On March 14, 2016 the Massachusetts Appeals Court decided the case of N-Tek Construction Services, Inc. (“N-Tek”) v. The Hartford Fire Insurance Company. This case decided that under a public contract an electronic mail message given by a construction manager unpaid by a subcontractor did not trip a right to payment under the general contractor’s statutory labor and materials bond.
The Appeals Court agreed with the Superior Court that the email notice given by the plaintiff, N-Tek, did sufficiently advise the general contractor that the construction manager was making a claim under its payment bond.
General Contractors labor and materials bond posted to cover subcontractor’s default on public contract
This case arose in the context of a $23.29 million public funded project to repair a bridge in Gloucester A. Andrew Piatt Bridge in Gloucester.
Built in 1950, the four-lane deck bridge spans the Annisquam River and is a primary access way to the Cape Ann area.
As required by Massachusetts law, the general contractor, SPS New England, Inc. (SPS), posted a payment bond from its surety, The Hartford Fire Insurance Company (“The Hartford”). Under the provisions of G.L. c. 149, § 29, this payment bond protected persons furnishing labor and materials to the general contractor’s subcontractors stating
Any claimant having a contractual relationship with a subcontractor performing labor or both performing labor and furnishing materials pursuant to a contract with the general contractor but no contractual relationship with the contractor principal furnishing the bond shall have the right to enforce any such claim as provided in [G. L. c. 149, § 29, second par.]
the written notice and accompanying all statements must inform the general contractor, expressly or impliedly, that the supplier [or, as here, laborer] is looking to the general contractor for payment…
N-Tek files claim for $79,000 in unpaid labor denied by The Hartford first and then the Superior Court.
N-Tek filed an action pursuant to G.L. c. 149 § 29 against the general contractor’s surety, The Hartford based on a claim that it had not been fully paid for its work furnished to a subcontractor Seaway Coatings, Inc. (Seaway). When N-Tek had sought to reach and apply the payments bond’s funds to satisfy its outstanding invoices of $79,000.00, The Hartford denied liability.
A lawsuit ensued and after a jury-waived trial the trial judge found that N-Tek did not provide sufficient written notice of its bond claim to SPS as required by Section 29. N-Tek appealed the judgment to the Appeals Court claiming the judge misinterpreted Section 29 by imposing a statutory requirement that did not exist that the notice “including communicate an intent to assert a claim against the general contractor’s bond.”
N-Tek’s unpaid invoices lead to email to general contractor detailing unpaid invoices
In 2008 the Massachusetts Highway Department entered into a contract with SPS to perform repairs on the Annisquam Bridge in Gloucester that provides access to the Cape Ann area. SPS engaged Seaway, a Maryland painting subcontractor to do work including installing platforms for the use of all trades and to clean and paint the bridge. These subcontracts totaled $5,765,360.00. Seaway posted a payment and performance bond but this bond was not the so‑called “statutory bond,” required of general contractors who were conducting public works. Under the statutory bond the amount owed to laborers or suppliers may be paid if unpaid by any of the subcontractors.
Seaway in turn contracted with N-Tek Construction to provide construction management consulting services since Seaway’s business operations did not support having their own employees act as on-site managers or superintendents. N-Tek Construction’s proposal provided for its sole employee, Joseph P. Toffoloni to provide his services for base rate of $150.00 per hour “plus reasonable expenses.”
Seaway engaged N-Tek Construction to serve as project manager and fully paid the first 21 invoices from the company for the period between October 2008 and September 13, 2009. These invoices totaled $190,821.00 in total.
In the summer of 2010 Seaway began to experience financial difficulties and fell behind on its payments to its suppliers and other independent contractors. On March 16, 2010 N-Tek sent an email to SPS’s vice president of project management, Robert A. Naftalony, regarding unpaid invoices that stated:
Hello Bob. Enclosed is the January 15, 2010 Statement to Seaway Coatings, Inc./Mr. Athanasios Koussouris for services through that date by N-Tek Construction Services, Inc. for the [project] that are still unpaid.
Please give me a call at [telephone number] when you have a chance. Thanks. Joe[.]
Attached to the email were ten invoices totaling $77,166.72 unpaid by Seaway.
As of the receipt of the invoice Mr. Naftalony claimed that he had “never heard of N-Tek” but “clearly” understood that Toffoloni was connected in some way to N-Tek. Mr. Naftalony subsequently testified that he did not understand that N-Tek was making a claim against SPS or Hartford.
In October 2010, SPS barred Seaway from performing further work and hired successive substitute firms to eventually complete the cleaning and painting work that Seaway had originally contracted to complete.
Appeal revolves around whether a proper statutory claim for payment made
At trial N-Tek claimed that SPS had been put on notice by the March 16 email and that as a result N-Tek as a subcontractor of Seaway had the right to reach and apply The Hartford’s bond under Section 29 of Chapter 149 to pay down the invoices.
The Hartford argued that no legally valid enforceable contract had existed between Seaway and N-Tek and that N-Tek failed to provide legally sufficient written notice to SPS and also that N‑Tek had fallen short in proving any legitimate damages recoverable under Section 29.
The judge ruled in favor of The Hartford and N-Tek appealed.
On appeal the Appeals Court recited the general principles of suretyship and that “a statutory payment bond is a contract, although its terms and conditions are largely defined by statute in this case, § 29 [of G.L. c. 149].”
The Court started with the premise that under a Section 29 bond a person who has furnished labor or materials for public works and was not been fully paid has a right to seek recovery under the bond of the general contractor in satisfaction of the amounts justly due. However, Section 29 has three conditions before a person can exercise this right to obtain unpaid monies for labor or materials.
- A claimant must be eligible to claim protection under § 29;
- give written notice to the general contractor of the claim for unpaid labor and materials; and,
- commence an action in Superior Court within the time limitations established by the statute.
N-Tek needed to go three for three but only got two for three
On the first issue of an eligible claimant the Appeals Court stated that Section 29’s protections extend to “[a]ny claimant having a contractual relationship with a subcontractor performing labor… pursuant to a contract with the general contractor but no contractual relationship with the contractor principal furnishing the [payment] bond…” The Appeals Court agreed that N-Tek fit squarely within this category and had satisfied the first condition.
Also, the trial judge found that N-Tek had a contractual relationship implied in law with Seaway and not with the “contractor principal” [SPS] furnishing the bond. The trial judge found that the unambiguous conduct of the parties had established a business arrangement or course of dealing that N-Tek agreed to provide managerial services for Seaway and, in return, Seaway agreed to pay for N-Tek’s services. The evidence of the written invoices and the payment of those invoices by Seaway showed the requisite offer, acceptance and consideration to establish a contract implied at law.
The Hartford did not dispute that the Superior Court action had been commenced timely.
The major contention and problem for N-Tek occurred with the Superior Court’s analysis of whether there had been “written notice” as required by Section 29. The statute specifically provides that as condition precedent the person seeking monies for labor or materials unpaid by a subcontractor under the general contractor’s bond must give “written notice to the contractor principal [in this case SPS] within 65 days after the day on which the claimant [N-Tek] last performed the labor” on the public works contract. The statute continues with the condition precedent required for payment requiring that the notice “stat[e] with substantial accuracy the amount claimed, [and] the name of the party [Seaway] for whom such labor was performed.”
N-Tek argued that its written notice did not need to “contain any express or explicit statement that the claimant is seeking payment from the general contractor or that the claim against its bond will be pursued.” The Appeals Court agreed that a statutory notice could be satisfied by a brief letter as long as that letter or notice “makes unambiguous the claim rights” for all of the monies due.”
The trial judge had ruled that N-Tek’s March 16 email was the “in writing” and “notice of something, but it was not timely notice of a claim against SPS and its surety bond.”
In the trial court, the judge assumed and apparently The Hartford did not dispute that a sufficiently detailed email would satisfy Section 29’s requirement. The Appeals Court did not reach that issue but noted that The statute actually requires that the notice “be served by mailing the same by registered or certified mail postage prepaid in an envelope addressed to the contractor principal at its place of business.” Because The Hartford did not dispute that the notice satisfied the statute’s requirements the Appeals Court passed over the issue stating, “we are not required to resolve this issue.”
The Appeals Court went on to rule that because the notice requirement bolsters the legislative policy to protect the general contractor, by requiring a claimant’s writing to serve as a presentation of a claim against the contractor that “courts have consistently … held that ‘the written notice and accompanying all statements must inform the general contractor, expressly or impliedly, that the supplier [or, as here, laborer] is looking to the general contractor for payment so that it plainly appears that the nature and state of the indebtedness was brought home to the general contractor.’ ”
The devil is in the details
The Appeals Court finally ruled that N-Tek’s March 16 email when considered in light of the material surrounding circumstances “fails to state, explicitly or implicitly, that he (or his firm) was making a claim against SPS for services rendered on the project. Thus, the Appeals Court’s decision found that the notice failed to satisfy the condition precedent under Section 29.
The court held that this strict notice provision is intended to relieve the general contractor of the need to engage in guesswork as to whether a claim was being made against it or the statutory bond. The final conclusion of the Appeals Court was that Section 29’s written notice requirement constitutes a “condition precedent” under Massachusetts law i.e., an event that must occur before the principal or its surety is obligated to perform.
As a result of this procedural omission of the statute’s requirements, the judgment of the Superior Court stood and N-Tek had no claim against Hartford’s payment bond.
Copy of decision
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