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State Dep't of Corr. v. Developers Sur. & Indem. Co.

Supreme Court of Georgia

September 22, 2014

STATE OF GEORGIA DEPARTMENT OF CORRECTIONS
v.
DEVELOPERS SURETY AND INDEMNITY COMPANY

Certiorari to the Court of Appeals of Georgia -- 324 Ga.App. 371.

Samuel S. Olens, Attorney General, W. Wright Banks, Jr., Denise E. Whiting-Pack, Senior Assistant Attorneys General, Mary Jo Volkert, Helen P. Taylor, Assistant Attorneys General, Johnson & Freeman, Ronald J. Freeman, for appellant.

Thompson & Slagle, DeWitte Thompson, Jefferson B. Slagle, Joseph H. Wolenski III, for appellee.

OPINION

Page 869

Hines, Presiding Justice.

This Court granted certiorari to the Court of Appeals in State Dept. of Corrections v. Developers Surety and Indem. Co., 324 Ga.App. 371 (750 S.E.2d 697) (2013), to consider whether the State's sovereign immunity is waived for a claim asserted by a surety on a contract with [295 Ga. 742] the State. See Ga. Const. of 1983, Art. I, Sec. II, Par. IX.[1] For the reasons

Page 870

that follow, we find that it is, and accordingly, we affirm the judgment of the Court of Appeals.[2]

The facts as found by the Court of Appeals are the following. The Georgia Department of Corrections (" GDOC" ) entered into a construction contract (" Contract" ) with Lewis Walker Roofing (" Walker Roofing" ) to re-roof several buildings at Valdosta State Prison. The Contract contained two " no assignment" clauses,[3] and as a prerequisite to contracting with GDOC, Walker Roofing was required to obtain payment and performance bonds. It obtained such payment and performance bonds from Developers Surety and Indemnity Company (" Developers Surety" ). Walker Roofing and Developers Surety [295 Ga. 743] had previously signed a general agreement of indemnity in favor of Developers Surety that included a provision in which Walker Roofing assigned to Developers Surety the company's right to payment under bonded contracts as security against any losses that Developers Surety might suffer under a bond. GDOC was not a party to the indemnity agreement. The bonds required Developers Surety, upon default of Walker Roofing, to " promptly remedy the default or defaults or to promptly perform the [c]ontract in accordance with its terms and conditions." It also specified that Developers Surety was to give GDOC notice " within twenty-five (25) days after receipt of a declaration of default of the surety's election either to remedy the default or defaults promptly or to perform the contract promptly."

Walker Roofing did not complete its work within the time frame required by the Contract, and GDOC declared Walker Roofing in default. On September 23, 2010, GDOC issued a formal notice of default with respect to the performance of Walker Roofing, thus triggering Developers Surety's obligations under the performance bond. Developers Surety did not notify GDOC within 25 days of receipt of GDOC's notice of default regarding whether it would remedy the default or perform the contract. However, approximately three months after the declaration of default, Developers Surety gave GDOC the option of entering into a contract with another company for the completion of the work. GDOC then contracted with that company to finish the project. Under the payment and performance bonds and prior to Walker Roofing's default, Developers Surety had provided financial assistance to Walker Roofing in the amount of $577,118.60; it incurred an additional $160,161.39 in costs and attorney fees arising from its investigation of its liability, if any, under the default.

On July 12, 2011, Developers Surety filed suit against GDOC for breach of contract and for a declaratory judgment that it had no

Page 871

obligation under the payment and performance bond it issued to Walker Roofing on behalf of GDOC. GDOC filed a counterclaim for breach of contract. The parties filed cross-motions for summary judgment, and the trial court determined that Developers Surety's claims were not barred by sovereign immunity and that GDOC had breached the construction contract as a matter of law. It concluded that GDOC waived its sovereign immunity by entering into the contract with Walker Roofing, and that the doctrine of equitable subrogation gave Developers Surety the ability to file suit against GDOC once it incurred liability and paid the obligations of its principal under the bond. Consequently, the trial court granted summary judgment to Developers Surety and denied it to GDOC; in [295 Ga. 744] the same order, the trial court entered judgment in favor of Developers Surety in the amount of $577,118.60.

GDOC appealed to the Court of Appeals, contending, inter alia, that it was entitled to summary judgment because Developers Surety was not a party to the Contract, and thus, the State's waiver of sovereign immunity for breach of contract did not apply to Developers Surety.[4] The Court of Appeals affirmed the trial court's findings that GDOC waived sovereign immunity by entering into the Contract, and that the doctrine of equitable subrogation ...


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