L & L Builders Co. v. Mayer Associated Services
| Decision Date | 05 April 1999 |
| Docket Number | No. C 97-4034-MWB.,C 97-4034-MWB. |
| Citation | 46 F.Supp.2d 875 |
| Court | U.S. District Court — Northern District of Iowa |
| Parties | L & L BUILDERS CO., an Iowa corporation, Plaintiff, v. MAYER ASSOCIATED SERVICES, INC., and Cummins South, Inc., Defendants. |
Maurice B. Nieland, Nieland, Probasco, Killinger, Ellwanger, Jacobs & Mohrhauser, Sioux City, IA, George F. Madsen, Marks, Madsen & Hirschbach, Sioux City, IA, for plaintiff.
Christopher L. Bruns, Elderkin & Pirkin, P.L.C., Cedar Rapids, IA, Jay Frank Castle, Holt, Ney, Zatcoff & Wasserman, LLP, Atlanta, GA, for defendants.
TABLE OF CONTENTS
I. INTRODUCTION ...........................877
A. Factual Background ..................877
B. Procedural Background................878
II. LEGAL ANALYSIS ........................880
A. Standards For Summary
Judgment ..................................880
B. Which State's Law Applies? ..........881
1. The appropriate test .............881
2. Application of the test ..........882
C. Cummins South's Coverage
Under The Surety
Bond ......................................883
1. Rules of contract construction
and interpretation .....................884
2. Ambiguity ........................886
3. Consideration ....................887
D. Estoppel ............................888
1. Elements of equitable
estoppel ...............................888
2. Genuine issues of material
fact ...................................889
E. Waiver ..............................891
III. CONCLUSION .............................892
Anyone who is foolish enough to think that life is fair should consider the plight of the parties in this litigation. The plaintiff general contractor asserts that it's just not fair that it should be called upon to pay a materialman for certain equipment, when it has already paid a subcontractor once for that same equipment, and before doing so, received what it took to be assurances that the materialman had already been paid. The materialman counters that it's just not fair that it has never been paid in full by anyone for the equipment it supplied to the subcontractor, even though it received what it took to be assurances that it would have coverage under the general contractor's surety bond before shipping the equipment to the subcontractor. The materialman and general contractor seem to agree that it's not fair that the subcontractor received payment specifically earmarked for the equipment in question, but the money was never passed on to the materialman. However, these disappointed parties disagree on who should now bear the cost of the subcontractor's defalcation, and they present that question to the court on cross-motions for summary judgment.
Although this matter is before the court on cross-motions for summary judgment, the court will not attempt here an exhaustive recitation of undisputed and disputed facts. Rather, the court will provide here only a survey of the facts and factual disputes necessary to frame the discussion to follow. In its legal analysis, the court will, where necessary, consider which pertinent facts are undisputed and which are genuinely in dispute.
Plaintiff L & L Builders Company was the general contractor for a construction project on land owned by the Winnebago Tribe near Sloan, Iowa. The project was known as the Winnavegas Casino Expansion, Phase I Bingo Hall. Defendant Mayer Associated Services, Inc., was a subcontractor for that project, employed to perform electrical work and to install certain equipment, including a diesel generator. Defendant Cummins South, Inc., was a materialman that supplied the diesel generator and an automatic transfer switch to Mayer for installation on the project.
Cummins South contends that it only agreed to provide Mayer with the diesel generator and automatic transfer switch without payment in advance after receiving assurances that it was covered by L & L's payment and performance bond for the project. When Mayer sought payment from L & L to cover its payment to Cummins South, Mayer agreed to provide L & L with a lien waiver from Cummins South as soon as Mayer received payment from L & L. L & L contends that it is the custom and practice in the industry to give lien waivers only after payment is received, and that it relied upon this custom and practice in making payment to Mayer. Therefore, on January 14, 1997, L & L sent Mayer a check for $197,406, which was to cover payment due Cummins South. It was L & L's understanding of the agreement with Mayer that if L & L did not receive a lien waiver from Cummins South by the next day, it would stop payment on the check. L & L then received by facsimile a lien waiver from Cummins South dated January 15, 1997. However, Mayer apparently deposited the funds from L & L, and has never paid Cummins South in full. Cummins South subsequently filed an "Affidavit of Non-Payment," and demanded payment from United Fire & Casualty Company, L & L's surety for the construction project. United Fire in turn made demand on L & L for exoneration.
The following chart may be of assistance in understanding the facts just described:
NOTE: OPINION CONTAINING TABLE OR OTHER DATA THAT IS NOT VIEWABLE
Two separate lawsuits have their genesis in the question of who should pay Cummins South the outstanding amount due for the equipment it supplied to Mayer. On April 7, 1997, Cummins South brought an action in the Iowa District Court for Linn County against Mayer and United Fire seeking payment either from Mayer or against the bond for the project. Cummins South did not name L & L in its lawsuit. Approximately two weeks later, on April 18, 1997, L & L brought the present action against Mayer and Cummins South in this federal court for interpleader and declaratory judgment. In the present lawsuit, L & L seeks declarations that neither of the defendants is entitled to recover from L & L any sums due Cummins South; that Cummins South's sole recourse is against Mayer as to sums that may be due Cummins South from Mayer and that Cummins South has no recourse against L & L or any bond posted by L & L; that if L & L is indebted to Cummins South or Cummins South has any rights under the bond posted by L & L, L & L is entitled to judgment against Mayer, not dischargeable under 11 U.S.C. § 523, for the amount due Cummins South plus costs and attorney's fees; and that if L & L is indebted to Cummins South or Cummins South has any rights under the bond posted by L & L, L & L should be authorized to pay Cummins South directly any sums L & L owes Mayer.
L & L represents, and Cummins South does not here dispute, that after these lawsuits were filed, in an attempt to settle them, L & L made a payment of $49,355 that it owed Mayer to Cummins South in partial payment for the diesel generator and automatic transfer switch. Furthermore, Mayer made some payments to Cummins South pursuant to a Stipulation and Agreement filed in this case, before ultimately defaulting. Upon Mayer's default on the settlement payments, Cummins South obtained a judgment against Mayer in its own state-court action for more than $116,000, which is the sum that Cummins South contends is still outstanding for payment—exclusive of interest—on the equipment it supplied Mayer for the Winnebago casino project. Mayer has made no payments toward satisfying the state-court judgment. Cummins South therefore claims the outstanding sum against L & L's surety bond.
Hours apart on February 3, 1999, Cummins South and L & L filed cross-motions for summary judgment in this action. In its motion for summary judgment, the first on the docket, Cummins South argues that Georgia law is applicable to this case. Turning to substantive questions, Cummins South argues that the undisputed record evidence proves that United Fire and L & L agreed and intended for Cummins South to be afforded coverage under the surety bond, and thus United Fire waived provisions of the bond that would otherwise limit coverage, leaving L & L (as principal on the bond from United Fire) liable for sums not paid by Mayer. Cummins South specifically contends that its claim against the surety bond is not barred by execution of the mechanic's lien waiver it provided on January 15, 1997, for a variety of reasons, not least of which are that Cummins South had never actually been paid, and that the unambiguous language of the lien waiver is not conditioned on payment. Thus, Cummins South argues that it is not estopped by execution of the lien waiver to assert its claim against the surety bond, nor has it waived that claim, because it never represented that it had been paid or concealed that it hadn't been, or voluntarily relinquished its rights against the bond, when it had no idea that L & L would interpret the lien waiver as a representation that Cummins South had been paid. Rather, Cummins South argues that United Fire and L & L waived their defenses to payment under the bond, because they expressly extended coverage of the bond to Cummins South.
L & L's motion raises many of the same issues, but of course, from the opposing perspective. Contrary to Cummins South's assertions, L & L contends that Iowa law is applicable to the present dispute, not least because the lien waiver states that it is subject to Iowa law. L & L next contends that Cummins South's claims to payment are barred by estoppel, because Cummins South's provision of a lien waiver was a representation that Cummins South had been paid, upon which L & L relied by not stopping payment on its check to Mayer. Similarly, L & L contends that Cummins South waived its claim by executing the lien waiver, because under the custom, practice, and usage...
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