# Cornerstone Pavers, LLC v. Zenith Tech, Inc.

> United States Bankruptcy Court, E.D. Wisconsin · September 7, 2023

URL: https://www.frixlaw.com/law-library/cases/10463369

## Case

- **Court:** United States Bankruptcy Court, E.D. Wisconsin
- **Decided:** September 7, 2023
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

By ah ae
So Ordered.
MOTE
Dated: September 7, 2023
Wl. A——~
. Michael Halfenger
Chief United States} Bankruptcy Judge

UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF WISCONSIN

In re:
Cornerstone Pavers, LLC, Case No. 20-20882-gmh
Chapter 11
Debtor.

Cornerstone Pavers, LLC,
Plaintiff,

v. Adv. Proc. No. 21-02044-gmh
Zenith Tech Inc.,
Defendant.

OPINION AND ORDER ON (1) CORNERSTONE PAVERS, LLC’S MOTION FOR
SUMMARY JUDGMENT AND (2) WEST BEND MUTUAL INSURANCE
COMPANY’S SECOND MOTION FOR SUMMARY JUDGMENT

After Zenith Tech Inc. was hired by the Wisconsin Department of Transportation
(DOT) to complete a highway-construction project, it subcontracted with Cornerstone

Pavers, LLC, to perform some of the work. Before the subcontracted work was
completed, Zenith terminated Cornerstone and replaced it with another subcontractor.
Cornerstone later commenced the underlying bankruptcy case and this adversary
proceeding, seeking to recover damages from Zenith for breach of the subcontract and
the duty of good faith and fair dealing. Zenith counterclaimed on the same grounds.
Zenith also seeks to recover from West Bend Mutual Insurance Company on a
bond that West Bend allegedly issued to insure the performance of the subcontract
(whether by Cornerstone or, as Zenith maintains became necessary here, by someone
else). West Bend denies all liability under the bond. West Bend sought summary
judgment against Zenith, and the court denied that motion more than a year ago,
concluding that West Bend had failed to show that it was entitled to judgment as a
matter of law on any of the stated grounds, based on the uncontested facts.
Cornerstone now moves for summary judgment against Zenith, asserting that
Zenith materially breached the subcontract when it terminated Cornerstone without
giving it notice of default and a full opportunity to cure. And West Bend moves for
summary judgment against Zenith for a second time, similarly asserting that Zenith’s
failure to comply with certain notice requirements of the bond was either a material
breach of the bond’s term or otherwise released West Bend from its obligations under
the bond. For the following reasons, both motions for summary judgment are denied.
I
The same, familiar standard applies to both Cornerstone’s and West Bend’s
motions for summary judgment against Zenith. “The court shall grant summary
judgment if the movant shows that there is no genuine dispute as to any material fact
and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a); see Fed.
R. Bankr. P. 7056 (“Rule 56 F.R.Civ.P. applies in adversary proceedings . . . .”). Under
this standard, a fact is material if a dispute about it “might affect the outcome of the suit
under the governing law”. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). And a
factual dispute is genuine “if the evidence is such that a reasonable jury could return a
verdict for the nonmoving party.” Id. “The inquiry performed is the threshold inquiry
of determining whether there is the need for a trial—whether, in other words, there are
any genuine factual issues that properly can be resolved only by a finder of fact because
they may reasonably be resolved in favor of either party.” Id. at 250.
II
Cornerstone argues that, based on uncontested facts, it is entitled to judgment as
a matter of law because Zenith materially breached the subcontract when it terminated
Cornerstone and hired another subcontractor to complete the work. In support of this
argument, Cornerstone points to an exchange of emails that occurred around the time
Zenith terminated Cornerstone in July 2019. Zenith responds that the parties’ emails at
most show that there are genuine issues of material fact as to whether it terminated
Cornerstone in compliance with the subcontract.
A
The senders and main recipients of the correspondence in question were Chad
Shihata of Zenith, Chris Cape of Cornerstone, and Charles Krummel of the DOT. For
the sake of clarity, this opinion refers to these individuals by their respective
institutions, rather than by their names.
On Thursday, July 18, 2019, the DOT sent Zenith an email, to which the DOT
attached a “letter noting . . . numerous concrete pavement and concrete ancillary
deficiencies on the project.” ECF No. 133-4, at 5. The DOT’s letter lists fourteen such
“deficiencies caused by . . . Cornerstone”, including “[f]requent equipment
breakdowns”, “[t]wo separate instances . . . while slip-form paving in which the
concrete pavement was installed poorly enough that removal and replacement were
completed”, and “[p]avement installed approximately 2" to 3" higher than plan grades”.
Id. at 6. The letter states that “[t]he issues are affecting [the] schedule” for the project
and that the DOT is “not certain what partnering initiatives the department can offer to
advance [the] schedule and lesson [sic] the assessment of liquidated damages . . . [i]f the
. . . [listed] deficiencies continue.” Id. The letter concludes, “Per standard specification
105.3.2.2 this is Unacceptable Work. Please have your contractor correct these issues
immediately to avoid future engineer ordered suspensions of work and an order to
completely remove and replace the work that is unacceptable.” Id. at 7.
Later the same day, Zenith sent an email directing Cornerstone to “[s]ee the
attached letter received . . . from DOT.” Id. at 4. Zenith’s email then lists eight
“locations” where “the department” had requested that concrete work by Cornerstone
“be removed and replaced”, noting that “[p]roject staff has photos of deficiencies
justifying the request” and detailing the issues with the work at each listed location. Id.
Zenith’s letter concludes, “As there are major concerns that conforming material/work
can be performed, Zenith Tech is directing you to correct your work immediately under
section 3.4 of subcontract agreement, Correction of Work, before commencing with
further placement of concrete.” Id. at 5.
The following day, Zenith emailed Cornerstone again “to address . . . issues”
related to the “subcontract agreement” that had apparently arisen during discussions
earlier that day. Id. at 2. That email cites specific provisions of the subcontract—namely,
sections 3.4, 12.1, 12.2, and 23.1—and describes how, in Zenith’s view, each applied
with respect to the previously identified deficiencies in Cornerstone’s work. The email
then notes that, since Zenith’s email the previous day, Cornerstone had “proceeded
with placement of concrete . . . after being directed not to”, “made marginal attempt to
begin removal operations as directed”, “focused . . . on preparing for placement of
concrete on Monday”, and “contacted various parties . . . in an attempt to be relieved of
direction provided.” Id. at 3. The email then states that, following a discussion with the
DOT and to avoid a “potential . . . suspension of work” due to “concerns” described by
the DOT to Cornerstone at a meeting that day, Zenith “committed to removing deficient
pavement and curb placed.” Id. The email concludes, in relevant part:
Again, for reasons listed below and above, you will not proceed with
any placement of concrete until you have removed all concrete outlined by
the DOT and directed by both DOT and [Zenith]. You will perform this
work vigorously until complete and resume concrete placement as directed
by [Zenith] per [sections] 3.3 and 23.1 [of the subcontract].”
Id.
Exactly 24 hours later (on Saturday, July 20, 2019), Cornerstone sent Zenith an
email describing Cornerstone’s understanding of what the DOT had said at a meeting
earlier that week, what Cornerstone had said in response, and what Cornerstone had
since “learned”. Id. at 1. That email concludes with an objection to Zenith’s demand for
the removal and replacement of certain work by Cornerstone, citing an apparent
reasonableness requirement in section 3.4 of the subcontract (“Correction of Work”):
Removal and replacement is not reasonable given no standard has been
provided that the pavement violates[;] there is no standard that disallows
the placement of thicker pavement than planned given all drainage, safety,
and ADA requirements are maintained. No standard for correction has
been provided to Cornerstone likely due to the fact the pavement is not out
of tolerance and in fact is at the same approximate slope of the preexisting
pavement and according to WisDOT is at the same slope as other new
pavement on the project.
Cornerstone is respectfully objecting to your direction to remove and
replace the pavement in question and asks you to reconsider your position
or we request to appeal your decision . . . . If Cornerstone is not allowed to
appeal your decision, Cornerstone fully holds Zenith Tech accountable and
will bill Zenith Tech for all costs and other damages related to its improper
direction.
Id.
On Monday, July 22, 2019, Zenith sent Cornerstone a letter terminating the
subcontract. The termination letter invokes section 3.3 of the subcontract (“Failure to
Perform”), explains that Cornerstone breached the subcontract by “fail[ing] to perform
its obligations [under] the Subcontract vigorously or . . . at all”, and lists seven
“reasons” why, “[f]rom the beginning of this Project, Cornerstone’s performance” was
“unsatisfactory at best . . . , including but not limited to” that Cornerstone insisted on
“debating non-issues”, failed “to show any sense of urgency . . . to meet the project
schedule”, and did not “removed defective work pursuant to section 3.4” as directed.
ECF No. 133-5, at 1. The termination letter also cites section 23.2 of the subcontract as
authority for Zenith “taking over ownership of materials . . . on-site and . . . yet to be
delivered” and “invoke[s] its right under Subcontract [section] 4.11 to pay for materials
either by joint check or directly.” Id. at 1–2.
B
Cornerstone argues that it is entitled to judgment against Zenith as a matter of
law because the record makes clear—i.e., Zenith cannot and does not genuinely
dispute—that Zenith terminated the subcontract without giving Cornerstone proper
notice of default and a full opportunity to cure as the subcontract required.
1
Cornerstone asserts that the sole source of Zenith’s authority to terminate the
subcontract was section 23.2 of the subcontract, which provides, in relevant part,
“Contractor [i.e., Zenith] may terminate this Agreement for cause if Subcontractor [i.e.,
Cornerstone] fails to cure a default within three (3) days of Contractor’s written notice
of the default to Subcontractor.” ECF No. 133-3, at 11. Cornerstone argues that Zenith’s
July 18 email cannot be read as a written notice of default for purposes of section 23.2 of
the subcontract. According to Cornerstone, that email can only reasonably be read as a
demand, under section 3.4 of the subcontract, that Cornerstone correct certain work,
and a suspension of Cornerstone’s other work pending those corrections, as permitted
by section 23.1 of the subcontract. See ECF No. 133, at 5 (“Nothing in [Zenith’s July 18
and 19] communications declares Cornerstone in default of the Subcontract Agreement
or notifies Cornerstone that Z[enith] intends to terminate the Subcontract Agreement.”).
Zenith disagrees, asserting that it “provided written notice of Cornerstone’s
default in the form of a demand to correct defective work on July 18, 2019, and
Cornerstone failed to timely cure its default by removing and replacing all ‘improper or
defective Work’ by Monday, July 22, 2019.” ECF No. 136, at 2 (footnote omitted). In
other words, Zenith contends that its July 18 email was a written notice of default under
section 23.2 of the subcontract and Cornerstone’s failure to cure the identified defaults
within the allotted three-day period permitted Zenith’s termination of the subcontract.
Zenith also argues that its termination of the subcontract was proper under
section 3.4 of the subcontract, which reads in relevant part as follows:
Correction of Work: In the event that any part of the Work or any
material is determined by Contractor . . . to be improper or defective during
the actual performance of the Work, Subcontractor shall, at its expense,
repair and/or replace, at Contractor’s reasonable option, improper or
defective Work and any damages caused thereby within three (3) days of
Contractor’s demand to correct the same. If Subcontractor fails to comply
with its obligations under the Contract Documents, and the failure is not
corrected within three (3) days after Contractor’s demand, then Contractor
may, without prejudice to any other right or remedy it may have, either
terminate this Agreement for cause and take over and complete the Work
at the expense of Subcontractor, or without terminating this Agreement,
take over the Work or any portion thereof and cure such default. . . .
ECF No. 133-3, at 6. Zenith emphasizes that its July 18 email identified numerous
instances of Cornerstone’s work that the DOT and Zenith had determined to be
improper or defective. And that email ends with a clear invocation of section 3.4 of the
subcontract. See ECF No. 133-4, at 5. Because “Cornerstone . . . fail[ed] to correct [the]
Work and cure the default at least three days after Z[enith] demanded corrections”,
Zenith asserts, it “properly terminated Cornerstone for cause” under section 3.4 of the
subcontract. ECF No. 136, at 7.
Finally, Zenith argues that its termination of the subcontract was proper under
section 3.3 of the subcontract, which reads in relevant part as follows:
Failure to Perform: . . . [I]f Subcontractor does not prosecute the Work
vigorously, as reasonably determined by Contractor, Contractor will take
over the Work and complete it, either by performing the Work itself or re-
letting all or any part of the Work. . . .
ECF No. 133-3, at 5. Zenith contends that Cornerstone “fail[ed] to vigorously correct
[the] Work” identified by Zenith and the DOT on July 18, so it “was within its rights to
terminate Cornerstone” under section 3.3 of the subcontract. ECF No. 136, at 11.
In reply, Cornerstone acknowledges that Zenith’s July 18 demand to correct
“claimed deficiencies in Cornerstone’s work” was permitted by section 3.4, and
Cornerstone does not suggest that it can show as a matter of law that it timely made the
requested corrections. See ECF No. 141, at 3 & 5. It instead argues that because Zenith’s
July 18 notice referred only to section 3.4 of the subcontract, Zenith impermissibly relied
on section 3.3 of the subcontract as the basis for termination in its July 22 letter. See id.
at 4. Cornerstone argues, in the alternative, that if Zenith is entitled to defend the
propriety of its termination based on section 3.4 of the subcontract, the court should
prohibit Zenith from doing so at trial on any grounds other than the alleged deficiencies
in Cornerstone’s work listed in its July 18 email. Id. at 5–6.
2
The record does not allow the court to conclude, based on the undisputed facts,
that Zenith improperly terminated the subcontract. There are several reasons for this.
First, even if Zenith’s termination letter is construed such that only section 3.3 of
the subcontract may be invoked to justify its termination of Cornerstone, the record
does not foreclose Zenith’s ability to make that showing. Section 3.3 permits
“Contractor” to “take over the Work and complete it, either by performing the Work
itself or re-letting all or any part of the Work”, “if Subcontractor does not prosecute the
Work vigorously, as reasonably determined by Contractor”. ECF No. 133-3, at 5. The
termination letter, citing section 3.3, states that “Cornerstone . . . failed to perform its
obligations [under] the Subcontract vigorously”. ECF No. 133-5, at 1. And there seems
to be no dispute that Zenith, having determined that Cornerstone had so failed, “re-let[]
all . . . of the Work”, as section 3.3 allows. ECF No. 133-3, at 5. Whether Zenith
“reasonably determined” that Cornerstone did not “prosecute the Work vigorously” is
another matter. Id. (emphasis added). But that is a matter for trial, as the record before
the court does not foreclose the possibility that Zenith’s determination was reasonable,
or that it could prove at trial that it was. Moreover, section 3.3 may well have allowed
Zenith to terminate the contract—i.e., “take over the Work”—without any notice to
Cornerstone. ECF No. 133-3, at 5.
Second, even if one reads the subcontract such that Zenith could only terminate
it by complying with section 23.2, genuine disputes of material fact remain as to
whether Zenith did so. Section 23.2, as noted above, provides that “Contractor may
terminate this Agreement for cause if Subcontractor fails to cure a default within three
(3) days of Contractor’s written notice of the default to the Subcontractor.” ECF
No. 133-3, at 11. Although Cornerstone argues that Zenith’s July 18 email was only a
demand to correct work under section 3.4 of the subcontract, that communication can
reasonably be construed as also providing written notice of default for purposes of
section 23.2. The July 18 email begins by directing Cornerstone to the DOT’s July 18
letter to Zenith, a copy of which was attached to that email. Again, the DOT letter
begins, “The department has noted numerous concrete pavement and concrete ancillary
deficiencies caused by your sub-contractor, Cornerstone Pavers, LLC.” ECF No. 133-4,
at 6. It continues, “The issues are affecting your schedule. . . . [W]e are not certain what
partnering initiatives the department can offer to advance your schedule and less[e]n
the assessment of liquidated damages past the completion date . . . if the following
deficiencies continue.” Id. “[T]he following” is a fourteen-item list of purported
deficiencies, after which the letter states, “Per standard 105.3.2.2 this is Unacceptable
Work. Please have your contractor correct these issues immediately to avoid future
engineer ordered suspensions of work and an order to completely remove and replace
the work that is unacceptable.” Id. at 6–7. Cornerstone has not shown that Zenith’s
July 18 email cannot reasonably be construed as written notice, pursuant to section 23.2,
of the deficiencies listed in the DOT’s letter, as well as those specified in the email itself,
to which the DOT’s letter was attached. And the second sentence of Zenith’s email,
describing confirmation from the DOT that the identified work would “need to be
removed and replaced”, can reasonably be read to mean that the email’s list of locations
where Cornerstone was directed to remove and replace work was provided “to avoid
future engineer ordered suspensions of work and an order to completely remove and
replace the work that is unacceptable”, not to excuse other deficiencies listed by the
DOT, such as “[f]requent equipment breakdowns” and “[i]nconsistent and slow
delivery of ready-mix concrete during slip-form paving operations forcing start and
stop situations of the paving machine”. Id. at 4 & 6–7. Cornerstone has not shown that
these alleged deficiencies could not reasonably be found to constitute defaults under
section 23.2 of the subcontract or, for that matter, failures to prosecute the work
vigorously under section 3.3.
Third, even if one were to construe Zenith’s July 18 email as a notice of only the
issues specifically listed in the email’s text, Cornerstone still has not shown that the
record forecloses a reasonable finding at trial that Zenith permissibly terminated the
contract on July 22. Section 3.4 of the subcontract, quoted above, required Cornerstone
to “repair and/or replace” any “improper or defective Work and any damages caused
thereby within three (3) days of [Zenith’s] demand to correct same.” ECF No. 133-3, at 6.
That section further provides that upon Cornerstone’s failure to correct that work
within that period, Zenith could, “without prejudice to any other right or remedy it
may have [had], . . . terminate [the] Agreement”. Id. Again, Cornerstone does not
contend that the record establishes that it corrected all of the defects identified in the
July 18 email within three days (or at all, since it was terminated on the fourth day). It
instead argues that Zenith cannot justify termination under section 3.4 because its
termination letter cites sections 3.3 and 23.2. But Cornerstone points to nothing in the
subcontract, the parties’ course of dealing, or any other possible evidence that forecloses
the conclusion that termination under section 3.4 constitutes a breach if the termination
letter refers to section 3.3, rather than 3.4. (And this argument, of course, ignores that
the termination letter does cite section 3.4, specifically describing Cornerstone’s failure
“to remove defective work pursuant to section 3.4” as one of the reasons that
“Cornerstone’s performance” was “unsatisfactory as best”. ECF No. 133-5, at 1.)
Regardless, nothing in the contract or elsewhere in the summary judgment record
establishes, as a matter of law, that a failure to timely correct an identified defect under
section 3.4 cannot also amount to a failure to “prosecute the Work vigorously”, thus
grounds for Zenith to terminate the subcontract under section 3.3.
For all of these reasons, Cornerstone has not established the absence of all
genuine disputes of material fact with respect to whether Zenith properly terminated
the subcontract on July 22, 2019.1 Nor has Cornerstone shown grounds for limiting

1. The conclusion that the record does not establish that Zenith’s termination of the
subcontract constitutes a breach is not inconsistent with Ashker v. Aurora Med. Group, Inc., 841 N.W.2d
297, 299 (Wis. App. 2013), the sole Wisconsin case applying Wisconsin law that Cornerstone cites in
moving for summary judgment. (The parties’ summary-judgment submissions do not expressly address
choice of law, but they appear to presume that Wisconsin law governs. Section 30.7 of the subcontract
oddly provides, “This Agreement shall be governed by and construed pursuant to the laws of the
jurisdiction wherein the Project is located, unless a more convenient location is otherwise mutually
agreed upon.” ECF No. 133-3, at 13. The project is in Wisconsin, and no one has suggested that “a more
convenient location [was] mutually agreed upon.” Id.) In Ashker, the defendant invoked a for-cause
termination provision, even though it had not given the plaintiff written notice of the breach and 30 days
to cure, as the contract required, instead defending that the plaintiff’s breach was incurable, an argument
the courts rejected. As explained above, the subcontract here does not clearly require Zenith to give notice
and time to cure all grounds for termination in all instances. Section 3.3 of the subcontract at issue may be
understood to allow termination without notice if, among other things, Cornerstone “d[id] not prosecute
the Work vigorously, as reasonably determined by Contractor”, id. at 5, and the record does not foreclose
the possibility that Zenith will prove that it properly terminated the subcontract on those grounds.
Finally, while sections 3.4 and 23.2 of the subcontract contain notice-and-cure requirements, the record
Zenith’s ability to justify its termination of the contract based on evidence it may
present at trial. The admissibility of any such evidence, whether on relevance grounds
or otherwise, is not a matter properly decided under Rule 56 on this record. That is a
matter to be addressed, if at all, at trial.

does not establish that no reasonable fact finder could find that Zenith provided the requisite notice and
opportunity to cure under those sections.
This conclusion is also consistent with Virgin Pulse Inc. v. Schneider Enterprise Resources LLC,
No. 20-C-1691, 2022 WL 4328681 (E.D. Wis. Sept. 19, 2022), which Cornerstone also cites in support of its
motion, arguing that Zenith was required to “notify Cornerstone of the specific grounds for declaring a
default, rather than merely providing some vague communication regarding dissatisfaction with
Cornerstone’s performance.” ECF No. 133, at 6 (citing Virgin Pulse, 2022 WL 4328681, at *6). But the
communication at issue in Virgin Pulse “merely outlined an agenda and discussion items for a meeting
between the parties.” 2022 WL 4328681, at *6; see id. at *2 (describing this as an email sent, “[p]rior to the
meeting, . . . to set an agenda and to provide relevant questions that needed answering at the meeting”).
The court in Virgin Pulse determined that “[n]o reasonable jury could conclude that [this] email served as
a notice of default or triggered” the applicable “21-day period to cure.” Id. at *6. The same is not true here.
As already discussed, Zenith’s July 18 email, with the DOT’s July 18 letter attached, detailed numerous
issues with Cornerstone’s performance and a variety of consequences that could result if those issues
were not promptly corrected, including schedule delays and liquidated damages. These communications
were hardly “vague” expressions of “dissatisfaction with Cornerstone’s performance.” ECF No. 133, at 6.
At the least, as already stated, a reasonable fact finder could find that Zenith’s July 18 email was an
effective written notice of default for purposes of section 23.2 of the subcontract at issue here.
Virgin Pulse also addresses a party’s argument, in response to a breach-of-contract claim, that “it
was not required to give . . . an opportunity to cure because the breach was ‘incurable.’” 2022 WL
4328681, at *5. Zenith cites this portion of Virgin Pulse in support of an argument, in the alternative: that
assuming its July 18 email was an effective written notice of default for purposes of section 23.2 of the
subcontract and if Cornerstone were to successfully argue that July 21, 2019, should not be counted as
part of Cornerstone’s three-day cure period (because it was a Sunday)—which would, perhaps, mean that
Zenith sent its July 22 termination letter some portion of a day too soon—Zenith should still prevail
because, based on Cornerstone’s own conduct, by the time Zenith sent Cornerstone the termination letter,
“it would have been physically impossible for Cornerstone to complete its corrective Work” within
whatever remained of the time to cure. See ECF No. 136, at 11–12 (asserting that, as of July 22, 2019, when
Zenith terminated the subcontract, “Cornerstone’s breach was logically incurable”). This issue has no
bearing on the court’s resolution of Cornerstone’s motion for summary judgment against Zenith. For one
thing, Cornerstone does not argue that Sunday, July 21, 2019, should not count toward the three-day cure
period if Zenith had sent proper written notice of default to trigger that period. (Zenith may shadowbox,
if it likes, but the court need not referee.) For another, the issue of the curability of any relevant default is
only material if Cornerstone proves that Zenith denied Cornerstone the notice and opportunity to cure to
which the subcontract entitled it. Cornerstone may do that at trial. Until and unless it does so, however,
the issue is too attenuated from the matter at hand to warrant judicial consideration and resolution.
III
For the second time in this proceeding, West Bend moves for summary judgment
against Zenith. Zenith seeks to recover from West Bend on a bond allegedly issued by
West Bend to insure the performance of the subcontract between Cornerstone and
Zenith. West Bend denies any liability to Zenith on the bond. West Bend first moved for
summary judgment against Zenith in December 2021, asserting that the bond it issued
does not insure the performance of the subcontract that Zenith and Cornerstone
executed and, if it does, that Zenith failed to satisfy the conditions precedent to West
Bend’s liability under the bond. The court denied that motion in July 2022.
In May 2023 West Bend sought leave to file a second motion for summary
judgment against Zenith, based on evidence obtained during discovery, namely the
November 2022 deposition testimony of Cecelia McCormack, one of Zenith’s lawyers.
The court held a status conference and granted West Bend leave to file another motion
for summary judgment against Zenith. Based on a thorough review of the record, that
decision was improvident, and the court would be justified in reconsidering it.
Nevertheless, as West Bend’s second motion for summary judgment has been presented
and the court can decide that motion without imposing upon Zenith the costs of
opposing it, the court will do so. For the reasons set forth below, the motion is denied.
A
As was true when the court considered West Bend’s first motion for summary
judgment against Zenith, for the most part, West Bend and Zenith do not dispute what
happened here, and the material facts are much the same: After Zenith entered into a
highway-construction contract with the DOT, it sought to hire Cornerstone as a
subcontractor to do some of the required work. West Bend then issued a bond insuring
the performance of an agreement between Zenith and Cornerstone (or at least West
Bend does not dispute this for purposes of the current motion). Soon after, Zenith and
Cornerstone executed a subcontract and work began. Months later Zenith fired
Cornerstone and hired a replacement subcontractor without first giving West Bend
notice and the opportunity to complete the subcontracted work itself, arrange for the
completion of the work, or otherwise act (or decline to act) as described in the bond.
Zenith later made a demand on the bond, and West Bend denied all liability, citing this
lack of notice, among other things.
1
As mentioned above, West Bend’s first motion for summary judgment against
Zenith was based in large part on Zenith’s asserted failure to satisfy the conditions
precedent to West Bend’s liability under the bond. As discussed in the decision and
order denying that motion, the conditions precedent to West Bend’s liability are set
forth in section 3 of the bond. See ECF No. 82, at 9–12. That section reads as follows:
§ 3 If there is no Owner Default under the Construction Contract, the
Surety’s obligation under this Bond shall arise after
.1 the Owner first provides notice to the Contractor and the
Surety that the Owner is considering declaring a Contractor
Default. Such notice shall indicate whether the Owner is
requesting a conference among the Owner, Contractor and
Surety to discuss the Contractor’s performance. If the Owner
does not request a conference, the Surety may, within five (5)
business days after receipt of the Owner’s notice, request such
a conference. If the Surety timely requests a conference, the
Owner shall attend. Unless the Owner agrees otherwise, any
conference requested under this Section 3.1 shall be held
within ten (10) business days of the Surety’s receipt of the
Owner’s notice. If the Owner, the Contractor and the Surety
agree, the Contractor shall be allowed a reasonable time to
perform the Construction Contract, but such an agreement
shall not waive the Owner’s right, if any, subsequently to
declare a Contractor Default;
.2 the Owner declares a Contractor Default, terminates the
Construction Contract and notifies the Surety; and
.3 the Owner has agreed to pay the Balance of the Contract Price
in accordance with the terms of the Construction Contract to
the Surety or to a contractor selected to perform the
Construction Contract.
ECF No. 71-11, at 2; see also id. at 1 (identifying Cornerstone as “Contractor”, Zenith as
“Owner”, and West Bend as “Surety”); ECF No. 82, at 9.
As the record made clear, and Zenith conceded, it did not comply with the
requirements of section 3.1 of the bond. But, pursuant to section 4 of the bond, “except
to the extent that the Surety demonstrates actual prejudice”, “[f]ailure on the part of the
Owner to comply with the notice requirement in Section 3.1 shall not constitute a failure
to comply with a condition precedent to . . . or release the Surety from its obligations”
under the bond. ECF No. 71-11, at 2. West Bend did not raise actual prejudice resulting
from Zenith’s failure to comply with the requirements of section 3.1 of the bond as part
of its first motion for summary judgment against Zenith. See ECF No. 82, at 12 n.2.
Accordingly, the court considered only whether Zenith satisfied the second and third
conditions precedent to West Bend’s liability under the bond and denied the relevant
part of West Bend’s first motion for summary judgment because, based on the record
then before the court, those conditions were satisfied. ECF No. 82, at 16.
2
So, what has changed? And what does McCormack’s deposition testimony add
to the record that was before the court when West Bend’s first motion for summary
judgment was decided? The answer to both questions is, not much.
West Bend now relies on section 6 and, by extension, section 5 of the bond. Those
sections read as follows:
§ 5 When the Owner has satisfied the conditions of Section 3, the Surety
shall promptly and at the Surety’s expense take one of the following actions:
§ 5.1 Arrange for the Contractor, with the consent of the Owner, to perform
and complete the Construction Contract;
§ 5.2 Undertake to perform and complete the Construction Contract itself,
through its agents or independent contractors;
§ 5.3 Obtain bids or negotiated proposals from qualified contractors
acceptable to the Owner for a contract for performance and completion of
the Construction Contract, arrange for a contract to be prepared for
execution by the Owner and a contractor selected with the Owner’s
concurrence, to be secured with performance and payment bonds executed
by a qualified surety equivalent to the bonds issued on the Construction
Contract, and pay to the Owner the amount of damages as described in
Section 7 in excess of the Balance of the Contract Price incurred by the
Owner as a result of the Contractor Default; or
§ 5.4 Waive its right to perform and complete, arrange for completion, or
obtain a new contractor and with reasonable promptness under the
circumstances:
.1 After investigation, determine the amount for which it may
be liable to the Owner and, as soon as practicable after the
amount is determined, make payment to the Owner; or
.2 Deny liability in whole or in part and notify the Owner, citing
the reasons for denial.
§ 6 If the Surety does not proceed as provided in Section 5 with reasonable
promptness, the Surety shall be deemed to be in default on this Bond seven
days after receipt of an additional written notice from the Owner to the
Surety demanding that the Surety perform its obligations under this Bond,
and the Owner shall be entitled to enforce any remedy available to the
Owner. If the Surety proceeds as provided in Section 5.4, and the Owner
refuses the payment or the Surety has denied liability, in whole or in part,
without further notice the Owner shall be entitled to enforce any remedy
available to the Owner.
ECF No. 127-5, at 27.
West Bend now argues that it is entitled to summary judgment against Zenith
because Zenith never provided the “additional written notice” and demand for
performance described in section 6 of the bond, thereby denying West Bend the
opportunity to act (or waive its right to do so) under section 5 of the bond. As a result,
West Bend asserts, it cannot be deemed in default, and Zenith is not and was not
authorized to enforce any remedy available to it under the bond, including replacing
Cornerstone with another subcontractor.
Even if West Bend is right about all this, however, what prevented it from raising
this argument nearly two years ago when it first moved for summary judgment against
Zenith? As noted above, West Bend points to McCormack’s deposition testimony,
which was taken in November 2022, after the court denied West Bend’s first motion for
summary judgment. At that deposition, as relevant to West Bend’s present motion,
McCormack was asked whether she was “aware of any notice that was sent to West
Bend pursuant to [section] 6 . . . demanding that the surety, West Bend, perform its
obligations under the bond”, and McCormack answered, “No.” ECF No. 127-9, at 11
(28:11–16). But the lack of any such notice is easily inferred from the record that was
before the court when West Bend first moved for summary judgment: West Bend’s list
of purportedly undisputed material facts, in West Bend’s opening brief in support of
that motion, details the communications it received from Zenith about the subcontract
and the bond; Zenith admitted the broad facts about those communications; and
nothing in West Bend’s statement of material facts, Zenith’s response to it, or the record
as a whole suggested that Zenith ever made a written demand under section 6 that
West Bend perform its obligations under section 5 of the bond. See ECF No. 71-38,
at 9–13, ¶¶14–24. More to the point, West Bend certainly knew, long before this
adversary proceeding even started, whether Zenith had ever invoked section 6 to
demand West Bend’s performance of its obligations under section 5 of the bond.
Indeed, West Bend alleged, in September 2021, in its affirmative defenses to Zenith’s
claim on the bond—part of its first substantive filing in this proceeding—that Zenith
“waived its rights under . . . [the] Bond” when it replaced Cornerstone “without making
a timely demand upon West Bend to perform under Section 5 of the Bond”. ECF No. 34,
at 20, ¶31. In sum, it is far from clear what West Bend thinks McCormack’s deposition
testimony added or why it thinks that testimony warranted another dispositive motion.
West Bend could have and should have raised this issue when it first moved for
summary judgment against Zenith, rather than imposing on the court and the parties
the burden of having to consider it on a second such motion, which has only delayed
the resolution of the claims in this proceeding. The court can only assume that West
Bend simply failed to raise this argument on its first motion for summary judgment
and, when that motion failed, manufactured a flimsy pretext for a second bite at the
apple. As already stated, the court would be well within its discretion to reconsider, as
improvidently granted, the prior order allowing West Bend to file its second motion for
summary judgment. But the damage has been done. The court will decide the motion
on the merits without further cost to the parties or delay in the proceedings.
B
West Bend’s latest argument for summary judgment against Zenith is as follows:
Zenith is permitted to exercise its remedies under the bond, including terminating and
replacing the subcontractor, only if West Bend failed to act as described in section 5 of
the bond within seven days after Zenith gave West Bend written notice and a demand
for performance in accordance with section 6 of the bond. West Bend maintains that,
when Zenith replaced Cornerstone with another subcontractor without notice to West
Bend and without giving West Bend an opportunity to act as described in section 5 of
the bond, Zenith either (1) waived its right to enforce its remedies under the bond or
(2) materially breached the bond’s terms, releasing West Bend from any further
obligations under it. See ECF No. 127, at 3–5.
1
This argument rests on West Bend’s proffered construction of sections 5 and 6 of
the bond. Specifically, West Bend’s argument only holds water if section 5 of the bond
affords West Bend rights and section 6 of the bond imposes on Zenith the obligation to
give West Bend the opportunity to exercise those rights. West Bend’s argument also
depends on the notion that because section 6 permits the owner, Zenith, “to enforce any
remedy available to the Owner” upon the surety’s failure to perform its obligations
under section 5 within seven days after the owner demands that it do so, the owner can
only enforce its available remedies if it makes a demand under section 6 and then the
surety fails to timely perform. As West Bend puts it in its brief, “A surety’s failure to
respond to a written notice under Section 6 is the necessary default under the
performance bond which gives rise to any remedy to the Owner, including the right to
hire a completion contractor.” ECF No. 127, at 5 (citing Schuff Steel Co. v. Bosworth Steel
Erectors, No. 18-CV-0435, 2022 WL 4534729 (D.D.C. Sept. 28, 2022)).2
West Bend’s construction of the applicable bond terms is not the only reasonable
one. For that matter, West Bend’s is not clearly the best reading of those terms under the
governing law. Under Wisconsin law, provisions of insurance contracts, including
surety bonds, are generally given their plain or ordinary meaning. Danbeck v. Am. Fam.
Mut. Ins. Co., 629 N.W.2d 150, 153–54 (Wis. 2001) (first citing Henderson v. State Farm
Mut. Auto. Ins. Co., 208 N.W.2d 423, 426 (Wis. 1973); and then citing Hull v. State Farm
Mut. Auto. Ins. Co., 586 N.W.2d 863, 867 (Wis. 1998)); see also Wiegel v. Sentry Indem. Co.,
287 N.W.2d 796, 799–800 (Wis. 1980). Given this standard, another reasonable

2. Schuff Steel does not apply Wisconsin law. It instead applies substantive law that seems to
presume that a failure to satisfy any notice requirement in a surety bond is sufficient to establish a
material default or failure to satisfy a condition precedent to the surety’s liability. Whether that is true
under the substantive law that Schuff Steel applies, it is not true under Wisconsin law. Also, as discussed
below, West Bend has not conclusively demonstrated that section 6 of the bond at issue here actually
imposes any notice requirements on Zenith, as opposed to simply offering Zenith the means to force the
surety’s hand if it is not acting as it is required to under the bond.
construction of the relevant terms of the bond, and arguably the better one, is that
section 5 imposes obligations on West Bend and section 6 affords Zenith the right to
demand that those obligations be met within the specified period of time.
Section 5’s plain language, read in context, does not necessarily give West Bend
the right to do anything, other than to select from a list of actions that it must take upon
the satisfaction of the conditions stated in section 3. That is, section 5 seems to obligate
West Bend to “take one of the . . . actions” listed in that section and to do so both
“promptly and at [its] expense”. ECF No. 127-3, at 32. True, one of the actions the surety
may take, listed in section 5.4, is to “[w]aive its right to perform and complete, arrange
for completion, or obtain a new contractor”, but even then, the surety is required, “with
reasonable promptness under the circumstances”, to either pay on the bond or deny
liability. Id. (emphasis added). And, as noted above, section 4 expressly addresses the
extent to which the owner’s “[f]ailure . . . to comply with the notice requirement in
Section 3.1 . . . constitute[s] a failure to comply with a condition precedent to . . . or
release[s] the Surety from its obligations” under the bond, and those obligations surely
include section 5’s requirement that the surety “take one of the . . . actions” listed, once
“the Owner has satisfied the conditions of Section 3”. Id. (emphasis added).
If section 5 is so read, then section 6 merely allows the owner (i.e., affords the
owner the right) to demand that the surety perform its obligations under section 5, “[i]f
the Surety does not proceed as provided in Section 5 with reasonable promptness”, and
to “enforce any remedy available to the Owner”, if the surety fails to do so within seven
days after such a demand is made. Id. Under this reading, section 6 of the bond gives
the owner the means to compel the surety to act, if it is not doing so, and to enforce its
remedies under the bond, but does not obviously make compliance with section 6’s
provision for written notice and a demand for performance a prerequisite to the
enforcement of those remedies. In fact, a separate provision of section 6 can be read to
provide that “[i]f . . . the Surety has denied liability, in whole or in part,” as West Bend
clearly did here, then “without further notice the Owner shall be entitled to enforce any
remedy available to the Owner.” ECF No. 127-3, at 32.
Ordinarily defined, a “right” is “a power . . . to which one is entitled”—i.e., a
“right” is what one may, but need not, do—while an “obligation” is “what one must do”.
See Webster’s Third New International Dictionary 1556 & 1955 (2002) (emphasis added).
Notwithstanding the use of “right” in section 5.4, section 5 seems to impose an
obligation: once the conditions of section 3 are satisfied, “the Surety shall promptly and
at the Surety’s expense take one of the . . . [specified] actions”. ECF No. 127-3, at 32
(emphasis added). Section 6 describes the consequences to the surety for failing to
satisfy that obligation, including but not clearly limited to the consequences to the
surety for failing to satisfy that obligation within “seven days after receipt of an
additional written notice from the Owner to the Surety demanding that the Surety
perform”. Id. Among those consequences: “the Owner shall be entitled”—that is, the
owner has the right—“to enforce any remedy available to the Owner.” Id. Section 6 may
be the only source of the owner’s right to enforces its remedies against the surety, but it
may not be. The record now before the court does not conclusively resolve that issue.
At the least, the record before the court does not foreclose reading the relevant
bond terms to entitle the owner, Zenith, to enforce the bond’s remedies without making
a demand under section 6 that West Bend comply with its obligations under section 5.
And under this reading, the record—even if viewed in West Bend’s favor, contrary to the
standard applicable to summary-judgment motions—establishes nothing more than
that Zenith declined to exercise a power, to which it was entitled under section 6 of the
bond, to demand West Bend’s performance of its obligation to act under section 5 of the
bond. Perhaps it goes without saying, but a breach of contract does not ordinarily result
when a party simply opts not to exercise one or more of its rights under a contract.
Accordingly, if this reading of the relevant bond terms is correct, that would seem to
defeat West Bend’s claim that Zenith breached any of them, materially or otherwise, by
not making a demand under section 6.
2
Even assuming for the moment that West Bend’s construction of sections 5 and 6
of the bond is correct, the record before the court does not establish, beyond all genuine
disputes of material fact, that Zenith materially breached the bond’s terms or that, if it
did, West Bend did not waive the materiality of that breach by its conduct. As explained
in the decision and order denying West Bend’s first motion for summary judgment:
Under Wisconsin law, “[f]or a breach to be material, it must be so serious
as to destroy the essential object of the agreement.” Ranes v. Am. Fam. Mut.
Ins. Co., 580 N.W.2d 197, 200 (Wis. 1998) (citing Appleton State Bank v. Lee,
148 N.W.2d 1, 3 (Wis. 1967)). “When the breach is ‘relatively minor’ and not
‘of the essence,’ the nonbreaching party is not excused from performance.”
Id. (quoting Mgmt. Computer Servs., Inc. v. Hawkins, Ash, Baptie & Co., 557
N.W.2d 67, 77 (Wis. 1996)). But “even where such a material breach has
occurred, the non-breaching party may waive the claim of materiality
through its actions.” Mgmt. Computer Servs., Inc., 557 N.W.2d at 78 (citing
Entzminger v. Ford Motor Co., 177 N.W.2d 899, 901 (Wis. 1970)). Importantly,
“whether a party’s breach excuses future performance of the contract by the
non-breaching party presents a question of fact.” Id. (citing Shy v. Indus.
Salvage Material Co., 58 N.W.2d 452, 456 (Wis. 1953)).
ECF No. 82, at 15. Simply put, “[u]nder Wisconsin law, materiality and waiver are
issues of fact, and”, just like when West Bend first moved for summary judgment, it
“has not shown that the evidence is such that it is entitled to judgment as a matter of
law because no reasonable factfinder could side with Zenith on those issues.” Id. at 16
(citing Entzminger, 177 N.W.2d at 901).
Zenith’s failure to make a demand, pursuant to section 6 of the bond, that West
Bend perform its obligations under section 5 of the bond could have been a material
breach excusing West Bend from further performance, at least assuming West Bend’s
reading of the bond is the right one. And West Bend may well prove at trial that it was.
But the record before the court does not establish that it was or, in more proper terms,
that no reasonable fact finder could find that it was not. West Bend presents little apart
from the language of the bond to show that Zenith’s failure to provide notice under that
section was so serious a breach of the bond’s terms as to excuse West Bend’s further
performance or that, even if it was, West Bend did not waive the materiality of the
breach by its later conduct. West Bend instead relies in large part on caselaw stating that
“notice provisions are of the ‘essence’ of the surety contract” and, as a result, the notice
provisions at issue here, as West Bend construes them, are inherently so central to
bonds like the one it issued that any deviation from them by any party, anywhere, to
any such bond ipso facto releases the surety from its obligations under the bond. Schuff
Steel Co., 2022 WL 4534729, at *9–10, cited in ECF No. 127, at 5 & 12–14; see also, e.g.,
ECF No. 127, at 17 (asserting that the Eleventh Circuit’s nonprecedential 2017 opinion in
International Fidelity Insurance Co. v. Americaribe-Moriarty JV, 681 Fed. App’x 771,
“illustrate[s] how giving the surety notice of termination after the obligee hires a
completion contract is prejudicial to [the] surety as a matter of law”). As the court’s
decision and order denying West Bend’s first motion for summary judgment explains,
however, “[w]hether other courts applying the substantive law of other jurisdictions
have taken that approach (including equating materiality and prejudice), it is clearly at
odds with Wisconsin law, as it ignores the case-specific nature of the ‘materiality’
inquiry (and any ‘waiver’ inquiry that might follow)”. ECF No. 82, at 15–16.
If nothing else, the record reveals a genuine dispute of material fact as to whether
West Bend waived the materiality of Zenith’s breach, if any, of section 6 of the bond.
West Bend sent Zenith a detailed letter denying liability on the bond. That letter sets
forth, with specificity, the many ways in which West Bend determined, after
investigation, that Zenith breached the bonded subcontract by wrongfully terminating
Cornerstone, and it goes on to explain how, in West Bend’s view, Zenith failed to satisfy
the conditions precedent to West Bend’s liability under section 3 of the bond, but it
makes no mention whatsoever of section 6. See ECF No. 127-5, at 74–79. Construing this
letter, and the record as a whole, in the light most favorable to Zenith, as the court must
do in resolving West Bend’s present motion, it seems that West Bend did not consider
the specific lack of a demand for performance under section 6 to be a material breach on
Zenith’s part until it became a potentially viable litigation strategy to say that it was. At
the very least, this casts serious doubt on West Bend’s present assertion of materiality.
3
West Bend’s only other meaningful argument for summary judgment is based on
State Bank of Viroqua v. Capitol Indemnity Corp., 214 N.W.2d 42 (Wis. 1974). West Bend
also relied on this case when it first moved for summary judgment, but it focused on the
broad principles that case describes while ignoring the actual text of the bond at issue
and the substantial degree to which that text differs from that of the bond at issue here.
See ECF No. 82, at 11–13. On this, its second shot at summary judgment, West Bend
does much the same thing, again misconstruing the holding and rationale of the case,
asserting that it “holds that the failure to give proper notice under a surety bond results
in a discharge of surety as a matter of law entitling the surety to summary judgment”
and that “[l]ack of prejudice is immaterial if the surety is denied its contractual right.”
See ECF No. 127, at 10 (citing State Bank of Viroqua, 214 N.W.2d at 45). State Bank of
Viroqua does so hold, but only with respect to the bond at issue in that case. Specifically,
the case holds that a provision of a bond expressly requiring and prescribing periods of
time for notice to the surety of any covered loss before legal proceedings could begin set
forth conditions precedent to the surety’s liability on the bond—thus, under that
provision, whether the surety suffered actual prejudice from a failure to comply with
those conditions was irrelevant. See 214 N.W.2d at 45–47. West Bend does not expressly
argue that section 6 contains any conditions precedent to its liability under the bond.
Moreover, for the reasons stated above, its effort to cast section 6 as imposing any
obligation on Zenith lacks sufficient textual and evidentiary support to prevail on
summary judgment. So, State Bank of Viroqua is not dispositive here.
More importantly, as noted in the decision and order denying West Bend’s first
motion for summary judgment, the “broad[] legal principle” underlying State Bank of
Viroqua is that “‘a contract means what it says’ even if it is not ‘phrased in “terms of
art”’.” ECF No. 82, at 11 (quoting 214 N.W.2d at 46). As applied in that case, the logical
consequence of this principle was that a bond may impose conditions precedent to the
surety’s liability, even if the bond does not explicitly describe them that way, if they
operate as such conditions. Again, nothing about the text of the bond at issue here
suggests that section 6 imposes conditions precedent to West Bend’s liability on the
bond—and it would make little sense to construe the bond such that a provision about a
demand for performance of the surety’s obligations states a condition precedent to
those same obligations—or that a failure to demand performance under section 6, as
West Bend reads that provision, automatically releases West Bend from its obligations
under the bond. See id. at 11 (“A bond could certainly be written to release the surety
from any obligation under it if, for example, the ‘Owner’, by its unilateral action, denies
the surety a reasonable opportunity to act in certain ways, but the bond at issue here
says no such thing.”). The conditions precedent to West Bend’s liability under the bond
at issue here are set forth in section 3. See id. at 11–12. The first of those conditions,
described in section 3.1, is the only provision of the bond that clearly requires the owner
to give the surety advance notice of anything—it requires the owner to give the surety
advance notice “that the Owner is considering declaring a Contractor Default”, among
other things—but, as already noted, section 4 expressly provides that a failure “to
comply with the notice requirement in Section 3.1 shall not constitute a failure to
comply with a condition precedent to the Surety’s obligations, or release the Surety
from its obligations, except to the extent the Surety demonstrates actual prejudice.” See
ECF No. 127-5, at 32 (emphasis added). “[N]either State Bank of Viroqua nor its rationale,
however persuasive, justifies rewriting the bond at issue”, including to relieve West
Bend of its burden to demonstrate actual prejudice as the bond requires, “to give West
Bend the benefit of opportunities for which it did not bargain.” See ECF No. 82, at 12.
IV
For these reasons, Cornerstone’s and West Bend’s motions for summary
judgment are denied.
#####

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10463369. Public record. Not legal advice.