Aldridge Electric Co v. Pickus Construction

In the
United States Court of Appeals
For the Seventh Circuit
No. 00-2853
United States of America for the use and benefit
of Aldridge Electric Company, Inc., and Reliance
Insurance Company,
Plaintiffs-Appellants,
v.
Pickus Construction & Equipment Co., Inc.,
and The American Insurance Company,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 98 C 3261--Ruben Castillo, Judge.
Argued March 29, 2001--Decided May 4, 2001
Before Easterbrook, Rovner, and Diane P.
Wood, Circuit Judges.
Easterbrook, Circuit Judge. Pickus
Construction was the general contractor
for the Damage Control Building at the
Great Lakes Naval Training Center in
Illinois, and because the United States
was the client the project was covered by
the Miller Act, 40 U.S.C. secs. 270a-
270d. Pickus hired Metrick Electric Co.
to work on the project. As the Miller Act
requires, Pickus secured a bond (through
American Insurance Co.) for the benefit
of Metrick, which posted its own bond
(through Reliance Insurance Co.) for the
benefit of Pickus and the Navy. Before
completing the electrical installation
Metrick became insolvent and stopped
work. Reliance assumed Metrick’s
obligation to finish the project and also
acquired Metrick’s rights (including its
right to be paid for successful
completion). Reliance engaged Aldridge
Electric Co., which finished the project
to the Navy’s satisfaction. Pickus paid
Reliance the full price that had been
promised to Metrick. But Reliance wants
more. It contends that Pickus’s delay in
completing the Damage Control Building
increased the expense of the electrical
work by some $400,000, which Reliance
says it had to pay Aldridge and wants
Pickus to cover; when Pickus refused,
Aldridge and Reliance brought this suit
under the Miller Act against Pickus and
American. At the close of plaintiffs’
case in a bench trial, the district judge
concluded that Pickus does not owe
anything on top of the price it
negotiated with Metrick. See Fed. R. Civ.
P. 52(c).
Our first question is: Why is Aldridge
a plaintiff? Reliance has paid Aldridge
the full agreed price for its work, and
it is hard to see how Pickus could owe
Aldridge anything. Any loss as a result
of Pickus’s scheduling problems has been
borne by Reliance, not Aldridge. At oral
argument counsel said that Aldridge and
Reliance had agreed to share any recovery
from Pickus, but this does not make
Aldridge a proper plaintiff any more than
a lawyer working on contingent fee
becomes a party to the case. If Reliance
had promised to pay half of its winnings
to its ceo as a bonus, or to its bank to
retire a loan, neither the ceo nor the
bank would become entitled to sue Pickus.
The only entity in privity with Pickus,
and the only one arguably entitled to
extra compensation, is Reliance, which
stepped into Metrick’s shoes and must be
treated as Pickus’s electrical
subcontractor. Our conclusion that
Aldridge is not a proper party enables us
to pretermit some tricky questions, such
as whether Aldridge, as a sub-
subcontractor, made a timely claim. Cf.
United States ex rel. S&G Excavating,
Inc. v. Seaboard Surety Co., 236 F.3d 883(7th Cir. 2001). The district court’s
problematic decision to disregard the
statutory requirements for claims by sub-
subcontractors, 40 U.S.C. sec.270b(a), is
accordingly a subject on which we express
no opinion.
Aldridge’s presence in the case had an
unfortunate effect at trial, for the
district judge concentrated his attention
on its nonexistent claims and did not
discuss the more substantial claims that
Reliance possesses (if only by
subrogation from Metrick) as Pickus’s
electrical subcontractor. Most of the
district judge’s oral findings of fact,
delivered immediately after plaintiffs
rested, deal with Aldridge’s situation.
For example, the judge disbelieved the
testimony of Aldridge’s managers that
they did not appreciate how far behind
the project was when they took over; the
judge also disbelieved testimony by these
managers to the effect that they thought
they had no option other than to work
extra fast (and at extra expense) to
catch up. The judge thought that Aldridge
should have understood (or readily could
have learned) that the Navy had decided
not to enforce the schedules in the
original contract. The district judge
also concluded that the project fell
behind by only eight days during the time
Aldridge was on the job, and that this
variation was within the norm for large
construction projects, and thus could not
have caused Aldridge any injury. What the
judge did not discuss, however, is
whether the 100-day delay before
Metrick’s insolvency caused injury by
requiring Metrick to rearrange its own
schedules in order to synchronize its
work with other components of the
project. A subcontractor is entitled to
compensation for extra expense caused by
the need either to delay or to accelerate
its work in order to mesh with the
progress of other contractors, whose
efforts may be essential to (or may
depend on) the work of the electrical
subcontractor. See, e.g., Consolidated
Electrical & Mechanicals, Inc. v. Biggs
General Contracting, Inc., 167 F.3d 432,
434-35 (8th Cir. 1999); Amp-Rite Electric
Co. v. Wheaton Sanitary District, 220
Ill. App. 3d 130, 580 N.E.2d 622 (2d
Dist. 1991). (We cite both federal and
state cases because the parties have
slighted choice-of-law issues; although
many courts assume that federal law
governs all issues if a bond had been
posted under the Miller Act, this is far
from clear. See Turner/Ozanne v.
Hyman/Power, 111 F.3d 1312 (7th Cir.
1997). But there is no salient difference
between Illinois law and the principles
other circuits have devised for Miller
Act litigation, so we need not pursue
this question.) As the successor to
Metrick’s rights, Reliance is entitled to
recover from Pickus (and American)
whatever Metrick could have recovered. It
is irrelevant for this purpose that
Aldridge replaced Metrick. Damages (if
any) depend on how a single contractor
that was on the job the whole time would
have been affected by the delay;
Metrick’s abandonment of the job neither
increases nor reduces Pickus’s exposure,
which should be evaluated as if Metrick
had been the electrical subcontractor
from start to finish. By concentrating on
what happened after Aldridge took over,
the district judge missed the boat.
Now it may be that the parties rather
than the judge bear most of the
responsibility. Reliance, after all,
dragged Aldridge into this suit and
controlled the presentation of evidence
at trial. At oral argument counsel for
Pickus and American contended that
plaintiffs had devoted their case to
events after Metrick’s replacement,
effectively abandoning any claim that
Reliance holds as the subrogee of
Metrick’s rights. The problem with this
response is in the opening phrase: "At
oral argument . . .". Reliance squarely
presented a subrogation claim in its
brief--it is the basis for the bulk of
Reliance’s damages--and Pickus failed to
respond. Pickus not only neglected to
argue that Reliance had omitted such a
claim at trial but also offered no reply
of any other kind. By silence it
effectively conceded the core of
Reliance’s position. Pickus thus has
forfeited any entitlement to the benefit
of Reliance’s forfeiture at trial (if
there was one, a subject we need not
consider; though we add that the trial
record contains some evidence of injury
to Metrick, for otherwise a remand would
be pointless). Moreover, Pickus has
forfeited a second potential defense:
that in a contract (which the parties
call the Takeover Agreement) negotiated
between Pickus and Reliance after
Metrick’s default, Reliance may have
given up any entitlement to damages as
Metrick’s subrogee. Pickus does make a
short argument that Reliance has no claim
for breach of the Takeover Agreement, but
it does not attempt to use the Takeover
Agreement as a response to Reliance’s
subrogation claim. Perhaps this strategy
(or lack of one) suggests that it was
Pickus that persuaded the district judge
to concentrate on Aldridge almost
exclusively, and Pickus took itself in as
well. However that may be, now that
Aldridge is out of the case it is
essential to determine what claims
Metrick (and thus Reliance) may have
against Pickus.
Because the district judge stopped the
trial without hearing defendants’ case,
what we have said about the events may
reflect the incompleteness of the
evidence. The record must be fleshed out,
and in light of Circuit Rule 36 this
means a complete new trial before a
different district judge.
Reversed and Remanded