Economy Forms Corp. v. City of Cedar Rapids

• Decision Date: 23 November 1983
• Docket Number: No. 69068,69068
• Parties: ECONOMY FORMS CORPORATION, Appellee, Cross-appellant, v. CITY OF CEDAR RAPIDS, City of Cedar Rapids City Council, and Cedar Hills Construction Company, Defendants, W.R. Hennessey and Son, Inc., and Hartford Accident and Indemnity Company, Appellants, Cross-appellees.
• Court: Iowa Supreme Court

Page 259

340 N.W.2d 259

ECONOMY FORMS CORPORATION, Appellee, Cross-appellant, v. CITY OF CEDAR RAPIDS, City of Cedar Rapids City Council, and Cedar Hills Construction Company, Defendants, W.R. Hennessey and Son, Inc., and Hartford Accident and Indemnity Company, Appellants, Cross-appellees.

No. 69068.

Supreme Court of Iowa.

Nov. 23, 1983.

Donald C. Hoskins, Marion, for appellants, cross-appellees.

Gene R. LaSuer of Davis, Hockenberg, Wine, Brown & Koehn, Des Moines, for appellee, cross-appellant.

Considered by REYNOLDSON, C.J., and UHLENHOPP, HARRIS, McCORMICK, and McGIVERIN, JJ.

McCORMICK, Justice.

Plaintiff Economy Forms Corporation leased concrete forms to a subcontractor on a public improvement who defaulted in rental payments. Plaintiff subsequently claimed the rentals from the general contract retainage held by the public body pursuant to Iowa Code chapter 573. After trial of the claim in equity, the trial court entered judgment for the rentals for plaintiff against the subcontractor, general contractor and general contractor's bonding company. Upon this appeal by the general contractor and the bonding company, we affirm the trial court. We also affirm on plaintiff's cross-appeal from the failure of the trial court to award attorney fees.

The issues are whether chapter 573 denied the general contractor due process and equal protection, whether the claim was properly filed, whether the court erred in determining the amount of plaintiff's recovery, and whether plaintiff should have been awarded attorney fees. Before addressing these issues, we state the facts as we find them in our de novo review.

Defendant William R. Hennessey & Son, Inc. (Hennessey) entered a contract with the City of Cedar Rapids to install storm sewers for the city. In turn, Hennessey subcontracted with defendant Cedar Hills Construction Company (Cedar Hills) for cement work on the project. Cedar Hills leased concrete forms from plaintiff to use in doing its work. Hennessey received progress payments from the City and made periodic payments to Cedar Hills. Employees of Cedar Hills were carried on Hennessey's payroll and were paid directly by Hennessey on a regular basis.

Cedar Hills fell behind in its rental payments to plaintiff, and plaintiff repeatedly requested that the account be paid. On August 6, 1979, plaintiff sent a letter to Hennessey and Cedar Hills requesting payment. Subsequently plaintiff furnished Hennessey with copies of all invoices for leased material. Hennessey made a progress payment to Cedar Hills of $20,000 on August 28, 1979, and only $12,000 of that amount was paid to plaintiff. As of March 3, 1980, Cedar Hills owed plaintiff $49,067.47 in unpaid rentals.

On March 29, 1980, plaintiff mailed a claim against Cedar Hills and Hennessey for $49,067.40 to the city engineer. In June 1980 plaintiff furnished the City an affidavit supporting its claim and reciting that Hennessey was given copies of plaintiff's invoices by Cedar Hills while construction was still in progress.

On July 16, 1980, the city council passed a resolution accepting Hennessey's work on the project and making payment to Hennessey of the contract retainage less $98,134.80, twice the amount of the plaintiff's claim, which the resolution recited was to be held until disposition of the claim. Hennessey later filed a bond with defendant Hartford Accident and Indemnity Company as surety to obtain release of the retainage. This is the basis for the bonding company's involvement in the case. In September 1980 plaintiff filed the present action and eventually recovered the judgment from which this appeal was taken.

I. Constitutionality of chapter 573. Hennessey attacks chapter 573 on due process and equal protection grounds under the fourteenth amendment of the United States Constitution and Article I, sections 1 and 6 of the Constitution of Iowa. The due process attack is premised on the contention that by requiring the City to withhold funds due the contractor "without notice or hearing" the statute denies procedural due process to the contractor. See Iowa Code §§ 573.12-573.14 (1979). The equal protection attack is based in part on the double withholding requirement when claims are filed. See § 573.14. It is also based on the differential treatment given general contractors on public improvements and contractors on private work. See Iowa Code ch. 572.

Hennessey's due process attack on the contract payment retainage is palpably without merit. This situation is unlike the problem addressed in Fuentes v. Shevin, 407 U.S. 67, 92 S.Ct. 1983, 32 L.Ed.2d 556 (1972), and its progeny. Here there is no seizure of another's property. Instead the legislature has simply mandated, in advance, how payments are to be made under contracts for the construction of public improvements. At the time material here, section 573.12 provided:

Payments made under contracts for the construction of public improvements, unless provided otherwise by law, shall be made on the basis of monthly estimates of labor performed and material delivered. In making said payments, there shall be retained ten percent of each said monthly estimate by the public corporation; provided, however, that if the contract is for more than fifty thousand dollars, and if the public corporation at any time after fifty percent of the improvement has been completed finds that satisfactory progress is being made, the public corporation may authorize any of such remaining payments to be made in full.

Section 573.14 requires retention from final payment to the contractor of "a sum not less than double the total amount of all claims on file." These provisions became part of Hennessey's contract obligation. No additional notice and opportunity for hearing were required. Cf. Keith Young & Sons Construction Co. v. Victor Senior Citizens Housing, Inc., 262 N.W.2d 554 (Iowa 1978) (upholding mechanic's lien provisions of chapter 572 when attacked on due process grounds).

Hennessey also argues generally the alleged unreasonableness of the burdens imposed on a prime contractor by chapter 573. We find this argument does not rise to constitutional dimensions. Rather it concerns the policy and wisdom of the enactment. Those considerations are a matter of legislative prerogative.

The issue of discriminatory burdens also underlies Hennessey's equal protection argument. Because no fundamental rights are involved, traditional equal protection analysis applies. See Lunday v. Vogelmann, 213 N.W.2d 904, 907 (Iowa 1973).

Hennessey asserts the requirement of withholding of double the amount of claims is discriminatory because it singles out prime contractors on public improvements for unnecessarily large security requirements. The General Assembly obviously exercised its judgment concerning the amount necessary to secure a claimant on public projects. Because costs, interest, and attorney fees may increase the allowable amount, we cannot say as a matter of constitutional law that the withholding is larger than necessary to secure payment of claims.

In providing for different treatment of contractors with public bodies than is provided private contractors in chapter 572, the legislature cannot be said to have acted without a rational basis. A statutory scheme which would secure those dealing with contractors by providing for mechanic's liens would obviously be ill-suited to public improvements. Normally it is impossible to obtain a lien on public property. Lennox Industries, Inc. v. City of Davenport, 320 N.W.2d 575, 577 (Iowa 1982). Moreover, the General Assembly could reasonably believe that the public should not be exposed to liability for risks that are subject to the control of private contractors. It merely provided by statute what private owners may provide by contract. See, e.g., United States Fidelity & Guaranty Co. v. First State Bank of Salina, 208 Kan. 738, 739-40, 494 P.2d 1149, 1150 (1972); National Union Fire Insurance Co. of Pittsburgh v. Denver Brick & Pipe Co., 162 Colo. 519, 528-31, 427 P.2d 861, 866-67 (1967). We hold that chapter 573 does not deny general contractors equal protection on the basis alleged.

Throughout its...