United States Court of Appeals,
Fifth Circuit.
No. 94-20734.
TACON MECHANICAL CONTRACTORS, INC., et al., Plaintiffs,
Tacon Mechanical Contractors, Inc. and the Walsh & Albert
Company, Plaintiffs-Appellants,
v.
AETNA CASUALTY AND SURETY COMPANY, Defendant-Appellee.
The WALSH & ALBERT COMPANY, Plaintiff-Appellant,
v.
AETNA CASUALTY AND SURETY COMPANY, Defendant-Appellee.
Oct. 4, 1995.
Appeal from the United States District Court for the Southern
District of Texas.
Before SMITH, BARKSDALE and BENAVIDES, Circuit Judges.
BENAVIDES, Circuit Judge:
The central issue of this appeal is whether a subcontractor
has a cause of action against a contractor's surety for alleged
delays in payment under Texas state law. Because Texas does not
recognize such a claim, we affirm.
FACTUAL AND PROCEDURAL BACKGROUND
This controversy has its genesis in a construction project at
the Naval Reserve Readiness Center in Houston. Menendez, Donnell
& Associates ("Menendez") contracted with the United States to make
certain improvements to the facility. Menendez subcontracted with
appellant Tacon Mechanical Contractors, Inc. ("Tacon") for labor
and materials. In turn, Tacon subcontracted with appellant The
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Walsh & Albert Company ("Walsh") for sheetmetal ductwork. In
accordance with the Miller Act, Menendez obtained a payment bond
from a surety, appellee Aetna Casualty and Surety Co. ("Aetna").
See 40 U.S.C. §§ 270a-270d (1993).
When Menendez failed to make prompt payment, Tacon and Walsh
made a claim for payment with the surety Aetna. When Aetna was
tardy in making payment on the bond, Tacon and Walsh each filed
suit in district court as provided under the Miller Act. 40 U.S.C.
§ 270b(b). These suits were later consolidated into this action.
In addition to Miller Act claims for payment on the bond, Tacon and
Walsh also sued Aetna for various state law causes of action
arising from Aetna's alleged bad faith in handling the dispute.
Specifically, Tacon alleged breach of a common law duty of good
faith and fair dealing, violation of article 21.21 of the Texas
Insurance Code,1 vexatious failure to pay the Miller Act claim, and
tortious interference with business relations. Walsh also raised
the good faith and fair dealing and Insurance Code violations.
Following a hearing on September 9, 1993, the district court
ordered Aetna to pay the Miller Act claims; Aetna eventually
complied.2 Following the elimination of the Miller Act claims,
1
The Texas Insurance Code prohibits unfair claim settlement
practices including failure to adopt and implement reasonable
standards for prompt investigation of claims and not attempting
in good faith to effectuate prompt settlement. Tex.Ins.Code Ann.
art. 21.21-2, §§ 2(b)(3), (4) (West Supp.1995).
2
The record reflects that at the September 9, 1993 hearing,
the exact amount of the Miller Act claims was undetermined.
However, it was undisputed that Aetna owed at least $167,000.
The district court, reducing the sum for margin of error, ordered
Aetna to pay at least $140,000 by September 13, 1993. On
2
Aetna moved for summary judgment on the state law claims on two
independent grounds: (1) federal preemption of state law claims by
the Miller Act; and (2) the absence of Texas state law causes of
action for a surety's "bad faith" handling of a claim. The
district court granted partial summary judgment on all the state
law claims on both grounds. 860 F.Supp. 385, 389 (S.D.Tex.1994).
Following final judgment disposing of all remaining issues, Tacon
& Walsh appeal asserting that the district court erred in
dismissing their state law claims.
STATE LAW BAD FAITH CLAIMS
Because the district court dismissed the state law bad faith
claims by way of summary judgment, we review its decision de novo
under well-established standards. See Celotex Corp. v. Catrett,
477 U.S. 317, 323-24, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265
(1986); Sterling Property Management, Inc. v. Texas Commerce Bank,
Nat'l Ass'n, 32 F.3d 964, 966 (5th Cir.1994).
The district court rendered a take nothing judgment for Aetna
on each of the state law claims because Texas law does not
recognize a cause of action for a surety's failure to promptly pay
a claim. Recent authority from the Texas Supreme Court makes clear
the correctness of the district court's decision. In Great
American Insurance Co. v. North Austin Municipal Utility District
No. 1, 1995 WL 358834, at *1, --- S.W.2d ----, ---- (Tex. June 15,
1995), the Texas Supreme Court specifically held that "there is no
November 15, 1993, Aetna paid $186,915.92 on the Miller Act
claims, leaving a disputed balance of $7,850.92 at the time of
partial summary judgment.
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common law duty of good faith and fair dealing between [a] surety
and [a] bond obligee." Likewise, the court held that given the
unique character of suretyship, a surety has no liability to an
obligee under article 21.21 of the Texas Insurance Code. Id. at
*9, --- S.W.2d at ----. These two explicit holdings dictate our
conclusion that the district court was correct in concluding that
appellants' common law bad faith and Insurance Code claims are not
available under Texas law.3
Tacon maintains, however, that Great American does not
dispose of its vexatious failure to pay or tortious interference
claims.4 It contends that these claims are separate and distinct
from the common law and statutory bad faith claims. We disagree.
There is no authority for the existence of a vexatious failure to
pay cause of action in Texas. Any such allegation is clearly
subsumed into the holding of Great American that no common law duty
of good faith and fair dealing exists between a surety and obligee.
While Texas does recognize a tortious interference cause of
action, see Holloway v. Skinner, 898 S.W.2d 793, 794-95 (Tex.1995),
we agree with the district court that, in this case, Tacon's claim
is not distinct from its bad faith claim. Tacon admitted in oral
3
In reaching its conclusion on the absence of a common law
duty of good faith and fair dealing, the Texas Supreme Court
cited approvingly the district court's published opinion. Great
American, 1995 WL 358834, *4, --- S.W.2d at ---- (citing Tacon
Mechanical Contractors, Inc. v. Aetna Casualty & Sur. Co., 860
F.Supp. 385, 388 (S.D.Tex.1994)). This confirms the validity of
the district court's approach to this issue.
4
Walsh's complaint does not specifically contain allegations
of vexatious failure to pay or tortious interference.
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argument that there is no Texas authority applying a tortious
interference claim in a surety context. Tacon's tortious
interference claim is based upon the same factual allegation that
Aetna was slow to pay on the surety bond and due to this delay
Tacon's relationship with other subcontractors deteriorated. This
is no more than a restatement of the bad faith claim. Under Texas
law, an attempt such as this to fracture one cause of action into
three or four by massaging the labels and language is
impermissible. Ross v. Arkwright Mut. Ins. Co., 892 S.W.2d 119,
133 (Tex.App.—Houston [14th Dist.] 1994, no writ); cf. Sledge v.
Alsup, 759 S.W.2d 1, 2 (Tex.App.—El Paso 1988, no writ). Likewise,
our own federal summary judgment procedure requires us to pierce
through the pleadings and their adroit craftsmanship to reach the
substance of the claim. See Matsushita Elec. Indus. Co. v. Zenith
Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d
538 (1986); Professional Managers, Inc. v. Fawer, Brian, Hardy &
Zatzkis, 799 F.2d 218, 222-23 (5th Cir.1986); see also United
Nat'l Ins. Co. v. Tunnel, Inc., 988 F.2d 351, 354 (2d Cir.1993).
We conclude, as did the district court, that Tacon's tortious
interference claim, at its core, merely reiterates the bad faith
claim. As a result, the district court did not err in granting
summary judgment for Aetna on each of the state law claims.
ATTORNEY'S FEES
In the wake of the disintegration of its state law claims,
Tacon gamely contends that Aetna's alleged vexatious failure to pay
can still provide the basis for attorneys' fees. Specifically,
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Tacon argues that because there are "fact issues" surrounding
Aetna's bad faith, summary judgment was inappropriate. The
resolution of Tacon's claim requires a proper understanding of the
award of attorneys' fees stemming from a Miller Act claim and the
appropriate standard of review.
The Supreme Court specifically addressed the availability of
attorneys' fees in the context of the Miller Act in F.D. Rich Co.
v. United States ex rel. Industrial Lumber Co., 417 U.S. 116, 94
S.Ct. 2157, 40 L.Ed.2d 703 (1974). Under the American Rule,
attorneys fees are not generally recoverable in the absence of
statute or contract. F.D. Rich, 417 U.S. at 129, 94 S.Ct. at 2165.
Characterizing Miller Act suits as "plain and simple commercial
litigation," the Court refused to obviate the American Rule and
held that the Miller Act does not specifically provide for an award
of attorneys' fees. Id. at 130-31, 94 S.Ct. at 2165-66; see
United States ex rel. Howell Crane Serv. v. U.S. Fidelity & Guar.
Co., 861 F.2d 110, 112 (5th Cir.1988).
The Court noted, however, that as one of the long-recognized
exceptions to the general rule, a district court may award
attorneys' fees to a successful party "when his opponent has acted
in bad faith, vexatiously, wantonly, or for oppressive reasons."
F.D. Rich, 417 U.S. at 129, 94 S.Ct. at 2165. Critical to an
understanding of this exception is that an award of attorneys' fees
under this exception stems from the district court's inherent power
to sanction abusive and egregious behavior by a litigant by
awarding attorneys' fees, not from any substantive provision of the
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Miller Act. United States ex rel. Treat Bros. Co. v. Fidelity &
Deposit Co., 986 F.2d 1110, 1120 (7th Cir.1993); United States ex
rel. C.J.C., Inc. v. Western States Mechanical Contractors, Inc.,
834 F.2d 1533, 1543 (10th Cir.1987); see Chambers v. NASCO, Inc.,
501 U.S. 32, 45-46, 111 S.Ct. 2123, 2133, 115 L.Ed.2d 27 (1991).
While the district court may sanction a party in a Miller Act case
under its inherent authority, the decision is solely within the
discretion of the district court. Fidelity, 986 F.2d at 1120.
In this case, the district court, in the exercise of its
discretion, chose not to sanction Aetna by awarding attorneys' fees
to Tacon. The district court noted that while Aetna should have
paid the claims more quickly, its conduct did not warrant an award
of attorneys' fees. While the rationale for the district court's
denial of attorneys' fees is contained in its opinion on summary
judgment, it is clear to this Court that we review its decision not
to exercise its inherent power to sanction under an
abuse-of-discretion standard. See Chambers, 501 U.S. at 55, 111
S.Ct. at 2138 ("We review a court's imposition of sanctions under
its inherent power for abuse of discretion."); Elliott v. Tilton,
1995 WL 513324, *4, --- F.3d ----, ---- (5th Cir. Sept. 15, 1995);
Fidelity, 986 F.2d at 1119. Our review of the record reflects no
abuse of discretion.
CONCLUSION
The district court properly granted summary judgment because
Texas law does not recognize a tort-based cause of action for a
surety's failure to promptly pay a claim. Given our holding, we
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need not address and express no opinion with respect to the
district court's alternative conclusion on federal preemption.
Additionally, we find no abuse of discretion in the court's
decision not to sanction Aetna by awarding attorneys' fees. The
district court's judgment is AFFIRMED.
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