Petition — H. R. Morgan, Inc. v. United States ex rel. Mississippi Road Supply Co.

IN THE

Supreme Court of the United States

Oro TRX, 1977

no.

H. R. Mondax, Inc., and Unrrep States Fmirrr

AnD Guaranty Co., Petitioners

v.

Untrep States or America, for and on behalf of

MississipP1 Roap SurrLx Co., Respondent

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

Francis T. ZACHARY

P. O. Box 24

Hattiesburg, Mississippi

Attorney for Petitioners

Passes or Brsow 8. Aba Puwtine, Inc., WasHineton, D. C.

EEE

Page

NN EE TE Ee ae Pe Te ae 1

r . oe” I ee a 2

Leon . ccccccccccccccss 2

IV. Coxsrrrurioxal. Provisions, Srarurzs Ax D Reev-

. 3

V. Derne „ 3

VI. Reasons ron Grantinc tHe Writ .............. 8

Tue Decision Betow Decors A Feperat Ques-

tion In A Way Wien Coxriacrs Wirn Ar-

PLICABLE Decisions Or Tus Court .......... 8

A. Why this Case Should be Heard .......... 8

r A 10

C. The Determination By the Fifth Circuit of

the Applicable Law in this case Raises

an Important Issue of Federal-State Re-

, . re as 12

Tue Decision Betow Conriuictrs Wirn Decisions

Or Orner Courts Or Appeals .............. 16

r ̃ .... ]⁰Üͥ¹ ecb aseess 20

r ES ERS Ee Ne Se ee ST ee la

AUTHORITIES CITED

Cases:

Adams v. Greeson, 300 F.2d 555 (10th Cir. 1962) .. 18

Alabama Marble Co. v. United States Fidelity & Guar-

anty Co., 146 Miss. 414, 111 So. 573 (1927) .. 12,13

Bank of America National Trust & Savings Associa-

Z ~ & 2 ' & 15, 16

— Trust Company v. United States, 318 U.S. 1

Zee ens 5eeeatesece 1

DeSylva v. Ballentine, 351 U.S. 570 ................ 16

Erie v. Tompkins, 304 U.S. 6 . 19

ii Authorities Cited Continued

Page

Highland v. Russell Car & Snow Plow Company, 279 -

I . 9—＋9 ei e eas

Luick v. Graybar Electric Company, Inc., 473 F. 3

1360 (8th Circuit 1973) Z

Maternally Yours v. Your Maternity Shop, 234 F. 2d *

538 (And Circuit 19560)))) 2

Monroe ing & Trust ro oe v. Allen, 286 F. ,

Supp. 201 (N.D. Miss. 1968)))0:0!7ꝝ ᷑ũã . 42 1

Rader v. Manufacturers Cas. Insurance Company, 242 ’

F.2d 419 (2nd Cir. 1957 ))):::ũ ee ee ceeeees 1

United Bonding Insurance Company v. Alexander, 413 ;

F.2d 1025 (5th Cir. 19690999 11, 5

United States v. Yazell, 382 U.S. 341, 34. 10, 1

STaTUTEs:

7 U.S.C. $181 (19 1ꝓ“9))))))) 18

25 U.S.C. $415 (19860 hõõõ ccc reecccccccceceres 9

40 U.S.C. 6270 (1935) )))0) u . 7

Miss. Code Ann. §85-7-181 (19720 13, 15

Miss. Code Ann. § 85-7-185 (19727))))ʒ:: 12, 13

REGULATIONS:

EI 18

DEL 6

IN THE

Supreme Court of the United States

Octoser TER)’, 1977

No.

H. R. Moraan, Inc., and Unrrep States Fmeniry

AND Guaranty Co., Petitioners

V.

UNII ID States or America, for and on behalf of

MississipP1 Roap Suppty Co., Respondent

Petitioners H. R. Morgan, Inc., and United States

Fidelity and Guaranty Co., respectfully pray that a

writ of certiorari issue to review the judgment and

opinion of the United States Court of Appeals for the

Fifth Cireuit entered on November 12, 1976.

I.

OPINIONS BELOW

The opinion of the Court of Appeals is reported at

542 F. 2d 262 (App. la) The denial of rehearing is

not reported. (App. la) The per curiam opinion of

the Court of Appeals, rendered March 5, 1976, re-

2

manding this case with directions is reported at 528 F.

2d 986 (App. 15a) The opinion of the United States

District Court for the Southern District of Missis-

sippi, rendered August 5, 1976, is not reported. (App.

17a)

I.

JURISDICTION

The judgment of the Court of Appeals for the Fifth

Circuit was entered on November 12, 1976. A timely

petition for rehearing was denied on December 29,

1976. Upon application of counsel for petitioners, an

Order was rendered by the Honorable Lewis F.

Powell, Associate Justice of the Supreme Court of the

United States, on March 3, 1977, whereby the time for

filing a Petition for Writ of Certiorari in this Cause

was extended to and including May 28, 1977. This

Court’s jurisdiction is invoked under 28 U.S.C. § 1254

(1).

III.

QUESTIONS PRESENTED

Whether provisions in a federally approved lease,

to which the United States is not a party, possess the

force of law.

Whether, consistent with the Fifth Amendment, a

Contractor and its Surety can be bound by provisions,

arguably required by a regulation of a federal agency,

in an unrecorded lease to which the contractor is not

a party.

Where neither 28 U.S.C. § 1352, which provides the

jurisdictional basis for an action brought on a Federal

Bond, nor the Federal Statute or regulation requiring

— — — — —— —

*

such Bond undertakes to fix the respective rights of

parties against the Bond, may a Federal Court formu-

late federal common law to grant a right of action

against the Bond where the law of the State where the

Bond is made specifically denies a right of action.

CONSTITUTIONAL PROVISIONS, STATUTES.

AND REGULATIONS

Lnited States Constitution—Fifth Amendment

No person shall be . . . deprived of life, lib-

erty, or property without due process of

law...

28 U.S.C. § 1352 (1948) Bonds Executed Under

Federal Law

The district courts shall have original juris-

diction, concurrent with State courts of any

action on a bond executed under any law of

the United States.

Code of Federal Regulations, Title 25, Indians,

Part 131, § 131.5 (a), (e, (g), (App. 21a)

§85-7-185 Miss. Code Ann. (1972) Bond-Provi-

sions-Ri to Intervene in Action on Bond.

(App. 22a)

V.

STATEMENT OF THE CASE

On May 9, 1972, H. R. Morgan, Inc., (Morgan) a

Mississippi Corporation, contracted with Chata De-

velopment Corporation, a private, non-profit, Missis-

Surety, United States Fidelity & Guaranty Co. (U.S.

F.4G.), executed a payment bond to Chata as the

there existed no Economic

4

* (Chata) for construction on an

industrial development under an Economie Develop-

ment Administration funded project.’ Morgan and its

1 Throughout the entire proceedings, it was never seriously con-

— 9 — 25

— 11 — gy ed ary ad ere

Signatures omitted.

re SE THE,

1 PE Fe

if HA int i

f

i

ine it it if

2135 S

a 1150 illi

anything but a

Forrest and

of F

of the payments and

2 —

by and bet

R. Morea, Inc., doing business as a

ealled

the City of Pera, County

or and in

Company Dr

.

Tus AGREEMENT,

called Owner, and

jon located in

me tt -~

the Owwer, the Cowrractor hereby agrees with the Owner to

commence and complete the construction described as follows:

e dH

uit 0

Cowrract C— Wars, Sewer anp Srre Improvement

Economic DEVELOPMENT ADMINISTRATION PROJECT

for the

Tuns II

all extra

in the

their

supplies,

and other

said Progect in

ta + -

apd pe me

—

prepared by

Enorveer, and

— 1 —

hereby agrees

a date to

and to

1 i

PU Run

Development Administration regulation requiring this

bond.*

The Industrial Development was situated on Indian

Lands of the Mississippi Band of Choctaw Indians,

who had leased the land to Chata. The execution of the

Business Lease Agreement between Chata and the

Mississippi Band of Choctaw Indians was approved

by a representative of the Secretary of the Interior,

as provided by 25 C.F.R. Part 131, et seq. The lease

contract was not recorded.’ The lease contract re-

quired that Chata, as Lessee, provide security which

would guarantee completion of the improvements, and

payment of all claims of all persons for work per-

formed on or material furnished for that construction.’

Subsequently, Morgan subcontracted with Bobby

Gray Young, dba Young Construction Company

(Young) to do certain earth work on the Industrial

Development site. The litigation arose following the

failure of Young to pay Mississippi Road Supply Co.,

his equipment supplier, for certain equipment he

leased and repair parts he had purchased in order to

maintain the heavy equipment leased from Mississippi

Road Supply Co. The suit was originally brought by

Mississippi Road Supply Co., alleging that the United

* Code of Federal Regulations, Title 13, Part 305, § 305.94, which

7

States District Court had jurisdiction by virtue of the

Miller Act, 40 U.S.C. §270a & 270b, and naming as

Defendants: Morgan, Prime Contractor; U.S.F.&G.,

Surety; Young, Subcontractor.

On March 14, 1974, a default judgment was entered

against the Defendant, Young. Subsequently, on June

3, 1974, the Lower Court overruled these petitioner’s

Motion to Dismiss for Lack of Jurisdiction and found

that the Court had jurisdiction pursuant to 40 U.S.C.

§ 270a d 270b. The litigation proceeded to trial, the

jury was instructed in accordance with the substantive

provisions of the Miller Act, and a judgment was ren-

dered against these Defendants, which was appealed

to the Circuit Court of Appeals for the Fifth Circuit.

The Fifth Cireuit remanded the case with directions

to the Lower Court for appropriate factual develop-

ment and determination, and a reconsideration of the

jurisdictional issue in light of that determination.’ On

remand, the Lower Court again determined that

Miller Act jurisdiction vested and further found for

the first time that it had alternative jurisdiction under

28 U.S.C. § 1252, Bonds executed under Federal Lat.“

Subsequently, the Fifth Cireuit declined to resolve

the issue of whether Miller Act jurisdiction existed,

finding that the bond, executed by petitioners in favor

of Chata, was a bond executed under a law of the

United States, thereby conferring jurisdiction upon

the District Court by virtue of 28 U.S.C. §.1352. In its

opinion, the Fifth Circuit determined that since 28

U.S.C. § 1352 furnished no federal legislative standard

App. lia.

* Opinion of the United States District Court for the Southern

District of Mississippi, dated August 5, 1976. (App. 17a)

8

and the federal law under which the bond was required

supplied no criteria for coverage, the Court was not

bound by State law, but was free to interpret Morgan’s

bond according to federal common law principles.”

VI.

REASONS FOR GRANTING THE WRIT

THE DECISION BELOW DECIDES A FEDERAL QUESTION IN

A WAY WHICH CONFLICTS WITH APPLICABLE DECISIONS

OF THIS COURT.

A. Why this Case should be Heard.

28 U.S.C. § 1352 presents a federal question that has

never been before this Court. In its twenty-nine years

of existence, it has been construed twenty to thirty

times in reported decisions, but no Writ of Certiorari

has ever been sustained to allow this Court to address

the Statute.

The opinion of the Fifth Cireuit Court of Appeals

will no doubt be a landmark decision in the history

of this Federal Statute. With the advent of revenue

sharing and increased federal involvement in both

state and local transactions, more federal regulations

requiring surety bonds have been promulgated than at

any time in United States history. The ambit of § 1352

needs definition; the parameters of its application

need elucidation by this Court.

In the Lower Court, Morgan contended that the

bond it executed, was not a bond required by the Miller

Act nor 51332, and therefore, the District Court

lacked jurisdiction. Morgan’s contention as to the in-

applicability of the Miller Act was in effect sustained

542 F. 2d at 267 (App. ga)

by the Fifth Cireuit when that Court twice failed to

find Miller Act jurisdiction. Morgan’s argument as to

the inapplicability of § 1352 was based on the fact that:

(1) Neither 25 U.S.C. 415, nor the regulations promul-

gated thereunder, 25 C. F. N. 131 required a Payment

Bond; and (2) if a bond was required by the regula-

tions, it was Chata’s Bond, not Morgan’s Bond that

was required.

The Fifth Cireuit’s conclusion that, under the cir-

cumstances in this case, § 71352 jurisdiction obtained,

raises for the first time serious Constitutional ques-

tions. In determining the applicability of § 1352, the

Fifth Circuit found that 25 C. F. . 131.5 (e) required

the Lessee, Chata, to post a Payment Bond,“ and in

order . . . [t]o meet its lease obligation, Chata re-

quired the prime contractor, Morgan, to post the above-

described bond“, (App. 2a) This construction of

§ 1352 by the Fifth Circuit, in labeling Morgan’s bond

„a bond required by a law of the United States“, when

Morgan’s bond is not the bond required by the regu-

lation, denies Morgan and its Surety the due process

guaranteed by the Fifth Amendment.

Further, in interpreting the coverage of Morgan’s

Bond under § 1352, the Fifth Circuit formulated fed-

eral common law and interpreted Morgan’s bond ge—

cording to the standards of a judicially created Miller

Act, thereby according Mississippi Road Supply Co.,

a right of action against the bond, State Law to the

% A cursory examination of 25 C. F. R. 131.5 (e) (App. 21a)

eveals that only a Performance Bond was required to be executed

by the Lessee, Chata, for the benefit of the United States as well

as the owner of the land, the Mississippi Band of Choctaw Indians.

No requirement of a Payment Bond is provided for in the regu-

lations.

10

contrary notwithstanding. This extremely liberal con-

struction of § 1352 as setting the jurisdiction, right,

and remedy commits substantive federal question

error.

B. Due Process

The bond in issue was executed pursuant to a pri-

vate contract between private parties.“ Under the

Fifth Circuit’s rationale, Morgan and its Surety have

in effect been bootstraped into Federal Court under

§ 1352 by virtue of a federal statute and its implement-

ing regulation, neither of which provides for a Pay-

ment Bond, nor provides for any bond to be supplied

by anyone other than the Lessee, Chata, and by virtue

of an unrecorded business lease contract between

Chata and the Mississippi Band of Choctaw Indians.”

Notice of the obligations to which parties bind them-

selves is an essential element of a valid contract.“ The

application of § 1352 in this case, where there is an

absence of Congressional enactment or agency regu-

In its opinion, the Fifth Circuit took judicial cognizance of

the fact that Morgan's contract [was with] . . . Chata, a private

non-profit corporation . . and that the State Law, if controlling,

would be.. . Mississippi's private bond law (App. 2a, 9a)

25 U.S.C. §415 and its implementing regulation, 25 C.F.R.

§ 131.5 (App. 2la) specifically require a performance bond from

Chata. The business lease agreement, (App. 3a, note 2) does pro-

vide for a Payment Bond to be posted by the Lessee, Chata; neither

the statute, regulation, or business lease contract require a per-

formance or payment bond from Morgan. The lease was unrecor: ed.

See note 5 supra.

Though not dealing directly with the issue of Fifth Amend-

ment due process, this Court considered the unconscionability of

binding a contracting party to obligations not bargained for in

United States v. Yazell, 382 U.S. 341, 346.

11

lation or even any stipulation in the negotiated con-

tract between Morgan and Chata or any warning to

Morgan that its bond, executed pursuant to its con-

tract with Chata, would be interpreted according to

contractual provisions i. an unrecorded business lease

as a bond. . . exec ed pursuant to a law of the

United States“, flies in the face of Fifth Amendment

guarantees.“

In Highland v. Russell Car d Snow Plow Co., 279

U.S. 253, the Court recognized that... the freedom

of people to enter into and carry out contracts in re-

spect to their property and private affairs is a matter

of great public concern, and that such liberty may

not lighily be impaired’’. 279 U.S. at 261 (Emphasis

Added). The Fifth Cireuit’s implementation under

§ 1352 of a federal common law and the abandonment

of State law, which limits the obligation of payment

under Morgan’s Bond to materialmen in privity with

Morgan, in conjunction with the fact that Morgan en-

„ The Fifth Cireuit's approach seemingly contradicts its deci-

sion in United Bonding Insurance Company v. Alexander, 413

F. 2d 1025 (5th Cir. 1969) wherein it held that the Issuer of

Fidelity Bonds, securing the U. S. Post Office from losses caused

by the failure of postal employees to faithfully perform their

duties, could not bring a § 1352 action against postal employees

for claims filed by the Post Office against the Bonds, stating .. .

‘*[s]eetion 1352 is applicable only to a suit on a bond, which means

a suit against one bound by its terms for breach of duty arising

under it. The two-party agreement between the Post Office Depart-

ment and United Bonding cannot be stretched to permit suit

against the postal employees, who are not parties to it’’. Id. at 1026

(emphasis added).

In the instant suit, the Court has allowed the two-party agree-

ment between the Mississippi Band of Choctaw Indians and Chata,

which required a Bond from Chata, to be stretched to permit

suit against Morgan, who was not a party to the agreement re-

quiring the bond.

12

tered into the contract with Chata and executed its

bond without any thought that the defense of Privity,

with respect to rights of action against said bond,

would be unavailable to Morgan and its Surety, vit-

iates Morgan’s Fifth Amendment due process rights.

C. The Determination By the Fifth Circuit of the Applicable Law

in this case raises an important issue of Federal—Siate

relations.

Having determined that the Morgan Bond was

execute’ under a law of the United States“, the Cir-

cuit Court looked to § 1352 in order to construe the

coverage of the bond. Finding that § 1352 provided no

federal legislative standard, the Court concluded that

it could look to both the Miller Act and Mississippi's

private bond law“ in formulating a common law to

interpret coverage” of Morgan’s Bond. (App. 9a)

The Fifth Circuit then looked to the. . . federal law

under which the bond was required. . ., (App. ga)“

which the Court determined“. . . suggests no purpose

other than the normal good business practice of as-

suring project completion, free of liens for unpaid

labor and materials’’ (App. 9a). Specifically finding

that the underlying statute furnished no unique stand-

ard for coverage, the Court reviewed the language of

Miss. Code Ann. 85-7-185 (1972) (App. 22a) provides for a

bond obligating the person making a private contract to faithfully

perform it for the benefit of the owner (Chata) and also to assure

payment . . to all persons furnishing labor or material under

said contract .. .’’. The Supreme Court of Mississippi in Alabama

Marble Co. v. United States Fidelity & Guaranty Co., 146 Miss.

414, 111 So. 573 (1927) expressly construed the statutory scope of

such a bond as not ertending to labor and materials furnished to

subcontractors.

* The Court chose to apply Miller Act coverage. (App. 9a)

See note 12, supra.

—

—

13

the lease contract and determined that it provided for

a bond to insure payment of all persons, regardless of

privity with the contractor, for work performed in or

materials furnished for construction. (App. 9a)”

The Court then reviewed the language of the bond in-

strument executed by Morgan” and found that it spe-

cifically guaranteed payment to Mississippi Road Sup-

ply Company.

The Fifth Cireuit’s approach to § 1352 avoids the

most critical facet of the case: whether federal in-

terests exist under these circumstances, the imple-

mentation of which require overriding the Mississippi

State rule involved here. In United States v. Yazell,

382 U.S. 341, the Court dealt with the issue of whether

the Federal Government, in a suit on the balance due

on a Small Business Administration loan, could obtain

An examination of the lease provisions reveals that the bond,

required by the lease, ‘‘. . shall be conditioned upon the faithful

performance of Lessee and give all claimants a right of action to

recover upon said bond in any suit brought to foreclose mechanic's

or materialmen’s liens against the property’’ (App. 3a, note 2)

(emphasis added). The Fifth Cireuit specifically found that lien

remedies were available against the leasehold interest of Chata.

(App. 6a) However, Miss. Code Ann. § 85-7-181 (1972) spe-

cifically provides that the right to acquire a lien is limited to per-

sons engaged by the original contractor and does not extend to

others who supply materials or labor at the request of the sub-

contractor. A remote materialman, in this instance, Mississippi

Road Supply Co., is not so protected. Miss. Code Ann. § 85-7-185

provides that Morgan’s Bond could be given to take the place of

the mechanic’s lien or materialmen’s lien provided in 85-7-181.

Monroe Banking and Trust Company v. Allen, 286 F. Supp. 201

(N.D. Miss. 1968); accord Alabama Marble Company v. United

States Fidelity & Guaranty, supra.

% The language in Morgan’s Bond was patterned almost ver-

batim after the language in Miss. Code Ann. 85-7-185. See App.

22a and note 3, supra.

14

judgment against a married woman who co-signed on

the Note but who, under the Texas law of coverture

could not bind her separate property unless she had

first obtained a Court decree removing her disability

to contract. The case presented a clear conflict be-

tween: (1) the federal interest in collecting the de-

ficiency from the married woman’s separate property

and, (2) state law dealing with an intensely local in-

terest. 382 U.S. at 343, 349.

While noting that there is always a federal interest

to collect money which the Government lends, the

Court determined that in the absence of specific Con-

gressional action, it should not decree that implemen-

tation of federal interest required overriding the par-

ticular state law. 382 U.S. at 352. Though expressing

a personal distaste for coverture provisions, the Court

concluded:

. [t]he precedents of this Court teach us solici-

tude for state interests. . They should be over-

ridden by the federal courts only where clear and

substantial interests of the National Government,

which cannot be served consistently with respect

for such state interests, will suffer major damage

if the state law is applied. [382 U.S. at 352. (Em-

phasis Added) N one of the cases in which

this Court has devised and applied a federal prin-

eiple of law superceding state law involved an

issue arising from an individually negotiated con-

tract. None of these cases permitted federal im-

position and enforcement of liability on a person

who, according to state law, was not com to

contract. [382 U.S. at 353, (Emphasis Added) |

In the instant case, the federal interest, if any, was

to insure that Chata lived up to its obligations under

the lease contract with the Mississippi Band of Choc-

15

taw Indians, and the Secretary of the Interior, pur-

suant to 25 C. F. R. § 131.5 (e), required a performance

bond from Chata for that purpose. Virtually no fed-

eral interest exists which requires overriding Missis-

sippi’s private bond law. The United States is not even

a party to this litigation, nor the obligee on Morgan’s

bond. The rights of both the Mississippi Band of Choe-

taw Indians and Chata would be unaffected by the

application of state law in this case.” Balanced against

this, is the strong state interest in governing the obli-

gations of persons who make private contracts con-

cerning peculiarly local transactions within the State

of Mississippi.

Similarly, in Bank of America National Trust and

Savings Assoc. v. Parnell, 352 U.S. 29, the Court was

faced with the issue of whether, in a suit by the owner

of government bonds, allegedly stolen, to recover their

value from the person who presented the bonds for

collection, the presence of a federal interest in gov-

ernment paper required overriding state law regard-

ing the burden of proving notice and lack of good

faith on the part of the defendants. The Court (though

cognizant that securities issued by the Government

generate immediate interest of the Government, citing

Clearfield Trust Company v. United States“), never-

% Mississippi Road Supply’s position as a materialman of a sub-

contractor prevents its assertion of any state lien rights against

the leasehold interest of Chata. Miss. Code Ann. 85-7-181 (1972).

** 318 U.S. 363. In Clearfield and its predecessors, the Court's

decisions to apply federal law’’ to supercede state law typically

relates to programs or actions which by their nature required uni-

formity in character throughout the nation. Ostensibly, the inter-

pretation of private bonds is traditionally a matter of state law;

uniformity in their interpretation would be particularly inappro-

16

theless concluded that the controversy over burden of

proof and good faith represented too essentially a

private transaction, not to be dealt with by the local

a of the state where the transaction took place, 352

.S. at 34.

The decision below ignores the approach adopted in

Yazell and in Bank of America National Trust. As in

Yazell, in the instant case there exists no substantial

federal interest, no need for uniformity, and no prob-

lem in complying with state law. There is no defensible

reason to override state law in regard to a local trans-

action as is present in the instant case. This aspect of

the case alone justifies the grant of certiorari.

THE DECISION BELOW CONFLICTS WITH DECISIONS

OF OTHER COURTS OF APPEALS

In the twenty-nine years since § 1352 was first en-

acted, the lower courts have reached widely variant

results in the application of the federal statute which,

as would be expected after this period of time, pro-

duces a clear conflict between circuits and within the

cireuits themselves. The conflicts have appeared on

two fronts: (1) in the interpretation of § 1352 as

to whether jurisdiction exists (2) in determining

whether the action is governed by federal or state law.

In determining that Morgan’s bers: in bond

. . . executed under a law of the irn „the

‘

Fifth Circuit's rationale is dramati ay mo. .sstent

with the approach utilized by the Second Cis euit in

priate.

On the contrary, in De Sylva v. Ballentine, 351 U.S. 570, the

Court applied state law to define children“ although the issue

arose in connection with the right to renew yrigh -

liarly federal area. - 7 — „*

17

Rader v. Manufacturers Cas. Ius. Co, 242 F. 2d 419

(2nd Cir. 1957). In Rader, the Plaintiffs sought relief

in equity and in law against exactions being made

against them in demands for payment of moneys for-

feited by the defendant surety company on two federal

bail bonds. The basis of the demand by the surety

company was that the Plaintiffs had signed an in-

demnity agreement and confession of judgment; when

the bail bonds were forfeited, the surety sought in-

demnification based on these instruments. The Second

Cireuit specifically found § 1352 to be inapplicable.

The Court recognized that the bail bonds were § 1352

bonds, but reasoned that no law of the United States

required the indemnity agreement or confession of

judgment in connection with giving a bail bond. Fur-

ther, the Court determined that the collateral instru-

ments were executed to afford protection to the surety

and did not enure to the benefit of the United

States. 242 F. 2d at 427.

The Fifth Cireuit’s determination that the bond ex-

ecuted pursuant to a private contract between Morgan

and Chata was required by regulations governing the

contractual provisions in the Lease between the Mis-

sissippi Band of Choctaw Indians and Chata, and

when the bond did not enure to the benefit of the

United States, is also directly in conflict with its prior

decision” in United Bonding Insurance Company v.

Alexanderi 413 F. 2d 1025 (5th Cir. 1969).

Secondly, even if it is assumed that Morgan’s bond

was a bond required by a law of the United States,”

* See note 14, supra. ' The two-party agreement between the

Post Office Department and United Bonding cannot be stretched to

permit suit against the postal employees, who are not parties to it.

413 F. 2d at 1026 (emphasis added) }.

28 As aforementioned 25 C.F.R. 131.5 (e) (App. 21a) does not

18

other Cireuits have consistently held that the rights

and obligations of parties under similar bonds were to

be determined by state law. In Adams v. Greeson 300

F. 2d 555 (10th Cir. 1962) the Court dealt with the

issue of whether a livestock company, licensed and

bonded under provisions of the Packers and Stock-

yards Act, 7 U.S. C. A. § 181 et seq., and its surety were

liable for the cattle it sold for an individual who, when

he purchased the cattle from the Plaintiffs, issued a

worthless check in payment. The action was brought

under § 1352 on the livestock company’s bond, which

the Court found was specifically required by a law of

the United States.“ The Court reviewed the Packers

and Stockyards Act and determined that it did not

undertake to fix the respective rights of the parties

to a transaction of the type in issue, and concluded

that the Act did not have the effect of.. . altering

in part or superceding in whole the respective rights

of the immediate parties under state law to a trans-

action of that kind.“ 300 F. 2d at 557.

Unlike Adams, no federal statute or regulation al-

lowed Mississippi Road Supply Co., to maintain an

no an

action on Morgan’s bond. Further, the underlying

statute in the decision below, like the Packers and

Stockyards Act, did not undertake to fix the respective

Stability in commercial transactions requires that

contracting parties be able to adequately predict

ramifications of the obligations to which they bind

themselves before they contract. With the increased

number of federal regulations requiring bonds, busi-

nessmen and their sureties deserve more predictable

i

j

;

:

115

:

5

if

71

i

55

:

i

i

!

if

+

7

f

E

j

?

111

Ilir

it

100

i

E

20

VI.

CONCLUSION

The decision below will no doubt be a landmark

decision of § 1352. The application of § 1352, in the

Fifth Cireuit’s decision, sets the stage for extremely

liberal construction of the Statute to bring bonds ten-

vously related to federal statutes and regulations with-

in the ambit of Federal Court jurisdiction and to allow

the Federal Court taking jurisdiction over the bond

action to interpret the conditions therein according to

federal common law standards, contrary state law pro-

visions notwithstanding. Under the direction taken in

the decision in this case, a bond, given by a subcon-

tractor to his principal contractor and passed along

by the contractor to the Owner of the property, with-

out notice to the subeontractor, and the same bond then

passed by the Owner to the Federal Government in

order to satisfy a federal regulation requiring the

Owner to post a bond for the benefit of the Govern-

ment, will be construed as a federal bond“. In its best

light, the decision of the Court of Appeals sows the

seeds of destruction of the due process guaranteed by

the Fifth Amendment. It conveys the message to con-

tracting parties, that the label bond executed under

a law of the United States’’, like a magic talisman,

may be utilized to bring § 1352 actions on bonds, when-

ever one of the plethora of existing federal regulations

is tenuously related thereto, in order to have the obli-

gations of the bond construed according to federally

formulated common law standards (coverage of Mor-

gan’s bond was interpreted according to the Miller

Act) and avoid implementation of undesirable state

laws. No matter how viewed, the decision below has

imposed obligations upon the Petitioners which were

21

not bargained for in their contract with Chata. The

stamp of judicial approval: a decision in conflict with

precedent of this Court and with decisions of other

Courts of Appeal. The writ must issue.

Respectfully submitted,

Francis T. Zacwary

P. O. Box 24

Hattiesburg, Mississippi

Attorney for Petitioners

APPENDIX

la

APPENDIX A

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH DISTRICT

No. 74-3761

Unrrep Stares or America for and on behalf of

Misstsstrri Roap Surrix Co., Plaintiff-Appellee,

versus

II. R. Morean, INC., U.S. Fmriurr anp

Guaranty Co., et AL., Defendants-Appellants,

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE

SOUTHERN DISTRICT OF MISSISSIPPI —

On Petition for Rehearing

(December 29, 1976)

Before Mondax, CLanR and Tyortat, Circuit Judges.

Per Curiam:

Ir Is Onperep that the petition for rehearing filed on be-

half of II. R. Morgan, Inc., and U.S. Fidelity and Guaranty

Co. in the above entitled and numbered cause be and the

same is hereby denied.

2a

APPENDIX B

UNITED STATES COURT OF APPEALS, FIFTH CIRCUIT

No. 74-3761

Unrrep States of America for and on Behalf of

Mississtrri Roap Surrir Co., Plaintiff-Appellee,

v.

H. R. Mondax, Inc. and U.S. Fidelity and Guaranty Co.,

et al., Defendants-Appellauts.

Nov. 12, 1976

Before Mondax, Ciark and Taortar, Circuit Judges.

Crank, Circuit Judge:

This use action was brought by Mississippi Road Supply

Company (Mississippi Road Supply) against Bobby Gray

Young d/b/a Young Construction Company (Young), H.

R. Morgan, Inc. (Morgan), and United States Fidelity and

Guaranty Company (USF&G). Mississippi Road Supply

seeks to recover equipment rental and repair expenses on

construction machinery rented to Young and alleged to have

been used by him on a construction project as a subcon-

ration (Chata), a general 8 and

performance bond on which US was Morgan’s

contract with Chata was to build an i development

park on land which Chata, a private, nonprofit corporation,

held by virtue of a 25-year lease with an option to extend

the lease for an additional 25-year term.

tractor, together with attorneys’ fees. oman. the prime?

contractor, furnished the project — Derelopment

con r’

3a

JURISDICTION

Title to this land is held by the United States. The lessor

in the contract on which Chata depends was the Missis-

sippi Band of Choctaw Indians,“ and the execution of the

lease was approved by a representative of the Secretary of

the Interior as provided by 25 C.F.R., Part 131, et seq.’

Section 131.5(c) of these regulations provides:

Unless otherwise provided by the Secretary a satis-

factory surety bond will be required in an amount that

will reasonably assure performance of the contractual

obligations under the lease. Such bond may be for the

purpose of guaranteeing:

(1) Not less than one year’s rental unless the lease

contract provides that the annual rental shall be paid

in advance.

(2) The estimated construction cost of any improve-

ment to be placed on the land by the lessee.

(3) An amount estimated to be adequate to insure

compliance with any additional contractual obligations.

In compliance with this regulation, the approved lease con-

tract required that Chata, as lessee, provide security which

would guarantee completion of the improvements contem-

plated by the lease and payment in full of all claims of all

persons for work performed on or materials furnished in

that construction. The pertinent portions of the lease are

set out in the margin.“ To meet its lease obligation, Chata

We note, but do not base our decision here in any part on,

United States v. State Tar Commission of the State of Mississippi,

505 F.2d 633 (5th Cir. 1974), petition for rehearing denied, 535

F.2d 300 [1976], in which we held the Mississippi Band of Choe-

taw Indians was not an Indian tribe and its members were eiti-

zens of the State of Mississippi.

? The lease document was entitled:

Untrep States

4a

required the prime contractor, Morgan, to t the

described bond. * 9% a

g Mississippi Road Supply rented various machines to

Young which it claimed Young used as Morgan’s subeon-

tractor for working on the industrial part covered by the

lease contract discussed above. Jurisdiction for the action

to recover for this indebtedness from both the prime con-

DEPARTMENT OF THE INTERIOR

Bureau or INDIAN AFPAIRS

Mississrprp1 Banp or Cnocraw INDIANS

PHILADELPHIA, MISssIssIPP!

Business Lease Contract

It stated in preface that it was made under and in accordance

with the provisions of ‘‘existing law and the regulations prescribed

by the Secretary of the Interior in the Code of Federal Regula-

—— ~~ 25, Indians, Part 131, and any amendments thereto

ative leases on restricted Indian lands i

are made a part hereof.’’ * a

Pargaraph 12 (e) provided:

Before commencement of construction of each improvement

on the leased premises, Lessee agrees to provide security which

will guarantee completion of the improvement, and payment

in full of claims of all persons for work performed in or

materials furnished for construction. Lessee may provide said

security by posting a corporate surety bond in an amount

equal to the cost of improvment, said bond to be deposited

with the Secretary and to remain in effect until the improve-

ment is satisfactorily completed. Said bond shall be condi-

tioned upon the faithful performance of Lessee, and give all

claimants the right of action to recover upon said bond in any

suit brought to foreclose mechanic’s or materialmen’s liens

against the property. Upon approval of this lease by the Secre-

tary, the Lessee agrees to post a corporate surety bond in a

penal sum of not less than one year’s minimum rent.

In Paragraph 19 the lessee contracted and agreed that i

Ger thar and materiel tnsnevel tm Ge amenities Oe eaeae

able cn hat ve Promptly paid as the same became due and pay-

no mechanics’, „or materi ’s li

— N — ' laborers’, or erialmen’s liens would

5a

tractor and the surety was initially asserted on the basis of

the Miller Act, 40 U.S.C. §§ 270a and 270b. The trial below

was conducted on this jurisdictional premise, and all jury

instructions were drawn from Miller Act law. However, for

reasons later apparent, we pretermit deciding whether jur-

isdiction exists under the Miller Act.

This, of course, is not a garden variety Miller Act case

in which the United States both owns the land and contracts

for its improvement. See, e.g., United States ex rel. Jinks

Lumber Co. v. Federal Insurance Co., 452 F.2d 485 (5th

Cir. 1971); United States ex rel. Friedrich Refrigerators,

Inc. v. Forrester, 441 F.2d 779 (5th Cir. 1971) ; United States

ex rel. T/N Plumbing and Heating Co. v. Fryd Construc-

tion Corp., 423 F.2d 980 (5th Cir. 1970). Rather, it is con-

tended to be a case governed by the Miller Act because of

the extent of involvement of the United States.

One major purpose of the Miller Act is to protect sub-

contractors and materialmen working on federal projects

since normal state lien rights are not available. United

States Fidelity & Guaranty Co. v. United States, 475 F.2d

1377 (Ct.Cl.1973) (en banc). It is axiomatic that state law

liens may not be asserted against federally owned lands or

buildings. United States v. Munsey Trust Co., 332 U.S. 234,

67 S.Ct. 1599, 91 L.Ed. 2022 (1947). In addition, Miller Act

bonds are provided in order to protect the United States

from suits rested upon its equitable duty to ensure that sub-

contractors and suppliers of materials receive payment.

Kennedy Electric Co. v. United States Postal Service, 508

F.2d 954 (10th Cir. 1974). Recognizing these purposes of

the Miller Act, courts have at times extended the Act past

its literal wording to accord federal court jurisdiction in

situations where some normal Miller Act indicia (govern-

ment land ownership and contracting) are absent. The fore-

most example in this circuit is the Capehart Housing situa-

tions where the lands on which construction took place were

in private hands until construction was completed, then

6a

passed immediately to the government. This arrangement

was made in order to facilitate the congressional financing

scheme for military housing. Autrey v. Williams d Dunlap,

343 F.2d 730 (5th Cir. 1965); Lasley v. United States, 285

F. 2d 98 (5th Cir. 1960).

Mississippi Road Supply argues that the Capehart Hous-

ing cases indicate Miller Act jurisdiction is available any-

time a project is a federal one. It asserts that because the

funds here come from the government in the form of grants

to Chata from the Economic Development Administration

and are paid out through Chata to Morgan, government

funding is present. This analysis, however, misses the

mark. As succinctly pointed out in United States v. Mat-

tingly Bridge Co., 344 F.Supp. 459 (W.D.Ky.1972), govern-

ment funding is not the whole answer. It must be true that

either (1) the subcontractors and suppliers of material could

assert an action for equitable recovery against the United

States or one of its agencies, or (2) normal state labor and

material lien remedies are unavailable because of federal

ownership of the lands.

It is unclear whether these two indicia are present here.

The parties have stipulated that record title to this land

is in the United States. However, Chata holds a 25-year

lease from a group acting with government agency ap-

proval. Although no liens can be asserted against the gov-

ernment’s residual ownership, there appears to be no rea-

son why a lien could not be asserted under state law against

the leasehold interest of Chata, a private Mississippi cor-

poration. Allowing such a leasehold lien to be affixed would

be a breach of Chata’s lease contract. The legal possibility

that Chata could breach this obligation is clearly the reason

why it was required to bond all improvement and mainte-

nance work.

Mississippi Road Supply’s argument that its position as

a materialman of a subcontractor prevents the assertion of

any state lien rights under Mississippi law also misses the

7a

mark. The question is not whether the state grants lien

rights to everyone who has anything to do with the project,

but whether the federal government's involvement makes

the assertion of a state-granted lien remedy ineffective or

impossible.

As in Mattingly, the existence of government funding

alone is not enough to allow a suit against the Economic

Development Administration to recover payment from

funds which may be allocated for this project. See Kennedy

Electric Co. v. United States Postal Service, 508 F.2d 954

(10th Cir. 1974). However, the lease contract and 25 C. F. R.

§ 131.5(¢)(1) muddle both of the above conclusions. Fach

requires that all of the lessee’s obligations and the obliga-

tions of its sureties go to the United States as well as to

the lessor of the land. Depending on its construction, such

a clause could indicate either that this case deserves treat-

ment similar to the Capehart Housing cases where the ex-

istence of jurisdiction has been recognized, or is controlled

by Mattingly where jurisdiction was rejected.

We decline to resolve the issue in order to avoid creating

a precedent that would stretch the Miller Act's jurisdic-

tional grant to dimly-lit limits because under the facts in

this record another statute contains a clear grant of juris-

diction."

28 U.S.C. § 1452 gives district courts original jurisdiction

of an action on a bond ‘“‘executed under any law of the

United States.“ This section is applicable where a regula-

tion requiring a bond has the force of law. United States

ex rel. Empire Plastics Corp. v. Western Cas, & Sur. Co.

429 F.2d 905 (10th Cir. 1970) ; United States ex rel. Vietory

Electric Corp. v. Maryland Cas, Co., 215 F.Supp. 700 (K. D.

Wbere pertinent the remainder of this opinion, we have

canttenn ‘ae quailty Gan the euistance of Willer Act jurio

dietion would provide plaintiffs with some claim or defendants with

some defense not available under the jurisdictional theory we

adopt.

N.Y.1963). A regulation promulgated by the head of a de-

partment under a statute authorizing him to issue regula-

tions is presumptively valid unless arbitrary, unreasonable,

or plainly inconsistent with law. Giancona v. Johnson, 335

F. ad 372 (7th Cir. 1964). Because 25 C. F. R. § 131.5(c) was

issued by the Acting Secretary of the Interior, 26 Fed. Reg.

10966 (Nov. 23, 1961), under the authorization of 25 U.S.C.

§ 415 (1963), as amended (Supp.1976), 25 C. F. R. $131.5(e),

it is a valid legislative rule and possesses the force of law

See 1 K. Davis, Administrative Law Treatise (1958) § 5.03.

Since 25 U.S.C. § 415 provides that these lands owned by

the United States could only have been leased to Chata

subject to the provisions of 25 C. F. R. § 131 et seq., Morgan's

bond was required by a law of the United States. There-

fore, the district court possessed jurisdiction to entertain

this action under § 1352.

Coverace or tue Boxp

The district court trial was conducted on the premise that

the bond was one covered by the Miller Act. Under this

assumption, it correctly ruled that the payment bond cov-

ered equipment rental and repairs due by a first tier sub-

contractor such as Young.’ Since we do not reach the cor-

rectness of this premise, it is necessary to construe the cov-

* Rental and repair: Illinois Surety Co. v. John David Co, 244

U.S. 376, 37 S.Ct. 614, 61 L.Ed. 1206 (1917) (equipment leased

by a contractor and used on the project is labor or materials

within the meaning of former § 270) [which remains substan-

tially unchanged in this regard]; Massachusetts Bonding & Ins.

Co. v. United States ex rel. Clarksdale Machinery Co, 88 F.2d 388

oo — (equipment rentals and repairs to equ'pment are

Recovery vy materialmen of subcontractors: Clifford P. Mac-

Co. v. United States ex rel. Calvin Tomkins Co, 322 US.

102, 64 S.Ct. 890, 88 L.Ed. 1163 (1944) ; National Union I ö

K. O. Davis, Ive, 393 F.2d 897 (5th Cir. 1968) (suppliers

not in privity with contractor but in privity with first tier subcon-

tractor may recover on contractor's bond).

erage of this particular bond without assuming it was writ-

ten ay operation of law to the statutory minimum cov-

erage requirements the Miller Act would provide. There is

no federal legislative standard for bonds ‘‘executed under

any law of the United States.“ so we look to state law bond

provisions and construction for guidance. Under Missis-

sippi jurisprudence, private contract bonds are not required

to extend payment coverage te any person not in privity

with the prime contractor. Our task here then is to decide

where the instant undertaking falls between the extremes

of certain coverage under the Miller Act and no coverage

under Mississippi’s private bond law.

federal law under which the bond was required“

suggests ne purpose other than the normal goed business

practice of assuring project completion free of liens for

unpaid labor and materials. Thus, the underlying statute

furnishes no unique standard for coverage. On the other

hand, the language of the lease contract required a bond be

furnished for payment in full of all persons for work per-

formed in or materials furnished for construction.“ Fur-

thermore, the bond instrument itself secured payment to

all persons, firms, subcontractors, and corporations furnish-

ing materials for or performing labor in the prosecution of

the work . . . including all amounts due for . . repairs on

machinery, equipment tools, consumed in connection with

the construction of such work

85-7-185 (1972); Alabama Marble Co. v.

Seat then Deans — Guaranty Co., 146 Miss. 414, 111 So.

573 (1927).

„25 U.S.C. § 415, and its implement regulation, 25 CFR.

§ 131.5.

10a

The bond specifically guarantees payment for repairs

made to project equipment. Although equipment rentals are

not listed as a payable item in so many words, they are so

closely analogous to repairs and equipment tools which are

consumed in the work that there can be no serious question

as to their inclusion under the normal rules of bond con-

struction giving coverage for things of like kind to those

enumerated and construing the agreement most

against the compensated surety. The amount of such rents

are job expenses of the subcontractor and represent the

approximate value of the equipment’s useful life which is

is that materials and equipment be consumed or used in

connection with the construction of the work. Since this is

also a requisite of Miller Act coverage, the district court

has considered and resolved this disputed fact issue in favor

of coverage.” That resolution was not clearly erroneous and

decides the issue in the legal context we adopt as well.

We conclude that bond given by Morgan and USF&G te

Chata provides protection for unpaid equipment rental and

repairs to Mississippi Road Supply.

—

lla

specifically pretermitted finding Miller Act jurisdiction,

there is no need to remand for a determination of limita-

tion rights under the § 1352 jurisdictional grant that au-

thorized maintenance of this action in the district court.

Assuming as we have, that the Miller Act is inapplicable

here, there is no particular statute of limitations applicable

to the bond required by 25 C.F.R. § 131.5(c). In such eir-

cumstances, we look to the state statute of limitations ap-

plicable to actions of a similar nature. See Aboussie v.

Aboussie, 441 F.2d 150 (5th Cir. 1970); Azalea Meats, Inc.

v. Muscat, 386 F.2d 5 (5th Cir. 1967); Hooper v. Mountain

States Securities Corp., 282 F.2d 195 (5th Cir. 1960). The

Mississippi statute applicable to actions on contract bonds

requires that the suit be filed within one year of either com-

pletion or abandonment of the project. Miss.CodeAnn. § 85-

7-189 (1972). Under the specific instructions of the district

court, the jury found on conflicting evidence that this suit

was filed within one year of the last date Mississippi Road

Supply’s rental machinery was used on the project. That

finding is supported by the record, A fortiori, the Missis-

sippi Statute requiring suit within one year of project com-

pletion was also met. Therefore, under either view of the

ease, no statute of limitations barred this action.

The same logic answers Morgan’s argument that the 90-

day notice requirement of the Miller Act was not met. If

this be a Miller Act case, the jury’s determination (again

made under adequate instructions from the trial court and

on the basis of evidence in the record) that the required

notice was given settled the issue.

Surriciency or THE Evipence

In several assignments of error, Morgan and USF&G

assailed both the sufficiency of the evidence to support the

verdict and the admissibility of certain portions of the evi-

dence. These alleged errors are without merit. As noted

above, the jury received evidence that would enable it to

12a

find for Mississippi Road Supply if it chose to resolve doc-

umentary and testimonial conflicts in favor of that com-

pany. Given the court’s instructions, the jury’s verdict man-

ifested just such a credibility choice, which we will not over-

turn. Further, the admission of documents disclosing equip-

ment rentals to Young for a period beginning before his

first appearance at the job site but extending until after that

date was not error. The invoices and leases were introduced

to prove that Young had rented the equipment and the cost

of those rentals as well as the dates of use. The partial

overlap indicates no incompatibility with rental by Young

for use at the Chata site. In the absence of clear inconsist-

ency between the lease dates and the commencement of

work, the objections went to weight, not admissibility. Like-

wise, the objection to the introduction of certain of the in-

voices and leases by one of the witnesses is without merit

because of the authentication of the invoices and their re-

lation to the Chata job by other competent witnesses. At

worst, then, the evidence was cumulative. The documents

were properly admitted under limiting instructions granted

by the trial court; and the selection among competing in-

ferences was properly made by the jury.

Jury Instruction

Morgan and USF&G object to the following portion of

the instructions :

... 80 long as each piece of equipment remained on the

contract, whether it was working or not, until the con-

tract was completed or abandoned or the subcontractor

was replaced. And that would be the determination date

where the liability on the lease would expire

(TR. 397). They rely on United States ex rel. H. R. Martin

v. F. D. Rich Co., 199 F. Supp. 939 (N. D. Fla. 1961), af d, 308

F. 2d 807 (5th Cir. 1962), to argue that merely having equip-

ment on the job site is insufficient for purposes of Miller

13a

Act recovery. This proposition may be true, but it did not

render the instruction erroneous. There was uncontradicted

evidence that this machinery had been used on the site.

Read in context, the instruction went to whether the ma-

chinery had to be in continual use to be covered under the

bond. The key element is whether the machinery was dedi-

cated to use on this project. There was substantial evidence

to justify a finding of such dedication. The court’s instrue-

tion that it did not have to be in continual use was not

erroneous. See Mike Bradford d Co. v. F. A. Chastain Con-

struction, Inc., 387 F.2d 942, 944 (5th Cir. 1968); Fribel &

Hartman, Inc. v. United States ex rel. Codell Construction

Co., 238 F.2d 394 (6th Cir. 1956).

Rue 60(a) Remirrirvr

The district court instructed the jury on the mathemati-

eal computations necessary to determine appropriate dam-

ages should they rule in favor of Mississippi Road Supply

Company. Although the jury ruled in favor of the company

and clearly intended to award them all of the requested

damages, an error in computation resulted in an award

which was too large. Upon a Fed.R.Civ.P. 60(a) motion

filed by Mississippi Road Supply, the district court reduced

the jury’s award to the appropriate amount. There was no

error in this procedure. See Continental Casualty Co. v.

Little, 152 F.2d 728 (5th Cir. 1946) ; cf. Jamison v. Westvaco

Corp., 526 F.2d 922, 927-32 (Sth Cir. 1976) ; Bowles v. Bran-

ick, 666 F.Supp. 557 (W.D.Mo.1946).

Artrorney Fers

On remand, 528 F.2d 926 (5th Cir. 1976), we requested

the district court to clarify its attorneys’ fees ruling. The

language of its supplemental order suggests that the court

entertained the misconception that the jury did not award

attorneys’ fees. The record discloses that the jury was in-

structed to award 15% attorneys’ fees on the unpaid ren-

— — — — ee eee

14a

tals. That they did so is borne out by the amount of the

verdict. Mississippi Road Supply’s theory for recovering

these fees was that since its contract with Young provided

15% attorneys’ fees, this award was a bond-recoverable

item.“ However, under Mississippi law, unless a provision

for the payment of attorneys’ fees to claimants for labor

or materials furnished to the project also appears in the

bond, attorneys’ fees may not properly be awarded in an

action on the bond.“ Within the parameters of the federal

purpose for which the bond was required, state law provides

the basis for interpreting the meaning of the bond with

reference to attorneys’ fees. See Transamerica Insurance

Co. v. Red Top Metal, Inc., 384 F.2d 752 (5th Cir. 1967).

The bond in question contains no specific reference to

attorneys’ fees. It is not benefitted by any general statu-

tory language under which the payment of such fees might

be authorized by fair judicial construction. Even under the

more liberal rules of construction applicable in Miller Act

cases, precedent indicates that the terms of this bond would

not support an award of attorneys’ fees. See Transamerica

Insurance Co. v. Red Top Metal, Inc., supra, 384 F.2d at

757-58. Under either theory, the award of attorneys’ fees

was improper and the judgment entered on the corrected

verdict must be reduced by the amount of this award.

Arrmmep ix Part, Reversep 1x Part, anp RERMAN DED.

The pertinent rental agreement clause provides:

Should any legal proceeding be instituted by LESSOR to re-

cover any monies due and to become due under and/or

for possession of the equipment, LESSEE shall pay a reason-

able sum (15%) of the amount sued for (if not prohibited

by law) as Attorney's fees, to be not less than $50.00.

Faulkner Concrete Pipe Co. v. United States Fidelity & Guar.

Co., Miss., 218 So.2d 1 (1968).

— — —æ ͤ —— —— =: ͤ— - —

;

15a

APPENDIX C

UNITED STATES COURT OF APPEALS,

FIFTH CIRCUIT

No. 74-3761.

UNITED STATES OF AMERICA, FOR AND ON BEHALF OF

MISSISSIPPI ROAD AND suPPLY co., Plaintiff-Appellee

V.

H. R. MORGAN, INC., U.S. FIDELITY AND GUARANTY CO.

AND BOBBY GRAY YOUNG, ETC., Defendants-Appellants.

March 5, 1976.

Before Mondax, Ciark and Taortar, Circuit Judges.

Per Curiam:

In this suit upon a general contractor’s bond by a sub-

contractor’s supplier, which resulted in verdict and judg-

ment for the plaintiff, several alternative bases for fed-

eral jurisdiction of the cause were asserted. Plaintiff’s

primary reliance was on the Miller Act, 40 U.S.C. 5 270a

& b (1970). However, this is not a garden-variety Miller

Act transaction. The United States was not a party to the

contract and the bond sued on runs in favor of Chata De-

velopment Corporation, a Mississippi corporation, rather

than the United States. Plaintiffs nevertheless assert that

Miller Act jurisdiction obtains, relying on a number of

cases in which conditions of federal ownership of the con-

struction site or the degree of federal involvement with

the construction project were reasoned to make the pro-

tections of the Miller Act available and permit use of its

jurisdictional grant. Compare, e. g., United States ex rel.

Miller v. Mattingly Bridge Co., 344 F.Supp. 459 (W.D.Ky.

16a

1972) with United States ex rel. Gamerston & Green Lum-

ber Co. v. Phoenix Assurance Co., 163 F.Supp. 713 (N.D.

Cal. 1958).

Prior to the trial of this case, defendants submitted a

motion to dismiss for want of jurisdiction. Both sides sub-

mitted briefs; oral argument on the issue was waived.

The district court held that Miller Act jurisdiction at-

tached. However, the court’s order gave no indication of

the basis for its decision on the jurisdictional issue. In

addition, the record contains only a casual reference to

the title ownership of the construction site lands. Since

prior cases frequently have turned on this factual fulerum,

it is vital to a proper determination of the jurisdictional

issue for the record to be properly developed and a deci-

sion made by the district court as to record ownership of

the site. Accordingly, we remand this portion of the case

to the district court for the appropriate factual develop-

ment and determination and a reconsideration of the jur-

isdictional issue in light of that determination.

In a similar vein, we note that the judgment of the dis-

trict court included an award of attorneys’ fees. Again,

neither the factual nor the legal basis for this award ap-

pears in the record. Upon remand, therefore, should the

district court once again find that the case was properly

before it, it should conduct any further proceedings that

it may determine to be necessary to enable the district

court to make findings of fact and conclusions of law dis-

closing the basis for its decision to award attorneys’ fees

to the plaintiff.

Of course, we express no opinion at this time as to the

proper result of these or other factual or legal determina-

tions. We retain jurisdiction of all other aspects of this

appeal.

Remanded with directions.

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APPENDIX D

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF MISSISSIPPI

EASTERN DIVISION

CIVIL ACTION NO. 73E-55(C)

Unrrep Srares or America for and on Behalf of

MississiprP1 Roap Suprpty Company, Plaintiff

V.

H. R. Morean, Inc., ET AL., Defendants

This controversy involves a claim asserted against the

contractor on which a jury awarded the plaintiff a lump

sum amount. The contractor appealed to the United States

Court of Appeals for the Fifth Cireuit and that Court,

while retaining ful! jurisdiction of the case, remanded a

segment thereof to this Court for clarification as to juris-

diction and as to attorney’s fees.

The question of attorney’s fees will be first discussed.

On the recent hearing here, nothing was entered into the

record on the question of attorney’s fees by either side.

An examination of the form of the verdict submitted to

the jury for their filling out was examined, and the award

by the jury does not indicate any allowance for attorney’s

fees. An examination of the payment bond does not indi-

eate any provision therein for an attorney’s fee. That

question is resolved by the laws of the state of Mississippi.

Under the laws of Mississippi, this payment bond does not

obligate the contractor and surety to pay any attorney’s

fee. Obviously, the form was prepared by some paid

surety company.

The question of the jurisdiction of this Court presents

a vastly more difficult and complicated question. This

Court held that under the facts and circumstances in the

//

— —— — — ——— ——

18a

case that this case was and is a Miller Act case although

the bond named a private Mississippi corporation (Chata

Development Company) as obligee and not the United

States. The legal title to the land on the site of this con-

struction is the United States of America, but the United

States leased this land to Chata Development Company

for twenty-five years under the terms and conditions pro-

vided by the Secretary of Interior under CFR, Title 25

(Indians), part 131 with provision for extension. Under

Mississippi law a lease is pro tanto a deed. With those

considerations fully in mind, this Court is of the opinion

that the project in suit was and is under any view public

work within the purview of the law. The Congress of

the United States through the last several years as shown

by this record has appropriated to this public work several

millions of dollars in addition to the initial purchase price

of land. This project is basically and essentially an indus-

trial park provided by the United States to rehabilitate

this impoverished segment of society consisting of these

Indians who did not elect to leave this area and go to

Oklahoma at another time.

It is not unthinkable that this contractor and its surety

should be effectually released from this large bond which

this surety provided for a vast premium amounting to

several thousand dollars. A state court would surely have

no jurisdiction whatever of this suit on this bond under

these circumstances. The Court understands that the De-

partment of Interior actually provided this bond form

= surely knew absolutely nothing about the law in so

oing.

42 U.S.C.A. § 3121 et seq. set forths the findings and

purpose of the Public Works and Economie Development

Act of 1965. The bond before the Court is surely a hybrid

form in any most charitable view, but it may not be gain-

said that this project for which this bond was required and

paid in public money was a public works project in every

19a

sense of the word. Surely, Chata was not a suitable sub-

stitute for the United States of America, but we must

examine the statutes for a cognate set of rules and prin-

ciples which snugly fit and apply to the project here. It

may not be denied that this Court has jurisdiction of this

suit and this bond which was surely executed on this pub-

lie work project to an ill-advised obligee. That is the clear

import and provision of 28 U.S. C. A. § 1352 which p.

vides: ‘‘Bonds executed under federal law—the distr.

courts shall have original jurisdiction concurrent with

state courts, of any action on a bond executed under any

law of the United States.’’ This rule of cognate construc-

tion and application was invoked and applied by this

Cireuit in Morris W. Lasley v. United States, (50K) 285

F.2d 98 in applying the Miller Act provisions to a Cape-

hart Housing Project at Fort Bliss, Texas. That last men-

tioned case was followed by this Cireuit in H. L. Autrey,

et al v. Williams & Dunlap, et al, (50A) 343 F.2d 730.

In Peterson v. United States, (GCA) 119 F.2d 145, the

Court defined ‘‘public work’’ under the Heard Act as in-

cluding any work in which the United States is interested

and which is done for the public and for which the

United States is authorized to expend funds.’’

In United States v. Irwin, 316 U.S. 23, 62 S.Ct. 899, the

Supreme Court had before it a question of whether or not

a library building on the campus of Howard University

in the District of Columbia was or not a public work. On

August 24, 1935, Congress passed the Miller Act. The

Secretary of Interior approved the building and allotted

$1.120,811.58 to its construction. The Assistant Secretary

of Interior on behalf of the United States entered into a

contract for the construction of the building. In a suit on

the payment bond, the defense was interposed that the

library building at Howard University was not a public

work within the meaning of the Miller Act. The Court of

Appeals reversed the trial court. The Supreme Court

20a

agreed with the trial court and reversed that decision and

held that the petitioner was entitled to sue on the bond in

the name of the United States. The Court said: ‘‘No aid

in ascertaining the meaning of public works is to be found

in the Miller Act itself. But the National Industrial Recov-

ery Act, passed two years before the Miller Act, Congress

defined it as including ‘any projects of the character here-

tofore constructed or carried on either directly by public

authority or with public aid to serve the interest of the

general public.’ The library at Howard University was not

only a project ‘of the character heretofore constructed or

carried on * * * with public aid;’ it had been directly and

specifically authorized by Congress in 1931 and money had

actually been appropriated for it.’’ * * * Since Howard

University is a private institution and since it held title

to the dormitories, recovery on the bond was denied to the

suppliers of materials and labor. Whatever may have

been the validity of this narrow formula when applied to

the Heard Act, we cannot approve its application to this

suit under the Miller Act. The court observed that in the

passage of the Miller Act that a Congressman said that if

it were passed by Congress, it would certainly be applica-

ble to the public works program and this is the reason for

its importance.’’ The Court in sum said that the adminis-

trator had the right to require the bond and was entitled

to bring this suit on it.

The motions of the contractor and its surety to dismiss

for lack of jurisdiction are without merit and each is de-

nied. This Court has never had presented to it at anytime

any question as to attorney’s fees on this payment bond.

An order accordingly may be presented by the plaintiff

under the rules of this Court.

/s/ Hanoi Orr

Unrrep States District Jupan

August 5, 1976

2la

APPENDIX E

Code Of Federal Regulations, Title 25. Indians, Part 131.

§ 131.5 (a), (ch, (g)

(a) All leases made pursuant to the regulations in

this part shall be ir the form approved by the Secretary

and subject to his written approval.

(e) Unless otherwise provided by the Secretary a

satisfactory surety bond will be required in an amount

that will reasonably assure performance of the contractual

obligations under the lease. Such bond may be for the

purpose of guaranteeing.

(1) Not less than one year’s rental unless the lease

contract provides that the annual rental shall be paid in

advance.

(2) The estimated construction cost of any improve-

ment to be placed on the land by the lessee.

(3) An amount estimated to be adequate to insure

compliance with any additional contractual obligations.

(g) All leases issued under this part shall contain the

following provisions:

(1) While the leases premises are in trust or re-

stricted status, all of the lessee’s obligations under this

lease, and the obligations of his sureties, are to the United

States as well as to the owner of the land.

§ 85-7-185 Miss. Code Ann. (1972) Bond-Provisions—Right

To Intervene In Action On Bond

When any contractor or subcontractor entering into a

formal contract with any person, firm or corporation, for

the construction of any building or work or the doing of

any repairs, shall enter into a bond with such person, firm,

or corporation guaranteeing the faithful performance of

such contract and containing such provisions and penalties

as the parties thereto mav insert therein, such bond shall

also be subject to the 2 tional obligations that such con-

tractor or subeontrac’ shall promptly make payments

to all persons furnie“ labor or material under said con-

tract; and in the such bond does not contain any

such provisions for the payment of the claims of persons

furnishing labor or material under said contract, such

bond shall nevertheless unure to the benefit of such person

furnishing labor or material under said contract, the same

as if such stipulation had been incorporated in said bond,

and any such person who has furnished labor or materials

used therein; for which payment has not been made, shall

have the right to intervene and be made a party to any

action instituted on such bond, and to have his rights ad-

judicated in such action and judgment rendered there-

on, subject, however, to the priority or the rights or claim

for damages or otherwise, of the obligee. The bond herein

provided for may be made by any surety company author-

ized to do business in the State of Mississippi.