N.C. Federal Court Awards Attorney’s Fees Based On Subcontract Provision A recent ruling by the Middle District of North Carolina awarded a second-tier subcontractor attorney’s fees from a first-tier subcontractor, and the general contractor and its surety.
The decision in the case, U.S. ex rel SCCB, Inc. v. P. Browne & Associates, Inc., the Broadband Companies, LLC, Broadband Construction Services, LLC, and Arch Insurance Company, was based in part on a term in the subcontract agreement between the Plaintiff, SCCB, a second-tier subcontractor, and Defendant Broadband, a first-tier subcontractor.
The opinion arose from a military contract and involved the Miller Act. SCCB, a second-tier subcontractor doing business as the Stewart Construction Company, filed suit against Broadband, the first-tier subcontractor with whom it had contracted. SCCB’s claims included a claim for past-due payment under its construction subcontract. The jury found SCCB was owed $260,267.10 for its work. The court’s decision on attorney’s fees involved an interesting application of the contract terms and of N.C.G.S. §6-21.2, which the court construed quite broadly, ultimately awarding at least $39,040.07 in fees.
Under §6-21.2, “obligations to pay attorneys’ fees upon any note, conditional sale contract or other evidence of indebtedness” are valid and enforceable. Typically, therefore, attorney’s fees provisions in credit agreements, promissory notes, and the like have been enforced in North Carolina. North Carolina courts have been more inconsistent on whether to enforce such provisions in construction contracts.
In SCCB, the Middle District enforced the provision against both the party who signed the contract (Broadband) and the general contractor (P. Browne), who was not even a party to the subcontract. In deciding to enforce the provision against Broadband, the first-tier subcontractor, the court reasoned that a construction contract was sufficient “evidence of indebtedness” to trigger §6-21.2. More surprising, perhaps, was the court’s finding that SCCB also was entitled to recover fees from P. Browne. The court relied on a previous ruling U.S. ex rel Maddux Supply Co. v. St. Paul Fire & Marine Insurance Co., in which the Fourth Circuit held that attorney’s fees and interest in a subcontract were “sums justly due” under the Miller Act. In turn, the court reasoned, the attorney’s fees and interest in SCCB’s subcontract were part of the contract for the federal project. The general contractor and its surety were obligated to pay all amounts owed by their subcontractors and suppliers – including interest and attorneys’ fees, the court held.
If you have any questions about this topic or another construction-related issue, please contact Caroline Lindsey, attorney with Anderson Jones, PLLC at (919) 277-2541 or byemail!