United States District Court, E.D. Arkansas, Jonesboro Division
M. Moody Jr., United States District Judge
is the motion for summary judgment of Plaintiff Hanover
Insurance Company (“Hanover”). The motion was
converted by the Court from a motion for judgment on the
pleadings. The parties were given notice of the conversion
and filed supplemental pleadings. For the reasons stated
below, the motion is granted.
Dunbar Mechanical Contractors (“Dunbar”) bid on a
U.S. Government Department of the Army Corp of Engineers
contract to complete construction on Ditch 27 &
Tributaries in Mississippi County, Arkansas (the “Ditch
27 Project”). The Ditch 27 Project is a Service
Disabled Veteran Set-Aside project which has certain
requirements. In order to be awarded the contract, the bidder
must be a Service Disabled Veteran-Owned Business
(“SDVOB”) and must agree that “it will not
pay more than 85% of the amount paid by the government to it
to firms that are not similarly situated.” 13 C.F.R.
§ 125.6(a)(3). In other words, an SDVOB must perform at
least 15% of the work on the Ditch 27 Project itself.
an SDVOB, was awarded the Ditch 27 Project W912EQ-14-B-003 at
the price of $2, 047, 455.74. On the same day the Ditch 27
Project was awarded, Dunbar entered into a subcontract
agreement (the “Subcontract”) with Harding
Enterprises, LLC (“Harding”) to “[p]rovide
all work that was provided in the proposal Contract
Documents: The contract documents shall consist of the Plans
& Specifications; Safety Attachment; the invitation to
Bid, dated 10/07/13, and this Agreement.” (ECF No.
1-3). The project is named W912EQ-14-B-003 Ditch 27 &
Tributaries Mississippi County, Arkansas. The Subcontract
expressly states that Dunbar would pay Harding $1, 794,
136.00 as full compensation for all the work done. (ECF No.
1-3). This represents 87.6% of the Ditch 27 Project.
one month later, Billy W. Dunbar of Dunbar Mechanical
Contractors entered into a separate Employment Agreement with
Gregg Harding, the sole member of Harding Enterprises, LLC.
Gregg Harding was employed as the project manager for the
Ditch 27 Project for $62, 000 in compensation. (ECF No. 1-4).
Billy W. Dunbar and Joan Dunbar are the only members of
Dunbar Mechanical Contractors. Neither Harding Enterprises,
LLC nor Gregg Harding are SDVOBs.
request of Harding, Hanover issued a Subcontract Performance
Bond and a Subcontract Payment Bond in the penal sum amount
of the Subcontract, $1, 794, 136.00 on behalf of Harding
Enterprises, LLC as the Principal to Dunbar Mechanical
Contractors as the Obligee (the “Bond”). The
purpose of the Bond was to guarantee Harding Enterprise's
performance of the Subcontract between Dunbar and Harding. In
the event of Harding's default of the Subcontract,
Hanover would be obligated under the Bond to a) complete the
Subcontract, (b) obtain new contractors to complete the
Subcontract, (c) pay Dunbar, or (d) deny liability. (ECF No.
1-5 at p. 2).
April 20, 2017, Dunbar advised Hanover that Dunbar intended
to terminate the Subcontract with Harding and the employment
contract with Gregg Harding based on Harding's alleged
default. Dunbar demanded performance by Hanover under the
Bond. During its investigation of the claim, Hanover
discovered that Dunbar was allegedly in violation of its
Ditch 27 Project contract with the Government because Dunbar
had subcontracted with a non-SDVOB for more than 85% of the
Ditch 27 Project price. Hanover denied Dunbar's claim
pursuant to Paragraph 4.4 of the Bond. Hanover filed this
suit for declaratory judgment seeking a declaration that
Hanover has no obligations under the Bond to complete the
Ditch 27 Project and no obligations under the Bond to Dunbar
for payment of money or performance of the Subcontract.
Hanover also seeks to rescind the Bond.
Standard for Summary Judgment
judgment is appropriate only when there is no genuine issue
of material fact, so that the dispute may be decided solely
on legal grounds. Holloway v. Lockhart, 813 F.2d 874
(8th Cir. 1987); Fed.R.Civ.P. 56. The Supreme Court has
established guidelines to assist trial courts in determining
whether this standard has been met:
The inquiry performed is the threshold inquiry of determining
whether there is a need for trial -- whether, in other words,
there are genuine factual issues that properly can be
resolved only by a finder of fact because they may reasonably
be resolved in favor of either party.
Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 250 (1986).
Eighth Circuit Court of Appeals has cautioned that summary
judgment should be invoked carefully so that no person will
be improperly deprived of a trial of disputed factual issues.
Inland Oil & Transport Co. v. United States, 600
F.2d 725 (8th Cir. 1979), cert. denied, 444 U.S. 991
(1979). The Eighth Circuit set out the burden of the parties
in connection with a summary judgment motion in Counts v.
M.K. Ferguson Co., 862 F.2d 1338 (8th Cir. 1988):
[T]he burden on the moving party for summary judgment is only
to demonstrate, i.e., D[to] point out to the
District Court, D that the record does not disclose a genuine
dispute on a material fact. It is enough for the movant to
bring up the fact that the record does not contain such an
issue and to identify that part of the record which bears out
his assertion. Once this is done his burden is discharged,
and, if the record in fact bears out the claim that no
genuine dispute exists on any material fact, it is then the
respondents burden to set forth affirmative evidence,