Rich Co Inc v. United States Industrial Lumber Company, Inc 8212 1382

• Citation: 417 U.S. 116,94 S.Ct. 2157,40 L.Ed.2d 703
• Decision Date: 28 May 1974
• Docket Number: No. 72,72
• Parties: F. D. RICH CO., INC., and Transamerica Insurance Co., Petitioners, v. UNITED STATES For the Use of INDUSTRIAL LUMBER COMPANY, INC. —1382
• Court: United States Supreme Court

417 U.S. 116

94 S.Ct. 2157

40 L.Ed.2d 703

F. D. RICH CO., INC., and Transamerica Insurance Co., Petitioners,

v UNITED STATES For the Use of INDUSTRIAL LUMBER COMPANY, INC.

No. 72—1382.

Argued Jan. 9, 1974.

Decided May 28, 1974.

Syllabus

Petitioner F. D. Rich Co., the prime contractor on a federal housing project in California, had two separate contracts for the project with Cerpac Co., one contract being for Cerpac to select, modify, detail, and install all custom millwork and the other being for Cerpac to supply all exterior plywood. Cerpac in turn ordered the lumber called for under the plywood contract from respondent. When Rich needed plywood for another project in South Carolina, one of the shipments called for by respondent's contract with Cerpac was diverted to South Carolina. When Cerpac defaulted on its payments to respondent for the plywood, including the South Carolina shipment, respondent gave notice to Rich and its surety of a Miller Act claim and thereafter brought suit in the Federal District Court for the Eastern District of California where the California project was located. Finding that Cerpac was a 'subcontractor' within the meaning of the Miller Act, rather than merely a materialman, that hence respondent could assert a Miller Act claim against Rich, and that venue for suit on the South Carolina as well as the California shipments properly lay, under 40 U.S.C. § 270b(b), in the Eastern District of California, the District Court granted judgment for respondent for the amount due on the unpaid invoices, but denied its claim for attorneys' fees. The Court of Appeals affirmed in large part, but held that attorneys' fees should be awarded respondent. Held:

1. Based on the substantiality and importance of its relationship with the prime contractor, MacEvoy Co. v. United States for Use and Benefit of Calvin Tomkins Co., 322 U.S. 102, 64 S.Ct. 890, 88 L.Ed. 1163, Cerpac was clearly a subcontractor for Miller Act purposes, considering not just its plywood contract but also its custom millwork contract on the California project. Moreover, Cerpac and Rich and closely interrelated management and financial structures, and their relationship on the California project was the same as on many other similar projects; hence it would have been easy for Rich to secure itself from loss as a result of Cerpac's default. Pp. 121—124.

2. Venue for suit on the South Carolina shipment properly lay in the Eastern District of California, since there was clearly a sufficient nexus for satisfaction of § 270b(b)'s venue requirements. The contract between Cerpac and respondent was executed in California, all materials thereunder to be delivered to the California worksite, California remained the site for performance of the original contract despite the diversion of one shipment to South Carolina. There was no showing of prejudice resulting from the case's being heard in California and considerations of judicial economy and convenience supported venue in the court where all of respondent's claims could be adjudicated in a single proceeding. Pp. 124—126.

3. Attorneys' fees were improperly awarded respondent. Pp. 126—131.

(a) The Court of Appeals erred in construing the Miller Act to require the award by reference to the 'public policy' of the State in which suit was brought, since the Act provides a federal cause of action and there is no evidence of any congressional intent to incorporate state law to govern such an important element of Miller Act litigation as liability for attorneys' fees. Pp. 127—128.

(b) The provision of the Miller Act in 40 U.S.C. § 270b(a) that claimants should recover the 'sums justly due,' does not require the award of attorneys' fees on the asserted ground that without such fee shifting, claimants would not be fully compensated. To hold otherwise would amount to judicial obviation of the 'American Rule' that attorneys' fees are not ordinarily recoverable in federal litigation in the absence of a statute or contract providing therefor, in the context of everyday commercial litigation, where the policies which underlie the limited judicially created departures from the rule are inapplicable. Pp. 128—131.

473 F.2d 720, affirmed in part and reversed in part.

Lawrence Gochberg, Stamford, Conn., for petitioners.

Dennis S. Harlowe, Tacoma, Wash., for respondent.

Mr. Justice MARSHALL delivered the opinion of the Court.

The Miller Act, 49 Stat. 793, as amended, 80 Stat. 1139, 40 U.S.C. § 270a et seq., requires a Government contractor¹ to post a surety bond 'for the protection of all persons supplying labor and material in the prosecution of the work provided for' in the contract. The Act further provides that any person who has so furnished labor or material and who has not been paid in full within 90 days after the last labor was performed or material supplied may bring suit on the payment bond for the unpaid balance. 40 U.S.C. § 270b(a). This case presents several unresolved issues of importance in the administration of the Act.

I

Between 1961 and 1968, petitioner F. D. Rich Co. was the prime contractor on numerous federal housing projects. During the years 1963—1966, much if not all of the plywood and millwork for these projects was supplied by Cerpac Co. The Cerpac organization was closely intertwined with Rich. The principals of Rich held a substantial voting interest in Cerpac stock, supplied a major share of its working capital, and were thoroughly familiar with its operations and financial condition.

On October 18, 1965, Rich contracted with the United States to build 337 family housing units at Beale Air Force Base, California. Rich's Miller Act surety, petitioner Transmerica Insurance Co., posted the payment bond required by the Act. Rich then awarded Cerpac two contracts on the project, one to select, modify, detail, and install all custom millwork, and one merely to supply all standard exterior plywood, each contract incorporating by reference terms of the prime contract. A similar arrangement was employed by Rich and Cerpac on other projects during this period.

On February 22, 1966, Cerpac placed a single order with respondent Industrial Lumber Co. for all exterior plywood required under its plywood contract for the Beale project. Industrial is a broker, purchasing wood products and materials for resale. It acknowledged the complete Cerpac order, purchased the plywood from its own suppliers and arranged for deliveries at the Beale site to begin on March 10, 1966. Each shipment was receipted as it arrived on the site by a Rich representative.

Shortly after Industrial's shipments began, Rich informed Cerpac that more plywood was needed for another Government project being constructed in Charleston, South Carolina, for which Cerpac had also contracted to supply Rich with all exterior plywood. Rich and Cerpac decided to divert some of the Beale lumber to Charleston. Accordingly, Industrial was advised to supply a shipment of the plywood called for under its Beale contract with Cerpac to the South Carolina site. Industrial arranged for the wood to be shipped by one of its suppliers to a railhead near Charleston. The shipment diverted to South Carolina was one of 22 called for by Industrial's Beale Contract.² There were several subsequent shipments to the California site under that contract.

During April and May 1966, Cerpac fell behind in its payments to Industrial, and on July 13, 1966, having not received payment on invoices for nine separate shipments, Industrial gave notice to Rich and its surety of a Miller Act claim and thereafter brought the instant action in the Federal District Court for the Eastern District of California.³ The District Court recognized that under our decision in MacEvoy Co. v. United States for Use and Benefit of Calvin Tomkins Co., 322 U.S. 102, 64 S.Ct. 890, 88 L.Ed. 1163 (1944), Rich's liability turned on whether Cerpac was a 'subcontractor' within the meaning of the Act or merely a materialman. The District Court found that Cerpac was a subcontractor; hence Industrial, as its supplier, could assert a Miller Act claim against Rich, the prime contractor on the project. The District Court also rejected Rich's claim that venue for suit on the South Carolina shipment was improper in the Eastern District of California. Accordingly, the District Court granted judgment for Industrial, holding Cerpac⁴ and Rich as primary obligees and Transamerica on its bond, jointly and severally liable for the amount of all nine unpaid invoices, $31,402.97, including the amoun due on the shipment diverted to South Carolina. The District Court, however, denied Industrial's claim for attorneys' fees.

Both Rich and Industrial appealed. The Court of Appeals affirmed the judgment against Rich in large part.⁵ On Industrial's cross-appeal, the court reversed, holding that attorney's fees should have been awarded to Industrial as a successful plaintiff under the Miller Act, and remanded to the District Court for consideration of the amount of attorneys' fees to be awarded. 473 F.2d 720 (CA9 1973). We granted certiorari.⁶ 414 U.S. 816, 94 S.Ct. 41, 38 L.Ed.2d 48 (1973). We affirm the judgment below to the extent it holds that Cerpac was a 'subcontractor' for Miller Act purposes and that there was proper venue, but reverse as to the propriety of an award of attorney's fees.

II

Section 270a(a)(2) of the Miller Act establishes the general requirement of a payment bond to protect those who supply labor or materials to a contractor on a federal project. Ordinarily, a supplier of labor or materials on a private construction project can secure a mechanic's lien against the improved property under state law. But a lien cannot attach to Government property, see Illinois Surety Co. v. John Davis Co., 244 U.S. 376, 380, 37 S.Ct. 614, 616, 61 L.Ed. 1206 (1917), so suppliers on Government projects are deprived of their usual security interest. The Miller Act was intended to provide an...