Chicago Rigging Co. v. Uniroyal Chemical Co., Inc., 87 C 10922.

CourtUnited States District Courts. 7th Circuit. United States District Court (Northern District of Illinois)
Citation718 F. Supp. 696
Docket NumberNo. 87 C 10922.,87 C 10922.
PartiesCHICAGO RIGGING COMPANY, Plaintiff, v. UNIROYAL CHEMICAL CO., INC., Defendant.
Decision Date17 July 1989

James M. Dupree, John M. Mack, Aaron D. Robinson, Holstein Mack & Dupree, Chicago, Ill., for plaintiff.

Michael Lapat, Schwartz and Ginsberg, Chicago, Ill., Wayne Kuep, Epstein, Becker and Green, P.C., Washington, D.C., for defendant.

MEMORANDUM OPINION AND ORDER

NORDBERG, District Judge.

I. INTRODUCTION

The plaintiff, Chicago Rigging Co., has brought this suit pursuant to the Miller Act, 40 U.S.C. §§ 270a-270d (1982), which governs the rights of persons furnishing labor or materials in the construction, alteration, or repair of any public building or public work of the United States. The defendant, Uniroyal Chemical Co., Inc. (Uniroyal), was awarded a government contract for the demolition of certain buildings, but did not require the subcontractor of the project, D.A. Principali Engineering, Inc. (PEI), to obtain a payment bond. The plaintiff, who subcontracted with PEI to perform all the demolition and removal work, now claims that PEI has not paid it in full and that Uniroyal is responsible because it negligently failed to secure the bond.1

The defendant has filed a motion to dismiss the second amended complaint2 for failure to state a claim and for lack of subject matter jurisdiction.3 In support of this motion, the defendant claims that 1) a payment bond never was required because the demolition contract did not fall within the scope of the Act, and 2) in any event, the plaintiff failed to comply with the notice provisions of the Act. For the following reasons, the court grants the defendant's motion to dismiss the cause of action.

II. FACTS

Uniroyal was awarded a contract with the United States Army under which Uniroyal was responsible for the operation and maintenance of the Joliet Army Ammunition Plant and had the power to award contracts for demolition work at the plant. Pursuant to this authority, in March 1987 Uniroyal awarded a subcontract to PEI for the handling and disposing of asbestos fibers and the demolition and disposal of Buildings 703, 708, and 720; work on the project was to begin on April 1, 1987, and the project was to be completed by September 30, 1987. See Motion to Dismiss, Exh. C. According to the terms of the agreement, PEI was to receive $400,000, with a 15% retention to be paid upon completion of the work. In addition, the plaintiff alleges that PEI originally was required to post performance and payment bonds, but when PEI was unable to post the payment bond, Uniroyal then waived the bond and increased the retention from 15% to 35% of the contract.

PEI in turn subcontracted with the plaintiff to perform all the demolition and removal work. Initially, the subcontract was for $300,000 with a 15% retention, but the plaintiff later subcontracted for additional work totalling $4,950. The plaintiff completed the work on September 15, 1987, and billed PEI accordingly. On September 1, 1987, the plaintiff received payment, less the 15% retention, for the demolition and removal of Building 720. On September 9, 1987, the plaintiff received payment, less the 15% retention, for work associated with Building 708. Finally, on September 28, 1987, the plaintiff received a partial payment of $100,000 (out of the $158,100 that was due) for the demolition and removal of Building 703. Thus, as of the filing of the complaint, PEI still owed the plaintiff $107,950 for the project: $58,000 for the demolition of Building 703; $4,950 for the additional subcontracted work; and $45,000, which represents the 15% retention that was to be paid upon completion of the work.

From September 28, 1987, to October 14, 1987, the plaintiff's foreman at the Joliet site, Dave Kerr, telephoned the president of PEI and demanded payment. PEI told Kerr that it was awaiting payment from Uniroyal of its retention. On October 14, Kerr telephoned Uniroyal and was informed that on September 28 Uniroyal had paid PEI the 35% retention and that PEI already had spent the money. See Second Amended Complaint, Exh. A (affidavit of Dave Kerr).

On November 6, Kerr met with several Uniroyal representatives and told them that Chicago Rigging had not received payment from PEI; that Chicago Rigging may have to sue PEI and Uniroyal for the over $100,000 owed; and that he thought the Miller Act provided Chicago Rigging with a remedy against Uniroyal. See id. The plaintiff claims that the Uniroyal representatives told Kerr that Uniroyal was exempt from the Miller Act because the property involved was government-owned and contractor-operated, as opposed to government-owned and operated. See id. The Uniroyal representatives then discussed possible alternative remedies for Chicago Rigging. Believing that the Miller Act might apply to this case, Chicago Rigging filed this complaint on December 30, 1987.

III. ANALYSIS
A. Overview of the Miller Act

On a private construction project, subcontractors can secure payment through use of mechanics' and materialmen's liens. On a government project, however, such remedies are unavailable because the doctrine of sovereign immunity precludes liens against government property. Arvanis v. Noslo Eng'g Consultants, Inc., 739 F.2d 1287, 1288-89 (7th Cir.1984), cert. denied, 469 U.S. 1191, 105 S.Ct. 964, 83 L.Ed.2d 969 (1985). To protect subcontractors, and to encourage potential subcontractors to participate in government projects, Congress passed the Miller Act.4 The statute requires that before the United States awards a contract exceeding $25,000 for the construction, alteration, or repair of any public building, the contractor must furnish the government with two bonds. The contractor first must furnish a performance bond sufficient to protect the interests of the United States. 40 U.S.C. § 270a(a)(1). For the protection of subcontractors, the contractor must furnish a payment bond, generally in the amount of 50% of the value of the job awarded. Id. § 270a(a)(2).5

The Act also provides a private right of action on the payment bond for those who furnished labor and materials and who have not been paid for their work. Id. § 270b(a). The Act attaches three conditions to this right, however. First, if such person has dealt exclusively with the subcontractor and has had no direct contractual relationship with the prime contractor, he must give written notice of his claim to the prime contractor:

Every person who has furnished labor or material in the prosecution of the work provided for in such contract ... and who has not been paid in full ... shall have the right to sue on such payment bond for the amount, or the balance thereof, unpaid at the time of institution of such suit ...: Provided, however, That any person having direct contractual relationship with a subcontractor but no contractual relationship express or implied with the contractor furnishing said payment bond shall have a right of action upon the said payment bond upon giving written notice to said contractor....

Id. (emphasis in original).

Second, the notice must be provided within ninety days from the date on which the subcontractor performed the last of the labor or furnished the last of the material. Furthermore, the notice must state with "substantial accuracy" the amount claimed and the name of the party to whom the material was furnished or for whom the labor was performed. In addition, the notice must be served by registered mail, postage prepaid, in an envelope addressed to the contractor at any place he conducts his business, at his residence, or in any other manner in which the United States marshal of the district in which the public improvement is situated is authorized by law to serve summons. Id. The purpose of this notice requirement is to protect prime contractors by establishing a date beyond which, in the absence of notice, the contractor will not be liable for the debts of the subcontractors.

Third, the aggrieved subcontractor must bring suit in the name of the United States for the use and benefit of the subcontractor in the district in which the contract was to be executed. Furthermore, such suit must be instituted within one year after the day on which the last of the labor was performed or material was supplied. Id. § 270b(b). Although the Act is remedial in nature and should be construed liberally to effectuate its purpose, "the giving of notice and bringing of suit within the prescribed time is a condition precedent to the right to maintain the action." United States ex rel. Material Serv. Div. of Gen. Dynamics Corp. v. Home Indem. Co., 489 F.2d 1004, 1005 (7th Cir.1973).

In this case, since Uniroyal furnished no bond, the plaintiff is not suing on a bond, but rather is suing on a negligence theory for failure to secure a bond.6 The plaintiff claims that Uniroyal knew from the beginning of Chicago Rigging's subcontract with PEI and had a duty to require PEI to comply with the Miller Act prior to awarding PEI the $400,000 contract. One of these duties, the plaintiff alleges, was that Uniroyal, as the prime contractor, had to secure a bond for the protection of subcontractors hired to perform work at the plant. By failing to require such a bond from PEI, the plaintiff claims, Uniroyal breached its duty to Chicago Rigging and therefore is liable for the sums due Chicago Rigging under its subcontract with PEI. Furthermore, the plaintiff claims that because Uniroyal did not obtain a payment bond, it should not have paid PEI the 35% retention on the contract until it was assured that the other subcontractors had been paid.

In response, Uniroyal first claims that since this is a contract solely for demolition, and not construction, the Miller Act does not apply and Uniroyal therefore was not required to obtain a payment bond. Uniroyal next asserts that since there was no contractual relationship between Uniroyal and Chicago...

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