Continental Casualty Co. v. Allsop Lumber Co.

• Decision Date: 22 September 1964
• Docket Number: No. 17528,17530.,17528
• Citation: 336 F.2d 445
• Parties: CONTINENTAL CASUALTY COMPANY, Inc., et al., Appellants, v. ALLSOP LUMBER COMPANY, Inc., et al., Appellees. ALLSOP LUMBER COMPANY, Inc., et al., Appellants, v. CONTINENTAL CASUALTY COMPANY, Inc., et al., Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

336 F.2d 445 (1964)

CONTINENTAL CASUALTY COMPANY, Inc., et al., Appellants, v. ALLSOP LUMBER COMPANY, Inc., et al., Appellees.

ALLSOP LUMBER COMPANY, Inc., et al., Appellants, v. CONTINENTAL CASUALTY COMPANY, Inc., et al., Appellees.

Nos. 17528, 17530.

United States Court of Appeals Eighth Circuit.

August 26, 1964.

Rehearing Denied September 22, 1964.

COPYRIGHT MATERIAL OMITTED

John A. Biersmith, Kansas City, Mo., for Continental Casualty Co., etc., et al.

Frank J. Gaffney, of Thorp, Reed & Armstrong, Pittsburgh, Pa., Arthur Cohn, of Cohn & Lentz, Waynesville, Mo., for Allsop Lumber Co., et al.

Before VOGEL, MATTHES and BLACKMUN, Circuit Judges.

BLACKMUN, Circuit Judge.

Allsop Lumber Company, Inc., instituted this action against D & L Construction Company & Associates, a joint venture, against those comprising the venture, and against Continental Casualty Company, Inc., the venture's payment bond surety, to recover $93,088.84. This amount was claimed to be the balance due Allsop on approximately $1,000,000 of lumber furnished for use in two housing projects constructed at Fort Leonard Wood, Missouri, under the Capehart Housing Act, now part of the National Housing Act, 42 U.S.C. §§ 1594-1594j, and 12 U.S.C. §§ 1748-1748g. The answer asserted several defenses and was accompanied by a counterclaim for $47,783.37.

The case was tried to the court. Judge Duncan, in an unreported memorandum, decided some issues for the plaintiff and others for the defendants. He entered judgment in favor of Allsop in the net amount of $81,488.28. Both sides have appealed.

In August 1959 D & L, as the prime contractor, entered into two separate contracts¹ with the United States, through the Department of the Army, and the respective mortgagor-builders for the construction of about 700 units of military housing at the Fort. The joint venture participants, as principal, and Continental, as surety, executed a dual obligee payment bond to accompany each contract. Each bond was for several million dollars, was on a form administratively approved, was conditioned upon prompt payment "to all claimants * * * for all labor and materials furnished in the prosecution of the work", and authórized direct action against the surety subject to stated conditions which, so far as pertinent here, are set forth in the margin.² On January 27, 1960, D & L, as contractor, and Allsop, as subcontractor, signed an agreement whereby Allsop undertook to furnish D & L with the lumber required in the construction of the housing. From the relationships so created the present lawsuit emerges.

The defendants on their appeal assert that the district court erred when it concluded (a) that it had jurisdiction of the subject matter under 28 U.S.C. § 1352; (b) that it had jurisdiction of the persons of those defendants who were served outside Missouri; (c) that the notice provisions of the bonds had been satisfied; (d) that Allsop was not required to show either the actual incorporation of its lumber into the project or the reasonable value of that lumber; (e) that the parties had agreed that the price of shakes was erroneously stated in the subcontract but was appropriately corrected; and (f) that the defendants were not entitled to recover the cost of handling and disposing of truss material. Allsop on its appeal asserts that the district court erred (g) in allowing the defendants the cost of backpriming siding material and (h) in failing to allow Allsop prejudgment interest.

1. Jurisdiction of the subject matter. In its amended complaint Allsop claimed federal court jurisdiction both under the Miller Act, 40 U.S.C. §§ 270a and 270b, and under the bond statute, 28 U.S.C. § 1352. The latter reads, "The district courts shall have original jurisdiction, concurrent with State courts, of any action on a bond executed under any law of the United States". Diversity facts, while apparently existent, were not fully alleged by Allsop and no attempt was made to complete them by further amendment of the complaint.

Judge Duncan held that, so far as subject matter jurisdiction was concerned, the Miller Act was not applicable to Capehart construction, but that his court had such jurisdiction under § 1352 because "A bond executed pursuant to the requirements of the Capehart Act is clearly a bond required by the laws of the United States".

The defense argument is that the federal district court is one of expressly defined jurisdiction; that this is to be strictly construed; that the only bond provision of the Capehart Act is that added in 1956, 70 Stat. 1110, to 42 U.S.C. § 1594(a), requiring that a Capehart contract "provide for the furnishing by the contractor of a performance bond and a payment bond with a surety or sureties satisfactory to the Secretary of Defense"; that the command of the statute is directed to the administrator; and that the bonds were executed, not to satisfy the law, but to satisfy the contract. The defense further argues that all pre-Capehart cases were handled as any other routine case and depended upon diversity or the existence of a federal question for federal court jurisdiction; that if a statute requires only the giving of a bond and does not substantially affect the nature of the cause, federal jurisdiction is lacking; that the Miller Act provides another and different basis for federal court jurisdiction because it requires that the action be brought in the name of the United States; that § 1352 is to be tested by its intended purpose; that as so tested it can have no application to an action by a private party on a private bond; and that, therefore, no federal question is presented here.

This defense argument may have some appeal but at this date it does not persuade us. After all, the Capehart Act is concerned with a government need, that is, "the construction of urgently needed housing on lands owned or leased by the United States and situated on or near a military reservation or installation for the purpose of providing suitable living accommodations for military personnel". 42 U.S.C. § 1594(a). It further provides that each housing unit, when available for occupancy, shall be placed under the control of the Secretary and shall be "deemed to be housing facilities under the jurisdiction of the military department to which they are assigned"; that, with a stated exception, the stock of the mortgagor shall be transferred to the Secretary when the housing is completed; and that the contract shall contain "such terms and conditions as the Secretary may determine to be necessary to protect the interests of the United States". All this demonstrates the reality and the integrity of the government's interest. See United States Fid. & Guar. Co. v. United States ex rel. Kenyon, 204 U.S. 349, 27 S.Ct. 381, 51 L.Ed. 516 (1907). Contrast the situation in Mudd v. Teague, 220 F.2d 162 (8 Cir. 1955). Furthermore, the furnishing of the bond is, under the statute, mandatory and is not permissive. These factors, it seems to us, qualify these payment bonds as ones "executed under any law of the United States", within the meaning of 28 U.S.C. § 1352, and the present suit as an action on such bonds.

We really have decided this issue before. Although the comment in Continental Cas. Co. v. United States for Use and Benefit of Robertson Lumber Co., 305 F.2d 794, 798 (8 Cir. 1962), cert. denied 371 U.S. 922, 83 S.Ct. 290, 9 L.Ed. 2d 231, was by way of a footnote, and is characterized by the defense here as dictum, this court clearly recognized in that opinion the efficacy and the applicability of § 1352 when it said,

"A Capehart bond is clearly a bond required by a `law of the United States,\' hence, federal jurisdiction of a suit on such a bond is established without regard to any relationship between the Miller Act and the Capehart Act."

And in the very recent case of D & L Constr. Co. v. Triangle Elec. Supply Co., 332 F.2d 1009, 1011-1012 (8 Cir. 1964), another panel of this court twice referred to a Capehart bond as one "required by federal law". Other Capehart cases to the same effect are National State Bank of Newark v. Terminal Constr. Corp., 217 F.Supp. 341, 349 (D.N.J.1963), aff'd on the district court's opinion, 328 F.2d 315 (3 Cir.); United States for Use and Benefit of Miles Lumber Co. v. Harrison & Grimshaw Constr. Co., 305 F.2d 363, 366 (10 Cir. 1962), cert. denied, 371 U.S. 920, 83 S.Ct. 287, 9 L.Ed.2d 229; Lasley v. United States for Use of Westerman, 285 F.2d 98, 100 (5 Cir. 1960); United States for Use and Benefit of Fine v. Travelers Indem. Co., 215 F.Supp. 455, 459 (W.D.Mo.1963); Northwest Lumber Sales, Inc. v. S. S. Silberblatt, Inc., 211 F.Supp. 749, 750 (E.D.Mo.1962); Autrey v. Williams & Dunlap, 210 F.Supp. 491, 497 (W.D.La.1962); Minneapolis-Honeywell Regulator Co. v. Terminal Constr. Corp., 41 N.J. 500, 197 A.2d 557, 563 (1964). Miller bond cases of like tenor are United States for Use and Benefit of Bryant Elec. Co. v. Aetna Cas. & Sur. Co., 297 F.2d 665, 669 (2 Cir. 1962), and United States for Use of West Pac. Sales Co. v. Harder Industrial Contractors, Inc., 225 F.Supp. 699, 702 (D.Or. 1963). See 1 Moore's Federal Practice, Par. 0.60 8.-3, p. 626 (1961). See, also, Hartford Acc. & Indem. Co v. Baldwin, 262 F.2d 202, 203 (8 Cir. 1958) where this court said simply, in connection with a livestock dealer's bond required by regulations issued under the authority of the Packers and Stockyards Act, 7 U.S.C. § 204, "There was federal jurisdiction because the bond sued on was executed under the laws of the United States"; Adams v. Greeson, 300 F.2d 555, 557 (10 Cir. 1962), where the court, in connection with such a bond, relied on § 1352; and United States for Use and Benefit of Victory Elec. Corp. v. Maryland Cas. Co., 213 F.Supp. 800, 803, and 215 F.Supp. 700 (E.D.N.Y.1963), where the court mentioned the statute with respect to a bid bond given under the Armed Services Procurement Regulations authorized by the Miller Act.

The...