Diversified Specialty Services, LLC v. Travelers Casualty & Surety Co. of America
MEMORANDUM OF DECISION RE OBJECTION AND MOTION TO STRIKE JURY DEMAND (# 119)
This action arises out of the construction of the so-called flyover bridge connecting Route 34 to Interstate 95 in New Haven, Connecticut. Defendant, Walsh Construction Co. (“Walsh”), was the general contractor for the construction project. The plaintiff was a subcontractor hired to facilitate drainage and other ancillary support to the project. As required for any State of Connecticut project, Walsh procured a payment bond from defendant Travelers Casualty & Surety Co. of America (“Travelers” or “the Surety”), to insure the payment of subcontractors so as to protect the State of Connecticut from any such claims. The plaintiff alleges that during the course of the construction, Walsh failed to pay the plaintiff as required. They further allege that Travelers failed to make payment under the surety bond and that Travelers acted in bad faith in both investigating and processing the plaintiff's claim for payment.
On October 5, 2012, the plaintiff filed a certificate of closed pleadings as well as a claim for a jury trial. Thereafter, the defendants filed an objection to, and a motion to strike the jury claim alleging that the plaintiff waived its right to a jury trial in the contract entered into with Walsh as to “any and all disputes or claims arising out of or in relation to” the subcontract. In response, the plaintiff avers that the waiver of jury trial contained in the subcontract is unenforceable. Alternatively, plaintiff argues that if the waiver provision is enforceable by Walsh, it is not enforceable as to the claims brought against Travelers.
Based upon the written submissions and as required under L & R Realty v. Connecticut National Bank, 246 Conn. 1, 9 (1998), the court held an evidentiary hearing on the objection/motion on December 18, 2012, during which both plaintiff and defendants offered testimony and evidence. The court has considered the evidence presented and the arguments advanced. For the reasons set forth below, the jury claim is stricken.
There is little question that the right to a jury trial may be waived. L & R Realty v. Connecticut National Bank, 246 Conn. 1, 9 (1998) (“[T]he right to a jury trial is a right which, like other rights, may be waived but ․ it is a right the waiver of which is not to be inferred without reasonably clear evidence of the intent to waive.”) (citations omitted). Such waivers are enforceable where there is clear evidence of an intent to waive. Id., 246 Conn. at 14. In the context of contractual waivers, express commercial contractual jury trial waivers entered into prior to litigation are presumptively enforceable. Id. at 16. In order to rebut this presumption, the party seeking to avoid the waiver bears the burden of production and “must come forward with evidence that it clearly did not intend to waive the right to a jury trial.” Id. His burden of proof is by a fair preponderance of the evidence. Id. “Whether a party has waived his right to a jury trial presents a question of fact for the trial court.” Id., quoting, Krupa v. Farmington River Power Co., 147 Conn. 153, 156, 157 (1960).
Factors to consider when determining whether the party intended to waive a jury trial include: the conspicuousness of the waiver clause, i.e “whether it is in particularly fine print or is buried in the middle of a voluminous document”; whether there was an inequality of bargaining power; whether the party had counsel at the time the contract was signed; or whether the party had an opportunity to negotiate the terms of the agreement. Id. at 16. The court is not restricted to evidence on these factors and can consider any evidence put forth that may establish a clear intent not to be bound by the waiver provision. Id.
The defendants here argue that consideration of these factors establish the enforceability of the waiver provision. The plaintiff counters that the waiver was not knowingly or voluntarily executed and is therefore unenforceable. All parties argue that the factors identified in L & R Realty, supra, for determining the validity of jury trial waivers, weigh in their favor.
The circumstances under which the subcontract at issue came to be signed are largely undisputed. Diversified is a subcontractor certified as a Disadvantaged Business Entity (DBE) as a minority owned business. It has been in business for many years and provides among other things, sewer work in connection with major construction projects. The contract for Diversified was valued in excess of $2.3 million dollars. While this is considered a substantial contract for Diversified, it is not, historically, the largest of its contracts. Walsh is a national construction company which enters into large construction projects throughout the country. If Walsh is the successful bidder on a project, it then enters into contracts with subcontractors. As the general contractor, Walsh was required to contract a specific percentage of the work to DBEs. Failure to do so could result in financial penalty or other negative repercussions for Walsh.
Walsh and Diversified began discussions about Diversified's subcontract in the fall of 2008. On December 10, 2008, Diversified's manager, Anthony Garcia, asked whether Walsh had “boiler plate” language that would go into the subcontract. That same day, John Waugh, a project manager with Walsh and the person with whom Garcia was negotiating the contract, forwarded boiler plate subcontract language. The so-called “boiler plate” language is contained in Exhibit A to the “subcontract agreement” forwarded to Garcia. Exhibit A is 7 pages long and is titled “Terms and Conditions.” Within the Exhibit are subtitled “Articles.” Each of the 12 articles within Exhibit A, is set apart with capital letters and a name, i.e. “ARTICLE 1—SCOPE OF WORK CONDITIONS.” The font of Exhibit A is rather small, but consistently so. Within the articles are numbered paragraphs, which also contain subtitles, i.e. appearing under the heading for ARTICLE 1, “1.1 Subcontractor's Work,” which is followed by a paragraph regarding this topic. Article 11 of the “boiler plate” sent on December 10, 2012 is titled “DISPUTE RESOLUTION.” Thereunder, appears the following:
11.1: Law and Effect. This Agreement shall be governed by the law of the state in which the Project is situated. The Subcontractor hereby agrees to accept jurisdiction of and service of process in the state in which the Project is situated and any action or proceeding under or in connection with the Subcontract shall be brought in the county in which the Project is situated. In the event of any dispute involving this Agreement or the Subcontractor's Work performed or to be performed, or any claims of Subcontractor, Subcontractor shall continue to perform the Subcontractor's Work without interruption, deficiency or delay in a diligent manner. Further Subcontractor hereby waives its right to a trial by jury in any and all disputes or claims arising out of or in relation to this agreement. Subcontractor agrees to make these conditions a part of each contract for materials, supplies, labor or equipment entered into by Subcontractor in regard to the Work.
The subcontract agreement entered into between Walsh and Diversified was signed on January 19, 2009 by Anthony Garcia. The signatures for the contracting parties appear on the front page attached to which are Exhibits A through E, and Exhibits H and I. Exhibit A to the executed subcontract agreement is identical to the “boiler plate” Exhibit A sent to Garcia on December 10, 2008.
Anthony Garcia does not recall seeing the jury waiver. He recalls seeing the arbitration option located immediately under the provision quoted above. He admits to reading the headings but acknowledges that he did not read all of Exhibit A prior to signing the agreement on January 19, 2008. Garcia's brother is an attorney who practices extensively in the field of construction law. Although Attorney Garcia was available to Garcia to review the subcontract agreement, Garcia never requested any such review. Garcia testified that it was implied to him through conversations with Waugh that the boiler plate “is what it is” and that it was not subject to negotiation. However, he did not testify as to any particular statements by Waugh from which such an inference might be assessed. Indeed, Waugh testified that portions of the so-called “boiler plate” are often the subject of negotiation and revision with subcontractors. Waugh testified that Garcia never made any request for any portion of Exhibit A to be changed. The evidence establishing that such terms may well be negotiated with a subcontractor leads this court to conclude that Garcia assumed (wrongly) that Exhibit A was not subject to negotiation and so therefore did not read it and did not discuss it with either his attorney or with Waugh. The court does not credit Garcia's recollection that it was implied to him that Exhibit A was non-negotiable. As Garcia candidly acknowledged, his focus in reviewing the agreement was with respect to the pricing and payment provisions. While this is to be expected, focusing on a primary contract term does not excuse one from honoring those portions of the contract which went unread. See, Batter Building Materials Co. v. Kirschner, 142 Conn. 1, 7 (1954) (A party is not allowed “in the absence of accident, fraud, mistake or unfair dealing, to escape his contractual obligations by saying, ․ that he did not read what was expressly incorporated as specific provisions of the contract into which he entered”). See also Fleet National Bank v. Fiore Neylan Travel, Inc., judicial district of Hartford, Dkt. No. CV 030828385 (August 5, 2004, Sheldon, J.) (In upholding jury waiver provision, court noted: “failing to read one's own contract will not relieve a contracting party of his obligations under that contract”).
There is little question that the font was small and the waiver was not highlighted, set in bold, capitalized or otherwise flagged. It does not appear in close proximity to the parties' signatures and is in the middle of a contract which is many pages in length. However, the jury trial waiver is the same size and font as all of the other provisions in Exhibit A, each of which was available for inspection as of December 10, 2008, almost six weeks before the agreement was signed. It was not therefore hidden from view but subject to the same inspection and reading as many other contract provisions.
Further, Walsh, as the general contractor and much larger entity had better bargaining position. However, Diversified is managed by Garcia, a college educated and very experienced subcontractor. Diversified is also a DBE which makes it attractive to a general contractor and so this levels the playing field somewhat. While the relative bargaining positions were not precisely even, nor were they so disproportionate as to render the waiver involuntary. This was a contract entered into between two sophisticated commercial entities.
Finally, this case is not a case where coercion is alleged or even that Walsh said “take it or leave it.” There was no such discussion regarding the jury waiver because Garcia admittedly did not read Exhibit A in its entirety and was unaware of the waiver provision. Further, that Garcia assumed it was a “take it or leave it” situation, even had he been aware of the waiver language, is not a basis to render the contract waiver unenforceable. The assumption was ill-founded given the undisputed evidence that the provisions of Exhibit A were routinely the subject of alteration and negotiation. In sum, the fact that Garcia was not aware of the waiver provision is not affirmative evidence that he did not intend to waive a jury trial. See, First Union National Bank v. Moore, 27 Conn. L. Rptr 3121 (June 1, 2000, Silbert J.) (Affidavit in which defendant claimed waiver was not pointed out to him; that he was advised he did not need a lawyer to review the contract, and he found the language confusing was inadequate to establish by a fair preponderance that the defendant did not have clear intent to waive trial by jury); Webster Bank v. GFI Groton, LLC, judicial district of New London, Dkt. No. CV 096001323 (January 17, 2012, Devine, J.) (Jury trial waiver was enforceable despite defendant's affidavit indicating that he was not aware of the jury waiver clause, where clause was positioned close to the signature page and was in upper-case letters and defendants were experienced businessmen).
Therefore, the waiver provision is enforceable as to the claims brought against Walsh. The plaintiff argues next that even if the waiver is enforceable as to its claims against Walsh, it is not applicable to its claims against Travelers.
It is a fundamental precept of suretyship law that the liability of the surety is conditioned on accrual of some obligation on the part of the principal; the surety will not be liable on the surety contract if the principal has not incurred liability on the primary contract ․'In the absence of limitations or restrictions contained in the (surety) contract, the liability of the surety is coextensive with that of the principal.' ․ ‘The surety's promise is in the same terms as that of the principal and the consequent duty similar and primary ․’
(Citations omitted.) Star Contracting Corp. v. Manway Const. Co., Inc., 32 Conn.Sup. 64, 66–67 (1973). Thus, ‘where the surety elects to step into the shoes of the contractor ․ (i)t becomes entitled to all the benefits and assumes all the liabilities' of the contractor. Id., citing, Houston Fire & Casualty Ins. Co. v. E.E. Cloer General Contractor, Inc., 217 F.2d 906 (5th Cir.1954).1 See also, Thomas Steel, Inc. v. Wilson Bennett, Inc., 127 Ohio App.3d 96, 107 (8th Dist.1998) (Both the obligations and the defenses of the surety and its principal are coextensive and concurrent).
Under analogous circumstances, courts have enforced arbitration clauses in contracts between a surety's principal and a contractor with respect to claims brought by or against the surety on the contract. See e g., United States of America for Use and Benefit of Air–Con, Inc. v. Al–Con Development Corp., 271 F.2d 904 (4th Cir.1959) (Permitting a surety to enforce an arbitration clause contained in the contract between the plaintiff and the surety's principal); Blumenthal–Kahn Electric Ltd, v. American Home Assurance Co., 236 F.Sup.2d 575, 583 (E.D.Va.2002) (Allowing a surety to enforce an arbitration agreement); Shores of Panama, Inc. v. Safeco Insurance Co. of America, 2008 WL441 7558 (S.D.Ala.2008); Capitol Indemnity Corp. v. Dayton Board of Education, 492 F.Sup.2d 829, 832 (S.D.Ohio 2006).
The plaintiff, relying in large measure on Attard Industries, Inc. v. United States Fire Insurance Co., 2010 WL30697999 (E.D.Wa. Aug. 5, 2010), argues that this line of cases is not persuasive as each implicates a strong public policy in favor of arbitration, a policy not at issue in this case. In Attard Industries, the court did not allow a surety to enforce a jury trial waiver against a subcontractor. In so doing, the court distinguished those cases that had permitted the enforcement of an arbitration clause by a surety against a subcontractor on the grounds that those cases, which necessarily included a concomitant waiver of a jury trial, were “driven by the strong federal policy in favor of arbitration.” Id. at 4. As such, in the absence of an arbitration clause, the justification for enforcing the waiver of the jury trial clause disappears. Id.
The Attard court also held that the “justification for a surety to ‘stand in the shoes' of its principal diminishes when the principal's right to be enforced is not related to the principal's liability to the claimant, but to the process or procedure relating to the adjudication of that liability.” Id. at 3.
This court does not accept the reasoning of the court in Attard and follows instead those cases which have recognized that the rights and obligations of a surety are both coextensive and concurrent to the rights of its principal.2 See, Painting Company v. Walsh/Demaria Joint Venture III, 2010 WL 1027424 (S.D.Ohio 2010) (By operation of law, the surety was held to have the same right as the principal to enforce a jury trial waiver in the subcontract); U.S. ex rel. Coken Company, Inc. v. National Union Fire Insurance Co. of Pittsburgh, PA, 2003 WL 22937731, at *1 n.1 (M.D.N.C. December 2, 2003) (Surety permitted to invoke the forum selection provisions in principal's contract).3
Thus, the jury waiver is enforceable as to claims brought against Travelers as well. Further, the court finds that the breadth of the waiver, as applying to “any and all disputes or claims arising out of or in relation to” the subcontract includes the claims of bad faith brought against Travelers.
The objection to the claim for a jury trial is sustained and the matter will be heard as a trial to the court.
Kari A. Dooley, Judge
FN1. Connecticut's statutory provision requiring surety bonds in public works contracts, is patterned after the federal Miller Act. International Harvester Co. v. L.G. DeFelice & Son, Inc., 151 Conn. 325, 333 (1964). Thus, decisions involving surety contracts under the Miller Act are instructive when reviewing state claims. Id. at 334.. FN1. Connecticut's statutory provision requiring surety bonds in public works contracts, is patterned after the federal Miller Act. International Harvester Co. v. L.G. DeFelice & Son, Inc., 151 Conn. 325, 333 (1964). Thus, decisions involving surety contracts under the Miller Act are instructive when reviewing state claims. Id. at 334.
FN2. This court also believes that a piecemeal or ad hoc approach to the question of whether a particular contract provision between a general contractor and a subcontractor is enforceable by or against a surety would create substantial uncertainty or unpredictability in the industry as between contractors, subcontractors, sureties and as well the public entity whose projects are being constructed.. FN2. This court also believes that a piecemeal or ad hoc approach to the question of whether a particular contract provision between a general contractor and a subcontractor is enforceable by or against a surety would create substantial uncertainty or unpredictability in the industry as between contractors, subcontractors, sureties and as well the public entity whose projects are being constructed.
FN3. The court notes that several of the cases the court reviewed in which arbitration clauses were enforced by or against a surety relied, at least in part, on the fact that the underlying contract was incorporated by reference into the payment bond. Whether the bond issued by Travelers contains such a provision is unknown as it was not presented to the court. Thus, this is not a basis upon which the court finds the jury waiver enforceable by Travelers here.. FN3. The court notes that several of the cases the court reviewed in which arbitration clauses were enforced by or against a surety relied, at least in part, on the fact that the underlying contract was incorporated by reference into the payment bond. Whether the bond issued by Travelers contains such a provision is unknown as it was not presented to the court. Thus, this is not a basis upon which the court finds the jury waiver enforceable by Travelers here.
Dooley, Kari A., J.