TACON MECH. CONTRS., INC. v. Aetna Cas. & Sur. Co.

• Citation: 860 F. Supp. 385
• Decision Date: 16 August 1994
• Docket Number: Civ. A. No. 93-1675.
• Court: U.S. District Court — Southern District of Texas
• Parties: TACON MECHANICAL CONTRACTORS, INC., et al., Plaintiffs, v. AETNA CASUALTY AND SURETY COMPANY, Defendant.

860 F. Supp. 385

TACON MECHANICAL CONTRACTORS, INC., et al., Plaintiffs, v. AETNA CASUALTY AND SURETY COMPANY, Defendant.

Civ. A. No. 93-1675.

United States District Court, S.D. Texas, Houston Division.

August 16, 1994.

Eric G. Carter, Houston, TX, for Tacon.

Thomas Randolph Cooper, Houston, TX, for Walsh & Albert.

Stephen Pate, Houston, TX, for defendant.

OPINION ON PARTIAL SUMMARY JUDGMENT

HUGHES, District Judge.

1. Introduction.

In this dispute over a government construction project, a subcontractor and a subsubcontractor are dissatisfied with the promptness of the surety's payment on the bond. Because the federal law preempts their state law causes of action and because they otherwise may not assert those claims, the causes of action will be dismissed.

2. Facts.

Menendez-Donnell contracted with the United States to improve the Naval Reserve Readiness Center. Tacon serves as subcontractor for some of the labor and materials, and it, in turn, subcontracted the sheetmetal ductwork to Walsh & Albert. Aetna was chosen as the surety on the project and issued a statutory payment bond. 40 U.S.C. § 270a et seq. (1993) (the Miller Act).

Menendez-Donnell was also a subcontractor on another government construction project, improvements at the City of Houston's Hobby Airport. In a dispute with the contractor on that project, Menendez-Donnell won a substantial arbitration award against Cardkey Systems. The funds found their way into the registry of this court when the parties with various interests in the money could not agree on their rights to the funds. The claimants include the surety, Aetna, and the holder of a Menendez-Donnell note, Sterling Bank.

At the same time, Menendez-Donnell could not pay its subcontractors on the Naval Reserve contract, and Tacon and Walsh & Albert resorted to the bond. When Aetna was slow in paying, they filed suit.

3. Remaining Claims.

With the cajoling of this court, the parties were able to get the paper work straightened out, and the only dispute remaining on the bond itself is $7,850.92. Additionally, the parties to the Hobby Airport project settled, and the cash in the registry of the court has been disbursed. The subject of this opinion is the claim by Tacon and Walsh & Albert that Aetna's slowness in paying the bond claims violates state laws sounding in tort. For those claims to remain, the plaintiffs must show that (a) the congressional enactment does not preempt state law claims and that (b) the plaintiffs as third-party beneficiaries to the contract between Aetna and Menendez-Donnell may bring those claims.

4. Miller Act Preemption.

Suppliers of labor or materials on a private construction project can protect their interest by perfecting a mechanics lien against the improved property. State law gives this lien one of the highest priorities. Because a state-law lien cannot attach to property of the national government, the suppliers are deprived of their usual security. The federal law solves this problem with an alternative remedy; federal law requires the contractor to obtain a payment bond to protect the rights of the suppliers. See generally F.D. Rich Co. v. United States for use of Indus. Lumber Co., 417 U.S. 116, 94 S.Ct. 2157, 40 L.Ed.2d 703 (1974).

The federal statutory scheme preempts remedies under state lien statutes. See, e.g., Continental Casualty Co. v. United States for use of Robertson Lumber Co., 305 F.2d 794 (8th Cir.1962). Congress has acted to regulate the liabilities of contractors so that the government's cost is defined and predictable; the government ultimately bears the cost of the payment bond, but it is free of the entanglements of local lien statutes. It was willing to bear the bond cost because, if it had left the subcontractors insecure, its cost would eventually rise to cover the subcontractors risk of loss through higher subcontractor and contractor bids.

Part of the thrust of the enactment is to avoid having the costs of local risk-increasing rules imposed on national government subcontractors. On construction projects for the federal government the remedies available in an action arising out of the bond should be nationally uniform. See F.D. Rich, 417 U.S. at 126-31, 94 S.Ct. at 2163-66. State law has no authority to enlarge the liabilities of a surety under a bond issued to comply with a federal statutory bond requirement. See United States for Use of Getz Bros. & Co. v. Markowitz Bros. (Delaware) Inc., 383 F.2d 595 (9th Cir.1967). What is uncertain is whether that rationale produces the conclusion that the federal bond requirement preempts all state-law claims arising out of a the performance of a surety on a federal construction project. Compare K-W Indus. v. National Sur. Corp., 855 F.2d 640 (9th Cir.1988) and United States ex rel. Sunworks Div. of Sun Collector Corp. v. Insurance Co. of North America, 695 F.2d 455 (10th Cir.1982) (no general preemption) with United States for use of Pensacola Constr. Co. v. St. Paul Fire & Marine Ins. Co., 710 F.Supp. 638 (W.D.La.1989) (blanket preemption).

Federal preemption may be established by Congress explicitly, through a scheme of federal regulation, or implicitly, if state law conflicts impede "the accomplishment and execution of the full purposes and objectives of Congress." See Pacific Gas and Electric Co. v. State Energy Resources Conservation & Dev. Comm'n, 461 U.S. 190, 203-04, 103 S.Ct. 1713, 1722, 75 L.Ed.2d 752 (1983). The intent of Congress inferable from its actual enactment is the critical issue. See California Fed. Sav. & Loan Ass'n v. Guerra, 479 U.S. 272, 275, 107 S.Ct. 683, 686, 93 L.Ed.2d 613 (1987).

The Miller Act says nothing about preemption. See H.R.Rep. No. 1263, 74th Cong., 1st Sess. 1 (1935). In fact, the sparse legislative history gives us no guidance towards Congress's intention about the scope and application of the act under these circumstances. It is known that the Miller Act as written gives some express protection to sureties as well as to the subcontractor.

The venue provisions that mandate venue in a federal district court where the contract was to be performed protect the surety. 40 U.S.C. § 270b(b) (1993). See United States Fidelity & Guaranty Co. v. Hendry Corp., 391 F.2d 13 (5th Cir.), cert. denied, 393 U.S. 978, 89 S.Ct. 446, 21 L.Ed.2d 439 (1968). Congress intended to protect sureties from multiple suits in state court that might lead to liability in excess of the payment bond. See id. at 19; United States ex rel. Aurora Painting, Inc. v. Fireman Fund's Ins. Co., 832 F.2d 1150 (9th Cir.1987).

The purpose of a Congressional act may also be ascertained by examining administrative regulations for indications that the act creates a scheme of regulation so comprehensive that no room remains for state regulation. See California Coastal Comm'n v. Granite Rock Co., 480 U.S. 572, 107 S.Ct. 1419, 94 L.Ed.2d 577 (1987); Hillsborough County v. Automated Medical Lab., Inc., 471 U.S. 707, 717, 105 S.Ct. 2371, 2377, 85 L.Ed.2d 714 (1985).

Treasury Department regulations require Miller Act sureties promptly to honor their bonds, and they create procedures for review of delinquent sureties. The department has the authority to revoke a surety's certificate of authority. 31 C.F.R. § 223.18. These regulations are strong evidence that Congress intended the performance of a surety to be assessed administratively rather than by the application by a federal court of the great variety of state-law causes of actions that expand the scope of the surety's potential liability. But see Alvarez v. Insurance Co. of North America, 667 F.Supp. 689, 694-95 (N.D.Cal.1987).

When the Miller Act was passed in 1935, the type of claims asserted by the plaintiffs today were not available. If the proliferation of state regulations had been an element of the context of performance bond pricing, Congress might have appreciated that threat to Congress's attempt to establish an orderly and comprehensive federal scheme for protecting materialmen and sureties alike. To read the Miller Act as limiting the government's own contracting costs through solely protecting the subcontractors, gives subcontractors both a federal scheme of assurance and the states' pattern of remedies and ignores that the act regulates sureties to further the purpose of reducing costs. The Miller Act preempts ...