Coatings Mfrs., Inc. v. DPI, Inc.
| Decision Date | 18 March 1991 |
| Docket Number | No. 90-1513,90-1513 |
| Citation | 926 F.2d 474 |
| Parties | COATINGS MANUFACTURERS, INC., and Middle South Energy, Inc., Plaintiffs-Appellees, v. DPI, INC., and Delta Painters, Inc., Defendants-Appellants. Summary Calendar. |
| Court | U.S. Court of Appeals — Fifth Circuit |
S. Robert Hammond, Jr., Nancy E. Steen, Bryant, Colingo, Williams & Clark, Hattiesburg, Miss., for defendants-appellants.
Charles E. Hughes, Green, Cheney & Hughes, Jackson, Miss., for Middle South Energy, Inc. and Coatings Mfrs., Inc.
Appeal from the United States District Court for the Southern District of Mississippi.
Before KING, GARWOOD and DUHE, Circuit Judges.
An unpaid equipment supplier filed statutory stop payment notices with the owner of a construction project pursuant to Sec. 85-7-181 Miss.Code Ann. (1972) (Add. A.) (Sec. 85-7-181), which permits an unpaid subcontractor to bind funds owed to the contractor by the owner. In order to release the funds, Coatings Manufacturers, Inc. (CMI), the contractor, and the owner, Middle South Energy, Inc. (Middle South) 1 filed this diversity action in federal district court. They sought a judgment against DPI, Inc. (DPI), the equipment supplier, and Delta Painters, Inc. (Delta Painters), the subcontractor, declaring that Sec. 85-7-181 is not applicable to equipment rentals. The district court granted partial summary judgment in favor of the plaintiffs, concluding that the stop payment notices were invalid because the statute did not apply to equipment suppliers. Because we find no error in the district court's application of Mississippi law, we affirm.
In 1985, Delta Painters, a subcontractor, and CMI, the general contractor, entered a joint venture known as Delta-CMI. Delta-CMI contracted with Middle South, the owner, to paint at the Grand Gulf Nuclear Station construction project in Mississippi. DPI, a separate corporation, furnished painting equipment to Delta-CMI for use on the project. Delta-CMI submitted monthly invoices to Middle South for labor, materials, and equipment rental.
In February of 1983, Delta Painters assigned its rights under the Middle South contract to CMI and ceased work at the project. At the time of the assignment, Delta-CMI owed DPI rental fees for equipment. Following the assignment, CMI continued to rent equipment from DPI and to submit monthly charges to Middle South. Middle South paid CMI the equipment rental charges on a "dollar for dollar" basis.
DPI, however, did not receive payment from CMI and delivered a stop payment notice to Mississippi Power & Light Company, agent for Middle South, for $65,720.95--the amount of the equipment rental for the months of January through May 1983. DPI delivered a second stop payment notice to Mississippi Power & Light Company for $214,000, the total for the equipment rental. DPI issued these stop payment notices pursuant to Sec. 85-7-181, which permits a subcontractor to claim a lien against funds owed to the contractor by filing a stop payment notice with an owner holding such funds.
Following receipt of the stop payment notices, Middle South obtained a letter of credit from CMI's bank in Louisiana to guarantee reimbursement of any amount up to $214,000 that Middle South might be required to pay to DPI. After receipt of this letter of credit, Middle South continued to pay all sums that it owed to CMI under the contract. CMI and Middle South filed this suit in federal district court in order to obtain a declaratory judgment that the statutory stop payment notices were invalid. DPI counterclaimed for the amount of the equipment rental. The district court granted partial summary judgment in favor of CMI and Middle South, finding that Sec. 85-7-181 applies only to services or supplies actually incorporated into the structure and cannot be invoked by a supplier of rental equipment. The case was declared inactive following the bankruptcy fillings of CMI, DPI, and Delta Painters, but was reactivated on April 30, 1990. On May 29, 1990, the district court certified the partial summary judgment granted in favor of Middle South and CMI as a final judgment, and this appeal followed. 2
Both parties contend that the plain language of Mississippi's stop payment notice statute supports their position. DPI also observes that the contract between Delta-CMI and Middle South provided a schedule for the payment of equipment rentals and contends that we should therefore interpret the Mississippi statute more broadly. Finally, DPI contends that the statute must be interpreted in light of the equitable principles of the construction trust fund doctrine. Under the construction trust fund doctrine, a contractor is deemed to hold funds paid by the owner in trust for the benefit of subcontractors. DPI argues that we should interpret the statute broadly because the policy underlying the stop payment notice statute and the construction trust fund doctrine favor payment of the subcontractor and such payment is not detrimental to the owner's property rights.
Middle South argues that Mississippi case law interpreting similar language in other construction lien statutes supports its position that a supplier of rental equipment cannot claim the benefits of the stop payment notice statute. Both parties admit, however, that Mississippi has not resolved the specific question of whether a supplier of rental equipment can claim the benefit of the stop-payment notice statute. Middle South disagrees that the contract required payment of the equipment rental, and argues that the terms of the contract are not relevant to our interpretation of Sec. 85-7-181. Middle South also contends that Mississippi does not recognize the construction trust fund doctrine. Finally, Middle South asserts that DPI's claim for equipment rental is time barred, and that the Mississippi stop payment notice statute is unconstitutional.
On review of a grant of summary judgment, we apply the same substantive standard as the district court, which is whether a genuine issue exists concerning any material fact and, if not, whether the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56; City of Madison, Miss. v. The Bear Creek Water Ass'n, Inc., 816 F.2d 1057 (5th Cir.1987). The facts in this case are essentially undisputed, and we review solely to determine whether Middle South was entitled to judgment as a matter of law. When issues of state law are complex and not clearly controlled by statute or decision, we give great deference to the district court's interpretation of the law of the state in which it sits. Acree v. Shell Oil Co., 721 F.2d 524, 525 (5th Cir.1983); Mitchell v. Random House, Inc., 865 F.2d 664, 668 (5th Cir.1989). Because the Mississippi court has not resolved the question of whether a supplier of rental equipment can validly effect a stop payment notice, we examine the language of the statute, and if unclear, other Mississippi statutes and case law to determine how the Mississippi Supreme Court likely would interpret the statutory language were the question presented to it. Erie R. Co. v. Tompkins, 304 U.S. 64, 79, 58 S.Ct. 817, 822, 82 L.Ed. 1188 (1938).
Section 85-7-181 states in pertinent part:
When any contractor or master workman shall not pay any person who may have furnished materials used in the erection, construction, alteration, or repair of any house, building, structure, fixture, boat, watercraft, railroad, railroad embankment, the amount due by him to any subcontractor therein, or the wages of any journeyman or laborer employed by him therein, any such person, subcontractor, journeyman or laborer may give notice in writing to the owner thereof of the amount due him and claim the benefits of this section....
DPI argues that it is a person who furnished materials (equipment) used in the construction of a structure. Middle South, on the other hand, contends that in order to fall under the statute a person must furnish materials actually incorporated into the structure. The right of a subcontractor to assert a lien against the owner, Middle South observes, is in derogation of the common law, which made the subcontractor merely a general creditor of the contractor and provided for no action against the owner. Middle South notes that the statute does not explicitly include suppliers of rental equipment and argues that we should not imply a right to assert a lien against the owner unless clearly supported by the statutory language. Because the statutory language does not clearly supports either party's position, we proceed to examine the relevant case law in order to determine how the Mississippi Supreme Court likely would resolve this question.
Neither party has been able to cite controlling Mississippi authority on this issue. Middle South argued, however, and the district court agreed, that the Mississippi Supreme Court has construed language similar to Sec. 85-7-181 to exclude equipment rental. The district court and Middle South rely primarily upon Great American Insurance Co. v. Busby, 247 Miss. 39, 150 So.2d 131 (1963) ( MISS.CODE ANN. Sec. 374 (1942)). In Busby, a subcontractor sought to enforce an indemnity bond against the surety. The court observed that generally a materialman does not have an action on a bond to indemnify the owner against pecuniary loss. That rule had been modified, the court noted, by MISS.CODE ANN. Sec. 374 (1942), which makes a materialman a third party beneficiary of a contractor's bond. That section in pertinent part states:
When any contractor or subcontractor entering into a formal contract with any person, firm or corporation, for the construction of any building or work or the doing of any repairs, shall enter into a bond with such person, firm or corporation guaranteeing the faithful performance of such contract and containing such provisions and penalties as the parties thereto...
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