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In re Garden State Erectors Inc.

UNITED STATES COURT OF APPEALS, THIRD CIRCUIT


decided: June 11, 1979.

IN THE MATTER OF: GARDEN STATE ERECTORS, INC., A CORPORATION OF THE STATE OF NEW JERSEY, DEBTOR PHILIP H. SHORE, RECEIVER
v.
A. LEO NASH STEEL CORPORATION, (DEFT.-THIRD-PARTY PLTF.) V. MACDONALD BROTHERS, INC., MCCLINCH CRANE, INC., INDUSTRIAL METAL ERECTION, INC., THE CONNECTICUT VALLEY CRANE & RIGGING CO., INC., INDUSTRIAL WELDING SUPPLY, INC. OF NEW JERSEY, TRUSTEES OF OPERATING ENGINEERS LOCAL 825 WELFARE & PENSION FUNDS, IRON WORKERS DISTRICT COUNCIL (PHILADELPHIA AND VICINITY) WELFARE & PENSION PLAN, (THIRD-PARTY DEFTS.) V. IRON WORKERS DISTRICT COUNCIL (PHILADELPHIA AND VICINITY) WELFARE & PENSION PLAN, TRUSTEES OF OPERATING ENGINEERS LOCAL 825 WELFARE & PENSION FUNDS, (THIRD-PARTY DEFT., COUNTER-CLAIMANT AND FOURTH-PARTY PLTF.) V. INSURANCE COMPANY OF NORTH AMERICA, (FOURTH-PARTY DEFT.) B. J. BUILDER OF NEW JERSEY, INC., (THIRD-PARTY PLTF.-INTERVENOR) INDUSTRIAL METAL ERECTION, INC., APPELLANT

ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY (D.C. Civil No. 77-1522)

Before Adams, Gibbons and Weis, Circuit Judges.

Author: Per Curiam

Opinion OF THE COURT

This case raises the question whether a third-tier subcontractor is entitled to payment under Section 2(a) of the Miller Act, 40 U.S.C. § 270b(a) (1976), as a party "having direct contractual relationship with a subcontractor."*fn1

B. J. Builders of New Jersey, Inc., entered into a contract with the United States for construction of a post office. The contract provided for a payment bond which is required under the terms of the Miller Act. Appellee, A. Leo Nash Steel Corp., was selected by B. J. Builders, the contractor, to serve as the primary subcontractor for the project. Nash in turn subcontracted part of its work to Garden State Erectors, Inc., and Garden State then subcontracted with appellant, Industrial Metal Erection, Inc. (Industrial), for the installation of metal decking for the roof and floor of the post office.

While work was progressing on the project, Garden State filed a petition in the district court under Chapter XI of the Bankruptcy Act. Thereafter, the receiver for Garden State filed a complaint against Nash in the bankruptcy court to recover sums owed for services provided by Garden State under its subcontract with Nash. Because it began to receive claims from companies alleging to have performed work for Garden State, Nash responded by joining these claimants, including appellant Industrial, as third-party defendants. The entire proceeding was transferred from the bankruptcy court to the district court for an adjudication of the contentions asserted by Garden State's subcontractors.

The district court struck the claims of the third-party defendants, remanded the case to the bankruptcy court, but retained jurisdiction over Industrial's counterclaim against Nash. After a hearing on Industrial's counterclaim, the trial judge ruled that there was no direct contractual relationship between Nash and Industrial,*fn2 and that consequently Industrial's counterclaim did not state a cause of action against Nash under the Miller Act. Industrial filed a timely appeal to this Court.

Section 1(a)(2) of the Miller Act*fn3 requires that a government contractor, where the amount of the contract exceeds $2,000, furnish the United States a payment bond "for the protection of all persons supplying labor and material in the prosecution of the work provided for in said contract for the use of such person." Section 2(a) of the Miller Act further directs that persons furnishing such labor or material may bring suit on the payment bond if they have not been paid in full within ninety days after the last labor was performed or the last material was supplied. Section 2(a) then states: "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 . . . ." In construing this language, the United States Supreme Court has indicated that Congress understood that the scope of protection of a payment bond posted pursuant to the Miller Act would extend no further than to second-tier subcontractors those having a direct contractual relationship with a subcontractor. J. W. Bateson Co., Inc. v. United States ex rel. Board of Trustees of National Automatic Sprinkler Industry Pension Fund, 434 U.S. 586, 590-92, 98 S. Ct. 873, 55 L. Ed. 2d 50 (1978); MacEvoy Co. v. United States for Use and Benefit of Calvin Tomkins Co., 322 U.S. 102, 107-08, 64 S. Ct. 890, 88 L. Ed. 1163 (1944). Accord, Fidelity & Deposit Co. of Maryland v. Harris, 360 F.2d 402, 408-09 (9th Cir. 1966); United States for Use and Benefit of Hasco Electric Corp. v. Reliance Insurance Company, 390 F. Supp. 158, 159-60 (E.D.N.Y.1975).

Whether or not we would have adopted the position taken in these cases,*fn4 the interpretation set forth in Bateson and MacEvoy governs the present factual situation. In MacEvoy, the Court stated:

The proviso of § 2(a), which had no counterpart in the Heard Act, makes clear that the right to bring suit on a payment bond is limited to (1) those materialmen, laborers and subcontractors who deal directly with the prime contractor and (2) those materialmen, laborers and sub-subcontractors who, lacking express or implied contractual relationship with the prime contractor, have direct contractual relationship with a subcontractor and who give the statutory notice of their claims to the prime contractor. To allow those in more remote relationships to recover on the bond would be contrary to the clear language of the proviso and to the expressed will of the framers of the Act.*fn5

Industrial, the district court found, was a third-tier subcontractor with no contractual ties to the first-tier or primary subcontractor Nash. Inasmuch as this finding was not clearly erroneous, Industrial is too remotely connected with subcontractor Nash to recover under the Miller Act.

In addition to challenging the district court's order on the ground that the Miller Act provided relief, Industrial raised other grounds for reversal.*fn6 We have reviewed each of these contentions and find them to be without merit. The judgment of the district court will therefore be affirmed.


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