U.S. for Use of Youngstown Welding and Engineering Co. v. Travelers Indem. Co.

• Decision Date: 21 October 1986
• Docket Number: 84-1704,Nos. 84-1673,s. 84-1673
• Citation: 802 F.2d 1164
• Parties: 33 Cont.Cas.Fed. (CCH) 74,665 UNITED STATES of America for the use of YOUNGSTOWN WELDING AND ENGINEERING COMPANY, a corporation, Plaintiffs/Appellees/Cross/Appellants, v. The TRAVELERS INDEMNITY COMPANY, a corporation, and A.S.C. Constructors, Inc., a corporation, Defendants/Appellants/Cross/Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1164

802 F.2d 1164

33 Cont.Cas.Fed. (CCH) 74,665

UNITED STATES of America for the use of YOUNGSTOWN WELDING AND ENGINEERING COMPANY, a corporation Plaintiffs/Appellees/Cross/Appellants, v. The TRAVELERS INDEMNITY COMPANY, a corporation, and A.S.C Constructors, Inc., a corporation Defendants/Appellants/Cross/Appellees.

Nos. 84-1673, 84-1704.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Feb. 14, 1985.

Decided Oct. 21, 1986.

John H. Westover, David L. Kurtz, O'Connor, Cavanagh, Anderson, Westover, Killingsworth & Beshears, Phoenix, Ariz., for U.S., et al.

Steven A. Hirsch, Evans, Kitchel & Jenckes, P.C., Phoenix, Ariz., for Travelers Indem. Co.

Appeal from the United States District Court for the District of Arizona.

Before KENNEDY, ALARCON, and NELSON, Circuit Judges.

KENNEDY, Circuit Judge:

The United States for the use of Youngstown Welding and Engineering Company (Youngstown) appeals from the portion of the district court's judgment denying its claims against A.S.C. Constructors, Inc. (ASC) for breach of contract and unjust enrichment. ASC and its surety, the Travelers Indemnity Company (Travelers), cross-appeal from the district court's amended order awarding Youngstown $173,079.41 under the Miller Act, 40 U.S.C. Sec. 270b (1982), for materials provided by Youngstown for a construction project undertaken by ASC for the Bureau of Reclamation, Department of the Interior. We affirm.

In February 1980, ASC contracted with the Bureau of Reclamation to perform one phase of the construction of the Yuma Desalting Plant. ASC, as required by the Miller Act, furnished a payment bond to the government, with Travelers as surety. See 40 U.S.C. Sec. 270a(a)(2) (1982). ASC asked Propipe Corporation (Propipe) to furnish aluminum bronze pipe, and Propipe in turn asked Youngstown to manufacture it. Youngstown suggested Propipe obtain progress payments from ASC by joint checks payable to both Youngstown and Propipe. Before any formal contract was reached between Propipe and either Youngstown or ASC, Propipe informed Youngstown that a UCC-1 document transferring ownership of the pipe to ASC was required before ASC would make progress payments. ASC insisted on the document because the government would not make payments to ASC absent documentation that title to the pipe had passed to ASC. Youngstown contacted ASC regarding the UCC-1 form and also confirmed that ASC's payments to Propipe would be by joint check. On June 10, 1980, Youngstown forwarded the UCC-1 form and a bill of sale to ASC. The ASC-Propipe purchase order was executed on the same date. On June 25, 1980, the Youngstown-Propipe purchase order was executed.

At least five checks were made payable jointly to Youngstown and Propipe for material manufactured by Youngstown and delivered by Propipe to ASC. Four of the checks contained the following endorsement language on the reverse side:

ENDORSEMENT OF THIS CHECK BY YOUNGSTOWN WELD ACKNOWLEDGES RECEIPT OF PAYMENT IN FULL FOR ALL OF THE MATERIAL AND/OR LABOR SAID PAYEE HAS

PROVIDED UNDER AGREEMENT WITH PROPIPE CORPORATION FOR YUMA DESALTING PLANT UP TO AND INCLUDING THE DATE OF THIS CHECK; RELEASING ANY LIEN, STOP NOTICE, OR BOND RIGHTS SAID PAYEE MIGHT HAVE, REGARDLESS OF THE AMOUNT OF MONEY ACTUALLY RETAINED BY SAID PAYEE OUT OF THE PROCEEDS OF THIS CHECK.

On September 23, 1980, Propipe filed a petition for bankruptcy under Chapter 11. The last payment made by ASC was on September 26, 1980, after which ASC withheld back charges from Propipe under the purchase order, and also withheld contract proceeds pursuant to the general provisions of the ASC-Propipe purchase order. Youngstown sent a notice to ASC pursuant to 40 U.S.C. Sec. 270b(a) on December 1, 1980, demanding payment under the Miller Act. On December 19, 1980, ASC, having been paid in full by the government on the Yuma contract, terminated its purchase order with Propipe. Youngstown instituted proceedings, in the name of the United States, against both ASC and Travelers in the district court pursuant to 40 U.S.C. Sec. 270b(b), seeking payment of $173,079.41 for materials provided to Propipe for incorporation into ASC's government contract. Youngstown also sought to recover the same amount from ASC as damages for breach of contract or as unjust enrichment.

While the district court found no contract between Youngstown and ASC and no ground for recovery under an unjust enrichment theory, it ruled for Youngstown under the Miller Act. 40 U.S.C. Sec. 270b(a) (1982). The district court originally awarded damages of $13,675.15 against ASC and Travelers on the Miller Act claim, holding further recovery precluded by the releases on the ASC checks. On Youngstown's motion for reconsideration, the district court held the release invalid for lack of consideration and awarded Youngstown $173,079.41. ASC appeals the award; Youngstown appeals the rejection of its contract and restitution claims since it would have been entitled to attorney's fees under Arizona law had it prevailed on either theory. See Ariz.Rev.Stat. Sec. 12.341.01 (1982) (fee award in contract action); Ruck Corp. v. Woudenberg, 125 Ariz. 519, 611 P.2d 106, 108-09 (App.1980) (fees recoverable in unjust enrichment action). No fee award is permitted under the Miller Act unless one of the traditional exceptions to the American Rule is established. See F.D. Rich Co. v. United States ex rel. Industrial Lumber Co., 417 U.S. 116, 126-31, 94 S.Ct. 2157, 2163-66, 40 L.Ed.2d 703 (1974).

We consider first ASC's argument on cross-appeal that Youngstown's acceptance of the endorsement language on the four joint checks bars its recovery under the Miller Act or under an implied contract between itself and Youngstown. The district court's amended holding stated Youngstown's release was invalid for lack of consideration. As this is a conclusion of law, we review the district court's determination de novo. United States v. McConney, 728 F.2d 1195, 1201 (9th Cir.) (en banc), cert. denied, 469 U.S. 824, 105 S.Ct. 101, 83 L.Ed.2d 46 (1984).

It is well settled that the Miller Act provides security for those furnishing labor and materials on government projects and should be construed liberally to effect this object. See, e.g., United States ex rel. Bailey v. Freethy, 469 F.2d 1348, 1350 (9th Cir.1972); Warrior Constructors, Inc. v. Harders, Inc., 387 F.2d 727, 729 (5th Cir.1967). While it is possible for a supplier to waive his rights under the Act, see, e.g., United States ex rel. B's Co. v. Cleveland Electric Co., 373 F.2d 585, 588 (4th Cir.1967); United States ex rel. Koppers Co. v. Five Boro Construction Corp., 310 F.2d 701, 702-03 (4th Cir.1962), the federal courts have been uniform in their insistence that a waiver be clear and explicit, United States ex rel. Friedrich Refrigerators, Inc. v. Forrester, 441 F.2d 779, 782 (5th Cir.1971); United States ex rel. Clark-Fontana Paint Co. v. Glassman Construction Co., 397 F.2d 8, 10 (4th Cir.1968). The precedents indicate, moreover, that waiver will not be implied from a joint check arrangement, as the additional security provided a materialman by joint check payment does not evidence an intention to give up the statutory security provided by the Act. Friedrich Refrigerators, 441 F.2d at 782; Glassman Construction, 397 F.2d at 10-11.

Unlike the release in Glassman Construction, a case relied on by Youngstown, the language included by ASC on the backs of the joint checks was unambiguous. The checks explicitly state that "ENDORSEMENT OF THIS CHECK BY YOUNGSTOWN WELD ACKNOWLEDGES RECEIPT OF PAYMENT IN FULL FOR ALL OF THE MATERIAL AND/OR LABOR SAID PAYEE HAS PROVIDED ... UP TO AND INCLUDING THE DATE OF THIS CHECK," thereby dispelling any doubt regarding either the amount purported to be released or by whom the release was executed. Consequently, if the release is otherwise valid as a matter of contract law, it will not fail to be enforced for want of the special clarity demanded of waivers of Miller Act rights.

Since neither the Miller Act nor any other federal law provides standards, apart from the requirement of clarity, for determining what constitutes a valid release, we may look to state law for guidance. See United States ex rel. United Electric Corp. v. National Bonding & Accident Insurance Co., 711 F.2d 131, 133 n. 2 (9th Cir.1983) (per curiam). Under Arizona law a release must be supported by consideration. See, e.g., State Farm Fire & Casualty Co. v. Rossini, 14 Ariz.App. 235, 482 P.2d 484, 488-89 (stating rule and finding no consideration), vacated, 107 Ariz. 561, 490 P.2d 567, 570 (1971) (finding consideration). Although the rule has been subject to criticism, see Restatement (Second) of Contracts Sec. 73 comment c at 18 (1981), in Arizona, performance of a preexisting legal duty is not sufficient consideration. See, e.g., Ring v. Taylor, 141 Ariz. 56, 685 P.2d 121, 130 (App.1984) (stating rule but finding other consideration to support release). As explained below, Youngstown was an intended beneficiary of the joint check provision in the Propipe-ASC purchase order. Absent some showing of an honest dispute about this obligation, see Restatement (Second) of Contracts Sec. 73 (1981), the joint check arrangement could not provide consideration for the subsequent release. The district court was correct in so ruling.

The district court concluded that "the joint check arrangement was placed into the purchase order as an additional security to Youngstown." In holding that this intention to benefit Youngstown made Youngstown a third party beneficiary to the progress payment provisions of the ASC-Propipe purchase order, the district court acted in accordance with Arizona law. See e.g., Maganas v. Northroup, 135 Ariz. 573, 663 P.2d 565, 567-68 (1983) (person found third party beneficiary where contract manifested intention to confer a direct benefit on him).

ASC argues that sufficient consideration for the release was given despite...