United States v. Fidelity and Casualty Co. of New York

• Decision Date: 29 September 1968
• Docket Number: No. 12095.,12095.
• Citation: 402 F.2d 893
• Court: U.S. Court of Appeals — Fourth Circuit
• Parties: UNITED STATES of America, for the Use and Benefit of HUMBLE OIL & REFINING COMPANY, Appellant, v. The FIDELITY AND CASUALTY COMPANY OF NEW YORK, and Frank Burkholder and Robert Burkholder, Jr., Co-partners, doing business as Burkholder and Burkholder, General Contractors, Appellees.

402 F.2d 893 (1968)

UNITED STATES of America, for the Use and Benefit of HUMBLE OIL & REFINING COMPANY, Appellant, v. The FIDELITY AND CASUALTY COMPANY OF NEW YORK, and Frank Burkholder and Robert Burkholder, Jr., Co-partners, doing business as Burkholder and Burkholder, General Contractors, Appellees.

No. 12095.

United States Court of Appeals Fourth Circuit.

Argued May 10, 1968.

Decided September 29, 1968.

COPYRIGHT MATERIAL OMITTED

Lewis F. Powell, Richmond, Va., and J. Sloan Kuykendall, Winchester, Va. (Henry H. Whiting, Winchester, Va., and Jack Spain, Jr., Hunton, Williams, Gay, Powell & Gibson, Richmond, Va., and Kuykendall & Whiting, Winchester, Va., on the brief), for appellant.

Thomas H. McGrail, for appellees.

Before SOBELOFF, WINTER and CRAVEN, Circuit Judges.

WINTER, Circuit Judge:

Humble Oil & Refining Company, the use plaintiff ("Humble") sued the general contractor, Burkholder and Burkholder ("Burkholder"), and its surety, The Fidelity and Casualty Company of New York ("Fidelity"), for asphalt and petroleum products Humble furnished Burkholder for use on Federal Highway Project No. 100-A-12 (the "project"), a construction contract to which the Miller Act, 40 U.S.C.A. § 270a et seq. (Supp.1967), was applicable. Admittedly the suit was not filed until after one year following Humble's last delivery. Although Humble obtained a default judgment against Burkholder (as yet unsatisfied,) its claim against Fidelity was dismissed because of the one-year period of limitations contained in the Act, notwithstanding its defense that Fidelity was equitably estopped to plead limitations. Because we conclude that the doctrine of equitable estoppel is applicable, we reverse and remand the proceedings for a determination on the merits of the amount owed Humble by Fidelity.

I

The facts, as found by the district judge and not seriously disputed, are these:

Burkholder was a general contracting firm involved in many highway construction projects in the State of Virginia, including this project. Fidelity was the surety on a Miller Act payment bond for the project, as well as others. Humble furnished asphalt and petroleum products to Burkholder and, at the end of 1963, the balance owed to Humble by Burkholder was approximately $28,000.¹ The last delivery made by Humble to Burkholder for the project occurred on December 6, 1963, and thus the one-year limitation period under the Miller Act began to run at that time.

When Burkholder failed to pay Humble, the latter, on June 1, 1964, informed Fidelity that it had not received payment from Burkholder on the project and inquired what information Fidelity would require before Fidelity would pay the claim. Fidelity asked for a statement of the amounts due Humble for specific jobs and, on June 23, 1964, Humble furnished a handwritten list of invoices, totaling $15,315.59, which Humble stated were related to the project. Fidelity wrote to Burkholder and asked Burkholder to communicate with Humble directly and make arrangements to settle the claim, and Fidelity advised Humble that it had taken this action. Humble tried, unsuccessfully, to communicate with Burkholder during July and August, and so it communicated with Fidelity again. Fidelity advised that it was sending its representatives to Burkholder to review the latter's financial situation, and that Humble would be apprised of the results within two weeks. When no response within the promised period was received, Humble wrote to Fidelity on September 2, requesting information concerning what steps had been taken to secure payment; and, when no response to this inquiry was forthcoming, Humble, by letter dated September 28, requested its attorneys, Messrs. Hunton, Williams, Gay, Powell & Gibson, of Richmond, Virginia, to assist in collecting the Burkholder account.

Mr. Pasco, of the Richmond firm of attorneys, attempted to associate Henry Whiting, Esq., an attorney from Winchester, Virginia, in the collection of the Burkholder account, but Mr. Whiting refused employment because he had recently handled some business for Burkholder. At a later, though unspecified, date, Mr. Whiting, however, did become co-counsel for Humble. Before he was so associated, Mr. Whiting, as phrased by the district judge, did "keep Mr. Pasco informed in re the financial status of the Burkholders and their then dealings with the bonding company."

Meanwhile, Fidelity became increasingly disturbed about the deteriorating financial condition of Burkholder, and sent various independent auditors to appraise the situation. Finally, a Mr. Condon, Assistant Secretary of Fidelity, conferred with Burkholder in an attempt to secure the completion of several unfinished projects. At this time Fidelity learned from Burkholder that the Humble account was among those which were unpaid, and that Burkholder feared that suit was imminent on this and other accounts, unless suitable arrangements for payment were made. The district judge found that, in conference between Mr. Condon and Burkholder, Fidelity told Burkholder that Fidelity would pay all of the outstanding bills, including the Humble asphalt bill covered by their bond, that were properly proven by delivery invoices and, further, that Fidelity would meet the payroll and the outstanding bills and would pay Frank Burkholder, a copartner of Burkholder, $1,200 per month if he would complete the performance of Burkholder's several contracts. In consideration of Fidelity's promises, the copartners of Burkholder assigned all of their assets to Fidelity.

Thereafter, Burkholder conveyed the substance of the arrangement between it and Fidelity to Humble. Humble, in turn, advised its attorneys of the information which it had received. Mr. Pasco wrote to Mr. Whiting stating that Humble's specific invoices requested by Fidelity were being prepared and would be sent to Burkholder for transmission by him to Fidelity for payment. Mr. Pasco also stated that he would withhold action against Burkholder for a reasonable time to permit Fidelity to respond.

On December 1, Humble sent its invoices to Burkholder, with copies to its Richmond attorneys. Mr. Pasco acknowledged receipt of Humble's letter on December 7, and advised Humble that, since it was dealing directly with Burkholder in an effort to determine which accounts were covered by surety bonds, "I will take no further action in the matter until you request me to do so." Burkholder checked the pertinent invoices and delivery tickets and forwarded them to the surety on December 21.

On January 25, 1965, Fidelity wrote a letter to Humble requesting that certain forms be completed and returned to Fidelity in order to substantiate Humble's claim. The letter was apparently mislaid by Humble, and, when it made an inquiry of Fidelity, duplicate forms were sent. Humble completed, executed and returned these forms, and then, on May 20, 1965, for the first time, Fidelity informed Humble that its claim for payment for materials furnished for the project was barred by limitations. There followed a period of negotiations, involving Fidelity, Burkholder, Humble, and Messrs. Whiting and Pasco. Finally, on October 8, 1965, Fidelity, through Mr. Condon, informed Mr. Whiting (by now employed as an attorney for Humble) that it recognized no obligation to Humble for the project. Humble instituted suit against Burkholder and Fidelity on December 23, 1965.

Summarized, therefore, the facts show an acknowledgment by Fidelity of its liability to Humble (although the two parties have never agreed on the precise amount), an explicit promise by Fidelity to Burkholder that Fidelity would pay Burkholder's outstanding debts, which included that owed to Humble for the project, Fidelity's establishment of a procedure for Burkholder to verify the claims against it and submission of the claims to Fidelity for payment, communication of all of the above to Humble, Humble's participation in the procedure for verification and payment of claims, lengthy negotiations between Humble, Burkholder and Fidelity before and after the statute of limitations had run, and forbearance to sue by Humble until Humble was advised that Fidelity would plead the statute, and subsequent negotiations with Fidelity had proved fruitless. Detriment to Humble by this forbearance is manifest, unless Humble is permitted to invoke equitable estoppel.

II

In ordering dismissal, the district judge concluded, in his formal findings of fact and conclusions of law, that Fidelity did not lull Humble into a false security and that there was no deception on the part of Fidelity relied upon by Humble to its detriment. As to the former, the district judge noted that Fidelity had not directly represented to Humble that Fidelity would answer for Burkholder's obligation for the project if the obligation was found just after investigation. From his comments during the course of trial, it appears that the district judge may also have relied upon the fact that Humble had counsel, that Humble's counsel was Virginia's largest law firm, and that counsel was unaware of the period of limitations established by the Miller Act. From the facts, we decide that the district judge's legal conclusion was erroneous.²

III

Equitable estoppel is a well-established concept³ invoked by courts to aid a party who, in good faith, has relied, to his detriment, upon the representations of another. A good statement of the rule, made with regard to litigation under the Miller Act, is found in McWaters and Bartlett v. United States, 272 F.2d 291, 296 (10 Cir. 1959):

"Estoppel arises where one, by his conduct, lulls another into a false security, and into a position he would not take only because of such conduct. Estoppel, in the event of a disputed claim, arises where one party by his words, acts, and conduct led the other to believe that it would acknowledge and pay the claim, if, after investigation, the claim were found to be just, but when, after the time

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