417 U.S. 116 (1974), 72-1382, F.D. Rich Co., Inc. v. United States for the

Docket Nº:No. 72-1382
Citation:417 U.S. 116, 94 S.Ct. 2157, 40 L.Ed.2d 703
Party Name:F.D. Rich Co., Inc. v. United States for the
Case Date:May 28, 1974
Court:United States Supreme Court
 
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Page 116

417 U.S. 116 (1974)

94 S.Ct. 2157, 40 L.Ed.2d 703

F.D. Rich Co., Inc.

v.

United States for the

No. 72-1382

United States Supreme Court

May 28, 1974

Use of Industrial Lumber Co.

Argued January 9, 1974

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

Petitioner F. D. Rich Co., the prime contractor on a federal housing project in California, had two separate contracts for the project with Cerpac Co., one contract being for Cerpac to select, modify, detail, and install all custom millwork and the other being for Cerpac to supply all exterior plywood. Cerpac, in turn, ordered the lumber called for under the plywood contract from respondent. When Rich needed plywood for another project in South Carolina, one of the shipments called for by respondent's contract with Cerpac was diverted to South Carolina. When Cerpac defaulted on its payments to respondent for the plywood, including the South Carolina shipment, respondent gave notice to Rich and its surety of a Miller Act claim, and thereafter brought suit in the Federal District Court for the Eastern District of California, where the California project was located. Finding that Cerpac was a "subcontractor" within the meaning of the Miller Act, rather than merely a materialman, that hence respondent [94 S.Ct. 2159] could assert a Miller Act claim against Rich, and that venue for suit on the South Carolina as well as the California shipments properly lay, under 40 U.S.C. § 270b(b), in the Eastern District of California, the District Court granted judgment for respondent for the amount due on the unpaid invoices, but denied its claim for attorneys' fees. The Court of Appeals affirmed in large part, but held that attorneys' fees should be awarded respondent.

Held:

1. Based on the substantiality and importance of its relationship with the prime contractor, MacEvoy Co. v. United States ex rel. Tomkins Co., 322 U.S. 102, Cerpac was clearly a subcontractor for Miller Act purposes, considering not just its plywood contract, but also its custom millwork contract on the California project. Moreover, Cerpac and Rich had closely interrelated management and financial structures, and their relationship on the California

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project as the same as on many other similar projects; hence it would have been easy for Rich to secure itself from loss as a result of Cerpac's default. Pp. 121-124.

2. Venue for suit on the South Carolina shipment properly lay in the Eastern District of California, since there was clearly a sufficient nexus for satisfaction of § 270b(b)'s venue requirements. The contract between Cerpac and respondent was executed in California, all materials thereunder to be delivered to the California worksite. California remained the site for performance of the original contract despite the diversion of one shipment to South Carolina. There was no showing of prejudice resulting from the case's being heard in California, and considerations of judicial economy and convenience supported venue in the court where all of respondent's claims could be adjudicated in a single proceeding. Pp. 124-126.

3. Attorneys' fees were improperly awarded respondent. Pp. 126-131.

(a) The Court of Appeals erred in construing the Miller Act to require the award by reference to the "public policy" of the State in which suit was brought, since the Act provides a federal cause of action and there is no evidence of any congressional intent to incorporate state law to govern such an important element of Miller Act litigation as liability for attorneys' fees. Pp. 127-128.

(b) The provision of the Miller Act in 40 U.S.C. § 270b(a) that claimants should recover the "sums justly due," does not require the award of attorneys' fees on the asserted ground that, without such fee-shifting, claimants would not be fully compensated. To hold otherwise would amount to judicial obviation of the "American Rule" that attorneys' fees are not ordinarily recoverable in federal litigation in the absence of a statute or contract providing therefor, in the context of everyday commercial litigation, where the policies which underlie the limited judicially created departures from the rule are inapplicable. Pp. 128-131.

473 F.2d 720, affirmed in part and reversed in part.

MARSHALL, J., delivered the opinion of the Court, in which BURGER, C.J., and BRENNAN, STEWART, WHITE, BLACKMUN, POWELL, and REHNQUIST, JJ., joined. DOUGLAS, J., filed an opinion dissenting in part, post, p. 131.

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MARSHALL, J., lead opinion

MR. JUSTICE MARSHALL delivered the opinion of the Court.

The Miller Act, 49 Stat. 793, as amended, 80 Stat. 1139, 40 U.S.C. § 270a et seq., requires a Government contractor1 to post a surety bond "for the protection of all persons supplying labor and material in the prosecution of the work provided for" in the contract. The Act further provides that any person who has so furnished labor or material and who has not been paid in full within 90 days after the last labor was performed or [94 S.Ct. 2160] material supplied may bring suit on the payment bond for the unpaid balance. 40 U.S.C. § 270b(a). This case presents several unresolved issues of importance in the administration of the Act.

I

Between 1961 and 1968, petitioner F. D. Rich Co. was the prime contractor on numerous federal housing projects. During the years 1963-1966, much if not all of the plywood and millwork for these projects was supplied by Cerpac Co. The Cerpac organization was closely intertwined with Rich. The principals of Rich held a substantial voting interest in Cerpac stock, supplied a major share of its working capital, and were thoroughly familiar with its operations and financial condition.

On October 18, 1965, Rich contracted with the United States to build 337 family housing units at Beale Air

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Force Base, California. Rich's Miller Act surety, petitioner Transamerica Insurance Co., posted the payment bond required by the Act. Rich then awarded Cerpac two contracts on the project, one to select, modify, detail, and install all custom millwork, and one merely to supply all standard exterior plywood, each contract incorporating by reference terms of the prime contract. A similar arrangement was employed by Rich and Cerpac on other projects during this period.

On February 22, 1966, Cerpac placed a single order with respondent Industrial Lumber Co. for all exterior plywood required under its plywood contract for the Beale project. Industrial is a broker, purchasing wood products and materials for resale. It acknowledged the complete Cerpac order, purchased the plywood from its own suppliers and arranged for deliveries at the Beale site to begin on March 10, 1966. Each shipment was receipted as it arrived on the site by a Rich representative.

Shortly after Industrial's shipments began, Rich informed Cerpac that more plywood was needed for another Government project being constructed in Charleston, South Carolina, for which Cerpac had also contracted to supply Rich with all exterior plywood. Rich and Cerpac decided to divert some of the Beale lumber to Charleston. Accordingly, Industrial was advised to supply a shipment of the plywood called for under its Beale contract with Cerpac to the South Carolina site. Industrial arranged for the wood to be shipped by one of its suppliers to a railhead near Charleston. The shipment diverted to South Carolina was one of 22 called for by Industrial's Beale Contract.2 There were several subsequent shipments to the California site under that contract.

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During April and May, 1966, Cerpac fell behind in its payments to Industrial, and on July 13, 1966, having not received payment on invoices for nine separate shipments, Industrial gave notice to Rich and its surety of a Miller Act claim, and thereafter brought the instant action in the Federal District Court for the Eastern District of California.3 The District Court recognized that, under our decision in MacEvoy Co. v. United States ex rel. Tomkins Co., 322 U.S. 102 (1944), [94 S.Ct. 2161] Rich's liability turned on whether Cerpac was a "subcontractor" within the meaning of the Act, or merely a materialman. The District Court found that Cerpac was a subcontractor; hence Industrial, as its supplier, could assert a Miller Act claim against Rich, the prime contractor on the project. The District Court also rejected Rich's claim that venue for suit on the South Carolina shipment was improper in the Eastern District of California. Accordingly, the District Court granted judgment for Industrial, holding Cerpac4 and Rich as primary obligees and Transamerica on its bond, jointly and severally liable for the amount of all nine unpaid invoices, $31,402.97, including the amount

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due on the shipment diverted to South Carolina. The District Court, however, denied Industrial's claim for attorneys' fees.

Both Rich and Industrial appealed. The Court of Appeals affirmed the judgment against Rich in large part.5 On Industrial's cross-appeal, the court reversed, holding that attorneys' fees should have been awarded to Industrial as a successful plaintiff under the Miller Act, and remanded to the District Court for consideration of the amount of attorneys' fees to be awarded. 473 F.2d 720 (CA9 1973). We granted certiorari.6 414 U.S. 816 (1973). We affirm the judgment below to the extent it holds that Cerpac was a "subcontractor" for Miller Act purposes and that there was...

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