United States v. Continental Casualty Company

• Decision Date: 30 March 1973
• Docket Number: Civ. A. No. 69-1788.
• Citation: 357 F. Supp. 795
• Parties: UNITED STATES of America For the Use and Benefit of ATLAS ERECTION COMPANY, INC. v. CONTINENTAL CASUALTY COMPANY et al.
• Court: U.S. District Court — Eastern District of Louisiana

357 F. Supp. 795

UNITED STATES of America For the Use and Benefit of ATLAS ERECTION COMPANY, INC. v. CONTINENTAL CASUALTY COMPANY et al.

Civ. A. No. 69-1788.

United States District Court, E. D. Louisiana.

March 30, 1973.

Kenneth V. Ward, New Orleans, La., for plaintiff.

A. Morgan Brian, Jr., Deutsch, Kerrigan & Stiles, New Orleans, La., for defendants.

JACK M. GORDON, District Judge:

The plaintiff, Atlas Erection Company, Inc., is a subcontractor who is asserting a claim for $8,226.90 against the prime contractor, Mike Bradford and Company, Inc., and its surety, Continental Casualty Company, on a statutory payment bond furnished pursuant to the requirements of the Miller Act, 40 U.S. C. § 270a et seq. The prime contractor defaulted prior to its completion of the government project so it is merely a nominal defendant in this litigation. After partial payment of plaintiff's claim by the surety and continued correspondence among the parties, the surety denied liability and refused further payment on the ground that the subcontractor's statutory rights had been perempted since more than one year had elapsed following completion of the plaintiff's work.¹ Plaintiff, on the other hand, alleges that it was lulled into a sense of false security by the surety's conduct, and that plaintiff delayed filing suit in anticipation of an amiable disposition of the claim. The law, states the plaintiff, permits the utilization of the estoppel doctrine to defeat the defendant's period of limitations defense in a Miller Act suit, and, moreover, the plaintiff argues that the facts of this case dictate such a course.

Traversing an area relatively undeveloped in the Fifth Circuit, this Court concludes that the Miller Act is subject to the doctrine of equitable estoppel, which, if warranted by the facts, vitiates the defense based on the statute of limitations. Moreover, the Court is convinced that the facts of the instant case call for application of such doctrine.

The pertinent facts in this case can be stated briefly. On or about June 28, 1966, the United States of America, acting through the United States Treasury Department, Commander, Eighth Coast Guard District, New Orleans, Louisiana, and Mike Bradford and Co., Inc. (hereinafter referred to as "Bradford"), a Florida corporation, entered into a written contract, No. TO8cg-4568, whereby Bradford agreed to furnish all labor, materials and equipment, and perform the work necessary for the construction of an aircraft hangar and office and other contractually stated federal facilities at the United States Naval Air Station called Callendar Field in Belle Chasse, Louisiana. Pursuant to applicable federal law, the Miller Act, Bradford supplied the requisite performance and payment bonds to the United States with Continental Casualty Company (hereinafter referred to as "Continental") of Chicago, Illinois as surety for the bonds. Subsequent to this agreement, Bradford entered into a subcontract with Atlas Erection Company, Inc. (hereinafter referred to as "Atlas"), a Louisiana corporation, on September 26, 1966, relative to the performance of certain work by Atlas for the principal contractor, Bradford, under the aforementioned contract TO8cg-4568.

Atlas performed all of its required subcontract work, beginning the contracted task about September 28, 1966, and completing the last of the work on November 15, 1967. Though not relevant to the issues sub judice, Atlas apparently performed some corrective work as late as January, 1968.

Some time in March or April of 1968 Bradford defaulted in the performance of the prime contract, and Bradford's surety, Continental, undertook the completion of the project.

Continental employed the Kansas firm of Contract Surety Consultants (hereinafter referred to as "CSC") to investigate all outstanding claims and to pay such claims proven to be valid. Although Bradford had made some payments to Atlas under their subcontract, Atlas still was owed a substantial amount of money at the time Bradford defaulted.

By letter dated April 2, 1968, Atlas was notified to forward all invoices and correspondence that related to the Bradford default to CSC's New Orleans, Louisiana, division. Thereafter, a regular tripartite stream of communications, both verbal and written, developed between Atlas, Continental and CSC. While it is unnecessary for the Court to enumerate each exchange between these parties from April 2, 1968, until August 4, 1969, when Atlas filed this suit, a chronological specification of certain correspondence is essential to achieve a perspective of the facts and law involved in this case.

On August 13, 1968, Atlas received from CSC a check in the amount of $152.07 in payment of several of Atlas' invoices, plus a letter by CSC requesting supplemental information to aid in the disposition of outstanding claims. By letter dated October 3, 1968, to Atlas, CSC agreed that $9,045.01 of Atlas' claim was valid and CSC proposed to pay this sum. CSC further stated in the same letter that a draft "in the amount of $9,045.01 will be obtained and forwarded to you (Atlas) with the express understanding you are in no way waiving any rights which you may have concerning unpaid or backcharge items." In closing, CSC wrote: "We will continue our efforts at resolution with others whereby sic your contract is involved and appreciate your continued cooperation in this regard." One week later, Atlas persuaded CSC to pay an additional $4,743.00, based on a separate contract from the one at issue, and thus an increased draft of $13,788.01 was mailed to Atlas on November 12, 1968. Accompanying the partial payment to Atlas was a letter advising Atlas of CSC's continuing endeavors in the investigation to achieve a final resolution of the disputed claims. It may or may not be coincidental that this letter arrived practically one year to the day from the last work performed by Atlas on November 15, 1967. November 16, 1968, was, of course, the last day for Atlas to file a Miller Act claim if the original one year filing period applied, but Atlas did not file suit in this Court or any other court prior to this deadline.

Thereafter, sundry telephone conversations to inquire about Atlas' unpaid claim were made between Atlas and CSC during the period of November, 1968, through May, 1969. Representatives of CSC continued to advise Atlas that CSC still was investigating the disputed portion of Atlas' claim and that when CSC obtained all the necessary data, then CSC would determine what monies Continental owed to Atlas.

On June 16, 1969, counsel for Atlas intervened as a negotiator for Atlas in pursuit of collecting the remaining portion of its claim. Exactly one week after the appearance of Atlas' counsel in these proceedings, CSC sent Atlas and its counsel a detailed breakdown of the pending claim and an offer by CSC, as Continental's agent, to execute final settlement of the matter in the amount of $3,902.10. While the June 23, 1969, letter did allude to the provisions of the Miller Act, neither Continental nor CSC had yet raised the affirmative defense of peremption. Rejecting the suggested compromise two weeks later, Atlas, through counsel, counteroffered to settle for $6,200.00, stating that if CSC failed to accept such counteroffer, Atlas proposed to sue Continental for the entire $8,226.90 claim. This letter, referring to a telephone conversation between the same parties on the previous day, is chronologically the first writing between the parties dealing directly with the time limits in this Miller Act claim.

By letter of July 25, 1969, more than twenty months after Atlas had completed its work under the subcontract with Bradford, Continental declined any further payment to Atlas, based on the expiration of the one year period for filing suit prescribed by the Miller Act, 40 U. S.C. § 270b(b). Atlas followed by filing the present suit on August 4, 1969.

The parties do not dispute the fact that the Court maintains jurisdiction over the action at bar pursuant to 40 U. S.C. § 270a et seq. Nor is disagreement between the litigants founded on the contents of the various transactions that developed; rather, the parties disagree as to what should be gleaned from these transactions, and the legal effect thereof.

Plaintiff Atlas contends that it acted in good faith at all times and that Atlas relied upon the respective representations made by Continental and its agent, CSC, to the effect that all of Atlas' valid invoices would be paid in full upon the completion of defendant's investigation. Negotiations for settlement between the parties persisted beyond the one year filing period, and, furthermore, the defendant did not refuse to pay Atlas until the time for filing suit had passed. Consequently, Atlas argues, Atlas relied upon these representations to its detriment in the postponement of filing suit. Continuing its line of reasoning, Atlas submits that the doctrine of equitable estoppel defeats the defendant's assertion that the passage of the one year filing period of the Miller Act had perempted Atlas' claim.

Defendant, Continental, presents a two-pronged argument: the first aspect is directed to the facts, the second to the law. With respect to the factual argument, Continental submits that its partial payments and correspondence to Atlas were qualified by the defendant's statements that Atlas was not waiving any of its Miller Act rights concerning the disputed claim if Atlas accepted payment for the undisputed claim and/or if Atlas continued to negotiate to achieve a settlement of the disputed claim. Continental maintains that it never requested or encouraged Atlas to forbear filing its Miller Act suit timely, and Continental unequivocally denies that it lulled or intended to lull Atlas into a false sense of security until the one year filing period elapsed. The second part of Continental's argument challenges the legal possibility of applying the estoppel...