TEXT :: Respondent, a materials supplier, sought payment from bonds issued by Petitioner, a surety, for materials Respondent supplied for the construction of a public highway. After the subcontractor and general contractor failed to pay Respondent and both filed for bankruptcy, Respondent looked to Petitioner’s bonds for payment. Respondent, however, failed to perfect its claims in accordance with section 255.05(2) of the Florida Statutes, which sets forth notice and time requirements for claimants seeking to recover against bonds issued for state contracts. Petitioner’s bond, which followed a form supplied by the Florida Department of Transportation (FDOT), did not reference the notice and time requirements, in violation of section 255.05(6) of the Florida Statutes. The trial court permitted Respondent’s claims because Petitioner’s failure to comply with section 255.05(6) rendered its bonds common law bonds. The circuit court reached this conclusion despite the language of section 255.05(4) of the Florida Statutes, which requires that all bonds issued under section 255.05 be deemed statutory bonds. The District Court of Appeal for the Second District of Florida affirmed, certifying a question of great public importance to the Florida Supreme Court. Quashing the Second District’s opinion in part, the Florida Supreme Court did not construe Petitioner’s bond as a common law bond, but nevertheless HELD that a surety who fails to reference the statutory notice and time requirements in its bond may be estopped from asserting the requirements as a defense if the claimant can prove that it lacked actual knowledge of the notice and limitations provisions.
Section 255.05 of the Florida Statutes, commonly referred to as “Florida’s Little Miller Act,” affords protection to subcontractors, material suppliers, and laborers who cannot bring claims of lien to recover payment for work or materials supplied for public construction projects. The statute also protects the state from defaults by the general contractor in both the performance of the contract and the payment of subcontractors and material suppliers. Finally, section 255.05 protects contractors and their sureties from unforeseen claims by requiring sub-subcontractors and material suppliers to give notice that they intend to look to a bond for payment.
Prior to 1980, courts in Florida looked to the language of bonds posted under section 255.05 to determine whether the bond should be treated as a statutory or common law bond. A common law bond affords greater protection to potential claimants than a statutory bond by providing greater coverage and by not requiring references to the statute. The addition of subsections (4) and (6) to the statute in 1980 created a controversy over whether any bond issued pursuant to section 255.05 could be treated as a common law bond.
In Martin Paving Co. v. United Pacific Insurance Co., the Fifth District concluded that in certain instances, a section 255.05 bond still could be deemed a common law bond. Faced with a surety that failed to record its bond in the public records in accordance with section 255.05(1) of the Florida Statutes, the Martin Paving court had to determine if the surety could enforce the notice and time requirements found in section 255.05(2) against a claimant that failed to comply with the requirements. Construing section 255.05(4) narrowly, the court reasoned that the specific reference in the statute to “payment provisions,” instead of bonds generally, evidenced a legislative intent to interpret all payment provisions of bonds issued under the statute as statutory bonds-not all bonds, as the surety contended. The court reached this conclusion by reading the plain language of the statute and by looking to legislative staff reports. Based on the support of these staff reports, the Martin Paving court held that a bond issued under section 255.05 that was not recorded in the public records was a common law rather than a statutory bond, and therefore the notice and time requirements of the statute did not apply to the claimant.
Florida Crushed Stone Co. v. American Home Assurance Co., a “sequel” to the instant case “involv[ing] the same surety and the same [highway],” afforded the Fifth District an opportunity to decide an issue it declined to address in Martin Paving-the status of section 255.05 bonds that fail to specifically reference the notice and time requirements of subsection (2). Distinguishing Florida Crushed Stone from Martin Paving, the Fifth District held that the bond was a statutory bond, but that the surety would have been estopped from enforcing the notice and time requirements if the claimant’s failure to comply with the statute “was because of the inadequacies of the notice provisions of the bond.” The court found the Martin Paving court’s “payment provisions” distinction regarding subsection (4) unpersuasive and dismissed it as a “semantical argument” of “little moment.” Instead, the court concluded that only actual prejudice stemming from the failure of the surety to reference part of the statute could prevent the enforcement of the notice and time requirements. The Fifth District also certified the issue before it to the Florida Supreme Court as “one of great importance throughout the state.”
In the instant case, the Second District reached a different conclusion. Instead of adopting the estoppel defense outlined in Florida Crushed Stone, the Second District held that Petitioner’s failure to specifically reference the notice and time requirements of section 255.05(2) in its bond converted the bond to a common law bond, or in the alternative, rendered the notice and time requirements unenforceable. The court found no textual support in section 255.05(6) for the estoppel defense adopted in Florida Crushed Stone, and concluded that the legislature intended to bar sureties from enforcing the section 255.05(2) notice and time requirements if specific reference to the requirements was omitted from the text of a bond. Finally, the Second District rejected Petitioner’s argument that it should not be penalized for employing a bond form that the FDOT supplied.
November 2014, Vol. 66, No. 6
Lily Kahng, The Taxation of Intellectual Capital