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The Saxon Group Inc. v. South Mississippi Electric Power Association

Court of Appeals of Mississippi

September 3, 2019

THE SAXON GROUP INC. APPELLANT
v.
SOUTH MISSISSIPPI ELECTRIC POWER ASSOCIATION APPELLEE

          DATE OF JUDGMENT: 09/21/2017

          FORREST COUNTY CIRCUIT COURT HON. ROBERT B. HELFRICH TRIAL JUDGE:

          ATTORNEYS FOR APPELLANT: CLYDE X. COPELAND JASON EDWIN WEEKS

          ATTORNEYS FOR APPELLEE: MARK EDWARD NORTON LAWRENCE CARY GUNN JR.

          BEFORE CARLTON, P.J., WESTBROOKS AND McCARTY, JJ.

          WESTBROOKS, J.

         ¶1. Southern Mississippi Electric Power Association (SMEPA) contracted with a Georgia construction company named Saxon Group Inc. (Saxon), to provide mechanical and electrical construction services. In violation of the construction contract, Saxon defaulted on payments to its subcontractors and suppliers, forcing Hanover Insurance Company (Hanover), Saxon's surety, to assume Saxon's posture as payor. Saxon sued SMEPA in Forrest County Circuit Court, seeking contract reformation and alleging several claims for breach of contract.

         ¶2. On SMEPA's motion, the circuit court granted partial summary judgment on Saxon's claim for interest owed for monies remitted to Hanover. At the conclusion of Saxon's case in chief, SMEPA moved for a directed verdict on Saxon's consequential damages claim. The court denied the motion. The jury found Saxon was entitled to recovery on all of its remaining claims. SMEPA then filed a motion for a judgment notwithstanding the verdict, which the court granted. Saxon's $1.2 million verdict and corresponding claim for consequential damages were set aside. Aggrieved, Saxon now appeals. After reviewing the record, we affirm the circuit court's judgments.

         FACTS & PROCEDURAL HISTORY

         ¶3. SMEPA, now known as Cooperative Energy, is a South Mississippi electric cooperative headquartered in Hattiesburg, Mississippi.[1] Saxon was a Georgia heavy-industrial construction company owned by Jeni Bogdan. On or about August 9, 2010, Saxon received a "Request for Quotation" from the engineering firm, Burns McDonnell; the request solicited bids for the opportunity to act as general contractor over SMEPA's Moselle Repower Project (Project. No. 49302) ("Moselle Project").[2] The Moselle Project sought to upgrade and modernize SMEPA's Moselle, Mississippi Power Station. Saxon, one of five invited contractors, submitted bids for the mechanical and electrical construction contracts associated with the project. By submitting the lowest bid, two percent lower than Yates Construction, Saxon was awarded both contracts.

         ¶4. Consistent with industry custom, Saxon was compelled to obtain a surety bond as a prerequisite to securing the construction contract. The bond, obtained from Hanover, guaranteed indemnity for SMEPA in the event Saxon failed to meet its obligations under the Moselle contract. To acquire Hanover as its surety, Saxon signed an unqualified indemnity agreement, assigning all of its rights under the SMEPA contract to Hanover in the event of a default. The agreement further provided that, if necessary, Hanover would be responsible for fulfillment of Saxon's unrealized contractual obligations.

         ¶5. As the project proceeded, Saxon indeed fell behind on payments to its subcontractors and suppliers. On or about July 2012, SMEPA was contacted by several subcontractors and made aware of the defaults. SMEPA ceased paying Saxon based on the terms of the construction contract, which provided that Saxon "within five (5) days after receipt of any payment from [SMEPA]" would pay all of its material suppliers and subcontractors. As a penalty for violating the provision, the contract stated that "[n]o payment shall be due while [Saxon] is in default" and allowed SMEPA to withhold payment based on Saxon's "failure to perform." In August 2012, Saxon sent correspondence acknowledging the delinquent accounts and assuring SMEPA that they were on track to bring them current pending the resolution of some disputed invoice amounts the subcontractors and suppliers submitted. Saxon demobilized from the work site in September 2012; the accounts were still past due. A subsequent investigation into the defaulted payments revealed Saxon was, in fact, upside down on the contractual obligations and ultimately prompted SMEPA to contact Saxon's surety, Hanover, in October 2012.[3]

         ¶6. In March 2013, Hanover issued a "freeze funds" letter, demanding that SMEPA submit the final contract payments to Hanover instead of Saxon, citing their indemnity agreement. The surety paid all of the aggrieved vendors, disbursing a total of $3, 017, 455.04; the final payment Hanover received from SMEPA was only $2, 690, 721.79. SMEPA agreed that a significant delay of about two years occurred before Hanover was paid the remainder owed on the contract. No clear explanation was provided for the delay, but there were several factors cited in the record, namely Saxon's failure to submit the required forms and the ongoing litigation of the current case. After receiving a valid Certificate of Completion on April 8, 2015, SMEPA submitted the final payment amount to Hanover on May 26, 2015.[4]Saxon maintains the money was improperly withheld and faults SMEPA's delayed payment for its downfall. Unable to maintain as an independent company, Saxon agreed to an acquisition of its assets by Primoris Services Corporation in 2012.

         ¶7. Saxon filed a complaint on February 14, 2014, blaming SMEPA for the "ruination of the company." The complaint sought equitable reformation of the parties' mechanical construction contract, damages for bad faith breach of contract and wrongful withholding of amounts due related to the mechanical contract and a separate electrical contract. SMEPA denied the allegations and filed a motion for partial summary judgment on May 29, 2015. The court denied the motion in an order entered January 19, 2016.

         ¶8. Together, the parties reached a partial settlement on the wrongful withholding claim and subsequently dismissed the reformation claim voluntarily. Despite the previous denial, on August 12, 2016, SMEPA filed another pre-trial ...


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