Appeal from the District Court of Fremont County
Honorable Julie G. Marshall, Judge
No. 96CV9
Division IV JUDGMENT AFFIRMED
Opinion by JUDGE ROY
Sternberg, C.J., and Ney, J., concur
______________________________________________________________________________
Bailey, Harring & Peterson, P.C., James S. Bailey, Jr., Randall M. Livingston, Denver, Colorado, for Plaintiff-Appellant
McDermott Law Firm, John A. McDermott, Canon City, Colorado, for Defendant-Appellee
Plaintiff, JTL, Inc., (the contractor) appeals from the judgment dismissing its complaint against defendant, Fremont Sanitation District (the District). The sole issue on appeal is whether the complaint states a claim upon which relief may be granted. We affirm.
Following the filing of the complaint, as
pertinent here, the District filed a motion to dismiss, pursuant to C.R.C.P.
12(b)(5), asserting that the complaint failed to state a claim upon which
the court could grant relief. Under that circumstance, the allegations of
the complaint must be accepted as admitted and true. Dunlap v. Colorado
Springs Cablevision Inc., 829 P.2d 1286 (Colo. 1992). The trial court
granted the motion, and this appeal followed.
The complaint indicates that the District and the contractor entered into a
construction contract for the installation of a sanitary sewer line. The
construction contract required that the contractor post a performance bond
through a corporate surety, which contractor obtained.
After performance of the construction contract had commenced, the District declared the contractor in default, terminated the construction contract, and applied to the surety for completion of the project pursuant to the performance bond.
The contractor challenged the termination and demanded arbitration pursuant to provisions of the construction contract.
While the arbitration was pending, the surety and the District entered into a settlement requiring the surety to pay the District $70,000.
The arbitrators subsequently ruled in the contractor's favor as to the default; concluded the contractor had been wrongfully terminated; and awarded the contractor damages in the amount of $58,500.06 for unpaid labor and material, all direct costs and overhead for vacating the project, and for arbitration costs and expenses including professional fees. The arbitrators rejected claims for unsatisfactory work rightfully rejected, unabsorbed overhead, unallocated costs, and profit, because of insufficient evidence.
The contractor then initiated this action, alleging in its complaint that, as a result of the wrongful termination and premature claim on the performance bond, the surety has demanded reimbursement from the contract for its costs and expenses in the amount of $81,240.68, the contractor is unable to obtain bonding, the Small Business Administration has declared its loans in default, and it is unable to obtain contracts for future work. Contractor seeks damages for the moneys paid to the District by the surety, for the defaults on the Small Business Administration loans or loan agreements, profits from projects not obtained, interest, costs, and attorney fees. The performance bond agreement, the arbitration award and the settlement agreement were attached to and incorporated into the complaint.
The essence of the contractor's claim is that the District breached a contractual obligation to the contractor by commencing and settling a claim with the surety prior to the resolution of the arbitration between the District and the contractor. The alleged breach was the commencing of a claim with the surety when the contractor was not in default under the construction contract and/or when the District had not performed all of its obligations.
While the contractor asserts on appeal that its claim is premised on the construction contract and the performance bond agreement, the complaint is couched solely in terms of a breach by the District of the performance bond agreement. The complaint does not allege breach of any provision of the construction contract, does not incorporate the construction contract, and the contractor states that there is no provision of the construction contract which will assist the court in construing the performance bond agreement.
The contractor was not a party to the settlement agreement between the District and the surety, the surety was not a party to the arbitration, and the surety is not a party to this proceeding. Indeed, the contractor and the District stipulated that they would not submit claims under the performance bond to arbitration. Also, the contractor has already received an arbitration award for its contract damages for the wrongful termination of the construction contract.
Under these circumstances, the viability of a complaint is contingent upon whether there are allegations indicating that the District breached contractual obligations it had to the contractor under the performance bond agreement.
The performance bond provides, in pertinent part, that:
c. Whenever Contractor shall be, and declared by Owner to be in default under the Contract, the Owner having performed Owner's obligations thereunder, the Surety may promptly remedy the default or shall promptly
(1) Complete the Contract in accordance with its terms and conditions, or
(2) Obtain a bid or bids for submission to Owner for completing the Contract. . . .
The District is not a party to, or a signatory of, the performance bond agreement. The District is a third party beneficiary or obligee of the performance bond agreement and that agreement does not impose any duties, obligations, or limitations on the District. We are not aware of any authority for the proposition that an obligee under a corporate surety performance bond can breach the performance bond agreement in such a manner as to become liable for direct and consequential damages to the principal, i.e., the contractor.
Relying on Smith v. Mills, 123 Colo. 11, 225 P.2d 483 (1950), contractor argues that, for the purpose of surviving a motion to dismiss, all it must allege is that there was a contract and a breach of that contract. We are not persuaded.
While Smith is essentially a summary judgment case, it does stand for the proposition that, under notice pleading rules, the complaint need only give fair notice of the claim so as to enable the opposing party to answer and prepare for trial. And, in Smith, as here, the plaintiff alleged a contract, attached a copy of the contract to the complaint, and alleged a breach of that contract.
Unlike here, however, the complaint in Smith alleged the breach of a contract between the plaintiff and defendant in which defendant was obligated to perform an act for the benefit of the plaintiff. While the complaint here alleges the existence of a a contract between the parties, i.e., the construction contract, it seeks damages for the breach of the performance bond agreement to which the defendant is not a party and which does not obligate the defendant.
In addition, the contractor relies on language in the performance bond agreement which imposes no obligation on anyone. The language relied upon describes the condition precedent to the surety's obligation to perform under the performance bond agreement.
Under these circumstances, in our view, the complaint fails to state a cause of action upon which relief can be granted and the granting of the motion to dismiss was correct.
Based on Wood Bros. Homes, Inc. v. Howard, 862 P.2d 925 (Colo. 1993), however, we conclude that this appeal is not frivolous and groundless; thus, we decline defendant's request for attorney fees and costs under C.A.R. 38(d) and §13-17-101, C.R.S. 1997.
The judgment is affirmed.
CHIEF JUDGE STERNBERG and JUDGE NEY concur.