Hicks & Warren LLC v. Liberty Mutual Insurance Co.

In Hicks & Warren LLC v. Liberty Mutual Insurance Co., 2011 WL 2436703 (S.D.N.Y. June 16, 2011) the bonded contract included an arbitration clause and a provision for an award of attorneys fees to the prevailing party.  The obligee terminated the bonded contract.  The principal disputed the termination, and the arbitrators ultimately awarded the obligee $8,246,517.61 including attorneys fees of $4,038,270 and costs, including arbitrators’ fees, of $161,016.17.  The surety did not participate in the arbitration, and the award was against only the principal.  The bond was an A312 Performance Bond and both incorporated the contract by reference and provided in Art. 6.1 that the surety was responsible for costs of contract completion and in Art. 6.2 that the surety was responsible for additional legal costs resulting from the principal’s default.  The surety moved for partial summary judgment that it was not obligated for the fees and costs included in the arbitration award against the principal.

The court denied the surety’s motion.  The court held that incorporation of the contract by reference did not obligate the surety to participate in the arbitration but did bind the surety to the arbitration’s determination of the dispute between the obligee and the principal.  That is, that the surety could not re-litigate what its principal owed.  The court thought this included the attorneys fees and costs which were part of the principal’s contractual obligation.  The court also distinguished the Braspetro case’s interpretation of Art. 6.2 because in Braspetro the fees were for litigation between the obligee and the surety.  Here the fees and costs were incurred in the arbitration between the principal and the obligee.  The court held that the surety’s obligation under Art. 6.1 for “completion of the Construction Contract” could include payment of the fees and costs owed pursuant to the prevailing party attorneys fee provision of the contract and that legal costs under Art. 6.2 could include the legal fees and costs of the arbitration.  The obligee had not filed a cross motion for summary judgment, but the court ordered the surety to show cause within 21 days why summary judgment should not be granted to the obligee in the full amount of the $8,246,517.61 arbitration award.