Court Opinion

ID: 771435
Source: CourtListenerOpinion
Date Created: 2012-04-18 10:51:21+00
Date Added: 2024-06-11T10:47:15.517926
License: Public Domain

234 F.3d 1232 (11th Cir. 2000)
DRILL SOUTH, INC., Plaintiff-Appellee-Cross-Appellant,v.INTERNATIONAL FIDELITY INS. CO., Defendant-Appellant-Cross-Appellee.Drill South, Inc., Plaintiff-Counter Defendant-Appellee,v.International Fidelity Ins. Co., Defendant-Counter Claimant-Appellant.
Nos. 99-6100, 99-13590.
United States Court of Appeals, Eleventh Circuit.
December 7, 2000.December 29, 2000.

[Copyrighted Material Omitted]
Appeals from the United States District Court for the Northern District of  Alabama, No. 96-02682-CV-N-S, Edwin L. Nelson, Judge.
Before COX, BLACK and FAY, Circuit Judges.
PER CURIAM:

1
This is a Miller Act payment bond action arising from a federal construction  project ("the Project") at the Redstone Arsenal in Huntsville, Alabama.  International Fidelity Insurance Co. ("International Fidelity"), a Miller Act  surety, argues on appeal that the district court erred by granting judgment  against it solely on the basis of a default judgment entered against its  principal, that the district court lacked personal jurisdiction over its  principal, and that the district court erred by granting an award of attorneys'  fees. After considering the parties' arguments and the record in this matter, we  affirm the rulings of the district court.

2
In 1995, Enviro-Group, Inc. ("Enviro-Group"), an Indiana-based company,  contracted with the United States to perform construction work on the Project.  International Fidelity issued payment and performance bonds on behalf of  Enviro-Group, as required by the Miller Act. Drill South, Inc. ("Drill South")  entered into a subcontract with Enviro-Group to perform certain drilling work,  and, in turn, contracted with Miller Drilling Co., Inc. ("Miller Drilling") to  perform work on the project.

3
Enviro-Group defaulted on the contract, and Miller Drilling brought suit for  unpaid invoices against Drill South, Enviro-Group, and International Fidelity  pursuant to the Miller Act and Alabama law.1 Drill South then cross-claimed  against International Fidelity and Enviro-Group. International Fidelity answered  the cross-claim of Drill South and itself cross-claimed against Drill South and  Enviro-Group. On February 20, 1997, Drill South filed a Motion for Default  Judgment against Enviro-Group. In response to Drill South's Motion for Default  Judgment, International Fidelity stated that it took no position on a default  judgment against its principal Enviro-Group, provided that the default judgment  was not deemed binding on International Fidelity. Enviro-Group failed to  respond, and the district court entered default judgment against Enviro-Group in  favor of Drill South on April 7, 1997. Several months after it entered default  judgment against Enviro-Group and while International Fidelity and Drill South  had cross motions for summary judgment pending, the district court concluded that International Fidelity, as surety for Enviro-Group, was bound by the  default judgment against Enviro-Group, and that the pending cross motions for  summary judgment were therefore moot. The district court entered Final Judgment  against International Fidelity on September 5, 1997. On January 27, 1999, the  district court granted Drill South's Motion for Attorneys' Fees and amended the  September 5, 1997 Final Judgment to reflect the same. International Fidelity  timely filed a notice of appeal from that Judgment, and Drill South timely filed  a notice of cross-appeal. While that appeal was pending, International Fidelity  filed a motion with the district court to set aside the judgment pursuant to  Fed.R.Civ.P. 60(b)(4), arguing that the judgment was void for lack of  jurisdiction. The district court denied the Rule 60(b)(4) motion on September 1,  1999, and International Fidelity timely filed a notice of appeal from that order  as well. On November 24, 1999, this Court consolidated the two appeals.

4
On appeal, International Fidelity argues that the District Court erred by  granting judgment in favor of Drill South solely on the basis that a default  judgment had been entered in the same case on such claim against International  Fidelity's principal, Enviro-Group. Next, International Fidelity argues that the  district court erred in granting judgment against International Fidelity on the  basis of the default judgment because the district court lacked personal  jurisdiction over Enviro-Group. Finally, International Fidelity argues that the  district court erred by granting Drill South an award of attorneys' fees and  costs, and Drill South cross-appeals, challenging the amount of attorneys' fees  to which the district court determined that it was entitled. For the reasons set  forth more fully below, we find no error in the district court's orders of  September 5, 1997, January 27, 1999, and September 1, 1999.

5
We turn first to International Fidelity's argument that it cannot be bound by  the judgment against Enviro-Group because default judgments against a bond  principal are not binding on a co-defendant surety actively defending in the  same action. Whether the district court properly held that International  Fidelity was preclusively bound by the default judgment against its principal is  a question of law, subject to plenary review. See McDonald v. Hillsborough  County School Board, 821 F.2d 1563, 1564 (11th Cir.1987). Substantial dispute  exists in the law as to whether a default judgment rendered against a principal  is binding upon the principal's surety. Nevertheless, the general rule that has  emerged is that a surety is bound by any judgment against its principal, default  or otherwise, when the surety had full knowledge of the action against the  principal and an opportunity to defend. See Lake County ex rel. Baxley v.  Massachusetts Bonding & Ins. Co., 75 F.2d 6, 8 (5th Cir.1935)2 ("[w]here it  appears that the judgment against the [principal] was obtained in a suit of  which the surety had full knowledge, and which it had full opportunity to  defend, the judgment therein is not only evidence, but conclusive evidence,  against every defense except that of fraud and collusion in obtaining it.");  United States ex rel. Vigilanti v. Pfeiffer-Neumeyer Const. Corp., 25 F.Supp.  403, 404 (E.D.N.Y.1938).

6
In this action, it is clear from the record that International Fidelity had full  knowledge of the potential for the default judgment against Enviro-Group and  possessed numerous opportunities to defend the ultimate judgment. The record is  replete with instances in which the district court afforded International  Fidelity both notice and opportunity to step in and defend the merits of Drill  South's claims against Enviro-Group and the extent of its liability.3 It is also  clear to this Court that International Fidelity had the legal right to step in  and defend Enviro-Group against the default judgment at every stage of the  proceedings pursuant to its Agreement of Indemnity with Enviro-Group. Under the  terms of the Agreement, International Fidelity was designated Enviro-Group's  "attorney-in-fact", giving International Fidelity the "right to adjust, settle,  or compromise any claim, demand, suit or judgment upon the [payment bond]."  Agreement of Indemnity,  13.4 We agree with the district court that because  International Fidelity had the right, and therefore the opportunity, to defend  Enviro-Group as its surety and attorney-in-fact, International Fidelity should  not be permitted to stand back and allow a judgment to be taken setting the  amount of recovery against its principal without similarly being bound by the  judgment.5

7
To the extent that International Fidelity argues that it had no obligation to  defend the action against Enviro-Group, we are not persuaded. We believe the  issue is not whether the Agreement of Indemnity imposed an obligation on  International Fidelity to defend Enviro-Group, but whether it conferred a right  to defend. The law requires only that a surety have notice and an opportunity to  defend before it is bound by a judgment against its principal. We believe  International Fidelity had this right and opportunity, and simply chose, for  whatever reason, not to exercise its right.6

8
International Fidelity argues, however, that when a surety and principal are  sued in the same action, and the surety answers and defends on its own behalf,  the surety is not bound by a default judgment entered against the surety's  principal. Although we recognize the existence of authority supporting  International Fidelity's position, those cases are not binding on this Court;  nor do we find their reasoning persuasive. See United States ex. rel. Fidelity  Nat. Bank v. Rundle, 107 F. 227, 229 (9th Cir.1901); Pfeiffer-Neumeyer Const.  Corp., 25 F.Supp. at 405 (principal's silence and failure to appear cannot be  shown in evidence against sureties actively defending in same action); North  Jersey Sav. and Loan Assn. v. Wright, Egan, & Assoc., No. 85-4211, January 13,  1987 (unpublished opinion) (E.D.Pa.1987)(default judgment against principal is  not binding on surety defending in same action); Gearhart v. Pierce Enterprises,  Inc., 105 Nev. 517, 779 P.2d 93, 95 (1989)(default judgment against principal  not binding on surety where surety was not responsible for principal's conduct  causing default and had not assumed principal's legal defense, notwithstanding  surety's participation in suit as principal's co-defendant).

9
We believe that the general rule that a surety is bound by a judgment entered  against its principal when the surety had both notice and opportunity to defend  applies whether the principal and surety are sued in the same action or in  separate actions.7 As was stated by the district court in its September 5, 1997  Memorandum of Opinion:

10
It would be an anomaly to conclude that a surety can be held liable under the  general rule for standing idly by while its principal suffers an adverse  judgment when the judgment is rendered in an action where the surety is not a  party, and in the same breadth conclude that the surety can stand idly by,  without liability, and allow a default judgment to be rendered against its  principal merely because the surety was a co-defendant to the action. In the  former case, the surety is afforded much less opportunity to defend its  interests than in the latter, where it is already a party, has full knowledge  of the proceedings, and can freely oppose the judgment against its principal.

11
Accordingly, we find no error in the district court's determination that  International Fidelity is bound by the default judgment taken in the same action  against its principal, Enviro-Group.8

12
We turn now to International Fidelity's argument that the district court erred  in granting judgment against International Fidelity on the basis of the default  judgment against Enviro-Group because the district court lacked personal  jurisdiction over Enviro-Group. International Fidelity argues that Enviro-Group  was never properly served in this action, and therefore the district court never  obtained personal jurisdiction over Enviro-Group. As such, International  Fidelity believes that the default judgment entered against Enviro-Group is void  and cannot serve as a basis to bind International Fidelity.9

13
The summons issued for Enviro-Group states that it is directed to: "Robert G.  Woodward, Jr., President of Enviro-Group, Inc." Mr. Woodward received the  summons via certified mail and accepted and signed for it in December 1996.  International Fidelity complains that this amounted to service on Mr. Woodward  in his individual capacity and is insufficient to confer personal jurisdiction  over Enviro-Group. We disagree. Under both the Federal Rules and Alabama Rules  of Civil Procedure, we believe the summons described above was sufficient to  confer personal jurisdiction over Enviro-Group.10

14
The Federal Rules of Civil Procedure contemplate that a court may have personal  jurisdiction over a defendant served despite imperfect service of process. See  Sanderford v. Prudential Ins. Co. of America, 902 F.2d 897 (11th Cir.1990).  Thus, even a finding that the summons served upon Enviro-Group through Mr.  Woodward was technically defective would not necessarily mean that the district  court lacked personal jurisdiction over Enviro-Group or that the default  judgment against Enviro-Group is void. If a summons is in substantial compliance  with the Federal Rules and a defendant has not been prejudiced by a defect in  the summons, a defendant waives the insufficiency of process defense by not  asserting it prior to the entry of default judgment. See id. at 900. There is  nothing in the record to suggest that either Enviro-Group or International  Fidelity lacked notice that Drill South's claims were against Enviro-Group  rather than Robert Woodward, or that either was in any way prejudiced by the  allegedly "defective" summons.11 As such, the district court did not err in  concluding that Enviro-Group was served in a manner substantially complying with  Fed. R. Civ. P. 4 or in its decision that it had personal jurisdiction over  Enviro-Group.

15
Contrary to International Fidelity's argument, the result is not different under  the Alabama Rules of Civil Procedure. International Fidelity argues that service  requirements under Alabama law are more stringent than the Federal Rules and  that the district court in this matter improperly presumed that Robert Woodward  was an agent of Enviro-Group who could accept service on behalf of the company.

16
The 1992 Committee Comments to Rule 4 of the Alabama Rules of Civil Procedure  caution that no presumption of agency should be indulged in with respect to  service and that "courts should be vigilant to protect the rights of defendants  when default judgments are entered on the basis of service upon an agent of a  defendant." In addition, the Comments provide that "the court should be  satisfied that the person upon whom service was attempted was in fact the  authorized agent of the defendant before refusing to grant relief from a default  judgment." See also Hoffman et al. v. Alabama Distillery & Feeding Co., 124 Ala.  542, 27 So. 485 (1900)(indicating that under Alabama law, there must be some  proof of proper connection between the individual served and the corporation in  order to sustain a judgment against that corporation). We believe that the  district court did properly satisfy itself that Robert Woodward was authorized  to accept service on behalf of Enviro-Group. The district court accepted  evidentiary submissions from the parties on the issue and ultimately determined  that Mr. Woodward was an officer, agent, and owner of Enviro-Group at the time  of service. The district court's determination that Robert Woodward could  properly accept service on behalf of Enviro-Group is amply supported by the  record and we find no error.12

17
Finally, we turn to the parties' arguments pertaining to attorneys' fees.  International Fidelity argues that the district court erred in granting Drill  South an award of fees and costs because Drill South did not plead its  entitlement to fees in its cross-claim against International Fidelity. Drill  South cross-appeals, arguing that the district court properly awarded it fees,  but should be required to recalculate the amount of fees due to the district  court's use of an improper standard in determining the amount of fees to which  Drill South was entitled, the district court's failure to consider International  Fidelity's "Stalingrad Defense" tactics, and the district court's erroneous  findings of fact concerning the reasonableness of the hours Drill South expended  in this matter.

18
District courts have broad discretion in awarding attorneys' fees, and an award  of such fees will normally be set aside only for abuse of discretion. See  American Civil Liberties Union of Georgia v. Barnes, 168 F.3d 423, 427 (11th  Cir.1999); In re Hillsborough Holdings Corp., 127 F.3d 1398, 1401 (11th  Cir.1997); ARP Films, Inc. v. Marvel Entertainment Group, Inc., 952 F.2d 643,  651 (2d Cir.1991); Lerman v. Flynt Distrib. Co., 789 F.2d 164, 166 (2d Cir.),  cert. denied, 479 U.S. 932, 107 S.Ct. 404, 93 L.Ed.2d 357 (1986). "An abuse of  discretion occurs if the judge fails to apply the proper legal standard or to  follow proper procedures in making the determination or bases an award [or a  denial] upon findings of fact that are clearly erroneous." United States v.  Gilbert, 198 F.3d 1293, 1298 (11th Cir.1999).

19
After considering the parties arguments and the record, we do not believe that  the district court abused its discretion in its decision to award Drill South  fees despite its apparent failure to plead its entitlement to fees in its  cross-claim against International Fidelity. The pre-trial order in this action  clearly stated Drill South's intent to recover attorneys' fees from  International Fidelity.13 See State Treasurer of the State of Michigan v. Barry,  168 F.3d 8, 9-10 (11th Cir.1999)(pretrial order supercedes prior pleadings);  Insurance Co. of North America v. M/V Ocean Lynx, 901 F.2d 934, 941 (11th  Cir.1990). Nor do we find that the district court erred in its determination of  the proper amount of fees to be awarded to Drill South. Accordingly, we affirm  the district court's decisions pertaining to attorneys' fees in all respects.

20
AFFIRMED.

NOTES:

1
 On May 27, 1997, Miller Drilling's claims were dismissed due to a settlement.

2
 Under Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir.1981) (en banc),  this court is bound by cases decided by the former Fifth Circuit before October  1, 1981.

3
 After Drill South filed its Motion for Default Judgment against Enviro-Group,  the district court ordered "any party wishing to be heard on the Motion" to  submit a response. Despite the district court's order, International Fidelity  chose not to defend Enviro-Group against the default judgment and offered no  evidence on Enviro-Group's liability, apparently under the belief that such  judgment would not be binding on it. Next, the district court held a hearing in  April of 1997 for arguments on "the issues of the entry of default judgment  against Enviro-Group, any damages arising therefrom, and whether such default  judgment is binding on International Fidelity as a surety." International  Fidelity appeared at the hearing and denied its liability for the default  judgment, but failed to step in and defend the merits of the judgment or  damages. The district court also accepted a brief from International Fidelity,  addressing whether International Fidelity should be bound by the judgment  against its principal. Finally, the district court provided International  Fidelity yet another opportunity to defend against the binding effect of the  default judgment when it allowed International Fidelity to argue the issue  before the court at a motion docket on August 29, 1997.

4
 The Agreement of Indemnity appoints International Fidelity as the  attorney-in-fact for Enviro-Group as follows:
[Enviro-Group] hereby irrevocably nominate[s], constitute[s], appoint[s] and  designate[s] [International Fidelity] as their attorney-in-fact with the right,  but not the obligation, ... in the name of [Enviro-Group] to make, execute, and  deliver any and all additional or other assignments, documents, or papers deemed  necessary and proper by [International Fidelity] in order to give ... the full  protection intended to be herein given to [International Fidelity] under all  other provisions of this Agreement. [Enviro-Group] hereby ratify[ies], and  confirm[s] all acts and actions taken and done by [International Fidelity] as  such attorney-in-fact.
Agreement of Indemnity at  18.

5
 Our decision that International Fidelity is bound by the default judgment  against Enviro-Group is the same under Alabama substantive law. Under Alabama  law, a surety is conclusively bound by a default judgment against a principal if  it is a privy of the principal or if it is a party to the suit in which judgment  is rendered. See Firemen's Ins. Co. v. McMillan, 29 Ala. 147, 167- 68  (Ala.1856).

6
 Contrary to International Fidelity's argument, the simple fact that  International Fidelity had asserted a cross-claim against Enviro-Group does not  affect International Fidelity's "right" to step in and defend Enviro-Group as  its attorney-in-fact. We do not believe that there is anything unusual about an  insurance company or surety defending a principal or insured against suits by  third parties, while simultaneously maintaining an action against the insured or  principal, or taking such action under a "reservation of rights."

7
 Other courts have reached this conclusion under similar facts. See First Mobile  Home Corp. v. Little, 298 So.2d 676, 682 (Miss.1974)(surety bound by default  judgment against principal when sued in same suit because had same right to  defend as its principal); Massachusetts Bonding & Ins. Co. v. Central Finance  Corp., 124 Colo. 379, 237 P.2d 1079 (1951)(default judgment against principal is  conclusive on surety); Home Ins. Co. of New York v. Savage, 231 Mo.App. 569, 103  S.W.2d 900, 901-02 (1937); Charleston & W.C. Ry. Co. v. Lassiter & Co., 208 N.C.  209, 179 S.E. 879, 881-82 (1935).

8
 Moreover, we agree with the district court that the Supreme Court's holding in  Frow v. De La Vega, 15 Wall. 552, 82 U.S. 552, 21 L.Ed. 60 (1872), is  inapplicable to this case in light of the conclusion that International Fidelity  is conclusively bound by the default judgment against Enviro-Group. Frow held  that where multiple defendants are jointly liable, it would be "incongruous" for  judgment to be entered against a defaulting defendant prior to the decision on  the merits as to the remaining defendants. See id. at 554. Nevertheless, Frow  has been interpreted to apply only when there is a risk of inconsistent  adjudications. See In re Uranium Antitrust Litigation, 617 F.2d 1248, 1257-58  (7th Cir.1980). See also Wright, Miller, & Kane, Federal Practice and Procedure;  Civil 2d  2690 (1983-1997). Because we have determined that International  Fidelity was conclusively bound by the default judgment entered against its  principal, there was no risk of inconsistent adjudications and the rationale  behind Frow is not implicated.

9
 Although we do not decide the issue today, it is not entirely clear that  International Fidelity has the right to raise the argument that the district  court lacked personal jurisdiction over Enviro-Group. Lack of personal  jurisdiction is arguably a personal defense that can only be raised by the party  over whom jurisdiction is lacking. See Leroy v. Great Western United Corp., 443  U.S. 173, 180, 99 S.Ct. 2710, 2715, 61 L.Ed.2d 464 (1979); Hardaway Co. v.  Amwest Surety Ins. Co., 15 F.3d 172, 174 (11th Cir.1994)(surety may assert all  defenses that would be available to principal with the exception of personal  defenses).

10
 Both the Alabama Rules of Civil Procedure and the Federal Rules of Civil  Procedure contemplate service upon a corporation through its "officers" or  "agents." See Fed.R.Civ.P. 4(h)(1); Ala. R. Civ. P. 4(c)(6).

11
 The summons at issue indicated that it was a cross-claim summons and was  accompanied by a cross-claim which identified Enviro-Group, not Robert Woodward,  as the cross-defendant. The case caption also identified Enviro-Group as the  defendant. In addition, the summons warned that a default might be taken if  Enviro-Group failed to appear.

12
 Moreover, like the district court, we believe that International Fidelity's  argument that service on Enviro-Group was improper and that no personal  jurisdiction attached should have been raised long ago. International Fidelity  knew or should have known of the alleged "defects" in the summons no later than  February 18, 1997, when Drill South's Motion for Default Judgment, with a copy  of the summons attached, was served on International Fidelity. Despite having  received a copy of the summons in February 1997, International Fidelity did not  raise its defective service argument until twenty-six months after the entry of  default judgment against Enviro-Group; twenty-one months after the entry of  final judgment against International Fidelity; and five months after entry of  the amended final judgment.

13
 Moreover, that Drill South did not specifically plead its entitlement to fees in  its cross-claim against International Fidelity is not necessarily determinative.  We have held under similar facts that a district court has discretion to award  the prevailing party attorneys' fees pursuant to a contractual provision,  despite that party's failure to plead fees in its pleadings. See Capital Asset  Research Corp. v. Finnegan, 216 F.3d 1268, 1270-72 (citing Engel v. Teleprompter  Corp., 732 F.2d 1238 (5th Cir.1984)). See also Klarman v. Santini, 503 F.2d 29,  36 (2d Cir.1974)(rejecting argument that a party's failure to specifically  request attorneys' fees in pleadings is in itself a bar to recovery), cert.  denied, 419 U.S. 1110, 95 S.Ct. 785, 42 L.Ed.2d 807 (1975).