United States v. St. Paul Fire & Marine Insurance

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
UNITED STATES OF AMERICA, Ex Rel.,
Maddux Supply Company,
Plaintiff-Appellee,
v.
ST. PAUL FIRE & MARINE INSURANCE
No. 95-2446
COMPANY; HILL CONSTRUCTION
COMPANY, INCORPORATED,
Defendants-Appellants,
CHAPMAN ELECTRIC COMPANY,
Defendant-Appellee.
Appeal from the United States District Court
for the District of South Carolina, at Charleston.
Charles E. Simons, Jr., Senior District Judge.
(CA-92-2445-2-6)
Argued: March 6, 1996
Decided: June 6, 1996
Before MURNAGHAN and NIEMEYER, Circuit Judges, and
YOUNG, Senior United States District Judge for the District of
Maryland, sitting by designation.
_________________________________________________________________
Affirmed by published per curiam opinion. Judge Niemeyer wrote a
specially concurring opinion.
_________________________________________________________________
COUNSEL
ARGUED: Michael S. Seekings, Claron A. Robertson, III, ROB-
ERTSON & SEEKINGS, Charleston, South Carolina, for Appellants.
Gregg Meyers, WISE, PRATT-THOMAS, PEARCE, EPTING &
WALKER, P.A., Charleston, South Carolina, for Appellee.
_________________________________________________________________
OPINION
PER CURIAM:
Appellant Hill Construction Corp. was sued under the Miller Act,
40 U.S.C. § 270(b), by a supplier on a construction project performed
for the federal government. After a bench trial, the district court
awarded damages to the supplier, and the contractor and surety
appealed. We now affirm.
I
Appellant Hill Construction Corp. served as general contractor for
a construction project ("the project") performed for the United States
Air Force, with St. Paul Fire and Marine Insurance Co. as its surety.
Appellee Maddux Supply Co. supplied materials to appellee Chap-
man Electric Co., a subcontractor on the project.
For several years prior to this project, Maddux and Chapman had
conducted business under the terms of a credit application submitted
by Chapman to Maddux. The credit application contained the follow-
ing language:
Customer authorizes Maddux Supply Company to apply all
payments on this account at Maddux Supply's discretion
unless otherwise directed in writing at time of payment.
The application also contained this language:
Terms of payment - . . . a 1 1/2% monthly service charge
will be added to all accounts not paid within 30 days after
due date. In the event it shall become necessary to collect
any outstanding amount owed to Maddux Supply Company,
the purchaser [Chapman] agrees to pay all costs thereof,
including reasonable attorneys' fees.
2
During the course of the project, Chapman fell behind on its pay-
ments to Maddux, although it continued to make some payments. The
parties dispute whether the payments made were properly attributed
to the Hill account or to some other account. In the end, Maddux con-
tends, Chapman was deficient by $30,225.66.
Pursuant to the Miller Act, supra, Maddux brought suit against
Hill, Chapman, and St. Paul to collect the deficiency. Hill and St. Paul
cross-claimed against Chapman for indemnification. Chapman cross-
claimed against Hill for $14,057.55, the amount Hill retained from
Chapman but conceded was properly payable. After a court trial,
Judge Simons ordered Hill and St. Paul to pay Maddux $30,225.66,
plus interest and attorney's fees and awarded Hill and St. Paul indem-
nification from Chapman for $30,225.66, but not for interest and
attorney's fees. Finally, the Court awarded Chapman $14,057.55 that
Hill had retained.
Hill and St. Paul appealed, and we now affirm.
II
A
Factual matters are reviewed for clear error. Crawford v. Air Line
Pilots Ass'n Int'l, 992 F.2d 1295, 1297 (4th Cir.), cert. denied, ___
U.S. ___, 114 S.Ct. 195 (1993). Legal questions, including applica-
tions of law to facts, are reviewed de novo. Rawl v. United States, 778
F.2d 1009, 1014 (4th Cir. 1985), cert. denied , 479 U.S. 814 (1986).
The calculation of damages is a finding of fact and therefore is
reviewable only for clear error, but to the extent those calculations
were influenced by legal error, review is de novo.
The Miller Act, § 270a, requires a government contractor to post
a surety bond for contracts of $25,000 or more. An entity that has fur-
nished labor or material for a project and has not been paid in full
within 90 days after performance may bring suit on the payment bond
for "sums justly due." The obligation of the surety and contractor
includes amounts owed by subcontractors to their suppliers. Miller
Equipment Co. v. Colonial Steel and Iron Co., 383 F.2d 669, 674 (4th
3
Cir. 1967), cert. denied, 390 U.S. 955 (1968). The fact that a subcon-
tractor has been paid in full does not eliminate liability to the supplier.
Illinois Surety Co. v. John Davis Co., 244 U.S. 376, 380 (1917). The
Miller Act "should receive a liberal construction to effectuate its pro-
tective purposes." United States ex rel. Sherman v. Carter, 353 U.S.
210, 216 (1957).
Hill and St. Paul's basic contention is that Maddux improperly
applied certain payments to reduce Chapman's debt on projects other
than the Hill project. The contract between Chapman and Maddux
provided that Maddux could apply payments at its discretion unless
instructed otherwise. The district court found that from April, 1991,
to July, 1992, with one exception, Chapman's payments to Maddux
were accompanied by instructions relating to application of the funds.
One payment, for $6898.53, contained no instructions. Chapman has
stated that its customary practice was to apply the payment to the old-
est outstanding invoice when no instructions accompanied a payment.
Ordinarily, a creditor must apply payments as instructed by the
debtor. See, e.g., Maddux Supply Co. v. Safhi, Inc., 450 S.E.2d 101,
103 (S.C. App. 1994). Hill and St. Paul have not disputed the Court's
finding that Maddux followed Chapman's instructions for every pay-
ment with which Chapman included instructions. As for the payment
to which no instructions were attached, Hill and St. Paul offered no
evidence to indicate that Maddux did not follow its customary prac-
tice of applying that payment to the oldest outstanding invoice.
Hill and St. Paul cite case law indicating that when a supplier
knows, or has reason to know, the source of a payment, the supplier
must apply payments to the debt created by that source. United States
ex rel. Carroll v. Beck, 151 F.2d 964 (6th Cir. 1945). Here, although
the district court did not directly apply the Beck rule, it concluded that
Maddux did not know the source of Chapman's funds and did not
have reason to know the source. Hill and St. Paul offer no evidence
to the contrary. This case therefore is distinguishable from Beck, in
which the subcontractor's payments consisted of checks from the con-
tractor endorsed over to the supplier. Chapman issued its own checks
to Maddux, usually with instructions as to how the money should be
applied. We find no error in the conclusion that Chapman did not
have reason to know the source of the payments.
4
Hill and St. Paul contend that the amount awarded included a bal-
ance owed by Chapman before work began on the project, indicating
the existence of other debts. Even if Hill and St. Paul were to show
a past due balance on another account, they would have to show that
Maddux improperly used payments from Hill to reduce that balance,
rather than the balance on the Hill account. In any event, the district
court concluded that there was no past due indebtedness prior to com-
mencement of the project, and that conclusion is not clearly errone-
ous.
Hill and St. Paul note that on April 1, 1991, Chapman had a bal-
ance of $12,891.69 due to Maddux. They argue that Maddux began
work on the project on April 1, 1991, and that any balance due on that
date must be attributable to another project.
The district court examined various business records and found
that, while Chapman indeed owed $12,891.69 on April 1, 1991, the
project began in January, not April. The Court based that conclusion
on records indicating that Maddux made its first shipment of materials
for the project in January, 1991, and found that in January, Chapman
owed Maddux $426.60 and was current in its payments. The Court
concluded that there was no past due indebtedness from Chapman to
Maddux prior to commencement of work on the project.
Hill and St. Paul have not disputed the validity of the records but
offer the testimony of representatives of Chapman and Maddux that
Chapman owed Maddux money before Maddux began supplying
materials for the project. This testimony arguably is in conflict with
the district court's analysis of the business records, although the con-
flict may be reconcilable. The Chapman and Maddux representatives
may have been referring to current amounts due on other accounts;
if so, their testimony would not be inconsistent with a finding of no
past due indebtedness. The Court's conclusion is buttressed by other
testimony indicating that the Chapman account with Maddux was in
"good standing."
The district court's factual conclusions, having followed the correct
legal standards, are supported by the record and are not clearly erro-
neous.
5
B
The Miller Act does not, by its own terms, provide for attorney's
fees or interest. Several circuits have held, however, that interest and
attorney's fees are recoverable if they are part of the contract between
the subcontractor and supplier. See United States ex rel. Southeastern
Municipal Supply Co., Inc. v. National Union Fire Insurance Co., 876
F.2d 92, 93 (11th Cir. 1989) (attorney's fees provision); United States
ex rel. Carter Equip. Co. v. H.R. Morgan, Inc., 554 F.2d 164, 166 (5th
Cir. 1977) (attorney's fees); Traveler's Indemnity Company v. United
States, 362 F.2d 896, 899 (9th Cir. 1966) (attorney's fees); D & L
Construction Co. v. Triangle Elec. Supply Co., 332 F.2d 1009, 1013
(8th Cir. 1964) (interest and attorney's fees). The rationale of those
decisions -- that attorney's fees and interest may be "sums justly
due" under the Miller Act -- is consistent with this court's rulings
that contractors and their sureties are obligated to pay amounts owed
by their subcontractors to suppliers. See, e.g., Miller Equipment Co.,
383 F.2d at 674. Accordingly, if Maddux was entitled to interest and
attorney's fees under its contract with Chapman, it may recover inter-
est and fees from Hill and St. Paul.
Under the credit application submitted by Chapman to Maddux,
interest "will be added to all accounts not paid within 30 days after
due date." In addition, "the purchaser" (Chapman) must pay attor-
ney's fees "in the event it shall become necessary to collect any out-
standing amount owed to Maddux Supply Company." The district
court found that the credit application was part of the contract on the
Hill project. Because this question is factual in nature, the clearly
erroneous standard applies, and Hill and St. Paul have provided no
evidence of error in that finding.
Hill and St. Paul contend that, because Chapman signed the credit
application before Hill entered into a contractual relationship with
either Chapman or Maddux, the provision is not enforceable against
them. The case law does not support this distinction. Regardless of
the origin of the provision, it was part of the contract between Mad-
dux and Chapman for the Hill project, and Maddux may recover.
The district court awarded interest and attorney's fees to Maddux
against Hill and St. Paul but declined to award indemnification from
6
Chapman for those items. The Court based those rulings on Chap-
man's cooperation in attempting to resolve Maddux's claim and on
Hill's retention of $14,057.55 it conceded it owed Chapman. This
decision not to hold the subcontractor responsible for interest and fees
raises the question of whether a surety and a contractor may be liable
for those items. We conclude that the district court was correct in
holding Hill and St. Paul liable for interest and fees. The language of
the contract suggests that fees and interest are"sums justly due" Mad-
dux. The fact that the Court did not hold Chapman responsible for
fees and interest does not indicate the amounts were not "sums justly
due." Rather, because Hill and St. Paul alone had contested Maddux's
right to recover, the district court concluded that Hill and St. Paul
should pay for the consequences of their actions-- namely, the attor-
ney's fees that Maddux incurred in securing its recovery and the inter-
est that accrued while Maddux was awaiting payment. Under the
liberal construction of the Miller Act required by United States v.
Carter, 353 U.S. at 216, we conclude that the district court did not err
in holding Hill and St. Paul liable for interest and attorney's fees.
III
For the foregoing reasons, the judgment of the district court is
hereby
AFFIRMED.
NIEMEYER, Circuit Judge, specially concurring:
I concur in the judgment, but write separately because I would
affirm the district court's award of $30,225.66 in actual damages to
Maddux Supply Company on grounds different than those relied upon
by the majority in Part IIA of its opinion.
Maddux Supply was a standing supplier to Chapman Electric Com-
pany, providing Chapman Electric materials for several jobs. During
the period in question, Chapman Electric had an open account with
Maddux Supply. When Chapman Electric made a payment to Maddux
Supply on account, Chapman Electric usually instructed Maddux
Supply how to apply the payment, and Maddux Supply invariably fol-
7
lowed Chapman Electric's instructions. When Maddux Supply
received no instructions, it applied payments to the oldest items in
accordance with the parties' standing contractual arrangement.
The record in this case shows that Maddux Supply neither knew
nor had reason to know the source of any money with which Chap-
man Electric made payments on its account, and, therefore, that Mad-
dux Supply had no independent basis to assign payments to any
particular job. Although Chapman Electric received money from Hill
Construction Company, the general contractor for the Air Force proj-
ect involved in this case, Chapman Electric never advised Maddux
Supply that any of its money came from Hill Construction or directed
that its money pay for materials used in the Air Force project. Unless
Maddux Supply knew or had notice that Hill Construction was the
source of Chapman Electric's payments, Maddux Supply was entitled
--indeed, contractually obligated--to apply Chapman Electric's pay-
ments in the manner that it did. See United States ex rel. Crane Co.
v. Johnson, Smathers & Rollins, 67 F.2d 121, 123 (4th Cir. 1933); see
also United States ex rel. Hyland Elec. Supply Co. v. Franchi Bros.
Constr. Corp., 378 F.2d 134, 139 (2d Cir. 1967); Consolidated Elec.
Co. v. United States ex rel. Gough Indus., Inc., 355 F.2d 437, 439-41
(9th Cir. 1966); St. Paul Fire & Marine Ins. Co. v. United States ex
rel. Dakota Elec. Supply Co., 309 F.2d 22, 30 (8th Cir. 1962), cert.
denied, 372 U.S. 936 (1963); United States ex rel. Carroll v. Beck,
151 F.2d 964, 966 (6th Cir. 1945); R.P. Farnsworth & Co. v. Electri-
cal Supply Co., 112 F.2d 150, 153 (5th Cir.), cert. denied, 311 U.S.
700 (1940); Maddux Supply Co. v. Safhi, Inc., 450 S.E.2d 101, 103
(S.C. Ct. App. 1994).
In these circumstances, I believe it immaterial that Chapman Elec-
tric's account with Maddux Supply had an open balance of $12,892
on April 1, 1991, and that Maddux Supply began supplying materials
to Chapman Electric for the Air Force project in January 1991. The
facts remain that Maddux Supply properly applied Chapman Elec-
tric's payments and that Chapman Electric's account with Maddux
Supply in the amount of $30,226 has not been paid. Because the
$30,226 was due for materials used on the Air Force project, the Mil-
ler Act gives Maddux Supply a claim against Hill Construction and
its surety, St. Paul Fire and Marine Insurance Company, for that
8
amount. See Miller Equip. Co. v. Colonial Steel and Iron Co., 383
F.2d 669, 674 (4th Cir. 1967), cert. denied, 390 U.S. 955 (1968).
Accordingly, I specially concur.
9