United States v. Travelers Casualty & Surety Co. of America

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
February 7, 2008
No. 07-60134 Charles R. Fulbruge III
Summary Calendar Clerk
United States of America for the use and benefit of
A&R SUPPLY OF MISSISSIPPI, a Division of Just-Rite Supply, Inc.,
Plaintiff–Appellee,
v.
TRAVELERS CASUALTY & SURETY COMPANY OF AMERICA,
Defendant–Appellant.
Appeal from the United States District Court
for the Southern District of Mississippi
USDC No. 1:06-CV-111
Before HIGGINBOTHAM, STEWART, and OWEN, Circuit Judges.
PER CURIAM:*
The district court granted partial summary judgment to A&R Supply of
Mississippi on its Miller Act1 claim against Travelers Casualty & Surety
Company of America (Travelers). Travelers timely appealed, claiming that the
district court erred by rejecting its estoppel defense, and arguing that public
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
1
40 U.S.C. § 3133.
No. 07-60134
policy compels a reevaluation of our Miller Act jurisprudence. This case is
controlled by United States for Use of Friedrich Refrigerators, Inc. v. Forrester,2
and we therefore affirm.
I
The United States awarded Debcon, Inc. (Debcon) a contract to develop
naval housing units. Debcon received a surety payment bond from Travelers
and subcontracted with Allen’s Construction, Inc. (Allen’s) to install gypsum
board. Allen’s asked Just-Rite Supply, Inc. (Just-Rite) to supply the board.
Just-Rite agreed to supply the materials for $365,000, but because of concerns
that Allen’s was not creditworthy, Just-Rite required Debcon and Allen’s to enter
a joint check agreement. Under this agreement, Debcon would pay $365,000 for
the gypsum board through checks written jointly to Allen’s and Just-Rite; each
check would require an endorsement from both recipients. Just-Rite drafted the
agreement with the express purpose of providing adequate assurances of
payment.
Although Debcon made numerous payments under this agreement, Just-
Rite ultimately suffered a shortfall traceable to the parties’ failure to specify how
the check recipients should divide the payments. Some of the money from
Debcon was due to Allen’s for supplying labor, while the remainder of the funds
was due to Just-Rite for supplying materials. The firms never stipulated how
much of each check was for labor and how much was for supplies. Debcon did
not know how the parties were dividing the funds, nor was it able to provide the
proper division upon Just-Rite’s request. The recipients apparently varied their
method of division. In some instances, they relied upon an estimate sheet that
understated the cost of materials; in others, they used the value of the materials
Just-Rite shipped. The accounting was further complicated after Allen’s wrote
2
441 F.2d 779 (5th Cir. 1971).
2
No. 07-60134
a bad check to Just-Rite. The bounced check, which was to cover Just-Right’s
portion of a payment from Debcon, left Just-Rite with a large deficit from past
periods. Debcon ultimately wrote joint checks totaling $668,613.83, although the
agreement only required Debcon to pay $365,000 for materials supplied by Just-
Rite. From the $602,216.38 of checks that Just-Rite concedes it endorsed, Just-
Rite retained only $261,594.65 of the $355,578.97 it was owed. As a result, Just-
Rite suffered a shortfall of $93,984.32.
A&R Supply of Mississippi (A&R), a division of Just-Rite, filed a complaint
in the United States District Court for the Southern District of Mississippi
against Allen’s, Debcon, and Travelers to recover this deficit. It alleged
violations of state law and the Miller Act. The district court granted summary
judgment in favor of A&R on its Miller Act claim against Travelers, and
Travelers timely appealed.
II
Travelers contends that the district court erroneously rejected its
affirmative defense of promissory estoppel. We review the district court’s grant
of summary judgment de novo, examining the record in the light most favorable
to the nonmoving party and drawing all inferences in its favor.3
The Miller Act requires recipients of certain government construction
projects to obtain a performance bond and a payment bond. The Act allows
suppliers of labor and materials to bring civil actions on the payment bond for
any amount unpaid after they complete their contractual obligations.4 The Act’s
purpose “‘is to protect those who furnish labor and material for public
construction and to insure that they will be paid for the same.’”5 The Miller Act
3
Hockman v. Westward Commc’ns, L.L.C., 407 F.3d 317, 325 (5th Cir. 2004).
4
40 U.S.C. § 3133(b)(1).
5
Graybar Elec. Co. v. John A. Volpe Constr. Co., 387 F.2d 55, 58 (5th Cir. 1967)
(quoting St. Paul Mercury Indem. Co. v. United States for Use of H.C. Jones Constr. Co., 238
3
No. 07-60134
“is highly remedial in nature and is ‘entitled to a liberal construction and
application in order properly to effectuate the Congressional intent to protect
those whose labor and materials go into public projects.’”6
It is well settled that estoppel is a proper defense to a Miller Act claim.7
Under our precedent, a party asserting an estoppel defense must show that it
was misled to its detriment.8 Travelers argues that Just-Rite misled Debcon into
believing that Just-Rite would retain, or was retaining, payment from Debcon’s
checks. Travelers asserts that Just-Rite represented it would retain payment
by requiring and drafting a joint check agreement with the specified purpose of
providing Just-Rite adequate assurances of payment. According to Travelers,
“[b]y the joint agreement it drafted, Just Rite assured Debcon that Just Rite
would be paid.” Travelers also claims that Just-Rite represented it was being
paid by endorsing joint checks for roughly twice the value of the materials
supplied and the amount Debcon was required to pay under the joint check
agreement. It argues that these “endorsements . . . amounted to representations
that Just-Rite had been paid.”
We rejected a virtually identical contention in United States for Use of
Friedrich Refrigerators, Inc. v. Forrester.9 We stated that the subcontractor’s
F.2d 917, 921 (10th Cir. 1957)).
6
United States for Use and Benefit of Clark-Fontana Paint Co. v. Glassman Constr. Co.,
397 F.2d 8, 10 (4th Cir. 1968) (quoting Clifford F. MacEvoy Co. v. United States, for Use and
Benefit of Calvin Tomkins Co., 322 U.S. 102, 107 (1944)).
7
See, e.g., United States for the Use and Benefit of Jinks Lumber Co. v. Fed. Ins. Co.,
483 F.2d 153, 157 (5th Cir. 1973); Freidrich Refrigerators, 441 F.2d at 783; Graybar, 387 F.2d
at 59-60.
8
See Freidrich Refrigerators, 441 F.2d at 783.
9
Id.
4
No. 07-60134
request for the joint payment procedure did not constitute a waiver
of its rights under the Miller Act, but was simply a request for and
acceptance of additional security. Consequently, even the
acceptance by [the subcontractor] of the jointly made check offered
by [the contractor] would not have defeated recovery by [the
subcontractor] under the Miller Act, if [the subcontractor] in fact
remained unpaid (assuming [the subcontractor] had not also
executed a binding release or waiver of its Miller Act rights).10
Just-Rite’s endorsement of the joint checks was not a representation that it had
been paid. As noted above, a supplier’s request for a joint payment procedure is
a request for assurances of payment, which is normally construed as a request
to supplement its Miller Act rights.11 The request will only limit Miller Act
rights if it includes a “clear expression” of the supplier’s intent “to waive the
protection afforded by the Miller Act.”12 The facts here—including that the
supplier drafted the agreement, stated the agreement was for “adequate
assurance” of payment, endorsed checks of a value far exceeding its deficit, and
had authority under the agreement to sign on behalf of Allen’s and retain the
amounts it was owed—at most communicate a desire to supplement the Act’s
protections and an opportunity to retain payment. They do not represent that
Just-Rite retained payment from Debcon’s checks.
Nevertheless, Travelers contends that the district court’s decision
contradicts the purpose of the Miller Act. Citing Graybar, it argues that the
Miller Act was “provided for the protection of the ‘innocent,’” and that Just-Rite
is not “innocent” because it could have retained enough to cover the amounts it
was owed.13
10
Id. at 782-83.
11
Id. at 782.
12
Id.
13
Graybar Elec. Co. v. John A. Volpe Constr. Co., 387 F.2d 55, 59 (5th Cir. 1967).
5
No. 07-60134
This argument is unpersuasive. Graybar involved a general contractor
that sought to protect its interests. Unlike some general contractors that “could
have done more to protect” themselves, the general contractor in Graybar “did
everything it reasonably could do to protect itself short of completely taking over
the operation of” its subcontractor.14 It is “[u]nder such circumstances” that a
general contractor may raise the defense of estoppel.15 Our review of the record
shows that unlike the general contractor in Graybar, Debcon did little to protect
its own interests. Debcon assented to the joint check agreement without
demanding an allocation of payment between labor and supplies or requiring
Just-Rite explicitly to waive its rights under the Miller Act. After the parties
signed the agreement, Debcon wrote checks without specifying the amount for
Just-Rite, requiring partial releases from Just-Rite, or verifying that Just-Rite
was retaining payment. Unlike Graybar, this case does not involve a culpable
supplier exploiting a general contractor that sought to protect its own interests.
For these reasons, Travelers has failed to show that A&R is equitably
estopped from bringing a Miller Act claim.
III
Given that our longstanding Miller Act precedent favors Just-Rite,
Travelers invites us to reconsider our cases in light of the “realities of the
commercial construction industry.” It claims that contractors customarily use
joint checks to protect themselves. Travelers further asserts that its industry
follows a rule that “the maker of a joint check, which is subsequently endorsed
by the material supplier, is deemed to have paid the material supplier.”
According to Travelers, these factors “compel[] a re-evaluation of cases denying
a surety the defense of equitable estoppel in a Miller Act case.”
14
Id. at 60.
15
Id.6
No. 07-60134
We are bound by Freidrich Refrigerators16 and have adopted the Fourth
Circuit’s reasoning in Glassman.17 We may not reevaluate our precedent here.
Moreover, Travelers gives no reason why the construction industry is unable to
conform its practice to the law. As stated previously, Debcon could have
required Just-Rite explicitly to waive its Miller Act rights, sought periodic
partial releases from Just-Rite, or required Just-Rite to verify that it was
retaining payment. The other parties similarly could have acted to protect their
own interests. In fact, a representative of A&R gave deposition testimony that
A&R has already changed its joint-check policy as a result of this dispute.
Travelers has not shown that the commercial construction industry is incapable
of adapting to the decades-old precedent of this court.
* * *
We AFFIRM the judgment of the district court.
16
Freidrich Refrigerators, 441 F.2d at 782-83.
17
Id. at 782-84 (citing United States for Use and Benefit of Clark-Fontana Paint Co. v.
Glassman Constr. Co., 397 F.2d 8, 11 (4th Cir. 1968)).
7