State ex rel Solsbury Hill, LLC v. Liberty Mut. Ins. Co. , 2012 NMCA 32 ( 2011 )

I attest to the accuracy and
integrity of this document
New Mexico Compilation
Commission, Santa Fe, NM
'00'04- 12:12:12 2012.04.06
Certiorari Granted, March 23, 2012, No. 33,275
IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO
Opinion Number: 2012-NMCA-032Filing Date: October 7, 2011
Docket No. 30,068
STATE OF NEW MEXICO ex rel.
SOLSBURY HILL, LLC, d/b/a
NEUMARK IRRIGATION,
Plaintiff/Appellee and Cross-Appellant,
v.
LIBERTY MUTUAL INSURANCE
COMPANY,
Defendant/Appellant and Cross-Appellee.
APPEAL FROM THE DISTRICT COURT OF BERNALILLO COUNTY
Valerie A. Huling, District Judge
Keleher & McLeod, P.A.
James Rasmussen
Justin Breen
Albuquerque, NM
for Appellee
Bingham, Hurst & Apodaca, P.C.
Lillian G. Apodaca
Albuquerque, NM
for Appellant
OPINION
SUTIN, Judge.
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{1} Defendant Liberty Mutual Insurance Company (Liberty) appeals from the district
court’s enforcement against its surety bond of the claim of lien of Plaintiff Solsbury Hill,
LLC d/b/a Neumark Irrigation (Neumark) under New Mexico’s Little Miller Act, NMSA
1978, § 13-4-18 to -20 (1923, as amended through 1987) (the Act), for material supplied by
Neumark to a subcontractor on a public works project. The district court entered judgment
against Liberty in the amount of $42,321.29, plus prejudgment interest at the rate of 18% per
annum pursuant to the open account credit agreements between the subcontractor and
Neumark.
{2} On appeal, Liberty claims the court erred because Neumark failed to prove actual
delivery of the material and incorporation of the material into the project, which, in Liberty’s
view, are essential requirements for recovery, and it also asserts that the court erroneously
placed the burden on Liberty to show lack of actual delivery and incorporation. Liberty also
claims that it has no liability because Neumark failed to comply with the Act’s requirements
relating to notice of Neumark’s claim on the bond and notice to the obligee of the bond
under Section 13-4-19 (A), (B), and (C). And Liberty claims that the court erred in awarding
prejudgment interest. Neumark claims on cross-appeal that the court erred in not awarding
it attorney fees and post-judgment interest at the rate of 18%.
{3} We hold that Neumark was entitled to recover its claim for unpaid invoices for
material supplied. We further hold that the Act permits recovery by Neumark of
prejudgment and post-judgment interest and that Neumark was entitled to recover the
prejudgment interest it was awarded and the post-judgment interest it sought at the rate of
18%. In regard to attorney fees, we hold that the Act permits recovery of attorney fees, and
we remand for further proceedings on the issue of the amount of attorney fees to which
Neumark is entitled.
BACKGROUND
{4} We rely for the most part on the district court’s findings of fact and conclusions of
law. Pertinent findings are as follows. The City of Rio Rancho (the City) entered into a
construction contract with Salls Brothers Construction, Inc. (the contractor) for the City’s
Unser Boulevard Widening Project (the project), part of which involved installing an
irrigation system. Liberty was the surety on a payment bond for the project, the contractor
entered into subcontracts with Desertscapes, Inc. (the subcontractor) for irrigation work, and
Neumark accepted credit applications from the subcontractor for Neumark’s supply of
irrigation material for the project, which became the credit agreements between them. The
credit agreements provided for interest at 18% per annum “from original due date.”
{5} Liberty provided its payment bond pursuant to Section 13-4-18. A supplier may sue
on the bond pursuant to Section 13-4-19(A), which reads:
Every person, firm[,] or corporation who has furnished labor or
material in the prosecution of work provided for in such contract . . . shall
have the right to sue on such payment bond for the amount of the balance
thereof unpaid at the time of the institution of such suit, and to prosecute
2
such action to final execution and judgment for the sum or sums justly due
him[.]
{6} Neumark supplied material to the subcontractor for installation of the irrigation
system. The invoices for the delivery of the material showed the dates or approximate dates
of delivery or pickup of the material. Neumark was not paid for certain material provided
for the project. Neumark had a good faith belief that the material for the project was “being
supplied for the prosecution of work specified in the contract for the [project].” The invoices
for which Neumark asserted its claim under the Act were for material for the project.
{7} Neumark sent its notice of claim on the bond to the contractor by certified mail,
return receipt requested, and the notice stated Neumark’s claims with substantial accuracy.
The contractor received the notice. Neumark filed the present action in September 2007 and
mailed a notice of its claim on the bond to the City in July 2009.
{8} The court’s pertinent conclusions of law relating to Liberty’s appeal are:
4. Neumark supplied irrigation materials for the [project] in
prosecution of the work provided for in the contract for the project.
5. Neumark had a reasonable good faith belief that the irrigation
materials at issue for the [project], reflected in Neumark’s invoices . . .[,]
were being supplied for the prosecution of work specified in the contract for
the [project].
6. [Liberty] produced no evidence to contradict that Neumark
had a good faith belief that the materials were being provided for the bonded
[project].
7. Neumark’s notice on its claim on the bond for the [project],
mailed to [the contractor] on May 22, 2007, substantially complied with the
notice requirements of [the Act], [Section] 13-4-19(A).
8. Neumark’s notice to [the contractor] of its claim on the bond
for the [project] was timely.
9. [Liberty] is liable as surety on the bond issued pursuant to the
[Act] for sums justly due to Neumark under its credit agreements with [the
subcontractor] (not including attorney[] fees) for materials supplied for the
[project].
10. Interest of 18% was justly due to Neumark and part of the
balance unpaid on the . . . project at the time of the institution of the suit.
The court denied Neumark’s claim for attorney fees on the ground that Liberty and the
contractor were not parties to the credit agreements between Neumark and the subcontractor.
The court further awarded Neumark post-judgment interest at the rate of 8.75% instead of
3
at the rate of 18% requested by Neumark.
DISCUSSION
The Issue of Delivery and Incorporation of Material Raised by Liberty
{9} Liberty contends that the district court erred by allowing recovery by Neumark when
Neumark failed to prove that it delivered the material and that the material was actually
incorporated into the project. Liberty asserts “[i]t is well established in New Mexico that
in order for a materials supplier to collect against a payment bond, the supplier must not only
prove the materials were delivered but that they were incorporated into the project.” Based
on this assertion, Liberty contends that it was entitled to a judgment of dismissal of
Neumark’s claim under the Act. Liberty relies on Crane O’Fallon Co. v. Via, 56 N.M. 772,
251 P.2d 260 (1952), and State ex rel. Goodmans Office Furnishings, Inc. v. Page & Wirtz
Constr. Co., 102 N.M. 22, 690 P.2d 1016 (1984). Liberty also contends that the district
court erroneously applied a “good faith” standard in allowing Neumark’s claim.
{10} The question whether the Act requires a supplier to prove that the material supplied
was delivered and incorporated in the project is a question of law, which we review de novo.
See Maes v. Audubon Indem. Ins. Group, 2007-NMSC-046, ¶ 11, 142 N.M. 235, 164 P.3d
934 (stating that statutory interpretation is an issue of law, which appellate courts review de
novo); Allen v. Timberlake Ranch Landowners Ass’n, 2005-NMCA-115, ¶ 13, 138 N.M.
318, 119 P.3d 743 (“Conclusions of law by the district court are reviewed de novo.”).
{11} Furthermore, “on appeal, the evidence is to be viewed in the aspect most favorable
to the action of the court which is being appealed” and “[e]very reasonable intendment and
presumption will be resolved against appellants in favor of proceedings in the trial court.”
Lopez v. N.M. Bd. of Med. Exam’rs, 107 N.M. 145, 146, 754 P.2d 522, 523 (1988); see also
Allen, 2005-NMCA-115, ¶ 13 (“We resolve all disputed facts and indulge all reasonable
inferences in favor of the trial court’s findings.”).
{12} Neither Crane O’Fallon nor Goodmans Office Furnishings supports Liberty’s view
of New Mexico law. In Crane O’Fallon, the sole issue on appeal was whether the plaintiff
met the statutory notice requirement. 56 N.M. at 775, 776, 778, 251 P.2d at 262, 263, 264.
Our Supreme Court reversed the district court’s holding in favor of a supplier, holding that
the supplier failed to give a timely statutory notice to the surety. Id. at 778-81, 251 P.2d at
264-66. The supplier’s recovery in Crane O’Fallon depended on one particular item, a
lavatory, constituting the last item of material furnished to the subcontractor. Id. at 773-74,
251 P.2d at 261-62. It turned out that the lavatory the supplier delivered was not the one
called for in the contract specifications, was an item for which no change order was issued,
was never installed in the building that was being constructed, and remained uncrated in a
storage room. Id. at 773-74, 776, 251 P.2d at 261-62, 263. The contractor knew nothing
about the planned substitution, did not consent to it, and upon its arrival declined to receive
or install it. Id. at 777, 251 P.2d at 263. The Court determined that the supplier’s notice of
claim was not timely because the supplier could not use the substitute lavatory to prove when
the last item of material was furnished. See id. at 772-81, 251 P.2d at 260-66.
4
{13} Liberty does not contend that Crane O’Fallon’s ultimate determination or the
analysis from which the determination was derived controls the outcome in this case.
Indeed, it could not contend as much given the significant difference in facts and because,
in Crane O’Fallon, the material was not called for in the contract or expected to be
incorporated into the project and undisputedly was never taken from its crate or used in the
project. We do not read Crane O’Fallon to support Liberty’s view that Neumark had to
prove that it delivered the material and that the material was actually incorporated into the
project.
{14} Liberty, in fact, cites Crane O’Fallon only for the following statement, arguing that
Crane O’Fallon rejected a good faith standard.
Apparently, the trial court took the view advanced by counsel for [the]
plaintiff that if materials were furnished to a subcontractor by a materialman
who at the time of furnishing them believed in good faith they were to be
used in the performance of a public building contract, a recovery on the bond
could be had therefor whether or not such materials were actually used in a
due performance of the contract; provided, of course, the statutory notice was
duly given within [ninety] days after furnishing of the last item thereof.
Id. at 776, 251 P.2d at 262. Given the facts and holding in Crane O’Fallon and the
indefiniteness of this statement, plus the facts that in the case before us the district court
determined that Neumark provided material for the project, that the invoices for which
Neumark asserted its claim covered material for the project, and that Neumark supplied
material for the project in prosecution of the work provided for in the contract for the project.
We are not willing to consider the statement as having any precedential value or to be
controlling under the present facts.
{15} In Goodmans Office Furnishings, our Supreme Court affirmed allowance to the
contractor and surety of a credit for excess material and equipment delivered but not used
in the project. 102 N.M. at 23, 24, 690 P.2d at 1017, 1018. The supplier did not contest the
fact that a portion of what it supplied had not been used in the project, but nevertheless
claimed that the mere delivery of the material for use in the project, as opposed to actual
incorporation, was sufficient to allow recovery on the surety’s bond. Id. at 24, 690 P.2d at
1018. The Court disagreed with the supplier. Id. The circumstances in Goodmans Office
Furnishings are also significantly different from those in the present case. The supplier
sought payment even though it acknowledged that the material was in excess of what was
required for the project and was not material to be incorporated in the project. Id.{16} In neither Crane O’Fallon nor Goodmans Office Furnishings was the issue on appeal
the issue presented in the case before us. Neither case stands for the bright-line rule that
Liberty advocates, namely, that a subcontractor must prove that materials supplied for a
project were actually delivered to the project and incorporated in the project in order for the
supplier to recover on the surety’s bond. Apparently understanding this, Liberty turns to two
Tenth Circuit Court of Appeals cases decided under the Miller Act, 40 U.S.C.A. § 270 (West
2006) (current version at 40 U.S.C.A. § 3131), the act on which New Mexico’s Little Miller
5
Act is modeled. See State ex rel. Nichols v. Safeco Ins. Co., 100 N.M. 440, 446, 671 P.2d
1151, 1157 (Ct. App. 1983) (stating that the Act is modeled after the federal Miller Act).
The federal cases are United States ex rel. State Elec. Supply Co. v. Hesselden Constr. Co.,
404 F.2d 774 (10th Cir. 1968), and St. Paul-Mercury Indem. Co. v. United States ex rel. H.C.
Jones, 238 F.2d 917 (10th Cir. 1957). Liberty at the same time acknowledges that the Tenth
Circuit Court of Appeals “does not require that a supplier prove that the materials were
actually incorporated into the [p]roject.” But Liberty asserts that these cases require “the
supplier prove that the materials were actually delivered for use on the [p]roject.” These
cases do not assist Liberty.
{17} The district court found and concluded that Neumark supplied the material to the
subcontractor for the project and in the prosecution of the work provided for in the contract.
Liberty did not specifically challenge these determinations regarding the supply of material
as lacking substantial evidence support. See Mayeux v. Winder, 2006-NMCA-028, ¶ 12, 139
N.M. 235, 131 P.3d 85 (“[The p]laintiffs do not appear to actually argue that the trial court’s
findings were not supported by substantial evidence. Nor do [the p]laintiffs identify any of
the trial court’s findings to which they take exception.”); see also Rule 12-213(A)(4) NMRA
(“A contention that a . . . finding of fact is not supported by substantial evidence shall be
deemed waived unless the argument identifies with particularity the fact or facts that are not
supported by substantial evidence[.]”). The court’s unchallenged findings as to supply of
the material stand even though Liberty may have produced evidence supporting its own
view. See Mayeux, 2006-NMCA-028, ¶ 11 (stating that when an appellate court reviews “a
trial court’s factual findings, the presence of evidence supporting the result opposite from
that reached by the trial court is not relevant”). Under such circumstances, an appellate court
“need not conduct a thorough review for substantial evidence.” Id. ¶ 13.
{18} We conclude that the Act does not require that Neumark prove anything beyond the
fact that it supplied the material to the subcontractor for and in the prosecution of the work
provided for in the contract and also supplied the material for the project, as found by the
district court. We note that in the district court, Liberty required no more than this when it
requested the court to enter the following conclusions of law:
4. A subcontractor or supplier may not recover on the bond
unless they deliver material or perform labor called for under the terms of the
prime contract.
5. The burden of proof remains upon a materialman to prove by
reliable evidence from which it can be reasonably inferred that the materials
were furnished in the prosecution of the work provided for in the prime
contract.
6. Where labor and materials are actually furnished in the
prosecution of the work, the [Act] does not require that the material that has
been furnished be incorporated into the work in order to recover under the
payment bond.
6
(Citations omitted.) Indeed, the Act itself protects those who “furnished labor or material
in the prosecution of work provided for in [the] contract[.]” Section 13-4-19(A).
{19} Furthermore, although not in our view the controlling determination by the district
court on the issue of supply of the material, the court determined that Neumark “had a
reasonable good faith belief that the irrigation materials . . . for the [project], reflected in
Neumark’s invoices . . . were being supplied for the prosecution of work specified in the
contract for the [project].” Federal cases interpreting the Miller Act hold that it is not a
plaintiff’s burden to prove that the materials were actually delivered to the project: “As long
as there is good faith . . . delivery to the job site or actual use in the prosecution of the work
is immaterial to a right of recovery.’” United States ex rel. Krupp Steel Prod., Inc. v. Aetna
Ins. Co. (Krupp I), 831 F.2d 978, 980 (11th Cir. 1987) (internal quotation marks and citation
omitted); see also United States ex rel. Westinghouse Elec. Supply Co. v. Endebrock-White
Co., 275 F.2d 57, 60 (4th Cir. 1960) (“Neither delivery of the material to the prime contract
job site nor actual incorporation of the material into the work is required.”). The case of
United States ex rel. J.P. Byrne & Co. v. Fire Ass’n of Philadelphia, 260 F.2d 541, 545 (2d
Cir. 1958), illustrates the important policy reasons why a supplier should not be saddled with
proof of actual delivery to the job site.
[R]equiring the supplier to trace specific materials after they have left his
control may often place upon him an impossible burden of proof even when
the items involved were in fact consumed. Moreover, even if appropriate
tracing measures could be devised, the courts, in enforcing one remedial
policy, should be hesitant to compel an industry to accept what may be
artificial and burdensome accounting practices.
Id.{20} This interpretation of the Act comes within New Mexico and federal law requiring
that the Act and the Miller Act be construed liberally in favor of the claimant. See
Goodmans Office Furnishings, 102 N.M. at 25, 690 P.2d at 1019 (“[T]he statute is remedial
in nature and . . . its principal purpose is to protect the supplier of labor and materials, and
. . . it should be liberally construed to effectuate the obvious legislative intent.” (internal
quotation marks and citation omitted)); see also United States ex rel. Moody v. Am. Ins. Co.,
835 F.2d 745, 747 (10th Cir. 1987) (“In general, the Miller Act is entitled to a liberal
construction and application in order properly to effectuate the [c]ongressional intent to
protect those whose labor and materials go into public projects.” (internal quotation marks
and citation omitted)); Krupp I, 831 F.2d at 980 (“The [Miller] Act is highly remedial in
nature, and its terms should be liberally construed.” (internal quotation marks and citation
omitted)). Where, as here, the district court was fully satisfied that the material was supplied
to the subcontractor and for the project and that Neumark supplied the material with a
reasonable good faith belief that the material was supplied for the prosecution of the work
specified in the contract, we see no reason to reject the approach as reflected in the federal
cases.
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{21} We hold that the district court’s findings of fact and conclusions of law in regard to
Neumark’s supply of the material support the court’s determination that Neumark was
entitled to recover on Liberty’s payment bond under the Act.
The Notice Issues Raised by Liberty
{22} Liberty raises two notice issues. It asserts that Neumark’s notice of claim was not
timely and did not substantially comply with the notice requirements in Section 13-4-19(A).
Liberty also asserts that Neumark failed to provide notice to Liberty’s payment bond obligee,
the City, of the beginning of the lawsuit, and therefore did not comply with the notice
requirement in Section 13-4-19(B). Thus, Liberty contends, the district court erred failing
to hold in Liberty’s favor on these points.
Notice of Claim
{23} The Act sets out the following notice of claim requirements for recovery on a
payment bond: (1) written notice must be served on the contractor; (2) the notice must state
the amount of the claim with substantial accuracy; (3) the notice must be served on the
contractor within ninety days of the last provided material; (4) the notice must be served by
registered mail in an envelope; and (5) the notice must be addressed to the contractor at any
place the contractor maintains an office or conducts business, or the contractor’s residence.
Section 13-4-19(A). Liberty contends that Neumark met only the first of these requirements,
namely, that the notice was written. We consider this to be an issue of substantial
compliance with the Act’s notice requirement, which we review de novo. See Martinez v.
Sedillo, 2005-NMCA-029, ¶ 3, 137 N.M. 103, 107 P.3d 543 (stating that matters of statutory
construction are reviewed de novo); see also Moody, 835 F.2d at 748 (reviewing de novo the
issue of the sufficiency of a notice under the Miller Act).
{24} Liberty complains that notice was served by certified, not registered, mail at the
contractor’s post office box and that the amount stated as being owed did not include
amounts in invoices produced at trial. Based on several factors it sets out in its brief in chief,
Liberty argues that, “more importantly,” the notice was not mailed within ninety days of last
providing materials. In that regard, Liberty argues that even if it were arguable that “the last
two Neumark invoices were properly identified as being for the [project], these items were
clearly for repair or corrective work” and under federal Miller Act cases, “repairs,
replacement parts[,] or corrective work do not toll the [ninety]-day notice period.”
{25} The district court found that Neumark mailed notices of claim on May 22, 2007, by
certified mail to each of the contractor’s addresses as reported by the contractor to the New
Mexico Public Regulation Commission, as shown by the Commission’s on-line records. The
court also found that the contractor actually received notice. The court’s findings further
indicate the amount claimed for material did not include amounts for tools or equipment
rather than irrigation material and that the notice to the contractor stated the amounts with
substantial accuracy. Finally, the district court found that Neumark last supplied material
to the project on May 3, 2007. Liberty does not challenge these findings.
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{26} From the findings, one can reasonably infer that the court determined that Neumark’s
invoices accurately stated the amounts owed to Neumark. And the court concluded that
Neumark’s notice of claim “substantially complied with the notice requirements of . . .
[Section] 13-4-19(A)” and was timely. Under our standard of liberal construction of the Act
to protect a supplier of material, together with the district court’s unchallenged findings of
fact, we cannot say that the court erred in concluding that Neumark substantially complied
with the notice requirement pursuant to Section 13-4-19(A). See Moody, 835 F.2d at 747-48(holding that a Miller Act notice was sufficient although not sent by registered mail, when
it was actually received, noting that the Supreme Court had “stated that the manner of notice
specified in the [Miller] Act is merely to assure receipt of the notice, not to make the
described method mandatory so as to deny right of suit when the required written notice
within the specified time had actually been given and received” (internal quotation marks
and citation omitted)).
Notice to the Obligee
{27} Under the Act, the claimant must “notify the obligee named in the bond of the
beginning of [the] action, stating the amount claimed, and no judgment shall be entered in
such action within thirty days after giving such notice.” Section 13-4-19(B). Liberty argues
that Section 13-4-19(B) “required Neumark to provide notice to the City . . . of the beginning
of its lawsuit so that the City . . . might have the opportunity to also commence an action
regarding Neumark’s claims within the one-year statute of limitation” in Section 13-4-19(C)
that restricts the time an obligee can sue after the date of final settlement of a contract.
Liberty then argues that, by the time the City received notice, the City was not able to file
an action pertaining to Neumark’s action and, therefore, the district court had no jurisdiction
to issue a judgment. We consider this to be an issue of substantial compliance with the Act
and an issue of statutory interpretation, and we review such issues de novo. See Martinez,
2005-NMCA-029, ¶ 3.
{28} The district court found that Neumark mailed written notices of its claim on the bond
to the City on July 23 and 24, 2009. The court concluded that “[f]ailure by [Neumark] to
notify the obligee of this action until July 2009[] does not bar [Neumark’s] claims, as no
judgment was entered within thirty (30) days after giving notice.” Judgment was entered on
October 16, 2009.
{29} Neumark interprets the statute to require notice only “of the beginning” of the action
and not “at the beginning” of the action. The district court did not address this distinction
in its findings of fact and conclusions of law, but apparently determined that the City was
not prejudiced because judgment had not been entered before it received notice. We cannot
hold that the court erred.
{30} Liberty has provided no persuasive argument or authority to support its view that the
lateness of the notice to the obligee constitutes reversible error. We reject Liberty’s
contention that the district court was without jurisdiction to entertain Neumark’s action on
the bond. Liberty provides no rationale, much less authority, to support an argument that the
notice requirement is jurisdictional and that a failure to provide notice to the obligee at the
9
beginning of the claimant’s action on the bond deprives the court of jurisdiction to entertain
that action. Further, even were one to construe the statute to intend that notice to the obligee
on the bond be at the beginning of Neumark’s action, we see no basis on which Liberty
should be relieved of liability. Liberty does not refer us to any evidence showing that it or
the City was in any way prejudiced by the timing of the notice to the City; showing that the
City lacked knowledge of Neumark’s claim and lawsuit; showing that, had the City known
of Neumark’s action earlier, the City would have sought to intervene in the action; or
showing that, after notice, the City desired to intervene but because of time restraints was
unable to do so.
The Prejudgment Interest Issue Raised by Liberty
{31} Liberty contends that the district court erred in awarding prejudgment interest to
Neumark based on the open account credit agreement terms. We review this legal issue de
novo. See Martinez, 2005-NMCA-029, ¶ 3.
{32} The court determined that Neumark and the subcontractor agreed to an interest rate
of 18% on open accounts. The court concluded that “[i]nterest of 18% was justly due to
Neumark and part of the balance unpaid on the . . . project at the time of the institution of the
suit.” This determination was immediately preceded by determinations that Liberty was
“liable as surety on the bond issued pursuant to the . . . Act for sums justly due to Neumark
under its credit agreements with [the subcontractor] (not including attorney[] fees) for
materials supplied[.]” The court stated further that, with respect to prejudgment interest,
NMSA 1978, Section 56-8-5 (1983) provided that “[i]n current or open accounts there shall
not be collected more than [15%] interest annually thereon, thirty days after the delivery of
the last article or service; provided that the parties may set a higher rate by agreement.” The
court reiterated that “[the subcontractor] and Neumark agreed to an interest rate of 18% on
open accounts.”
{33} Liberty argues that the prejudgment interest award was erroneous because there
existed no privity of contract between the contractor and Neumark and that the open account
statute, Section 56-8-5, does not extend to third parties. Liberty also emphasizes the
existence of the words “the parties” in Section 56-8-5 and argues that it cannot be held liable
for interest pursuant to a contract to which its obligor, the contractor, was not a party, or
pursuant to Section 56-8-5, “as it is clear the statute contemplates an agreement between
contracting parties.” Liberty also argues that the Act does not specify that interest may be
awarded to a subcontractor’s supplier. Liberty asserts further that the contractor should have
no liability when it has no say or control in regard to interest obligations between
subcontractors and their material suppliers. Liberty sets out what it considers to be various
practical reasons why the Act does not provide for recovery of interest. And Liberty argues
that denial of prejudgment interest “is in keeping with the majority of Miller Act case law,
which does not award attorney[] fees unless there is privity of contract.”1
1
Liberty’s majority of Miller Act case law on the issue of awarding attorney fees
consists of the following cases: F.D. Rich Co. v. United States ex rel. Indus. Lumber Co.,
417 U.S. 116 (1974); Moody, 835 F.2d 745; United States ex rel. C.J.C., Inc. v. W. States
10
{34} We are not persuaded by Liberty’s arguments. Liberty does not provide authority
that equates prejudgment interest with attorney fees in terms of either a privity-of-contract
requirement or the propriety of recovery under the Miller Act. In fact, one of the attorney
fee cases on which Liberty relies, C.J.C., 843 F.2d at 1541-43, denies attorney fees but
upholds an award of prejudgment interest. Liberty also fails to cite and discuss the several
other federal cases that specifically allow recovery of prejudgment interest.
{35} The Act permits recovery “for the sum or sums justly due[.]” Section 13-4-19(A).
United States ex rel. Maddux Supply Co. v. St. Paul Fire & Marine Ins. Co., 86 F.3d 332(4th Cir. 1996), provides the Miller Act guideline with respect to an award of interest.
The Miller Act does not, by its own terms, provide for attorney[] fees
or interest. Several circuits have held, however, that interest and attorney[]
fees are recoverable if they are part of the contract between the subcontractor
and supplier. The rationale of those decisions—that attorney[] fees and
interest may be sums justly due under the Miller Act—is consistent with this
court’s rulings that contractors and their sureties are obligated to pay
amounts owed by their subcontractors to suppliers.
Id. at 336 (internal quotation marks and citations omitted).2 In D & L Constr. Co., 332 F.2d
at 1013, the court stated:
The liability of the surety is measured by that of the prime contractor covered
by the bond. The liability of the prime contractor to a project supplier of a
subcontractor is governed by the subcontractor’s obligation. Where there is
no express contract for interest or attorney[] fees, it is necessary to look to
state law to measure the extent of the subcontractor’s obligation. In such a
situation, state law will determine when interest is allowable and the rate of
interest. Such a condition does not exist where, . . . interest and attorney[]
fees are covered by express contract.
(Footnote omitted.) D & L Construction held that the interest rate agreed to in the contract
between the subcontractor and the supplier was “by [the] contract made part of the purchase
price of the materials and are sums justly due to [the supplier].” Id.; see also State ex rel.
Bob Davis Masonry, Inc. v. Safeco Ins. Co. of Am., 118 N.M. 558, 560-62, 883 P.2d 144,
Mech. Contractors, Inc., 834 F.2d 1533 (10th Cir. 1987); Krupp I, 831 F.2d 978; United
States ex rel. L.K.L. Assocs. v. Crockett & Wells Constr., Inc., 730 F. Supp. 1066 (D. Utah
1990); Goodmans Office Furnishings, 102 N.M. 22, 690 P.2d 1016.
2
Supportive cases cited in Maddux Supply are the following: United States ex rel.
Se. Mun. Supply Co. v. Nat’l Union Fire Ins. Co. of Pittsburg, 876 F.2d 92, 93 (11th Cir.
1989) (per curiam); United States ex rel. Carter Equip. Co. v. H.R. Morgan, Inc., 554 F.2d
164, 166 (5th Cir. 1977); Travelers Indem. Co. v. United States ex rel. W. Steel Co., 362 F.2d
896, 899 (9th Cir. 1966); D & L Constr. Co. v. Triangle Elec. Supply Co., 332 F.2d 1009,
1012-13 (8th Cir. 1964).
11
146-48 (1994) (holding that a subcontractor was entitled to sue the surety “for all contract
liability” on a surety’s payment bond, including prejudgment interest, where such interest
was awardable against the contractor under a New Mexico statute, the bond required the
surety “to pay claimants such sum or sums as may be justly due claimant” and the Act
entitled the claimant to sue on the bond for such “sum or sums justly due”). We agree with
the district court that prejudgment interest is awardable as a sum or sums justly due under
Section 13-4-19(A) where the supplier and subcontractor agree to the interest in their
contract.
The Issues of Attorney Fees and Post-Judgment Interest Raised by Neumark
{36} In its cross-appeal, Neumark argues that the district court erred in holding that
recovery of attorney fees was not permitted under the Act. The district court denied attorney
fees based on the determination that neither Liberty nor the contractor was a party to the
credit agreements. The court concluded that “[a]bsent privity of contract, a payment bond
claimant cannot recover attorney[] fees from a contractor.”
{37} Liberty argues that the Act does not provide for attorney fees and that under the plain
reading of the Act, a claimant has a right to recover only the amount of the balance unpaid
at the time of the action and that the statute only allows recovery for the material actually
furnished under the contract “in respect of which a payment bond is furnished[.]” Liberty
also argues that “[f]ederal courts interpreting the federal Miller Act have ruled that absent
a provision in the contract or payment bond awarding attorney fees, a Miller Act plaintiff can
only recover under one of the recognized exceptions to the general principle that each party
should bear the costs of its own legal representations.”
{38} Liberty relies on several federal cases to support its position regarding attorney fees.
In F.D. Rich, 417 U.S. 116, which involved a material supplier to a subcontractor, id. at 119-
20, the Court held that it was error to award the supplier attorney fees against the Miller Act
surety’s payment bond. Id. at 121, 126-31. The court’s holding was based on various
factors. There existed no contractual provision concerning attorney fees, and the American
Rule precluded an award of attorney fees. Id. at 126, 128-29. The Miller Act does not
explicitly provide for an award of attorney fees to a successful plaintiff, and an award under
the Miller Act could not be based on state law. Id. at 126-27. Under the circumstances in
F.D. Rich, recovery of the fees could not be considered under “sums justly due [under
Section] 270b(a)[.]” Id. at 128-29; see 40 U.S.C.A. § 3133.
{39} In C.J.C., citing F.D. Rich, the Court indicated that “[t]he question of attorney[] fees
in a Miller Act action is a matter of federal law,” and “[t]he Act does not provide attorney[]
fees for the prevailing party.” C.J.C., 834 F.2d at 1542-43. The court stated that “[a]bsent
a provision in the contract or payment bond awarding attorney[] fees, a Miller Act plaintiff
may only recover under one of the federally recognized exceptions to the general principle
that each party should bear the costs of its own legal representation.” Id. at 1543 (internal
quotation marks and citation omitted). The court stated further that “[w]hen the agreement
between the contractor and the subcontractor provides for attorney[] fees, the subcontractor
may recover from the contractor and its Miller Act surety consistent with the terms of that
12
agreement.” Id. at 1548; see also United States ex rel. D & P Corp. v. Transamerica Ins.
Co., 881 F. Supp. 1505, 1510 (D. Kan. 1995) (denying attorney fees claimed by a
subcontractor based on C.J.C. on the ground that none of the prerequisites for the award
under federal law were established); L.K.L. Assocs., 730 F. Supp. at 1066-68 (denying
attorney fees based on F.D. Rich, Krupp I, and C.J.C. and interpreting C.J.C. as “holding
that the attorney[] fees provision must be included in either the general contract or the
payment bond”).
{40} Liberty relies, too, on language in Goodmans Office Furnishings, namely, “[a]bsent
authority or rule of the court, attorney fees are not recoverable as an item of damage” and
also relies on Goodmans Office Furnishings because, in response to the supplier’s claim for
attorney fees based on its contract with the subcontractor, our Supreme Court found that no
contract existed between the supplier and the contractor. See 102 N.M. at 23, 24, 690 P.2d
at 1017, 1018.
{41} Neumark relies on several federal cases that show why Liberty’s cases are not
persuasive and that hold that a material supplier to a subcontractor can recover attorney fees
against the surety’s payment bond when the contract between the material supplier and
subcontractor provides for recovery of attorney fees.3 The court in Trustees, 785 F. Supp.
at 897, persuasively rejects the cases on which Liberty relies. First, the court distinguishes
F.D. Rich and points out that the Eleventh Circuit abandoned the reasoning in Krupp I, citing
Se. Mun. Supply, 876 F.2d at 93; Krupp II, 923 F.2d at 1527. The court in Trustees further
points out that the continued vitality of L.K.L. Associates was dubious, because it took its
direction from Krupp I. Trustees, 785 F. Supp. at 898. And, lastly, the court in Trustees
rejected C.J.C., stating that
[l]anguage in [L.K.L. Associates] suggests that in [C.J.C.], the Tenth Circuit
implicitly followed the approach of Krupp I. In C.J.C., . . . however, the
court merely followed the holding of F.D. Rich that the American Rule
applies in Miller Act cases unless there is a contractual agreement to the
contrary or circumstances justifying an award under the bad faith or other
exception to the American Rule. C.J.C., . . . is not inconsistent with the
majority rule that attorney fees in a Miller Act case can be awarded to [a]
third party based on a contractual agreement between that party and a
subcontractor.
3
The cases on which Neumark relies are the following: Maddux Supply, 86 F.3d
at 336; United States ex rel. Krupp Steel Prods., Inc. v. Aetna Ins. Co. (Krupp II), 923 F.2d
1521, 1527 (11th Cir. 1991); Se. Mun. Supply, 876 F.2d at 93; Carter Equip., 554 F.2d at
166; Travelers Indem., 362 F.2d at 899; D & L Constr., 332 F.2d at 1012-13; United States
ex rel. Trustees of Colo. Laborers Health & Welfare Trust Fund v. Expert Envtl. Control,
Inc. (Trustees), 785 F. Supp. 895, 898 (D. Colo. 1992); IBEX Indus., Inc. v. Coast Line
Waterproofing, 563 F. Supp. 1142, 1146 (D.D.C. 1983).
13
Trustees, 785 F. Supp. at 898 n.1 (citations omitted). The court indicated that “[a] majority
of courts follow [the] approach” of the Eleventh Circuit in Se. Mun. Supply Co., and Krupp
II, citing most of the cases Neumark cites to this Court. Trustees, 785 F. Supp. at 897-98.
{42} We note that Maddux Supply arrived at its holding with respect to recovery of
attorney fees, as well as interest, based in part on the liberal construction of the Miller Act
required by the United States Supreme Court in United States ex rel. Sherman v. Carter, 353
U.S. 210, 216 (1957). Maddux Supply, 86 F.3d at 335-36; see also Se. Mun. Supply, 876
F.2d at 93 (affirming an award of attorney fees under the Miller Act based on Carter);
Travelers Indem., 362 F.2d at 899 (same); D & L Constr., 332 F.2d at 1012 (same). Along
with its guidance that the Miller Act “should receive a liberal construction to effectuate its
protective purposes[,]” in considering a direct contract with the general contractor, Carter
held that reasonable attorney fees could be awarded as a sum or sums justly due under the
Miller Act where the contract terms expressly provided for allowance of the fees. 353 U.S.
at 216, 220. We note that this Court in Nichols also relied on Carter in affirming an award
of attorney fees in an action on a surety bond furnished under the Act involving a direct
contract with the general contractor. Nichols, 100 N.M. at 446, 671 P.2d at 1157.
{43} We are not convinced, as Liberty suggests, that we need only turn to Goodmans
Office Furnishings as controlling authority on the issue of recovery of attorney fees under
the Act. In its very short discussion of the question, our Supreme Court in Goodmans Office
Furnishings, 102 N.M. at 23, 690 P.2d at 1017, gives no indication of what particular
positions and authorities were presented on the issue to the district court or on appeal. Nor
did the Court cite any authority on the question whether attorney fees were awardable, and
the Court disposed of the matter by merely stating that it would not reverse the district court
“unless it appears that its findings and conclusions cannot be sustained either by evidence
or permissible inferences therefrom.” Id. at 24, 690 P.2d at 1018. Goodmans Office
Furnishings’ discussion on the question is not sufficiently developed to bind this Court as
precedent, particularly given the body of federal law under the Miller Act on the issue that
permits an award of attorney fees when a state statute or a contract allows for attorney fees.
{44} We hold that attorney fees are awardable as a sum or sums justly due under Section
13-4-19(A) where, as here, the contract between the subcontractor and supplier provides for
an award of attorney fees incurred by Neumark in endeavoring to collect amounts due and
unpaid under its credit agreements with the subcontractor.
{45} Neumark also cross-appeals asserting that the court erred in not awarding 18% post-
judgment interest. The statute on post-judgment interest, NMSA 1978, § 56-8-4(A)(1)
(2004), provides:
Interest shall be allowed on judgments and decrees for the payment
of money from entry and shall be calculated at the rate of eight and three-
fourths percent per year, unless: . . . the judgment is rendered on a written
instrument having a different rate of interest, in which case interest shall be
computed at a rate no higher than specified in the instrument[.]
14
{46} The contract interest rate provision is broad enough to cover post-judgment interest
as well as prejudgment interest. We see no reason why the rationales and authorities
permitting prejudgment interest and attorney fees to be awarded should not also apply to
post-judgment interest. We hold that Neumark is entitled to post-judgment interest in the
amount permitted under the credit agreements. See id.; Weststar Mortg. Corp. v. Jackson,
2002-NMCA-009, ¶ 55, 131 N.M. 493, 39 P.3d 710, rev’d on other grounds by 2003-
NMSC-002, 133 N.M. 114, 61 P.3d 823.
CONCLUSION
{47} We hold in favor of Neumark on all issues. We therefore reverse the district court’s
determinations against Neumark on attorney fees and post-judgment interest and affirm on
all other issues. We remand for further proceedings in regard to what amount of reasonable
attorney fees, in the exercise of the court’s discretion, should be awarded to Neumark.
{48} IT IS SO ORDERED.
_____________________________________
JONATHAN B. SUTIN, Judge
WE CONCUR:
____________________________________
CYNTHIA A. FRY, Judge
____________________________________
TIMOTHY L. GARCIA, Judge
Topic Index for State of NM ex rel v. Liberty Mutual Ins. Co., No. 30,068
AE APPEAL AND ERROR
AE-RM Remand
AR-SR Standard of Review
CP CIVIL PROCEDURE
CP-NO Notice
CP-TL Time Limitations
CM COMMERCIAL LAW
CM-CT Contractors and Subcontractors
CN CONTRACTS
CN-SB Surety or Performance Bonds
GV GOVERNMENT
GV-PC Public Contracts and Purchase
15
IN INSURANCE
IN-AF Attorney Fees
IN-GF Good Faith
IN-NO Notice
IN-SB Sureties and Bonds
JM JUDGMENT
JM-IN Interest
JM-PI Pre-Judgment Interest
16