United States Ex Rel. Water Works Supply Corp. v. George Hyman Construction Co. , 131 F.3d 28 ( 1997 )

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
No. 97-1577
UNITED STATES OF AMERICA FOR THE USE AND,
BENEFIT OF WATER WORKS SUPPLY CORPORATION,
Plaintiff, Appellee,
v.
GEORGE HYMAN CONSTRUCTION COMPANY,
NATIONAL UNION FIRE INSURANCE COMPANY OF
PITTSBURGH, P.A., FEDERAL INSURANCE COMPANY
AND SEABOARD SURETY COMPANY,
Defendants, Appellants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Patti B. Saris, U.S. District Judge]
Before
Torruella, Chief Judge,
Campbell, Senior Circuit Judge,
and Boudin, Circuit Judge.
Steven J. Comen, with whom Jeremy M. Sternberg, Dori C.
Gouin, Howard J. Hirsch and Goodwin, Procter & Hoar LLP were on
brief for appellant, The George Hyman Construction Company.
Bert J. Capone, with whom CharCretia V. DiBartolo and
Cetrulo & Capone were on brief for appellant, National Union Fire
Insurance Company of Pittsburgh, PA; Federal Insurance Company
and Seaboard Surety Company.
Gary H. Kreppel for appellee.
December 10, 1997
CAMPBELL, Senior Circuit Judge. Defendant-
appellant George Hyman Construction Company ("Hyman") appeals
from the district court's judgment awarding recovery to the
Water Works Supply Corporation ("Water Works") under the
Miller Act, 40 U.S.C. 270a-270d (1986) (the "Miller Act"
or the "Act"). Hyman makes a number of arguments as to why
the district court erred in allowing recovery. In this
opinion we concentrate particularly on Hyman's contentions:
(1) that Water Works did not satisfy the Act's ninety-day
notice requirement; and (2) that Water Works did not have a
sufficiently close relationship to Hyman to qualify for
recovery under the Miller Act. Finding no merit in these or
in the other arguments that Hyman advances, we affirm.
I. BACKGROUND.
The facts are largely undisputed. Hyman was the
general contractor on a $70 million federal construction
project to build a mail processing center in Waltham,
Massachusetts (the "Post Office Project" or the "Project").
Pursuant to the requirements of the Miller Act, Hyman
obtained a payment bond from National Union Fire Insurance
Company of Pittsburgh, PA, Federal Insurance Company, and
Seaboard Surety Company (collectively, the "Sureties"). On
or about September 16, 1994, Hyman entered into an oral
agreement with Calvesco, Inc. ("Calvesco"), wherein Calvesco
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promised to serve as demolition, excavation and site work
subcontractor for the Post Office Project.
On September 16, 1994, the same day that Hyman
hired Calvesco, Calvesco submitted an application for credit
to Water Works, a purveyor of pipe and piping materials.
Water Works extended an unlimited line of credit to Calvesco.
Calvesco was working on at least three projects at that time,
and the credit application did not indicate whether it was
for a particular project.
Subsequently, Calvesco informed Hyman that it could
not legally serve as subcontractor on the Post Office Project
because it was a non-union shop. On September 27, 1994,
Hyman and Calvesco agreed to replace Calvesco with Iron
Holdings, Inc. d/b/a Charles A. Jackson Co. ("Jackson"), a
unionized company created by the principals of Calvesco.
On October 11, 1994, Jackson notified Water Works
that it had replaced Calvesco as subcontractor on the Post
Office Project. Jackson requested that it, rather than
Calvesco, receive Water Works's invoices. Because Water
Works had extended credit only to Calvesco and not to
Jackson, Water Works refused to supply Jackson unless
Calvesco executed a corporate guarantee. Until the corporate
guarantee could be signed, Water Works agreed to ship piping
materials to the Post Office Project site at Jackson's
request and to send the invoices to Calvesco. That same day,
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Jackson placed an order for pipe. Water Works shipped the
material to "Charles A. Jackson Co., c/o Calvesco." Water
Works sent the invoice to "Calvesco, Inc. Attn: Jackson
Gateman, Treas." ("Gateman").
From early October through December 29, 1994, Water
Works filled seven purchase orders relating to the Post
Office Project. Water Works continued to ship materials to
the Post Office Project site and to send the invoices to
Gateman at Calvesco. Jackson paid for five of the seven
shipments; the other two invoices remain unpaid and are the
subject of this action. The first unpaid invoice, for
$53,493.83 and dated November 30, 1994, corresponded to an
order placed on November 1, 1994 by Lou Ingegneri, the Post
Office Project manager for Jackson. The second unpaid
invoice, for $157.76 and dated January 12, 1995, related to
the last delivery made by Water Works to the Project, which
occurred on December 29, 1994. This second invoice does not
indicate the name of the person placing the order.
During January and February of 1995, Water Works's
credit manager Stanley Wernick ("Wernick") conversed on the
telephone with several employees of Hyman about the
outstanding November and December invoices. On March 7,
Wernick sent a demand letter to Calvesco. Wernick also sent
a copy of this letter to Hyman and the Sureties. Hyman
responded to Wernick's communications in writing on March 22
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by indicating that it had turned the matter over to its
attorneys and was not paying any claims until it had a clear
picture of its options.
On April 5, 1995, Water Works filed suit in
Middlesex County Superior Court against Calvesco and its
personal guarantor for monies owed on several jobs, including
the Post Office Project. This state court suit resulted in a
settlement in which Calvesco agreed to pay Water Works for
the cost of its materials. Calvesco has not satisfied this
judgment.
On the same day that Water Works filed its state
action, it also filed a one-count Miller Act complaint
against Hyman and the Sureties in the United States District
Court for the District of Massachusetts. The district court
consolidated Water Works's federal action with twenty-five
other actions brought against Hyman arising from the Post
Office Project in order to determine issues of fact and law
common to all the claimants. The district court found that
Calvesco and Jackson were separate corporate entities, and
that Calvesco was Hyman's subcontractor from September 16,
1994 through September 27, 1994, with Jackson serving as
subcontractor thereafter.
Water Works argued to the district court that it
was in a direct contractual relationship with Calvesco during
the period of time when Calvesco was Hyman's direct
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subcontractor. The district court rejected this argument,
finding that the credit application between Water Works and
Calvesco did not constitute a contract.
Nevertheless, the court held that Water Works could
recover under the Miller Act. Finding that Water Works had
satisfied the 90-day notice requirement in the Miller Act,
the court held that Water Works could recover from the
payment bond on the amount owed for its November order under
two alternative theories. First, Jackson had an open account
with Water Works. Second, Water Works could recover under
the doctrine of quantum meruit.
The district court allowed Water Works to recover
the amount of its November shipment -- $53,493.83, plus costs
and interest -- but not the amount of its December shipment -
- $157.76. The key distinction between the two orders, in
the court's view, was that the November order was signed by
Jackson's project manager, whereas the December order, being
unsigned, could not be plainly attributed to Jackson.
II. STANDARD OF REVIEW.
We review de novo questions of statutory
interpretation that present pure questions of law. See Riva
v. Commissioner of Mass., 61 F.3d 1003, 1007 (1st Cir. 1995).
The sufficiency of notice under the Miller Act, to the extent
based on undisputed facts, is commonly reviewed de novo.
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See United States ex rel. Consol. Elec. Distribs., Inc. v.
Altech, Inc., 929 F.2d 1089, 1092 (5th Cir. 1991); United
States ex rel. Moody v. American Ins. Co., 835 F.2d 745, 748
(10th Cir. 1987). We uphold a district court's factual
findings unless they are clearly erroneous. See Fed. R. Civ.
P. 52(a); United States ex rel. Calderon & Oyarzun, Inc. v.
MSI Corp., 408 F.2d 1348, 1348 (1st Cir. 1969).
III. DISCUSSION.
A. The Statutory Scheme of the Miller Act.
The Miller Act requires a general contractor
performing a contract valued at over $25,000 on any public
construction project to obtain a performance bond for the
protection of persons supplying labor and material in the
prosecution of the work on the project. See 40 U.S.C.
270a(a)(2). The Act provides that persons who have
"furnished labor or material" to a public project may sue to
recover from the payment bond any amount owed to them. Id.270b(a).
The purpose of the Miller Act is "to protect
persons supplying labor and material for the construction of
federal public buildings in lieu of the protection they might
receive under state statutes with respect to the construction
of nonfederal buildings." United States ex rel. Sherman v.
Carter, 353 U.S. 210, 216 (1957); see also United States ex
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rel. Pittsburgh Tank & Tower, Inc. v. G&C Enters., Inc., 62
F.3d 35, 35 (1st Cir. 1995) (same). Courts give the Act a
liberal interpretation to achieve that purpose. See, e.g.,
Carter, 353 U.S. at 216; Clifford F. MacEvoy Co. v. United
States ex rel. Calvin Tomkins Co., 322 U.S. 102, 107 (1944).
Despite the "highly remedial" nature of the Act,
MacEvoy, 322 U.S. at 107, there are two important limitations
on who can recover from the payment bond. First, the Miller
Act allows recovery from the bond by persons who have a
"direct contractual relationship" with either the general
contractor or a first-tier subcontractor of the general
contractor. 40 U.S.C. 270b(a). The Supreme Court has
interpreted this provision to preclude recovery on the
payment bond by anyone whose relationship to the general
contractor is more remote than a second-tier subcontractor.
See J.W. Bateson Co. v. United States ex rel. Bd. of Trustees
of the Nat'l Automatic Sprinkler Indus. Pension Fund, 434
U.S. 586, 590-91 (1977); MacEvoy, 322 U.S. at 107.
Second, the Act imposes a strict notice requirement
upon suppliers who have a direct contractual relationship
with a first-tier subcontractor, but no relationship with the
general contractor. In order to recover from the payment
bond, such suppliers must send written notice of their claim
on the payment bond to the general contractor within ninety
days from the date that they supply the last of the materials
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for which they make a claim. 40 U.S.C. 270b(a); see also
United States ex rel. John D. Ahern Co. v. J.F. White
Contracting Co., 649 F.2d 29, 31 (1st Cir. 1981).1
B. Notice under the Miller Act.
Fulfilling the Act's notice provision is a strict
condition precedent to recovery by suppliers of first-tier
subcontractors. See Ahern, 649 F.2d at 31. The notice
provision serves an important purpose: it establishes a firm
date after which the general contractor may pay its
subcontractors without fear of further liability to the
materialmen or suppliers of those subcontractors. See id.;
Noland Co. v. Allied Contractors, Inc., 273 F.2d 917, 920-21
(4th Cir. 1959).
1. The relevant statutory language concerning notice reads
as follows:
Every person who has furnished labor or material in
the prosecution of the work provided for [a federal
project] . . . and who has not been paid in full
therefor . . . shall have the right to sue on such
payment bond . . . Provided, however, That any person
having direct contractual relationship with a
subcontractor but no contractual relationship express or
implied with the contractor furnishing said payment bond
shall have a right of action upon the said payment bond
upon giving written notice to said contractor within
ninety days from the date on which such person . . .
furnished or supplied the last of the material for which
such claim is made, stating with substantial accuracy
the amount claimed and the name of the party to whom the
material was furnished or supplied. . . . Such notice
shall be served by mailing the same by registered mail,
postage prepaid, in an envelop addressed to the
contractor . . . .
40 U.S.C. 270b(a).
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1. Substance of Water Work's Notice.
While adherence to the notice requirement is
mandatory, courts have allowed some informality in complying
with the terms of the Miller Act regarding the method by
which notice must be served. See, e.g., Fleisher Eng'g &
Constr. Co. v. United States ex rel. Hallenbeck, 311 U.S. 15,
18 (1940) (holding written notice sufficient although it was
not sent via registered mail as statute provides); Coffee v.
United States ex rel. Gordon, 157 F.2d 968, 969 (5th Cir.
1946) (holding that a writing exhibited to the general
contractor in the course of a discussion served as adequate
notice under the Act). Courts have also been somewhat
forgiving of deviations from the statutory requirement that
the notice be in writing. See, e.g., Altech, 929 F.2d at
1092 (holding that the "only reasonable inference" from a
meeting was that the subcontractor sought payment from the
general contractor).
The language of the Miller Act requires notice to
the general contractor of the amount of the claim and name of
the party to whom the material was furnished; it does not
expressly require a demand that the general contractor pay.
40 U.S.C. 270b(a); see also McWaters & Bartlett v. United
States ex rel. Wilson, 272 F.2d 291, 295 (10th Cir. 1959).
Nevertheless, courts have consistently, and we think
correctly, held that "the written notice and accompanying
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oral statements must inform the general contractor, expressly
or impliedly, that the supplier is looking to the general
contractor for payment so that it plainly appears that the
nature and state of the indebtedness was brought home to the
general contractor." United States ex rel. Kinlau Sheet
Metal Works, Inc. v. Great Am. Ins. Co., 537 F.2d 222, 223
(5th Cir. 1976) (internal quotation marks omitted); see
also United States ex rel. Bailey v Freethy, 469 F.2d 1348,
1350-51 (9th Cir. 1972).
Hyman argues that such notice as Water Works was
shown to have provided to Hyman did not indicate that Water
Works was looking to it for payment because the only "formal
notice" that it received was a copy of Water Works's demand
letter to Calvesco. Hyman points to court decisions holding
that the mere forwarding to the general contractor of a copy
of a demand sent to a subcontractor does not satisfy the
Miller Act's notice requirement. See Maccaferri Gabions,
Inc. v. Dynateria, Inc., 91 F.3d 1431, 1437 (11th Cir. 1996)
(denying recovery under the Miller Act because sending to the
general contractor a copy of a collection letter that was
sent to the subcontractor, even when combined with a joint
payment plan and invoices, was insufficient notice); United
States ex rel. Jinks Lumber Co. v. Federal Ins. Co., 452 F.2d
485, 488 (5th Cir. 1971).
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But while adequate notice requires bringing home to
the general contractor that the supplier is looking to it for
payment, courts have not required formalistic proof of this.
Communications sent to the general contractor detailing the
supplier's claim against the subcontractor may, for example,
be supplemented by oral and other written exchanges if these
make it unambiguously clear that the supplier is seeking
payment from the general contractor. See Altech, 929 F.2d at
1093; Coffee, 157 F.2d at 970; Kinlau, 537 F.2d at 223.
The record here shows not only that Water Works
sent Hyman the amount and details of Water Works's claims
against the subcontractor, but that these were accompanied by
further oral and written communications that could only be
perceived, and were in fact perceived, as looking to Hyman
itself for payment. Water Works's credit manager, Wernick,
initiated matters on February 3, 1995, by speaking on the
telephone with two Hyman employees who were handling the Post
Office Project account. During the course of several calls
on that day, Wernick informed them that Water Works had not
been paid by the subcontractor for its materials. Wernick
thereupon faxed copies of Water Works's unpaid invoices and
proofs of delivery to Hyman, thus informing Hyman of the
amount Water Works claimed from the subcontractor. The
district court found that, in these calls, Wernick also asked
to obtain a copy of Hyman's payment bond for "the express
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purpose of filing a bond claim." Hyman's personnel refused
to release the requested bonding information, but, as the
district court found, they countered with a promise that
Hyman would issue joint checks payable to Jackson and Water
Works, a device to ensure payment for Water Works's
materials. Wernick continued to communicate about the unpaid
claims with Hyman throughout the month of February. On
February 9, Wernick spoke again with the same Hyman
employees, who informed him that they were attempting to meet
with the subcontractor to discuss the issue of the unpaid
invoices. Finally on March 7, after more phone calls, Water
Works sent to Hyman a copy of a demand letter it had written
to Calvesco.2 The copy reflected at the bottom not only that
a copy had gone to Hyman but that copies had been sent to
Hyman's three Miller Act Sureties. Finally, on March 22,
1995, Hyman wrote Water Works thanking it for its patience,
indicating that it had already paid Jackson, expressing its
2. Hyman argues that "the facts of the present case are even
more persuasive than Maccaferri or Kinlau since Water Works
purported demand letter . . . was not made to Hyman's
subcontractor Jackson, but rather to Calvesco." However, the
names "Calvesco" and "Jackson" seem to have been used
interchangeably on various occasions, and there is absolutely
no evidence that Hyman was confused over the identity of the
subcontractor identified by Water Works. Calvesco and
Jackson were owned in common and Hyman had been a party to
the agreement that substituted Jackson for Calvesco as
subcontractor for the Project. While Hyman personnel, like
Water Works, sometimes referred to "Calvesco," the name
"Jackson" was correctly used by Hyman in its March 22 letter
to Water Works declining to pay its claim, showing that Hyman
was fully aware of thecorrect identity of the subcontractor.
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reluctance to pay the same bill twice, and informing Water
Works that it had "turned the entire matter over to our
attorneys and, on their advi[c]e, we are not paying anyone
until we have a clear picture of our options."
The above evidence provides clear indication that
Hyman understood that Water Works was looking to it for
payment, having received, as the district court found "actual
notice." Wernick's initial request for a copy of the bond,
following his faxing of the unpaid invoices and his telephone
calls to Hyman about the debt, suggested that Water Works was
looking to it for payment. Hyman's comprehension of this can
be inferred from Hyman's promise to issue joint checks in
substitute for information about the bond. But we need not
decide whether these actions by themselves sufficed to
constitute notice. Following these and other exchanges,
Water Works sent Hyman on March 7 a copy of Water Works's
demand upon the subcontractor. Unlike the copy in
Maccaferri, this indicated at the bottom that copies were
also being sent to Hyman's three Sureties on the Miller Act
bond, each of which was designated by name. It is not easy
to think of a reason to notify the Sureties unless Water
Works was looking to the bond for payment.
In Maccaferri, the Eleventh Circuit held that
merely sending the general contractor a copy of the demand to
the subcontractor did not suffice to show that the supplier
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was looking for payment to the general, but the surrounding
circumstances were far less indicative that payment was
sought, and there was no indication that the Sureties were
being sent copies. Here, upon receipt of a copy of Water
Works's demand upon the subcontractor showing plainly that
other copies had been sent to Hyman's Sureties, Hyman could
have had no illusion that it was not being asked to pay.
Hyman's letter of March 22, 1995 fully confirms our
interpretation. In the letter, Hyman thanked Water Works
"for being so patient with us while we are trying to sort out
the problems" relative to the Jackson claims. The letter
went on to speak of Hyman's difficulties with Jackson,
Hyman's strong reluctance to pay the same bill twice, and
that it had "turned the entire matter over to our attorneys
and, on their advice, we are not paying anyone until we have
a clear picture of our options" (emphasis added). "In the
end," the letter went on, "we may, in fact, be held
responsible for paying these invoices. But we will exhaust
every legal remedy before we do." The district court
inferred, and we entirely agree, that this letter must have
been in response to what Hyman believed was a request for
payment by Water Works. See Altech, 929 F.2d at 1093(general contractor's letter held to provide evidence of
notice).
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We, therefore, agree with the district court that
in this period Hyman received notice sufficient to meet the
requirements of the Miller Act.
2. Timing of Water Works's Notice.
The district court found that the ninety-day period
began to run on December 29, 1994, the day that Water Works
made its final delivery of materials to the Post Office
Project. Thus, by the court's calculations, Water Works's
letter of March 7, 1995, a copy of which was sent to Hyman
and the Sureties, and which in combination with the earlier
invoices constituted the written portion of the notice, fit
within the ninety-day limit.
In support of its assertion that the court should
have used the date of the November order, November 1, 1994,
rather than the date of the December order when calculating
the ninety-day time limit, Hyman suggests that each order
under an open account represents a separate contract with an
individual ninety-day limit. See United States ex rel.
Robert DeFilippis Crane Serv., Inc. v. William L. Crow
Constr. Co., 826 F. Supp. 647, 655 (E.D.N.Y. 1993)
(concluding that "[w]here claims are based on a series of
contracts, a claim must be made within 90 days from the date
on which the supplier 'furnished or supplied the last of the
material' for each underlying contract"); United States ex
rel. I. Burack, Inc. v. Sovereign Constr. Co., 338 F. Supp.
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657, 661 (S.D.N.Y. 1972). Under this reasoning, Hyman
argues, the limit on the November order had run by the time
that Water Works sent notice to Hyman.
While several district courts have held that Miller
Act notice runs from each order on an open contract, the
weight of authority contradicts that position. See United
States ex rel. A&M Petroleum, Inc. v. Santa Fe Eng'rs, Inc.,
822 F.2d 547 (5th Cir. 1987) (collecting cases from the
Second, Fourth, and Tenth Circuits that have held, either
implicitly or explicitly, that notice on an open account runs
from the last delivery of materials); Noland, 273 F.2d at
920-21. In Noland, the Fourth Circuit reasoned that,
although a strict reading might fulfill the purpose of the
notice provision by offering more protection to the general
contractor, the goal of a specific statutory provision must
take a back seat to the purpose of the overall statute, which
is to provide recovery for suppliers who have provided
materials but not received compensation. See Noland, 273
F.2d at 920-21.
We agree with the reasoning in Noland. Where
claims are based on an open account theory, the ninety-day
notice period for all of the deliveries begins on the date of
the last delivery to the project. The parties to this action
agree that Water Works delivered the last of its materials to
the Post Office Project on December 29, 1994. We therefore
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conclude that the district court correctly refused to deny
recovery on the November order merely because it was part of
an open account.
Hyman also argues that, since the district court
denied recovery to Water Works for the December order of
$157.76, it should not have used the date of that order for
purposes of calculating the timeliness of notice. We are not
persuaded.
As an initial matter, we note that the statute
states that the time limit runs from the date of the last
delivery of material "for which a claim is made." 40 U.S.C.
270b(a). The statute does not start the time limit on the
last claim for which the plaintiff eventually recovers; such
a provision might prove unworkable.
But even if the statute runs from the last
recoverable claim, we see little problem. In denying Water
Works recovery on the December order, the district court
wrote a footnote explaining its reasoning for distinguishing
between the November and December orders: the November order
form contained the name of a Jackson employee while there was
no name on the December order. The district court concluded
that there was "no evidence as to whether Calvesco or Jackson
placed the [December] order." Accordingly, the court limited
Water Works's recovery to the amount of the November order
($53,493.83) plus costs and interest.
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The undisputed facts are as follows. First, Water
Works provided materials that were incorporated into the Post
Office Project. Second, Water Works did not begin shipping
these materials until after Jackson became the subcontractor
on the Project. Third, although Water Works insisted upon
sending its invoices to Calvesco, Jackson paid for the first
five shipments by Water Works. Fourth, Calvesco was not a
subcontractor on the Project during the time that Water Works
shipped materials to the Project. Fifth, the last date that
Water Works delivered materials to the Project was December
29, 1994.
On these facts, we see no reason for the court to
have questioned if Calvesco rather than Jackson placed the
December order. Calvesco, having been replaced by Jackson as
the subcontractor on the Post Office Project, had no reason
to order materials for this job. The only reasonable
inference is that Jackson placed this order, as it did
earlier ones. While in the absence of a cross appeal, the
court's denial of the $157.76 stands, we see no reason to
reject the court's determination that the December 29, 1994
date triggered the notice period.
As the notice was adequate and as the district
court did not err in beginning the notice period from
December 29, 1994, Water Works satisfied the notice
requirements of the Miller Act.
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C. Water Works's Relationship to Hyman.
In order to recover from the payment bond, a person
must have a "direct contractual relationship" either with the
general contractor or with a direct subcontractor. 40 U.S.C.
270b(a); see also Bateson, 434 U.S. at 590-91. Hyman and
Water Works agree that they had no direct relationship.
Hyman argues further that Water Works did not have a direct
contractual relationship with any of Hyman's subcontractors.
Hyman relies upon the undisputed fact that Water Works
consistently refused to extend credit to Jackson and regarded
Calvesco as its customer.
As the district court correctly noted, courts have
allowed recovery under the Miller Act by suppliers who
furnish materials to a subcontractor "from time to time on
open account . . . without formal contract." Noland, 273
F.2d at 919; see also Apache Powder Co. v. Ashton Co., 264
F.2d 417, 422-23 (9th Cir. 1959). It is undisputed that
Water Works supplied materials to the Project and that
Jackson was the demolition, excavation and site work
subcontractor on the Post Office Project after September 27,
1994. In addition, Jackson, rather than Calvesco, paid Water
Works's first five invoices. This evidence clearly supports
the district court's finding of the existence of an open
account between Jackson and Water Works. Since Jackson was
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Hyman's direct subcontractor, the Act's tiering requirements
are satisfied.
Since we find that the district court correctly
allowed Water Works to recover under an open account theory,
we need not address the propriety of its alternative holding,
which allowed recovery on the basis of quantum meruit.
We have carefully considered Hyman's other
arguments; none of them persuade us that the district court
erred in its determination.
Affirmed.
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