DEVELOPERS SURETY AND INDEMNITY COMPANY v. RICHARD BANKSTON SUSAN BANKSTON AAROHN CONSTRUCTION (2010)

BACKGROUND

If you dispute the Demand, [Developers] will expect a clear and complete explanation of your position with adequate support for it․  If you do not dispute the Demand, or cannot adequately support your disagreement with the County, [Developers] will expect Aarohn to pay the full amount of the Demand immediately.[¹ ]

Bankston never provided documentation to support his claims.   Developers paid the County's claim in March 2007.

Developers then filed a complaint for indemnification against Richard and Susan Bankston under the surety agreement.   The Bankstons filed a counterclaim for bad faith.   The case was tried to a jury.   At the close of Developers' evidence, the Bankstons moved for judgment as a matter of law on grounds that Developers had not proven it was entitled to indemnification.   They also moved to dismiss for lack of subject matter jurisdiction.   The court denied the motions.

The jury found the Bankstons liable under the indemnity agreement and awarded Developers $60,259.78.²  By special verdict, the jury found that Developers did not act in bad faith.   The Bankstons renewed their motion for judgment as a matter of law after the verdict.   The court denied the motion.   The Bankstons appeal.

DISCUSSION

When reviewing a motion for judgment as a matter of law, we apply the same standard as the trial court.³  Judgment as a matter of law is appropriate when, viewed in the light most favorable to the nonmoving party, there is no substantial evidence or reasonable inference to sustain a verdict for the nonmoving party.⁴  “ ‘Such a motion can be granted only when it can be said, as a matter of law, that there is no competent and substantial evidence upon which the verdict can rest.’ ” ⁵  Substantial evidence exists if “ ‘it is sufficient to persuade a fair-minded, rational person of the truth of the declared premise.’ ” ⁶

Judgment as a Matter of Law

The Bankstons first contend the court should have granted judgment as a matter of law because Developers failed to prove it was entitled to indemnification under the contract.   The indemnity agreement provides, in part, that the Bankstons agree:

1.  To reimburse Surety, upon demand for all payments made for and to indemnify and keep indemnified Surety from:

(a) all demands, loss, contingent loss, liability and contingent liability claim, expense, including attorney's fees, for which Surety shall become liable or shall become contingently liable by reason of such suretyship․

2.  Surety shall have the exclusive right to determine whether any claim or suit shall, on the basis of liability, expediency or otherwise, be denied, paid, compromised, defended or appealed.[7]

The Bankstons argue that the agreement is ambiguous and must, as a matter of law, be interpreted against its drafter (Developers) to mean that while Developers may pay a claim on any basis, it may seek indemnification only when it pays based on a determination of liability or contingent liability, rather than “expediency or otherwise.”   This argument ignores both the role of the trier of fact and all the usual rules for construing contracts save one:  interpretation against the drafter.   Bankstons present no authority justifying such an approach.

Interpretation of an integrated agreement “ ‘is to be determined by the trier of fact if it depends on ․ a choice among reasonable inferences to be drawn from extrinsic evidence.’ ” ⁸  The jury heard extensive evidence concerning the meaning of the agreement, and the court instructed the jury on the principles of contract interpretation.   The Bankstons do not complain that the instructions were in any way improper.

Developers presented substantial evidence that it investigated and paid the claim because of “a realistic potential for liability.” ⁹  For instance, the County terminated Aarohn in part because Bankston failed to furnish certified payrolls showing he had paid prevailing wages.   A letter from Bankston following his termination confirmed he still had not provided this documentation.¹⁰  Additionally, former Pierce County building superintendant Balis Burgess testified Bankston did not adhere to the work schedule and failed to comply with numerous other requirements of the contract.¹¹  Two or three days before the completion date, Bankston had only completed 50 to 60 percent of the job.   Though Bankston submitted change orders requesting more time and money, the orders did not meet specificity requirements in the contract.

The record thus contains substantial evidence that Developers was liable or contingently liable by reason of its suretyship and paid the County's claim on that basis.¹²

It was for the jury to interpret the agreement, decide upon what basis Developers was entitled to indemnification, and determine whether Developers complied with its obligations.   Even if the jury decided that simple expediency justified payment under the contract, there was no issue for the court to decide as a matter of law.

The Bankstons also argue that Developers forfeited its right to indemnification by paying the County's claim without undertaking adequate investigation into their defenses.   They rely on the Restatement, which provides that no duty to reimburse the surety arises when the surety has notice of a defense of the principal that is available to the surety.¹³  A surety has notice of a defense “if that defense would be revealed ․ by making such inquiry ․ as is reasonable under the circumstances to ascertain whether the principal obligor claims any defenses.” ¹⁴

The Bankstons assert that Developers “conceded that it had not conducted any investigation of the County's claim.” ¹⁵  That is not so.   Developers' claims analyst Wozney met with Bankston personally.   He discovered numerous problems with the work.   Developers' claims attorney Lou White then talked to Bankston “to find out what his side of the story was.” ¹⁶  At least twice White asked Bankston for evidence to support his assertion that the County wrongfully terminated Aarohn.   Bankston never furnished the requested documentation.   Developers' did not forfeit its right to indemnification through inadequate investigation.

Subject Matter Jurisdiction

The Bankstons next contend the court should have dismissed Developers' claim for lack of subject matter jurisdiction because Developers should have filed suit in Pierce County under RCW 4.12.010, which provides that actions “for any injuries to real property” must be commenced in the county in which the subject of the action exists.   But this is not an action for injuries to real property.   It is a straightforward contract claim and may be brought in the county where the defendant resides-here, King County.¹⁷

Prejudgment Interest

The Bankstons challenge the court's award of prejudgment interest to Developers.   We review an award of prejudgment interest for abuse of discretion.¹⁸  A court may award prejudgment interest when the claim is liquidated.¹⁹  A claim is liquidated “ ‘where the evidence furnishes data which, if believed, makes it possible to compute the amount with exactness, without reliance on opinion or discretion.’ ” ²⁰  “A claim is unliquidated ‘where the exact amount of the sum to be allowed cannot be definitely fixed from the facts proved, disputed or undisputed, but must in the last analysis depend upon the opinion or discretion of the judge or jury as to whether a larger or smaller amount should be allowed.’ ” ²¹  “ ‘[T]he existence of a dispute over the whole or part of the claim should not change the character of the claim from one for a liquidated, to one for an unliquidated, sum.’ ” ²²

The Bankstons argue Developers' claim was not liquidated because the jury awarded $4,000 less than Developers requested and must therefore have relied upon its opinion or discretion.   But the claim was for the amount Developers paid to Pierce County, which was an exact figure calculated by subtracting the unpaid portion of the Aarohn contract from the amount of the replacement contract.  “[W]here the amount sued for may be arrived at by a process of measurement or computation from the data given by the proof, without any reliance upon opinion or discretion after concrete facts have been determined, the amount is liquidated and will bear interest.” ²³  Such is the case here.   The court did not abuse its discretion.

Fees on Appeal

Developers seeks attorney fees on appeal based upon a reference to attorney fees in the indemnity agreement.   But the reference is not to fees for the prevailing party.   Instead, it provides that the principals will indemnify the surety for “all demands ․ including attorney fees, for which Surety shall become liable or shall become contingently liable by reason of such suretyship.” ²⁴  This provides no basis for fees on appeal.

There was no error.   We affirm.

WE CONCUR:

FOOTNOTES

FN1. Clerk's Papers at 461..  FN1. Clerk's Papers at 461.

FN2. This amount was $4,000 less than Developers requested..  FN2. This amount was $4,000 less than Developers requested.

FN3. Guijosa v. Wal-Mart Stores, Inc., 144 Wn.2d 907, 915, 32 P.3d 250 (2001)..  FN3. Guijosa v. Wal-Mart Stores, Inc., 144 Wn.2d 907, 915, 32 P.3d 250 (2001).

FN4. Id. (quoting Sing v. John L. Scott, Inc., 134 Wn.2d 24, 29, 948 P.2d 816 (1997))..  FN4. Id. (quoting Sing v. John L. Scott, Inc., 134 Wn.2d 24, 29, 948 P.2d 816 (1997)).

FN5. Id. (quoting State v. Hall, 74 Wn.2d 726, 727, 446 P.2d 323 (1968))..  FN5. Id. (quoting State v. Hall, 74 Wn.2d 726, 727, 446 P.2d 323 (1968)).

FN6. Id. (quoting Brown v. Superior Underwriters, 30 Wn.App. 303, 306, 632 P.2d 887 (1980))..  FN6. Id. (quoting Brown v. Superior Underwriters, 30 Wn.App. 303, 306, 632 P.2d 887 (1980)).

FN7. Ex. 2..  FN7. Ex. 2.

FN8. Berg v. Hudesman, 115 Wn.2d 657, 667-68, 801 P.2d 222 (1990) (quoting Restatement (Second) of Contracts § 212 (1981))..  FN8. Berg v. Hudesman, 115 Wn.2d 657, 667-68, 801 P.2d 222 (1990) (quoting Restatement (Second) of Contracts § 212 (1981)).

FN9. Report of Proceedings (RP) (Mar. 5, 2009) at 604..  FN9. Report of Proceedings (RP) (Mar. 5, 2009) at 604.

FN10. See Clerk's Papers at 563 (post-termination letter stating “certified payrolls will be forwarded as soon as time allows as specified in the contract”)..  FN10. See Clerk's Papers at 563 (post-termination letter stating “certified payrolls will be forwarded as soon as time allows as specified in the contract”).

FN11. Bankston did not file requested documents, including certified payroll;  failed to procure the trees included in the plans even though that was one of the main elements of the contract;  failed to remove tree roots as required by the contract;  failed to keep equipment and materials in designated areas, and removed and failed to replace a hedge the contract required to be preserved.   Bankston also failed to provide daily records of work as required..  FN11. Bankston did not file requested documents, including certified payroll;  failed to procure the trees included in the plans even though that was one of the main elements of the contract;  failed to remove tree roots as required by the contract;  failed to keep equipment and materials in designated areas, and removed and failed to replace a hedge the contract required to be preserved.   Bankston also failed to provide daily records of work as required.

FN12. Because we hold Developers is entitled to indemnification under the Bankstons' interpretation of the agreement, we need not address their argument that an alternative interpretation renders the agreement substantively unconscionable.   Nor is the agreement procedurally unconscionable.   Richard Bankston testified he signed the agreement voluntarily and there is no evidence that he could not have purchased a surety bond elsewhere if he did not like Developers' terms..  FN12. Because we hold Developers is entitled to indemnification under the Bankstons' interpretation of the agreement, we need not address their argument that an alternative interpretation renders the agreement substantively unconscionable.   Nor is the agreement procedurally unconscionable.   Richard Bankston testified he signed the agreement voluntarily and there is no evidence that he could not have purchased a surety bond elsewhere if he did not like Developers' terms.

FN13. Restatement (Third) of Suretyship and Guaranty § 24(1)(e) (1996) (the duty of the principal to reimburse the surety does not arise when “the secondary obligor had notice of a defense of the principal obligor to the underlying obligation that was available to the secondary obligor as a defense to the secondary obligation”);  see also Colorado Structures, Inc. v. Ins. Co. of the West, 161 Wn.2d 577, 605 n.15, 629, 167 P.3d 1125 (2007) (majority and dissent agreeing that a surety that wrongfully pays a doubtful claim forfeits right to indemnification)..  FN13. Restatement (Third) of Suretyship and Guaranty § 24(1)(e) (1996) (the duty of the principal to reimburse the surety does not arise when “the secondary obligor had notice of a defense of the principal obligor to the underlying obligation that was available to the secondary obligor as a defense to the secondary obligation”);  see also Colorado Structures, Inc. v. Ins. Co. of the West, 161 Wn.2d 577, 605 n.15, 629, 167 P.3d 1125 (2007) (majority and dissent agreeing that a surety that wrongfully pays a doubtful claim forfeits right to indemnification).

FN14. Restatement (Third) of Suretyship and Guaranty § 24(2) (1996)..  FN14. Restatement (Third) of Suretyship and Guaranty § 24(2) (1996).

FN15. Appellant's Br. at 13..  FN15. Appellant's Br. at 13.

FN16. RP (Mar. 4, 2009) at 461..  FN16. RP (Mar. 4, 2009) at 461.

FN17. RCW 4.12.025..  FN17. RCW 4.12.025.

FN18. Scoccolo Const., Inc. ex rel Curb One, Inc. v. Renton, 158 Wn.2d 506, 519, 145 P.3d 371 (2006)..  FN18. Scoccolo Const., Inc. ex rel Curb One, Inc. v. Renton, 158 Wn.2d 506, 519, 145 P.3d 371 (2006).

FN19. Id..  FN19. Id.

FN20. Id. (quoting Prier v. Refrigeration Eng'g Co., 74 Wn.2d 25, 32, 442 P.2d 621 (1968))..  FN20. Id. (quoting Prier v. Refrigeration Eng'g Co., 74 Wn.2d 25, 32, 442 P.2d 621 (1968)).

FN21. Id. (quoting Hansen v. Rothaus, 107 Wn.2d 468, 473, 730 P.2d 662 (1986))..  FN21. Id. (quoting Hansen v. Rothaus, 107 Wn.2d 468, 473, 730 P.2d 662 (1986)).

FN22. Id. (quoting Prier, 74 Wn.2d at 33) (alteration in original)..  FN22. Id. (quoting Prier, 74 Wn.2d at 33) (alteration in original).

FN23. Prier, 74 Wn.2d at 33-34..  FN23. Prier, 74 Wn.2d at 33-34.

FN24. Ex. 2..  FN24. Ex. 2.

Ellington, J.-Richard and Susan Bankston obtained a public works surety bond from Developers Surety and Indemnity Company (Developers).   The bond included an indemnification clause.   Bankston's landscaping company defaulted on its contract with Pierce County (County).   The County made a claim on the bond, which Developers paid.   A jury found the Bankstons liable for indemnity under the contract.   The Bankstons assert they were not liable as a matter of law.   We disagree and affirm the verdict.   Because Developers' claim was liquidated, we also affirm the court's award of prejudgment interest.   Richard Bankston, d/b/a Aarohn Construction (Aarohn), signed a contract with the County to do a landscaping project.   As a condition of the contract, Aarohn was required to obtain a surety bond.   The Bankstons executed a performance and payment bond with Developers for $132,587, the amount of the bid.   Richard's father, John Bankston, acted as project superintendent and manager.   Problems arose with the work, and in August 2006, the County declared Aarohn in default and filed a claim on the bond.   The County asserted that Aarohn failed to provide a satisfactory work schedule;  failed to confine work to areas and times as provided in the contract;  damaged a portion of the sprinkler system and failed to timely repair it, causing flooding to the interior of a building and damaging trees and plantings near a public street;  lacked satisfactory knowledge of irrigation function and operation;  left safety hazards open to the public;  removed vegetation without authorization;  failed to pay personnel the prevailing wage;  failed to provide certified payroll records;  failed to provide a contract with a tree supplier;  damaged a fence with neighboring property;  and spilled oil.   Developers sent senior claims analyst Conrad Wozney to investigate.   Wozney met with John Bankston and County representatives, walked through the site, and consulted a second contractor to determine what it would cost to finish the job.   Bankston complained that various unforeseen obstacles prevented him from adhering to the timeline and bid amount.   But Aarohn had not notified the County in writing of these issues.   Bankston also disputed several of the County's assertions and claimed he should be given more time and money to complete the job.   Wozney, however, observed several problems with the job and believed Bankston was not working efficiently.   Wozney offered to engage another contractor to help Aarohn finish the work, and tried to persuade the parties to proceed together.   Nevertheless, the County terminated Aarohn.   After a competitive bid process in which Aarohn was not the lowest bidder, the County hired another company to complete the job and repair damage caused by Aarohn.   In February 2007, the County demanded payment of $64,259.79 on the bond, representing the difference between the amount paid to complete the job and the unpaid portion of the Aarohn contract.   John Bankston insisted that the County had wrongfully terminated the contract and advised Developers not to pay the claim.   Bankston also claimed he had taken statements and had photos and witnesses who would verify that he had not caused damage as the County claimed.   Developers requested evidence to support Bankston's position.   In one letter, Developers advised: