Current Builders v. First Sealord Sur.

Citations: 984 So. 2d 526; 2008 WL 2261502; 2008 Fla. App. LEXIS 8127Docket: 4D06-4076, 4D07-132

Court: District Court of Appeal of Florida; June 4, 2008; Florida; State Appellate Court

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In the case of Current Builders of Florida, Inc. v. First Sealord Surety, Inc., the contractor, Current Builders (CB), appealed a judgment favoring its subcontractor, Morgado Plumbing Corporation, for breach of contract while finding no liability for the subcontractor's surety, First Sealord. CB contended that the surety's judgment was contrary to the evidence and that the damage award against Morgado was grossly inadequate. The court affirmed the judgment for First Sealord due to CB's failure to fulfill bond provisions necessary to trigger the surety's obligations. However, it reversed the damage award against Morgado as legally insufficient and also reversed the attorney's fees judgment, stating that the surety was not awarded the full amount due. 

CB had contracted Morgado for plumbing work on The Residences at Miramar and required a performance bond. CB expressed dissatisfaction with Morgado's work through multiple written notices, declaring defaults, but did not terminate the subcontract until a year later upon discovering Morgado's lapsed workers' compensation insurance. CB subsequently hired another contractor to complete the work and filed a breach of contract complaint against First Sealord. Morgado countered with a breach claim against CB for unpaid payroll, arguing that CB failed to follow the termination procedures outlined in the subcontract. The court consolidated the claims and ordered arbitration, which favored Morgado and First Sealord. CB opted for a trial, focusing on whether Morgado breached the subcontract and if its termination was justified, as well as issues regarding notice to First Sealord and potential breaches by CB itself. Evidence presented included CB's documentation of Morgado's performance issues and the communication of defaults to First Sealord.

Morgado argued that its performance issues stemmed from delays caused by CB's actions and contended that CB wrongfully terminated its contract due to a claim of insufficient workers' compensation insurance, despite Morgado having valid coverage. CB issued a notice of default to Morgado, citing inadequate workforce and lack of insurance proof. Subsequently, CB removed Morgado from permits and hired another plumbing company for the project. First Sealord, the surety, claimed CB was required to pay the contract balance under the bond. Brian Fortay, a vice president at First Sealord, testified that the surety's obligations were not triggered as CB's notices did not constitute a formal declaration of default or termination as specified in the bond. Fortay clarified that proper notice was essential for the surety to act, and since CB's termination did not comply with the contract, First Sealord's obligations remained untriggered. CB paid the new plumbing company over $800,000 to complete the work, resulting in an excess cost of at least $682,230. The jury found that Morgado breached the subcontract leading to $30,000 in damages for CB, dismissed Morgado's wrongful termination claim, ruled that First Sealord did not receive proper notice, thus discharging its liability, and concluded that CB also breached the subcontract without incurring damages. The court upheld the jury's verdict despite CB's post-trial motions seeking increased damages or a new trial, which were denied.

Both parties have appealed the final judgment and orders. First Sealord sought fees and costs incurred after the arbitration award under section 44.103(6), Florida Statutes (2006). The same attorney represented both Morgado and First Sealord, leading the court to award First Sealord only half of its attorney's fees, holding Morgado liable for the remaining amount. CB contends that the court erred by not granting a new trial, arguing that the jury's verdict—which found that First Sealord did not receive proper notice under the performance bond—was against the manifest weight of the evidence. The trial court has broad discretion when ruling on motions for a new trial based on this ground, and such decisions are reviewed under an abuse of discretion standard.

First Sealord's liability as surety hinged on whether CB complied with the performance bond's terms. The bond outlines that the surety’s obligations arise if the contractor notifies both the subcontractor and the surety of a default, or if the contractor formally terminates the subcontractor’s right to complete the contract. Evidence indicated that CB declared a default and provided a termination letter, but Fortay testified that these actions did not trigger First Sealord's obligations, as Morgado continued work. Additionally, CB failed to notify First Sealord that it would pay the balance of the contract to the surety or a subcontractor, instead taking over those obligations itself. The jury concluded that First Sealord did not receive the proper notice required to invoke its obligations under the bond, and the trial court found no abuse of discretion in denying CB's motion for a new trial.

Although the jury did not hold the surety liable, it found Morgado liable for breach of contract, awarding only $30,000 in damages despite evidence of potential damages between $600,000 and $800,000. CB subsequently moved for additur or a new trial concerning the jury's damage award.

Section 768.74 of the Florida Statutes addresses additur in damage actions, applicable to both tort and contract cases. It mandates that if a court, upon motion, finds a jury's damage award inadequate based on the presented facts, the court must review the award. Key factors for consideration include: potential bias or corruption in the jury's decision, whether the jury disregarded evidence or misconceived the merits, improper consideration of damages, the relationship of the awarded amount to the proven damages, and logical support for the award.

In cases such as *Silverman v. Gockman* and *Arena Parking, Inc. v. Lon Worth Crow Insurance Agency*, courts found jury awards significantly lower than proven damages, indicating speculation in the jury's decision-making process. In the current case involving CB and Morgado, CB's CFO testified damages were $682,230 due to Morgado's default, yet the jury awarded only $30,000, representing only 4% of the proven damages. Morgado's defense did not substantiate claims that CB's issues stemmed from hiring substandard workers. Consequently, the jury's award lacked a reasonable relation to the proven damages and appeared speculative. Thus, the trial court erred by not granting CB's request for additur or a new trial. The ruling is reversed, and the trial court is instructed to order an additur or a new trial if Morgado declines the additur. Additionally, First Sealord sought fees and costs incurred post-arbitration per section 44.103(6), which allows for assessment of reasonable costs if the trial outcome is less favorable than the arbitration award.

The arbitrator determined that CB properly terminated its contract and that First Sealord was in default of the performance bond, but also found CB did not comply with the subcontract when terminating Morgado, discharging its obligations. The jury ruled in favor of CB by finding Morgado liable and awarding damages, but the court ultimately sided with First Sealord on the entitlement issue, scheduling a hearing to assess the amount. At the hearing, testimony revealed that First Sealord's attorney incurred $130,093.50 in fees, all paid by First Sealord, and it was impossible to separate the fees between the two entities. CB's expert argued that First Sealord was only entitled to $5,067 for work specifically benefiting it. The court deemed the intertwined representation reasonable and awarded First Sealord half of the fees. Both parties appealed: CB sought to limit First Sealord's fees to $5,067, while First Sealord argued for the full amount. The court emphasized that the determination of attorney's fees is at the trial court's discretion and affirmed that findings of fact are presumed correct. However, it stated that the legal classification of claims as separate or intertwined is reviewed de novo. The party seeking fees must demonstrate how the fees relate to the claims or prove their intertwined nature. The trial court and First Sealord's expert concluded that the breach of contract claims and First Sealord's liability claims were inextricably linked, countering CB's attempt to restrict fee liability to the notice of default claim, which First Sealord won. The court agreed that the issues were indeed intertwined, sharing a common core of facts.

First Sealord's liability is contingent on Morgado's breach of contract and the proper notification of that breach and termination by CB. The defense cannot be separated; thus, the attorneys could not divide the fees. The trial court's arbitrary division of fees was an error, and First Sealord is entitled to its full fees and costs incurred post-arbitration. The decision is affirmed in part, reversed in part, and remanded for further proceedings. In a motion for rehearing, Current Builders contended that the ruling on attorney's fees contradicted precedents from Franzen v. Lacuna Golf Limited Partnership and Froman v. Kirland. However, the court found that the factual circumstances differed, as the successful claims in this case were intertwined with unsuccessful ones, justifying a different outcome. The rehearing granted limits fees to $125,000, as requested by First Sealord. Additionally, the court affirmed Morgado's cross-appeal regarding a directed verdict on CB's breach of contract claim due to improper preservation of the issue.