United States Fidelity & Guar. Co. v. Hendry Corporation

Citation391 F.2d 13
Decision Date20 June 1968
Docket NumberNo. 22692.,22692.
PartiesUNITED STATES FIDELITY AND GUARANTY COMPANY, Appellant, v. HENDRY CORPORATION, Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)

Bert Lane, Pensacola, Fla., for appellant.

Stanley W. Rosenkranz, Tampa, Fla., for appellee.

Before WISDOM, BELL and GODBOLD, Circuit Judges.

Rehearing En Banc Denied June 20, 1968.

WISDOM, Circuit Judge:

The United States Fidelity & Guaranty Company, the Miller Act surety for Smith Engineering Construction Company, a defaulting government contractor, appeals from a summary judgment in favor of Hendry Corporation, the use-plaintiff. United States to Use of Hendry Corp. v. Smith Engineering & Const. Co., N.D.Fla.1965, 240 F.Supp. 189. The surety contends that the district court committed three major errors in granting summary judgment in favor of the plaintiff subcontractor. The alleged errors are first, the court's overruling the defendant's plea of the statute of limitations; second, its giving conclusive weight to a state judgment in a suit by the plaintiff against the surety's principal; and finally, its allowing the plaintiff attorney's fees. We conclude that the court below was correct on the first and third counts, but erred as to the second. Accordingly, we reverse and remand the case for trial.

* * *

In 1954 Smith, the prime contractor, successfully bid for the job of constructing runway and taxiway fill at Eglin Air Force Base, Florida. In accordance with the Miller Act, 40 U.S.C. §§ 270a-270e, Smith obtained payment and performance bonds from Fidelity & Guaranty. Smith and Hendry agreed that Hendry would supply certain equipment for the job. Hendry was to receive rental fees plus a share of whatever profits developed. In the course of the job, difficulties developed so that the fill had to be constructed mechanically rather than hydraulically. As a result, Smith incurred considerable unexpected expense and could not complete the contract on time.

By the late summer of 1955 Smith had completed the job. Because of the unexpected difficulties, he attempted to obtain some sort of adjustment from the government. Finally, March 6, 1961, the Board of Contract Appeals reversed the contracting officer, awarded Smith more than $130,000 additional compensation, and extended the contract time by 86 days. Fidelity & Guaranty agreed to the extension and to increase the penalty sum of the bond by half the increase in the contract price. Smith never did pay Hendry the amount due on their subcontract. Hendry filed this suit against the surety April 16, 1962.

Meanwhile Hendry had filed an action in the Florida courts for an accounting and judgment against Smith in whatever amount was found owing. After a nonjury trial on the merits, the state court rendered judgment in Hendry's favor in the amount of $93,113.79. The same attorney represented Smith in the state case and both Smith and Fidelity & Guaranty in this case.

Upon the rendition of judgment in the state case, Hendry moved the district court here for summary judgment. The district court granted the motion on the ground that the state decision was res judicata as to a surety with knowledge of and an opportunity to defend the suit against the principal. The district judge also allowed Hendry the maximum attorneys fees under Florida Statutes § 627.0905(2), F.S.A.

I.

The Miller Act provided, at the time the present bond was signed,1 that no suit should be commenced "after the expiration of one year after the date of final settlement of such contract." 40 U.S.C. § 270b(b). "Final settlement", as used in the Act, was a term of art. It did not mean final payment or accord and satisfaction, but rather the "unilateral determination by the Government of the consolidated contract account * * * as shown by its records." 37 Dec.Comp.Gen. 115 (1957). Section 270c provided the method of establishing the date of final settlement. Any unpaid laborer or materialman could request the Comptroller General to issue a certificate determining the date of the settlement, "which shall be conclusive as to such date upon the parties".

The courts have consistently held that section 270c meant what it said. "It is necessary to establish fraud or such gross mistake as would imply bad faith before the certificate of the Comptroller General can be set aside. * * * The plaintiff cannot claim as of right a broader review by the courts * * *" Peerless Casualty Co. v. United States for Use and Benefit of Bangor Roofing & Sheet Metal Co., 1 Cir. 1957, 241 F.2d 811, 817. See also United States for Use of Soda v. Montgomery, 3 Cir. 1959, 269 F.2d 752; Golden West Const. Co. v. United States for Use and Benefit of Bernadot, 10 Cir. 1962, 304 F.2d 753; United States ex rel. and for Use and Benefit of Korosh v. Otis Williams & Co., D. Idaho, 1939, 30 F.Supp. 590; United States for Use and Benefit of Tobin Quarries, Inc. v. Glasscock, E.D.Mo.1939, 27 F.Supp. 534.

There is no claim of fraud or bad faith in this case. The problem here is that the Comptroller General has issued two certificates stating different dates of final settlement. Initially he certified the date as August 11, 1955, but after the decision of the Board of Contract Appeals, he issued an "amended certificate" fixing the date of final settlement as June 21, 1961. If the statute began to run on the earlier date, Hendry's claim is barred. But if the statute did not begin to run until 1961, the parties agree the suit was timely filed.

Fidelity & Guaranty argues that the Comptroller General's certificate is conclusive even as to him, and that therefore he had no authority to amend the original certificate in the absence of fraud or bad faith. Hendry, on the other hand, insists that the certificate is conclusive only "as to the parties," and that the Comptroller General may make any amendments he deems necessary and equitable.

We agree with Hendry. We find nothing in the statute to indicate that the Comptroller General is bound by his original certificate and cannot act to correct a mistake or revise his determination in light of new developments. On the contrary, the statute shows the intention of Congress to place the responsibility for fixing the date of final settlement within the absolute, unreviewable discretion of the Comptroller General. See Peerless Casualty Co. v. United States for Use and Benefit of Bangor Roofing & Sheet Metal Co., supra. Absent convincing evidence of a contrary congressional intent, it would not be consistent with such a broad grant of discretion to hold that the Comptroller General is foreclosed from redetermining the date of final settlement.2

Lane v. United States ex rel. Mickadiet, 1916, 241 U.S. 201, 36 S.Ct. 599, 60 L.Ed. 956 is closely in point. The statute there in question provided that the Secretary of the Interior's determination of the heirs of an Indian was to be "final and conclusive". The Secretary originally determined that two adopted children were the heirs of the Indian in question. Later, other relatives urged the Secretary to reopen the decision on the ground that the adoption had been procured by fraud. The adopted children took the position that because the original determination was "final and conclusive" the Secretary was without power to reconsider.

The Supreme Court rejected the argument:

The words "final and conclusive" describing the power given to the Secretary must be taken as conferring, and not as limiting or destroying, that authority. In other words, they must be treated as absolutely excluding the right to review in the courts * * * The right to review on proper charges of newly discovered evidence or fraud a previous administrative order * * * is of the very essence of administrative authority * * *. 241 U.S. at 209, 36 S.Ct. at 601.

For the same reasons we reject the surety's argument here.

Fidelity & Guaranty argues further that the statute authorizes the Comptroller General to issue a certificate only "in case final settlement of any such contract has been made * * *". The quoted language, the surety contends, indicates that Congress contemplated that there would be only one date of final settlement, and that only after it had come about, could the Comptroller General issue a conclusive certificate. There being but one date of final settlement, the argument concludes, the Comptroller General's amendment is contrary to fact and therefore of no effect.

In support, Fidelity & Guaranty cites United States for Benefit and Use of Berkowitz v. Frankini Construction Co., D.Mass.1956, 139 F.Supp. 153, a case in which Judge Wyzanski held that the pendency of an appeal to the Board of Contract Appeals did not toll the passing of the date of final settlement. That case is inapposite for two reasons. First, the prime contractor's appeal was unsuccessful; and, more importantly, the Comptroller General did not issue an amended certificate. The real thrust of the case is that the Comptroller General's final pronouncement, whatever it may be, is conclusive on the parties.

While we might agree that there can be only one date of final settlement, we are convinced that the Comptroller General's decision is not reviewable on the ground that it is contrary to fact. The administrator's ultimate determination in this case was that the final settlement occurred June 21, 1961. Since that determination may not be challenged, the suit was timely filed.

II.

The Miller Act provides:

"Every suit instituted under this section shall be brought in the name of the United States for the use of the person suing, in the United States District Court for any district in which the contract was performed and executed and not elsewhere * * *" 40 U.S.C. § 270b(b).

Hendry argues that this statutory language does not affect the right of a subcontractor or materialman to sue the principal in a state court; that the usual law of suretyship applies; that under the usual law of...

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