N-Tek Construction Services, Inc. v. Hartford Fire Insurance Company (Lawyers Weekly No. 11-028-16)

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14-P-1483                                       Appeals Court

N-TEK CONSTRUCTION SERVICES, INC.  vs.  HARTFORD FIRE INSURANCE COMPANY.

No. 14-P-1483.

Essex.     November 5, 2015. – March 14, 2016.

Present:  Agnes, Sullivan, & Blake, JJ.

Public Works, Payment bond.  Surety.  Notice.  Bond, Public works, Construction contract bond.  Contract, Public works, Construction contract, Bond, Surety.

Civil action commenced in the Superior Court Department on November 18, 2010.

After transfer within the Superior Court Department, the case was heard by Timothy Q. Feeley, J.

Edward J. Quinlan for the plaintiff.

John W. DiNicola, II, for the defendant.

AGNES, J.  In this case we address the notice provision contained in G. L. c. 149, § 29, as amended by St. 1972, c. 774, § 5 (§ 29),[1] in the context of a $ 23.29 million publicly funded project to repair a bridge in Gloucester (project).  In particular, we decide whether the electronic mail message (e-mail) notice given by the claimant, N-Tek Construction Services, Inc. (N-Tek), to the general contractor, SPS New England, Inc. (SPS), satisfied § 29.  N-Tek contends that the Superior Court judge, who tried this case without a jury, erred in concluding that the e-mail sent to SPS by N-Tek’s principal failed to satisfy the requirements of § 29.  For the reasons that follow, we affirm.

SPS, the general contractor, posted a payment bond from a surety, Hartford Fire Insurance Company (Hartford).  N-Tek filed the underlying action, seeking recovery against SPS’s bond pursuant to G. L. c. 149, § 29, based on its claim that it had not been fully paid for its work furnished to a subcontractor, Seaway Coatings, Inc. (Seaway).  N-Tek sought to reach and apply the payment bond funds to satisfy outstanding invoices.  Hartford denied liability.  After a bench trial, the judge found that N-Tek did not provide sufficient written notice of its bond claim to SPS as required by § 29, and ordered judgment to enter for Hartford.  On appeal, N-Tek argues that the judge misinterpreted § 29 by imposing an added requirement that the notice “include and communicate an intent to assert a claim against the [g]eneral [c]ontractor’s” bond, based on Federal cases construing the Miller Act, 40 U.S.C. §§ 3131-3134 (2002), the Federal analogue to § 29.[2]

Facts.  We summarize the facts found by the judge, supplemented by undisputed parts of the record.

1.  Project.  On August 14, 2008, the Massachusetts Highway Department (department)[3] entered into a contract with SPS to perform repairs to the A. Andrew Piatt Bridge in Gloucester.  Built in 1950, the four-lane deck bridge spans the Annisquam River and is a primary access way to the Cape Ann area.  In turn, SPS engaged Seaway, a Maryland-based painting subcontractor, to install a platform to be used by all trades, and to clean and paint the bridge.  Seaway and SPS executed two subcontracts, which had a total combined value of $ 5,765,360.  At SPS’s request, Seaway posted separate payment and performance bonds,[4] which were issued by its surety, First Sealord Surety, Inc. (First Sealord).[5]

2.  N-Tek’s work for Seaway.  In 2008, Joseph P. Toffoloni formed N-Tek, a Massachusetts firm, to provide construction management consultant (or project manager) services to out-of-State subcontractors, such as Seaway, whose business operations in the Commonwealth did not support having their employees act as an on-site manager or superintendent.  Toffoloni was N-Tek’s president and sole employee.[6]  On October 6, 2008, Toffoloni sent a proposal to Seaway (October 6 proposal), offering his services as a project manager on the project.[7]  For his compensation, Toffoloni proposed, in part, a base fee of $ 150 per hour, “plus reasonable expenses.”

N-Tek and Seaway did not enter into or otherwise bind themselves to a written contract of hire.  Nor did Seaway agree, in any writing, to the terms and conditions of N-Tek’s October 6 proposal.[8]  Seaway engaged Toffoloni, albeit informally, to serve as a project manager, and fully paid N-Tek’s first twenty-one invoices, for the period between October of 2008 and September 13, 2009.  Those invoices represented $ 190,821 in total billings.

3.  Toffoloni’s e-mail to SPS regarding unpaid work.  Seaway’s painting work, scheduled to start in May of 2009, stalled for various reasons, including the fact that certain preparatory steps, such as demolition and concrete repairs, had not been completed.  Seaway experienced financial difficulties, initially in the summer of 2010 and thereafter, causing it to fall behind on payments to its suppliers and others.  In the run-up to Seaway’s financial troubles, Toffoloni sent the following e-mail on March 16, 2010 (March 16 e-mail) to Robert A. Naftoly, SPS’s vice-president of project management:

“Hello Bob.  Enclosed is the January 15, 2010 Statement to Seaway Coatings, Inc./Mr. Athanasios Koussouris for services through that date by N-Tek Construction Services, Inc. for the [project] that are still unpaid.

“Please give me a call at [telephone number] when you have a chance.  Thanks.  Joe[.]”

An attached statement listed ten invoices, totaling $ 77,166.72, unpaid by Seaway.[9]  As of March 16, 2010, Naftoly “had never heard of N-Tek” but he “clearly” understood that Toffoloni was connected in some way to N-Tek.  Naftoly did not understand Toffoloni to be making a claim against SPS or Hartford.[10]

On October 20, 2010, SPS informed Seaway that it was henceforth barred from performing further work on the project, per an order of the department.  SPS hired a substitute firm, which soon abandoned the project.  Three other firms came and went before SPS engaged a fifth (and final) firm that managed to substantially complete the cleaning and painting work.

Prior proceedings.  Pretrial rulings pared down what had been a sprawling multiparty case to the present dispute between N-Tek and Hartford.  At trial, N-Tek called Toffoloni as its only witness.  Naftoly testified on behalf of Hartford.  Summarizing its case, N-Tek asserted that SPS had been put on notice by the March 16 e-mail that N-Tek had not been paid for its work performed for Seaway.  Relying on evidence of a “business relationship” between Seaway and N-Tek and the unpaid invoices, N-Tek’s trial counsel argued in closing that his client was entitled, under § 29, to reach and apply the SPS bond funds to pay down the invoices in question.

On the other hand, Hartford argued that no legally valid, enforceable contract existed between Seaway and N-Tek; that N-Tek failed to provide legally sufficient written notice to SPS; and that N-Tek fell well short of proving any legitimate damages recoverable under § 29.

Standard of review.  In reviewing a judgment entered after a bench trial, we review the trial judge’s factual findings, based on the “clearly erroneous” standard of Mass.R.Civ.P. 52(a), as amended, 423 Mass. 1402 (1996).  City Rentals, LLC v. BBC Co., 79 Mass. 559, 560 (2011).  If a trial judge’s ultimate finding involves the interpretation of a statute, as is the case here, our review is de novo.[11]  See Sutton Corp. v. Metropolitan Dist. Commn., 423 Mass. 200, 209-210 (1996).

Analysis.  Section 29, which has long-standing antecedents,^[12] is a remedial law intended to protect laborers and material suppliers from nonpayment by contractors and subcontractors involved in the construction or repair of public buildings and public works.  See Otis Elevator Co. v. Long, 238 Mass. 257, 264 (1921); Peters v. Hartford Acc. & Indem. Co., 377 Mass. 863, 865 (1979); Costa v. Brait Builders Corp., 463 Mass. 65, 72 (2012) (§ 29 also “benefits” general public).

1.  General principles.  “Suretyship may be defined as a contractual relation whereby one person engages to be answerable for the debt or default of another.”  Stearns, Law of Suretyship § 1.1, at 1 (5th ed. 1951).  “The fact that this [payment] bond [issued by Hartford] is required by statute does nothing to alter the settled principles of contract and suretyship law.”  Peerless Ins. Co. v. South Boston Storage & Warehouse, Inc., 397 Mass. 325, 327 (1986).  See Wood v. Tuohy, 67 Mass. App. Ct. 335, 341 (2006); C & I Steel, LLC v. Travelers Cas. & Sur. Co. of America, 70 Mass. App. Ct. 653, 657 (2007).  A statutory payment bond is a contract, although its terms and conditions are largely defined by statute, in this case, § 29.   A surety’s obligation under a statutory payment bond corresponds to that of its principal.  John W. Egan Co. v. Major Constr. Mgmt. Corp., 46 Mass. App. Ct. 643, 646 (1999).  In essence, a surety is liable to make good any default of its principal within the bond’s penal sum.  See George H. Sampson Co. v. Commonwealth, 202 Mass. 326, 339 (1909); Di Fruscio v. New Amsterdam Cas. Co., 353 Mass. 360, 364 (1967).

A person who has furnished labor or materials for public works and who has not been fully paid has a right under § 29 to seek recovery under the bond of the general contractor in satisfaction of amounts justly due.  Section 29 attaches three conditions to this right.  A claimant must be eligible to claim protection under § 29; give written notice to the general contractor of its claim; and commence an action in Superior Court within the time limitations established by the statute.

2.  Section 29.  a.  Eligible claimant.  The Legislature has defined those persons who are entitled to § 29′s protections, including “[a]ny claimant having a contractual relationship with a subcontractor performing labor . . . pursuant to a contract with the general contractor but no contractual relationship with the contractor principal furnishing the [payment] bond . . . .”  § 29, third par.[13]  N-Tek says it fits this category.  We agree.

N-Tek had a contractual relationship, albeit implied by law, with Seaway but not with the “contractor principal” (SPS) furnishing the bond.  The record evidence warranted a finding that Seaway and N-Tek, by their largely unambiguous conduct, had established a business arrangement, or course of dealing, to the extent that N-Tek agreed to provide managerial services for Seaway for the project and, in return, Seaway agreed to pay for N-Tek’s services, described by written invoices, which were often submitted by N-Tek to Seaway on a biweekly basis.  While it is unnecessary for us to be any more precise about the nature of the relationship between N-Tek and Seaway, N-Tek’s invoices are remarkable for the lack of meaningful information,[14] much less any detail, respecting the particular work for which N-Tek sought payment.

b.  Written notice.  A claimant, like N-Tek here, who has dealt exclusively with a subcontractor (Seaway) and has had no contractual relationship with the general contractor (SPS) must give written notice of its claim to the general contractor.  Specifically, pursuant to § 29, N-Tek had to give “written notice to the contractor principal [i.e., SPS] within sixty-five days after the day on which the claimant [N-Tek] last performed the labor” on the public works project, “stating with substantial accuracy the amount claimed, [and] the name of the party [Seaway] for whom such labor was performed.”  N-Tek argues that the written notice need not “contain any express or explicit statements that the claimant is seeking payment from the general contractor or that a claim against its bond will be pursued.”  While it is true that the statutory “notice requirement can be satisfied by a brief letter” from the supplier or laborer to the general contractor, it is essential nonetheless that the notice “make unambiguous the claimed rights of all.”  Barboza v. Aetna Cas. & Sur. Co., 18 Mass. App. Ct. 323, 328 (1984).[15]

N-Tek’s argument disregards the purpose of the notice requirement and judicial decisions interpreting § 29 and the Federal Miller Act’s virtually identical language.  See Bastianelli v. National Union Fire Ins. Co., 36 Mass. App. Ct. 367, 369-370 (1994).  See also United States ex rel. J.A. Edwards & Co. v. Thompson Constr. Corp., 273 F.2d 873, 875-879 (2d Cir. 1959); United States ex rel. Water Works Supply Corp. v. George Hyman Constr. Co., 131 F.3d 28, 32 (1st Cir. 1997).  Section 29 establishes a firm date — i.e., sixty-fifth day from and after the date when the claimant last furnished labor — after which the general contractor may pay a first-tier subcontractor without fear of such further liability to sub-subcontractors or suppliers who had furnished labor or material to the first-tier subcontractor.  The notice requirement bolsters the legislative policy to protect the general contractor, by requiring the claimant’s writing to serve as a presentation of a claim against the general contractor.  As to this narrow point of law, “courts have consistently, and we think correctly, held that ‘the written notice and accompanying oral statements must inform the general contractor, expressly or impliedly, that the supplier [or, as here, the laborer] is looking to the general contractor for payment so that it plainly appears that the nature and state of the indebtedness was brought home to the general contractor.’”  United States ex rel. Water Works Supply Corp. v. George Hyman Constr. Co., supra at 32, quoting from United States ex rel. Kinlau Sheet Metal Works, Inc. v. Great Am. Ins. Co., 537 F.2d 222, 223 (5th Cir. 1976).

Toffoloni’s March 16 e-mail, when considered in light of all the material surrounding circumstances (as this court did in Bastianelli v. National Union Fire Ins. Co., supra at 370), fails to state, explicitly or implicitly, that he (or his firm) was making a claim against SPS for services rendered on the project, and thus fails to satisfy § 29.[16]  We think that the strict notice provision of § 29 was intended to relieve the general contractor of the need to engage in guesswork as to whether a claim was being made against it or the statutory bond.[17]  We do not believe that the Legislature “intended to have it held that such little expenditure of effort is too much diligence to require” of a claimant, sub-subcontractor or supplier, to preserve its rights against the general contractor’s payment bond.  United States ex rel. J.A. Edwards & Co. v. Thompson Constr. Corp., 273 F.2d at 879 (quotation omitted).[18]

Section 29′s written notice requirement constitutes a “condition precedent” under Massachusetts law — i.e., an event that must occur before the principal or its surety is obligated to perform[19] — that N-Tek had to meet to be able to enforce its statutory (§ 29) rights.[20]  See International Bus. Machs. Corp. v. Quinn Bros. Elec. Co., 321 Mass. 16, 17 (1947); Armco Drainage & Metal Prods., Inc. v. Framingham, 332 Mass. 129, 132 (1954).  If a creditor fails to meet a condition precedent to the principal’s liability, the surety is not obligated to perform.  Stearns, Law of Suretyship § 7.18, at 225.  “It ill serves the statutory scheme, however, and would stimulate litigation, if we obscured the relatively simple statutory prerequisites upon which all parties in public contracting, including the sureties, presumably rely.”  Barboza v. Aetna Cas. & Sur. Co., 18 Mass. App. Ct. at 328.

Conclusion.  A fair reading of § 29, in light of its history, the legislative aims advanced by the statute, settled contract and suretyship principles not displaced or altered by § 29, and governing Massachusetts case law — bolstered by Federal court decisions interpreting the Miller Act’s parallel text that is virtually identical to the provisions of § 29 in question here — leads us to conclude that the judge was correct in ruling that N-Tek did not give SPS sufficient written notice of its bond claim to satisfy § 29.

Judgment affirmed.

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