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Western Surety Co. v. City of Nicholasville

Court of Appeals of Kentucky

June 8, 2018

WESTERN SURETY COMPANY APPELLANT
v.
CITY OF NICHOLASVILLE, KENTUCKY; JESSAMINE-SOUTH ELKHORN WATER DISTRICT; JESSAMINE COUNTY WATER DISTRICT NO. 1; JESSAMINE COUNTY FISCAL COURT; AND JESSAMINE COUNTY-CITY OF WILMORE JOINT PLANNING COMMISSION APPELLEES

          APPEAL FROM JESSAMINE CIRCUIT COURT HONORABLE C. HUNTER DAUGHERTY, JUDGE ACTION NO. 12-CI-00566

          BRIEFS FOR APPELLANT, WESTERN SURETY COMPANY: Byron E. Leet Lisa C. DeJaco Chelsea K. Painter Louisville, Kentucky

          BRIEF FOR APPELLEE, CITY OF NICHOLASVILLE: William M. Arvin Sr. Nicholasville, Kentucky Robert L. Gullette, Jr. Nicholasville, Kentucky

          BRIEF FOR APPELLEES, JESSAMINE-SOUTH ELKHORN WATER DISTRICT, JESSAMINE FISCAL COURT, JESSAMINE COUNTY-CITY OF WILMORE JOINT PLANNING COMMISSION: Brian T. Goettl Nicholasville, Kentucky Bruce E. Smith Nicholasville, Kentucky

          BRIEF FOR APPELLEE, JESSAMINE COUNTY WATER DISTRICT NO. 1: Howard Downing Nicholasville, Kentucky

          BRIEF FOR APPELLEE, JESSAMINE FISCAL COURT: Brian T. Goettl Nicholasville, Kentucky

          BEFORE: KRAMER, NICKELL, AND THOMPSON, JUDGES.

          OPINION

          NICKELL, JUDGE:

         Western Surety Company ("Western") appeals from the Jessamine Circuit Court's entry of partial summary judgment in favor of the City of Nicholasville, Kentucky ("City"); the Jessamine-South Elkhorn Water District ("J-SEWD"); the Jessamine County Water District No. 1 ("JCWD"); the Jessamine County Fiscal Court ("JCFC"); and, the Jessamine County-City of Wilmore Joint Planning Commission ("JC-CWJPC") (collectively, "Governmental Entities"). The trial court deemed Western liable based on a valid contract[1] it said existed between Western's principal-Central Rock Mineral Company, LLC ("Central Rock")-and Governmental Entities for which approval of a subdivision plat and plans constituted consideration. The court further found, "[p]ayments to Central Rock were never a part" of that agreement; by signing the bonds and riders as principal, Central Rock "stepped into [the developer's] shoes . . . undertaking completion of construction and improvement" of the entire development; and, when "Central Rock defaulted, " Western became liable to Governmental Entities for completion of the entire project. Finally, the trial court found suit was timely filed under both a two-year window created in the bonds, and the seven-year window specified in KRS[2] 413.220. Citing the plain language of its bonds and riders guaranteeing only Central Rock's "faithful performance" of its contract with the real estate developer, untimely filing of the complaint, and unrefuted proof Central Rock performed as required under the bonds-without complaint or claim of breach by the developer-Western argues suit against it should have been dismissed. Following review of the record, the briefs and the law, we reverse and remand for further proceedings consistent with this Opinion.

         The heart of this bond dispute is whether Western, as surety, must pay on three performance bonds[3] it issued guaranteeing Central Rock would "faithfully perform" a contract negotiated with real estate developer James A. Hughes, operating under the name JAH Nicholasville Investment, LLC ("JAH").[4] Central Rock acknowledges halting work, but only after JAH ceased paying Central Rock for work it had already completed, leaving City with an unfinished, deteriorating residential-commercial subdivision. Western argues JAH's failure to pay Central Rock excused further performance under the contract by Central Rock.

         Around 2005, Hughes proposed construction of Brannon Crossing, a commercial and residential development in Jessamine County near the Fayette County line. Hughes hired Central Rock as excavating and construction contractor for three specific aspects of the project. A written contract between JAH and Central Rock has not been produced, but Central Rock referenced the contract and memorialized its responsibilities under the contract in a letter sent to Hughes on December 1, 2006. The letter states:

[t]he contract referred to in the Performance and Payment bonds [#58 641 332, #58 641 333 and #58 641 334, Central Rock Mineral Company, LLC, 1256 Manchester Street, Lexington, KY 40505 (Principal), Western Surety Company, 10503 Timberland Circle, Suite 200, Louisville, KY 40223 (Surety) and JAH Nicholasville Investment, LLC, 400 Bellerive Boulevard, Suite 200, Nicholasville, KY 40356 (Obligee)] covers the following:
Completion of the public improvements (i.e. Water Facilities, including, but not limited to, water mains, gate valves, fire hydrants, water services, as-built drawings, etc.; Sewerage Facilities, including, but not limited to, curbs, gutters, sidewalks, pavement, street & stop signs, as-built drawings, etc.; and Storm Drainage Facilities, including, but not limited to, storm sewers, headwalls, manholes, junction boxes, curb inlets, surface inlets, detention basins, grading, seeding, sodding, paved and sodded ditches, erosion controls, as-built drawings, etc.) for the following three final plats in Brannon Crossing:
Jaclyn Drive at Brannon Crossing.
Brannon Crossing (Noland Property) A Portion of Phase 1, Section 1 and Phase 2
Brannon Crossing (Noland Property) Phase 3, Section 1
The Central Rock Mineral Company, LLC contract provides for the completion of these items prior to the expiration of these Performance and Payment Bonds.

         While the letter details public improvements Central Rock agrees to complete, it says nothing about when, how or how much Central Rock is to be paid for its services, nor does it provide a timetable for the job. It is undisputed Central Rock had a contract with JAH.

         The entire Brannon Crossing development covered more than the three portions mentioned in the above-quoted letter. Five performance bonds[5]issued by XL Specialty Insurance Company ("XL")[6] in March and April 2005, guaranteed Central Rock's work on contracts entered with JAH on February 25, 2005; April 7, 2005; and April 20, 2005. Those contracts pertained to the Brannon Road Extension, Cynthia Way and Lancer Way; Brannon Crossing On Site Sanitary Sewer; Brannon Crossing Waterlines; Brannon Force Main and Pump Station; and, Brannon Crossing, Hughes Way, Cynthia Way and Tyler Way.

         The three performance bonds issued by Western on October 6, 2006, identified Central Rock as principal, Western as surety, and JAH as obligee. Other than the specific portion of the project being bonded, the bond number, and the amount of the bond, these three documents are identical and read in pertinent part:

WHEREAS, Principal has entered into a contract with Obligee, dated the 6th day of October, 2006 for [East Brannon road Ext & 54" Storm Sewer Oil Line Crossing, Lexington, KY].
NOW, THEREFORE, if the Principal shall faithfully perform such contract or shall indemnify and save harmless the Obligee from all cost and damage by reason of Principal's failure so to do, then this obligation shall be null and void; otherwise it shall remain in full force and effect.
ANY PROCEEDING, legal or equitable, under this Bond may be instituted in any court of competent jurisdiction in the location in which the work or part of the work is located and shall be instituted within two years after Contractor Default or within two years after the Contractor ceased working or within two years after the Surety refuses or fails to perform its obligations under this Bond, whichever occurs first.
If the provisions of this Paragraph are void or prohibited by law, the minimum period of limitation available to sureties as a defense in the jurisdiction of the suit shall be applicable.
NO RIGHT OF ACTION shall accrue on this bond to or for the use of any person or corporation other than the Obligee named herein or the heirs, executors, administrators or successors of the Obligee.

(Emphasis added.) Each Western bond references the same contract reached between Central Rock and JAH.

         A dual obligee rider was attached to each performance bond. Each rider identified Central Rock as principal, Western as surety and JAH as obligee. Each rider listed City, J-SEWD and JCWD ...


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