Court Opinion

ID: 4659087
Source: CourtListenerOpinion
Date Created: 2021-02-10 14:13:22.327477+00
Date Added: 2024-06-11T08:01:57.351690
License: Public Domain

THE STATE OF SOUTH CAROLINA
              In The Court of Appeals

Meritage Asset Management, Inc. d/b/a Century Glass
Company, Appellant,

v.

Freeland Construction Company, Inc. and South Carolina
Military Department, Defendants,

Of which South Carolina Military Department is the
Respondent.

Appellate Case No. 2018-000162

              Appeal From Richland County
         G. Thomas Cooper, Jr., Circuit Court Judge

                    Opinion No. 5802
     Heard September 14, 2020 – Filed February 10, 2021

                       AFFIRMED

Everett Augustus Kendall, II, of Murphy & Grantland,
P.A., and William Harley Yarborough, Jr., of Cavanaugh
& Thickens, LLC, both of Columbia, for Appellant.

Chief Deputy Attorney General W. Jeffrey Young,
Deputy Assistant Attorney General Harley Littleton
Kirkland, and Assistant Attorney General Leon David
Leggett, III, all of Columbia, for Respondent.
WILLIAMS, J.: Meritage Asset Management, Inc., d/b/a Century Glass
Company (Meritage), appeals the trial court's order granting South Carolina
Military Department (the Department) summary judgment. On appeal, Meritage
argues it was entitled to summary judgment because it was undisputed the
Department failed to comply with the Subcontractors' and Suppliers' Payment
Protection Act (the SPPA).1 We affirm.

FACTS/PROCEDURAL HISTORY

The facts of this case are not in dispute. In September 2014, the Department
executed a contract with Freeland Construction Company, Inc. (Freeland) to
perform construction work on the Saluda Armory. Freeland failed to secure a
payment bond for the project or submit any proof of adequate bonding in its bid
submission to the Department. The Department admitted it failed to require
Freeland to obtain a payment bond as required under the SPPA.2 In January 2016,
Freeland subcontracted with Meritage to perform work on the project. Meritage
completed the work and submitted a final invoice to Freeland on May 20, 2016.
Freeland submitted its final invoice to the Department on June 3, 2016, and was
paid in full on June 17, 2016. Freeland never paid Meritage for its work on the
project. Meritage notified the Department of Freeland's failure to pay on August 8,
2016.

Meritage brought a breach of contract claim alleging (1) the Department was
obligated to compensate Meritage as a third-party beneficiary to the contract
between the Department and Freeland and (2) the Department failed to ensure that
Freeland was properly bonded pursuant to the SPPA.3 The Department admitted it
failed to comply with the SPPA's payment bond requirement, but it nevertheless
moved for summary judgment. The Department argued that under Sloan
Construction Company, Inc. v. Southco Grassing, Inc., Meritage was not entitled to
any recovery from the Department because there was no outstanding balance owed
to Freeland when the Department received notice of Freeland's nonpayment.4
Meritage filed a cross motion for summary judgment.

1
  S.C. Code Ann. §§ 29-6-210 to -290 (2007 & Supp. 2019).
2
  See § 29-6-250.
3
  Meritage also brought a breach of contract claim against Freeland and obtained a
default judgment.
4
  377 S.C. 108, 121, 659 S.E.2d 158, 165–66 (2008) ("[T]he government entity's
liability [under the SPPA] is limited to the remaining unpaid balance on the
contract with the general contractor when the subcontractor notifies the
Finding Sloan applied, the trial court granted the Department's motion for
summary judgment. The court held that under Sloan, the Department did not owe
Meritage damages because no outstanding balance existed between the Department
and Freeland at the time Meritage notified the Department of Freeland's failure to
compensate. This appeal followed.

ISSUE ON APPEAL

Did the trial court err in granting summary judgment to the Department?

STANDARD OF REVIEW

"In reviewing a grant of summary judgment, the appellate court applies the same
standard as the trial judge under Rule 56(c), SCRCP." Shirley's Iron Works, 403
S.C. at 567, 743 S.E.2d at 782. "Summary judgment is proper if, viewing the
evidence in a light most favorable to the nonmoving party, there is no genuine
issue of material fact and the moving party is entitled to a judgment as a matter of
law." Id.

LAW/ANALYSIS

Meritage argues the trial court erred in denying its motion for summary judgment
and in granting summary judgment to the Department. Meritage asserts the trial
court erred in holding Sloan applied, arguing this case is distinguishable from
Sloan because the Department paid Freeland in full before Meritage notified the
Department of Freeland's nonpayment. Meritage contends the application of
Sloan's limitation is inconsistent with the SPPA's goal of protecting subcontractors
and suppliers. We disagree.

Prior to 2000, subcontractors and suppliers providing labor or materials for public
projects had limited payment protection in the event the general contractor became
insolvent because mechanics' liens cannot be enforced on public property. Sloan,
377 S.C. at 113, 659 S.E.2d at 161; see also Atl. Coast Lumber Corp. v. Morrison,
152 S.C. 305, 309, 149 S.E. 243, 245 (1929) (stating a mechanics' lien is not
enforceable against public property). The South Carolina General Assembly

government of the general contractor's nonpayment." (emphasis added)), holding
modified by Shirley's Iron Works, Inc. v. City of Union, 403 S.C. 560, 743 S.E.2d
778 (2013).
enacted the SPPA in 2000 to institute a bonding scheme to ensure such entities are
compensated for their work on public projects. Sloan, 377 S.C. at 114, 659 S.E.2d
at 161. Section 29-6-250 provides as follows:

             (1) When a governmental body is a party to a contract to
             improve real property, and the contract is for a sum in
             excess of fifty thousand dollars, the owner of the
             property shall require the contractor to provide a labor
             and material payment bond in the full amount of the
             contract.

                   ....

                    (3) For the purposes of any contract covered by the
             provisions of this section, it is the duty of the entity
             contracting for the improvement to take reasonable steps
             to assure that the appropriate payment bond is issued and
             is in proper form.

In Sloan, the government hired a general contractor for a maintenance project on
state highways, and the general contractor provided proof of a payment bond. 377
S.C. at 111, 659 S.E.2d at 160. The general contractor hired a subcontractor, but
before the subcontractor completed its work, the payment bond was canceled due
to the bond issuer's insolvency. Id. The government requested proof of a
replacement bond, but the general contractor never responded. Id. The
subcontractor completed its work but did not receive payment from the general
contractor, and it notified the government (1) it had not been paid and (2) the
general contractor did not obtain a replacement payment bond. Id. The general
contractor, without paying the subcontractor, subsequently informed the
government it made all payments due to subcontractors and requested its final
payment, which the government disbursed. Id. The subcontractor sued the
government, ultimately raising to our supreme court the issue of whether a
subcontractor could recover from the government under the SPPA. Id. at 111–12,
659 S.E.2d at 160–61.

The court, noting the SPPA was a remedial statute subject to liberal construction,
held section 29-6-250 created a private right of action against the government for
failure to ensure the general contractor obtained a payment bond. Id. at 117–18,
659 S.E.2d at 163–64. The SPPA does not provide a remedy for the government's
failure to comply with section 29-6-250, but the supreme court held its failure to do
so does not subject it to open-ended liability. Id. at 121, 659 S.E.2d at 165. In
determining the government's limits on liability, the court considered the limits set
forth in the mechanics' lien statutes. Id. Specifically, the court noted "the owner's
liability is limited to the remaining unpaid balance on the contract with the general
contractor at the time the owner receives notice from the subcontractor of the
general contractor's nonpayment." Id.; see S.C. Code Ann. § 29-5-40 (2007) ("But
in no event shall the aggregate amount of liens set up hereby exceed the amount
due by the owner on the contract price of the improvement made."). Noting the
similar purposes between the SPPA and the mechanics' lien statutes, the court held
"in a tort or contract action arising under the SPPA, the government entity's
liability is limited to the remaining unpaid balance on the contract with the general
contractor when the subcontractor notifies the government of the general
contractor's nonpayment. 377 S.C. at 121, 659 S.E.2d at 165–66.

The supreme court subsequently modified the holding in Sloan in Shirley's Iron
Works. In that case, a city contracted with a general contractor to improve real
property but failed to require the general contractor to obtain a payment bond. 403
S.C. at 564, 743 S.E.2d at 780. The general contractor failed to compensate its
subcontractors, who contacted the city to receive payment. Id. at 564–65, 743
S.E.2d at 780. The city offered to split the amount remaining on the general
contractor's contract, but some subcontractors refused to accept less than they were
due, and the city distributed the offered amount to other subcontractors. Id. at 565,
743 S.E.2d at 780. While holding the city could be liable to the appellant for
failing to comply with section 29-6-250, our supreme court modified Sloan's
holding to clarify the government can only be liable under a third-party beneficiary
breach of contract action, not tort, for failing to comply with the SPPA. Id. at 567,
571–73, 743 S.E.2d at 781–84. However, the court did not modify Sloan's holding
that the government's liability is limited to the remaining unpaid balance on its
contract with the general contractor, and it remanded the matter to the trial court
for a determination of the government's liability pursuant to Sloan's limitation.5
See id. at 575, 743 S.E.2d at 786.

We find the trial court correctly applied Sloan to the facts of this case. Because
Meritage alleges the Department violated section 29-6-250 and Sloan established

5
  Meritage argues the supreme court was not asked to review the limits of liability
in Sloan, but whether a subcontractor had a private right of action against the
government for noncompliance with section 29-6-250. Any argument that Sloan's
limitation is dicta is without merit due to the supreme court's application of the
limitation in Shirley's Iron Works.
the remedy for violations of section 29-6-250, Sloan's limitation on liability applies
to this case. See S.C. Const. art. V, § 9 ("The decisions of the Supreme Court shall
bind the Court of Appeals as precedents."); Freeman v. Freeman, 323 S.C. 95, 105,
473 S.E.2d 467, 473 (Ct. App. 1996) ("[The court of appeals is] bound by the
decisions of the South Carolina Supreme Court."). Accordingly, the Department's
liability to Meritage is limited to the amount remaining on its contract with
Freeland when Meritage notified it of Freeland's nonpayment.6 Because it is
undisputed that the Department did not learn of Freeland's nonpayment until after
it had paid Freeland the remaining amount on the contract, its liability to Meritage
is zero as a matter of law. See Sloan, 377 S.C. at 121, 659 S.E.2d at 165–66
("[T]he government entity's liability [under the SPPA] is limited to the remaining
unpaid balance on the contract with the general contractor when the subcontractor
notifies the government of the general contractor's nonpayment."); see also
Shirley's Iron Works, 403 S.C. at 567, 743 S.E.2d at 782 ("Summary judgment is
proper if, viewing the evidence in a light most favorable to the nonmoving party,
there is no genuine issue of material fact and the moving party is entitled to a
judgment as a matter of law."). Thus, the trial court did not err in granting
summary judgment to the Department and in denying summary judgment to
Meritage.

Accordingly, the decision of the trial court is

AFFIRMED.

HUFF and GEATHERS, JJ., concur.

6
 Meritage additionally argues it could not notify the Department of Freeland's
nonpayment because payment was not yet overdue. However, neither the SPPA
nor Sloan impose a requirement that payment be past due before providing
notification of nonpayment, and Meritage fails to provide any supporting authority
for this assertion.