409 F.Supp.3d 946
D. Nev.2019Background
- Sonoma Springs (Owner) contracted with Ascent (Contractor) to build apartments; Ascent obtained AIA A312-2010 performance and payment bonds with Fidelity (and related Zurich) as surety.
- Dispute arose: Sonoma alleges Ascent breached the construction contract; Ascent sued Sonoma in Nevada state court and recorded a mechanics lien; Ascent’s lien later reduced and bonded off by Hartford.
- Sonoma demanded the Surety assume Ascent’s obligations under the bonds; Surety declined; Sonoma sued the Surety in state court and defendants removed to federal court (diversity jurisdiction).
- Defendants moved for summary judgment on all claims (breach of performance and payment bonds; contract and tort claims including bad faith, fiduciary duty, unfair-settlement statute, misrepresentation, unjust enrichment).
- Court analyzed AIA-form bond language: performance bond conditions precedent (notice, declaration of default, termination, agreement to pay balance) and payment bond duties to defend/indemnify against lien claimants when Owner timely tenders claims.
- Court granted summary judgment on many claims (including breach of performance bond, tortious bad faith, fiduciary duty, NRS §686A.310 claims, misrepresentation, unjust enrichment), but denied summary judgment on portions of the payment-bond claim relating to whether the surety was required to "bond off" subcontractor liens.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether performance bond was breached (i.e., surety obligated) | Sonoma: Ascent defaulted; Sonoma gave notice and demanded surety assume performance | Fidelity: AIA bond conditions precedent not met (Owner did not terminate contract), owner may have been in default | Held: Judgment for defendants — plaintiff failed to satisfy §3.2 (termination) so performance-bond claim dismissed |
| Whether payment bond required surety to pay or "bond off" principal's own mechanics lien | Sonoma: Surety must step in to clear liens and indemnify owner (paid $27,218.78) | Fidelity: Payment-bond "Claimant" excludes the principal; bond does not force surety to pay principal’s lien; obligations arise only when owner tenders claimant liens and owner not in default | Held: Mixed — court rejects argument that bond requires paying principal’s lien; but denied summary judgment on whether surety was required to bond off subcontractor liens (material factual dispute about tender, owner default, and contract language) |
| Whether tortious bad-faith / fiduciary / NRS §686A.310 claims against surety are viable | Sonoma: Surety acted in bad faith and breached duties | Fidelity: Nevada law precludes tort bad-faith/fiduciary claims against sureties; statute applies to insurers not sureties | Held: Judgment for defendants — tortious bad faith, fiduciary, statutory unfair-settlement, and related contract-bad-faith claims barred as a matter of law |
| Whether negligent/intentional misrepresentation and unjust enrichment claims survive | Sonoma: Defendants made misrepresentations and were unjustly enriched | Fidelity: No evidentiary support for misrepresentation; express bond contracts preclude unjust enrichment; Zurich not shown to have received benefit | Held: Judgment for defendants — misrepresentation claims dismissed; unjust enrichment dismissed as to Fidelity and to Zurich (either Zurich is a bond party or no benefit shown) |
Key Cases Cited
- U.S. Fidelity & Guaranty Co. v. Peterson, 540 P.2d 1070 (Nev. 1975) (recognizing tort cause of action for insurer bad faith)
- Great Am. Ins. Co. v. General Builders, Inc., 934 P.2d 257 (Nev. 1997) (surety not liable in tort for bad faith; no special insurer-type relationship)
- Insurance Co. of West v. Gibson Tile Co., Inc., 134 P.3d 698 (Nev. 2006) (refusing to extend tort bad-faith to surety where bargaining parity existed)
- Nelson v. Heer, 163 P.3d 420 (Nev. 2007) (scope of implied covenant of good faith and fair dealing in contract claims)
- LeasePartners Corp. v. Brooks Trust, 942 P.2d 182 (Nev. 1997) (unjust enrichment unavailable where express written contract exists)
- Hilton Hotels Corp. v. Butch Lewis Productions, Inc., 808 P.2d 919 (Nev. 1991) (contract-basis implied covenant claim may survive where party deliberately frustrates contract purpose)
- L & A Contracting Co. v. S. Concrete Servs., 17 F.3d 106 (5th Cir. 1994) (performance-bond default must be material to justify termination and surety involvement)