JW Bateson Co. v. United States Ex Rel. Bd. of Trustees of Nat. Automatic Sprinkler Industry Pension Fund

434 U.S. 586, 98 S. Ct. 873, 55 L. Ed. 2d 50, 24 Cont. Cas. Fed. 82,135, 1978 U.S. LEXIS 15, 1 Employee Benefits Cas. (BNA) 1293

• Court: Supreme Court of the United States
• Decided: February 22, 1978
• Docket: 76-1476
• Status: Published

Opinions

Mr. Justice Marshall

delivered the opinion of the Court.

Under the Miller Act, 49 Stat. 793, as amended, 80 Stat. 1139, 40 U. S. C. § 270a et seg., a prime contractor on a federal construction project involving over $2,000 must post a payment bond to protect those who have a direct contractual relationship with either the prime contractor or a “subcontractor.” The issue in this case is whether the term “subcontractor,” as used in the Act, encompasses a firm that is technically a “sub-subcontractor.”

The material facts are not in dispute. Petitioner J. W. Bateson Co. entered into a contract with the United States for construction of an addition to a hospital and provided a payment bond signed by Bateson’s president and by representatives of petitioner sureties. Bateson, the prime contractor, subcontracted with Pierce Associates for a portion of the original work, and Pierce in turn subcontracted with Colquitt Sprinkler Co. for the installation of a sprinkler system, one of the items specified in the contract between Bateson and the United States. Under a collective-bargaining agreement with respondent Road Sprinkler Fitters Local Union No. 669, Col-quitt was obligated to pay over amounts withheld from employees’ wages for union dues and vacation savings, and to contribute to the union’s welfare, pension, and educational trust funds. When Colquitt failed to make any of these payments by the end of the union members’ employment with the firm, the union and respondent trustees notified Bateson of the amount that they claimed was due them under the payment bond and then filed suit against Bateson in the name of the United States.

The District Court granted summary judgment for respondents, and the Court of Appeals for the District of Columbia Circuit affirmed, 179 U. S. App. D. C. 325, 551 F. 2d 1284 (1977). The appellate court recognized that Colquitt, which had a contractual relationship with Pierce but not with Bateson, was “technically a sub-subcontractor,” but it concluded nevertheless that Colquitt should be considered a “subcontractor” for purposes of payment bond recovery by its employees or their representatives. Id., at 327, 551 F. 2d, at 1286.¹ Applying a functional test based on the “substan-tiality] and importan [ce]” of the relationship between Bateson and Colquitt, the court noted that Colquitt was performing on the jobsite “an integral and significant part of [Bateson’s] contract” with the Government, that the work “was performed over a substantial period of time,” that Bate-son had access to Colquitt’s payroll records, and that Bateson could have protected itself “through bond or otherwise” against Colquitt’s default. Ibid., 551 F. 2d, at 1286.

We granted certiorari, 433 U. S. 907 (1977), to resolve a conflict between the decision below and the holdings of at least three other Circuits.² We now reverse.

Like the predecessor Heard Act, Act of Aug. 13, 1894, ch. 280, 28 Stat. 278, as amended, Act of Feb. 24, 1905, 33 Stat. 811, the Miller Act was designed to provide an alternative remedy to the mechanics’ liens ordinarily available on private construction projects. F. D. Rich Co. v. United States ex rel. Industrial Lumber Co., 417 U. S. 116, 122 (1974). Because “a lien cannot attach to Government property,” persons supplying labor or materials on a federal construction project were to be protected by a payment bond. Id., at 121-122. The scope of the Miller Act’s protection is limited, however, by a proviso in § 2 (a) of the Act that “had no counterpart in the Heard Act.” Clifford F. MacEvoy Co. v. United States ex rel. Calvin Tomkins Co., 322 U. S. 102, 107 (1944). This proviso has the effect of requiring that persons who lack a “contractual relationship express or implied with the [prime] contractor” show a “direct contractual relationship with a subcontractor” in order to recover on the bond. 40 U. S. C. § 270b (a);³ see F. D. Rich Co. v. United States ex rel. Industrial Lumber Co., supra, at 122; Clifford F. MacEvoy Co. v. United States ex rel. Calvin Tomkins Co., supra, at 107-108. In the instant case it is conceded that Colquitt's employees enjoyed no contractual relationship, “express or implied,” with Bateson, and that they did have a “direct contractual relationship” with Colquitt. The question before us, then, is whether Colquitt can be considered a “subcontractor.”

As we observed in Clifford F. MacEvoy Co. v. United States ex rel. Calvin Tomkins Co., supra, Congress used the word “subcontractor” in the Miller Act in accordance with “usage in the building trades.” 322 U. S., at 108-109; see id., at 110. In the building trades,

“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 . . . .” Id., at 109 (emphasis added).

It thus appears that a contract with a prime contractor is a prerequisite to being a “subcontractor.” ⁴

This interpretation of the Act’s language is confirmed by the legislative history, which leaves no room for doubt about Congress’ intent. While relatively brief, the authoritative Committee Reports of both the House of Representatives and the Senate squarely focus on the question at issue here:

“A sub-subcontractor may avail himself of the protection of the bond by giving written notice to the contractor, but that is as far as the bill goes. It is not felt that more remote relationships ought to come within the purview of the bond.” H. R. Rep. No. 1263, 74th Cong., 1st Sess., 3 (1935); S. Rep. No. 1238, 74th Cong., 1st Sess., 2 (1935).

This passage indicates both that Congress understood the difference between “sub-subcontractors” like Colquitt and “subcontractors” like Pierce, and that it intended the scope of protection of a payment bond to extend no further than to sub-subcontractors. See MacEvoy, 322 U. S., at 107-108, and n. 5. There is nothing to the contrary anywhere in the legislative history. Thus, while Colquitt could have claimed against the payment bond had Pierce defaulted in its obligations , the employees of Colquitt were not similarly protected against Colquitt’s default, because they did not have a contractual relationship with Pierce or any other “subcontractor.” ⁵

This view of what was intended in the Miller Act is reinforced by the fact that all reported decisions that have considered the question, except that of the court below and one early District Court decision, have reached the same conclusion.⁶ Presumably aware of this well-settled body of law dating back almost 20 years, Congress has never moved to modify the Act’s coverage. As a result, all of those concerned with Government projects — prime contractors, sureties, various levels of subcontractors and their employees — have been led to assume that the employees of a sub-subcontractor would not be protected by the Miller Act payment bond and to order their affairs accordingly.⁷ In the absence of some clear indication to the contrary, we should not defeat these reasonable expectations, particularly in view of the importance of certainty with regard to bonding practices on Government construction projects. See generally MacEvoy, supra, at 110-111.

In reaching a result contrary to that of other Courts of Appeals, the court below did not address itself either to the legislative history quoted above or to the conflict among the Circuits that its ruling created. Instead, it focused primarily on the substantiality and importance of the relationship between Colquitt and Bateson, see supra, at 588, relying for this approach on our decisions in MacEvoy and F. D. Rich Co. v. United States ex rel. Industrial Lumber Co. While those cases did involve the scope of the term “subcontractor” in the § 2 (a) proviso, they arose in situations in which the firm at issue, unlike Colquitt, had a direct contractual relationship with the prime contractor. The question in both cases was whether a supplier of materials to the prime contractor could be considered a “subcontractor,” ⁸ and on this question an absence of dispositive statutory language and legislative history led the Court ultimately to look to “functional” considerations. 417 U. S., at 123-124; see 322 U. S., at 110-111. In the instant case, by contrast, the traditional tools of statutory construction provide a definitive answer to the question before us, and hence it would be inappropriate to utilize the approach relied on by the Court of Appeals.

In concluding that the word “subcontractor” must be limited in meaning to one who contracts with a prime contractor, we are not unmindful of our obligation to construe the “highly remedial” Miller Act “liberal [ly] ... in order properly to effectuate the Congressional intent to protect those whose labor and materials go into public projects.” MacEvoy, supra, at 107. As we wrote in MacEvoy, however, “such a salutary policy does not justify ignoring plain words of limitation and imposing wholesale liability on payment bonds. . . . [W]e cannot disregard the limitations on liability which Congress intended to impose and did impose in the proviso of § 2 (a).” 322 U. S., at 107. It was Congress that drew a line between sub-subcontractors and those in “more remote relationships” to the prime contractor. H. R. Rep. No. 1263, supra, at 3; S. Rep. No. 1238, supra, at 2; MacEvoy, supra, at 108; Rich, 417 U. S., at 122. If the scope of protection afforded by a Miller Act payment bond is to be extended, it is Congress that must make the change.

The judgment of the Court of Appeals is

Reversed.

Mr. Justice Blackmun took no part in the consideration or decision of this case.

1 The right of trustees of union trust funds to assert a claim against a Miller Act payment bond on behalf of employees was established in United States ex rel. Sherman v. Carter, 353 U. S. 210, 218-220 (1957). That case also held that amounts which the employer agreed to contribute to union trust funds could be recovered by the employees or their representatives under the payment bond. See id., at 217-218.

2 United States ex rel. Powers Regulator Co. v. Hartford Accident & Indemnity Co., 376 F. 2d 811 (CA1 1967); United States ex rel. W. J. Halloran Steel Erection Co. v. Frederick Raff Co., 271 F. 2d 415 (CA1 1959); Fidelity & Deposit Co. v. Harris, 360 F. 2d 402, 407-409 (CA9 1966); Elmer v. United States Fidelity & Guaranty Co., 275 F. 2d 89 (CA5), cert. denied, 363 U. S. 843 (1960). See also United States ex rel. DuKane Corp. v. United States Fidelity & Guaranty Co., 422 F. 2d 597, 599-600, and n. 4 (CA4 1970).

3 Section 2 (a) of the Miller Act, as set forth in 40 U. S. C. § 270b (a), provides in full:

“Every person who has furnished labor or material in the prosecution of the work provided for in [the] contract, in respect of which a payment bond is furnished under section 270a of this title and who has not been paid in full therefor before the expiration of a period of ninety days after the day on which the last of the labor was done or performed by him or material was furnished or supplied by him for which such claim is made, shall have the right to sue on such payment bond for the amount, or the balance thereof, unpaid at the time of institution of such suit and to prosecute said action to final execution and judgment for the sum or sums justly due him: 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 did or performed the last of the labor or 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 or for whom the labor was done or performed. Such notice shall be served by mailing the same by registered mail, postage prepaid, in an envelop [e] addressed to the contractor at any place he maintains an office or conducts his business, or his residence, or in any manner in which the United States marshal of the district in which the public improvement is situated is authorized by law to serve summons.”

4 The structure of the § 2 (a) proviso as it relates to notice lends further support to this view. Under the proviso, those having a claim against a “subcontractor” must give written notice to the prime contractor within 90 days of completing work on the job in order to recover against the payment bond. 40 U. S. C. § 270b (a); see n. 3, supra. This requirement “permits the prime contractor, after waiting ninety days, safely to pay his subcontractors without fear of additional liability to sub-subcontractors or materialmen.” United States ex rel. Munroe-Lang-Stroth, Inc. v. Fraught, 270 F. 2d 235, 238 (CA1 1959). The notice provision thus prevents both “double payments” by prime contractors and the alternative of “interminable delay in settlements between contractors and subcontractors.” United States ex rel. J. A. Edwards & Co. v. Thompson Construction Corp., 273 F. 2d 873, 875-876 (CA2 1959), cert. denied, 362 U. S. 951 (1960).

If the term “subcontractor” in the proviso had been meant to include sub-subcontractors like Colquitt, it seems likely that notice would have been required, not only to the prime contractor, but also to intermediate subcontractors like Pierce. The prime contractor or his surety, while having initial responsibility for payment of the claimant, would probably in turn either withhold that amount from, or file a claim against, a bond or indemnity furnished by, the intermediate subcontractor. (Here, for example, it appears that Pierce had agreed to indemnify Bateson against such losses. Brief for Petitioners 18 n. 15.) Hence notice to the intermediate subcontractor would serve the same purpose as does notice to the prime contractor: prevention of double payments (e. g., Pierce making full payment to Colquitt, then having to indemnify Bateson for amounts owed by Colquitt to its employees) or delayed settlements.

5 We note that Colquitt’s employees also would not have been protected under the mechanic’s lien statutes of many States. See supra, at 589. While these statutes have always varied widely, it appears that a large number of States, including some of the most commercially significant States, have restricted mechanics’ liens to persons dealing directly with the prime contractor or with a subcontractor who dealt with the prime contractor. See, e. g., Battista v. Horton, Myers & Raymond, 76 U. S. App. D. C. 1, 3, 128 F. 2d 29, 31 (1942) (District of Columbia mechanic’s lien statute); Wynkoop v. People, 1 App. Div. 2d 620, 153 N. Y. S. 2d 836 (1956), summarily aff’d, 4 N. Y. 2d 892, 150 N. E. 2d 771 (1958) (New York statute restricting mechanics’ liens to those “performing labor for or furnishing materials to a contractor [or] his subcontractor”). See generally Note, Mechanics’ Liens and Surety Bonds in the Building Trades, 68 Yale L. J. 138, 147-148 (1958).

6 See cases cited in n. 2, supra; Aetna Ins. Co. v. Southern, Waldrip & Harvick, 198 F. Supp. 505 (ND Cal. 1961); United States ex rel. Whitmore Oxygen Co. v. Idaho Crane & Rigging Co., 193 F. Supp. 802 (Idaho 1961); United States ex rel. Jonathan Handy Co. v. Deschenes Construction Co., 188 F. Supp. 270 (Mass. 1960); United States ex rel. Newport News Shipbuilding & Dry Dock Co. v. Blount Bros. Construction Co., 168 F. Supp. 407 (Md. 1958). Contra, McGregor Architectural Iron Co. v. Merritt-Chapman & Scott Corp., 150 F. Supp. 323 (MD Pa. 1957). See also H. Cohen, Public Construction Contracts and the Law § 7.9, p. 208 (1961); 8 J. McBride & I. Wachtel, Government Contracts §49.320 [2] (1977); R. Shealey, Law of Government Contracts § 143A, p. 187 (3d ed. 1938); Forster & DeBenedictis, Construction Contracts in Government Contracts Practice § 14.13, pp. 683-684 (1964); Stickells, Bonds of Contractors on Federal Public Works: The Miller Act, 36 B. U. L. Rev. 499, 512-516 (1956); Note, supra, n. 5, at 164.

7 In the instant case, it appears that all of the affected parties arranged their affairs on the assumption that Colquitt’s employees would not be covered by the payment bond. Bateson required an indemnity agreement from Pierce, Brief for Petitioners 18 n. 15, doubtless in part to protect Bateson from claims against the payment bond made by those contracting with Pierce. But Pierce did not require a similar agreement from Col-quitt, ibid., presumably because Pierce did not think that Colquitt’s employees, on Colquitt’s default, would have recourse against Bateson’s payment bond. Finally, the agreement between Colquitt and the union contained a provision, which the union ultimately chose not to* enforce, requiring Colquitt to post a bond to guarantee the various payments that it was required to make to the union and its trust funds. App. 13; see id., at 49 (affidavit of union trustee).

8 In MacEvoy we held that a firm which had merely supplied materials to the prime contractor could not be considered a “subcontractor.” In Rich we concluded that a firm which had contracted with the prime contractor both to install certain items in a housing project and to supply materials for the project was a “subcontractor.”