1 DISTRICT COURT OF THE VIRGIN ISLANDS 2 DIVISION OF ST. CROIX 3 GEC, LLC Plaintiff, 1:18-cv-58-CAK -v.- OPINION AND ORDER ARGONAUT INSURANCE COMPANY Defendant. 4 5 MEMORANDUM OPINION AND ORDER 6 CHERYL ANN KRAUSE, Circuit Judge, sitting by designation. 7 THIS MATTER comes before this Court on Defendant’s Motion for 8 Reconsideration (Dkt. No. 126) of this Court’s Memorandum Opinion and Order denying 9 Defendant’s Motion to Dismiss (Dkt. No. 26). For the reasons set forth below, the Court 10 will GRANT Defendant’s Motion for Reconsideration in part. The Court agrees that a full 11 Banks analysis is appropriate in determining whether to adopt the majority rule set out in 12 the Restatement concerning consequential damages. As set forth below, however, that 13 analysis does not change the Court’s decision to deny Defendant’s Motion to Dismiss. 14 Accordingly, an amended opinion denying Defendant’s Motion to Dismiss will be filed 15 concurrently with this opinion and order. The Court will DENY Defendant’s Motion for 16 Reconsideration in all other respects. 17 Argonaut is correct that the Court adopted the majority rule set out in the 18 Restatement referencing consequential damages without conducting a full Banks analysis. 19 The Court’s amended opinion, filed concurrently with this order, incorporates that analysis. 20 Argonaut also is correct that, post-Banks, Virgin Islands courts are no longer “strictly 21 bound” by the American Law Institute’s interpretations in the Restatements under § 4 of

22 Title 1 of the Virgin Islands Code. Banks v. Int’l Rental & Leasing Corp.,

, 984 23 (2011). But the Restatement rule, that consequential damages for breach of contract are 24 available from sureties like Argonaut where the instrument does not bar them, still emerges 25 as the governing rule here after a Banks analysis: 26 Per Banks, this Court must (1) research whether Virgin Islands courts have

27 articulated an on-point rule, (2) analyze what the majority of other courts do, and then 28 (3) determine “most importantly, which approach represents the soundest rule for the 29 Virgin Islands.” Simon v. Joseph,

(V.I. 2013). 30 First, this Court and the parties have not identified Virgin Islands authority on the 31 availability of consequential damages for breach of contract by a surety where the 32 underlying instrument is silent on the issue. Second, while Argonaut has identified at least

33 one jurisdiction that it contends limits a surety’s liability to only consequential damages 34 expressly provided for, see Wise Invs., Inc. v. Bracy Contracting, Inc.,

(E.D. Pa. 2002); Downingtown Area Sch. Dist. v. Int’l Fid. Ins. Co.,

(Pa. Commw. Ct. 2001), many other jurisdictions embrace the Restatement’s rule 37 permitting such damages even where the contract does not mention it, see, e.g., In re New

38 Bern Riverfront Dev., LLC,

(E.D.N.C. 2014); Marshall Contractors, 39 Inc. v. Peerless Ins. Co.,

(D.R.I. 1993); Hunt v. Bankers and Shippers 40 Ins. Co. of N.Y.,

(N.Y. App. Div. 1979); Cont’l Realty Corp. v. Andrew 41 J. Crevolin Co.,

(S.D.W. Va. 1974). And while the Virgin Islands 42 courts have not picked a side in this debate, they have made clear that, as a general rule, 43 parties can recover damages for “consequential loss [] caused by [a contract] breach.”

44 Creative Minds, LLC v. Reef Broad., Inc., No. ST-11-CV-131,

, at *7 45 n.36 (V.I. Super. Sept. 24, 2014) (citation omitted). 46 The only question, then, is whether suretyship presents a different posture such that 47 this general rule should take flight. Having surveyed the relevant authority, I again 48 conclude that it should not, and, where not explicitly bargained for in a suretyship contract,

49 consequential damages are available in cases alleging a breach of the implied covenant of 50 good faith and fair dealing. Even courts that acknowledge that “a performance bond is not 51 intended to compensate for indirect losses” note that a surety’s “own alleged breach of [a] 52 performance bond” can give rise to liability beyond the bond’s penal sum. Marshall 53 Contractors,

; see also Associated Constr./AP Constr., LLC v. Hanover 54 Ins. Co., No. 3:15-cv-1600 (MPS),

, at *14 (D. Conn. Aug. 21, 2018)

55 (“[A] surety’s liability for the breach of a contract[], i.e., a surety’s exposure when the bond 56 is triggered and the surety performs its obligations under the bond, is distinct from a 57 surety’s liability when it breaches the terms of the bond.”); In re New Bern,

723 (“Unlike a surety’s liability for breach of its derivative obligations, absent express or 59 implied language in the bond, a surety’s liability for breach of its non-derivative, direct

60 obligations may not be limited to the terms of the bond.”). 61 Much of this analysis was present in this Court’s original opinion denying 62 Argonaut’s motion to dismiss, and this Court will publish an amended opinion with a full 63 Banks analysis per the above. 64 CONCLUSION 65 For the reasons discussed above, the Court GRANTS Defendant’s Motion for 66 Reconsideration in part and DENIES the motion in part. 67 SO ORDERED.

Dated: August 28, 2023

/s CHERYL ANN KRAUSE 68 United States Circuit Judge