Weeks Marine Inc v. Fireman's Fund Ins ( 2003 )

United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT July 25, 2003
__________________________ Charles R. Fulbruge III
Clerk
No. 02-40825
__________________________
WEEKS MARINE, INC.,
Plaintiff-Appellant,
versus
FIREMAN’S FUND INSURANCE COMPANY
Defendant-Appellee.
___________________________________________________
Appeal from the United States District Court
for the Eastern District of Texas
___________________________________________________
Before JOLLY, WIENER, and, BARKSDALE, Circuit Judges.
WIENER, Circuit Judge:
Plaintiff-Appellant Weeks Marine, Inc.(“Weeks”) appeals the
district court’s order denying its motion for summary judgment and
granting Defendant-Appellee Fireman’s Fund Insurance Company’s
(“FFIC”) motion for summary judgment. We reverse and remand for
entry of judgment in favor of Weeks.
I. FACTS AND PROCEEDINGS
This surety contract dispute arises from dredging work that
Weeks Marine completed for now-bankrupt shipbuilder Friede Goldman
Offshore Texas, L.P. (“Friede Goldman”). In April 1998, Petrodrill
Construction, Inc. (“Petrodrill”) contracted with Friede Goldman
(“the shipbuilding contract”) for the construction of a semi-
submersible drilling vessel ( “Hull 1829”). In conjunction with the
shipbuilding contract, FFIC issued an $84 million Labor and
Material Payment Bond (“the bond”) to Friede Goldman. Under the
terms of the bond, FFIC as surety and Friede Goldman as principal
are “held and firmly bound unto Petrodrill Construction” as owner
and obligee, for “the use and benefits of claimants.” A “claimant”
is defined in the bond as
one having a direct contract with the Principal or with
a Subcontractor of the Principal for labor, material, or
both, used or reasonably required for use in the
performance of the Contract, labor and material being
construed to include that part of water, gas, power,
light, heat, oil, gasoline, telephone service or rental
of equipment directly applicable to the Contract.
Friede Goldman began construction of Hull 1829 at its shipyard
in Pascagoula, Mississippi but eventually elected to complete
construction at another shipyard in Orange, Texas. The parties
vigorously dispute the cause of the move: FFIC maintains that
Friede Goldman merely wanted to “keep that [Texas] yard busy”;
Weeks asserts that the move was “necessary,” but offers no further
explanation. It is undisputed, however, that all parties
(including FFIC) expressly approved the move. In fact, Petrodrill
and Friede Goldman agreed to a $3 million increase in the contract
price, and FFIC consented to a corresponding increase in the amount
of the bond. These modifications were memorialized in “Amendment
No. 2” to the shipbuilding contract.
In connection with the move, Friede Goldman subcontracted with
Weeks to dredge a slip extension at the Texas shipyard. Weeks
2
completed the dredging work and submitted an invoice to Friede
Goldman in the amount of $654,671. To date, Weeks has not been
paid for the dredging work; Friede Goldman filed for Chapter 11
bankruptcy protection several months after Weeks completed the
dredging and is not a party to this suit.
Shortly after Friede Goldman filed for bankruptcy protection,
Weeks filed suit against FFIC, invoking diversity jurisdiction and
alleging that FFIC, as surety, is liable for the “labor performed
and materials furnished” to Friede Goldman in connection with its
performance of the shipbuilding contract. FFIC denied liability
and the parties filed cross-motions for summary judgment. The
district court granted FFIC’s motion, concluding that “making FFIC
pay Weeks would not serve the Bond’s overriding purpose of
preventing the attachment of liens to Petrodrill’s new vessel.”
Weeks now appeals the denial of its motion and the grant of FFIC’s
motion.
II. ANALYSIS
A. Standard of Review
We review a grant of summary judgment de novo, applying the
same standard as the district court.1 A motion for summary
judgment is properly granted only if there is no genuine issue as
1
Morris v. Covan World Wide Moving, Inc., 144 F.3d 377, 380
(5th Cir. 1998).
3
to any material fact.2 An issue is material if its resolution
could affect the outcome of the action.3 In deciding whether a
fact issue has been created, we view the facts and the inferences
to be drawn therefrom in the light most favorable to the nonmoving
party.4
B. Merits
The sole issue presented in this appeal is whether Weeks’s
dredging of a slip extension at Friede Goldman’s Orange shipyard is
“labor” “used or reasonably required for use” in building Hull
1829. The construction of an unambiguous surety agreement is a
question of law.5 Surety agreements, like other contracts, are
“interpreted to ascertain the obligations intended by the parties,
gathered from the instrument as a whole.”6 The liability of a
surety is determined by the language of the bond.7 When, as here,
2
Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317,
322 (1986).
3
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
4
See Olabisiomotosho v. City of Houston, 185 F.3d 521, 525
(5th Cir. 1999).
5
Augusta Court Co-Owners’ Assoc. v. Levin, Roth & Kasner,
P.C., 971 S.W.2d 119, 123 (Tex. App.—Houston[14th Dist.] 1998, pet.
denied).
6
G.H. Bass & Co. v. Dalsan Props.—Abilene, 885 S.W.2d 572,
576 (Tex. App.—Dallas 1994, no writ).
7
Augusta Court, 971 S.W.2d at 123; see also DEUTSCH, KERRIGAN &
STILES, CONSTRUCTION INDUSTRY INSURANCE HANDBOOK § 16.2, at 267 (1991)
(explaining that “[c]onventional bonds are private agreements
governed by general principles applicable to any private or
commercial contract” and noting that “[t]he rights and obligations
4
the surety agreement is related to another contract, the two
instruments must be read together to determine the parties’
intent.8
With these general rules of contract interpretation in mind,
our analysis begins with the written terms of both the shipbuilding
contract and the payment bond. The shipbuilding contract called
for Friede Goldman to construct Hull 1829 for Petrodrill and
perform all associated engineering, launching, and testing of the
completed vessel. This contract defines “materials” as “all
material and supplies, including without limitation all machinery,
equipment, outfittings and spare parts...to the extent that same
have been appropriated to, or incorporated in, the Vessel.” The
shipbuilding contract does not define “labor.”
The bond prescribes the obligations of FFIC. The bond states
expressly that FFIC is liable only if Friede Goldman fails
“promptly [to] make payment to all claimants” “for all labor and
material used or reasonably required for use in the performance of
the Contract.” As noted earlier, the term “claimants” is defined
in the bond, which also defines “labor and material” to include
“water, gas, power, light, heat, oil, gasoline, telephone service
or rental of equipment directly applicable to the Contract.”
of the parties to a conventional bond are thus determined by the
terms of the bond”).
8
Arceneaux v. Price, 468 S.W.2d 473, 474 (Tex. App.—Austin
1971, no writ).
5
Even though they arrive at widely varying interpretations,
both parties assert that the terms of these agreements are
unambiguous. FFIC argues that the dredging work is not covered
under the bond because Weeks did not provide “materials” that were
incorporated in the vessel but undertook a capital improvement to
Friede Goldman’s shipyard. Weeks agrees that the dredging was not
“materials” as defined in the shipbuilding contract, but insists
that the work was “labor” “used” in the construction of the vessel.
Weeks asserts that it qualifies as a “claimant” under the bond
because (1) it had a direct contract with Friede Goldman; (2) it
provided “labor”; and (3) the labor was used in the performance of
the shipbuilding contract.
Our resolution of this contract dispute rests on the plain
language of the bond and the uncontroverted record evidence. We
have seen that, under the bond, a “claimant” is “one having a
direct contract with the Principal [Friede Goldman]...for labor,
materials or both, used or reasonably required for use in the
performance” of the shipbuilding contract. The parties do not
dispute that Weeks had a direct contract with Friede Goldman or
that Weeks provided “labor.” Rather, FFIC contends that the labor
Weeks provided was not used “in the performance of the contract.”
For at least three reasons, we disagree.
First, in support of summary judgment, Weeks submitted the
affidavit of Friede Goldman officer John Haley who stated that
“[t]he labor and materials provided by Weeks” were “required by
6
[Friede Goldman] for the performance and completion of Hull 1829.”
FFIC submitted no contradictory evidence on this crucial point.9
Second, FFIC itself acknowledged (in a letter to Weeks’s counsel
denying the claim) that the dredging was “required in order to
fulfill [Friede Goldman]’s obligation under the [Petrodrill]
contract.” Third, and most importantly, all of the parties,
including FFIC, expressly contemplated the move before it took
place, explicitly acceded to it, and increased the purchase price
and bond accordingly, as documented in Amendment No. 2. Whether
the move was necessary, or even prudent, is irrelevant; it was
unquestionably made “in performance of the contract.”
Finding little support in the express terms of the bond, FFIC
relies on cases arising under the Miller Act and analogous state
statutes to support its argument that dredging is a capital
improvement and is not encompassed by a standard labor and material
bond. Under these cases, “material” includes “things which will be
incorporated into the project itself, such as steel beams, brick,
window frames, flooring and roofing.”10 “Materials” also includes
products that are not ultimately integrated into the project, but
9
The evidence FFIC submitted in opposition to Week’s motion
and in support of its own motion for summary judgment included
copies of the shipbuilding contracts and payment bonds; a letter
from FFIC adjuster Fred Applewhite instructing Weeks’s counsel on
the procedure for filing claims; a letter and completed proof of
claim from Weeks’s counsel to Applewhite; and the affidavit of
Applewhite.
10
Sunbelt Pipe Corp. v. United States Fid. & Guar. Co., 785
F.2d 468, 470 (4th Cir. 1986).
7
that are “reasonably expected to be consumed, or substantially
consumed, in the performance of the work.”11 Thus, capital
equipment, including items that can be removed and used on
subsequent projects, are not “materials”; only those consumable
items that will “have no utility or economic value to the
contractor after the completion of the work” are covered under
statutory bonds as “materials.”12
FFIC’s reliance on these authorities is misplaced for several
reasons. First, and most importantly, Weeks is seeking payment for
“labor,” not “materials.” Weeks agrees that the pipes, tools, and
heavy machinery used to dredge the slip are not “materials” covered
by the bond; Weeks only seeks payment for labor, and then only
labor that was “used or reasonably required for use” in Friede
Goldman’s performance of the shipbuilding contract. Perhaps
understandably, FFIC largely ignores this fundamental distinction.13
Second, even if we were to accept FFIC’s capital-improvement
argument, the competent summary judgment evidence reveals that
Weeks’s dredging was not a capital improvement to Friede Goldman’s
11
Id.12
Id.13
FFIC asserts summarily that this “difference is irrelevant”
and notes that “[w]hether the capital improvement was something
that was created by labor . . . or a material, is irrelevant.” This
argument is unavailing for two reasons. First, the bond itself does
distinguish between labor and materials, listing each as a separate
qualification (“labor, material, or both”). Second, all of the case
law that FFIC cites involves equipment and other tangible materials
or repairs to such equipment.
8
shipyard. In a supplemental affidavit, Friede Goldman officer John
Haley stated that the slip at issue began to fill with silt within
ten months following Weeks’s dredging. Haley further stated that
the slip will “likely have to be dredged again” if Friede Goldman
undertakes a project of similar scale. Thus, Weeks’s summary
judgment evidence reflects that the dredging to extend the existing
slip was largely “consumed” during the construction of Hull 1829
and would not likely last more than one year.14
The only evidence that FFIC proffered in support of its
argument is the affidavit of FFIC claims adjuster Fred Applewhite,
who stated conclusionally that “[m]aking a slip at a shipyard
bigger by constructing a slip extension...is a capital improvement
to [Friede Goldman]’s yard and clearly of a nature as to be
available for use...for all of [Friede Goldman]’s projects.” On
close examination, however, it is obvious that Applewhite’s
affidavit is merely a reiteration of FFIC’s legal argument, i.e.,
that dredging is always a capital improvement. Notably,
Applewhite’s affidavit is bereft of any explanation or reasoning as
to how he reached this bald conclusion. It never even indicates
that he personally inspected the slip. “[S]uch conclusory,
unsupported assertions are insufficient to defeat a motion for
14
See, e.g., Seligman v. Comm’r, 796 F.2d 116, 119 (5th Cir.
1986) (noting that “one year rule of thumb” is “the prominent, if
not predominant characteristic of a capital item” under Tax Code)
(internal quotations omitted).
9
summary judgment.”15
The litany of cases that FFIC cites in support of its argument
is equally unpersuasive. All these cases stand for the undisputed
proposition that the cost of capital equipment that is not
“substantially consumed” during performance of a contract is not
recoverable under a typical Miller Act payment bond.16 As we
explained, these cases are inapposite for three alternative
reasons: (1) A cause of action under the Miller Act is not
congruent with a claim under the particular language of a tailor-
made bond; (2) Weeks is seeking to recover only for labor, not
materials; and (3) the dredging at issue was, according to the
uncontradicted statement of Friede Goldman officer John Haley,
“substantially consumed” in the construction of Hull 1829. We
again emphasize that Weeks, unlike the suppliers in the cases that
FFIC cites, does not seek payment for pipes, machinery, tools, or
15
Marshall v. E. Carroll Parish Hosp. Serv. Dist., 134 F.3d
319, 324 (5th Cir. 1998).
16
Sunbelt Pipe, 785 F.2d at 471 (“Since Sunbelt had no
reasonable expectation that the pipe would be consumed in the
performance of the contract, it is not a supplier of material
within the meaning of the statute or of the bond.”); Transamerica
Premier Ins. Co. v. Ober, 894 F. Supp. 471, 483 (D.Me. 1995)(“It is
clear under the statute and case law that subcontractors and
suppliers may not recover under a Miller Act payment bond for
losses sustained to ‘capital equipment,’” i.e., “any thing which
may reasonably be expected to be removed by the contractor and used
in subsequent jobs”) (internal quotations omitted); Ibex Indus. v.
Coast Line Waterproofing, 563 F. Supp. 1142, 1145-46 (D.D.C. 1983)
(“Plaintiff cannot recover costs under the Miller Act for equipment
that was not ‘substantially consumed’ during the construction
project.”).
10
equipment of any kind. The uncontroverted record evidence
conclusively establishes that Weeks provided labor that was “used”
in performance of the shipbuilding contract. The bond, drafted by
FFIC, requires no more.
III. Conclusion
For the foregoing reasons, we reverse and remand for entry of
judgment in favor of Weeks in the principal amount of $654,671,
together with any and all appropriate ancillary items, such as pre-
and post-judgment interest and costs, including attorney’s fees, if
applicable.
REVERSED and REMANDED with instructions.
11