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Business, Banking and Contracts Click here for the full text of this decision FACTS: This surety contract dispute arises from dredging work that Weeks Marine completed for now-bankrupt shipbuilder Friede Goldman Offshore Texas L.P. In April 1998, Petrodrill Construction Inc., contracted with Friede Goldman (the shipbuilding contract) for the construction of a semi-submersible drilling vessel (Hull 1829). In conjunction with the shipbuilding contract, FFIC issued an $84 million Labor and Material Payment Bond to Friede Goldman. Under the terms of the bond, FFIC as surety and Friede Goldman as principal are “held and firmly bound unto Petrodrill Construction” as owner and obligee, for “the use and benefits of claimants.” A “claimant” is defined in the bond as: “one having a direct contract with the Principal or with a Subcontractor of the Principal for labor, material, or both, used or reasonably required for use in the performance of the Contract, labor and material being construed to include that part of water, gas, power, light, heat, oil, gasoline, telephone service or rental of equipment directly applicable to the Contract.” Friede Goldman began construction of Hull 1829 at its shipyard in Pascagoula, Miss., but eventually elected to complete construction at another shipyard in Orange, Texas. The parties vigorously dispute the cause of the move: FFIC maintains that Friede Goldman merely wanted to “keep that [Texas] yard busy”; Weeks asserts that the move was “necessary,” but offers no further explanation. It is undisputed, however, that all parties (including FFIC) expressly approved the move. In fact, Petrodrill and Friede Goldman agreed to a $3 million increase in the contract price, and FFIC consented to a corresponding increase in the amount of the bond. These modifications were memorialized in “Amendment No. 2″ to the shipbuilding contract. In connection with the move, Friede Goldman subcontracted with Weeks to dredge a slip extension at the Texas shipyard. Weeks completed the dredging work and submitted an invoice to Friede Goldman in the amount of $654,671. To date, Weeks has not been paid for the dredging work; Friede Goldman filed for Chapter 11 bankruptcy protection several months after Weeks completed the dredging and is not a party to this suit. Shortly after Friede Goldman filed for bankruptcy protection, Weeks filed suit against FFIC, invoking diversity jurisdiction and alleging that FFIC, as surety, is liable for the “labor performed and materials furnished” to Friede Goldman in connection with its performance of the shipbuilding contract. FFIC denied liability and the parties filed cross-motions for summary judgment. The district court granted FFIC’s motion, concluding that “making FFIC pay Weeks would not serve the Bond’s overriding purpose of preventing the attachment of liens to Petrodrill’s new vessel.” Weeks appeals the denial of its motion and the grant of FFIC’s motion. HOLDING: Reversed and remanded. Resolution of this contract dispute rests on the plain language of the bond and the uncontroverted record evidence. Under the bond, a “claimant” is “one having a direct contract with the Principal [Friede Goldman] . . . for labor, materials or both, used or reasonably required for use in the performance” of the shipbuilding contract. The parties do not dispute that Weeks had a direct contract with Friede Goldman or that Weeks provided “labor.” Rather, FFIC contends that the labor Weeks provided was not used “in the performance of the contract.” In support of summary judgment, Weeks submitted the affidavit of Friede Goldman officer John Haley who stated that “[t]he labor and materials provided by Weeks” were “required by [Friede Goldman] for the performance and completion of Hull 1829.” FFIC submitted no contradictory evidence on this crucial point. FFIC itself acknowledged (in a letter to Weeks’ counsel denying the claim) that the dredging was “required in order to fulfill [Friede Goldman]‘s obligation under the [Petrodrill] contract.” Most importantly, all of the parties, including FFIC, expressly contemplated the move before it took place, explicitly acceded to it, and increased the purchase price and bond accordingly, as documented in Amendment No. 2. Whether the move was necessary, or even prudent, is irrelevant; it was unquestionably made “in performance of the contract.” Finding little support in the express terms of the bond, FFIC relies on cases arising under the Miller Act and analogous state statutes to support its argument that dredging is a capital improvement and is not encompassed by a standard labor and material bond. Under these cases, “material” includes “things which will be incorporated into the project itself, such as steel beams, brick, window frames, flooring and roofing.” “Materials” also includes products that are not ultimately integrated into the project, but that are “reasonably expected to be consumed, or substantially consumed, in the performance of the work.” Thus, capital equipment, including items that can be removed and used on subsequent projects, are not “materials”; only those consumable items that will “have no utility or economic value to the contractor after the completion of the work” are covered under statutory bonds as “materials.” FFIC’s reliance on these authorities is misplaced for several reasons. First, and most importantly, Weeks is seeking payment for “labor,” not “materials.” Weeks agrees that the pipes, tools, and heavy machinery used to dredge the slip are not “materials” covered by the bond; Weeks only seeks payment for labor, and then only labor that was “used or reasonably required for use” in Friede Goldman’s performance of the shipbuilding contract. Perhaps understandably, FFIC largely ignores this fundamental distinction. Second, even if the court accepted FFIC’s capital-improvement argument, the competent summary judgment evidence reveals that Weeks’ dredging was not a capital improvement to Friede Goldman’s shipyard. In a supplemental affidavit, Friede Goldman officer John Haley stated that the slip at issue began to fill with silt within 10 months following Weeks’ dredging. Haley further stated that the slip will “likely have to be dredged again” if Friede Goldman undertakes a project of similar scale. Thus, Weeks’ summary judgment evidence reflects that the dredging to extend the existing slip was largely “consumed” during the construction of Hull 1829 and would not likely last more than one year. The only evidence that FFIC proffered in support of its argument is the affidavit of FFIC claims adjuster Fred Applewhite, who stated conclusionally that “[m]aking a slip at a shipyard bigger by constructing a slip extension . . . is a capital improvement to [Friede Goldman]‘s yard and clearly of a nature as to be available for use . . . for all of [Friede Goldman]‘s projects.” On close examination, however, it is obvious that Applewhite’s affidavit is merely a reiteration of FFIC’s legal argument, i.e., that dredging is always a capital improvement. Notably, Applewhite’s affidavit is bereft of any explanation or reasoning as to how he reached this bald conclusion. It never even indicates that he personally inspected the slip. Weeks, unlike the suppliers in the cases that FFIC cites, does not seek payment for pipes, machinery, tools, or equipment of any kind. The uncontroverted record evidence conclusively establishes that Weeks provided labor that was “used” in performance of the shipbuilding contract. The bond, drafted by FFIC, requires no more. OPINION: Wiener, J.; Jolly, Wiener and Barksdale, JJ.

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