment in a published order dated
March 27, 2000. See St. Paul Fire and Marine Ins. Co. v. City of Green River, 93
F.Supp.2d 1170 (D. Wyo. 2000) (Brimmer, J.).

                                        -2-
a “time is of the essence” clause with a $2,500 per day liquidated damages

penalty after the stated December 1 completion date. Westates unfortunately fell

way behind in the construction of the plant and the Board issued a notice of

termination for default on January 16, 1998. This triggered St. Paul’s obligations

under the performance bond. Under said bond St. Paul had several options in the

event of contractor default, including its right to complete the project on its own.

St. Paul chose this option and informed the Board that it could achieve substantial

completion by September 24, 1999, paying of course the daily penalty after

December 1, 1998. The Board, however, informed St. Paul that, as surety, it

stepped into the shoes of the contractor for all purposes and was bound by the

“time is of the essence” clause and the December 1, 1998 completion date.

During settlement discussions, St. Paul gave the Board an alternate earlier

completion date of May 14, 1999, but coupled it with the condition that the Board

meet certain of St. Paul’s additional costs for expedition. The Board rejected St.

Paul’s proposed performance whether for the May or September dates and

declared the surety to be in breach. St. Paul then commenced this action for a

declaratory judgment discharging it from further performance obligations on the

ground the Board had breached the terms of the performance bond and both sides

thereafter sought summary judgment.

                                          -3-
      We agree with the District Court’s construction of the performance bond.

There is no question that while the surety essentially steps into the shoes of the

contractor upon the latter’s default, it does not follow in this situation with this

performance bond (an industry standard agreement) that the surety is bound by the

original completion date, noting that while the Board would continue to be

entitled to $2,500 per day liquidated damages for lateness, the surety under the

bond need only proceed with “reasonable promptness.” As held below, since the

surety selected one of the bond’s options available to it and was ready to proceed

to completion, the Board’s rejection of its proposed performance breached the

agreement.

      A reading of this agreement otherwise would be unreasonable. If Westates

had defaulted one day before (or even one day after) the original completion

deadline, then surely the Board could not argue that the surety would be bound by

the original completion date. Further, St. Paul’s offer to substantially complete

the project by May, a date which the Board concedes would have been acceptable,

would have occasioned much greater expense and therefore it was not

unreasonable for the surety to seek compensation from the Board for the cost of

accelerating performance beyond the “reasonable promptness” standard the bond

specified.

                                          -4-
      Appellant’s motion to file a supplemental appendix, filed October 6, 2000,

and motion to consider new authority, filed March 8, 2001, are denied.

      AFFIRMED.

                                     ENTERED FOR THE COURT

                                     Richard Owen
                                     District Judge

                                       -5-