Hennepin County District Court File Nos. CT 02-12476 and CT 02-14285
Considered and decided by Schumacher, Presiding Judge; Willis, Judge; and
1. An unpaid subcontractor does not have an equitable claim against a project owner for the payment of money forfeited by a general contractor when the subcontractor fails to timely pursue an available legal remedy.
2. A surety is not entitled, under a theory of equitable subrogation, to payment by a project owner of money forfeited by a general contractor.
The opinion of the court was delivered by: Willis, Judge
Concurring in part, dissenting in part, Schumacher, Judge
Appellant is a public corporation that hires general contractors for work on a sound-insulation program that appellant developed and operates. Appellant challenges the district court's grant of summary judgment to respondent subcontractors, arguing that the district court erred by determining that a forfeiture provision in appellant's contracts with a general contractor did not "bind" or "apply to" the subcontractors or the respondent surety because they are not parties to the contracts and that, therefore, appellant is not entitled to $44,000 that was forfeited by the general contractor. Both appellant and the surety challenge the district court's determination that the subcontractors are entitled to the money, maintaining that the subcontractors are not entitled to equitable relief because they failed to timely pursue their available statutory remedies. And appellant argues that because the $44,000 was forfeited by the general subcontractor, the surety is not entitled to the money under a theory of equitable subrogation. Because we agree with appellant, we reverse.
In response to complaints about airport noise in areas near the Minneapolis/St. Paul International Airport, appellant Metropolitan Airport Commission (MAC) developed and operates the MSP Part 150 Sound Insulation Program, which provides sound insulation for homes and schools in affected areas. Under this program, MAC has sound-insulated approximately 7,200 homes at a cost of $206 million. MAC hires general contractors to perform the sound-insulation work; those contractors then may hire subcontractors. MAC enters into a separate contract with a general contractor for each home and school in the program.
JayLark, Inc. was a general contractor that participated in the program, and it subcontracted much of the work to various subcontractors, including respondents Mon-Ray, Inc. and Erickson Plumbing, Heating & Cooling, Inc. The contracts between JayLark and MAC include a provision that specifies that "any and all remaining payments on the affected Contract" would be forfeited by JayLark if it failed to provide final documents or complete work, including warranty work, within six months after substantial completion of the contract.*fn1 Respondent Granite Re, Inc. was JayLark's surety and provided performance bonds and payment bonds, as required both by MAC's contracts with JayLark and by Minn. Stat. § 574.26 (2002), to ensure that the work was completed and that subcontractors and suppliers were paid for their work.
In early 2002, JayLark stopped performing on its contracts, and its owners declared bankruptcy. Mon-Ray and Erickson completed the work on the homes for which they had been hired and subsequently filed claims against the payment bonds provided by Granite. Erickson filed 18 claims against the bonds, totaling approximately $185,345; Granite paid Erickson approximately $29,624 on three of Erickson's claims and denied the rest as untimely. Mon-Ray filed 12 claims against the bonds, seeking approximately $67,742; in June 2002, Granite paid Mon-Ray $28,337 for its claims against four bonds, determined that three claims were untimely, and continued to evaluate the five remaining claims. In September 2002, Granite entered an agreement with Mon-Ray to settle the five claims for $25,000; in the settlement agreement, both Granite and Mon-Ray purported to reserve their rights to assert claims to the approximately $44,000 that JayLark forfeited to MAC.
Mon-Ray and Erickson filed separate complaints, asserting the same causes of action against the same parties; the two cases were consolidated. Mon-Ray and Erickson asserted (1) breach of contract claims against JayLark; (2) payment-bond claims under Minn. Stat. § 574 against Granite for amounts that had not yet been paid under the bonds; and (3) equitable claims of unjust enrichment and constructive trust against MAC to recover the $44,000 forfeited by JayLark because of its default on its contracts with MAC. Granite also asserted a cross-claim against MAC for the $44,000, maintaining that Granite was entitled to the money under a theory of equitable subrogation. Mon-Ray obtained a default judgment against JayLark for $51,623; Erickson moved for a default judgment for $186,033 against JayLark, but the district court has not acted on that motion.
All parties brought cross-motions for summary judgment to determine the claims to the approximately $44,000 forfeited by JayLark. On May 9, 2003, the district court granted Mon-Ray's and Erickson's motions for summary judgment and awarded $10,307 to Mon-Ray and the remaining $33,699 to Erickson. MAC's and Granite's motions for summary judgment were denied. MAC appealed the order, arguing that it is entitled to keep the $44,000 because of the forfeiture provision in its ...