Seaboard Surety Co. v. H & R CONSTRUCTION CORP.

• Decision Date: 05 July 1957
• Docket Number: Civ. No. 2690.
• Citation: 153 F. Supp. 641
• Parties: SEABOARD SURETY COMPANY, a corporation, Plaintiff, v. (1) H & R CONSTRUCTION CORPORATION, a Minnesota corporation; (2) H. H. Rohr; (3) H. C. Nelson and Sidney A. Nelson, doing business as H. C. Nelson Investment Co.; (4) H & R Construction Corporation, a Minnesota corporation, and H. C. Nelson Investment Co., co-partners doing business under the firm name and style of H & R Construction Corporation; (5) State of Minnesota, acting by and through M. J. Hoffman, its Commissioner of Highways; (6) Fred E. Tripp; (7) The First National Bank of Saint Paul, Minnesota; (8) The Lummus Company, a Delaware corporation; (9) Woodrich Construction Co., a Minnesota corporation; (10) Rosholt Equipment Co., a Minnesota corporation; (11) The George T. Ryan Company, a Minnesota corporation; (12) Wm. H. Ziegler Co., Inc., a Minnesota corporation; (13) Rocket Transfer, Inc., a Minnesota corporation, and John Doe, Richard Roe, Jane Doe, and all other persons, firms and corporations, bureaus, agencies, authorities or other agencies who have or claim to have any right or claim under the within mentioned payment bonds, or any of them, or against plaintiff by reason thereof, or against the within mentioned unpaid contract balances, or any of them, Defendants.
• Court: U.S. District Court — District of Minnesota

153 F. Supp. 641

SEABOARD SURETY COMPANY, a corporation, Plaintiff, v. (1) H & R CONSTRUCTION CORPORATION, a Minnesota corporation; (2) H. H. Rohr; (3) H. C. Nelson and Sidney A. Nelson, doing business as H. C. Nelson Investment Co.; (4) H & R Construction Corporation, a Minnesota corporation, and H. C. Nelson Investment Co., co-partners doing business under the firm name and style of H & R Construction Corporation; (5) State of Minnesota, acting by and through M. J. Hoffman, its Commissioner of Highways; (6) Fred E. Tripp; (7) The First National Bank of Saint Paul, Minnesota; (8) The Lummus Company, a Delaware corporation; (9) Woodrich Construction Co., a Minnesota corporation; (10) Rosholt Equipment Co., a Minnesota corporation; (11) The George T. Ryan Company, a Minnesota corporation; (12) Wm. H. Ziegler Co., Inc., a Minnesota corporation; (13) Rocket Transfer, Inc., a Minnesota corporation, and John Doe, Richard Roe, Jane Doe, and all other persons, firms and corporations, bureaus, agencies, authorities or other agencies who have or claim to have any right or claim under the within mentioned payment bonds, or any of them, or against plaintiff by reason thereof, or against the within mentioned unpaid contract balances, or any of them, Defendants.

Civ. No. 2690.

United States District Court D. Minnesota, Third Division.

July 5, 1957.

Thomas, Bradford, King & Collatz, Paul C. Thomas and Frederick A. Collatz, St. Paul, Minn., and Matthew J. Levitt, Minneapolis, Minn., appeared on behalf of plaintiff.

Briggs, Gilbert, Morton, Kyle & Macartney, by Frank J. Hammond, St. Paul, Minn., appeared on behalf of defendants H. C. Nelson, Sidney A. Nelson and H. C. Nelson Inv. Co.

George N. Guttmann, Minneapolis, Minn., appeared on behalf of defendants H & R Const. Corp. and Harlyn H. Rohr.

Nunan, Quealy, Colwell & Bauman, by A. J. Greffenius, Minneapolis, Minn., appeared on behalf of defendant Rocket Transfer, Inc.

Frank E. Clinite and Charles F. Kelly, Minneapolis, Minn., appeared on behalf of defendant Armco Drainage and Metal Products Co.

Sullivan, Stringer, Donnelly & Sharood, by Robert O. Sullivan, St. Paul, Minn., appeared on behalf of defendant Borchert-Ingersoll, Inc.

W. M. Kronebusch, Minneapolis, Minn., appeared on behalf of defendant Wm. H. Ziegler Co., Inc.

Charles J. Foley, Minneapolis, Minn., appeared on behalf of J. V. Gleason, doing business as the J. V. Gleason Co.

DONOVAN, District Judge.

This suit, seeking broad relief against the defendants, arises primarily out of plaintiff's bonding H & R Construction Corporation, a Minnesota corporation, hereinafter referred to as H & R, in connection with eight contracts, most of which had to do with public work contracted for by H & R. H. C. Nelson and Sidney A. Nelson, doing business as H. C. Nelson Investment Co., and hereinafter referred to as the Nelsons, are, together with H & R and H. H. Rohr, the principal defendants in the case. The remaining defendants are subcontractors and materialmen.

The complaint, alleging fourteen causes of action, describes the Nelsons as partners of, or joint venturers with, H & R in connection with said work, and for which plaintiff wrote and issued surety bonds covering eight different jobs.¹ Defendant H. H. Rohr is charged in the eleventh cause of action as an individual indemnitor on all bonds involved herein. Defendants The Lummus Company, Rohr and H & R did not answer. The Nelsons answered, denying liability, the partnership, the joint venture, and any relationship with Rohr or H & R, other than that of creditor, and counterclaimed for the claimed indebtedness due them from H & R and plaintiff as surety on the bonds. H & R answered the counterclaim of the Nelsons and, denying liability to them, counterclaimed for alleged indebtedness due from the Nelsons in connection with the eight contracts involved herein.²

When the case was called for trial, a pretrial conference was requested and granted. As a result and during trial, the action against the State of Minnesota was dismissed. The action against Woodrich Construction Company was eliminated by stipulation. The action against George T. Ryan was dismissed.

The trial, consuming some fifty days, was directed almost entirely at the partnership or joint venture, which plaintiff contends was secretly entered into between H & R and the Nelsons. Their agreements, relating to contracts, equipment and financing, made a part of the complaint, evidence and record of the instant case, together with their acts and conduct in relation to the faithful carrying out of the work contracted for by H & R, constitute the keystone to liability or nonliability of the plaintiff and the Nelsons.

Summarizing the facts, it is conceded that Rohr first met the Nelsons in March, 1952. Rohr was 40 years of age, and his education was limited to high school and a year and a half of college. He had 20 years' experience as a machine operator and work having to do with dirt removal and construction. He was not a graduate engineer. During this period he had occasionally engaged plaintiff as a surety on his contracts. H & R was a family corporation. Rohr controlled it. He had no known capital. He would hire an engineer, have him figure on a job, and then by some "abracadabra" of his own thinking, reduce the price by, say 12%, and that would be the bid on the particular job he sought.

At the time of the Rohr-Nelson meeting in 1952, the Nelsons were a father-son combination, doing a finance and motor vehicle business in St. Paul. The father was about 60 years of age and the son 26, at the time of trial. The father started out with a business school education, making him a first rate stenographer. The son obtained a degree from the University of Minnesota where he studied accounting. He had kept books for his father since he was 14 years of age. The father had been in his line of business since 1919, and as an incident thereto he bought and sold heavy equipment, such as Rohr would find useful in the business of H & R.

Rohr very likely impressed the Nelsons at their first meeting as a "go-getter" type of contractor. The Nelsons had some experience in Rohr's line of work by reason of a joint venture project in which they engaged in 1950 with A. J. Tschida and Howard Prodger. Rohr and the Nelsons at this meeting talked of heavy dirt-moving equipment supplied by A. J. Tschida in the Tschida-Nelson joint venture. A week later they met again and discussed possibilities of H & R renting equipment from the Nelsons for purposes thought mutually profitable. They met again on March 16 or 17, 1952, and from time to time up to April 1, 1954, and executed the agreements attached to the complaint, providing for financing by the Nelsons of the jobs undertaken by H & R, for the purpose of paying debts incurred and lending credit, as well as to induce the bonding required for the carrying on of the work under the various contracts, for a division of profits and losses,³ and renting or purchasing of equipment.

The Nelsons kept the books and checked out funds required to meet current and past due debts of H & R. The funds of H & R and the Nelsons were commingled. They occasionally would accompany Rohr on trips to Hibbing, Minnesota, and Baraga, Michigan, seeking new jobs and at times jointly visiting the sites of various jobs in progress.

Plaintiff asserts the Nelsons were silent partners of H & R. The Nelsons introduced correspondence of plaintiff indicating knowledge of the alleged partnership by plaintiff.⁴

The bizarre result of the close cooperation of Rohr and H & R on the one hand and the Nelsons on the other when the harvest appeared plentiful, and their subsequent inability to recall cause and effect of substantial losses arising out of their mutually beneficial association in the H & R enterprises of the instant case, can only be equaled by the naive approach to the entangling alliance by the plaintiff.

It was the Nelson "practice to control the funds of any contract in which they had a financial interest as much as they possibly could, and * * * the depositing of such funds" consistent with that practice, developed in the Nelsons' method of doing business previously with other contractors,⁵ was the basis for the system of accounting adopted in the rather fast and loose relationship between H & R and the Nelsons. To illustrate a few oddities arising out of this unusual association, consider the following:

The Nelsons commingled H & R contract money with theirs;

Rohr was not authorized to withdraw funds from the common account;

The Nelsons lent credit to H & R and kept its books;

The Nelsons conferred frequently with Rohr about H & R jobs;

The Nelsons visited H & R jobs involved herein;

The Nelsons wrote H & R's insurance and authorized H & R purchases;

The Nelsons assisted in preparation of H & R bids;

The Nelsons took no profits or rentals out of H & R jobs;

Rohr received wages as a machine operator;

The Nelsons used H & R shops, facilities and parts for their own use.

The foregoing will suffice as an approach to consideration of the issues involved.

Plaintiff contends H & R and the Nelsons are partners or joint venturers, and as such must respond in damages by contribution to liability under the bonds. The Nelsons contend that they were not in a partnership or joint venture with H & R; that at most they were a financial backer of H & R and that H & R is indebted to their Investment Company in the amount they claim.

The testimony of Rohr and the Nelsons is not entirely satisfactory. Speaking almost entirely from memory Rohr at times is inconsistent and unsure. The testimony of defendant H. C. Nelson (the obvious proprietor of H. C. Nelson Investment Company) is dependent upon his uncertain memory of too many of the essential facts in the case, and, with his peculiar method of accounting and frequent resort to organization affairs in the bookkeeping and recollection of his son, is...