FIVE STAR LODGING, INC. VS. GEORGE CONSTRUCTION, LLC. , ET AL.
Annotate this Case
Download PDF
RENDERED: JULY 30, 2010; 10:00 A.M.
TO BE PUBLISHED
MODIFIED: AUGUST 6, 2010; 10:00 A.M.
Commonwealth of Kentucky
Court of Appeals
NO. 2009-CA-000990-MR
FIVE STAR LODGING, INC.
v.
APPELLANT
APPEAL FROM FAYETTE CIRCUIT COURT
HONORABLE THOMAS L. CLARK, JUDGE
ACTION NO. 02-CI-02246
GEORGE CONSTRUCTION, LLC.;
CUMBERLAND SURETY INSURANCE CO., INC.;
AND LYNDON PROPERTY INSURANCE COMPANY
APPELLEES
OPINION
AFFIRMING
** ** ** ** **
BEFORE: MOORE AND THOMPSON, JUDGES; HENRY,1 SENIOR JUDGE.
THOMPSON, JUDGE: The issue presented is whether an action against a surety
on a performance and payment bond was barred by a two-year time limitation
1
Senior Judge Michael L. Henry sitting as Special Judge by assignment of the Chief Justice
pursuant to Section 110(5)(b) of the Kentucky Constitution and KRS 21.580.
contained in the bond. We agree with the trial court that the action was barred and
affirm.
On August 5, 1999, Five Star Lodging, Inc., entered into a
construction contract with George Construction, LLC, for the construction of a
hotel in Scott County, Kentucky. Pursuant to the terms of the contract, George
Construction was required to obtain a performance and payment bond. In
anticipation of the contract’s execution, on July 28, 1999, and acting through
Cumberland Insurance Company as its agent, George Construction procured a
performance and payment bond from Lyndon Property Insurance Company on
behalf of George Construction as principal and in favor of Five Star as obligee.
Paragraph 12 of the bond provides:
No suit, action, or proceedings shall be brought
hereunder by the Obligee unless as a condition precedent,
it shall have been commenced within two (2) years from
the earlier of the date of the completion of said Contract
or the date of beneficial use or occupancy by the Obligee
or owner; and no suit, action, or proceeding shall be
brought hereunder by any Claimant unless, as a condition
precedent thereto, written notice of its claim shall have
been given by such Claimant to the Surety at its home
office in the City of St. Louis, Missouri, as required by
Paragraph 8 herein; and, subject to the foregoing with
respect to giving written notice, no suit, action or
proceeding shall be brought by any Claimant hereunder
unless commenced within twelve (12) months from the
last of the material or labor which was furnished or
performed at or upon the Project.
George Construction proceeded with construction of the hotel and on
August 31, 2000, a certificate of occupancy was issued. Five Star’s architect
-2-
issued an architect’s certificate of substantial completion on September 5, 2000,
reflecting that substantial completion was effective on August 28, 2000.
Documentation in the record reveals that as early as June 2000, guests were
lodged in the hotel.
Dissatisfied with the construction, Five Star began corresponding with
George Construction and Cumberland regarding its complaints. As a result of its
discussions with Five Star’s attorney, through written correspondence, Cumberland
advised George Construction of the two-year limitation provision in the bond.
Specifically, the letter stated in part:
This letter is in response to your letter of June 13, 2001,
and our subsequent telephone conversation June 27,
2001, regarding the above named parties and the current
status of the construction project bonded by Lyndon
Property Insurance.
I have spoken with Mr. Gene Price of George
Construction and with Mr. Bill Hurt, the attorney for
George Construction. The consensus is that there needs
to be a meeting, on site, to review any areas of the
construction your client claims to be defective. The
surety will be glad to participate in this procedure with
the goal of resolving potential disputes.
On this bond the Obligee, your client, has two years from
the completion date, June 21, 2000, in which to bring suit
against the surety, should the surety fail to perform
according to the terms and conditions of the bond.
Therefore, the surety has no desire to issue a Waiver for
any time related conditions on this project. If there are
subcontractors to George Construction approaching the
one year warranty on workmanship for items not
previously noticed directly or through George
Construction, you should give these notices immediately.
-3-
The surety reserves all rights and defenses under the
bond, the contract and the law.
On May 31, 2002, Five Star filed a complaint against George
Construction as a result of its dissatisfaction with the hotel construction.
Subsequently, the case was placed in abeyance pending arbitration of the dispute
and, as a result, George Construction did not file an answer to the complaint. Five
Star moved for a default judgment on January 2, 2007, which was granted on
February 19, 2007.
On March 1, 2007, approximately seven years subsequent to the
issuance of the occupancy permit, the approval of the construction by Five Star’s
architect, and Five Star’s occupancy of the hotel, Five Star sought to amend its
complaint against George Construction to add the bond’s surety but erroneously
named Cumberland. Lyndon then entered the litigation by its own intervention for
the purpose of substituting itself for Cumberland. Because Five Star sought
compensation for the surety’s alleged failure to comply with its obligations under
the bond and because Lyndon, not Cumberland, was the surety on the bond, the
circuit court dismissed Cumberland from the action on February 11, 2008.
In reliance on paragraph 12 of the surety bond and its two-year time
limitation, Lyndon moved for summary judgment arguing that Five Star used or
occupied the hotel at least by August 2000, when the certificate of occupancy and
the architect’s certificate of substantial completion were issued and, therefore, its
-4-
action was time-barred. The circuit court agreed and sustained Lyndon’s motion
for summary judgment. This appeal followed.
The rule in this jurisdiction pertaining to a summary judgment is
stated as follows:
The proper standard of review on appeal when a
trial judge grants a motion for summary judgment is
whether the trial judge correctly found that there were no
genuine issues as to any material fact and that the moving
party was entitled to a judgment as a matter of law. CR
56.03. It has long been held that a trial judge must view
the evidence in the light most favorable to the nonmoving
party, and summary judgment should be granted only if it
appears impossible that the nonmoving party will be able
to produce evidence at trial warranting a judgment in his
favor. The moving party bears the initial burden of
demonstrating that no genuine issue of material fact
exists and then the burden shifts to the party opposing
summary judgment to produce at least some affirmative
evidence showing that there is a genuine issue of material
fact requiring trial.
First Federal Sav. Bank v. McCubbins, 217 S.W.3d 201, 203 (Ky. 2006)(citations
omitted). With this standard as our guide, we turn to the issues presented.
We first dispose of Five Star’s appeal of the order dismissing
Cumberland. There is no dispute that the construction project was bonded by
Lyndon Property Insurance. Although Five Star was apparently confused as to
whether Cumberland or Lyndon bonded the property, the performance and
payment bond stated that Lyndon bonded the construction project. If there was
any ambiguity as to which company bonded the project, it was clarified by the
letter written by Cumberland in 2000 to Five Star’s counsel wherein it was
-5-
expressly stated that Lyndon bonded the construction project. We agree with the
circuit court that Cumberland could not be liable on the bond issued by Lyndon.
Nevertheless, our analysis regarding whether the time limitation in the bond barred
Five Star’s claim would apply equally to Cumberland and Lyndon.
Five Star argues vehemently to this Court that there exists a material
issue of fact regarding whether Lyndon had notice of its claim on the bond in
August 2000. If Lyndon defended the claim on the basis that it lacked written
notice of the claim as provided for in the bond, Five Star’s assertion would be
relevant. However, the defense asserted and the determinative issue is whether the
two-year time limitation in which to commence an action on the bond precluded
Five Star’s action.
We agree with the circuit court that there is no material issue of fact
regarding the date of completion of the hotel. Although Five Star was dissatisfied
with the work performed by George Construction, the hotel was nevertheless
completed when the certificate of occupancy and the architect’s certificate of
substantial completion were issued. Thus, the time period in which to commence
an action against Lyndon began no later than August 2000.
Five Star contends that it was not a party to the bond agreement and,
therefore, was not bound by the time limitation. A bond agreement is a contract
and the parties to the contract are free to agree upon its terms and conditions,
including the time period in which an action on the contract must be commenced
even if it provides a shorter limitation period than provided by law. Schultz v.
-6-
Cooper, 134 S.W.3d 618 (Ky.App. 2003). As a third-party beneficiary of the
contract, Five Star was likewise bound by the terms of the bond agreement. Wehr
Constructors, Inc. v. Steel Fabricators, Inc., 769 S.W.2d 51 (Ky.App. 1988). If
Five Star had an objection to the time limitation in the performance and payment
bond, it could have simply rejected it and required George Construction to procure
a performance and payment bond without the time limitation. However, it
accepted the bond by its execution of the contract with George Construction and
was bound by its terms.
Five Star attempts to avoid the unequivocal language in the bond. It
asserts that the default judgment entered against George Construction and the
subsequent order of the circuit court establishing damages against George
Construction in the amount of $2,553,492 as a result of its faulty and untimely
construction of the hotel foreclosed Lyndon from asserting the time limitation.
Essentially, Five Star attempts to impute the default judgment entered against
George Construction to Cumberland and Lyndon who were not parties to the
proceedings and had no opportunity to defend the action.
In its discussion of the issue, Five Star has erroneously interchanged
the terms “law of the case,” “equitable estoppel” and “res judicata.” A cursory
review of the three legal doctrines reveals that each is distinct and that in this
situation none is applicable.
The law of the case doctrine embodies the rule that “an opinion or
decision of an appellate court in the same cause is the law of the case for a
-7-
subsequent trial or appeal however erroneous the opinion or decision may have
been.” Union Light, Heat & Power Co. v. Blackwell's Adm'r, 291 S.W.2d 539, 542
(Ky. 1956). It is simply not applicable to the issue of whether the default judgment
precluded Cumberland and Lyndon from asserting the time limitation in the bond
as a defense to Five Star’s action.
Nor is equitable estoppel applicable. To establish an equitable
estoppel claim against Cumberland and Lyndon, Five Star would have to
demonstrate: (1) lack of knowledge or means of knowledge of the truth; (2)
reliance, in good faith, based on something Cumberland or Lyndon did or did not
do or state; and (3) resulting action or inaction by Five Star that changed its
position or status for the worse. Fluke Corp. v. LeMaster, 306 S.W.3d 55, 62 (Ky.
2010). There is absolutely no evidence that Five Star was intentionally misled by
either Cumberland or Lyndon and, as a result, that Five Star relied on a
misrepresentation when it failed to commence an action against the surety on the
bond within the two-year period. To the contrary, in June 29, 2000, Cumberland
specifically advised Five Star that it had “two years from the completion date, June
21, 2000, in which to bring suit against Lyndon should Lyndon fail to perform
according to the terms and conditions of the bond.”
Finally, the doctrine of res judicata does not preclude the assertion of
the two-year time limitation defense. Five Star argues that its reliance on this
doctrine caused it not to file an action against either Cumberland or Lyndon prior
to March 2007. However, the law in this jurisdiction is settled. A default
-8-
judgment entered against a principal is not binding upon a surety and res judicata
does not prevent the surety from defending any argument it could have made had it
been a party to the underlying action against the principal. Ohio Cas. Ins. Co. v.
Kentucky Natural Resources, 722 S.W.2d 290 (Ky.App. 1986).
Although the result in this case is harsh, we will not deviate from
established Kentucky law. The doctrine of res judicata is applicable only where
there is identity of the parties, identity of the causes of action asserted and a
judgment on the merits. Yeoman v. Commonwealth Health Policy Bd., 983 S.W.2d
459, 465 (Ky. 1998). Certainly the parties are not identical and the causes of
action against George Construction for breach of the construction contract and
negligent construction of the hotel are distinct from the claim asserted on the bond.
Moreover, a default judgment is not a judgment on the merits and, in this case, the
order establishing damages was entered after summary judgment was granted to
Cumberland and Lyndon. Buis v. Elliott, 142 S.W.3d 137, 139-140 (Ky. 2004).
Finally, Five Star requests that this Court invoke principals of equity
and grant it relief against Cumberland and Lyndon. Ordinarily, lack of knowledge
of one's rights is insufficient to prevent operation of a time limitation. Wilson v.
Paine, 288 S.W.3d 284, 286 (Ky. 2009). However, Five Star points out that
whether found in statutory law or by agreement between the parties, a time
limitation in which an action can be commenced can be tolled when a party is
estopped from relying on the limitation by virtue of a misrepresentation or
concealment. Harralson v. Monger, 206 S.W.3d 336, 339 (Ky. 2006).
-9-
We have previously stressed that Cumberland explicitly informed
Five Star that an action against the surety must have been commenced within two
years of June 2000. There is absolutely no evidence that Cumberland or Lyndon
misrepresented any facts or failed to divulge any information which would have
prevented Five Star from filing a claim on the bond.
We conclude that Cumberland was properly dismissed as a party
because it was not the surety on the performance and payment bond. We further
conclude that any action against Cumberland or Lyndon on the bond as surety was
time-barred by the terms of the bond.
The order dismissing Cumberland as a party and the summary
judgment in favor of Lyndon Property Insurance Company are affirmed.
ALL CONCUR.
BRIEFS AND ORAL ARGUMENT
FOR APPELLANT:
James M. Morris
Lexington, Kentucky
BRIEF FOR APPELLEES
CUMBERLAND SURETY
INSURANCE CO., INC. AND
LYNDON PROPERTY INSURANCE
COMPANY:
K. Brad Oakley
John W. Hays
Lexington, Kentucky
ORAL ARGUMENT FOR
APPELLEES:
K. Brad Oakley
Lexington, Kentucky
-10-
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.