Western Metal Lath, a Div. of Triton Group, Ltd. v. Acoustical and Const. Supply, Inc., 91SC482

Decision Date19 April 1993
Docket NumberNo. 91SC482,91SC482
Citation851 P.2d 875
Parties82 Ed. Law Rep. 956 WESTERN METAL LATH, A DIVISION OF TRITON GROUP, LTD., a Delaware corporation, Petitioner, v. ACOUSTICAL AND CONSTRUCTION SUPPLY, INC., a Colorado corporation, and American Builders and Contractors Supply Co., a Texas corporation, Respondents.
CourtColorado Supreme Court

Pferdesteller, Vondy & Horton, P.C., Fred W. Vondy, Denver, for petitioner.

Nathan L. Andersohn, Westminster, Michael L. Blake, Denver, for respondents.

Chief Justice ROVIRA delivered the Opinion of the Court.

We suspended the Colorado Appellate Rules and ordered the parties to submit briefs on whether sections 38-26-105 to -107, 16A C.R.S. (1982 & 1992 Supp.), violate equal protection of the laws. Because the classification drawn by the statutes is rationally related to a legitimate governmental interest, we conclude that they do not.

I

The contract for the public works project at Senior High School No. 3, located in Academy School District Number 20 (the school district), El Paso County, was awarded to Phelps Construction, Inc. (Phelps). On July 10, 1986, Phelps and Acoustical and Construction Supply, Inc. (Acoustical) entered into an agreement for the purchase of materials, including metal tracks and studs. 1 This agreement required Acoustical to give Phelps a general lien release certifying that its suppliers had been paid. Acoustical subsequently contracted with Western Metal Lath (Western) for the materials it was to supply to Phelps. The merchandise was delivered to the school site, and thereafter incorporated into the structure. Acoustical was billed $21,946.85 for these materials and it in turn billed Phelps for the goods supplied.

On November 1, 1986, American Builders and Contractors Supply Co. (American) purchased Acoustical's assets by Bulk Transfer of Assets. See § 4-6-101, 2 C.R.S. (1973 & Supp.1990) (repealed ch. 45, sec. 1, 1991 Colo.Sess.Laws 269). Among the assets purchased by American was the account receivable due Acoustical from Phelps. However, American did not assume any of Acoustical's liabilities.

Prior to the sale, a Bulk Sales Notice, dated October 14, 1986, was issued when the agreement in principle between American and Acoustical was reached. In response to this notice, Western's attorney sent a telegram to American which stated that Acoustical owed Western $38,629.48, of which $21,946.85 was subject to the Colorado Public Works Act (CPWA), §§ 38-26-101 to -107, 16A C.R.S. (1982 & 1992 Supp.).

Thereafter, Western filed a complaint in district court against Acoustical, American, Phelps, the school district, and Aetna Casualty and Surety (the surety on Phelps' performance and payment bonds) seeking compensation for the goods sold and delivered by Western to Acoustical. As relevant to this appeal, Western alleged it was owed $21,946.85, asserting that that amount was properly payable to it, rather than American as assignee of Acoustical, under the CPWA. In its answer, American cross-claimed for the disputed funds.

The school district, Aetna Casualty and Surety Co., and Phelps admitted owing the funds, deposited $21,946.85 with the registry of the court in an interpleader action, and were dismissed from the case.

The trial court granted American's motion for partial summary judgment, finding that Western was a supplier to a materialman and therefore, had no right to a claim under the CPWA. It also found American was entitled to a judgment against the school district, Phelps, and the surety because American was a materialman to a subcontractor; thus, it had a valid claim for the fund pursuant to section 38-26-107, 16A C.R.S. (1982 & 1992 Supp.).

Western initially appealed the trial court's ruling to this court alleging that "the case would involve constitutional issues relating to section 38-26-101 et seq. ..." We transferred the case to the court of appeals, finding "that the issues involved are within the jurisdiction of the Court of Appeals...." In the court of appeals, Western again asserted that sections 38-26-105 to -107 were unconstitutional. The court of appeals, in its unpublished opinion, declined to rule on that issue stating:

Alternatively, Western argues that, if the interpretation of the statute by Lovell is correct, the statutes violate constitutional requirements of equal protection under the Fourteenth Amendment and Colo. Const. art. II, section 25. However, we have no jurisdiction to address this issue. See § 13-4-102(1)(b), C.R.S. (1987 Repl. Vol. 6A); People v. Salazar, 715 P.2d 1265 (Colo.App.1985).

Western Metal Lath v. Acoustical & Const. Supply, Inc., No. 90CA0323, slip. op. at 2 (Colo.App. May 30, 1991). To the extent that the court of appeals had jurisdiction over the issues presented, it affirmed the ruling of the trial court. We granted certiorari. On June 18, 1992, we dismissed certiorari as being improvidently granted. Additionally, we ordered that the Colorado Appellate Rules be suspended pursuant to C.A.R. 2 and that the parties submit briefs on the following issue:

Whether sections 38-26-105 to -107, 16A C.R.S. (1982 & 1991 Supp.), violate equal protection of the laws under the United States and Colorado Constitutions.

II
A

The CPWA creates a remedy designed to protect suppliers of labor and material for public works projects because the benefits of the Colorado Mechanics Lien Act do not apply to projects constructed by governmental agencies. South-Way Const. Co. v. Adams City Serv., 169 Colo. 513, 516-17, 458 P.2d 250, 251 (1969); Flaugh v. Empire Clay Prods., 157 Colo. 409, 411, 402 P.2d 932, 933 (1965). The CPWA creates separate and independent remedies for claimants including rights against the contractor's 2 payment bond, see § 38-26-105, 16A C.R.S. (1992 Supp.), rights against the contractor's performance bond, see id. § 38-26-106, and a right to establish a lien against retained contract funds, see id. § 38-26-107. See South-Way, 169 Colo. at 518, 458 P.2d at 252 (construing statutory predecessor, §§ 86-7-6 to -7, C.R.S. (1963)). In its complaint, Western asserted a right to the disputed fund under all three provisions. However, here Western emphasizes its right to the disputed funds under section -107 because the funds deposited with the court for the interpleader action, and ultimately awarded to American, were the specific monies held by the school district under the notice of lis pendens pursuant to section -107. Accordingly we will focus our analysis on section -107.

In determining that Western was not entitled to the benefit of the remedial provisions of the CPWA, the court of appeals relied on Lovell Clay Products Co. v. Statewide Supply Co., 41 Colo.App. 166, 580 P.2d 1278 (1978). In Lovell, the court of appeals held that a supplier to a materialman is not entitled to the protection of sections -105 through -107 stating:

The statutory definition's inclusion of the phrase "for ... construction, erection, repair, maintenance, or improvement" ... signifies, in our view, the General Assembly's intent to limit the statutes' coverage to one actively involved in the project's execution, as opposed to one only passively supplying materials, i.e., a materialman. We therefore hold that a supplier to a materialman is not entitled to the protection conferred by §§ 38-26-105 and 107, C.R.S. 1973.

Id. at 168, 580 P.2d at 1280. Western argues that Lovell incorrectly emphasized the status of the claimant--whether the claimant was in privity with the contractor or subcontractor--rather than the activity of the claimant--furnishing labor or materials. We disagree.

Section 38-26-107(1) provides:

Any person, ... company, or corporation that has furnished labor, materials, ... or other supplies used or consumed by [the] contractor or his subcontractor in or about the performance of the work contracted to be done ... whose claim therefore has not been paid by the contractor or the subcontractor ... may file ... a verified statement of the amount due and unpaid on account of such claim.

§ 38-26-107(1), 16A C.R.S. (1992 Supp.) (emphasis added).

Examination of the statute indicates that its protection is intended for those in privity of contract with either the contractor or the subcontractor. The statute grants a remedy only to persons who are to be "paid by the contractor or the subcontractor," and only those in privity with the contractor and subcontractor fall within that class of persons. Therefore, by the express terms of the statute a supplier to a materialman is not granted protection. Sections 38-26-105 (contractor's payment bond conditioned that the contractor shall promptly make payments to "all persons supplying or furnishing him or his subcontractors with ... materials"; "materialmen ... have a right of action for amounts lawfully due them from the contractor or subcontractor") and 38-26-106 (contractor's performance bond "shall provide that, if the contractor or his subcontractor fails to duly pay for any ... materials ... the surety will pay the same") are to the same effect. This limitation has a definite purpose--it protects the prime contractor from the risk of potentially unlimited liability under the payment bond to remote submaterialmen. Despite differing public bond acts, other jurisdictions have recognized that this is the purpose served by denying submaterialmen the right to recovery. See, e.g., MacEvoy v. United States, 322 U.S. 102, 111, 64 S.Ct. 890, 959, 88 L.Ed. 1163 (1943); Lyle Signs, Inc. v. Evroks Corp., 132 N.H. 156, 562 A.2d 785, 787 (1989). See generally George Ashe, Law of Public Improvement Contractors' Bonds 19 (1966). 3

We construed the scope of the protections of the CPWA in South-Way Construction Co. v. Adams City Service, 169 Colo. 513, 458 P.2d 250 (1969). At issue in South-Way was whether a materialman to a sub-subcontractor supplied "materials ... used or consumed by [the] contractor or his subcontractor." Id. at...

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