2016 U.S. Dist. LEXIS 65822
D. Md.2016Background
- United Sheet Metal, Inc. (principal) and Sheet Metal Workers’ Local Union No. 100 and associated multiemployer Benefit Funds (obligees) were parties to a CBA requiring employer monthly self‑reporting of hours and contributions; trustees could enforce or forebear collection.
- Western Surety issued a $500,000 Contractors Fringe Benefits Bond naming the Union and Benefit Funds as obligees; the Bond obligated the surety to pay unpaid wages, dues, contributions, 20% liquidated damages, 1% monthly interest, and attorneys’ fees upon notice of delinquency.
- United fell behind on contributions in late 2013; Plaintiffs entered a payment plan with United (weekly payments) in December 2013 and later added additional months to the plan; Western Surety received no notice of the payment plan or earlier delinquencies.
- United ceased operations in March 2014; Plaintiffs submitted bond claims for unpaid contributions for January–March 2014 totaling $671,201.25 (plus interest and fees); Western Surety refused payment and this suit followed.
- Western Surety raised defenses including asserted obligation to exhaust project‑specific payment bonds, lack of notice preventing surety remedies, discharge by Plaintiffs’ settlement/payment plan with United, and insufficient proof of damages.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Western Surety is liable under the Bond for unpaid fringe contributions after United’s default | Bond unambiguously obligates surety to pay unpaid wages/dues/contributions upon notice of delinquency; Plaintiffs provided notice and are entitled to recovery | Surety resists liability raising multiple defenses (notice, prior pursuit of project bonds, modification by payment plan) | Court: Bond language plain; Western Surety liable on the Bond (summary judgment for liability granted) |
| Whether Plaintiffs were required to exhaust project‑specific payment bonds before claiming on the Bond | No; Bond covers contributions and obligee may proceed against any surety; other project bonds are not cosureties with the same principal and do not bar recovery | Plaintiffs should have pursued project‑specific bonds first; those sureties are cosureties and bar recovery until pursued | Court: No obligation to exhaust project bonds; existence of other bonds does not relieve Western Surety; rejection of exhaustion defense |
| Whether Plaintiffs’ delay/ failure to notify Western Surety of United’s financial troubles or the payment plan relieves the surety | Bond contained no clause requiring obligee to notify surety of early financial trouble; surety had contractual and indemnity rights to investigate; obligee not required to give notice | Failure to notify prevented surety from exercising cure/cancellation rights and caused prejudice | Court: No contractual notice condition precedent to liability; mere failure to notify does not void bond; surety failed to prove prejudice |
| Whether Plaintiffs’ settlement/payment plan with United discharged or materially modified the Bond | Payment plan falls within trustees’ enforcement discretion and constitutes an "other agreement" covered by the Bond; extensions of time do not automatically discharge a compensated surety absent shown prejudice | Settlement/payment plan materially changed the risk and discharged surety (no consent) | Court: Payment plan did not materially alter bonded obligation; surety not discharged; any prejudice must be proved by surety and was not shown |
| Whether Plaintiffs proved amount of damages owed | Plaintiffs may rely on United’s remittance reports (admissible or capable of being put in admissible form) to show amounts United reported as due and unpaid | Remittance reports are hearsay and fail to specify project allocations and compensability; proof insufficient | Court: Reports are not hearsay for the limited purpose (they show United’s self‑reporting) but Plaintiffs failed to prove precise damages by project; genuine dispute as to amount — summary judgment denied as to damages |
Key Cases Cited
- Nat’l Union Fire Ins. Co. of Pittsburgh v. David A. Bramble, Inc., 879 A.2d 101 (Md. 2005) (defines nature of suretyship and contract principles for bonds)
- General Builders Supply Co. v. MacArthur, 179 A.2d 868 (Md. 1962) (surety liability measured by principal’s contract)
- Atlantic Contracting & Material Co. v. Ulico Casualty Co., 844 A.2d 460 (Md. 2004) (treats surety bond as contract; compensated surety construed like insurance)
- A/C Electric Co. v. Aetna Ins. Co., 247 A.2d 708 (Md. 1968) (extension of time alone does not discharge a compensated surety; prejudice must be shown)
- Wiegand v. State, 768 A.2d 43 (Md. 2001) (material modification of principal‑obligee agreement without surety consent can discharge surety)
- Celotex Corp. v. Catrett, 477 U.S. 317 (1986) (summary judgment standard)