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The Ninth Circuit Court of Appeals reversed the Eastern Washington District Court, holding United Coastal Insurance Company (“UCIC”), acting as a supesedeas bond surety, was only obligated to assume the liability of the principal it contracted for and not the liability of the principal’s co-defendant in a breach of contract suit.
The suit arose out of a breach of contract dispute on an environmental clean-up project at a U.S. Department of Energy nuclear site in Washington State. Bechtel Hanford, Inc. (“Bechtel”) was the general contractor on the site. It obtained a judgment for $282,611 against P.W. Stephens Contractors, Inc. (“PWS”), a defaulting subcontractor, and PWS’s performance bond surety, Acstar Insurance Co. (“Acstar”). PWS and Acstar were also found jointly and severally liable for Bechtel’s attorneys’ fees, costs, and pre and post-judgment interest.
PWS and Acstar appealed this judgment. Acstar alone obtained a supesedeas bond from UCIC to stay enforcement of Bechtel’s judgment.
The language of the bond stated that Acstar was bound to Bechtel under the instrument for the purpose of satisfying the underlying judgment in the amount not to exceed $1,421,996.80, which represented twice the amount of the judgment against Acstar and PWS. The bond referenced the underlying action and that Acstar filed a Notice of Appeal to the Ninth Circuit. The bond also stated if Acstar paid all costs, fees, disbursements and judgments incurred by the appeal, then the obligation was to be released. Otherwise, it was to remain in full force and effect.
On the appeal, Acstar challenged the district court’s judgment for damages, attorneys’ fees, costs and prejudgment interest. The Ninth Circuit Court of Appeals affirmed the judgment against Acstar on its performance bond, but vacated the award of attorneys’ fees, costs and interest.
Bechtel then filed a motion to recover the entire judgment from UCIC under the supesedeas bond. The district court granted the motion, concluding UCIC’s bond covered the entire judgment against Acstar and PWS. After the court’s decision, Acstar paid its portion of the judgment to Bechtel. UCIC then appealed the district court’s ruling, contending its supersedeas bond secured only the judgment against Acstar, not PWS. Since Acstar had satisfied its portion of the judgment, UCIC argued it had no liability to Bechtel.
The Ninth Circuit Court of Appeals agreed. It applied Washington State law, which follows the “objective manifestation theory” of contract interpretation. Under this theory, the contracting parties’ intent is determined by focusing on the objective manifestations of the agreement, rather than on the unexpressed subjective intent of the parties. The Court then examined the bond, and noted that under Washington law, a surety agrees to answer only for the debts of the principal. If the bond names a particular principal, the surety’s obligations are limited to those of the named principal. UCIC’s bond named Acstar as the only principal, and did not reference PWS’s appeal. Nor was PWS a party to the surety contract. Thus, the Court concluded UCIC could only be liable for Acstar’s obligations.
The Court also rejected Bechtel’s contention the UCIC bond secured the liability of both Acstar and PWS because Acstar was obligated to satisfy the judgment of PWS and, therefore, UCIC was similarly bound. The Court concluded passing references to PWS in the bond’s recital paragraphs did not evidence an intent that Acstar as principal and UCIC as surety intended to assume liability for PWS’s portion of the judgment. Nor did Acstar agree through its Notice of Appeal and related appeal documents to be liable for PWS’s portion of the judgment. None of these documents clearly evidenced an intent by Acstar to assume PWS’s obligations and, even if they had, the Court concluded this could not alter the scope of UCIC’s bond, because Acstar could not alter the scope of this contract without UCIC’s consent.
The Court therefore reversed the district court’s order, and directed the court to enter judgment in UCIC’s favor.
This opinion is not final. Though it has been certified for publication, it may be withdrawn from publication, modified on rehearing, or granted review by the United States Supreme Court. Should any of these events occur, the opinion would be unavailable for use as authority in other cases.
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