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1 DISTRICT COURT OF THE VIRGIN ISLANDS 1 DIVISION OF ST. CROIX 2 3 GEC, LLC Plaintiff, -v.- ARGONAUT INSURANCE COMPANY Defendant. 1:18-cv-58-CAK OPINION AND ORDER 4 MEMORANDUM OPINION AND ORDER 5 CHERYL ANN KRAUSE, Circuit Judge, sitting by designation. 6 THIS MATTER comes before this Court on Defendant’s Motion for 7 Reconsideration (Dkt. No. 126) of this Court’s Memorandum Opinion and Order denying 8 Defendant’s Motion to Dismiss (Dkt. No. 26). For the reasons set forth below, the Court 9 will GRANT Defendant’s Motion for Reconsideration in part. The Court agrees that a full 10 Banks analysis is appropriate in determining whether to adopt the majority rule set out in 11 the Restatement concerning consequential damages. As set forth below, however, that 12 analysis does not change the Court’s decision to deny Defendant’s Motion to Dismiss. 13 Accordingly, an amended opinion denying Defendant’s Motion to Dismiss will be filed 14 concurrently with this opinion and order. The Court will DENY Defendant’s Motion for 15 Reconsideration in all other respects. 16 Argonaut is correct that the Court adopted the majority rule set out in the 17 Restatement referencing consequential damages without conducting a full Banks analysis. 18 The Court’s amended opinion, filed concurrently with this order, incorporates that analysis. 19 Case: 1:18-cv-00058-CAK-EAH Document #: 130 Filed: 08/28/23 Page 1 of 4 2 Argonaut also is correct that, post-Banks, Virgin Islands courts are no longer “strictly 20 bound” by the American Law Institute’s interpretations in the Restatements under § 4 of 21 Title 1 of the Virgin Islands Code. Banks v. Int’l Rental & Leasing Corp., 55 V.I. 967, 984 22 (2011). But the Restatement rule, that consequential damages for breach of contract are 23 available from sureties like Argonaut where the instrument does not bar them, still emerges 24 as the governing rule here after a Banks analysis: 25 Per Banks, this Court must (1) research whether Virgin Islands courts have 26 articulated an on-point rule, (2) analyze what the majority of other courts do, and then 27 (3) determine “most importantly, which approach represents the soundest rule for the 28 Virgin Islands.” Simon v. Joseph, 59 V.I. 611, 623 (V.I. 2013). 29 First, this Court and the parties have not identified Virgin Islands authority on the 30 availability of consequential damages for breach of contract by a surety where the 31 underlying instrument is silent on the issue. Second, while Argonaut has identified at least 32 one jurisdiction that it contends limits a surety’s liability to only consequential damages 33 expressly provided for, see Wise Invs., Inc. v. Bracy Contracting, Inc., 232 F. Supp. 2d 34 390, 403 (E.D. Pa. 2002); Downingtown Area Sch. Dist. v. Int’l Fid. Ins. Co., 769 A.2d 35 560, 566 (Pa. Commw. Ct. 2001), many other jurisdictions embrace the Restatement’s rule 36 permitting such damages even where the contract does not mention it, see, e.g., In re New 37 Bern Riverfront Dev., LLC, 521 B.R. 718, 723 (E.D.N.C. 2014); Marshall Contractors, 38 Inc. v. Peerless Ins. Co., 827 F. Supp. 91, 95 (D.R.I. 1993); Hunt v. Bankers and Shippers 39 Ins. Co. of N.Y., 73 A.D.2d 797, 798 (N.Y. App. Div. 1979); Cont’l Realty Corp. v. Andrew 40 J. Crevolin Co., 380 F. Supp. 246, 252 (S.D.W. Va. 1974). And while the Virgin Islands 41 Case: 1:18-cv-00058-CAK-EAH Document #: 130 Filed: 08/28/23 Page 2 of 4 3 courts have not picked a side in this debate, they have made clear that, as a general rule, 42 parties can recover damages for “consequential loss [] caused by [a contract] breach.” 43 Creative Minds, LLC v. Reef Broad., Inc., No. ST-11-CV-131, 2014 WL 4908588, at *7 44 n.36 (V.I. Super. Sept. 24, 2014) (citation omitted). 45 The only question, then, is whether suretyship presents a different posture such that 46 this general rule should take flight. Having surveyed the relevant authority, I again 47 conclude that it should not, and, where not explicitly bargained for in a suretyship contract, 48 consequential damages are available in cases alleging a breach of the implied covenant of 49 good faith and fair dealing. Even courts that acknowledge that “a performance bond is not 50 intended to compensate for indirect losses” note that a surety’s “own alleged breach of [a] 51 performance bond” can give rise to liability beyond the bond’s penal sum. Marshall 52 Contractors, 827 F. Supp. at 95; see also Associated Constr./AP Constr., LLC v. Hanover 53 Ins. Co., No. 3:15-cv-1600 (MPS), 2018 WL 3998968, at *14 (D. Conn. Aug. 21, 2018) 54 (“[A] surety’s liability for the breach of a contract[], i.e., a surety’s exposure when the bond 55 is triggered and the surety performs its obligations under the bond, is distinct from a 56 surety’s liability when it breaches the terms of the bond.”); In re New Bern, 521 B.R. at 57 723 (“Unlike a surety’s liability for breach of its derivative obligations, absent express or 58 implied language in the bond, a surety’s liability for breach of its non-derivative, direct 59 obligations may not be limited to the terms of the bond.”). 60 Much of this analysis was present in this Court’s original opinion denying 61 Argonaut’s motion to dismiss, and this Court will publish an amended opinion with a full 62 Banks analysis per the above. 63 Case: 1:18-cv-00058-CAK-EAH Document #: 130 Filed: 08/28/23 Page 3 of 4 4 CONCLUSION 64 For the reasons discussed above, the Court GRANTS Defendant’s Motion for 65 Reconsideration in part and DENIES the motion in part. 66 SO ORDERED. 67 Dated: August 28, 2023 /s CHERYL ANN KRAUSE United States Circuit Judge 68 Case: 1:18-cv-00058-CAK-EAH Document #: 130 Filed: 08/28/23 Page 4 of 4