United States v. Golden West Construction Company

• Decision Date: 02 February 1961
• Docket Number: Civ. No. C-50-60.
• Parties: UNITED STATES of America, For the Use and Benefit of George W. BERNADOT, Plaintiff, v. GOLDEN WEST CONSTRUCTION COMPANY, a corporation, and General Insurance Company of America, a corporation, Defendants.
• Court: U.S. District Court — District of Utah

194 F. Supp. 371

UNITED STATES of America, For the Use and Benefit of George W. BERNADOT, Plaintiff, v. GOLDEN WEST CONSTRUCTION COMPANY, a corporation, and General Insurance Company of America, a corporation, Defendants.

Civ. No. C-50-60.

United States District Court D. Utah, Central Division.

February 2, 1961.

Leonard W. Elton and Max K. Mangum, Salt Lake City, Utah (Rich, Elton & Mangum, Salt Lake City, Utah), for plaintiff.

William J. Cayias and D. Eugene Livingston, Salt Lake City, Utah, Richard I. Singer, San Diego, Cal. (Rubin, Seltzer & Solomon, San Diego, Cal.), for defendants.

CHRISTENSON, District Judge.

Plaintiff, as a subcontractor under the prime contractor on a government project, sued under the Miller Act, 49 Stat. 794, 40 U.S.C.A. § 270b, for payment for performance under the sub-contract and, in the alternative, for the reasonable value of services and materials furnished under the sub-contract. The defendant prime contractor and its surety deny performance and assert a counterclaim for damages for plaintiff's alleged failure to perform the sub-contract. Plaintiff has moved to strike the counterclaim on the basis of a question of law reserved in the pre-trial order, on the argument that it cannot be maintained in this action because the defendant prime contractor is a foreign corporation not qualified to do business in the State of Utah. This presents a problem that does not appear to have been directly decided in the published decisions. I have before me for reconsideration my oral decision that the counterclaim should be stricken.

A conclusion best can be reached against a statutory and decisional background.

The Utah law, Sec. 16-8-3, U.C.A. 1953, provides as follows:

"Disabilities of noncomplying foreign corporations. — Any foreign corporation doing business within this state and failing to comply with the provisions of sections 16-8-1 and 16-8-2 shall not be entitled to the benefit of the laws of this state relating to corporations, and shall not sue, prosecute or maintain any action, suit, counterclaim, cross complaint or proceeding in any of the courts of this state on any claim, interest or demand arising or growing out of or founded on any tort occurring, or of any contract, agreement or transaction made or entered into, in this state by such corporation * * * and every contract, agreement and transaction whatsoever made or entered into by or on behalf of any such corporation within this state or to be executed or performed within this state shall be wholly void on behalf of such corporation and its assignees and every person deriving any interest or title therefrom, but shall be valid and enforceable against such corporation * * * (or) person * * *.

It seems clear that the defendant contractor was doing business within the State of Utah, at least in the performance of the general contract, and that the sub-contract, for a breach of which it interposes its counterclaim, was made within the State of Utah and was to be performed here. See Kansas City Structural Steel Co. v. State of Arkansas, for Use and Benefit of Ashley County, 1925, 269 U.S. 148, 46 S.Ct. 59, 70 L.Ed. 204. The Utah Supreme Court has construed the Utah statute in a literal manner and has refused to allow suits to be brought by non-complying corporations. Mud Control Laboratories v. Covey, 1954, 2 Utah 2d 85, 269 P.2d 854. And ordinarily a federal court, at least in a diversity or other case in which rights are to be determined under State law, will give affect to such disabilities. Phillips Co. v. Everett, 6 Cir., 1919, 262 F. 341; Woods v. Interstate Realty Co., 1949, 337 U.S. 535, 69 S.Ct. 1235, 93 L. Ed. 1524; Cohen v. Beneficial Industrial Loan Corp., 1949, 337 U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528; Ragan v. Merchants Transfer & Warehouse Co., 1949, 337 U.S. 530, 69 S.Ct. 1233, 93 L.Ed. 1520.

The Miller Act gives the one furnishing labor or material in the prosecution of the work in respect to which a payment bond is furnished under Section 270a of Title 40 U.S.C.A. a right to sue on such payment bond, "* * * for the amount, or the balance thereof, unpaid at the time of institution of such suit and to prosecute said action to final execution and judgment for the sum or sums justly due him." (Emphasis mine). Id., Sec. 270b.

Speaking of prime contracts, 40 U.S. C.A. § 341 provides, inter alia, that, "The Administrator of General Services is authorized to carry on the construction work herein authorized by contract, or otherwise, as he deems most advantageous to the United States."

In Barnard-Curtiss Company v. United States, 10 Cir., 1957, 244 F.2d 565, 10 Cir., 1958, 257 F.2d 565, certiorari denied, 358 U.S. 906, 79 S.Ct. 230, 3 L. Ed.2d 227, a counterclaim for delay in completing the work was recognized by the Court in favor of the prime contractor, subject to certain proof, which implied an interrelationship between the counterclaim and the primary claims under the Miller Act. Other than on this implicit point, the case is not helpful.

Continental Casualty Co. v. Schaefer, 9 Cir., 1949, 173 F.2d 5, certiorari denied 337 U.S. 940, 69 S.Ct. 1517, 93 L.Ed. 1745, considered the question of what substantive law should govern in a Miller Act case on a point not resolved by the Federal statute. The Court said that where the project was in Washington, all relevant facts occurred there, and the issue did not involve the construction or application of the federal statute, the issue would be decided by the federal court as it would have been decided by a State court sitting in Washington, and Washington's substantive law of contracts would be applied. But this case also demonstrates that actions in form for damages for breach of contract may be considered to come under the Miller Act where they involve the furnishing of labor or materials.

The right of action given under the Miller Act with respect to bonds of contractors for public buildings or works is a direct action on the bond for which the surety is liable, but such a claim is raised only upon the performance of labor or the furnishing of material. United States for use of Araco Co., v. Somers Construction Co., D.C.Del.1959, 184 F.Supp. 563.

Thus in L. P. Friestedt Co. v. U. S. Fireproofing Co., 10 Cir., 1942, 125 F.2d 1010, it was held that under the Heard Act, 40 U.S.C. § 270, the surety was not liable to the sub-contractors for losses sustained because of a breach of contract by the contractor in causing delays which prevented the completion of the work within the time contemplated, where the subcontractor did not furnish any extras for the completion of the contract and the claims for the losses did not arise under the contract but outside of it.

The case of the United States for the use of James F. O'Neil Co. v. Malan Construction Corp., D.C.E.D.Tenn.1958, 168 F.Supp. 255, involved an action by subcontractors against the general contractor and its surety under the Miller Act. The defendant moved for summary judgment on the ground that the plaintiff, a foreign corporation, had failed to qualify to do business in Tennessee as required by state law. The motion was denied by Judge Taylor on the ground that the State had no power to deny access to the federal courts in cases not founded on diversity of citizenship.

The doctrine of Woods v. Interstate Realty Company, supra, relied on by defendants, was expressly limited to diversity cases. The case at bar is not founded upon diversity but upon a Federal statute and the counterclaim, being compulsory, is ancillary and did not require diversity. In view of this, Lyon v. Quality Courts United, 6 Cir., 1957, 249 F.2d 790, may indicate that limitations imposed by state law should be as irrelevant as there held to be with respect to the assertion of a primary right not based on diversity jurisdiction.

It is true that the last mentioned analogy was not recognized in a California case. In United States for use of Los Angeles testing Laboratory etc. v. Rogers & Rogers, U.S.D.C.S.D.Cal.1958, 161 F. Supp. 132, a counterclaim by the prime contractor against the plaintiff, sub-contractor, for substandard materials was involved. It was said by Judge Mathes that this counterclaim, being compulsory, was ancillary to the original jurisdiction under the Miller Act and that no independent jurisdictional ground was essential to support the counterclaim. In considering what law governed a related question of the liability of an architect, brought into the case as a third party defendant, the court held that the law of California governed as to the architect's liability, even though the action was not a diversity action. "There is no supervening federal interest here which dictates the fashioning of uniform federal law to displace the law of the State where all parties concerned reside and all material facts occurred. Cf. Textile Workers Union v. Lincoln Mills, 1957, 353 U.S. 448, 77 S.Ct. 912, 1 L.Ed.2d...