Avco Delta Corporation Canada Ltd. v. United States

• Citation: 484 F.2d 692
• Decision Date: 01 August 1973
• Docket Number: No. 72-1428 and 72-1899.,72-1428 and 72-1899.
• Parties: AVCO DELTA CORPORATION CANADA LTD., Plaintiff, v. UNITED STATES of America et al., Defendants, Natural Gas Pipeline Company of America et al., Third Party Defendants. ALBERT & HARLOW, INC., a/k/a Albert Equipment, Inc., et al., Counter-defendants-Appellants, v. UNITED STATES of America, and Canadian Parkhill Pipe Stringing, Inc., et al., Defendants-Appellees. UNITED STATES of America et al., Defendant-Appellant, v. WOLF BATTERY & ELECTRIC, INC., et al., Counterdefendants-Appellees, Canadian Parkhill Pipe Stringing, Inc., a/k/a Parkhill Pipe Stringing, Inc., et al., Cross-Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

484 F.2d 692 (1973)

AVCO DELTA CORPORATION CANADA LTD., Plaintiff, v. UNITED STATES of America et al., Defendants, Natural Gas Pipeline Company of America et al., Third Party Defendants.

ALBERT & HARLOW, INC., a/k/a Albert Equipment, Inc., et al., Counter-defendants-Appellants, v. UNITED STATES of America, and Canadian Parkhill Pipe Stringing, Inc., et al., Defendants-Appellees.

UNITED STATES of America et al., Defendant-Appellant, v. WOLF BATTERY & ELECTRIC, INC., et al., Counterdefendants-Appellees, Canadian Parkhill Pipe Stringing, Inc., a/k/a Parkhill Pipe Stringing, Inc., et al., Cross-Defendants-Appellees.

No. 72-1428 and 72-1899.

United States Court of Appeals, Seventh Circuit.

Argued January 18, 1973.

Decided August 1, 1973.

COPYRIGHT MATERIAL OMITTED

Robert C. Strodel, Peoria, Ill., (Arthur R. Kingery, Peoria, Ill., of counsel), John Scripp, James D. Wing, Milwaukee, Wis., for Albert & Harlow.

Jackson P. Newlin, Peoria, Ill., for Clifford Rygh.

John G. Satter, Jr., Pontiac, Ill., for Wolf Battery & Electric.

Frank O. Wetmore, II, and Edward J. Wendrow, Chicago, Ill., for Canadian Parkhill Pipe Stringing.

Scott P. Crampton, Asst. Atty. Gen., Jack Teplitz, Atty., Tax Div., Dept. of Justice, Washington, D. C., Donald B. Mackay, U. S. Atty., Springfield, Ill., for U. S. A.

Before FAIRCHILD, CUMMINGS and PELL, Circuit Judges.

PELL, Circuit Judge.

These appeals involve various claimants to two funds presently held in custodia legis by the district court.¹

I

One fund originally consisted of $216,337.44 which was deposited with the court by Natural Gas Pipeline Company of America (Natural), a third party defendant in the suit, under a counterclaim of interpleader under 28 U.S.C. § 1335. The funds had been retained pursuant to the provisions of a construction contract between Natural and Canadian Parkhill Pipe Stringing, Inc., a/k/a Parkhill Pipeline, Inc. (Parkhill, Inc.), a defendant in the initial suit and now a counterdefendant. The pertinent provisions of the construction contract concerning this retainage are as follows:

120 Invoicing and Payment

.1 . . . .

.3 Each invoice shall be paid by the Company Natural to Contractor Parkhill on or before the tenth (10th) office day of Company following receipt of such invoice at Company\'s Chicago office, subject, however, to the following:

.31 Company shall retain ten (10%) per cent of all invoices (hereinafter referred to as "retainage"), except invoices for extra work, and such retainage shall be paid to Contractor:

.311 After Contractor has been notified by Company in writing that all work to be done under this Contract is completed to Company\'s satisfaction; and

.312 After Contractor has furnished Company with an affidavit (on Company\'s Form E/C 22), signed by Contractor, stating that all bills, claims and charges for materials, labor, supplies, equipment and services incurred by Contractor in connection with said work have been fully paid and receipts or other proper evidence of such payment are in the possession of Contractor and that Contractor has fully paid and satisfied all liability for contributions, payroll and payroll taxes, use tax or other forms of taxes, fees, licenses, excises or payments, required by Federal and state legislation and local ordinances, and has fully complied with all requirements thereunder, as to all persons employed and property and material furnished in the performance of said work; and

.313 . . . .

.314 With respect to Contracts wherein the total contract price is $25,000.00 or more, after a reasonable period has elapsed subsequent to the expiration of all time periods, fixed by the laws of the State in which said work is performed, within which liens may be filed against the property of the Company . . . .

.32 The final invoice shall be paid by Company to Contractor only after the requirements of Sub-Parts .311 and .312 have been satisfied.

.33 Company may withhold from any invoice, retainage or other payment due, any amount which in its judgment is necessary to secure Company against any and all claims asserted against Company or Contractor and payable by Contractor, and for any claim of Company against Contractor, whether such claim is liquidated or unliquidated and whether or not such claim arises by reason of the operations of Contractor hereunder or from operations of Contractor independent of this Contract. When any such claim becomes liquidated, Company may, at its option, apply in settlement of such claim any amounts up to the total amounts withheld under this Sub-Part .33. In such event, if the remaining balance of such amounts withheld shall exceed the amount applied by Company to settle claims pursuant hereto, such excess shall be paid by Company to Contractor; and if the amount paid by Company in settlement of claims pursuant hereto shall exceed the total amounts withheld, Contractor shall pay the difference to Company.²

Natural alleged that Parkhill, Inc., had failed to furnish the affidavit required by the above portions of the contract and had otherwise failed to demonstrate that all of the above mentioned liabilities had been satisfied.

Natural named as counterdefendant Parkhill, Inc., which claimed to be entitled to the entire amount, the United States, which had filed federal tax liens against Parkhill, Inc.,³ and a multitude of other potential claimants who were creditors of Parkhill, Inc., most of whom could be classed as either laborers, materialmen, or subcontractors. Natural itself also claimed the right to set-off from the retainage in the amount of $11,423.33, which right arises under subparagraph .33 of Part 120 of the construction contract set out above. Finally, Natural alleged that Great American Insurance Company of New York, which Parkhill, Inc., had obtained as surety on a Labor and Material Payment Bond, "has refused and failed to perform its obligations under said bond."

Of the various counterdefendants who filed claims to the retainage, aside from Parkhill, Inc., and the United States, we need consider only six. Albert Equipment Co., formerly known as Albert & Harlow, Inc., filed a claim for $25,304.14. Service Parts Supply Co. claimed $23,579.33 and alleged that it had filed a lien under the Illinois Oil and Gas Lien Act, Ill.Rev.Stat. 1971, ch. 82, § 78. Standard Service & Supply Co. filed a claim for $11,845.76 and also alleged that it had complied with the Illinois Oil and Gas Lien Act. Both Service Parts and Standard Service & Supply cross-claimed against the surety, Great American Insurance Company of America (Great American). After the claimants answered interrogatories propounded by counsel for Parkhill, Inc., Parkhill moved for summary judgment against the above three claimants on the ground that in fact none of them had properly perfected any lien rights against the pipeline property of Natural in accordance with the applicable Illinois lien laws. The district court on February 25, 1972, dismissed the above three claimants from the case, although it at the same time granted default judgments in the amounts of their cross-claims against Parkhill. They have appealed in cause No. 72-1428. None of the other claimants dismissed by that order have appealed.

Wolf-Jacobson, Inc., filed a claim for $759.80 arising from a judgment it had obtained against Parkhill, Inc., on March 25, 1970, with garnishment proceedings against Natural, as garnishee, begun on March 30, 1970. Wolf Battery & Electric Service, Inc. (the two will jointly be referred to hereinafter as "Wolf") also claimed $977.79 under a March 25, 1970, judgment against Parkhill, Inc., and a March 30, 1970, garnishment against Natural. Finally, Clifford Rygh, et al., Trustees of Central Laborers Pensions Fund (Laborers), filed a claim for $23,616 based on a garnishment suit in the state court against Parkhill, Inc., with Natural as a garnishee defendant, instituted April 6, 1970, but not having reached judgment. The district court in a memorandum decision held that Wolf's claims "are exactly the type of claim from which the Retainage was intended to shield Natural, and further that Natural could have rightfully paid these claims under the contract."

Apparently on the rationale that Parkhill, Inc., could not have acquired a property interest in that portion of the retainage and that the Government's tax lien therefore could not have attached, Wolf's judgments were ordered paid in full from the retainage. As to the Laborers' claim, the court held that "by joining Natural as garnishee in their suit they have attained a position substantially the same as that of the two Wolf companies, and therefore they should recover on the same theory." The district court further allowed Laborers reasonable attorney's fees under Ill.Rev.Stat. 1971, ch. 13, § 13. The Government appeals in cause No. 72-1899 from this order.

As we understand the district court's theory of the case it is that Wolf and Laborers were properly claimants directly against the retainage because they had obtained liens against that fund; that the United States had obtained rights in the fund through Parkhill, Inc.; and that although Albert & Harlow, Standard Service, and Service Parts Supply were now judgment creditors of Parkhill, Inc., based on the default judgment entered at the time the court dismissed their claims against the interpleaded fund, their rights were necessarily inferior to those of the United States under its prior tax lien which would consume all of the rest of the retainage, thus meriting dismissal of their claims against the interpleaded funds. For the reasons hereinafter given we reverse these holdings.

If the Government is correct that Parkhill, Inc., has the sole property right in the retainage (less the set-off paid to Natural by order of the district court on August 22, 1972), then the issue would be one solely of lien priority. The law is quite clear that as to questions of priority of liens in the tax field federal law...