United States v. Curtis T. Bedwell & Sons, Inc.

• Decision Date: 02 February 1981
• Docket Number: Civ. A. No. 79-4624.
• Citation: 506 F. Supp. 1324
• Parties: UNITED STATES of America ex rel. E. C. ERNST, INC., and E. C. Ernst, Inc., on its own behalf, Plaintiff, v. CURTIS T. BEDWELL & SONS, INC., and United States Fidelity and Guaranty Company, Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

506 F. Supp. 1324

UNITED STATES of America ex rel. E. C. ERNST, INC., and E. C. Ernst, Inc., on its own behalf, Plaintiff, v. CURTIS T. BEDWELL & SONS, INC., and United States Fidelity and Guaranty Company, Defendants.

Civ. A. No. 79-4624.

United States District Court, E. D. Pennsylvania.

February 2, 1981.

Stephen J. Springer, of LaBrum & Doak, Philadelphia, Pa., for plaintiff.

Kenneth M. Cushman, Robert A. Prentice and Steven D. McLamb, of Pepper, Hamilton & Scheetz, Philadelphia, Pa., for defendants.

OPINION

I. Introduction

JOSEPH S. LORD, III, Chief Judge.

This is a Miller Act case. 40 U.S.C. § 270a et seq. Defendant Bedwell is the general contractor on a construction project. Plaintiff was its electrical subcontractor. In Count I of its complaint, plaintiff seeks $249,960.56 in damages which allegedly resulted from Bedwell's refusal to pay for services and materials furnished to Bedwell. In Counts II and III of its complaint, plaintiff seeks to recover in excess of $50,000 in damages which allegedly were the natural consequence of Bedwell's material breach of this subcontract. This sum includes loss of profits, the cost of demobilization, unbilled services, and other damages. Bedwell denies that it failed to pay plaintiff what plaintiff was entitled to receive under the contract. Furthermore, Bedwell avers that plaintiff materially breached the subcontract when it, inter alia, (a) failed to pay plaintiff's bills of its suppliers and materialmen, (b) went insolvent, and (c) failed to furnish performance and payment bonds. Bedwell therefore argues that it lawfully terminated the subcontract.

Bedwell has counterclaimed for the damages it suffered as the result of plaintiff's alleged material breach of the subcontract. Bedwell seeks damages in an amount in excess of $200,000 for this breach. Plaintiff's defense to Bedwell's counterclaim is that Bedwell's earlier material breach of the contract — the breach that comprises the nucleus of its initial complaint — excused plaintiff from adhering to its contractual obligations. Plaintiff also asserts that Bedwell prevented it from performing its contractual obligations.

Each party has filed a motion for summary judgment. The defendants' joint motion for summary judgment against plaintiff as to all counts of plaintiff's complaint raises one issue: did Bedwell properly and lawfully terminate its subcontract with plaintiff?¹ For the reasons which follow, I have concluded that there is a material issue of fact as to whether Bedwell was in breach before it terminated the subcontract. I shall therefore deny defendants' motion.

Plaintiff moves for partial summary judgment with regard to Count I of Bedwell's counterclaim. It contends that Bedwell's damages were strictly limited by the contract. I shall deny plaintiff's motion.

II. Facts

On December 19, 1977, Bedwell contracted with the United States Department of the Navy, Naval Facilities Engineering Command, for the construction of a Propeller Facility at the Philadelphia Naval Shipyard. Bedwell then entered into a subcontract with plaintiff for the performance of the electrical work. This subcontract, dated January 3, 1978, provided that Bedwell could request payment and performance bonds from plaintiff.² Bedwell did not request a bond when the parties executed the subcontract; nor did it request one when plaintiff began performance in February, 1978. However, in the fall of 1978 — after the project was substantially underway — Bedwell learned that plaintiff's accounts with its suppliers and materialmen were in arrears. Affidavit of Curtis T. Bedwell. Consequently,³ on October 24, 1978, it requested that plaintiff furnish the necessary bonds. The overall subcontract project was more than fifty percent complete at this point. Affidavit of Robert L. Shreves, ¶ 18. On November 22, 1978, plaintiff notified Bedwell that it was unable to obtain the bonds at that time from its bonding company. Bedwell orally repeated its request for bonds in December, 1978. Deposition of Gerald Benson at 22.⁴ Again plaintiff failed to provide the requested bonds.

In early December, 1978, plaintiff filed a Petition for Arrangement pursuant to Chapter XI of the Bankruptcy Act, 11 U.S.C. § 701 et seq. By this time, plaintiff's past due supplier and materialmen accounts totalled over $130,000. Finally, on December 27, 1978, Bedwell gave plaintiff forty-eight hours written notice of termination.⁵ It was only at this point that plaintiff ceased construction on the project.

At the time Bedwell terminated its subcontract with plaintiff, it had paid plaintiff $351,661.96 out of the total subcontract cost of $853,000. After plaintiff ceased construction on the project, Bedwell retained sixteen other subcontractors to complete the electrical work covered by plaintiff's subcontract. The subcontractors satisfactorily finished the work in November, 1979, charging Bedwell approximately $580,000.

III. Defendants' Joint Motion for Summary Judgment

A. Preliminary Statement

Defendants argue that Bedwell lawfully terminated the subcontract because plaintiff materially breached the terms of the subcontract: (a) when it failed to furnish the bond; or (b) when it filed a Petition for Arrangement; or (c) when it failed to pay bills for labor and material as they became due. In order to grant summary judgment in defendants' favor it is only necessary to conclude that defendants have "shown that there is no genuine issue as to any material fact and that they are entitled to a judgment as a matter of law," Fed.R. Civ.P. 56(c), with respect to any one of these three contentions. Defendants have not met this burden, for there remains a controverted material fact: did Bedwell breach the subcontract by refusing to make prompt progress payments to plaintiff. I shall therefore deny the defendants' motion for all the relief asked. However, if Bedwell prevails on this disputed issue at trial, I hold as a matter of law that plaintiff materially breached the subcontract when it filed a Petition for Arrangement.⁶ I have adjudicated this latter issue pursuant to the command of Fed.R.Civ.P. 56(d); in this case I can "practicably ascertain that this material fact plaintiff's breach exists without substantial controversy." Fed.R. Civ.P. 56(d). I can narrow and thereby simplify the issues for trial.

B. Discussion

1. Bedwell's breach of the subcontract

Plaintiff avers that it "repeatedly made demands upon defendant, Bedwell, for progress payments due and owing as per the terms of the contract, which defendant refused to pay, thereby materially breaching the contract." Complaint, ¶ 12. Plaintiff therefore argues that there are genuine issues of material fact as to whether and when Bedwell defaulted under the terms of the subcontract. I conclude that there is a "substantial controversy," see Fed.R.Civ.P. 56(d), as to whether Bedwell breached the subcontract before plaintiff's "breach." This precludes granting summary judgment in Bedwell's favor. If Bedwell "withheld the payment of a progress payment unconditionally owed to the plaintiff ... such conduct would constitute a breach of a material provision of the contract between the parties, thereby excusing plaintiff from further performance..." United States ex rel. Micro-King Co. v. Community Science Technology, Inc., 574 F.2d 1292, 1295 n.3 (5th Cir. 1978). See, e. g., Cargill, Inc. v. Atkins Farms, Inc., 422 F.Supp. 239, 244 (W.D.Ark.1976) (citing cases). A defaulting party to a contract (Bedwell) cannot demand subsequent adherence to the terms of the contract by the other party (plaintiff). Therefore plaintiff's failure later to conform to its contractual obligations would not undermine its cause of action against the defendants.

The subcontract conditioned payment of plaintiff's invoices to Bedwell upon the payment of such by the Navy. Article 5 of the subcontract states:

In the absence of other provisions in the Contract Documents between the Owner the Navy and Contractor Bedwell progress payments, retained percentage and final payment to the Subcontractor plaintiff shall be handled in accordance with the provisions of the Architect-Contractor Joint Recommendation No. 11 (retained percentage and final payment) dated February 13, 1974 which is attached hereto and incorporated herein as part of this subcontract agreement.

The Architect-Contractor Joint Recommendation No. 11, in turn, states: "the Owner Navy shall ... pay the Contractor Bedwell ... and the Contractor shall then pay his Subcontractor plaintiff for the amount of work for which he has been paid." Answer of Plaintiff, E. C. Ernst, Inc., to Defendants' Motion for Summary Judgment, Exhibit A, Architect-Contractor Joint Recommendation, ¶ 4. See also id. at ¶ 5 (procedure for progress payments).

Plaintiff argues that Bedwell failed to conform to this procedure. Plaintiff has supported its response to defendants' motion with the affidavit of Robert L. Shreves, the Project Manager for plaintiff in connection with the electrical subcontract. Affidavit of Robert L. Shreves, ¶¶ 1-3. This affidavit states: "for the period from March through December, 1978, Defendant Bedwell was paid approximately $535,000.00 for work performed by Plaintiff." Id. at ¶ 13. However, the affidavit continues, Bedwell "without cause, persistently and repeatedly withheld progress payments due to Plaintiff for electrical work satisfactorily completed by it." Id. at ¶ 14.

Defendants argue that plaintiff has not demonstrated that Bedwell paid plaintiff less than the percentage amount which had been approved by the Navy. This contention, however, conflicts with Shreves's statement that Bedwell unjustifiably withheld some of plaintiff's share of the $535,000 that the Navy paid to Bedwell, thereby breaching the contract.⁷ If Shreves's figure is correct,⁸ Bedwell did not conform to the payment schedule and thus materially breached the contract. Community Science Technology, supra....