Eleventh Circuit Holds That the Statute of Limitations on Payment Bond Claim Under Georgia Law Commences at Substantial Completion Rather Than Final Acceptance

Strickland v. Arch Ins. Co., No. 17-10610, 2018 U.S. App. LEXIS 504 (11th Cir. Jan. 9, 2018)

Strickland provided sand to a paving company (“Douglas”) for a Georgia Department of Transportation (“GDOT”) road improvement project (the “Project”).  Arch Insurance Company (“Arch”) issued payment and performance bonds on Douglas’s behalf.  In 2007, GDOT declared Douglas in default and removed it from the Project.  In accordance with the performance bond, Arch arranged for a third-party contractor to complete Douglas’s work on the Project. Strickland did not supply sand after Douglas’s removal.

In August 2010, GDOT determined that the Project was substantially complete, and in September 2010, performed final inspection and generated a punch list.  Arch’s contractor completed the punch list by September 2011.  In March 2012, GDOT accepted Project maintenance responsibilities because the Project had been satisfactorily completed as of September 2011.  GDOT made semi-final payment to Arch in July 2012.

In September 2012, Strickland sent a demand for payment on Arch’s payment bond.  Arch acknowledged the claim and asked for additional documentation.  Strickland did not respond.  In 2014, Strickland learned that GDOT was preparing to close out the Project and filed a lawsuit against Arch.

The trial court granted summary judgment in favor of Arch.  The court concluded that no genuine dispute of fact existed about the project having been completed and accepted in September 2011.  Thus, Georgia’s one-year statute of limitations on payment bond claims barred Strickland’s action.  Strickland appealed.

The Court of Appeals noted that Georgia’s statute of limitations on payment bond claims commenced at the “completion of the actual construction work and acceptance thereof by the public authority,” and that Georgia courts had construed the term “completion” to mean not just total completion, but also substantial completion with only punch list items remaining.

The Court rejected Strickland’s argument that the project was not “completed” until 2014 based on a provision in the Project specifications that the contractor had maintenance and repair obligations until GDOT’s final acceptance.  Applying Georgia courts’ construction of the term “completion,” it held that Strickland’s action was untimely because the  Project was substantially complete in August 2010, and the punch-list items were completed in September 2011, both well over one year before Strickland filed its action.

The Court also rejected Strickland’s argument that a genuine dispute of material fact existed regarding when GDOT “accepted” the Project based on an August 2014 GDOT email in which a GDOT employee stated that the Project had not yet received final approval.  The court found that the email showed only that GDOT had not sent written final acceptance at that point.  The letter of final acceptance itself stated that the project had “been accepted” as of April 2012.  Undisputed GDOT deposition testimony indicated that there was a two-year gap between acceptance and written final acceptance only because materials testing and certification was required before Project closeout.

The Court of Appeals noted that Georgia case law supported these conclusions. Georgia courts had found that the purpose of the statute of limitations was to limit the time during which a surety can be held liable for the contractor’s payment of its suppliers.  Determining that “completion” turned on a public authority’s internal procedure rather than the general contractor’s completion of its obligations would frustrate this purpose.

Finally, the Court rejected Strickland’s argument that the statute of limitations had not run because the payment bond remained in “full force and effect” until all suppliers were paid, and Strickland had not been paid.  Strickland’s interpretation would render the statute meaningless because the limitations period would never begin where a supplier or subcontractor had not been paid.

The Court of Appeals upheld summary judgment in favor of Arch.

To view the full text of the court’s decision, courtesy of Lexis®, click here.

Jane Fox Lehman


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