Smith Plumbing Co., Inc. v. Aetna Cas. & Sur. Co.

• Decision Date: 17 July 1984
• Docket Number: No. 2,CA-CIV,2
• Citation: 149 Ariz. 545,720 P.2d 520
• Court: Arizona Court of Appeals
• Parties: SMITH PLUMBING COMPANY, INC., an Arizona corporation, dba White Mountain Supply Company, Plaintiff/Appellant, v. AETNA CASUALTY & SURETY COMPANY, a Connecticut corporation, Defendant/Appellee, White Mountain Apache Tribe, dba Apache Development Enterprise, Defendant/Intervenor/Appellee. 5072.

Page 520

720 P.2d 520

149 Ariz. 545

SMITH PLUMBING COMPANY, INC., an Arizona corporation, dba White Mountain Supply Company, Plaintiff/Appellant, v. AETNA CASUALTY & SURETY COMPANY, a Connecticut corporation, Defendant/Appellee White Mountain Apache Tribe, dba Apache Development Enterprise, Defendant/Intervenor/Appellee.

No. 2 CA-CIV 5072.

Court of Appeals of Arizona Division 2.

July 17, 1984.

Killian, Legg, Nicholas & Fischer by Charles W. Wirken, Mesa, for plaintiff/appellant.

Robert C. Brauchli, Whiteriver, for defendant/appellee and defendant/intervenor/appellee.

BIRDSALL, Chief Judge.

This appeal was taken from the order of the superior court dismissing appellant's complaint. A brief recitation of the facts underlying the action follows.

In 1963, the Tribal Council of the White Mountain Apache Tribe (Tribe) created the White Mountain Apache Housing Authority (Authority) for the purpose of receiving financial assistance from the federal government for the construction of low income housing. In 1968, the Tribe created the White Mountain Apache Development Enterprise (Enterprise) for the purpose of undertaking construction projects on the reservation. In 1978, the Authority contracted with the Enterprise for the construction of four low-income housing projects to be financed with funding received from the United States Department of Housing and Urban Development (HUD).

Pursuant to HUD regulations, the Enterprise obtained four performance-payment bonds pertaining to each construction contract from appellee Aetna Casualty & Surety Company (Aetna). Under the terms of these bonds, which are standard form documents prepared by HUD for such projects, the Enterprise as principal and Aetna as surety jointly and severally bound themselves to the Authority, as owner of the projects, in the amount of the individual contract sums, provided that:

... if the Principal shall well, truly and faithfully perform its duties, all the undertakings, covenants, terms, conditions, and agreements of said contract ... and if he shall satisfy all claims and demands incurred under such contract, ... and shall promptly make payment to all persons, firms, subcontractors, and corporations furnishing materials for or performing labor in the prosecution of the work provided for in such contract, and any authorized extension or modification thereof, including all amounts due for materials, lubricants, oil, gasoline, coal and coke, repairs on machinery, equipment and tools, consumed or used in connection with the construction of such work, and all insurance premiums on said work, and for all labor, performed in such work whether by subcontractor or otherwise, then this obligation shall be void; otherwise to remain in full force and effect.

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PROVIDED, FURTHER, that no final settlement between the Owner and the Contractor shall abridge the right of any beneficiary hereunder, whose claim may be unsatisfied. (Emphasis supplied)

The Enterprise entered into a subcontract with G, S & D Plumbing, apparently a non-Indian business, to supply all plumbing materials and labor for the installation of the plumbing for the housing projects. The appellant, an Arizona corporation, supplied G, S & D outside the reservation with plumbing supplies for the projects but apparently was never fully paid for the materials by G, S & D. The present action was filed in the Gila County Superior Court, naming the Authority and Aetna as defendants. ¹ The complaint sought relief against the Authority on a theory of unjust enrichment, and against the Authority and Aetna through the performance-payment bonds. Aetna and the Authority filed a motion to dismiss the complaint, which was joined in by the Tribe "... which has not been named in this lawsuit; but who is an indispensable party to the lawsuit if relief is to be obtained against the named defendants ... without submitting to the jurisdiction of this Court...." The basis for the motion was the parties' contention that the Tribe was an indispensable party to the lawsuit, that the Tribe was immune from suit, that this immunity inured to the benefit of Aetna and the Authority, and that the tribal court had exclusive jurisdiction over the cause of action. In denying the motion, by order dated March 14, 1982, the court ruled as follows:

The Court finds that the White Mountain Apache Tribe is a dependent sovereignty and not subject to jurisdiction of the Arizona Superior Courts; the Court also finds that the White Mountain Apache Housing Authority is a subordinate economic organization of the Tribe; and the Court further finds that there is a legitimate question of fact as to whether the waiver of indemnity [sic] signed by the Housing Authority subjects it to the jursidction [sic] of the State Court and thereby subjects AETNA as well. THEREFORE, the Motion to Dismiss is denied with leave of Counsel to file new motions addressed to the effect of the waiver.

The motion to dismiss was apparently renewed as to the Authority and was again denied on the basis of the court's finding that the Authority had waived its immunity from suit in state court.

Following this order, the Enterprise moved to intervene in the lawsuit as a party defendant pursuant to Rule 24, Arizona Rules of Civil Procedure, 16 A.R.S., on the grounds that as the principal obligor on the bonds it was an indispensable party to the lawsuit and that it was obligated to indemnify Aetna and the Authority for any judgment obtained against them. The motion was not opposed by appellant and was granted by the court. The Enterprise filed an answer, alleging inter alia lack of personal and subject matter jurisdiction, and both sides commenced discovery proceedings.

On May 9, 1983, appellant voluntarily dismissed the Authority from the lawsuit. On September 1, 1983, more than a year after the court's order granting leave to intervene, the Enterprise and Aetna filed a motion to dismiss on essentially the same grounds set forth in the prior motion of Aetna and the Authority. The court granted this motion, holding that it lacked jurisdiction over the Tribe and its agencies, and further finding that "... as a matter of law, the surety company cannot be sued directly...." The basis for this latter holding was the court's prior finding that, since the Authority had been dismissed from the lawsuit, "... there is no longer a conduit from the plaintiff to the surety company."

Although this appeal was taken from the court's order dismissing the complaint as to both the Enterprise and Aetna, appellant has sought relief in this court only as to Aetna and stated in its brief that it did not oppose the motion to dismiss as to the Enterprise. We therefore conclude that appellant has waived any claim of error as to the trial court's dismissal of the Enterprise and affirm that portion of the order, despite the substantial question presented as to whether the Enterprise's intervention in the lawsuit as a party defendant constituted a waiver of its sovereign immunity. See United States v. State of Oregon, 657 F.2d 1009 (9th Cir.1982).

As to Aetna, appellant raises three issues: 1) whether members of the classes named in the performance-payment bonds are entitled to seek recovery on the bonds; 2) whether a surety may be sued without joinder of the principal obligor where the latter is immune from suit; and 3) whether a principal's immunity from suit is a defense which may be asserted in an action against the surety.

With regard to the first issue, we have no hesitancy in holding that appellant was entitled to seek recovery on the performance-payment bonds. In Webb Construction Company v. Crane Company, 52 Ariz. 299, 80 P.2d 698 (1938), our supreme court quoted as "a correct statement of law" the following excerpt from 77 A.L.R., p. 83:

The right of laborers and materialmen to recover on a bond executed in connection with public works or improvements, where the bond contains a condition for their benefit and is intended for their protection, although the public body is the only obligee named therein, and there is no express provision that such third parties shall have any rights thereunder, is affirmed by the great weight of authority. 52 Ariz. at 310, 80 P.2d 698.

See also Ed Stearman & Sons, Inc. v. State ex rel. Union Rock & Materials Co., 1 Ariz.App. 192, 400 P.2d 863 (1965).

The appellees concede that the Authority is a public body, but argue that there is no express condition in the bond that the Enterprise pay any materialmen and that its only obligation thereunder is to indemnify the Authority in the event that the Enterprise fails to pay such materialmen. Contrary to appellees' contentions, the provision of the bonds quoted above is indistinguishable from that construed by the supreme court in Webb Construction Company v. Crane Company, supra. Further, the provision that "... no final settlement between the Owner and the Contractor shall abridge the right of any beneficiary hereunder, whose claim may be unsatisfied" clearly implies that the classes described in the bond were intended to be beneficiaries of its protection and are entitled to recover on the bond for any unsatisfied claim. Inasmuch as appellant was a third party beneficiary of the bonds, the Authority is not needed to serve as a "conduit" to the surety, and the trial court erred in dismissing the complaint as to Aetna on that basis.

Appellees raise two additional arguments in support of the trial court's dismissal of the suit as to Aetna, the first based on the doctrine of tribal sovereign immunity and the second based on the exclusive jurisdiction of tribal court.

The first argument is premised on the immunity of the Enterprise, as a subordinate business enterprise of the Tribe, from suit in state court, a premise which must be taken as conceded by appellant for the reasons discussed above. Appellees then argue that, because Aetna is "guaranteed" subrogation rights of a...