Affirmеd by published opinion. Judge DIANA GRIBBON MOTZ wrote the opinion, in which Judge WIDENER and Judge WILLIAMS joined.
OPINION
The district court granted summary judgment to Capitol Indemnity Corporation on its claim that Baljit S. Aulakh and his wife, Pavitar Aulakh, breached an indemnity agreement they had entered intо with Capitol Indemnity pursuant to a surety bond. The Aulakhs appeal, contending that the indemnification agreement cannot be enforced against one or both of them because Capitol required Pavitar Aulakh to sign the agreеment in violation of the Equal Credit Opportunity Act and its Virginia counterpart. Because a surety bond does not constitute a credit transaction under these statutes, we affirm the district court’s grant of summary judgment to Capitol.
I.
The parties dо not dispute the following facts. Baljit Aulakh is .the president and sole shareholder of Superior Management Services, Incorporated (“SMS”), a Maryland corporation in the construction business. Pavitar Aulakh is Baljit Aulakh’s wife.
Capitol Indеmnity Corporation (“Capitol”) is an insurance company authorized to write surety bonds in the Commonwealth of Virginia. By means of a surety bond, a surety (in this case, Capitol) agrees to protect the obligee if the principal (SMS) defaults in performing the principal’s contractual obligations. The bond is the instrument that binds the surety. See Black’s Law Dictionary 181 (6th ed.1990).
On January 2, 1998, the Aulakhs executed an indemnity agreement with Capitol obligating them to indemnify the insurer for losses and expenses incurred by Capitol in providing surety bonds for SMS projects. Following the execution of the indemnity agreement, Capitol issued various performance and payment bonds as surety for SMS construction projects. SMS later defaulted on a series of contracts invоlving work at Bolling Air Force Base. In paying out on the applicable sure
Accordingly, Capitol filed this indemnity action seeking judgment against SMS, Bal-jit S. Aulakh, and Pavitar Aulakh, jointly and severally, for the amount of its losses, as well as attorney’s fees and costs. SMS and the Aulakhs responded initially by questioning whether Capitol incurred its losses in good faith. After deposing Capitol’s corporate designee, they conceded the point.
Capitol then moved for summary judgment. SMS admitted liability for thе full amount of Capitol’s claim. The Aulakhs, however, contended that the indemnity agreement was unenforceable as to one or both of them because Pavitar Aulakh’s signature had been secured in violation of the Federal Equal Credit Opportunity Act, 15 U.S.C. § 1691 et seq. (1998) (“ECOA”), and its Virginia analogue, the Virginia Equal Credit Opportunity Act, Va.Code Ann. § 59.1-21.19 et seq. (2001) (“Virginia ECOA”). They argued that because Pavitar Aulakh had no involvement in the business of SMS, other than the fact that she was married to its sole shareholder, Capitol’s requirement that she sign the indemnity agreement constituted credit discrimination under the equal credit opportunity statutes. The district court granted summary judgment to Capitol, ruling that neither the ECOA nor the Virginia ECOA applied to the transaсtion underlying Capitol’s indemnity claim.
II.
This case presents an issue of first impression in the federal appellate courts: whether the ECOA and its state analogues apply to surety bonds.
By their terms, these statutes only govern credit transactions between statutorily-defined credit applicants and creditors. The animating principle of the ECOA and its state analogues is to prevent discrimination against those applying for credit. As such, they contain broad anti-discrimination provisions that “make it unlawful for any creditor to discriminate against any applicant with respect to any credit transaction on the basis of race, color, religion, national origin, sex or marital status, or age.” 15 U.S.C. § 1691(a)(1); Va.Codе Ann. § 59.1-21.21:l(a)(l).
In explicitly identifying “sex or marital status” as one of the prohibited bases for discrimination in credit transactions, legislatures sought to eradicate credit discrimination against women, particularly married women with whom creditors traditionally had refused to deal.
See Markham v. Cobnial Mortgage Service Co.,
These provisions read together make clear that the essence of the “credit” relationship under the equal credit statutes is one that provides а right to defer payment on a debt or other obligation. This conclusion finds ample support in the case law.
See, e.g., Riethman v. Berry,
The Aulakhs argue that because the “surety, through the issuance of a surety bond, ‘arranges’ for subcontractors and suppliers to extend ‘credit’ to the principal/’ the surety falls within the ECOA’s definition of creditor. Brief of Appellants at 10. Although they admit that “the bonds do not necessarily extend the ‘right’ to inсur debt and defer payment beyond a subcontractor or , supplier’s payment terms,” they contend that “the bond gives the principal the right to incur debt to subcontractors and suppliers that is not C.O.D. or paid in advance, a right that the рrincipal would not have without the surety bond.” Id. Consequently, the Aulakhs claim, surety bonds effectively function as “credit transactions” under the ECOA. Id. According to this line of reasoning, indemnity agreements executed in conjunction with and as a requiremеnt for the issuance of surety bonds thus qualify as aspects of “credit transactions” and are subject to the anti-discrimination provisions of ECOA.
The problem with this argument is that nothing in the surety bond transaction or the indemnity agreement entitles anyonе to defer payment of any debt or other obligation, a sine qua non of coverage under the equal credit statutes. As noted above, the ECOA and its Virginia counterpart define “credit” as “the right granted by a creditor to a debtor” to defer рayment of a debt or other obligation. Construing the transactions at issue in this case as credit transactions under these statutes would thus require that Capitol grant a right to SMS to defer payment. While the surety bond may indeed have allowed SMS tо negotiate different contractual obligations and payment terms with its suppliers and sub-contractors, it did not give SMS any sort of right to defer payment.
Instead, the surety bond simply provided that in the event that SMS defaulted on its contractual оbligations, Capitol would take the place of SMS and satisfy those obligations. By virtue of the indemnity agreement, Capitol could then proceed
We hold, therefore, that the issuance of surety bonds does not constitute a credit transaction as defined under the ECOA and the Virginia ECOA. Neither Congress nor the.Virginia legislature exhibited any intent for parties to use these statutes to escape liability from valid contractual obligations; and we refuse to sanction such an effort here. SMS needed surety bonds in order to engage in construction projects at Bolling Air Force base. See 40 U.S.C. § 270(a) (2001) (the “Miller Act”) (current version at 40 U.S.C. § 3131 (West, West-law current through P.L. 107-278, approved Nov. 5, 2002)). Capitol provided those surety bonds, thereby ensuring that the contractual obligations incurred by SMS in its construction projects would be met. In return, Capitol required that SMS and the Aulakhs sign an indemnity agreement, guaranteeing payment for losses and expenses incurred as a result of any default by SMS and subsequent рay out of the surety bonds by Capitol. Each side obtained exactly what it sought.
We note that this conclusion comports with the view of the two district courts that have addressed the issue.
See Cincinnati Ins. Co. v. Smigiel,
Our holding should not be read to suggest that the issuance of surety bonds can never operate as a “credit transaction” as defined in a different statute or as understood in a different set of circumstances. Rather, we simply conclude that under the definition of credit provided in the ECOA, specifically the right to defer payment on a debt, the issuance of surety bonds does not qualify as a credit transaction. Given the sophistication of modern capital markets, virtually all financial instruments have an inherent plasticity that allows them to operate in a variety of capacities. The linkages between insurance and debt markets, moreover, render suspect any attempt to develop a preсise rule that separates such instruments into one category or another. The law forever plays catch-up with the capital markets. This creates all the more reason to adhere closely to statutory lan
III.
For the foregoing reasons, the judgment of the district court is
AFFIRMED.