Tennessee Valley Authority v. Atlas Mach. & Iron Works, Inc.

• Citation: 803 F.2d 794
• Decision Date: 21 October 1986
• Docket Number: No. 85-2405,85-2405
• Parties: , 33 Cont.Cas.Fed. (CCH) 74,664 TENNESSEE VALLEY AUTHORITY, Appellant, v. ATLAS MACHINE & IRON WORKS, INC. and Williams Enterprises, Inc., Defendants. In re FIREMAN'S FUND INSURANCE COMPANY, Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

Page 794

803 F.2d 794

55 USLW 2238, 33 Cont.Cas.Fed. (CCH) 74,664

TENNESSEE VALLEY AUTHORITY, Appellant, v. ATLAS MACHINE & IRON WORKS, INC. and Williams Enterprises, Inc., Defendants.

In re FIREMAN'S FUND INSURANCE COMPANY, Appellee.

No. 85-2405.

United States Court of Appeals,

Fourth Circuit.

Argued June 4, 1986.

Decided Oct. 21, 1986.

Robert E. Washburn (Herbert S. Sanger, Jr., Gen. Counsel, Tennessee Valley Authority, Justin M. Schwamm, Sr., Asst. Gen. Counsel, Knoxville, Tenn., on brief), for appellant.

Thomas H. McGrail (Thompson, Larson, McGrail, O'Donnell & Harding, Washington, D.C., on brief), for appellee.

Before HALL, MURNAGHAN and SPROUSE, Circuit Judges.

MURNAGHAN, Circuit Judge:

The Tennessee Valley Authority's appeal presents the question whether an appellant's obligation under a supersedeas bond, given to stay execution of a judgment pending appeal, is either (1) excused when the opposing party cross-appeals or (2) discharged when the court of appeals affirms as to liability but remands for a new trial as to damages.

I.

In a prior opinion, we dealt with a dispute over two construction contracts awarded in 1978 by the Tennessee Valley Authority (TVA) to Atlas Machine & Iron Works, Inc. Tennessee Valley Authority v. Atlas Machine & Iron Works, Inc., 734 F.2d 12 (4th Cir., 1984). Under the terms of the two contracts, Atlas agreed to construct and deliver steel embedments to be used in steam tunnels and drywells at nuclear power reactors in Tennessee. Deliveries of the components were initially scheduled to begin on March 1, 1979 and end on March 17, 1981. Problems during construction arose from two sources. On the one hand, the fabrication sequence recommended by TVA for the steam tunnel components was new and previously untested. After initial failures in construction, the parties had to revise the specifications, because the initial specifications rendered the tunnel unbuildable. On the other hand, Atlas repeatedly failed to meet its delivery schedules, and much of its work was of poor quality. Despite Atlas' repeated assurances that both the timeliness and the quality of its work would improve, Atlas apparently ceased work on the steel components in June 1980. By December 1980, TVA inspectors reported that Atlas had in effect abandoned the contracts, and in February 1981 TVA terminated the contracts.

TVA then filed the present action, seeking equitable replevin of materials in Atlas' possession, and damages for breach of contract. On March 2, 1981, the district court upheld TVA's equitable claim and issued an injunction. Atlas then counterclaimed alleging that TVA's termination of the contracts was unjustified and therefore amounted to a breach, and that, in any event, TVA had given a warranty that its steam tunnel specifications would be adequate, and that the defective specifications therefore constituted a breach of warranty which rendered TVA liable for restitution of Atlas' costs. Trial of the liability and damages issues was bifurcated. The liability phase of the trial was held in August 1981, and the district court issued a memorandum and order resolving the liability issues on January 22, 1982. The district court concluded that Atlas had breached the contracts by its late deliveries and unacceptable workmanship. TVA's termination of the contracts was therefore justified, and TVA was entitled to damages. At the same time, the district court concluded that TVA's defective specifications breached its implied warranty of the sufficiency and efficacy of those specifications. The district court therefore held that Atlas was entitled to recover unspecified costs related to the steam tunnel components.

The damages trial was held in August 1982 and the district court issued a Memorandum and Order as to damages on April 14, 1983. The court found that TVA's damages due to Atlas' breach amounted to $1,956,834.18. On the other hand, the court found that Atlas was entitled to costs due to the defective specifications in the amount of $1,097,567.20. The court also found that Atlas was entitled to an unpaid balance due on the contract of $658,966.76. Subtracting these amounts from the damages owed to TVA, the court awarded TVA a net judgment of $200,300.22. On May 24, 1983, the district court issued an amended order correcting its earlier mathematical calculations and deducting the amount of a salvage credit due Atlas, which resulted in the reduction of TVA's net recovery to $182,500.22.

On May 12, 1983, before the district court issued its amended order, Atlas filed a notice of appeal. On June 8, 1983, Atlas obtained a stay of execution of the district court's judgment pending appeal, pursuant to Fed.R.Civ.P. 62(d), by giving a supersedeas bond in the amount of $200,300.20. ¹ The terms of the bond were negotiated and agreed to by Atlas and TVA. Fireman's Fund Insurance Company agreed to serve as surety on the bond after Atlas furnished it with full collateral in the form of certificates of deposit totalling $200,300.20. Subsequently, on June 20, 1983, TVA filed a notice of its cross-appeal of the district court's judgment.

On appeal, this court affirmed the district court's conclusions as to the liability of both parties. Tennessee Valley Authority v. Atlas Machine & Iron Works, Inc., 734 F.2d 12 (4th Cir., 1984). However, we completely vacated the district court's findings and conclusions as to damages. We held that the district court erred in allowing Atlas to recover, as damages for the defective steam tunnel specifications, its total costs from the project, rather than only the costs actually caused by the defective specifications. We also held that the district court had erroneously allowed Atlas a double recovery for the unbilled work in progress. As to the rest of the vacated damages findings, we simply stated that "a second consideration at the district court level would be advisable." Id. at 10.

On remand before a new judge, ² the district court conducted a second damages trial. On January 11, 1985, the district court issued a Memorandum and Order awarding $3,330,258.41 in damages to TVA and $1,437,600.04 in damages to Atlas, for a net award to TVA of $1,892,658.37.

Prior to the issuance of the district court's order on remand, Atlas took two steps which significantly affected its ability to pay any judgment ultimately rendered in favor of TVA. First, on April 18, 1984, Atlas entered into an agreement with Bethlehem Steel, one of its secured creditors, for the orderly liquidation of all of Atlas' assets. Apparently, Atlas' assets were in fact liquidated according to that agreement. However, Atlas did not notify either TVA or the district court of this liquidation until after the issuance of the district court's order in January 1985. Second, on June 7, 1984, Atlas' counsel wrote to Fireman's Fund, suggesting that the supersedeas bond had been either voided or discharged due to the court of appeals' vacation of the initial damages judgment, and asking for the return of the $200,300.20 deposited as collateral for the bond. Fireman's Fund subsequently returned the collateral to Atlas.

Upon learning of Atlas' inability to pay any part of the new judgment, TVA wrote to Fireman's Fund demanding payment of the amount of the supersedeas bond. Fireman's Fund refused to pay in a letter dated June 19, 1985.

TVA then moved in the district court, pursuant to Fed.R.Civ.P. 65.1, for enforcement of the bond. The district court denied the motion, and TVA now appeals from that denial. Fireman's Fund responds that it is not liable for two reasons: (1) because TVA, by taking its own appeal, lost its right to enforce the original judgment and rendered supererogatory the supersedeas bond; (2) because, under the terms of the supersedeas bond itself, the obligations of both principal and surety had been discharged when the court of appeals vacated the original judgment.

II.

Fireman's Fund argues, first, that the supersedeas bond became superfluous when TVA filed its cross-appeal, because the cross-appeal in itself prevented TVA from executing the district court's judgment. Fireman's Fund then concludes that its obligation under the bond was excused when the bond was rendered superfluous.

Fireman's Fund is correct in contending that TVA's filing of a cross-appeal deprived TVA of the right to execute the original judgment even in the absence of a supersedeas bond. Where the prevailing party in the lower court appeals from that court's judgment, the appeal suspends the execution of the decree. Bronson v. La Crosse R.R. Co., 68 U.S. (1 Wall.) 405, 410, 17 L.Ed. 616 (1863); Price v. Franklin Investment Co., 574 F.2d 594, 597 (D.C.Cir.1978); Luther v. United States, 225 F.2d 495, 497 (10th Cir.1955). Moreover, where the prevailing party is the first to take an appeal, no supersedeas bond can be required of the losing party when it subsequently files its own appeal, because the execution of the judgment has already been superseded by the prevailing party's appeal. Bronson v. La Crosse R.R. Co., 68 U.S. (1. Wall.) at 410, 17 L.Ed. 616. ³

However, Fireman's Fund can point to no authority to support its conclusion that where the losing party is the first to appeal and a supersedeas bond is properly required, the appellant's obligations under that bond are excused when the prevailing party subsequently files a cross-appeal. On the contrary, the Fifth Circuit implicitly rejected that view in Aviation Credit Corporation v. Conner Air Lines, 307 F.2d 685 (5th Cir.1962), where it enforced a supersedeas bond filed by an appellant despite the fact that the appellee had taken a cross-appeal. While no explanation for the court's ruling is forthcoming in its opinion, we are satisfied as to the correctness of its result. Had Atlas filed the bond as part of a bargained-for exchange, receiving in return TVA's promise not to execute the district court's judgment, Fireman's Fund might perhaps be entitled to argue...