Fireman's Fund Ins. Co. v. Charles Carter Const. Co., Inc.

• Decision Date: 27 September 1974
• Docket Number: Civ. A. No. 70-208.
• Citation: 382 F. Supp. 332
• Parties: FIREMAN'S FUND INSURANCE COMPANY v. CHARLES CARTER CONSTRUCTION COMPANY, INC.
• Court: U.S. District Court — Middle District of Louisiana

382 F. Supp. 332

FIREMAN'S FUND INSURANCE COMPANY v. CHARLES CARTER CONSTRUCTION COMPANY, INC.

Civ. A. No. 70-208.

United States District Court, M. D. Louisiana.

September 27, 1974.

Robert W. Smith, Seale, Smith & Phelps, Baton Rouge, for Fireman's Fund Ins. Co.

David W. Robinson, Watson, Blanche, Wilson & Posner, Walton J. Barnes, Barnes & Barnes, Baton Rouge, for Charles Carter & Co., Inc.

Charles W. Franklin, Franklin, Moore & Walsh, Baton Rouge, for National Surety Corp.

Emmett E. Batson, Baton Rouge, for Hughes-Walsh Co.

Robert S. Leake, Asst. U. S. Atty., M. D. La., Baton Rouge, for the United States.

John S. White, Jr., Kennon, White & Odom, Baton Rouge, for Maryland Cas. Co.

E. GORDON WEST, District Judge:

This suit grows out of a construction contract entered into between the defendant, Charles Carter Construction Company, Inc. (Carter) and Capitol Construction & Improvement Commission, whereby Carter undertook to construct a health and physical education building at Southeastern Louisiana College in Hammond, Louisiana. Carter, the prime contractor, subcontracted certain plumbing, heating, ventilating, and electrical work to Hughes-Walsh Company (Hughes-Walsh) who, during the construction, defaulted. National Surety Corporation (substituted with leave of Court for Fireman's Fund Insurance Company as plaintiff herein) was the surety on the subcontract and had to finance the completion of the work under taken by Hughes-Walsh at a cost of approximately $212,000. At the completion of the job, Carter was withholding from payments due Hughes-Walsh the sum of $54,259.42, which National Surety, by this suit, seeks to recover. Carter refused to pay these moneys over because it claims (1) that Hughes-Walsh is indebted to Carter for $33,529.04 as a result of Hughes-Walsh's failure to perform its work in a workmanlike manner and/or as a result of damage to Carter's property due to negligence on the part of Hughes-Walsh, and (2) that all funds that might be due Hughes-Walsh are encumbered by a federal tax lien up to the amount of $77,387.82. The counterclaim or offset in the amount of $33,529.04 allegedly due by Hughes-Walsh to Carter is made up of the following items: (1) $418.18 for installation of a louver door for access to a water heater made necessary, according to Carter, by the improper placement of the water heater by Hughes-Walsh; (2) $281.87 for installation of "collars" around certain flues which Carter contends were called for on the plans and not installed by Hughes-Walsh; (3) $1,454.18 for miscellaneous electrical work paid for by Carter but which, according to Carter, should have been performed by Hughes-Walsh; (4) $1,561.94 for light fixtures and other miscellaneous items and labor which Carter contends should have been furished by Hughes-Walsh; (5) $8,684.57 for finishing the installation of and balancing the air conditioning and heating equipment; (6) $21,128.30 for cost of replacing a portion of the gymnasium floor which was damaged by water allegedly due to either poor workmanship or negligence on the part of Hughes-Walsh.

Carter, anticipating that the plaintiff might contend that the damage to the floor was caused by vandalism, filed a third party complaint against Fireman's Fund Insurance Company, its builder's risk insurance carrier, for judgment over on this item should it be determined that vandalism was the cause of the damage. Hughes-Walsh, in order to protect its surety, intervened, asking that all of the funds withheld by Carter be credited against the surety bond posted by National Surety. Hughes-Walsh then also filed a third party complaint against its liability insurer, Maryland Casualty Company, seeking judgment over against it should it be determined that the damage to the floor was caused by the negligence of Hughes-Walsh rather than by unworkmanlike performance of its contract. Maryland Casualty Company defends on the grounds that if the damage to the floor was caused by breach of contract, its liability policy did not cover such a loss, and if the damage to the floor was caused by negligence on the part of Hughes-Walsh, while its liability policy did cover that type of liability, nevertheless, Carter's claim for damages based on negligence had prescribed by the passage of one year between the time of the occurrence and the time of filing suit.

The damage to the floor was discovered on July 16, 1969, and this suit was not filed until October 8, 1970, with Carter's allegations of negligence coming at an even later date.

This case was tried without a jury on May 6, 1974, and at the conclusion of the trial, for oral reasons assigned, a transcript of which has been placed of record, the Court concluded that the first five items hereinabove listed, totaling $12,400.74, were indeed items which Carter had to pay for because of a breach of contract by Hughes-Walsh, and are items for which National Surety, as the surety for Hughes-Walsh, must be held responsible. The Court reserved its ruling at that time on the question of who would ultimately be liable for the $21,128.30 item representing replacement of a portion of the gymnasium floor which had been damaged by water leaking from a section of the plumbing installed by Hughes-Walsh, but it did resolve the question of whether or not the damage was caused by vandalism, and whether or not Carter's claim on this item was one in contract or in tort. The Court concluded, for the reasons orally stated, that there was no evidence of any kind to justify a holding that the damage was caused by vandalism, and the Court thereupon granted the motion of Fireman's Fund Insurance Company for an involuntary dismissal, dismissing that party from the suit. The Court further concluded that the water damage to the floor was not caused by a breach of contract, but by negligence on the part of Hughes-Walsh, or on the part of someone for whom Hughes-Walsh was legally responsible. Maryland Casualty Company does not deny that their liability policy was issued to protect Hughes-Walsh against its negligence, but it contends that Carter's tort claim against Hughes-Walsh prescribed by the passage of one year following the water damage to the floor and that therefore neither Hughes-Walsh nor Maryland can now be held for those damages. This being the only question remaining, the Court requested and received excellent and scholarly briefs from all counsel, and now, after due consideration thereof, the Court concluded that even though more than one year had elapsed between the time of the damage to the floor and the assertion by Carter of its defense of offset, such a defense is not barred by the one year prescriptive period provided for by Louisiana law.

While Maryland contends that Article 424 of the Louisiana Code of Civil Procedure (LSA-C.C.P. Art. 424) is "clearly a procedural rule" and "not applicable" to a diversity case in the federal court, this is merely a conclusion of counsel with no supporting authority being cited.

LSA-C.C.P. Art. 424 provides:

"A person who has a right to enforce an obligation also has a right to use his cause of action as a defense. A prescribed obligation may be used as a defense if it is incidental to, or connected with, the obligation sought to be enforced by the plaintiff."

There is no dispute about the fact that any original claim that Carter might have had against Hughes-Walsh based upon negligence in connection with the flooding of the gymnasium floor had been lost by the one year prescriptive period which applied to tort actions in Louisiana. The sole question here is whether or not this claim was still available to Carter as a defense under the provisions of Article 424 above quoted. As to whether or not Article 424 is purely procedural, as contended by Maryland, this Court is of the opinion that it is no more procedural than is the prescriptive period itself that is provided for in the Civil Code. The mere fact that it is included in the Code of Civil Procedure does not automatically make it non-substantive. The purpose of Article 424 is to preserve, in a limited fashion, a substantive right, and to provide for its enforcement under the conditions enumerated in Article 424. This partial preservation of a substantive right is just as cognizable in the federal court in a diversity action as is the prescriptive provision contained in the Civil Code that would, under other circumstances, extinguish that right. But Maryland then says that even if Article 424 is available to a defendant in a diversity action, it has no application here because the "tort claim" which Carter seeks to enforce is not "an obligation" as contemplated by Article 424. In support of this point Maryland relies primarily on Articles 2207 and 2209 of the Louisiana Civil Code, (LSA-R.C.C. Art. 2207, 2209), which provide:

"Article 2207. When two persons are indebted to each other, there takes place between them a compensation that extinguishes both the debts, in

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