Citations
- 250 F. Supp. 649
Full opinion text
JAMESON, District Judge.
In this Miller Act case, use plaintiffs seek recovery of $2,433.86 for Chemetron Corporation, $6,518.02 for Denver Oxygen Company, and $48,734.59 for Welders Supply Company, together with interest from April 25, 1962, costs and attorney fees. The defendants are the prime contractor on a government contract and its sureties. Use plaintiffs furnished maaterials to a subcontractor. The case was submitted on stipulations, documents, and depositions.
Findings of Fact
1. On February 28, 1961, the defendant George A. Fuller Co. and Del E. Webb Corporation, doing business as Fuller-Webb, a joint venture, entered into a written contract with the United States for construction of Minuteman facilities at Malmstrom Air Force Base, Montana. Fuller-Webb and the defendants The Aetna Casualty and Surety Co., The Travelers Indemnity Company, The Home Insurance Company, Maryland Casualty Co., Fireman’s Fund Insurance Co., Hartford Accident and Indemnity Co., General Reinsurance Corp., North American Reinsurance Corporation, American Re-Insurance Company, and Employer’s Reinsurance Corp. executed and delivered to the Government, in accordance with 40 U.S.C. 270a, a payment bond for the protection of all persons supplying labor and materials in prosecution of the work provided for in the contract.
2. On May 1, 1961, Fuller-Webb entered into a written subcontract with Idaho-Maryland Industries, Inc., whereby Idaho-Maryland was to fabricate and furnish a portion of the materials provided for in the principal contract. Pursuant to this subcontract Idaho-Maryland fabricated and delivered to Fuller-Webb certain items incorporated into and used in the completion of the principal contract.
3. Between November 8, 1961, and January 31, 1962 Chemetron Corp., acting through its National Cylinder Gas Division, furnished to Idaho-Maryland quantities of welding gases, equipment and supplies of the total value of $2,453.-86, for which Idaho-Maryland agreed to pay Chemetron. The last materials furnished by this plaintiff to Idaho-Maryland were delivered on January 31, 1962.
4. Between August 1, 1961, and February 2, 1962 Denver Oxygen Company furnished to Idaho-Maryland quantities of welding gases, equipment and supplies for which Idaho-Maryland agreed to pay the sum of $6,518.02. The final date upon Which materials were furnished to Idaho-Maryland by Denver Oxygen was February 2, 1962.
5. During the period from August 30, 1961, to February 1, 1962, Welders Supply furnished to Idaho-Maryland welding gases, materials and supplies for which Idaho-Maryland agreed to pay the sum of $48,734.50. No materials were furnished to Idaho-Maryland pursuant to this arrangement after February 1, 1962.
6. On February 2, 1962, Idaho-Maryland filed a petition in bankruptcy for a plan of arrangement under Chapter XI of the Bankruptcy Act (11 U.S.C. 701 et seq.), in the United States District Court for the Southern District of California, Central Division. Subsequently, meetings of creditors were held and on October 19, 1962, an order confirming the plan of arrangement was entered by the Referee in Bankruptcy. Prior to the entry of this order the plaintiffs, on July 13, 1962, had filed with the Bankruptcy Court proofs of claim as unsecured creditors in the amounts claimed in the complaint. Each of these claims contained the following statement:
“By filing this Claim deponent does not waive any of its rights under the Miller Act and any and all such rights are hereby expressly reserved.”
7. The records of the Bankruptcy Court contain certain documents entitled “Consent to Plan of Arrangement” filed on August 3, 1962 signed with the name “Kenneth Tremayne”. These documents purport to contain consents on the part of the plaintiffs to the plan of arrangement filed in the bankruptcy proceedings. The weight of the testimony, however, show's that Tremayne, who was the proprietor of Nationwide Collection Service, had not signed the consents. Rather they were signed by his employee Vivian Fiene. Tremayne had not received any assignment of the plaintiffs’ claims against Idaho-Maryland, nor did either he or Mrs. Fiene have any power of attorney or other written authorization giving them authority to consent to the arrangement.
8. Pursuant to the plan of reorganization the plaintiffs, along with all the unsecured creditors whose claims had been allowed under the plan, were issued two shares of stock in the debtor corporation for each dollar of indebtedness claimed. The order of the Bankruptcy Court confirming the plan contained the following provisions:
“[T]he issuance of shares pursuant to the said plan shall be in cancellation, extinguishment and full settlement of all the claims of general, unsecured creditors receiving said shares * *
“[A] 11 unsecured creditors of and all unsecured claimants against the debtor are hereby restrained and enjoined from pursuing or attempting to pursue or from commencing any suit or proceeding at law or in equity against the Debtor, directly or indirectly, upon any right, claim or interest which any such creditor or commencement of this proceeding.”
9. On April 25, 1962, and within 90 days of the last date on which materials and equipment were furnished to Idaho-Maryland by the respective plaintiffs, the plaintiffs served written notice by registered mail upon defendant Fuller-Webb of their claims for the amounts owing to them by Idaho-Maryland for equipment and materials furnished in the prosecution of work under the prime contract.
National Cylinder Gas Claim
10. The National Cylinder Gas Division of Chemetron in the period from November 8, 1961, to January 31, 1962, furnished to Idaho-Maryland welding supplies, gases, and materials in the amount of $2,453.86. Of the original balance the sum of $2,228.09 remains due and owing. Approximately 90 percent of this item is for gases supplied and 10 percent for other materials. There is little direct evidence on this claim. The deposition of George M. Morton shows that during the period involved in this claim Idaho-Maryland was engaged in work on the principal contract in the Denver, Colorado area. Answers to Interrogatories to E. L. Lawson, District Manager of National Cylinder Gas, state, on the basis of information received from Idaho-Maryland employees, that the materials were going to the Fuller-Webb project. There is no substantial proof to the contrary. Accordingly I find that plaintiff has sustained its burden of showing that the materials and supplies were furnished for and consumed in prosecution of the work under the contract.
The Denver Oxygen Claim
11. Between August 1, 1961, and February 2, 1962, Denver Oxygen Co., a subsidiary of Chemetron and distributor for National Cylinder Gas, furnished Idaho-Maryland with welding supplies and equipment in the amount of $6,518.02. $6,490.84 remains unpaid on this claim. Of this claim $64.80 represents demur-rage charges on gas cylinders loaned to Idaho-Maryland. Approximately 10 percent of the total claim is for equipment and supplies other than welding gases. From a review of the invoices covering the other equipment and supply items it appears that approximately one-third of these items were of the type which would be consumed in the ordinary prosecution of work on the Fuller-Webb project and were not capital equipment items.
The proof both supporting and opposing this claim is almost identical to that relating to the National Cylinder Gas claim. Accordingly, I find that the items represented by this claim were furnished for and substantially used in the prosecution of work on the Idaho-Maryland contract with Fuller-Webb.
The Welders Supply Claim
12. Between August 30, 1961, and February 1, 1962, Welders Supply furnished to Idaho-Maryland welding gases, supplies and materials in the amount of $48,734.50. Of this amount 22 percent represents welding gases supplied, 15 percent represents Dual Shield supplied, 31 percent represents stick electrode supplied, and 32 percent represents other items supplied.
13. The purchases of the items involved in this claim were made by Iteecodivision of Idaho-Maryland at Studio City, California, and were utilized and consumed at its plant in Studio City. During the August 30, 1961-February 1, 1962, period the Iteeco plant was engaged in fabricating items for the Great Falls missile project pursuant to Idaho-Maryland’s contract with Fuller-Webb. In this same period Iteeco was also doing contract work for the State of California, for Lockheed Aircraft Company, and on a Titan II program contract in Tucson, Arizona. The supplies and materials furnished by Welders Supply Co. with one exception were not segregated according to the job upon which they were to be utilized, nor under the operational set up of the Iteeco plant was it practical to do so. It is therefore apparent that a part of the items making up this claim were not used in prosecution of work under Idaho-Maryland’s contract with Fuller-Webb.
14. Idaho-Maryland purchase order No. 15128-7 dated October 6, 1961, relates to the rental of nine “300 Amp. Portable Welding Machines” and bears the further explanation “5 Received 9/27/61 for Titan II and 4 For Freeway Program”. Welders Supply invoices No.’s 2329,1544, and 3561 indicate a total of $2,191.50 in rentals were charged for these machines during the August 30, 1961-February 1, 1962, period. These records clearly indicate the machines were not rented for the Fuller-Webb project and in the absence of any proof that they were in fact so used I conclude the $2,191.50 representing rentals for the machines is not a proper part of the claim.
15. There is some conflict in the evidence on the percentages of the materials furnished by Welders Supply which were actually consumed in prosecution of work on the Minuteman project. George J. Morton, former President of Idaho-Maryland testified that a “good portion” of the supplies would have been used on jobs other than the Fuller-Webb project. Other witnesses described the portions devoted to the Great Falls project as a “considerable amount”, “major portion of the work”, or “bulk of the work that was being done”.
In my opinion the most reliable evidence on this point was furnished by Leland D. Baleme, the plant superintendent for Idaho-Maryland. Mr. Baleme was in charge of the Iteeco plant’s operation and was thoroughly familiar with all the work projects being carried on in his plant. He estimated that 60 percent of all stick electrodes purchased from Welders Supply were used in the Great Falls work, 85 percent of the welding gases, and all of the Dual Shield. Although there was some testimony that Dual Shield was used on other than the Great Falls project this is not supported by the evidence as a whole. I conclude that Baleme’s figures should be accepted on gases and stick electrodes as well as Dual Shield.
16. The parties have stipulated that 32 percent of the total Welders Supply claim is for “other items” supplied to Idaho-Maryland. These items include rental of welding machines as well as purchases of various types of welding materials and supplies. Excluding the welding machines shown to have been rented for other projects, the invoices reflect that $7,478 in rentals for welding machines is claimed by Welders Supply. A total of 31 machines were rented from plaintiffs. Nine of these were furnished for other projects and were not utilized in the Fuller-Webb project. Therefore it would appear that if 60 percent of the total electrode used by all machines was consumed in the Fuller-Webb work, at least 80 percent of the usage of the 22 remaining machines is allocable to the prime contract project.
17. The “other items” claim also includes certain demurrage charges by Welders Supply. These charges total $69.60. The balance of the equipment, supplies and services furnished as “other items” consists of approximately 19 percent “repairs and maintenance” expenditures, nine percent “production” supplies, 39 percent “small tools”, nine percent “capital equipment”, and 24 percent “non-production” supplies. A review of the invoices reflects that the “production” and “non-production” materials were of the type which would be consumed in the ordinary prosecution of .the work carried on by Idaho-Maryland. In light of all the evidence relating to the allocation of work by Idaho-Maryland at its Iteeco plant to the Fuller-Webb and to other projects I conclude that at least 65 percent of all these items were either devoted to or consumed in the Fuller-Webb contract work.
Discussion
■ The defendants initially contended that Idaho-Maryland was not a subcontractor of Fuller-Webb, but rather occupied the position of material supplier. In their post-trial brief this contention was withdrawn. In any event, it is clear that Idaho-Maryland was a subcontractor of Fuller-Webb under the definition set forth in Clifford F. MacEvoy Co. v. United States for Use and Benefit of Calvin Tomkins Co., 1944, 322 U.S. 102, 109, 64 S.Ct. 890, 894, 88 L.Ed. 1163: “[A] subcontractor is one who performs for and takes from the prime contractor a specific part of the labor or material requirements of the original contract * * it is equally clear that plaintiffs furnished material to the subcontractor for the prosecution of work under the prime contract. Accordingly, they are within the class of material suppliers protected by the Act.
Defendants contend, however, that even though plaintiffs initially were within the class of material suppliers protected by the Act, there is no liability on the part of the defendants for the reasons that (1) the securities accepted in the bankruptcy proceedings constituted “payment in full for all purposes of the claims” involved in this action, and (2) plaintiffs failed to comply with the notice requirements of the Miller Act. It is further contended that (3) not all of the materials for which claim is made were furnished for the Minuteman project, and (4) in any event, plaintiffs are not entitled to interest.
Effect of Acceptance of Securities in Bankruptcy Proceedings
Defendants’ contention that plaintiffs are barred by their participation in the bankruptcy proceedings may be summarized as follows: Plaintiffs as creditors are entitled to but one recovery for the total of the debt from both the principal debtor and the sureties; the arrangement, being in the nature of a contract between the creditor and the debtor, is binding upon them; under the terms of the arrangement the stock issued in the debtor corporation was in “full settlement of all claims of * * * creditors receiving” such stock and as a result the debt itself was discharged; the debt háving been discharged there was nothing left upon which the sureties could be held; and the sureties not being liable the prime contractor cannot be held liable.
While it is true that the obligation of the bankrupt was discharged through the acceptance of the securities in the bankruptcy proceedings, it does not follow that this relieves the obligors under the payment bond from their liability to plaintiffs. In other words, the plan of arrangement and the order of the bankruptcy court entered pursuant thereto could not per se affect the contractual obligations of the sureties. The sureties were not parties to the arrangement, and the arrangement plan does not purport to affect them directly. It was beyond the power of the bankruptcy court to affect the independent contract of guaranty by the arrangement proceedings. In re Nine North Church Street, Inc., 2 Cir. 1936, 82 F.2d 186; In re Diversey Bldg. Corporation, 7 Cir. 1936, 86 F.2d 456, cert. den. Diversey Bldg. Corp. v. Weber, 300 U.S. 662, 57 S.Ct. 492, 81 L.Ed. 870.
Section 34 of Title 11 U.S.C. provides: “The liability of a person who is a co-debtor with, or guarantor or in any manner a surety for, a bankrupt shall not be altered by the discharge of such bankrupt.”
In re Lancaster, W.D.Mo.1941, 38 F.Supp. 318, involved proceedings under Chapter 13 of the Bankruptcy Act, 11 U.S.C. § 1001 et seq., referring to wage earners’ plans. In holding section 34 applicable to the proceeding, Judge Reeves reasoned:
“When the Congress enacted the statutes pertaining to wage earners’ plans, Section 1002, Title 11, specifically provided as follows: ‘The provisions of chapters 1 to 7, inclusive, of this title shall, insofar as they are not inconsistent or in conflict with the provisions of this chapter, apply in proceedings under this chapter.’
“While there are limited exceptions in said Section 1002, yet Section 34, supra, is not one of them. It was clearly the intention of the Congress to make applicable to proceedings under said Chapter 13 the specific provisions of Section 34. Such section does not have to be construed. It simply states that the liability of a co-debtor, guarantor or surety for ‘a bankrupt shall not be altered by the discharge of such bankrupt.’ ”
This reasoning is applicable to the instant case. Section 702 is very similar in its language to section 1002 and contains a sentence identical to that quoted in Judge Reeves’ opinion.
Collier in his treatise on bankruptcy states that Section 34 is applicable where the discharge is affected by arrangement, as was the case here, or by corporate reorganization proceedings. 1 Collier, Bankruptcy, par. 16.02 at 1525. (14th ed. 1964). The defendant, however, argues that Section 34 has no applicability in the instant case because, ‘If the stock is in full settlement of the claims, there is nothing left for the surety to pay.” This argument brings us to the question: What was the scope of the arrangement?
The case most nearly in point is Union Trust Co. of Rochester v. Willsea, 1937, 275 N.Y. 164, 9 N.E.2d 820, 112 A.L.R. 1175. In that case the defendant was guarantor for all indebtedness of a New York corporation, Willsea Works. The corporation filed a petition for corporate reorganization in the United States District Court, and the plaintiff filed its claim in the federal court proceedings. The plan of reorganization which was approved and carried out by the principal debtor provided for payment in full to its creditors by the issuance of new stock with a stated par value. The stock was issued and plaintiff received a specified number of the shares. An action was subsequently brought in the New York state court against the defendant guarantor. The defendant pleaded that the obligation had been satisfied and paid in full. The court rejected this contention, saying:
“It is urged that the acceptance of that stock and participation by the respondent in the proceeding in the District Court constituted full payment of the guaranty agreement. The appellant relies upon the elementary principal of the law of suretyship, that the payment or satisfaction of the principal obligation discharges the guarantor, and asserts that the provision of the order of the District Court that the delivery of the stock in pursuance of the terms of the order should constitute payment in full of the principal debt. There is no doubt about the principle relied upon by the appellant. (Citing eases).
“We think, however, that the principle has no application in the situation here presented. The proceeding under section 77B involved the debtor and its creditors. It did not, in any way, affect the independent guaranty agreement entered into between the respondent and appellant, and the District Court had no jurisdiction to adjudge that the claim was by the proceeding paid and discharged. True it is that respondent had made itself a party to that proceeding as a creditor of the bankrupt as it had a right to do as a creditor and as a creditor it received by virtue of the decree of the District Court the new stock issued by the bankrupt. The proceeding under section 77B is subject to all other applicable provisions of the Bankruptcy Act, but we are referred to no provisions of that law whereby a guarantor of a debt of the bankrupt is relieved of liability on account of a debt of the bankrupt as the result of a proceeding under section 77B unless such guarantor has himself been adjudicated not liable in a proceeding instituted by or against him as a result of his own insolvency. There is no contention that the appellant is insolvent or that he has been discharged in bankruptcy or has petitioned for a composition or extension of time to pay his individual debts under section 74 of the Bankruptcy Act. * * * Section 16 * * * thereof expressly provides that the liability of one who is a guarantor or surety for a bankrupt shall not be altered by the discharge of such bankrupt. (Citing cases).
“By analogy, the cases are applicable which hold that a composition in bankruptcy between a principal debtor and holders of instruments issued by it does not discharge the liability bf endorsers, sureties, or guarantors upon such instruments, even though they participate in the composition proceeding as creditors of the principal debtor and accept dividends on the instruments from the maker. (Citing cases).
“Respondent, in accepting the new stock, did not accept it as payment or partial payment of its claim. There is no allegation in the answer as to the value of the stock. For all that appears, it may not have any value. True it is that respondent cannot have payment of its claim and also retain the stock. Upon payment by the appellant of the judgment, he will be subrogated to the rights of the respondent in the stock.”
The defendants attempt to distinguish the Willsea decision by arguing that in the instant case the claims were extinguished by the issuance of the stock and no debt remains for anyone to pay. This reasoning reads too much into the bankruptcy court’s actions. As noted supra, the bankruptcy court could not directly affect the independent contract of guaranty. The discharge of the debtor under the arrangement was by operation of law and was not a voluntary act on the part of the plaintiffs. Whatever may be the effect of the discharge upon plaintiffs’ rights against Idaho-Maryland, the sureties’ obligations on the bond are not affected. The discharge simply does not reach the sureties and is not a defense to them. See In re American Paper Co., D.N.J.1919, 255 F. 121; Winter v. Trepte, 1940, 234 Wis. 193, 290 N.W. 599; Northern Drug Co. v. Abbett, 1939, 205 Minn. 65, 284 N.W. 881, 121 A.L.R. 1349. The plaintiffs are not precluded from maintaining this action because of the provisions of the arrangement plan and bankruptcy court’s order.
The plaintiffs of course are entitled to only one recovery for their claims. They have agreed to turn over to the defendants, upon payment of their claims, the shares of stock which they received in the arrangement proceeding.
Notice Under Miller Act
The defendants next contend that the notice provisions of the Miller Act were not complied with in that “notices were not given within ninety days upon separate and distinct contracts none of which was for the supplying of material under a specified prime contract.” The materials were supplied on a purchase order basis and there was no single agreement covering all the purchases. Because of this factor the defendants seek to have each shipment treated as a separate and independent contract, requiring notice to be given within 90 days from the day the particular delivery was made. The cases dealing with this question which are most nearly in point are United States for Use and Benefit of J A. Edwards & Co. v. Bregman Const. Corp., E.D.N.Y. 1959, 172 F.Supp. 517 and Noland Company, Inc. v. Allied Contractors, Inc., 4 Cir. 1959, 273 F.2d 917.
In the J. A. Edwards & Co. case plaintiff, a supplier of a subcontractor, had furnished materials to the subcontractor pursuant to a series of separate orders received from the subcontractor. There was no entire contract for all the materials so furnished; nor did the parties handle the orders and materials on a running account basis. Notice was given within 90 days of the date upon which the last materials were furnished. In rejecting the defendant’s argument that a separate notice on each order and delivery was required the court stated:
“The plain words of limitation upon the right of this use plaintiff to sue on the payment bond are that the 90 day notice be given ‘within ninety days from the date on which such person * * * furnished or supplied the last of the material for which such claim is made * * *• The 90 day period is not stated to be measured from the date of the last delivery of material under an entire contract or on a running account or under each separate order. The Miller Act contemplates one such notice within 90 days from the furnishing of the last material furnished in the prosecution of the prime contract from which claim is made. If the material is so furnished pursuan# to one entire contract, obviously the measuring date will be the date when the last material is so furnished. If the material is furnished pursuant to a series of separate contracts, the measuring date will be the date when the last material is furnished under the last contract. This is the internal sense of the Miller Act. It should be construed sensibly and its plain purposes should not be defeated by a narrow interpretation.
«The interpretation of § 270b(a) urged by ^ defendantg would lead . absurd results * * * Fverv ““J^ subcontract who furnished materials pursuant to separate orders, rather than pursuant to one entire contract, would be required to serve separate notices as to each such separate contract, even though the separate contracts were all related to the prosecution of the work provided for in the main contract. The office of a prime contractor who has undertaken to construct a large public building, such as the Pentagon, for example, might be flooded with 90 day notices from every unpaid day-to-day laborer employed by numerous subcontractors and by every person furnishing materials to numerous subcontractors, Th.e offices of the sureties of such a prjme contractor would also be flooded with correspondence and, conceivably, copies of the claims of laborers and material men. Were this court to yield to the argument of these defendants, contractors and sureties throughout the country would be compelled to seek Congressional relief in the form of an amendment to 270b.