TWO AVENUES OF RECOVERY – A PAYMENT BOND SURETY
AND RELEASE OF LIEN BOND SURETY
By: Andrew Vicknair
Today, the Louisiana First Circuit Court of Appeal ruled that a claimant, such as a sub-subcontractor, has the right to assert claims against both a payment bond surety and a release of lien bond surety in connection with unpaid claims on a public Project. The ruling was issued in SATCO, Inc. v Professional Application Services, Inc. and Suretec Insurance Company, 2023-0012 (La. App. 1st Cir. 10/19/23) —So.3d —.
SATCO, Inc. v Professional Application Services, Inc. and Suretec Insurance Company involved a public construction project to apply a protective coating to a certain sewer facility in Baton Rouge (“Project”). The general contractor on the Project was NCMC, LLC (“NCMC”) and Suretec Insurance Company (“Suretec”) issued a statutory payment bond for the Project.
NCMC entered into a subcontract with Professional Application Services, Inc. (“PASI”) to perform a certain scope of work. In turn, PASI entered into a sub-subcontract with SATCO, Inc. (“SATCO”) for SATCO to perform a certain scope of work. A payment dispute arose between SATCO and PASI. Eventually, SATCO filed a timely sworn statement of claim under the Louisiana Public Works Act and later filed suit against PASI and Suretec asserting a claim against the payment bond. Sometime after suit was filed, PASI obtained a release of lien bond (“lien bond”) from United States Fire Insurance Company (“US Fire”) and filed it in the mortgage records of East Baton Rouge Parish. After filing the lien bond, the Clerk and Recorder of Court for East Baton Rouge Parish cancelled SATCO’s statement of claim and placed the lien bond in lieu of the statement of claim.
After the lien bond was filed, SATCO filed an amended petition to add US Fire to the lawsuit to assert a claim against US Fire as the lien bond surety. Shortly thereafter, Suretec filed an exception of no cause of action and no right of action claiming that SATCO’s right of action against Suretec under the payment bond was extinguished as a matter of law because the lien bond cancelled the statement of claim and the only remaining claim included the claim against US Fire under the lien bond. The district court sustained the exceptions and dismissed Suretec from the lawsuit with prejudice.
Relying upon L&A Contracting Co. v. State Through Dep’t of Transp. & Dev., 2022-1301 (La. App. 1st Cir. 8/16/2023), 2023 La. App. LEXIS 1333 which dealt with a Louisiana DOTD Public Works Act Project (“DOTD PWA”), the First Circuit noted the similarities between the DOTD PWA and the Public Works Act recognizing that the furnishing of a lien bond under the DOTD PWA does not expressly provide that the statutory payment bond is cancelled or would otherwise be rendered null. The First Circuit stated that nothing in the Public Works Act indicates that the legislature intended to release a statutory payment bond surety from litigation due to the filing of a lien bond.
The Court further noted that the purpose of the Public Works Act is to protect laborers and suppliers of materials on public projects which is accomplished by requiring a statutory payment bond, which serves as security to assure those that perform work on public projects will be paid for their work. Any finding that the statutory payment bond is no longer in effect or is somehow cancelled by operation of law when a lien bond is filed is contrary to the purpose of protecting claimants of the statutorily provided protection.
The Court recognized that La. R.S. 38:2247 provides that nothing in the Public Works Act shall be construed to deprive a claimant, such as SATCO, of his right of action on the bond. The Court further held that the bond referenced in La. R.S. 38:2247 is the statutory payment bond because the bond referenced in La. R.S. 38:2242.2 is “not statutorily required but is an option that may be utilized by an ‘interested party’ to cancel the lien.” SATCO, Inc. v Professional Application Services, Inc. and Suretec Insurance Company at *8.
Ultimately, the Court held that because (1) the clear language of La. R.S. 38:2242.2 fails to provide that the filing of a lien bond will release the payment bond, (2) La. R.S. 38:2247 clearly states that nothing in the Public Works Act shall deprive a claimant of it right of action on a payment bond, and (3) the objective of the Public Works Act is to protect laborers and suppliers on public projects, a claimant, such as SATCO, does have a right of action against both the payment bond surety and the release of lien bond surety.
The recent ruling confirms the holding L&A Contracting Co. v. State Through Dep’t of Transp. & Dev. And clearly broadens the right to recovery on public projects by providing unpaid laborers and supplies in certain situations with two separate avenues for recovery – the statutory payment bond surety and the release of lien bond surety.
Andrew Vicknair and the firm of D’Arcy Vicknair, L.L.C. represented SATCO, Inc. in the referenced matter.