Johnson Controls, Inc. v. Liberty Mut. Ins. Co.

• Decision Date: 09 May 2014
• Docket Number: 1121288.
• Parties: JOHNSON CONTROLS, INC. v. LIBERTY MUTUAL INSURANCE COMPANY.
• Court: Alabama Supreme Court

160 So.3d 249

JOHNSON CONTROLS, INC.

v.LIBERTY MUTUAL INSURANCE COMPANY.

1121288.

Supreme Court of Alabama.

May 9, 2014.

Rehearing Denied Aug. 22, 2014.

John S. Plummer of Ryals, Donaldson & Agricola, P.C., Montgomery; and Ramsey Kazem of Gonzalez Saggio & Harlan, LLP, Atlanta, Georgia, for appellant.

Nathan T. Lee of Glover & Davis, P.A., Newnan, Georgia; P. Keith Lichtman of Mills Paskert Divers, Atlanta, Georgia; and Thomas A. Radney of Radney, Radney & Jackson, LLC, Alexander City, for appellee.

Opinion

PARKER, Justice.

Johnson Controls, Inc. (“JCI”), appeals a summary judgment entered by the Randolph Circuit Court (“the circuit court”) in favor of Liberty Mutual Insurance Company (“Liberty Mutual”). We reverse the judgment and remand the case.

Facts and Procedural History

This case arises out of a July 13, 2010, contract (“the contract”) between Roanoke Healthcare Authority (“Roanoke Healthcare”), a public entity, doing business as Randolph Medical Center (“the medical center”), and Batson–Cook Company (“Batson–Cook”), a general contractor, to renovate the medical center, which is located in Roanoke. The contract price was $1,059,000.

To avoid the unnecessary payment of sales and use taxes, the contract provided as follows in § 8.6:

“SALES TAX AVOIDANCE: The Owner, [Roanoke Healthcare,] is owned by the City of Roanoke. It is exempt by law from the payment of sales/use taxes. As such it is authorized to and desires to enter into a purchasing agent agreement with [Batson–Cook] whereby [Roanoke Healthcare] will purchase all, or a portion of, the materials, supplies, equipment, and other items (hereinafter referred to as ‘materials') necessary for the performance of this Contract by [Batson–Cook] and its subcontractors and thereby save the amount of the sales and use tax thereon.

“SALES AND USE TAXES ARE INCLUDED IN THE CONTRACT SUM: The base bid submitted on the proposal form and the Contract Sum ... INCLUDES the cost of all required taxes, including sales and use taxes; therefore, sales and use taxes are included in the Contract Sum.

“ACTUAL SAVINGS WILL BE DEDUCTED FROM THE CONTRACT AMOUNT: Prior to Final Payment the amount of sales and use taxes actually saved shall be deducted from the Contract amount by change order.”

(Capitalization in original.) Consistent with these provisions, Batson–Cook and Roanoke Healthcare entered into a purchasing-agent agreement (“the PAA”) on July 30, 2010. The PAA contained the following relevant provisions:

“a) During the prosecution of Project[, the renovations to the medical center], [Batson–Cook] is appointed authority to act as [Roanoke Healthcare's] purchasing agent to bind [Roanoke Healthcare] contractually for the purchase of tangible personal property necessary to carry out [Batson–Cook's] contractual obligations related to Project,

“b) [Batson–Cook] is solely responsible for pricing and availability of tangible personal property necessary to carry out [Batson–Cook's] contractual obligations related to Project,

“c) Title to all materials and supplies purchased pursuant to such appointment shall immediately vest in [Roanoke Healthcare] at the point of delivery,

“d) [Batson–Cook] shall notify all vendors and suppliers of this agency relationship and make it clear to such vendors and suppliers that the obligation for payment is that of [Roanoke Healthcare] and not [Batson–Cook],

“e) All purchase orders and remittance devices furnished to the vendors shall clearly reflect this agency relationship,

“....

“i) The net amount paid for tangible personal property purchased under this agreement shall be deducted from the total amount that would otherwise be due from [Roanoke Healthcare] to [Batson–Cook] under the Project agreement,

“....

“k) This agreement does not apply to tools, machinery, equipment, materials, supplies, or other property not incorporated into Project.”

The contract falls within the scope of Alabama's “little Miller Act,” § 39–1–1 et seq., Ala.Code 1975, which provides, in part:

“(a) Any person entering into a contract with an awarding authority in this state for the prosecution of any public works shall, before commencing the work, execute a performance bond, with penalty equal to 100 percent of the amount of the contract price. In addition, another bond, payable to the awarding authority letting the contract, shall be executed in an amount not less than 50 percent of the contract price, with the obligation that the contractor or contractors shall promptly make payments to all persons supplying labor, materials, or supplies for or in the prosecution of the work provided in the contract and for the payment of reasonable attorneys' fees incurred by successful claimants or plaintiffs in civil actions on the bond.

“(b) Any person that has furnished labor, materials, or supplies for or in the prosecution of a public work and payment has not been made may institute a civil action upon the payment bond and have their rights and claims adjudicated in a civil action and judgment entered thereon. Notwithstanding the foregoing, a civil action shall not be instituted on the bond until 45 days after written notice to the surety of the amount claimed to be due and the nature of the claim. The civil action shall be commenced not later than one year from the date of final settlement of the contract. The giving of notice by registered or certified mail, postage prepaid, addressed to the surety at any of its places of business or offices shall be deemed sufficient under this section. In the event the surety or contractor fails to pay the claim in full within 45 days from the mailing of the notice, then the person or persons may recover from the contractor and surety, in addition to the amount of the claim, a reasonable attorney's fee based on the result, together with interest on the claim from the date of the notice.”

Pursuant to § 39–1–1(a), on September 1, 2010, Batson–Cook obtained a payment bond from Liberty Mutual in the amount of the contract price—$1,059,000. The payment bond specifically provided “that beneficiaries or claimants hereunder shall be limited to the subcontractors, and persons, firms, and corporations having a direct contract with [Batson–Cook] or its subcontractor.”

On October 22, 2010, Batson–Cook entered into a subcontract (“the subcontract”) with Hardy Corporation (“Hardy”) to perform “mechanical” work required by the contract; the subcontract price was $329,791. The subcontract specifically called for Hardy “to provide all material, labor, supervision, and equipment necessary to complete [the] scope of work in accordance with the contract documents.” On October 27, 2012, Batson–Cook sent a letter to Hardy informing it as follows:

“Batson–Cook ... is providing construction services to Roanoke Healthcare ... in support of the Renovations to [the] Randolph Medical Center project. As an agent of [Roanoke Healthcare], all purchases of tangible personal property to be incorporated into the realty by Batson–Cook ... (and our subcontractors/vendors) in support of the stated construction project will be paid directly by [Roanoke Healthcare], but addressed to Batson–Cook ... who will forward them on to [Roanoke Healthcare] for payment. [Roanoke Healthcare] payments will be issued directly to the material supplier. Batson–Cook ... will be responsible for maintaining the documentation necessary to support the tax exempt nature of such purchases for review.”

In the course of bidding on the subcontract, Ronnie Vines, Hardy's project manager for the medical-center renovation, received a quote from JCI on July 27, 2010, for equipment and material Hardy would need to complete its obligations under the subcontract. Vines stated in his deposition testimony that before he submitted the purchase order for the equipment and materials that were eventually furnished by JCI he informed JCI that Roanoke Healthcare would pay for the equipment and materials directly and that the invoices should be billed to Roanoke Healthcare but that Hardy would collect the invoices and transmit them to Batson–Cook, which would then forward the invoices on to Roanoke Healthcare for payment. On October 21, 2010, Vines sent Marc Newton, a JCI employee, an e-mail to which he attached a letter from the Alabama Department of Revenue (“ADR”) stating that Roanoke Healthcare was a tax-exempt entity. Vines also stated in his deposition testimony that he never told JCI that Batson–Cook would be responsible for payment.

On November 4, 2010, Vines signed and submitted a purchase order on Hardy's letterhead to JCI for equipment and materials totaling $147,000 per the quote provided by JCI. The purchase order called for the equipment and materials to be shipped to the medical center “c/o Batson–Cook Company” and directed JCI to telephone Hardy 24 hours before delivery. The purchase order also contained the following notation: “P.O., Randolph County Medical Center, c/o Batson–Cook Company.” Vines stated in his deposition testimony that he included this note because the purchase order was actually on “behalf of [Roanoke Healthcare]” and the equipment was to be “billed directly to [it].” Vines also stated that he submitted the purchase order on Hardy's letterhead because Roanoke Healthcare did not provide its own letterhead. The purchase order also contained a provision stating that it “constitute[d] the full understanding of the parties, and the complete and exclusive statement of the terms of their agreement.” On November 5, 2010, Vines also e-mailed Amy Carmada, an individual Vines described as JCI's billing clerk, and attached Batson–Cook's October 27, 2010, letter to Hardy and the letter from ADR showing that Roanoke Healthcare was exempt from sales and use taxes. In the e-mail, Vines asked Carmada to read the attached information and to telephone Vines to discuss the billing method. It is unclear from the record whether a subsequent conversation took place.

Vines's deposition testimony concerning JCI's performance and the...