ARBITRATION-WHO IS BOUND-SURETY

September 15th, 2022 by Rieders Travis in Arbitration

East Steel Constructors, Inc. v. Int’l Fid. Ins. Co., 2022 Pa. Super. LEXIS 367 (Pa. Super. September 1, 2022) (Stabile, J.)  The Superior Court decides whether a surety, who had notice of and an opportunity to participate in arbitration proceedings against its principal, is bound by an arbitration award rendered against the principal, and the court also decided that the surety, however, is not subject to bad faith statute.  IFIC, as surety, was bound by the arbitration award but not subject to bad faith action under § 8731.  Therefore, the court affirmed in part, reversed in part, vacated in part and remanded.  Penn State entered into a contract with Lonadi for construction work on the campus.  IFIC issued a payment bond in connection with the project.  The court examined the contract and the definitions, and there was obviously a payment dispute.  This was followed by a demand for arbitration by Eastern.  Eastern contacted and notified IFIC of the arbitration, but IFIC declined to participate.  Tinney, Lonadi’s reenforcing steel supplier who also had not been paid by Lonadi, filed a civil complaint against IFIC in the Court of Common Pleas.  Tinney had to arbitrate its claims against Lonadi because Tinney’s subcontract with Lonadi contained an arbitration provision.  IFIC declined all opportunities to participate.  Lonadi, in spite of having notice of the arbitration, declined to participate.  In spite of Lonadi’s absence, the arbitrator required Eastern and Tinney to present their cases.  Lonadi then filed for bankruptcy.  The arbitrator suspended the hearings.  An arbitration award was nevertheless made in favor of Eastern in what it said was owed by Lonadi under the subcontract.  Ultimately, the bankruptcy court lifted the automatic stay and the arbitration award was confirmed in court.  Neither IFIC nor Lonadi appealed the judgment.  Eastern attempted unsuccessfully to collect the judgment from IFIC.  Action was brought against IFIC under the payment bond.  This complex matter wound up binding the surety that did not participate but was invited to and could have.  In other words, contractors and their sureties are obligated to pay amounts such as interest and attorney’s fees if such “sums due” are included within the subcontract or supplier contracts.  IFIC is bound by the arbitration award as confirmed and reduced at judgment.  IFIC was bound by the amounts established at arbitration.  The lower court erred in granting IFIC’s motion in limine precluding Eastern from introducing and admitting at trial evidence of the arbitration award and the judgment.  The court also discussed attorney’s fees.  It ruled that the fees claimed by Eastern are attributable to its efforts to pursue IFIC.  The court therefore affirmed that part of the trial court’s grant of partial summary judgment rejecting Eastern’s claim for attorney’s fees incurred to pursue IFIC for breach of its surety obligation to provide payment of the arbitration award.  The Superior Court reversed that part of the trial court’s judgment denying recovery of attorney’s fees to Eastern to pursue Lonadi for all sums due under the subcontract.  The court also addressed interest.  The Superior Court vacated the trial court’s award of prejudgment interest and remanded for a proper determination of the prejudgment interest due.  As to bad faith, the Superior Court stated that § 8371 does not apply to suretyships.  In summary, the trial court erred in denying Eastern’s motion in limine to admit the arbitration award in its favor and binding upon IFIC as surety to Lonadi in Eastern’s action to collect the award against IFIC.  As surety, IFIC is jointly and severally liable with Lonadi for all sums due Eastern.  It is bound by the arbitration award.  While Eastern may recover as part of all sums due attorney’s fees incurred in connection with its action against Lonadi, it is not entitled to an award of attorney’s fees to pursue IFIC because that was not covered in the subcontract.  The trial court erred in discretionary award of judgment interest to Eastern.  The amount Eastern was due as of right is interest at 6% per annum.  No bad faith action.

Attorney Cliff Rieders

Attorney Cliff RiedersCliff Rieders is a Nationally Board Certified Trial Lawyer practicing personal injury law. A large part of his practice involves multi-district litigation, including cases related to pharmaceuticals, vitamin supplements and medical devices. He is admitted in several state and federal courts, as well as the Supreme Court of the United States. Rieders is the past regional president of the Federal Bar Association and is a life member of the distinguished American Law Institute, which promulgates proposed rules adopted by many state courts. He is a past president of the Pennsylvania Association for Justice, formerly Pennsylvania Trial Lawyers Association. As a founder of the Pennsylvania Patient Safety Authority, he served on the Board for 15 years.

Not only has Rieders held many highly esteemed, leadership positions, he authored legislation related to the Patient Safety Authority and the Mcare Act, which governs medical and hospital liability actions in Pennsylvania. He authored texts upon which both practitioners and judges rely, including Pennsylvania Malpractice Laws and Forms, and Financial Responsibility Law Issues in Pennsylvania, the latter governing auto and truck collisions in Pennsylvania. In addition, he wrote several books on the practice of law in Pennsylvania regarding wrongful death and survivor actions, insurance bad faith, legal malpractice claims and worker rights, among others. Rieders also serves as a resource to practitioners as a regular speaker for Celesq, an arm of the world’s largest legal publisher, Thomson Reuters West Publishing.

As recognition of his wide range of contribution to his profession and of his dedication to protecting the rights of his clients, he received numerous awards, among them the George F. Douglas Amicus Curiae Award, the Milton D. Rosenberg Award, the B’nai B’rith Justice Award, and awards of recognition from the Pennsylvania Trial Lawyers. [ Attorney Bio ]

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