Subcontractors, suppliers, and lessors all have rights to assert a claim against a surety under a payment bond furnished on a project. But what about an owner? The recent case of Roy Anderson Corp. v. 225 Baronne Complex, L.L.C., 2018-0962 (La. App. 4 Cir. 9/25/19) addressed this issue in connection with a payment bond issued under the Private Works Act, concluding that no such right is afforded under Louisiana law.
In Roy Anderson, the owner of a project contracted for the construction of a private project, and a payment bond was furnished by the contractor’s surety. The project achieved substantial completion, following which the general contractor recorded a statement of lien and privilege in the mortgage records claiming a considerable amount owed by the owner in connection with the project. Thereafter, the contractor initiated a lawsuit to enforce the lien and recover damages based upon the outstanding balance claimed due.
In response to the contractor’s lawsuit, the owner filed a third-party demand against the surety seeking recovery under the payment bond issued for the project. The surety then responded asserting that the claim should be dismissed on the basis that the owner had no right under the law to pursue such a claim against the bond. Stated differently, the surety essentially challenged the owner’s standing to assert the claim. In opposition to the surety’s position, the owner argued that since the contractor was asserting a claim that included amounts allegedly owed to subcontractors, and because the language of the payment bond obligated the surety to pay or to indemnify the owner from the claims of subcontractors, that the owner did have a right to pursue the payment bond. The trial court disagreed and dismissed the claim.
On appeal, the Louisiana Fourth Circuit Court of Appeal affirmed the ruling. Specifically, the Court concluded that the payment bond was to be considered a statutory bond under the Private Works Act such that the liability of the surety on the bond could not be expanded beyond that permitted by the statutory scheme. The Court then explained that the purpose of the Private Works Act is to protect subcontractors, among others, who perform work on construction projects but lack privity of contract with the owner. In order to do so, the Private Works Act grants those parties, known as claimants, rights to facilitate recovery of the costs of their work from the owner. The Private Works Act also creates an “escape hatch” that relieves an owner of liability when it complies with certain requirements. In those instances, the payment bond issued under the Private Works Act stands in as security for the claims made by the claimants. However, the owner of a project is not considered a claimant whose right to recovery of damages is protected under the Private Works Act. As such, the Court held that the owner is not within the class of persons to whom the law grants a right to bring a claim against the payment bond.