State of Georgia Department of Corrections v. Developers Surety & Indemnity Co.
295 Ga. 741
| Ga. | 2014Background
- GDOC contracted with Walker Roofing for a prison re-roofing project; the contract contained two no‑assignment clauses and required payment and performance bonds.
- Walker Roofing obtained payment and performance bonds from Developers Surety; Developers and Walker had an indemnity agreement assigning Walker’s rights to Developers Surety (GDOC was not a party to that indemnity agreement).
- Walker Roofing defaulted; GDOC issued a formal notice of default and contracted with another firm to complete the work. Developers Surety incurred over $577,000 in payments and additional costs investigating liability under the bond.
- Developers Surety sued GDOC for breach of contract (and sought declaratory relief that it had no bond obligation); GDOC counterclaimed. The trial court granted summary judgment to Developers Surety, finding GDOC waived sovereign immunity by entering the written contract and that Developers Surety could sue as Walker’s subrogee.
- The Court of Appeals affirmed; the Supreme Court of Georgia granted certiorari to decide whether the State’s constitutional waiver of sovereign immunity for breach‑of‑contract actions applies to a surety suing as subrogee of the contractor.
- The Supreme Court affirmed the Court of Appeals: sovereign immunity is waived for a claim asserted by a surety standing in the contractor’s shoes by equitable subrogation, so the surety may sue the State on the contract claim.
Issues
| Issue | Plaintiff's Argument (Developers Surety) | Defendant's Argument (GDOC) | Held |
|---|---|---|---|
| Whether Georgia’s constitutional waiver of sovereign immunity for breach of written contracts extends to a surety suing as subrogee of the contractor | The waiver applies to the action (breach of contract) regardless of the claimant; as subrogee Developers stands in contractor’s shoes and may assert the contract claim | The waiver applies only to parties to the contract; Developers Surety is not a contracting party, so sovereign immunity bars its suit | Held: Waiver applies to the claim; as subrogee Developers may sue the State for breach of the written contract |
| Whether equitable subrogation allows a surety who paid the principal’s obligations to bring the contractor’s breach‑of‑contract claim against the State | Subrogation substitutes the surety for the contractor so the surety succeeds to all contractual rights once it pays obligations | GDOC disputed assignment/no‑assignment clauses and questioned the surety’s ability to step into contractor’s rights | Held: Equitable subrogation is recognized; surety who pays becomes subrogee and may assert contractor’s contract claim |
| Whether enforcing sovereign immunity would frustrate public policy regarding required payment/performance bonds for State contracts | Developers argued barring subrogees would discourage bonding, increasing financial exposure to the State | GDOC argued contract protections (e.g., no‑assignment clauses) and bond terms limit third‑party claims | Held: Court rejected a rule that would discourage bonding; recognizing subrogation aligns with statutory scheme and protects State funds |
Key Cases Cited
- Georgia Dept. of Natural Resources v. Ctr. for a Sustainable Coast, 294 Ga. 593 (2014) (construing sovereign immunity waiver language and applying ordinary meaning to "action")
- Bankers Trust Co. v. Hardy, 281 Ga. 561 (2007) (defines subrogation and explains equitable basis and effect of subrogation)
- Insurance Co. of the West v. United States, 243 F.3d 1367 (Fed. Cir. 2001) (federal precedent holding government waiver of immunity under the Tucker Act applies to subrogees because waiver is by claim, not claimant)
- Prairie State Bank v. United States, 164 U.S. 227 (1896) (early Supreme Court recognition that sureties may succeed to contractor’s contractual rights against government)
- Cotton States Mut. Ins. Co. v. Citizens & S. Nat. Bank, 168 Ga. App. 83 (1983) (discusses inchoate nature of subrogation and when it becomes choate)