Whiting-Turner Contracting Co. v Guar. Co. of N. Am. USA, 2019 BL 97923 (Colo. App. Mar. 21, 2019).

This construction dispute involved rights and obligations under a performance bond supplied for an office building construction project in Denver, Colorado. Whiting-Turner Contracting Company was the general contractor, and it subcontracted Klempco Construction to construct an anchor system for the project’s underground parking garage. Klempco provided performance and payment bonds for the project from Guarantee Company of North America USA (“GCNA”). When Klempco fell behind schedule, it stopped paying its sub-subcontractors and directed Whiting-Turner to assume responsibility for its work and sub-subcontractors.

Whiting-Turner then declared Klempco in default, notified GCNA, and requested a meeting with Klempco and GCNA so that GCNA could advise Whiting-turner on how it wanted Whiting-Turner to proceed with Klempco’s work and payment obligations. At the meeting, the three parties agreed to reduce Klempco’s subcontract value, and that Klempco’s shotcrete sub-subcontractor would directly invoice Whiting-Turner for future work. Klempco demobilized from the project two days later, and Whiting-Turner asked GCNA how it should proceed. GCNA did not respond, so Whiting-Turner terminated Klempco’s subcontract and issued multiple demands on GCNA to honor its obligations under the performance bond.

Klempco sued Whiting-Turner, alleging breach of contract for failure to pay sums due to Klempco. Whiting-Turner counterclaimed for breach of contract and joined GCNA for breach of the performance and payment bonds. GCNA defended the suit by arguing that Whiting-Turner failed to fulfill a condition precedent in the performance bond by miscalculating the balance due on the subcontract and failing to pay the correct sum to GCNA. The trial court found in Whiting-Turner’s favor, including that it had complied with the condition precedent in the bond. It also held Klempco and GCNA jointly and severally liable to Whiting-Turner for its attorney fees.

GCNA appealed the trial court’s ruling to the Court of Appeals of Colorado, which affirmed the trial court’s decision.

GCNA argued that the trial court: 1) applied the wrong legal standard in determining whether Whiting-Turner satisfied the condition precedent; 2) erred in finding that GCNA had waived its argument regarding Whiting-Turner’s compliance with the condition precedent; 3) erred in finding that Whiting-Turner satisfied the condition precedent; 4) awarded duplicative damages to Whiting-Turner; and 5) improperly awarded attorneys fees to Whiting-Turner.

Among other items, GCNA claimed that the trial court erred in finding that Whiting-Turner satisfied a condition precedent, which required Whiting-Turner to pay Klempco the contract balance. GCNA argued that Whiting-Turner miscalculated the contract balance by taking into account certain reductions. The Court found that Whiting-Turner properly reduced its payment to GCNA by the amount of post-termination payments it made to Klempco’s unpaid sub-subcontractors. The Court also found that an agreement between Whiting-Turner and Klempco allowed for a reduction in the amount payable. The Court declined to address GCNA’s argument that Whiting-Turner improperly reduced the Balance of the Contract Price by a back charge because GCNA failed to provide any legal support for its proposition. Lastly, the Court of Appeals held that an unpublished New York trial court decision that GCNA relied upon did not support its argument.

As for damages, the Court held that because Whiting-Turner was only permitted to recover under the performance bond, there was no risk of it being awarded duplicative damages. The Court also held that attorneys fees were properly awarded to Whiting-Turner under the terms of the performance bond and that fees did not have to be apportioned between costs incurred in the claims by and against Klempco and the claims against GCNA because “all of the claims of both parties arise out of the same operative facts.”

To view the full text of the court’s decision, courtesy of Bloomberg Law, click here.