Parker Allred and Mark Morris | Snell & Wilmer
In McDonald v. Fidelity & Deposit Company of Maryland, 2020 UT 11, the Utah Supreme Court recently shed additional light on what is and what is not recoverable under the public payment bond statute, Utah Code Ann. § 63G–6–505(4).
Initially, this case arose out of a claim on a surety bond related to a state construction project at Southern Utah University. For the project and as statutorily required, the general contractor procured a payment bond for the costs of the construction contract. It later hired several subcontractors, including Idaho Iron, who then hired eight employees—some union and non-union—to perform the work. Pursuant to the union contract, Idaho Iron was required to make contributions to several different trusts based on hours worked by the union employees. Idaho Iron failed to make these contributions and after the trusts had sued and obtained a judgment against Idaho Iron ultimately forcing it into bankruptcy, the trusts then sought to recover the delinquent contributions, which included prejudgment interest, liquidated damages, audit and attorney fees, and costs, from the public payment bond by filing a claim against the surety, Fidelity & Deposit Company of Maryland.
The public payment bond statute provides that “a person shall have a right of action on a payment bond under this section for any unpaid amount due him” so long as certain conditions are satisfied. On summary judgment, the surety argued that the amounts the trusts sought to recover under the statute were not “due” to the employees. The trusts on the other hand argued that the amounts they sought were due for or on behalf of the employees. The trial court agreed with the trusts and ruled that the full amount of delinquent contributions, including the prejudgment interest, liquidated damages, audit and attorney fees, and court costs were recoverable under the statute. On appeal, the Utah Supreme Court focused primarily on whether the contributions and other alleged amounts owed to the trusts under the union contract were amounts due under the statute. The Court made clear that its decision was not limited to the all or nothing choices the parties presented, and instead, “adopt[ed] a middle position” holding “that the public payment bond statute is not limited to recovery of either amounts ‘due to’ or ‘due for’ an employee, but rather amounts ‘due him.’”
“Due him” is the plain language of the statute and, according to the Court, means amounts and benefits that are actually and individually traceable and ultimately “due” an individual employee. The Court did not explain how “traceable” applies in every scenario, but it made clear that it includes wages and other direct payments. It includes employment and retirement benefits. It also made clear that it does not include general contributions that vaguely benefit some or all employees (i.e. financial support to keep a pension fund solvent). Based on this interpretation of “due”, the Court reversed the lower court because some of the delinquent contributions to the union in question were not “traceable” to individual employees, and thus, should have never been subject to a right of action under the statute. The Court further noted that prejudgment interest, liquidated damages, audit fees and courts costs also may not be traceable to individual employees—but that was for the lower court to decide.
In reversing the lower court, the Utah Supreme Court did not decide how every contribution at issue should play out under the statute. It appears, however, that the trusts should not be too encouraged by the Court’s ruling to expect they will collect interest, liquidated damages, audit fees and court costs. The Court provided the framework for the lower court to make those decisions and made clear to claimants making claims on a payment bond that it is not simply a money grab for all costs and expenses on a project. Rather, in preparing to file a claim, the claimant better be prepared to demonstrate that the amounts alleged due are actually traceable to each individual.