National Sur. Corp. v. Charles Carter & Co., Inc., HUGHES-WALSH

• Decision Date: 24 September 1976
• Docket Number: No. 75-1366,HUGHES-WALSH,75-1366
• Citation: 539 F.2d 450
• Parties: NATIONAL SURETY CORPORATION, Plaintiff-Appellant, v. CHARLES CARTER & COMPANY, INC., Defendant Third Party Plaintiff-Appellee-Appellant, v. FIREMAN'S FUND INSURANCE COMPANY, Third Party Defendant.COMPANY, Intervening Third Party Plaintiff-Appellee, v. MARYLAND CASUALTY COMPANY, Third Party Defendant-Appellant, United States of America, Intervenor-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 450

539 F.2d 450

NATIONAL SURETY CORPORATION, Plaintiff-Appellant, v. CHARLES CARTER & COMPANY, INC., Defendant Third Party Plaintiff-Appellee-Appellant, v. FIREMAN'S FUND INSURANCE COMPANY, Third Party Defendant.

HUGHES-WALSH COMPANY, Intervening Third Party Plaintiff-Appellee, v. MARYLAND CASUALTY COMPANY, Third Party Defendant-Appellant, United States of America, Intervenor-Appellee.

No. 75-1366.

United States Court of Appeals Fifth Circuit.

Sept. 24, 1976.

Charles W. Franklin, Baton Rouge, La., for Natl. Surety Corp.

John S. White, Jr., Baton Rouge, La., for Maryland Casualty Co.

Scott P. Crampton, Gilbert E. Andrews, Crombie J. D. Garrett, Stephen M. Gelber, Murray S. Horwitz, Tax Div., Dept. of Justice, Washington, D. C., David W. Robinson, Trial Atty., Walton J. Barnes, Baton Rouge, La., for Charles Carter & Co.

Gerald J. Gallinghouse, U. S. Atty., New Orleans, La., for United States.

Robert W. Smith, Baton Rouge, La., for Fireman's Fund.

Appeals from the United States District Court of the Middle District of Louisiana.

Before WISDOM, GODBOLD and LIVELY, ^* Circuit Judges.

LIVELY, Circuit Judge.

This diversity action from Louisiana began as a simple proceeding by the bonding company (National Surety) of a subcontractor (Hughes-Walsh) against the general contractor (Carter) for the balance due under the subcontract between Carter and Hughes-Walsh. Four additional parties were added by intervention and third-party actions. The procedural history of the case was set forth in a pretrial order of the district court as follows:

In the original demand, National Surety alleged that Carter contracted with Capital Construction and Improvement Commission for the construction of a health and physical education building at Southeastern Louisiana College; that Carter had entered into a subcontract with Hughes-Walsh as to certain plumbing, heating, ventilation and electrical work; that Hughes-Walsh substantially completed all the work which it had contracted to do, but while its work was in progress, the company was unable to meet its obligations as they matured and it was necessary for National Surety to finance Hughes-Walsh to complete its work on the subcontract; that National Surety had become legally and conventionally subrogated for any amount which Carter is indebted unto Hughes-Walsh, which is alleged to be in the approximate amount of $55,063.69, for which sum amicable demand has been made and for which judgment is prayed, plus interest and costs.

Defendant Carter answered this complaint in the principal demand, admitted the contract between Carter and Capital Construction and Improvement Commission and between Carter and Hughes-Walsh. Carter denied that Hughes-Walsh substantially completed its work and denied the subrogation rights of National Surety. Carter alternatively pleaded that the subcontract between Carter and Hughes-Walsh called for payment by Carter to Hughes-Walsh of $376,753.69. Carter pleaded payment of $322,494.27, leaving a balance of $54,259.42 unpaid. As to this unpaid balance, Carter pleaded that it is entitled to a credit or offset in the total sum of $33,529.04, "representing amounts paid by defendant to others to complete work not done or done improperly by Hughes-Walsh Company and to repair damage caused by defective and improper workmanship on the part of Hughes-Walsh Company in the performance of its contract."

Hughes-Walsh intervened alleging that it was the subcontractor of Carter bonded by National Surety; that it is entitled to intervene because certain sums are due it by Carter which should be credited against the bond posted by National Surety; and that it would be damaged unless this amount were recovered against defendant Carter.

Hughes-Walsh third partied Maryland alleging that "claims of $55,063.69 are made by Carter alleging that these funds were withheld wrongfully from Hughes-Walsh because of acts of negligence of Hughes-Walsh, or acts which may have been negligent, and causing water damage to a building being constructed under the contracts at issue herein." The third party complaint further alleges that Hughes-Walsh "denies any negligence on its part causing any accident and in the alternative shows that in the event and only in the event the Court should find any negligence whatsoever on behalf of Hughes-Walsh Company, Inc., they should be indemnified against such acts of negligence by the policy of liability insurance issued by the Maryland Casualty Company against the type of liability alleged."

Hughes-Walsh prayed further that in the event of judgment against it for damages to the building that it have judgment over in its favor and against third party defendant, Maryland Casualty Company for indemnification of such damages together with legal interest and all costs of this Court.

Maryland filed motions to dismiss and related pleadings as to the third party demands of Hughes-Walsh, preserving its defenses as to such claims after the Court denied the motions.

Maryland subsequently filed an answer pleading special defenses which will be incorporated as its contentions.

Charles Carter and Company, Inc. then filed a counterclaim against Fireman's Fund (substituted by National Surety) alleging that in the event its claim of a credit or offset of $33,529.04 could not be treated as a counterclaim without formal amendment, then that amount would be claimed by defendant Carter by counterclaim against the plaintiff, this being the same contention as contained in the "third defense" of Carter's answer.

Defendant Carter also filed a third party complaint against Fireman's Fund Insurance Company as the builder's risk insurer of the property involved, contending that in the event it should be found and determined that the water damage forming the basis of the credit, offset or counterclaim against the plaintiff, was caused, in fact, by vandalism, that defendant would be entitled to recover the said sum from Fireman's Fund under the builder's risk coverage. Fireman's Fund as builder's risk carrier filed an answer to the third party petition of Carter denying the allegations of that petition.

The United States of America intervened by order of this Court, claiming that it was entitled to any contract funds due Hughes-Walsh as a result of its levy for taxes, which contentions were denied by the National Surety as substituted party, contending that its priority as completing surety was prior to the claims of the government for unpaid taxes of Hughes-Walsh.

On the same day that the pretrial order was entered a minute entry was made which recited that the court had determined "that certain issues in this case should be separated, one from the other, for trial . . . ," and ordering that the trial be limited as nearly as possible to issues summarized therein. The issue of the priority of the opposed claims of National Surety as completing surety and the United States of America for unpaid taxes of Hughes-Walsh was not included among those to be tried at that time.

A two-day bench trial was held. At the conclusion of the evidence in chief the district court granted a motion for the voluntary dismissal of Fireman's Fund as builder's risk insurer of Carter on a finding that there was no evidence that vandalism was the cause of water damage to the uncompleted gymnasium floor for which Carter withheld $21,128.30. The court denied a motion to dismiss by Maryland Casualty, noting that if the gymnasium floor damage should be found to have resulted from negligence of Hughes-Walsh, Maryland Casualty would owe Hughes-Walsh indemnification under its contractor's liability policy.

After rebuttal testimony was presented the case was submitted. The District Judge then announced his decision on most issues while requesting briefs on two issues raised by Maryland Casualty.

The contract balance which Carter withheld was found by the district court to total $54,259.42 and consisted of three distinct parts. The general contractor withheld payment of $12,400.74 which it claimed as the cost to it of completing the work which Hughes-Walsh was required to perform and correcting work improperly done by the subcontractor. Carter also withheld $21,128.30 as the cost to it of repairing damage to the gymnasium floor and related expenses. These two items, aggregating $33,529.04, were claimed as offsets against the balance due under the subcontract. The remaining balance of $20,730.38 was not claimed by Carter but was withheld because of the notice of levy which the government served on Carter.

In its judgment the district court held that the government is entitled to the $20,730.38 balance "under its lien and levy" and directed that this sum be paid to the United States. The issue of priority as between the claims of National Surety and the government was not a subject either of proof or argument at the trial of the case. In fact, it appears to have been reserved for separate consideration in the court's minute accompanying the pretrial order. Upon National Surety's motion for a new trial the court held that the question of priority was one of law only, and granted the parties an opportunity to brief this issue. Thereafter the court reaffirmed its holding that the government is entitled to priority.

On appeal of the priority issue by National Surety the government has conceded that the issue was not fully developed in the district court and has agreed to a remand for further consideration. In remanding this issue we note that the record contains a release on September 15, 1971 of the levy of the United States against property of Hughes-Walsh and service of the release on Carter. The district court made no findings with respect to the effect, if any, of this release of levy on the lien asserted by the government. The government asserts that remand is necessary because the record is not clear as to the nature and extent of National Surety's participation in the completion of the...