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Kedar Corporation F/K/A S&G Electric, Inc v. American Contractors Indemnity Company and Ies

February 7, 2012


The opinion of the court was delivered by: Buckwalter, S. J.


Currently pending before the Court is a Motion by Defendant American Contractors Indemnity Company ("ACIC") for Summary Judgment on Count IV of Plaintiff Kedar Corporation f/k/a S&G Electric, Inc.'s ("S&G")*fn1 Complaint. For the reasons which follow, the Motion is granted and Plaintiff is given twenty days to amend the Complaint to properly assert a claim under the Performance Bond.


On May 21, 2007, Plaintiff S&G entered into a subcontract (the "Subcontract") with Defendant IES, Ltd. d/b/a Prime Energy Services ("Prime Energy"), wherein Prime Energy agreed to furnish all labor, material, agreed-upon equipment, services, and supplies in connection with the installation of lighting fixtures and sensors in certain buildings at Edinboro University of Pennsylvania in Edinboro, Pennsylvania (the "Project"). (Def. ACIC's Mot. Summ. J., Decl. of John C. Yi ("Yi Decl.") ¶ 7, Oct. 26, 2011.) The general contractor on the Project was Honeywell Building Solutions, SES ("Honeywell"), S&G was its subcontractor, and Prime Energy was, in turn, S&G's subcontractor. The total price for Prime Energy's Subcontract was $368,440.99. (Id. ¶ 8.)

Thereafter, on June 12, 2007, ACIC, as surety, and Prime Energy, as principal, issued their joint and several Performance and Payment Bonds, both of which were applicable to the Subcontract. (Id. ¶ 9, Exs. A & B.) Each Bond was written in the penal sum of $368,440.99 and was in favor of S&G as obligee. (Id. ¶ 10, Exs. A & B.) The Performance Bond stated that Prime Energy would: fully indemnify and save harmless [S&G] from all loss, liability, costs, damages, penalty, attorneys' fees or expense which [S&G] may incur by reason of failure to well and truly keep and perform each, every and all of the terms of said agreement on the part of [Prime Energy] to be kept and performed, including but not limited to, to completion within the time specified of all work covered by said agreement, performance of all obligations, and guarantees of the Obligee relating to such work under the contract with the Owner. (Id. ¶ 11, Ex. A.) In addition, it provided that "[a]ny proceeding, legal or equitable, under this bond may be instituted . . . within six months after the [Prime Energy] Default or within six months after [Prime Energy] ceased working or within six months after [ACIC] refuses or fails to perform its obligations under his Bond, whichever occurs first." (Id. ¶ 12, Ex. A.) Similarly, the Payment Bond required that Prime Energy "promptly make payment to all claimants . . . for all labor and materials used or reasonably required for use in the performance of the subcontract."

(Id. ¶ 13, Ex. B.) A "claimant" was defined as "one having a direct contract with the Principal for labor, material, or both, used or reasonably required for use in the performance of the contract[.]" (Id. ¶ 14, Ex. B.) The Payment Bond went on to state that "[n]o suit or action shall be commenced hereunder by any claimant . . . [a]fter the expiration of one (1) year following the date on which Principal ceased work on said subcontract[.]" (Id. ¶ 15, Ex. B.)

On April 21, 2009, Narasimha Shenoy, President of S&G, wrote to John Romano and Robert Aiello of Prime Energy. He indicated that Dan Mori of Honeywell had called him that morning, stated that Prime Energy had not been responsive to requests to complete the job, and remarked that Honeywell was giving S&G the opportunity to complete the work quickly. (Pl.'s Resp. Opp'n Mot. Summ. J., Decl. of Narashima Shenoy ("Shenoy Decl."), ¶ 17, Ex. H, Dec. 8, 2011.) In light of these issues, on April 29, 2009, Mr. Shenoy met with Messrs. Aiello and Romano to discuss the ongoing work. (Id. ¶ 8.) The following day Mr. Mori e-mailed Mr. Shenoy demanding a completion schedule by the next day. (Id. ¶ 18, Ex. I.) He stated that "[w]e need to have people finishing the remaining items on campus starting next week or we will make other arrangements with another company. Our patience on the lighting matter is gone and we are taking a significant credibility hit from the customer due to Prime's missteps on this project." (Id.) Mr. Shenoy promptly wrote back stating that he met with Prime Energy the previous day and that they were putting together a schedule to complete the work, which he intended to provide the next day. (Id. ¶ 19, Ex. J.) Mr. Mori replied noting that he wanted all the lighting matters addressed by the end of May 31, 2009, with no exceptions. (Id.)

Thereafter, Prime Energy's failures on the Project continued. (Id. ¶ 9.) Via letters dated August 14, 2009, S&G notified both ACIC and Prime Energy that "by reason of delays in performance and after repeated demands and failure to perform portions of its work under the [Subcontract], . . . S&G is considering declaring a Principal Default and is hereby requesting and attempting to arrange a conference with the Principal and Surety within fifteen days after receipt of this notice to discuss methods of performing the Construction Contract." (Yi Decl. ¶ 16, Ex. C; Shenoy Decl., Exs. A & B.) Defendant ACIC claims that, subsequent to this letter, representatives of S&G, ACIC, and Prime Energy again jointly discussed completion of the Project to avoid a Principal Default. (Yi Decl. ¶ 17.) Plaintiff, however, asserts that despite the August letters, it received no response from either Prime Energy or ACIC. (Shenoy Decl. ¶ 10.)

No resolution having been reached, S&G sent a letter, dated September 23, 2009, to Prime Energy terminating Prime Energy's Subcontract due to its "continued failure to perform and complete [its] work, despite numerous promises . . . to do so." (Id. ¶¶ 18-19, Ex. D.) On the same date, S&G wrote to ACIC, stating as follows:

As you know, I wrote to you on August 14, in reference to your Principal's default on the above Project. Despite meetings, phone calls and email exchanges, your Principal has failed to perform. Accordingly, Prime's Contract with us has been terminated. A copy of the termination notice is enclosed.

Demand is hereby made upon you to honor your obligations under the Performance Bond No. 1000772502 and complete or pay for completion of the work. Please contact me immediately.

In the interim, in order to mitigate damages and in response by both Honeywell and Edinboro University, we are manning the Project and will continue to perform until we have either reached an agreement with you for completion of the work or until the work has been completed. (Id. ¶ 20, Ex. E.) As of September 23, 2009, Prime Energy performed no further work on its Subcontract. (Id. ¶ 21.)

Thereafter, Mr. Shenoy corresponded via e-mail with Albert Sramek of Forcon International ("Forcon"), who was ACIC's forensic consultant on the Project, in order to set up a meeting to discuss the status of the ongoing work being performed by S&G. (Shenoy Decl. ¶ 13, Ex. E.) Mr. Sramek e-mailed back on October 13, 2009, scheduling a meeting and requesting certain written information regarding the ongoing work at the Project. (Id. ¶ 14, Ex. F.) Mr. Shenoy provided a copy of the Project expense summary.*fn2 (Id. ¶ 15, Ex. G.) Subsequently, on October 15, 2009, Mr. Shenoy met with representatives of Forcon, at which time they reviewed the situation, and S&G submitted the current cost incurred in completing the work. (Id. ¶ 16.) Mr. Shenoy explicitly told them that S&G would continue working until the Project was completed, and at no time did the Forcon representatives direct S&G to stop working on the Project. (Id.) The meeting attendees agreed that Prime Energy and S&G would work together to complete the Project with ACIC. (Id.) On November 2, 2009, David Davis, counsel for S&G, wrote to Carl Schnabel of Forcon acknowledging Forcon's recent request for certain information and asking that Mr. Schnabel contact him so that the information could be provided. (Id. ¶ 20, Ex. K.)

Subsequently, the record suggests an extended lull in communications between the parties. As of March 2010, S&G substantially completed work on the Project, with full completion of all contract and punch list work on or about May 11, 2010. (Id. ¶ 21.) David Makara, also counsel for S&G, then wrote to ACIC and Mr. Schnabel on October 6, 2010, making a demand for payment on the Performance Bond in the amount of $197,091.22. (Id. ¶ 23, Ex. L.) ACIC requested some further information and, via correspondence of February 23, 2011, Mr. Makara provided Mr. Schnabel with a disk containing various documentation in support of S&G's claim on the Bond. (Id. ¶ 24, Ex. M.) On April 5, 2011, Mr. Makara followed up with Mr. Schnabel as to ACIC's response to S&G's demand for payment. (Id. ¶ 25, Ex. N.) Thereafter, on April 14, 2011, Mr. Makara contacted John Yi of ACIC affiliate HCC Surety Group confirming that ACIC was reviewing the produced documents. (Id. ¶ 26, Ex. O.) The letter went on to state that, "as you assess the claim, I write to inquire whether you would agree to execute the enclosed Tolling Agreement, tolling the statue [sic] of limitations so that we need not initiate litigation at this point to protect our clients' rights while our ...

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