The decision confirms that where a surety enters into a settlement payment with a project owner, the contractor is entitled to setoff that payment against a subsequent judgment obtained against a contractor for the same damages.
Close Construction LLC v. City of Riviera Beach Utility Special District arises from a construction contract between a utility district and a contractor to replace or repair lift stations within the district. As part of the project, the contractor obtained a public construction bond. The utility district ultimately terminated the contract after disputes arose between it and the contractor. The utility district hired another contractor and sought coverage from the surety under the bond. The surety and the utility district settled with each other for $1,000,000.00.
After this, the utility district and the contractor sued each other, each alleging breach of contract. Following a jury trial, final judgment was entered in favor of the utility district in the amount of $1,917,480.00. The contractor then moved for a post-verdict setoff in the amount paid by the surety to the utility district arguing that it was entitled to setoff because:
(1) the settlement covered the same damages that the jury assessed against [the contractor] for its breach of contract, and (2) the surety was jointly and severally liable with [the contractor] for those damages. [The contractor] also asserted that, without the setoff, the [utility district] would obtain a double recovery.
The utility district responded arguing:
(1) the settlement agreement precluded [the contractor] from claiming a setoff; (2) section 46.015(2), Florida Statutes (2022), did not apply because a bond action was never filed and [the surety] was never a litigant in the breach of contract action; and (3) the settlement was for damages under the performance bond, not for damages the jury found were occasioned by [the contractor’s] breach.
The trial court denied the motion for setoff and the contractor appealed.
On appeal, Florida’s Fourth District Court of Appeal began its analysis by noting that setoffs are available where (1) the settling and non-settling parties are jointly and severally liable, and (2) the settled damages are the same damages for which setoff is sought. The court then reversed the trial court’s denial of the motion, holding that:
Here, both criteria are met. The contract's bid form and the bond state that [the contractor] and [the surety] were jointly and severally liable for damages caused by [the contractor’s] breach of the contract. Further, the bond expressly states that [the surety] guaranteed [the contractor] would perform the contract and pay the [utility district’ “all losses, damages (including liquidated damages), expenses, costs, and attorneys' fees, including appellate proceedings, that [the] [utility district] sustains because of a default by [the contractor] under the contract.” Under those terms, it is clear that [the contractor] and [the surety] were jointly and severally liable. See DCC Constructors, Inc. v. Randall Mech., Inc., 791 So. 2d 575, 576 (Fla. 5th DCA 2001) (“[A] surety's liability on a bond is determined strictly from the terms and conditions of the bond agreement.”).
Additionally, the [utility district] sought to recover the same damages from both [the contractor] and [the surety]. The settlement agreement explicitly stated that it arose because the [utility district] called upon [the surety] to “reimburse [the utility district] for all of its losses and expenses related to the termination of [the contractor’s] contract and completion of [the contractor’s] work.” In exchange for releasing each other for any claims related to the bond, [the surety] paid the [utility district] $1,000,000. These are the exact same damages that the [utility district] sued [the contractor] to recover.
In reaching this conclusion the Fourth District Court rejected the utility district’s argument that setoff first requires that the settling party, in this case the surety, be sued, before 46.0125(2), Florida Statutes, applies, and requires that the settlement be setoff against a subsequent judgment.