Aetna Cas. and Sur. Co. v. United States

• Decision Date: 17 June 1981
• Docket Number: No. 454-79C,455-79C.,454-79C
• Citation: 655 F.2d 1047
• Parties: The AETNA CASUALTY AND SURETY COMPANY, a corporation, v. The UNITED STATES. Curtis JOHNSON, etc. v. The UNITED STATES.
• Court: U.S. Claims Court

655 F.2d 1047

The AETNA CASUALTY AND SURETY COMPANY, a corporation, v. The UNITED STATES.

Curtis JOHNSON, etc. v. The UNITED STATES.

Nos. 454-79C, 455-79C.

United States Court of Claims.

June 17, 1981.

COPYRIGHT MATERIAL OMITTED

Conrad L. Squires, Los Angeles, Cal., for plaintiff in 454-79C; John W. Heinemann, Los Angeles, Cal., attorney of record. Haase & Heinemann, Los Angeles, Cal., of counsel.

John W. Heath, Jr., Los Angeles, Cal., attorney of record, for plaintiff in 455-79C.

Robert G. Giertz, Washington, D. C., with whom was Asst. Atty. Gen., Alice Daniel, Washington, D. C., for defendant. Ray Goddard, Washington, D. C., of counsel.

Before DAVIS, NICHOLS and KASHIWA, Judges.

ON THE PARTIES' CROSS MOTIONS FOR SUMMARY JUDGMENT

KASHIWA, Judge.

These consolidated cases come before the court on cross motions for summary judgment after transfer from a district court. We must decide whether the plaintiffs, a construction company and its surety, may sue the United States for their alleged losses in completing a federally insured housing project. After consideration of the parties' written and oral submissions, we dismiss these petitions.

Plaintiff Curtis Johnson (Johnson) is a construction company. Johnson substantially completed a housing project known as the University Gardens project under a construction contract with the owner, the Hoover Interfaith Housing Corporation (Hoover). Johnson brings this action to recover $278,483 (plus attorneys' fees and costs) supposedly owed it for work done under the contract with Hoover.

Plaintiff Aetna Casualty and Surety Company (Aetna) provided Johnson with performance and payment bonds to be given Hoover and Pacific Mutual Life Insurance Company (Pacific) (Hoover's lender) to ensure Johnson's contract performance. Aetna brings this action as subrogee to recover funds which it paid Johnson's subcontractors and materialmen when Johnson became unable to make the required payments. Aetna seeks recovery in the amount of $152,350.49 plus interest. This amount represents $118,160.51 paid by Aetna to subcontractors and materialmen and $34,189.98 in attorneys' fees and costs. Alternatively, Aetna claims entitlement to an unpaid final progress payment and certain retainages aggregating $150,542 (plus interest).

The financing for the University Gardens project was insured by the Department of Housing and Urban Development (HUD) pursuant to the National Housing Act.¹ Under the relevant provisions,² HUD insured 100 percent of a secured construction loan (the mortgage) between Hoover (a non-profit private corporation created to own the resulting low-income housing) and Pacific (the commercial lender). Separate agreements were executed between these multiple parties, including the construction contract between Johnson and Hoover, the Building Loan Agreement and other financing arrangements between Hoover and Pacific, a mortgage insurance agreement between Pacific and HUD, and a regulatory agreement (detailing property management and like concerns) between HUD and Hoover. As a practical matter, HUD was intimately involved with all details of the project from its inception.

Normally, amortization of section 236 project mortgages begins after the project is occupied. Interest on the construction loan is incorporated into the principal of the section 236 mortgage, and thus, owners undertaking such projects need little, if any, operating capital. Section 236 owners are generally non-profit, private corporations formed to hold formal title to the property. Should default on the mortgage occur, the mortgagee has the option of assigning the mortgage to HUD and receiving reimbursement of all approved advances, plus interest. Other options are also available to the mortgagee, including renegotiation of the loan, foreclosure, or accepting voluntary conveyance of the property.

Under the construction contract, the contractor receives progress payments as expenses are incurred. Payment requests are submitted to the non-profit owner, who in turn requests corresponding mortgage proceeds. Assuming the loan is in balance, i. e., remaining loan proceeds equal or exceed costs of completion (including those for delivered materials and rendered services), the lender and HUD approve the advance, less a 10 percent retainage. The reduced advance is made to the owner and, ultimately, the contractor. The retainages are payable after the project is complete, state and local occupancy certification occurs, and HUD approves.³

Construction of this project was substantially complete by December 2, 1971. Various local authorities and HUD approved the project for occupancy shortly thereafter. However, at that time the remaining mortgage proceeds were apparently inadequate to cover remaining costs.⁴ Pacific, with HUD's approval, therefore withheld disbursement of the final progress payment ($17,162) and the retainages ($133,380) pending settlement of the unpaid costs.⁵ Thereafter, although the project was at least partially occupied, Hoover defaulted on the amortization, although the exact date of technical default is unclear from this record. Negotiations followed without result. Johnson filed a mechanic's lien under California law on the property. Also during this period, Johnson was unable to pay the materialmen and subcontractors. As surety, Aetna paid the subcontractors and materialmen. Pursuant to an arbitration clause in the construction contract, Johnson was awarded $272,358 (plus costs) against Hoover. In early 1973 Hoover sought proceedings under Chapter 11 of the Bankruptcy Act of 1898, formerly 11 U.S.C. §§ 701 et seq. Hoover was formally declared in default on the mortgage in August 1973, and thereafter, the mortgage was assigned to HUD. HUD ultimately foreclosed the mortgage.

Eventually, district court litigation in the Ninth Circuit ensued between Aetna, Johnson, Hoover, Pacific, and HUD. Judgment was entered for Aetna against Johnson totaling $203,958.88. However, the district appeals court determined under Marcus Garvey Square, Inc. v. Winston Burnett Construction Co., 595 F.2d 1126 (9th Cir. 1979), that the actions against HUD were in reality against the United States and in excess of the $10,000 Tucker Act limit on such actions in the district courts. See 28 U.S.C. § 1346(a)(2) (1976). The reformed actions were transferred to this court under 28 U.S.C. § 1406(c) (1976) and consolidated. These cross motions for summary judgment followed.

These suits, of course, are proper only insofar as the United States has waived its sovereign immunity and consented to suit. See United States v. Mitchell, 445 U.S. 535, 538, 100 S.Ct. 1349, 1352, 63 L.Ed.2d 607 (1980); United States v. Testan, 424 U.S. 392, 399, 96 S.Ct. 948, 953, 47 L.Ed.2d 114 (1976); United States v. Sherwood, 312 U.S. 584, 586, 61 S.Ct. 767, 769, 85 L.Ed. 1058 (1941). Waivers of the immunity "cannot be implied, but must be unequivocally expressed." United States v. King, 395 U.S. 1, 4, 89 S.Ct. 1501, 1502, 23 L.Ed.2d 52 (1969); Soriano v. United States, 352 U.S. 270, 276, 77 S.Ct. 269, 273, 1 L.Ed.2d 306 (1957). Similarly, any waiver must be strictly construed. See, e. g., Schillinger v. United States, 155 U.S. 163, 167-169, 15 S.Ct. 85, 86-87, 39 L.Ed. 108 (1894); Minnesota v. United States, 305 U.S. 382, 388-389, 59 S.Ct. 292, 295-296, 83 L.Ed. 235 (1939). Thus, except as Congress has expressly consented, "there is no jurisdiction in the Court of Claims more than in any other court to entertain suits against the United States." United States v. Sherwood, supra 312 U.S. at 587-588, 61 S.Ct. at 770-771.

The Tucker Act, 28 U.S.C. § 1491 (1976), is the general Congressional consent to suit in this court. Under the Tucker Act, suit in this court is proper only as to actions "founded either upon the Constitution or any Act of Congress, or any regulation of an executive department, or upon any express or implied contract with the United States, or for liquidated or unliquidated damages in cases not sounding in tort." Transfer of this case from the district court does not found jurisdiction here, Berdick v. United States, 222 Ct.Cl. 94, ___, 612 F.2d 533, 536 (1979), and if these claims are not within one of the categories enumerated by the Tucker Act, the petitions must be dismissed. Several theories are advanced to support jurisdiction.

EXPRESS OR IMPLIED CONTRACT

Plaintiffs⁶ begin by conceding that Johnson's construction contract was with Hoover, not the United States. Nevertheless, plaintiffs argue, the United States has implicitly contracted with Johnson to provide this low-cost housing. Hoover, plaintiffs say, was in reality a "creature of HUD," that is, a corporate shell (with grossly inadequate capital) created exclusively to facilitate this project. All parties, plaintiffs continue, were aware HUD was the true source of capital. HUD drafted all relevant documents. HUD approved all mortgage advances. HUD required all work to be of a certain quality. In short, HUD conceived, implemented, and supervised this project in intimate detail to effect the statutory goal of rental housing for the nation's poor. These facts, the argument goes, require this court to disregard the contracting intermediaries, Hoover and Pacific, and to conclude a contract existed between the United States and Johnson on which plaintiffs can sue.

We cannot agree. Plaintiffs' allegations are but the most recent in a litany of cases⁷ where those indirectly associated with a dispensation of the federal largess have sought to recover an assortment of damages from the Government. It is well-settled, however, that where the United States does not make itself a party to the contracts which implement important national policies, no express or implied contracts result between the United States and those who will ultimately perform the work. This doctrine is hardly novel, for its roots date to Jones v. United States, 1 Ct.Cl. 383 (1865). It was first clearly...