Farwest Steel Corp. v. Mainline Metal Works, Inc.

• Decision Date: 03 August 1987
• Docket Number: 18369-9-I,Nos. 18295-1-
• Citation: Farwest Steel Corp. v. Mainline Metal Works, Inc., 741 P.2d 58, 48 Wn.App. 719 (Wash. App. 1987)
• Court: Washington Court of Appeals
• Parties: FARWEST STEEL CORPORATION, an Oregon corporation, Appellant, v. MAINLINE METAL WORKS, INC., an Oregon corporation, Defendant, Hensel Phelps Construction Co., a Colorado corporation; the Aetna Casualty & Surety Company, a Connecticut corporation; the State of Washington, Respondents. VALLEY WELDING SUPPLY CO., an Oregon company, Appellant, v. UNIVERSITY OF WASHINGTON, BOARD OF REGENTS, a Washington political body; Hensel Phelps Construction Company, Inc., a Colorado corporation, Respondents, and Mainline Metal Works, Inc., an Oregon corporation, Defendants.

Page 719

48 Wn.App. 719

741 P.2d 58

FARWEST STEEL CORPORATION, an Oregon corporation, Appellant, v. MAINLINE METAL WORKS, INC., an Oregon corporation, Defendant,

Hensel Phelps Construction Co., a Colorado corporation; the

Aetna Casualty & Surety Company, a Connecticut

corporation; the State of Washington,

Respondents.

VALLEY WELDING SUPPLY CO., an Oregon company, Appellant, v. UNIVERSITY OF WASHINGTON, BOARD OF REGENTS, a Washington

political body; Hensel Phelps Construction

Company, Inc., a Colorado corporation, Respondents,

and

Mainline Metal Works, Inc., an Oregon corporation, Defendants.

Nos. 18295-1-I, 18369-9-I.

Court of Appeals of Washington Division I.

Aug. 3, 1987.

Review Denied Nov. 3, 1987.

Gleaves Swearingen, Larsen & Potter, Thomas B. Russell, Eugene, Or., Bogle & Gates, Ronald T. Schaps, Seattle, for appellant Farwest Steel Corp.

John S. Riper, Oles, Morrison, Rinker, Stanislaw & Ashbaugh, and Gary L. Ikeda, Asst. Atty. Gen., Seattle, for respondents Hensel Phelps Const. Co., Aetna Cas. & Sur. Co., The State of Wash.

F.A. WALTERSKIRCHEN, Judge Pro Tem. ^*

The court has consolidated these cases for the issuance of its opinion.

NATURE OF THE CASE

Farwest Steel Corporation (Farwest) appeals from the dismissal by summary judgment of all its claims against Hensel Phelps Construction Company (Hensel) and its surety, Aetna Casualty & Surety Company (Aetna). Farwest assigns error to the granting of Hensel's motion for summary judgment dismissing Farwest's claims against the project's retainage fund, against the public works bond, and for dismissing its claim for quantum meruit or unjust enrichment.

Valley Welding Supply Company (Valley) appeals from the dismissal by summary judgment of its claim against Hensel and the University of Washington on the public works retainage fund.

STATEMENT OF THE FACTS

Hensel is the prime contractor on a $34,275,000 addition to the University of Washington Hospital. Hensel contracted with Mainline Metal Works, Incorporated (Mainline) to fabricate and furnish to Hensel metal items for $225,000. All materials supplied by Mainline came from its Oregon facility and were delivered to the job site. Mainline did the fabricating in Oregon, and did no on-site labor, installation, or supervision. Mainline contracted with Farwest to supply its steel requirements for the Hensel contract. Valley supplied welding materials and other supplies to Mainline for the same contract. Upon its first delivery to Mainline, Farwest notified Hensel that it was commencing deliveries to Mainline for the Hensel project.

Mainline went into bankruptcy before completing its contract with Hensel. By that time Mainline had accumulated an unpaid balance of $150,000 due to Farwest and $16,520 to Valley. Mainline was required to provide Hensel a certified statement listing any significant debts incurred by Mainline in manufacturing the contract items before Hensel would pay Mainline for them. To obtain its periodic payments from Hensel Mainline falsely certified that it owed nothing to Farwest and Valley. Neither Farwest or Valley had ever given notice to Hensel that they were not being paid by Mainline.

Farwest and Valley filed their respective suits, each claiming that since Mainline had not paid them, they had a valid claim against the public works retainage fund pursuant to RCW 60.28.010. In addition, Farwest also claimed it was entitled to recover from the public works bond required by RCW 39.08.030. Farwest also claimed it was entitled to recover on the basis of quantum meruit and unjust enrichment. Hensel denied all claims in both suits. Farwest also sued Mainline and secured a judgment for the full amount Mainline owed it. Mainline has not paid the judgment.

On October 28, 1985 Superior Court Judge Gerard M. Shellan granted summary judgment dismissing Farwest's bond and retainage claims against Hensel and Aetna, Hensel's surety. On December 9, 1985 Superior Court Judge Stephen M. Reilly granted summary judgment dismissing Farwest's quantum meruit and unjust enrichment claims. On March 25, 1986 Superior Court Judge James McCutcheon granted summary judgment dismissing Valley's suit.

ISSUE I

Was Mainline a materialman for Hensel under Hensel's prime contract with the University of Washington where Mainline fabricated materials in its own plant in Oregon, but did no on-site labor, installation, or supervision, and the value of Mainline's contract was less than one percent of the total project?

The trial court did not err in characterizing Mainline as a materialman of the prime contractor rather than as a subcontractor, and therefore dismissing Farwest's claim under Washington's public works bond, RCW 39.08.010 and Farwest's and Valley's public works retainage claims under RCW 60.28.010. These statutes cover material suppliers of subcontractors but not material suppliers of materialmen. In order for Farwest and Valley to recover under these statutes Mainline must be found to be a subcontractor.

Both statutes use the terms "subcontractor" and "materialman," but neither statute defines them. Absent statutory definition the terms must be given their plain and ordinary meanings. Leona Garrison v. Washington State Nursing Bd., 87 Wash.2d 195, 196, 550 P.2d 7 (1976). A subcontractor is "one who takes from the principal contractor a specific part of the work, and the term does not include laborers or materialmen." Baker v. Yakima Valley Canal Co. 77 Wash. 70, 74, 137 P. 342 (1913). Black's Law Dictionary (4th ed. rev.) defines a materialman as a person "who has furnished materials used in the construction or repair of a building, structure, or vessel." There is no Washington case defining materialmen. Cf. J.D. English Steel Co. v. Tacoma School District No. 10, 57 Wash.2d 502, 358 P.2d 319 (1961) (court expressly declined to review the trial court's finding that a party was a materialman).

There is, however, extensive authority from federal and other jurisdictions distinguishing subcontractors and materialmen in which two basic tests are set forth. Some courts distinguish the two roles by whether there has been any on-site installation or supervision. Other courts use the two-part substantial relationship test, first articulated in Clifford F. MacEvoy v. United States ex rel. Calvin Tomkins, Co., 322 U.S. 102, 64 S.Ct. 890, 88 L.Ed. 1163 (1944), and refined in subsequent cases, which defines a subcontractor as one who (1) performs or takes from the prime contractor a specific part of the labor or material requirements of the original contract and (2) has a substantial and important relationship with the prime contractor. It appears that a substantial and important relationship does not exist where the value of the contract is less than ten percent of the value of the prime contract.

Most of the cases involving the "substantial relationship" test concern the Miller Act, 47 Stat. 793, as amended, 80 Stat. 1139, 40 U.S.C. § 270a (1982) et seq. The Miller Act requires that federal contractors furnish a payment bond for the protection of all persons supplying labor and materials, 40 U.S.C. § 270a (1982), to the prime contractor or subcontractors, 40 U.S.C. § 270b (1982). The Act's purpose parallels that of Washington's bond statute, i.e., to protect from default persons supplying labor and materials to federal contractors and subcontractors. See, e.g., United States ex rel. Sherman v. Carter, 353 U.S. 210, 77 S.Ct. 793, 1 L.Ed.2d 776 (1957). One who supplies materials to a materialman is not protected by the Act. E.g., United States ex rel. Wellman Engineering Co. v. MSI Corp., 350 F.2d 285 (2d Cir.1965).

F.D. Rich Co. v. United States ex rel. Industrial Lumber Co., 417 U.S. 116, 94 S.Ct. 2157, 40 L.Ed.2d 703 (1974), applied the substantial relationship test in the context of the Miller Act. The Supreme Court found that the Cerpac Co. was a subcontractor where it was clearly intertwined with the prime contractor, had a long term working relationship with the prime contractor, and had been awarded both a supply and installation contract in a particular federal project. In applying the "substantial and important relationship" leg of the two-part test the Court looked at the total relationship between Cerpac and the prime contractor to determine whether Cerpac was a subcontractor. The court stated: "It is the substantiality of the relationship which will usually determine whether the prime contractor can protect himself, since he can easily require bond security or other protection from those few 'subcontractors' with whom he has a substantial relationship in the performance of the contract." F.D. Rich Co. at 123-24, 94 S.Ct. at 2162.

In Aetna Casualty & Surety Co. v. United States ex rel. Gibson Steel Co., 382 F.2d 615, 618 (5th Cir.1967), the court held that a company that fabricated steel items such as stairs, ladders, and trench covers and frames for a federal construction project, and whose contract amounted to only two percent of the value of the total project, did not have a sufficiently important relationship with the prime contractor to be considered a subcontractor under the Miller Act. The company was instead a materialman under the contract. The contract required the company to supply custom-built miscellaneous steel and iron products in accordance with the specifications set forth in the prime contract. In applying the substantial relationship test the court noted that a substantial and important relationship exists between an entity and a prime contractor where the entity has taken a "large and definable part of the construction project." Aetna at 617. The court continued, "[c]ustom manufacturing is simply not enough in itself to establish the relationship of responsibility and importance necessary to render a middle party a subcontractor." Supra at 617. In addition to the nature of the supplied items, the court considered that the supplier's contract amounted to approximately...