United States v. Malan Construction Corporation

• Decision Date: 28 November 1958
• Docket Number: No. 3253.,3253.
• Citation: 168 F. Supp. 255
• Parties: UNITED STATES for the use of JAMES F. O'NEIL COMPANY, Inc., v. MALAN CONSTRUCTION CORPORATION and Continental Casualty Company.
• Court: U.S. District Court — Eastern District of Tennessee

168 F. Supp. 255

UNITED STATES for the use of JAMES F. O'NEIL COMPANY, Inc., v. MALAN CONSTRUCTION CORPORATION and Continental Casualty Company.

No. 3253.

United States District Court E. D. Tennessee, N. D.

November 28, 1958.

Porteous & Johnson, Wm. A. Porteous, Jr., New Orleans, La., Poore, Cox, Baker & McAuley, J. W. Baker, Knoxville, Tenn., for plaintiff.

W. W. Kennerly, Donaldson, Montgomery & Kennerly, Knoxville, Tenn., for defendant.

ROBERT L. TAYLOR, District Judge.

This is a matter arising under the Miller Act, 40 U.S.C.A. §§ 270a-270d. The plaintiff in this case was a sub-contractor of Malan Construction Corporation (hereinafter called Malan), a prime contractor of the Atomic Energy Commission for the building of a Multi-curie Fission Products Pilot Plant at Oak Ridge, Tennessee. The plaintiff, O'Neil Company, Inc., (hereinafter called O'Neil), was a Louisiana Corporation and defendant Malan was a New York Corporation. In the course of the work a dispute arose and O'Neil has sued Malan and its bonding company for $82,318.33.

The defendants have made a motion for summary judgment on the ground that the plaintiff, a foreign corporation, did not qualify itself to do business in the State of Tennessee in compliance with the statutory requirements of that state. Defendants contend that plaintiff's failure to comply with the statute rendered its activities in the state illegal and that it is precluded from maintaining this suit as a matter of law.

Section 1 of the Miller Act (40 U.S.C. A. § 270a) provides that before any contract exceeding $2,000 in amount for the construction of any public building or public work of the United States is awarded to any person or contractor, such person or contractor shall furnish to the United States a payment bond for the protection of all persons supplying labor and material in the prosecution of the work provided for in said contract.

Section 2 of the Miller Act (40 U.S.C. A. § 270b) provides that every person (not just those who have qualified under state laws) who has furnished labor or material in the prosecution of the work under such contract and who has not been paid in full therefor "shall have the 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 judgment for the sums justly due him: ......"

Section 2 also provides that every suit instituted under that section "shall be brought in the name of the United States for the use of the persons suing, in the United States District Court for any district in which the contract was to be performed and executed and not elsewhere, irrespective of the amount in controversy in such suit, but no such suit shall be commenced after the expiration of one year after the date of final settlement of such contract."

It seems clear from an examination of Sections 1 and 2 of the Miller Act that Congress was creating a right for the benefit of persons supplying labor and material on Federal construction. Such suppliers were not permitted a lien upon public buildings or public works of the United States; and the Miller Act and its predecessor, the Heard Act, were enacted to give such suppliers needed protection. It is clear that in so doing Congress was creating a right under Federal laws irrespective of the amount in suit and provided that suit thereon should be brought in the United States District Courts and not elsewhere. It seems clear also that the rights so created by the Miller Act are not based on the diversity statute since there is no jurisdictional amount. This being true, if the jurisdiction of this court rests not on diversity of citizenship but on substantive rights created by an Act of Congress, then limitations which the Tennessee courts have placed upon the right to sue have no relevance here.

But for the fact that it interprets the Federal Employers' Liability Act, 45 U. S.C.A. § 51 et seq., rather than the Miller Act, the case of Dice v. Akron, Canton & Youngstown Railroad Co., 342 U.S. 359, 361, 72 S.Ct. 312, 314, 96 L.Ed. 398, is almost on all fours with our case here. Therein the question was raised whether the validity of a release taken under the F. E. L. A. was determined by federal rather than state law. The Court said:

"* * * Congress in § 1 of the Act granted petitioner a right to recover against his employer for damages negligently inflicted. State laws are not controlling in determining what the incidents of this federal right shall be. Chesapeake & Ohio R. Co. v. Kuhn, 284 U.S. 44, 52 S.Ct. 45, 76 L.Ed. 157; Ricketts v. Pennsylvania R. Co., 2 Cir., 153 F. 2d 757, 759, 164 A.L.R. 387. Manifestly the federal rights affording relief to injured railroad employees under a federally declared standard could be defeated if states were permitted to have the final say as to what defense could and could not be properly interposed to suits under the Act. Moreover, only if federal law controls can the federal Act be given that uniform application throughout the country essential to effectuate its purposes. * * *" (Emphasis supplied)

In a very recent case, Lyon v. Quality Courts United, Inc., 249 F.2d 790, 793, the Court of Appeals for the Sixth Circuit in an opinion by Judge Stewart (now Mr. Justice Stewart of the United States Supreme Court) dealt with an analogous situation in the field of trademark law. In that case the plaintiff sought to enjoin a corporate motel owner from using plaintiff's trademark to advertise its motel. A defense was made that the case was essentially an action ex contractu and that Federal jurisdiction rested only upon diversity of citizenship and that since the plaintiff had carried on activities in Ohio without having been licensed in Ohio, it was barred from maintaining the action both in the courts of Ohio and in the Federal Court.

We quote at some length from the opinion of the Court of Appeals and note that the Court concluded that a substantial claim under Federal laws was stated, and affirmed the action of the District Court in holding that failure to secure a license from the State of Ohio was not an impediment to maintenance of the action in the Ohio Federal Court.

"If the defendants are correct in their position that the only valid basis for federal jurisdiction in this case is the diverse citizenship of the parties and the requisite jurisdictional amount, 28 U.S.C.A. § 1332, there is substantial merit in their contention that the district court should have dismissed the plaintiff's complaint. Ohio clearly requires a foreign nonprofit corporation to secure a license before exercising its corporate privileges in a continual course of transactions in Ohio. Just as clearly Ohio has closed its courts to foreign nonprofit corporations which should have obtained such a license and have failed to do so. Moreover, if the courts of Ohio were closed to this plaintiff, so also was the federal court in that state in a diversity of citizenship case. Woods v. Interstate Realty Company, 1949, 337 U.S. 535, 69 S.Ct. 1235, 93 L.Ed. 1524. Thus, if the defendants' major premise is sound, the only doubtful issue would be the factual one of whether the plaintiff's activities in Ohio, including advertising and periodic inspections of the members' courts, constituted `a continual course of transactions' within the state. Cf. National Sign Co. v. Maccar Cleveland Sales Co., Cuyahoga County, 1929, 33 Ohio App. 89, 168 N.E. 758; Clare & Foster, Inc., v. Diamond S. Electric Co., Erie County, 1940, 66 Ohio App. 376, 34 N.E.2d 284.

"If the defendants' major premise is invalid, however, their entire argument collapses. If the court's jurisdiction in this case rested not on diversity of citizenship, but rather on its function as a national court to enforce a substantive right created by Congress, then any limitations which Ohio imposes on its courts would be irrelevant. Lisle Mills v. Arkay Infants Wear, D.C.E.D.N.Y. 1950, 90 F.Supp. 676; see Holmberg v. Armbrecht, 1946, 327 U.S. 392, 66 S.Ct. 582, 90 L.Ed. 743. The plaintiff's complaint, although alleging diversity of citizenship and that the amount in controversy exceeded $3,000, exclusive of interest and costs, explicitly stated that `This action is brought under the trade-name and trade-mark laws of the United States, U.S.C., Title 15. * * *' It is of no moment that the complaint may also have stated a common law action for breach of contract, or that the plaintiff

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