Tectonics, Inc. of Florida v. Castle Const. Co., Inc.

• Decision Date: 21 February 1985
• Docket Number: No. 83-7370,83-7370
• Citation: 753 F.2d 957
• Parties: TECTONICS, INC. OF FLORIDA and Forest Builders, Inc., Plaintiffs-Appellants, v. CASTLE CONSTRUCTION COMPANY, INC., a/k/a Alabama Castle Construction Company, Inc., Collins Company, Inc., etc., et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 957

753 F.2d 957

53 USLW 2437

TECTONICS, INC. OF FLORIDA and Forest Builders, Inc., Plaintiffs-Appellants, v. CASTLE CONSTRUCTION COMPANY, INC., a/k/a Alabama Castle

Construction Company, Inc., Collins Company, Inc.,

etc., et al., Defendants-Appellees.

No. 83-7370.

United States Court of Appeals, Eleventh Circuit.

Feb. 21, 1985.

Donald V. Watkins, Montgomery, Ala., for plaintiffs-appellants.

Thomas S. Lawson, Jr., Montgomery, Ala., for Collins Const. Co.

Charles M. Allen, II, Montgomery, Ala., for Castle Const. Co. and Algernon Blair, Inc.

Appeal from the United States District Court for the Middle District of Alabama.

Before GODBOLD, Chief Judge, JOHNSON and CLARK, Circuit Judges.

CLARK, Circuit Judge:

In February 1982, Tectonics, Inc. of Florida and Forest Builders, Inc. (Tectonics) filed a complaint in the Southern District of Florida against Castle Construction, the Collins Company and Algernon Blair, Inc. with regard to the bidding on a small business set-aside contract. Jurisdiction was based on diversity of citizenship. The defendants succeeded in an attempt to remove the case to Alabama where the district court dismissed the case for failure to state a claim upon which relief could be granted. This appeal followed.

The question presented by Tectonics' appeal is whether a second low bidder can maintain separate state causes of action for damages against a low, successful bidder of a federal contract, when the latter company has misrepresented itself as a small business as defined in 15 U.S.C.A. Sec. 631(a) and regulations issued pursuant thereto by the Small Business Administration.

The United States Corps of Engineers issued an invitation for bids on a contract for construction at Red Stone Arsenal in Alabama. The invitation was limited to bids from small businesses as defined by the federal statute just mentioned. Tectonics, Inc. of Florida and Forest Builders, Inc. as joint venturers certified that they were small businesses within the statute and were the second lowest bidder for the construction contract. The defendant Collins Company, Inc. (Collins) gave a similar certificate to the Corps and was the successful bidder on the contract. Tectonics did not make a bid protest because it had relied upon Collins' misrepresentation that it was a small business. Later as a result of a protest filed by another company regarding a different construction contract, the Small Business Administration (SBA) decided that Collins was not a small business as defined by federal law. After becoming aware of this determination, Tectonics filed its complaint.

The complaint alleges that defendants Castle Construction Company, Inc. and Algernon Blair, Inc. provided 80% of Collins' original capitalization, indemnified the surety under the performance and bid bonds, provided employees to provide the bid estimates, and placed their corporate officers as directors of Collins. The complaint alleges that the defendants by so doing fraudulently misrepresented Collins as a small business company and thereby prevented Tectonics from being the successful bidder of the contract. The complaint seeks recovery on theories of fraud and deceit, unjust enrichment, and interference with a business relationship, and seeks compensatory and punitive damages. ¹

The issues presented by this appeal are as follows: (1) Do the facts as alleged in the complaint state a cause of action under Alabama law? (2) In enacting the statute, did Congress provide a private cause of action for a second low bidder under facts as alleged by the appellants in their complaint? (3) If Alabama law provides a cause of action and Congress did not provide a private cause of action pursuant to the statute, does the federal law preempt the state law and deny a second low bidder an action for damages against the successful low bidder? (4) Did the former Fifth Circuit in its opinion in Royal Services, Inc. v. Maintenance, Inc., 361 F.2d 86 (5th Cir.1966), hold that federal law preempted such a cause of action in a state court and thereby become precedent for our decision in this case pursuant to this circuit having adopted Fifth Circuit case law prior to October 1, 1981 pursuant to Bonner v. Prichard, 661 F.2d 1206 (11th Cir.1981)?

The district court dismissed Tectonics' complaint holding "[t]hat Congress did not intend to give a civil remedy to the second lowest bidder against the lowest and successful bidder." (Dist.Ct.Op. p. 5). The district court believed that Royal, supra, was controlling. We agree with the district court that Congress did not intend to provide a civil private cause of action to the second lowest bidder under facts such as alleged here. However, we do not interpret the congressional legislation or the federal constitutional supremacy clause to preempt a state remedy under these facts, if a remedy is permitted, and we do not construe Royal, supra, as so holding. Finding that a party is not precluded from asserting such a cause of action if it is permitted pursuant to Alabama law, we reverse the district court.

I. DOES ROYAL CONTROL?

In Royal, plaintiff alleged in a similar fashion that the defendant successful low bidder was not a qualified small business pursuant to the governing statute, and that defendant's ill-gotten contract with the United States Air Force permitted a diversity action under the laws of Florida whereby Royal could sue as a third-party beneficiary. The court in Royal defined the question presented as: "Did Congress ... manifest an intent, in the event the certification [by the low bidder] was untrue and such bidder was awarded the contract, to give a cause of action against such bidder to the next lowest bidder for loss of profits?" Further, the court said: "... we think no intent so to do may be implied therefrom [the statute]." Royal, supra, at 92. The court found under Florida law a third-party beneficiary could recover from one of the parties to a contract only if the contract disclosed an intention that the plaintiff have a cause of action. Finding no intent, the court held that the plaintiff had no cause of action. These two holdings were the basis of the Royal decision.

We adopt the following paragraph stated by the court in Royal:

The declared purpose of the Small Business Act is to preserve and expand full and free competition for the economic well-being and security of the Nation, by encouraging and developing the actual and potential capacity of small business, through aiding, counseling, encouraging, assisting and protecting the interests of small businesses. We think the purpose was public in character, viz., the preservation and expansion of full and free competition to insure the Nation's economic well-being and security, and that there was no intent to create civil rights of action in private persons.

Royal, supra, at 92.

The fact that Congress did not create a private cause of action by manifesting an intent that the second lowest bidder would have a cause of action under facts such as alleged here, ² does not mean that a cause of action may not be maintained under state law. We shall discuss this aspect of the law in the next section of the opinion. First, however, we must complete the discussion of the Royal opinion.

The court in Royal points out that the plaintiff had alleged a theory of recovery based upon negligence but that this was not briefed and the court did not consider such a theory. Further, the court mentioned that Royal did not include in its complaint but did assert in its brief that it had a claim pursuant to the federal false statement penal statute contained in 15 U.S.C.A. Sec. 645(a). The court went on to point out that this criminal statute indicated no congressional intention to create a civil remedy in behalf of the United States or a private person and stated that what it had said with respect to the Small Business Act applied also to Sec. 645(a). Thus, our construction of the opinion in Royal is that it goes no further than holding that Congress did not intend to create a private cause of action pursuant to the Small Business Act or pursuant to the federal false statement penal statute.

II. DOES THE SMALL BUSINESS ACT OR THE UNITED STATES CONSTITUTION PREEMPT A STATE CAUSE OF ACTION?

We are required to go beyond the question answered in Royal, supra, which merely held that the Small Business Act did not create a private cause of action. The court in Royal thus presaged the holding in Cort v. Ash, 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975). Cort and its progeny have laid down guiding principles to assist in deciding when Congress intended the remedy of a private cause of action to derive from the violation of a federal statute. Cort, although denying a federal private cause of action to parties injured as a result of the violation of the federal statute involved therein, nevertheless held that it was entirely appropriate for the plaintiffs to seek any remedy created by state law.

Nevertheless, there are instances where federal legislation can preempt any state cause of action. For example, in Silkwood v. Kerr-McGee Corp., 464 U.S. 238, 104 S.Ct. 615, 78 L.Ed.2d 443 (1984), the Supreme Court observed that "state law can be preempted in either of two general ways." Id. 104 S.Ct. at 621.

First, if it is Congress' intent to occupy a given field, then any state law within that field is preempted. Id.; see also Pacific Gas and Electric Co. v. State Energy Resources Conservation and Development Commission, 461 U.S. 190, 103 S.Ct. 1713, 75 L.Ed.2d 752 (1983). Thus, Congress may preempt state authority to act by using explicit preemptive language in a statute. Fidelity Federal Savings & Loan Ass'n v. De La Cuesta, 458 U.S. 141, 102 S.Ct. 3014, 73 L.Ed.2d 664 (1982). Absent explicit preemptive language, Congress' intent to supersede state law altogether may be inferred because: (1) the scheme of the federal law is so pervasive that the reasonable inference is...