Midstates Excavating, Inc. v. Farmers and Merchants Bank & Trust of Watertown
| Decision Date | 09 September 1987 |
| Docket Number | 15401,15426 and 15430,Nos. 15400,s. 15400 |
| Citation | 410 N.W.2d 190 |
| Court | South Dakota Supreme Court |
| Parties | MIDSTATES EXCAVATING, INC., Plaintiff and Appellee, v. FARMERS AND MERCHANTS BANK & TRUST OF WATERTOWN, Defendant and Appellant. WATER PRODUCTS COMPANY OF SOUTH DAKOTA, a South Dakota Corporation, Plaintiff and Appellee, v. FARMERS AND MERCHANTS BANK & TRUST OF WATERTOWN, Defendant and Appellant. |
Scott Sumner of Banks, Johnson, Monserud, Johnson, Colbath & Huffman, Rapid City, for plaintiff and appellee Midstates Excavating, Inc.
Robert L. Thomas of May, Johnson, Doyle & Becker, Sioux Falls, for plaintiff and appellee Water Products Co. of South Dakota.
Alan L. Austin and Arthur M. Hopper of Austin, Hinderaker, Hackett & Hopper, Watertown, for defendant and appellant.
This action, premised on letters of credit, centers around a forced-main sewer system project located on Indian tribal property near Wagner, Charles Mix County, South Dakota. The trial court enforced the letters of credit. We affirm.
Appellant Farmers and Merchants Bank & Trust of Watertown, South Dakota (Bank), issued letters of credit in lieu of a payment and performance bond on behalf of Cho-Mid Construction (Cho-Mid).
Appellee Water Products Company of South Dakota (Water Products) is an unpaid supplier to Cho-Mid to the extent of $19,891.40. Appellee Midstates Excavating, Inc. (Midstates) is also an unpaid supplier to Cho-Mid to the extent of $30,869.48.
Cho-Mid is the subcontractor under the Yankton Sioux Tribe (Tribe). It was hired to perform the construction work on the sewer installation project. Cho-Mid's owners are Leonard "Sonny" Hare, Jr. (Hare) and Rick Brownlee (Brownlee) as partners.
Tribe is a body politic which was the prime contractor under a contract with the United States Department of Health, Education and Welfare through its Indian Health Service (IHS) for the sewer installation project. Tribe contracted with Cho-Mid to perform all the work on the project.
In the winter of 1980 81, Hare, a member of Tribe, became aware of various projects proposed by IHS on tribal properties in South Dakota. In 1981, he contacted Tribe in an attempt to persuade them to do this project and others on a "sole-source basis" under which Tribe would contract directly with the U.S. Government to perform the work. During this period of time Hare met Brownlee, who was in the sewer construction business. They discussed the possibility of forming a partnership to do the work on the project near Wagner and ultimately established the partnership known as Cho-Mid.
In the meantime, Tribe, through appropriate governmental processes, obtained approval from IHS for the project to be completed on a sole-source basis. Tribe and IHS entered into a contract for the construction of the project. Tribe then subcontracted with Cho-Mid to do one hundred percent of the work, with Tribe receiving ten percent of the contract proceeds for its administrative costs.
Since the construction contract involved IHS and Tribe, it was determined to be necessary for Cho-Mid to furnish payment and performance bonds. Because of the marginal financial status of Hare, Brownlee, and Cho-Mid, they were unable to secure such bonds in the normal course of business. IHS, however, advised Tribe that letters of credit could be used in lieu of the bonds.
Pursuant to negotiations between Bank, Cho-Mid, and Tribe, Bank issued three letters of credit. The first two letters of credit did not provide that they were irrevocable as required by IHS, and therefore a third one was issued, dated May 27, 1981, which read as follows:
Yankton Sioux Tribe
Rural Route 3
Wagner, South Dakota
Dear Sir:
We hereby issue a Letter of Credit to Cho-Mid Construction. This Letter of Credit will be issued pertaining to Project RFP 81 13. This Letter of Credit to be in the amount of $149,800.00 which represents payment in full of the above mentioned project. This Letter contingent upon your letter of April 21, 1981 confirming that Farmers and Merchants Bank & Trust of Watertown will directly receive the funds from this project.
This Irrevocable Letter of credit will remain in effect until the completion of the above mentioned project.
Sincerely:
/s/ William M. Hanten
Under the negotiations, it was agreed that Bank would advance the funds to Cho-Mid conditioned upon an assignment to Bank by Tribe of funds received from IHS. An IHS representative instructed Bank to establish an operating level of credit for Cho-Mid to assure payment to suppliers on the project.
Cho-Mid commenced construction on the project, which included ordering supplies. However, Cho-Mid was unable to complete performance. Both Hare and Brownlee filed in bankruptcy (no payments to suppliers on this project were made from the bankruptcy estates). Bank, which had received various proceeds under the contract, paid $4,960.00 to suppliers but, from the remaining funds, Midstates and Water Products had unpaid claims in the amounts set forth above. (There were other unpaid suppliers to the extent of approximately $21,000.00, however, they are not parties to this action.)
Both Water Products and Midstates brought this suit in the circuit court in and for Codington County, South Dakota, against both Cho-Mid and Bank. At no time did Bank move to have this case removed to the federal district court. Rather, Bank chose only to object to circuit court jurisdiction. The actions against Bank were severed from those against Cho-Mid and ultimately were consolidated for trial.
The circuit court entered money judgments in favor of Midstates in the amount of $57,125.49 and in favor of Water Products in the amount of $36,322.36, both including prejudgment interest. Bank has appealed. We affirm.
In this appeal, Bank argues (1) that this action is within the exclusive jurisdiction of the federal courts since it involves a suit on a letter of credit in lieu of a payment bond required under the Miller Act (40 U.S.C.A. 270a 270d); (2) that even if not within the sole jurisdiction of the federal courts, the suit needed to be brought in the name of Tribe in Charles Mix County, South Dakota; (3) that the letters of credit did not entitle Cho-Mid's suppliers to sue Bank; and (4) that the total amount of the recovery cannot exceed the face amount of the letters of credit.
Water Products and Midstates have filed notices of review, arguing that, in the event we determine they are not entitled to recover under the letters of credit, we should reverse the trial court's denial of their proposed findings of fact and conclusions of law regarding their claims of negligent misrepresentation, misrepresentation, and negligence. They claim that Bank paid off, on behalf of Hare and Brownlee, various personal debts and debts not related to the project out of the proceeds held by it in an amount of nearly $55,000. Because we affirm the trial court on the letters of credit issue, we need not address the issues raised by the notice of review.
Bank argues that the Miller Act (40 U.S.C. Secs. 270a 270d) confers exclusive jurisdiction upon the United States District Court in all cases brought by suppliers or laborers under bonds or letters of credit required by the Act. They are correct. That section provides in salient part:
Before any contract, exceeding $25,000 in amount, for the construction--or public work of the United States is awarded to any person such person shall furnish to the United States the following bonds.... (Emphasis supplied.)
However, 25 U.S.C. Sec. 450j provides in part:
Contracts with tribal organizations ... shall be in accordance with all Federal contracting laws and regulations except ... and need not conform with the provisions of sections 270a and 270d of Title 40.... (Emphasis supplied.)
Reading the foregoing congressional acts, together with the appropriate and binding regulations found at 41 CFR Secs. 3 4.6001, 3 4.6008, 1 10.201, and 1 10.204 2, it becomes clear that the entire federal scheme removes contracts with tribes from the Miller Act irrespective of the fact that the money source is federal funds.
This action fails to come within the realm of a Miller Act bond for additional reasons. Under Sec. 270a, "contractors" are required to furnish bonds to the "United States." Here, the letters of credit were furnished by the subcontractor (Cho-Mid), to the Yankton Sioux Tribe, not the United States. Hence, the requirements for a Miller Act bond are lacking.
In light of the above analysis, the trial court properly held that it had jurisdiction to hear and determine this matter. United States ex rel. Hillsdale Rock Co. v. Cortelyou & Cole, Inc., 581 F.2d 239 (9th Cir.1978); Fidelity & Deposit Company of Maryland v. Harris, 360 F.2d 402 (9th Cir.1966); United States ex rel. Miller v. Mattingly Bridge Co., 344 F.Supp. 459 (W.D.Ky.1972); and United States ex rel. West Pacific Sales Co. v. Harder Industrial Contractors, Inc., 225 F.Supp. 699 (D.Or.1963).
Charles Mix County, South Dakota.
Bank urges that if it does not prevail on issue 1, any state court action must be brought in the name of the Tribe in Charles Mix County, South...
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