U.S. for Use and Benefit of Olson v. W.H. Cates Const. Co., Inc.

• Decision Date: 17 August 1992
• Docket Number: Nos. 91-2403,s. 91-2403
• Citation: 972 F.2d 987
• Parties: 38 Cont.Cas.Fed. (CCH) P 76,391 UNITED STATES of America, For the Use and Benefit of Dallas G. Olson, Appellant, v. W.H. CATES CONSTRUCTION CO., INC., a Minnesota corporation; American Casualty Company of Reading, Pennsylvania, Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 987

972 F.2d 987

38 Cont.Cas.Fed. (CCH) P 76,391

UNITED STATES of America, For the Use and Benefit of Dallas

G. Olson, Appellant, v. W.H. CATES CONSTRUCTION CO., INC., a Minnesota corporation;

American Casualty Company of Reading,

Pennsylvania, Appellees.

Nos. 91-2403.

United States Court of Appeals,

Eighth Circuit.

Submitted Dec. 10, 1991.

Decided Aug. 17, 1992.

Charles Thomas Nixon, Minneapolis, Minn., argued, for appellant.

Gary Arthur Van Cleve, Minneapolis, Minn., argued, for appellees.

Before JOHN R. GIBSON, Circuit Judge, MAGILL, Circuit Judge, and KAUFMAN, ^* Senior District Judge.

FRANK A. KAUFMAN, Senior District Judge.

Dallas G. Olson (Olson) was employed from January, 1987 until November, 1990 as an estimator and project manager by Cates Construction Company (Cates), a general contractor doing business in Minnesota. Between April, 1989 and September, 1990, Olson worked for Cates on two federal construction projects and one state construction project, all three of which involved public improvements. Olson instituted this suit against Cates and its surety, American Casualty Company, under the Miller Act, 40 U.S.C. § 270a, and the Minnesota "little Miller Act," Minn.Stat. § 574.26, seeking damages of $24,000, the amount of Olson's allegedly unpaid salary for the period between April, 1989, and September, 1990. Olson asserts federal jurisdiction in connection with his federal Miller Act claim and pendent jurisdiction with respect to his state statutory claim. Cates moved to dismiss Olson's complaint for lack of subject matter jurisdiction and for failure to state a claim under Federal Rule of Civil Procedure 12(b)(1) and (6). Because affidavits were filed in connection with that motion, the district court treated Cate's motion to dismiss as a motion under Federal Rule of Civil Procedure 56 and granted summary judgment in favor of Cates and American Casualty Company on the ground that the labor of a salaried employee like Olson, as opposed to that of an hourly wage worker, is not covered by the Miller Act. Accordingly, the district court held that it lacked jurisdiction to hear Olson's claims. The sole issue presented on appeal is whether the court below was correct in concluding that Olson did not provide labor within the meaning of the Miller Act.

I.

The following facts are undisputed. During the relevant time period, Cates employed Olson as a project manager and estimator. Olson spent a large percentage of his time at Cates preparing estimates for project bids, and a small percentage of his time acting as a project manager on two federal contracts and one state contract. The federal contracts involved public improvements with respect to two federal buildings and were within the purview of the Miller Act. The parties refer to those contracts as the Federal Courthouse contract and the Federal Building contract. Cates, as general contractor, provided payment bonds for each of those two projects for the protection of all persons covered by the Miller Act, as required by law. American Casualty was the surety for each of those bonds. Olson contends that the federal Miller Act covers his work on the two federal projects; he does not claim that the work he performed concerning Cates' state contract, which the parties refer to as the University of Minnesota Project, is covered by the federal Miller Act.

Olson's work on the Federal Courthouse contract included work at and away from the job site to correct problems with the automatic doors and the security system. With regard to that contract, Olson supervised "punch list" completion, dealt with subcontractors and government representatives, and performed some manual on-site work such as caulking, rehanging magnetic switches and cleaning. As to the Federal Building contract, Olson also worked on and off the job site. With respect to that contract, Olson's tasks included managing Cates' employees and subcontractors, and performing some physical jobsite labor such as sanding, patching and removing light fixture brackets. When Olson began working on those federal projects, each of them was nearing completion.

Olson claims that he was paid only half of his salary owing for the period between April, 1989 and October, 1990, and that the remainder of his salary was deferred due to cash flow difficulties on Cates' part, with the understanding that such remainder would eventually be paid by Cates to Olson. Cates disagrees, contending that as a result of a decline in its business, it promised to pay Olson the remainder of Olson's salary only if the company showed a profit, which it did not, and that, in effect, Olson agreed to accept a salary cut in lieu of being laid off. These disagreements are not litigated in this appeal. Rather only federal Miller Act coverage is at issue herein.

II.

The purpose of the Miller Act, 40 U.S.C. § 270a, is to provide security for payment of those who supply work or materials for the prosecution of federal projects to which state law lien rights do not attach.

Ordinarily, a supplier of labor or materials on a private construction project can secure a mechanic's lien against the improved property under state law. But a lien cannot attach to Government property, ... so suppliers on government projects are deprived of their usual security interest. The Miller Act was intended to provide an alternative remedy to protect the rights of these suppliers.

F.D. Rich Co., Inc. v. United States for the Use of Industrial Lumber Co., Inc., 417 U.S. 116, 122, 94 S.Ct. 2157, 2161, 40 L.Ed.2d 703 (1974) (citations omitted). The Miller Act requires the general contractor to procure a bond to protect the payment of those persons who supply labor or materials to the general contractor on a federal project. ¹ In the event of the contractor's nonpayment for such work or materials, "[e]very person who has furnished labor or material in the prosecution of the work provided for in such [a federal] contract, ... shall have the right to sue on such payment bond" in federal district court. 40 U.S.C. § 270b(a), (b) (1959). ² Federal law not state law, governs the scope of the remedy afforded by the Miller Act. ³ See F.D. Rich Co., Inc., 417 U.S. at 126-27, 94 S.Ct. at 2163-64; U.S. v. Butt & Head, Inc., 535 F.Supp. 1155, 1158 n. 2 (S.D.Ohio 1982). Cf. United States v. U.S. Fidelity and Guaranty Co., 656 F.2d 993, 996 (5th Cir.1981). But see U.S. v. Kiewit & Sons' Co., 235 F.Supp. 500, 502 (D.Ala.1964).

The Miller Act "is highly remedial in nature.... and is entitled to a liberal construction and application in order properly to effectuate the Congressional intent to protect those whose labor and materials go into public projects." MacEvoy Co. v. United States, 322 U.S. 102, 107, 64 S.Ct. 890, 893, 88 L.Ed. 1163 (1944) (citations omitted). See also F.D. Rich Co., 417 U.S. at 124, 94 S.Ct. at 2162-63; United States v. Aetna Casualty & Surety Co., 480 F.2d 1095, 1100 (8th Cir.1973). However, only certain professional supervisory work is covered by the Miller Act, namely, "skilled professional work which involves actual superintending, supervision, or inspection at the job site." Butt & Head, Inc., 535 F.Supp. at 1160. Accordingly, "[p]laintiff can only recover on the payment bond ... to the extent that [he] performed on-site services." Id.

"It may be true that the term 'labor' in this statute, as generally in statutes relating to mechanics' liens, refers to physical labor rather than technical and professional skill and judgment, but an architect or other skilled man who actually superintends the work as it is done is by the weight of authority furnishing labor.... It was so held under the federal statute where the superintendent did some manual labor in Bankers' Surety Co. v. Maxwell (C.C.A.) 222 F. 797...."

United States v. Shea-Adamson Co., 21 F.Supp. 831, 837 (D.Minn.1937) (quoting American Surety Co. of New York v. United States, 76 F.2d 67, 68 (5th Cir.1935) (citations omitted)). ⁴ See also Nat'l. State Bank of Newark v. Terminal Construction Corp., 217 F.Supp. 341, 360-61 (D.N.J.1963), aff'd, 328 F.2d 315 (3d Cir.1964) (per curiam); Bankers' Surety Co. v. Maxwell, 222 F. 797, 799-800 (4th Cir.1915). Thus, the on-site supervisory work of a project manager falls within the purview of the Miller Act if such a superintendent did some physical labor at the job site or might have been called upon to do some on-site manual work in the regular course of his job. See American Surety Co. of New York, 76 F.2d at 68. Herein, in order to bring himself within the Miller Act, Olson must show that his work was "performed ... in connection with the completion of the project and not for the purpose of correcting defects." United States v. Western Electric Co., Inc., 337 F.2d 568, 572-73 n. 12 (9th Cir.1964) (concluding that there were genuine issues of fact, inter alia, as to whether punch list items were necessary for the completion of the original contract or constituted repair work). See also United States v. Gunnar I. Johnson & Son, Inc., 310 F.2d 899, 903 (8th Cir.1962); United States v. Young Lumber Co., 376 F.Supp. 1290, 1295 (D.S.C.1974). Whether "the work performed or material furnished was minor in nature is not conclusive." Western Electric Co., Inc., 337 F.2d at 573 n. 12.

Defendants agree that Olson, in carrying out his duties as project manager on the Federal Courthouse contract and the Federal Building contract, did perform some on-site supervisory work and manual labor. Under the weight of authority, Olson may recover under the Miller Act for any due and unpaid salary which constitutes payment for the amount of on-site supervisory work, no matter how small, which Olson performed in the prosecution of the Federal Courthouse contract and/or the Federal Building contract and which was not done in connection with subsequent repair of that original contract work. ⁵ Whether Olson was or was not a salaried worker as opposed to a hourly...