U.S. v. Lindberg Corp.

• Decision Date: 10 August 1989
• Docket Number: No. 88-2232,88-2232
• Citation: 882 F.2d 1158
• Parties: 35 Cont.Cas.Fed. (CCH) 75,704 UNITED STATES of America, Plaintiff-Appellee, v. LINDBERG CORPORATION, d/b/a Harris Metals, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1158

882 F.2d 1158

35 Cont.Cas.Fed. (CCH) 75,704

UNITED STATES of America, Plaintiff-Appellee, v. LINDBERG CORPORATION, d/b/a Harris Metals, Defendant-Appellant.

No. 88-2232.

United States Court of Appeals Seventh Circuit.

Argued Feb. 17, 1989.

Decided Aug. 10, 1989.

Nathan A. Fishbach, Asst. U.S. Atty., Milwaukee, Wis., Rick Richmond, Dept. of Justice, Civil Div., Appellate Staff, John F. Cordes, Jr., Civil Div., Appellate Section, Washington, D.C., for plaintiff-appellee.

Joseph C. Niebler, Niebler & Muren, Brookfield, Wis., for defendant-appellant.

Before EASTERBROOK, RIPPLE and MANION, Circuit Judges.

RIPPLE, Circuit Judge.

The United States brought this replevin action to gain possession of certain tank gears in the possession of the defendant Lindberg Corporation (Lindberg). Lindberg counterclaimed for the value of work performed in manufacturing the gears. Rejecting various defenses raised by the defendant, the district court granted summary judgment for the government and ordered Lindberg to relinquish its possession; it also dismissed the defendant's counterclaim for lack of jurisdiction. Lindberg now appeals the district court's grant of summary judgment and its dismissal of the counterclaim. We affirm the judgment of the district court.

I. BACKGROUND

A. Facts

In March 1983, the United States Army Tank Automotive Command entered into a contract with MTC Gear Corporation (MTC) for the purchase of gears. ¹ This government contract provided that the United States would purchase gears for use in military vehicles from MTC at the price of $604 per gear. R. 7 at 2. The contract incorporated Armed Services Procurement Regulation 7-104.35(b) (Procurement Regulation)--"Progress Payments for Small Business Concerns." One of the provisions in that regulation is a title-vesting clause that grants title to the government in all "parts; materials; [and] inventories" allocable or chargeable to the contract upon production or acquisition by MTC. R. 10 at Ex. 5.

In the course of performing its work under the contract, MTC arranged for the gears to be heat "treated" or "enhanced" by Lindberg. This process was necessary to meet the specifications of the government contract. Thus, the unfinished gears were shipped from MTC to Lindberg, which, through its Harris Metals division, performed the treatment procedure. No formal subcontract was drawn up between MTC and Lindberg; MTC simply sent the gears, along with purchase orders explaining the proper specifications, to Lindberg for treatment. ² Lindberg performed work on MTC-manufactured gears from April through October 1983.

In November, MTC closed active business and became insolvent. R.16A. At that time, MTC owed Lindberg $224,424.06 for its work; it also owed the government a substantial amount of money because, prior to MTC's going out of business, the government had advanced $945,340 in progress payments. The government later recovered all but $273,420.20. MTC's insolvency prompted both the government and Lindberg to seek some form of repayment.

Lindberg acted first. In May 1984, Lindberg filed suit in the Circuit Court for Racine County, Wisconsin against MTC and the Chase Commercial Corporation (Chase). ³ It sought foreclosure of a common-law bailment lien against the gears for the value of the heat treatment performed by Lindberg. On July 25, 1984, the circuit court granted Lindberg a final default judgment foreclosing the lien. R. 7 at Ex. 1. At about this same time, the government, after having recovered as much of the cash progress payments as it could, took its first steps toward repossessing the gears. In December 1984, the government notified Lindberg of the government's title to the gears and demanded that Lindberg relinquish possession. ⁴ Lindberg refused. Instead, in March 1985, Lindberg arranged a private foreclosure judgment sale of the gears to the Profile Gear Corporation (Profile) for $70,225. Notice of the private sale was provided to MTC, Chase, and the government. Upon receiving this notice, the government informed Profile of its claim of ownership, after which Profile refused to consummate the transaction.

On May 3, 1985, the government filed this replevin action seeking possession of the gears. Lindberg answered and filed an amended counterclaim, asserting that its common-law bailment lien was "superior to plaintiff's claim of title." R. 17 at 2, p 7. Both parties moved for summary judgment.

B. Holding of the District Court

In two separate rulings, reported together as United States v. Lindberg Corp., 686

                F.Supp. 701 (E.D.Wis.1988), the district court granted summary judgment for the government.  In its view, the government had title to the gears through operation of the title-vesting clause in the contract.  686 F.Supp. at 702-03.    That title, continued the district court, was not lost upon the gears' being sent to Lindberg for heat treatment.  Title to the property is "not tied directly to the progress payments."    Id. at 703.    Furthermore, it held, "[u]nder federal law, laborers and materialmen can acquire no liens on a public work without the consent of the United States."    Id. at 707 (citing Armstrong v. United States, 364 U.S. 40, 80 S.Ct. 1563, 4 L.Ed.2d 1554 (1960);  In Re Murdock Mach. & Eng'g Co., 620 F.2d 767, 769-70 (10th Cir.1980)).  Consequently, Lindberg's state-law based bailment lien could not be valid against the United States.  686 F.Supp. at 707.    Nor, continued the court, can the state lien support a claim for recoupment or for the defenses of estoppel, waiver, and laches.  With respect to Lindberg's counterclaim, the district court held that it was without jurisdiction because the amount in controversy exceeded the statutory limitation.  See 28 U.S.C. Sec. 1346(a)(2). 5
                

II. ANALYSIS

A. Government's Claim: Possession of the Gears

1. Title in the finished gears

At this point in the litigation, there appears to be no dispute between the parties with respect to the ownership of the gears prior to their shipment to Lindberg. By virtue of the government procurement contract between the United States and MTC, title clearly was vested in the United States. Nevertheless, Lindberg submits that title to the enhancement of the gears is vested in Lindberg. In a nutshell, Lindberg argues that, although the government may have had title in the unfinished gears shipped from MTC to Lindberg, it does not have title in the heat treatment performed on the gears. It submits that, since the government did not make progress payments to MTC specifically directed at paying for the heat treatment, and, since neither MTC nor the government ever had possession of the heat-treated gears, the government never obtained title in the treatment of the gears. Appellant's Br. at 13-18. Lindberg notes that it never received any payment from MTC. It then submits that, assuming the government followed its own regulations, "whatever progress payments were made by the Government to MTC did not include work which Lindberg performed. If the Government did not pay for the enhancement, and neither MTC nor the Government ever took possession of the enhancement, the title to the enhancement of the Gears never passed to the Government." Appellant's Br. at 17. Lindberg argues that MTC received progress payments from the government, but under Procurement Regulation paragraphs (a)(1) and (j), ⁶ it ought not have made those payments unless MTC paid Lindberg's invoices in advance or after approval by the government.

We cannot accept this argument. The contract between MTC and the government explicitly provided that:

(d) Title. Immediately upon the date of this contract, title to all parts; materials; inventories; work in process; ...; theretofore acquired or produced by the Contractor and allocable or properly chargeable to this contract under sound and generally accepted accounting principles and practices shall forthwith vest in the government; and title to all like property thereafter acquired or chargeable to this contract as aforesaid shall forthwith vest in the Government upon said acquisition, production, or allocation.

Procurement Regulation p (d) (emphasis supplied). The contract also provided, in relevant part, that:

All rights of the subcontractor with respect to all property to which the Government has title under the subcontract will be made subordinate to the rights of the Government to require delivery of such property to it in the event of default by the Contractor under this contract or in the event of the bankruptcy or insolvency of the subcontractor.

Procurement Regulation p (j)(2) (emphasis supplied).

When these provisions are given their plain meaning and are read in the context of the entire regulation, it is clear that title to the heat-treated gears--gears allocable to the MTC-government contract--is vested in the government. MTC entered into this contract to manufacture gears for the government; Lindberg was clearly a subcontractor to this arrangement. ⁷ Paragraph (d) of the Procurement Regulation, the key subsection, grants title in the unfinished gears to the government. No provision of the regulation supports the proposition that the heat treating of the gears altered this title. Moreover, under the provisions, there simply is no linkage between the government's right to title and the making of progress payments to the subcontractor. The payment provisions nowhere qualify the government's title in material

allocable to the contract. See In re American Boiler Works, Inc., 220 F.2d 319, 321 (3d Cir.1955) ("But one does not need a citation of decided cases to understand the language ... of the contract between the parties. It is as clear as English words can make it. The title, both as to the vessels and to materials, vested in the government with no ifs, ands or buts. And without any mention of payment as a prerequisite thereto.") (emphasis supplied). Compare In re Read-York, Inc., 152 F.2d 313, 316 (7th Cir....