U.S. ex rel. Epc v. Travelers & Cas. & Sur. Co., 02-2313 PHX ROS.

• Decision Date: 21 March 2006
• Docket Number: No. 03-0131 PHX ROS.,No. 04-1360 PHX ROS.,No. 02-2313 PHX ROS.,02-2313 PHX ROS.,03-0131 PHX ROS.,04-1360 PHX ROS.
• Citation: 423 F.Supp.2d 1016
• Parties: The UNITED STATES OF AMERICA for the Benefit and Use of EPC Corporation, an Arizona corporation, Plaintiff, v. TRAVELERS CASUALTY & SURETY COMPANY OF AMERICA, et al., Defendant.
• Court: U.S. District Court — District of Arizona

423 F.Supp.2d 1016

The UNITED STATES OF AMERICA for the Benefit and Use of EPC Corporation, an Arizona corporation, Plaintiff, v. TRAVELERS CASUALTY & SURETY COMPANY OF AMERICA, et al., Defendant.

No. 02-2313 PHX ROS.

No. 03-0131 PHX ROS.

No. 04-1360 PHX ROS.

United States District Court, D. Arizona.

March 21, 2006.

COPYRIGHT MATERIAL OMITTED

Hank E. Pearson, Jay Max Mann, Mann Berens & Wisner LLP, Kevin R. Harper, Dessaules Harper PLC, Phoenix, AZ, for Plaintiff.

Jeffrey L. Shields, Zachary T. Shields, Callister Nebeker & McCullough, Salt Lake City, UT, Chad L. Schexnayder, James L. Csontos, William F. Haug, Jennings, Haug & Cunningham LLP, Phoenix, AZ, for Defendant.

OPINION AND ORDER

SILVER, District Judge.

This case consists of three separate actions that were consolidated in July 2004. All of the actions stem from a construction contract involving a facility at Grand Canyon National Park. There are currently three Motions for Partial Summary Judgment pending before the Court. (Doc. 87, 89, 91) This Order resolves all three of those motions.

BACKGROUND

In March 2001, Beneco Enterprises ("Beneco") entered into a contract with the National Park Service for work on a maintenance and warehouse facility at Grand Canyon National Park. (Case-2313 Doc. 1) Pursuant to the Miller Act, 40 U.S.C. §§ 270a and 270b,¹ Beneco provided a payment bond issued by Travelers Casualty & Surety Company of America. In August 2001, Beneco entered into a subcontract with EPC Corporation ("EPC"). The subcontract provided that EPC would perform services such as excavation, grading, backfill, and the installation of utility lines in exchange for a payment of $3,806,915. (Case-2313 Doc. 1)

After entering into this contract, EPC hired Standard Construction Company ("Standard") to perform a portion of its work. Thus, Standard became a sub-subcontractor. (Doc. 88 p. 2) EPC and Standard began work on the project sometime after August 2001. On September 21, 2001, EPC sought payment for its work in the amount of $208,900. Later, on October 26, 2001, EPC sought payment in the amount of $416,000. (EPC SOF 112) Regarding the first pay application, Beneco issued a check on November 5, 2001 in the amount of $188,062 ($20,838 less than requested). Regarding the second pay application, Beneco issued a check on December 12, 2001 in the amount of $216,857 ($199,951 less than requested). (EPC SOF 11:113, 4) EPC received no other payments from Beneco. (Id.) EPC signed payment certifications and releases when it received these payments. Those releases stated that in return for the payments, EPC certified that it had "performed no additional work not covered by the Subcontract Price, and ... that [EPC] has no claim for additional compensation." The releases went on to provide that EPC "releases and waives any and all rights of lien, claims on bonds, or any and all causes of action whatsoever against the Owner, Beneco Enterprises, Inc., its surety, agents or employees arising from the Work which is the subject of the request for payment upon which this payment is made."

On January 11, 2002, various creditors filed an involuntary Chapter 11 petition against Beneco in the United States Bankruptcy Court for the District of Utah. Ten days later, on January 21, 2002, Beneco terminated EPC's subcontract under the contract's "termination for convenience" clause. EPC filed a proof of claim against Beneco in Utah bankruptcy court on July 3, 2002. That claim sought $2,791,617.65 for work performed by EPC prior to termination. This amount included $1,323,020.98 for work performed under the subcontract and $1,468,596.67 for "additional" or "changed" work not contained in the subcontract. On November 15, 2002, EPC filed an action against Travelers seeking to recover $2,791,617.65 under the payment bond. On January 21, 2003, Standard filed a separate suit against EPC and Travelers seeking compensation for the work it performed on the project. Finally, Beneco filed an adversary proceeding against EPC on May 2, 2003 in the Bankruptcy Court. That complaint sought disallowance of certain claims by EPC. The complaint also claimed that EPC's performance had been defective and, as a result, Beneco had incurred additional charges.² Those additional charges meant that EPC owed Beneco $519,824. EPC moved to withdraw the reference and transfer the adversary proceeding to Arizona. That request was granted and the proceeding was transferred to this District.

EPC moved to consolidate the three actions, arguing that common issues of fact pervaded all three cases. The Court granted the motion to consolidate. (Case-2313 Doc. 53) There are currently three Motions for Partial Summary Judgment pending before the Court.

1. Travelers' Motion for Partial Summary Judgment

Travelers first seeks summary judgment regarding Standard's claims due to Standard's alleged failure to provide appropriate notice of its claims under the Miller Act. Travelers also seeks partial summary judgment regarding EPC's claims for work completed prior to the November 2, 2001 and December 10, 2001 payment certifications and releases. Travelers' third basis for summary judgment is that any claim not previously released by EPC must be calculated according to the terms of EPC's subcontract. Finally, Travelers seeks partial summary judgment that. EPC and Standard may not collect their attorneys fees pursuant to Arizona Revised Statutes ("A.R.S.") section 12-341.01.

2. EPC's Motion for Partial Summary Judgment

EPC seeks partial summary judgment against Travelers. EPC believes that it is entitled, as a matter of law, "to recover its actual costs, plus reasonable overhead and profit" from Travelers. EPC also seeks judgment that Travelers may not assert backcharges for "allegedly defective and incomplete work." (Doc. 89 p. 16)

3. Beneco's Motion for Partial Summary Judgment

Beneco seeks partial summary judgment against EPC claiming that EPC may not recover for additional or changed work performed by EPC. Beneco believes that EPC is entitled to recover only for work contemplated by the subcontract.

ANALYSIS

I. Jurisdiction

40 U.S.C. § 3133 provides that individuals providing labor or material on a project for which a payment bond was issued pursuant to the Miller Act may bring a civil action seeking to recover unpaid amounts. Such a civil action must be brought in the United States District Court for the "district in which the contract was to be performed and executed, regardless of the amount in controversy." 40 U.S.C. § 3133(b)(3)(B). EPC and Standard are seeking to recover for work allegedly done on a Miller Act project located in the state of Arizona. Accordingly, the Court has jurisdiction and venue is proper.

II. Applicable Law

The Court must determine if Standard complied with certain provisions of the Miller Act as well as the scope of the subcontract between Beneco and EPC. Standard's compliance with the Miller Act requires construing and applying the federal statute. Thus, the Court need not look beyond federal law on that issue. But the Ninth Circuit "has long held that state law controls the interpretation of Miller Act subcontracts to which the United States is not a party." United States for Use and Benefit of Reed v. Callahan, 884 F.2d 1180, 1185 (9th Cir.1989). See also Continental Cas. Co. v. Schaefer, 173 F.2d 5, 8 (9th Cir.1949) (applying "Washington substantive law of contracts" in Miller Act case). Therefore, state law applies when construing the agreement between Beneco and EPC.

The parties do not agree which state's law is applicable. EPC asserts that Arizona law should apply. Beneco and Travelers claim that Utah law should be used because the subcontract states in two separate sections that the contract should "be construed and governed by the laws of the State Of Utah." In Miller Act cases, the Court must act "Mike a court sitting in diversity" and "use the law of the forum state to construe the agreement." United States for Use and Benefit of Reed v. Callahan, 884 F.2d 1180, 1185 (9th Cir. 1989). Accordingly, the Court will apply Arizona's conflict of laws doctrine.

"Arizona courts apply the Restatement to determine the applicable law in a contract action." Swanson v. The Image Bank, Inc., 206 Ariz. 264, 77 P.3d 439, 441 (2003). If, as here, "a contract includes a specific choice-of-law provision, [the Court] must determine whether that choice is `valid and effective' under Restatement [(Second) of Conflict of Laws] § 187." Id. Restatement § 187 provides for a two-step process. First, a court must determine "whether the disputed issue is one which the parties could have resolved by an explicit provision in their agreement." Id. (quoting Restatement (Second) of Conflict of Laws § 187 (1971)). If so, then the parties' choice of law provision will be given effect. Second, "if the particular issue is one which the parties could not have resolved by an explicit provision in their agreement directed to that issue," the choice of law provision will be given effect, "unless either ... the chosen state has no substantial relationship to the parties or the transaction ... or ... application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state." Id. (quoting Restatement (Second) of Conflict of Laws § 187 (1971)).

In this case, the parties disagree regarding the impact of a number of contractual provisions, but the Court concludes that all of these issues could have been resolved by an explicit provision in the parties' agreement. For example, EPC asserts that Beneco and Travelers may not assert any claims for backcharges for defective or incomplete work. The parties easily could have included an explicit provision in their contract specifying whether Beneco could charge EPC for work done to correct EPC's defective work.³ Because all the issues could have been specifically dealt with in the...