Wymard v. McCloskey & Co.

• Decision Date: 22 December 1960
• Docket Number: Civ. A. No. 28147.
• Parties: N. L. WYMARD and George L. Stark, Receivers of Kemmel & Co., Inc., Debtor v. McCLOSKEY & CO., Inc.
• Court: U.S. District Court — Eastern District of Pennsylvania

190 F. Supp. 420

N. L. WYMARD and George L. Stark, Receivers of Kemmel & Co., Inc., Debtor v. McCLOSKEY & CO., Inc.

Civ. A. No. 28147.

United States District Court E. D. Pennsylvania.

December 22, 1960.

Dennis, Lichtenstein, Cohen & Dennis, by Edward Cohen, Philadelphia, Pa., for plaintiffs.

J. Dress Pannell, Philadelphia, Pa., for defendant.

WOOD, District Judge.

This is a suit on a contract for money due and owing Kemmel & Co., Inc. by McCloskey & Co., Inc.¹ The plaintiffs are the receivers of Kemmel, having been appointed by the Court on March 2, 1960. It appears that the primary cause of the bankruptcy of Kemmel has been the defendant's refusal to pay Kemmel the alleged debt.

The defendant has moved to stay this suit pending the outcome of certain arbitration procedures provided for in the contract between the parties: According to the contract, plaintiffs may not resort to the courts until the arbitration procedures have been exhausted.

The question presented for our determination is whether Kemmel, by an enforceable contractual agreement, has precluded itself from litigating this disputed debt until the matter now before an arbitrator is resolved. The nature of the question will appear more clearly as the history of the case is outlined. At present, we emphasize the importance of distinguishing between the precise dispute between Kemmel and McCloskey, and the issue which has been presented to the arbitrator. If they are one and the same, we think the motion to stay the suit should be granted. If they are different, then resolution of the issue before the arbitrator would not necessarily resolve the dispute between Kemmel and McCloskey. We think the case is an interesting and unusual one, and that it merits a thorough discussion.

I. History of the Case

The United States Government required the construction of housing units at Fort George G. Meade in Maryland, and selected as the principal contractor to perform the work Anthony P. Miller, Inc. On June 27, 1957, the United States, the Fort George G. Meade Defense Housing Corporation Number I, and Anthony P. Miller, Inc., entered into a contract for this construction.² Anthony P. Miller, Inc., subcontracted the construction work to McCloskey. On July 15, 1957, McCloskey and Kemmel entered into a contract—the subject of this suit—whereby Kemmel agreed to perform all the painting work on the housing units.³

The housing contract contained plans and specifications for the painting work, designating the type of paint to be used and the manner of its application. The subcontract between Kemmel and McCloskey referred to and incorporated by reference those provisions of the housing contract pertaining to the painting specifications.⁴ The subcontract provided that McCloskey would pay Kemmel the sum of $290,000 for the painting job. The method of payment was spelled out in some detail. On the 25th day of each month, Kemmel was to submit to McCloskey an itemized estimate of the work done and the materials furnished for that month and submit a bill accordingly. On the 15th day of the following month, McCloskey agreed to pay Kemmel 90% of the itemized bill. The balance due was to be paid by McCloskey within thirty days from the completion of the project.

On or about May 1, 1958, Kemmel began work on the housing project. After the interior painting for the first group of housing units had been completed, the representatives of the Contracting Officer concluded that the painting was not giving the type of results intended. After some negotiation, the specifications of the housing contract with respect to the painting were changed, and the amount to be paid the principal contractor for the entire job was also changed accordingly.⁵ McCloskey and Kemmel then orally agreed that Kemmel would continue the painting work under the new specifications and that Kemmel would be compensated therefor on a cost-plus basis. (We consider this step an important link in the chain of events.) No specific amount over and above the original contract price was agreed on as between Kemmel and McCloskey for the now more extensive and expensive painting. Nor was any agreement made with respect to the manner of payment under the new cost-plus arrangement. Apparently, the parties considered the provisions of the subcontract as to the manner of payment to be still in force.

The information we have as to what transpired as Kemmel proceeded with the painting under the changed specifications is meager; we know that McCloskey made some payments to Kemmel, amounting in toto to $530,297.32, and that Kemmel claimed over $400,000 in addition. As these unpaid balances mounted, Kemmel finally presented this dispute to the Contracting Officer as hereafter related.

The subcontract contained a provision governing the settlement of disputes between Kemmel and McCloskey, and it was this provision that Kemmel relied upon when it wrote to the Contracting Officer concerning the amount of unpaid balances then claimed to be due it from McCloskey. The subcontract provided as follows:

"Article XIII

"13:01. In case of any dispute between the Principal Subcontractor and the Subcontractor in regard to matters arising out of this Subcontract * * * the same shall be submitted to and decided by the Contracting Officer, in accordance with the Disputes Clause of the General Provisions of the Housing Contract, being Paragraph 8 thereof."

and

"Article III

"3:01. No alterations shall be made in the work except upon the written order of the Principal Sub-contractor McCloskey and the amount to be paid by the Principal Subcontractor * * * by virtue of such alterations shall be stated in said order. Any dispute arising between the Principal Subcontractor and the Subcontractor Kemmel as to the amount to be paid * * * shall be determined in accordance with the Disputes Clause of the General Provisions of the Housing Contract, being Paragraph 8 thereof * * *"

This provision of the subcontract clearly governed the dispute then (and now) existing between Kemmel and McCloskey.

It is to be noted also that Paragraph 8 of the Housing Contract provided as follows:

"* * * any dispute concerning a question of a fact arising under this Housing Contract, * * * which may be adjusted between the eligible-builder Anthony P. Miller, Inc. and the Contracting Officer * * * shall be decided by the Contracting Officer * * *"

The Disputes Clause of the Housing Contract then went on to provide the method of appeal from the decision of the Contracting Officer. As we have stated, it was these provisions which guided Kemmel to direct its dispute with McCloskey to the Contracting Officer. What subsequently took place was an exchange of letters between Kemmel and the Contracting Officer and between Anthony P. Miller, Inc., and the Contracting Officer. These letters bring us to the question presented by the motion now before us, and are crucial in the resolution of that question.

II. The Attempt to Arbitrate the Dispute between Kemmel and McCloskey

The first letter from Kemmel to the Contracting Officer concerning the large sums claimed by Kemmel to be due from McCloskey was dated August 20, 1959. That letter stated inter alia as follows:

"We should like to advise you that McCloskey and Co., the principal subcontractor in the matter above is in default under its contract with us in that it has failed to make payment to us of our amounts due as provided in Article 4, section 403 thereof * * * We herewith offer to promptly meet with you and to discuss any alleged violation of our contract with McCloskey & Co. as provided in article 13 of our contract with McCloskey and Co., * * as well as McCloskey and Co.'s failure to make payments to us in the amounts provided in our contract with them." Emphasis supplied.

In reply to this letter, the Contracting Officer wrote Kemmel on September 1, 1959, as follows:

"Receipt is acknowledged of your letter of 20 August 1959 requesting my intervention as Contracting Officer, in your dispute with McCloskey & Co. * * * Since there is no privity of contract between the Government and either your company or McCloskey and Co., it would be inappropriate, and inconsistent with the Government's interest, for me to accept jurisdiction in this matter." Emphasis supplied.

Kemmel contends that these letters show conclusively that Kemmel complied with the arbitration provisions of the subcontract but that the Contracting Officer refused to act as arbitrator. Since the subcontract makes no provision for such an occurrence, Kemmel contends that it may now resort to the courts, either for litigation of the dispute or for the appointment of another arbitrator.

We think that these letters show clearly that Kemmel sought arbitration according to the subcontract and that the designated arbitrator refused to take jurisdiction of disputes between Kemmel and McCloskey. Our conclusion is fortified by the Contracting Officer's second letter to Kemmel's counsel, Thomas J. Mullaney, dated November 9, 1959. In that letter, the Contracting Officer stated:

"Receipt is acknowledged of your letter of 3 November 1959, notifying this office of your claim against McCloskey & Co. in the alleged total amount of $425,640.00, and demanding that this amount be withheld by me out of payments due * * * Enclosed * * * is copy of my letter of 1 September 1959 to your client, explaining the relationship of the parties to the above transaction, and the government's reasons for declining to act as arbiter of this disputed claim." Emphasis supplied.

At this point in the history of this case it is difficult to see what possible ground McCloskey could have for its present contention that Kemmel may...