United Elec. Corp. v. United States

• Decision Date: 22 April 1981
• Docket Number: No. 10-80C.,10-80C.
• Citation: 647 F.2d 1082
• Parties: UNITED ELECTRIC CORPORATION v. The UNITED STATES.
• Court: U.S. Claims Court

647 F.2d 1082

UNITED ELECTRIC CORPORATION v. The UNITED STATES.

No. 10-80C.

United States Court of Claims.

April 22, 1981.

John F. Taylor, San Francisco, attorney of record, for plaintiff.

John Charles Ranney, Washington, D. C., with whom was Acting Asst. Atty. Gen. Thomas S. Martin, Washington, D. C., for defendant.

Before DAVIS, NICHOLS and KASHIWA, Judges.

ON DEFENDANT'S MOTION TO DISMISS

DAVIS, Judge:

We are faced, once again, with the uneasy problem of whether a subcontractor has standing to sue the United States for compensation due it under a subcontract with a government contractor where both the prime and the surety have failed or refused to make the payment, and the Government retains funds owing on the contract. This time the question arises on the following claim (as asserted in the petition): In 1978, plaintiff United Electric Corporation (United) made a contract with Standard Conveyor Co. (Standard) to supply over $100,000 worth of electrical components which were to become part of a mechanized materials-handling system that Standard contracted with the United States Air Force to fabricate, test and install at McClellan Air Force Base. The Air Force required Standard to post a payment bond of $494,665.50 under the Miller Act, 40 U.S.C. § 270a, an amount which United alleges was legally inadequate. Plaintiff says it performed its contractual obligations but did not receive payment from Standard which had filed a petition in bankruptcy in 1979, and is allegedly unable to pay. United then attempted to recover its compensation from Standard's surety, but the surety also refused compensation on the ground that the bond did not cover the materials provided by plaintiff.¹ However, plaintiff alleges the Government still retains a percentage of the contract in an amount ($550,000) much greater than United's demand ($107,958.42).

Plaintiff seeks judgment in this court from the United States for its contract price, asserting that the Air Force acted negligently and failed to comply with the requirements of the Miller Act, thus creating an equitable lien in United's favor on contract retainages (or other funds which should have been but were not retained by defendant). Defendant has moved to dismiss the petition, saying that the subcontractor has no claim within this court's jurisdiction.

The obvious difficulty for plaintiff is that the full court has already decided, in a comparable context, that we cannot entertain a subcontractor's claim which the prime (or a higher sub) and the surety have not paid. United States Fidelity & Guaranty Co. v. United States, 201 Ct.Cl. 1, 475 F.2d 1377 (1973) (USF&G). There, the Miller Act surety had fully met its obligations under the payment and performance bonds, but certain laborers and materialmen remained unpaid. The surety and the unpaid subcontractors sued here, raising claims against contract retainages in the hands of the Government, and also alleging improper progress payments. The Government claimed priority to the retained funds on the basis of a tax lien and other unmet obligations owing to it by the prime contractor. After satisfaction of these debts, approximately $4,000 in unexpended contract funds remained — an amount far smaller than that still owed to the subcontractors. On these facts we held that (1) the surety did not have priority against the United States for amounts necessary to satisfy tax and other obligations running from the prime to the Government; (2) the surety could not share in unexpended sums retained under the contract because it had not fully paid all of the laborers and materialmen (although it had completely satisfied its payment bond obligation to them); and (3) the subcontractors did not have standing to sue the United States on their own behalf.

The USF&G issue which is now critical concerns the last of these holdings — the right of subcontractors to sue the United States directly for their compensation. Relying on precedent from this court as well as the Supreme Court, we ruled specifically that such a right does not exist. This en banc holding is of course, binding on this panel.² But we can ask the full en banc court to reconsider that decision if we now think it wrong or questionable. We heard oral argument on the present case because a post-USF&G ruling of the Tenth Circuit could be thought to undermine our decision in USF&G (and is so presented by United). Kennedy Electric Co. v. United States Postal Service, 508 F.2d 954 (10th Cir. 1974). Because of Kennedy, which United emphasizes strongly, we have recanvassed the ground and now conclude that that case is quite distinguishable and that we have no reason to question USF&G.

In Kennedy, an electrical subcontractor which had performed work on a building for the Post Office Department (predecessor to the United States Postal Service) brought suit against the Postal Service for its compensation. That claimant had not been paid for its labor and materials because the prime had become insolvent and no Miller Act bonds had been posted. The Tenth Circuit, affirming a district court judgment in plaintiff's favor, held that the subcontractor had an equitable lien on contract retainages and amounts which had been improperly paid to the contractor's assignee in violation of Postal Service regulations.

Kennedy is quite different from both USF&G and the present case on a crucial point. In Kennedy the Postal Service, rather than the United States, was the defendant. The Postal Service is an independent establishment with the general capacity (given it by Congress) to "sue and be sued," see 39 U.S.C. § 401,³ not a subordinate unit of the Federal Government like the Air Force. In Kennedy, therefore, there was no bar of sovereign immunity to the subcontractor's suit, and the Postal Service was found to be "just as amenable to the judicial process as is a private enterprise." Id. at 957, 960. See also, F.H.A. v. Burr, 309 U.S. 242, 245, 60 S.Ct. 488, 490, 84 L.Ed. 724 (1940). Indeed, while discussing our decision in USF&G, the Kennedy court specifically stated:

USF&G is a different case from that at bar. We do not have a standing question. Our suit is against an independent establishment having the power to sue and be sued. 508 F.2d at 959.

The broad, unlimited legislative declaration that the Postal Service could "be sued" left the Tenth Circuit free to apply doctrines applicable to private persons, including principles of restitution, tort-law, and "contracts implied in law," and thereby to conclude that the equities of that subcontractor were paramount to those of the Postal Service, and that "in like circumstances a private enterprise could not take advantage of the misconduct of its transferor." 508 F.2d at 960.

The foundation of USF&G, to the contrary, is that suit here against the United States under 28 U.S.C. § 1491 is not unlimited and does not put the United States on the same plane, in all respects, as if it were a private entity. The controlling axiom is that the United States may be sued only to the extent that it allows its sovereign immunity to be waived. Through 28 U.S.C. § 1491, the United States has consented to be sued for money damages in certain restricted circumstances, the only relevant one being on the basis of a contract (either express or implied-in-fact) between the United States and the claimant.⁴ In the absence of a direct contractual link (express or implied in fact), no enforceable contractual right against the United States exists, and therefore a subcontractor, in privity only with its private prime, cannot recover directly from the Government for amounts owed it by the prime. Putnam Mills Corp. v. United States, 202 Ct.Cl. 1, 8, 479 F.2d 1334, 1337 (1973).⁵ This requirement of privity of contract is one important basis for the statement in United States v. Munsey Trust Co., 332 U.S. 234, 67 S.Ct. 1599, 91 L.Ed. 2022 (1947), that "nothing is more clear than that laborers and materialmen do not have enforceable rights against the United States for their compensation." Id. at 241, 67 S.Ct. at 1602 (citing H. Herfurth, Jr., Inc. v. United States, 89 Ct.Cl. 122 (1939)).⁶

The USF&G court relied on this Munsey language in reaching its conclusion of no standing for subcontractors. In Munsey a surety and the United States both asserted a right to contract retainages. The surety had paid off laborers and materialmen and was seeking reimbursement of such payment through subrogation to the rights of the subcontractors against the Government. The Supreme Court said (among other things) that subrogation did not help the surety because the materialmen and laborers had no enforceable rights against the Government and that "one cannot acquire by subrogation what another whose rights he claims did not have." 332 U.S. at 241-42, 67 S.Ct. at 1602-03.⁷

We recognized in USF&G that there was a possible contradiction between Munsey and the later Supreme Court statement in Pearlman v. Reliance Insurance Co., 371 U.S. 132, 83 S.Ct. 232, 9 L.Ed.2d 190 (1962), on the standing question. In Pearlman the contractor defaulted and the surety paid the laborers and materialmen. Both the surety and the contractor's trustee in bankruptcy sought to obtain the contract retainages. Pearlman recognized an equitable obligation of the Government to see that laborers and materialmen are paid.⁸ It stated that:

We therefore hold in accord with the established legal principles stated above that the Government had a right to use the retained fund to pay laborers and materialmen; that the laborers and materialmen had a right to be paid out of the fund; that the contractor had he completed his job and paid his laborers and materialmen, would have been entitled to the fund; and that the surety, having paid the laborers and materialmen, is entitled to the benefit of all these rights to the extent necessary to reimburse it. 371 U.S. at 141, 83 S.Ct. at 237 (emphasis added).

The tension...