By: Eric H. Loeffler

Sureties in Massachusetts should take note of the Appeals Court of Massachusetts’ recent decision in City Rentals, LLC v. BBC Co., Inc., ___Mass. App. Ct. ___ , 2011 WL 1988390 (May 24, 2011). The appellate court there held that the Massachusetts payment bond statute does not require multiple claim notices for ongoing transactions between the same supplier and subcontractor within the confines of a single construction project. The court also affirmed an award of attorneys’ fees under the payment bond statute that was more than twice the amount of damages sought and rewarded under the bond.

Defendant general contractor entered into a general contract for the renovation and expansion of a public library. Defendant surety issued a statutory payment bond on behalf of the general contractor, as principal, pursuant to Mass. Gen. Laws Ch. 149, § 29. The general contractor entered into a subcontract with a subcontractor for the performance of site clearance and earthwork. In turn, the subcontractor entered into an oral open account agreement with plaintiff equipment supplier.

From late-June to early-August 2002, the equipment supplier provided trucks, excavation machinery, a bulldozer and a front-end loader. After mid-August only the front-end loader remained at the project. The general contractor became dissatisfied with the subcontractor’s work and, on October 2, 2002, terminated the subcontract and took possession of all of the subcontractor’s machinery and equipment at the project, despite the fact that no contractual term permitted the general contractor to seize equipment rented by the subcontractor from a third-party supplier.

The equipment supplier made several efforts to recover the front-end loader from the site, but each time was rebuffed by the general contractor. The general contractor ultimately released the equipment on November 30, 2002. Meanwhile, on October 22, 2002, the equipment supplier sent the general contractor a written notice of claim for unpaid equipment rentals, and indicated its intention to seek payment under the statutory bond. On December 4, the equipment supplier forwarded to the general contractor and the surety an updated claim for labor, material and equipment.

On December 26, 2002, the equipment supplier commenced an action against the general contractor and the surety for unsatisfied rental charges of $35,910. After a bench trial, the judge awarded the equipment supplier the full amount of its requested damages under the bond ($35,910), plus interest and costs. After considering the attorneys’ fee claim under Section 29, the judge entered a final order for attorneys’ fees in the sum of $78,136.75.

Notice Under the Massachusetts Payment Bond Statute

On appeal, the general contractor argued that the equipment supplier failed to provide sufficient and timely notice under Section 29, which requires that claimants who have a contract with a subcontractor provide written notice to the general contractor within 65 days after the day on which the claimant last performed labor or furnished materials or equipment. The general contractor contended that the equipment supplier maintained four separate contractual relationships with the subcontractor on the project for different pieces of equipment and was required to give separate notices for each the four separate and distinct contracts at issue. The general contractor also argued that the December 4, 2002, notice was untimely because the “idle” presence of the front-end loader on the project site did not constitute the requisite “furnishing” of equipment within the meaning of the statute.

The appeals court rejected the general contractor’s arguments, holding that the “statute does not impose a duty upon a claimant subcontractor to separate the elements of its labor, materials, equipment, or other contributions to a project into discrete units, and then to transmit corresponding multiple notices.” City Rentals, LLC, citing Westinghouse Elec. Corp. v. J.J. Grace & Sons, Inc., 349 Mass. 664, 667–668 (1965) (rejecting notion of segmented deliveries and separate claim notices within an ongoing relationship between a supplier and a subcontractor). The court reasoned that a single notice “eliminates the impracticable complexity of a system of mandatory separate notices for ongoing transactions between the same supplier and subcontractor within the confines of a single project.”

As to the general contractor’s theory of late notice, the court found that the equipment supplier’s efforts to recover the loader were diligent attempts to mitigate the ongoing rental charges, and “that the very availability of the loader, with or without use, amounted to sufficient furnishing of equipment to the time of release so as to fall within the notice period of the bond.” Further, the court held that the “embargo” of the loader for almost two months prevented the equipment supplier from any profitable use throughout that span and that the “claim under the bond functioned equitably as a means of compensation for that opportunity cost.”

Attorneys’ Fees

After trial, the equipment supplier applied for an award of attorneys’ fees in the amount of $125,395.50 pursuant to the fee-shifting provision of Section 29. The trial judge reduced the request to an award of $78,136.75. The general contractor appealed, claiming that the award was still exorbitant. With minor exceptions, the appellate court affirmed the award.

The court held that although “success does not justify extravagance,” a fee award that substantially outdistances the judgment does not, by itself, compel a reduction of the fee amount, and that “the intensity of the defense may drive the claimant’s legal fees well beyond the level of its damages figure.”

Practice Note

The court followed its longstanding practice of liberally construing the payment bond statute to protect subcontractors and suppliers on public construction projects. While the courts have considerable discretion to award fees based on such criteria as the time and labor required; amount of damages involved; result obtained; and the experience, reputation and ability of the attorney, contractors and sureties should carefully consider the potential for a disproportionate fee award (and an award of prejudgment interest) in defending claims of moderate size and respectable merit.

This publication has been posted by Hinshaw & Culbertson LLP to provide information on recent legal developments of interest to our readers. It is not intended to provide legal advice for a specific situation or to create an attorney-client relationship.