United States ex rel. Damuth Services, Inc. v. Western Surety Co.

368 F. App'x 383
CourtCourt of Appeals for the Fourth Circuit
DecidedMarch 4, 2010
DocketNo. 09-1170
StatusPublished

This text of 368 F. App'x 383 (United States ex rel. Damuth Services, Inc. v. Western Surety Co.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Fourth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
United States ex rel. Damuth Services, Inc. v. Western Surety Co., 368 F. App'x 383 (4th Cir. 2010).

Opinion

Affirmed by unpublished opinion. Judge DUNCAN wrote the opinion, in which Judge GREGORY and Judge BLAKE joined.

Unpublished opinions are not binding precedent in this circuit.

DUNCAN, Circuit Judge:

This is an appeal from a grant of summary judgment on a claim under the Miller Act, 40 U.S.C. § 3131 et seq. The Act requires general contractors who enter into contracts with the government to obtain bonds from sureties “for the protection of all persons supplying labor and material in carrying out the work provided for in the contract.” Id. § 3131(b)(2). Da-muth Services, Inc. (“Damuth”), a materi-alman, filed a claim under the Miller Act on a payment bond obtained by the general contractor after the subcontractor for which Damuth supplied material went out of business. The district court granted summary judgment to the general contractor’s surety on the bases of equitable es-toppel and unclean hands. Damuth now appeals. For the reasons that follow, we affirm.

I.

In September 2005, Viteri Construction Management, Inc. (“VCMI”), entered into a contract with the United States government to expand and modify an existing Coast Guard station in Chesapeake, Virginia (the “CAMSLANT” project). Because this contract was valued at more than $100,000, VCMI was required by the Miller Act to obtain a payment bond. Id. § 3131(b)(2). VCMI secured this bond [385]*385from appellee Western Surety Co. (“Western”) in the amount of $2,675,738.00. VCMI’s owners, Carlos Viteri and his wife (the “Viteris”), guaranteed the bond personally.

As part of the CAMSLANT project, VCMI had to install new HVAC equipment. VCMI entered into a subcontract with H & L Mechanical, Inc. (“H & L”), to perform that work. H & L’s work was to be performed “in compliance with all [applicable] national, federal, state, and local codes.” J.A. 62. H & L, in turn, engaged the services of a materialman, Damuth, to supply the HVAC parts.

On November 16, 2006, Damuth supplied H & L with $160,205.85 in HVAC equipment and related support services. On November 21, 2006, H & L invoiced VCMI for $185,811.31 in work performed on the CAMSLANT project, which included Damuth’s amount. As part of its payment request, H & L signed a form that said:

I ... certify that payments, less applicable retainage, have been made (through the period covered by previous payments received from Viteri Construction Management, Inc.) to all my subcontractors, for all materials and labor used in, or in connection with the performance of this Contract.

Id. at 152. On January 5, 2007, VCMI paid H & L $185,811.31, the full amount requested. Rather than pay Damuth its invoiced amount, however, H & L applied the funds to debts owed on unrelated projects. H & L did this despite a self-recognized obligation to use the VCMI payment to pay Damuth.1

By February 15, 2007, Damuth had become concerned that it had not been paid, and arranged to meet with H & L to discuss the matter. At the meeting on February 27, Damuth learned that H & L had spent its invoiced amount paying off other debts and was, in fact, facing significant financial difficulties.

Damuth was generally aware that H & L was to use the payment from the CAM-SLANT project to pay Damuth for its work.2 Damuth, however, was persuaded that in order for H & L to make good on its debt, H & L would need “to continue doing business.” Id. at 120. Damuth therefore entered into an agreement with H & L over the repayment of monies owed. H & L agreed to pay Damuth on all debts owed for non-CAMSLANT project work, an amount that came to $6,031.22. H & L would also make a series of payments between April and September 2007, on the fifteenth of each month, until Damuth had been paid in full for the [386]*386CAMSLANT project. In exchange, Da-muth agreed not to inform VCMI of H & L’s non-payment. Damuth also “re-serv[ed] [the] right to go to [VCMI]” if H & L did not keep its word. Id. at 124.

After the meeting, Damuth continued to perform work, but H & L never made a payment under their agreement. Meanwhile, H & L received an additional $105,000 from VCMI on CAMSLANT-re-lated work after the initial $185,811.31 payment. At least $33,024.88 of that money came after H & L met with Damuth on February 27, 2007.

On May 1, 2007, H & L met with Da-muth a second time to renegotiate their agreement. At that point, H & L agreed to pay Damuth $5,000 per week for thirty-four weeks, beginning on May 11, 2007, until Damuth had received $170,000. On May 16, 2007, however, H & L went out of business without ever making an installment payment. On June 5, 2007, Damuth gave notice to VCMI and its surety, Western, of its intent to make a claim upon the payment bond.

On January 17, 2008, Damuth filed a two-count complaint in the United States District Court for the Eastern District of Virginia. In Count I, Damuth requested judgment against Western in the amount of $161,020.65, plus interest and costs, as payment upon the bond for its performance on the CAMSLANT project. Count II incorporated the same request against H & L. H & L, who was properly served with the complaint, did not respond and the district court entered default judgment against it. Western filed an answer to the complaint, asserting several affirmative defenses, including the equitable doctrines of equitable estoppel and unclean hands. Western and Damuth thereafter filed cross-motions for summary judgment.

On January 21, 2009, the district court granted summary judgment to Western. The district court found that Damuth’s claim upon the bond was barred by equitable estoppel and unclean hands. First, the district court found that Damuth’s agreement to remain silent about H & L’s diversion of the CAMSLANT project payment was sufficient to invoke estoppel:

VCMI received money from the government, VCMI paid H & L in full for Damuth’s work on the [CAMSLANT] project, and H & L diverted that money to other creditors for matters unrelated to the contract with VCMI. Damuth was aware of these events and ... it agreed not to advise the general contractor in consideration of receiving funds for unrelated transactions.

J.A. 519. The district court also noted the injustice that would follow if Damuth were allowed to make a claim upon the bond, for it would require the Viteris, as personal guarantors of the bond to Western, to pay twice for the HVAC equipment.

Second, the court determined that H & L’s decision to apply the CAMSLANT project payments to unrelated debts was a criminal act in Virginia under Va.Code Ann. § 43-13, and so the district court reasoned that Damuth entered into an illegal bargain with H & L when it agreed to keep silent about H & L’s conduct. Since Damuth helped to conceal a criminal act and imposed a burden upon VCMI to pay monies it otherwise would not have to pay, the court concluded that Damuth’s claim was barred by unclean hands.

II.

On appeal, Damuth challenges the district court’s grant of summary judgment to Western, primarily arguing that the district court misapplied the doctrine of equi[387]

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Bluebook (online)
368 F. App'x 383, Counsel Stack Legal Research, https://law.counselstack.com/opinion/united-states-ex-rel-damuth-services-inc-v-western-surety-co-ca4-2010.