# Petition — General Insurance Co. of America v. Oklahoma City Housing Authority

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition
- **Published:** January 1, 1978
- **Citation:** 439 U.S. 835

## Text

—_ ae Se al — ee ee ee

Inthe Supreme Court of the United States

OcTOBER TERM, 1977

GENERAL INSURANCE COMPANY OF AMERICA
Petitioner

. ERSUS

OKLAHOMA CITY HOUSING AUTHORITY. er a:
Respondents

PETITION FOR WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS FOR THE
TENTH CinCUIT

JUDSON S WoopRuF!
CHARLES J. Topp
JOHN N. HERMES
Fifth Floor, 100 Park Avenuc
Oklahoma City, Oklahoma 73102
Counsel for Petitioner
Of Counsel:
McArer, TArt, Mark, Bonp
Rucks & Wooprurr
A Professional Corporation
Fifth Floor, 100 Park Avenue
Oklahoma City, Oklahoma 73102

June, 1978

OLD LLLP PPP DOP DBP BD BOLL LM CODES OO - - -
UTTERBACK TYPESETTING CoO 519 W. Car OKLAHOMA CiTy Pw 238-S03C

; TABLE OF CONTENTS

PAGE
_ i “RCD SNE Read EL ae aeeels 1
ge EP A a SN eae ee 2
t Questions Presented ______ ee oe Pe aa N eR Teneo ae 2
Statutory Provisions Involved _... 3
Statement of the Case... 5
Reasons for Granting the Writ ____ PSE ao a 12
I. The Supreme Court must resolve the conflicts
; among the Courts of Appeals concerning the
jurisdiction of Federal erase ced Courts in
Chapter XI proceedings ieiiinhiaesdeas

A. The extent of jurisdiction of a Federal
Bankruptcy Court in a Chapter XI pro-
ceeding is of national importance... == 13

B. The Courts of Appeals are in conflict with
respect to the extent of the exclusive jur-
isdiction granted a a Court in
a Chapter XI proceeding _. aiioscakcagee. a

C. The Supreme Court must limit the juris-
diction of courts over actions collateral to
a Chapter XI bankruptcy proceeding _. 19

1. The Bankruptcy Court must be held to
possess exclusive jurisdiction to deter-
mine the liability of a debtor upon an
unliquidated claim 0 sad

no

The filing of a proof of claim in a bank-
ruptcy proceeding by a creditor sub-
mits the creditor to the jurisdiction of
the Bankruptcy Court on all matters
arising from the claim _ ea

TABLE OF CONTENTS CONTINUED
3. The liability of a debtor upon an un-
liquidated claim must not be deter-
mined in an action against the debtor’s
surety that is collateral to the bank-
ruptcy proceedings .........

II. The decision of the Tenth Circuit denying the
rights of the surety to contract balances be-
cause of the purported fraud of its principal
is in conflict with the applicable decisions of
the Oklahoma Supreme Court

A. The rights of a surety to contract balances
is a matter of national importance ___-

B. The Oklahoma Supreme Court limits the
liability of a surety to the strict terms of
his indemnity contract

III. The Supreme Court must grant certiorari to
require District Courts to avply Fed. R. Civ. P.
15(b) in a manner consistent with due process
_ § BRE NSS Bee

A. The Supreme Court must exercise its su-
pervisory powers to insure all parties re-
ceive due process of law

B. The Supreme Court must exercise its su-
pervisory powers to insure adherence to
the Federal Rules of Civil Procedure by
the Federal District Courts - a

IV. The decision of the Tenth Circuit is in conflict
with applicable decisions of the Supreme Court
of Oklahoma regarding the substantive rules of
law applied to this action

A. The Oklahoma District Court applied the
wrong measure of damages against Gen-
eral

PAGE

22

24

25

26

29

29

31

33

33

ooliinn

TABLE OF CONTENTS CONTINUED PAGE

B. The Oklahoma District Court failed to re-
quire the proof of all essential elements
of fraud as required by Oklahoma law 34

C. The Oklahoma District Court erroneously
permitted OCHA to recover from General
the attorney fees of a third hetaed defend-

ant impleaded by OCHA _ empaieinm e
| EES SIR iae a
Appendix:

1. Tenth Circuit Opinion — Jan. 13, 1978 . .. A-l
2. Oklahoma District Court Memorandum Opin
ion — April 30, 1975 - eile —
3. Oklahoma District Court Default Judgment —
October 7, 1974 . eC ST
4. Colorado idence Court Memorandum —
ion — August 11, 1975 . hprtiteinanadichignisinieae dae
5. Oklahoma City ed peu Proof of

Claim in alicia aid — Colorado ee

Court - sine 2 ee . A-40
6. Colorado ee Court — Order — No-

vember 5, 1974 . iiatevectnialiieentaetncdetonpasentisccee Ga
7. Tenth Circuit Order Vacating » specu

31, 1975 - daitiansricalin peciaels A-44
8. Performance Bond — October 25, 1972 . . A-46

9. Oklahoma District Court Judgment — June 15,

Sere = _. A-50

—jy—
TABLE OF AUTHORITIES

—_e—-_-

Cases PAGE

Barasch, In re, 439 F.2d 1393 (9th Cir. 1971) _. i6
Brankeroff-Faris Trust & Savings Co. v. Hill, 281 U.S.

GeeP CD sasiceteensianeiicaiie 30
Brotherhood of Railroad Trainmen v. Brown, “180

Okla. 487, 71 P.2d 742 (1937) _ sdeaieiehiiaien . &
Century Geophysical Corp. v. Cal. Bd. of Equalize-

tion, 564 F.2d 342 (9th Cir. 1977) 21

Copeland, In re, 391 F.Supp. i34 (D.Del. 1975) aff'd
in part and vacated in ven 531 F.2d 1195 (3rd Cir.

1976) roneuemensienie tastinaciain ‘ oe oe
intend Liability Assurance » Siieiian' Ltd. v.

Cannon, 173 Okla. 493, 49 P.2d 103 (1935) _ —
Erie R. Co, v. Tompkins, 304 U.S. 64 (1938) _.. s—séi244
Fuentes v. Shevin, 407 U.S. 67 (1972) _.. ss t—“<isé«séS*YCS
Generai Steei Tank Company, Inc., In re, 478 F.2d 294

(4th Cir. 1973) - — 23
Globe Const. Co. v. “Oklahoma City Housing Author-

ity, 571 F.2d 1140 (10th Cir. 1978) _ milled ase

Hamilton v. Telex Corp., 576 P.2d 769 (Okla. 1978). 36
Hardesty v. Andro west —Webster Division, 555 P. 2d

1030 (Okla. 1976) _ srepeauncinninigiiitiiaiinimiimeadaa as’ Se
Katchen v. Landy, 382 U.S. 323 (1968) . —— 5
Lockhart v. Garden City Bank & Trust Co., 116 F.2d

658 (2d Cir. 1940) 16
Loyd v. Stewart & Nuss, Inc., 327 F.2d 642, (9th Cir.

| ean , vinessistptoctialaegitipisaan ae
Mason v. Continental | Suppl Company, 99 Okla. 32,

225 Pac. 381 (1924) . ) a

New Haven v. National Steam Economizer Co., 79
Conn. 482, 65 Atl. 959 (1907) ' 34

—_—y—
AUTHORITIES CONTINUED PAGE
NYTCO Services, Inc. v. Hurley’s Grain Elevator Co.,

422 F.Supp. 114 (W.D. Tenn. 1976) ... = t—<Ct«COC
Rubin, In re, 378 F.2d 104 (3rd Cir. 1967) ss t—(itéi2C
Russell v. Flanagan, 544 P.2d 510 (Okla. 1975) 36
Sada Yoshinuma v. Oberdorfer Ins. Agency, 136 F.2d

460 (5th Cir. 1943) - 16
SEC v. American Trailer Rentals Co., 379 US. 594

(1965) _ 13
Slenderella Systems of Berkeley, Ine. \ v. . Pacific T. & T.

Co., 286 F.2d 488 (2d Cir. 1961) _ 16

Sniadach v. Family Finance Corp., 395 US. 337 (1969) 30
Stanndco Developers, Inc., In re, 534 F.2d 1050 (2d

Cir. 1976) . —_ 22
Steiger v. Commerce Acceptance of Oklahoma City,
Inc., 455 P.2d 81 (Okla. 1969) - ) ne 35
Stockman —- Company, In re, 447 F. 2d 387
(9th Cir. 1971) . ae ae Jae ; a
Texaco, Inc. v. Liberty National Bank & Trust Co. of
Oklahoma City, 464 F.2d 389 (10th Cir. 1972) . 19
United States v. American Surety ew 322 US.
96 (1944) _ 34
United States Fidelity & Guaranty Co. v. Gray, 106
Okla. 222, 233 Pac. 731 (1925) . some 27
Village of Canton v. Globe Indemnity Company, 201
App. Div. 820, 195 N.Y.S. 445 (1922) 34
Statutes
11 U.S.C.A. § 34 (1970), Bankruptcy Act § 16 . 3,22
11 U.S.C.A. § 35 (1970), Bankruptcy Act § 17 . 18
11 U.S.C.A. § 332 (f)(1) (1970) __. | i
11 U.S.C.A. §§ 701-799 (1970) | 12
11 U.S.C.A. § 711 (1970), Bankruptcy Act § 311 2, 3,
10, 14, 18, 19
11 U.S.C.A. § 714 (1970), Bankruptcy Act § 314 4,17

enttiinn

AUTHORITIES CONTINUED PAGE
2. 4 aR ere Se 2
EF ae ee ee 6, 24
40 U.S.C.A. §270(a) and (b) tsi‘ éitséC
Bankruptcy Rule 1l-44a_ ss 4, 8, 10, 20
Federal Rules Civil Procedure, Rule 15(b) 2, 4,
29, 31, 32
12 Okla. Stat. §936 (1971) 5 5, 35
61 Okla. Stat. § 113 (1978 Supp.) _. = t—éiaS!
Miscellanous
CoLLIER ON BaNnkKRuPTcy (14th ed. 1976) _._.._..._..14, 15,17
J. MacLacHLan, HANDBOOK oF THE LAW oF BANK-
RUPTCY 139 (1956) _ Se Sa 23
1B J. ~ gunn FEDERAL PRACTICE, para, 0419 13-5]
(1978) _ ianieiaes ee =F
REMINGTON ON Bankruptcy (6th ed. 1955) sist 15, 16
S. Seidman, “The Plight of the Secured Creditors in
Chapter XI,” 80 Comm. L.J. 343, 345 0

A. STEARNS, THE Law or Suretysuip (5th ed 1951) _ 22, 23

6 C. Wricut & A. MILuer, FeperAt PRActIce AND PRo-
CEDURE § 1491, at 453 (1971) . i ine 32

In the
Supreme Court of the United States
OcToBer TERM, 1977

No.

GENERAL INSURANCE COMPANY OF AMERICA,
Petitioner,

VERSUS

OKLAHOMA CITY HOUSING AUTHORITY, er At.,
Respondents.

PETITION FOR WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS FOR THE
TENTH CIRCUIT

The petitioner, Genera! Insurance Company of Amer-
ica, respectfully prays that a writ of certiorari issue to
review the judgment and opinion of the United States
Court of Appeals for the Tenth Circuit entered in this
proceeding on January 13, 1978.

OPINIONS BELOW

The opinion of the Court of Appeals is reported in
Globe Const. Co. v. Oklahoma City Housing Authority, 571
F.2d 1140 (10th Cir. 1978), and appears in the Appendix
hereto (App. A-1). The opinion of the United States Dis-
trict Court for the Western District of Oklahoma in Cause
No. CIV-73-641-C rendered on April 30, 1975 is unreported
and appears in the Appendix hereto (App. A-9).

~ =

The judgment of the Court of Appeals for the Tenth
Circuit was entered on January 13, 1978. A timely petition
for rehearing en banc was denied on March 23, 1978, and
this petition for writ of certiorari was filed within 90 days
of that date. The jurisdiction of the Supreme Court is
invoked pursuant to 28 U.S.C. § 1254/1).

QUESTIONS PRESENTED

1. Whether the exclusive jurisdiction granted a fed-
eral bankruptcy court in a Chapter XI reorganization pro-
ceeding by Section 311 of the Bankruptcy Act, 11 U.S.C.A.
§ 711 (1970), extends to contract balances in the possession
of a third party claiming ownership to the funds.

2. Whether a federal district court has jurisdiction
to determine the liability of a bankrupt for a debt in an
action collateral to a Chapter XI proceeding brought by a
creditor against the surety of such bankrupt.

3. Whether a surety may be denied credit for the
completed work of the contractor against its liability on a
performance bond because of the purported fraud of the
contractor.

4. Whether Fed. R. Civ. P. 15(b) permits a party to
amend its pleadings at trial and immediately introduce
evidence on the new issue when no prior notice or oppor-
tunity to prepare a defense is provided to the opposing

party.

enliien

5. Whether the following issues are questions of law
or questions of fact under applicable Oklahoma law:

a. Whether a completing owner may recover liqui-
dated delay damages after terminating the contractor;

b. Whether fraud can be proven without evidence
of reliance upon misrepresentations or of resulting injury;
and

c. Whether an Oklahoma statute permits the award-
ing of attorney fees for parties against whom no claims
were made by the party ordered to pay the fees.

STATUTORY PROVISIONS INVOLVED
AMEND. 14, U. S. Constrrution:

“* * * nor shall any State deprive any person of life,
liberty, or property, without due process of law; * * *”

BANKRUPTCY ACT, SECTION 16, 11 U.S.C.A. $ 34
(1970):
“The liability of a person who is a co-debtor with, or

guarantor or in any manner a surety for, a bankrupt
shall not be altered by the discharge of such bankrupt.”

BANKRUPTCY ACT, SECTION 311, 11 U.S.C.A. § 711
(1970):

“Where not inconsistent with the provisions of this
chapter, the court in which the petition is filed shall,
for the purposes of this chapter, have exclusive juris-
diction of the debtor and his property, wherever
located.”

- on

BANKRUPTCY ACT, SECTION 314, 11 U.S.C.A. § 714
(1970):

“The court may, in addition to the relief provided
by section 29 of this title and elsewhere under this
chapter, enjoin or stay until final decree the com-
mencement or continuation of suits other than suits
to enforce liens upon the property of a debtor, and
may, upon notice and for cause shown, enjoin or stay
until final decree any act or the commencement or con-
tinuation of any proceeding to enforce any lien upon
the property of a debtor.”

BANKRUPTCY RULE 11-44a:

“(a) Stay of Actions and Lien Enforcement. A peti-
tion filed under Rule 11-6 or 11-7 shall operate as a
stay of the commencement or the continuation of any
court or other proceeding against the debtor, or the
enforcement of any judgment against him, or of any
act or the commencement or continuation of any court
proceeding to enforce any lien against his property, or
of any court proceeding, except a case nending under
Chapter 10 of this title, for the purpose of the rehabili-
tation of the debtor or the liquidation of his estate.”

RULE 15(b), FED. R. CIV. P.:

“(b) Amendments to Conform to the Evidence.
When issues not raised by the pleadings are tried by
express or implied consent of the parties, they shall
be treated in all respects as if they had been raised in
the pleadings. Such amendment of the pleadings as
may be necessary to cause them to conform to the evi-
dence and to raise these issues may be made upon
motion of any party at any time, even after judgment;
but failure so to amend does not affect the result of
the trial of these issues. If evidence is objected to at

online

the trial on the ground that it is not within the issues
made by the pleadings, the court may allow the plead-
ings to be amended and shall do so freely when the
presentation of the merits of the action will be sub-
served thereby and the objecting party fails to satisfy
the court th it the admission of such evidence would
prejudice him in maintaining his action or defense
upon the merits. The court may grant a continuance
to enable the objecting party to meet such evidence.”

12 Oxta. Strat. § 936 (1971):

“In any civil action to recover on an open account,
a statement of account, account stated, note, bill, nego-
tiable instrument, or contract relating to the purchase
or sale of goods, wares, or merchandise, or for labor or
services, unless otherwise provided by law or the con-
tract which is the subject of the action, the prevailing
party shall be allowed a reasonable attorney fee to be
set by the court, to be taxed and collected as cos‘s.”

STATEMENT OF THE CASE

Petitioner, General Insurance Company of America
(“General”), seeks a Writ of Certiorari to the United
States Court of Appeals for the Tenth Circuit (“Tenth
Circuit”) from a decision affirming the judgment of the
Honorable Stephen S. Chandler, Judge for the United
States District Court for the Western District of Oklahoma
(“Oklahoma District Court”). Judgment was rendered by
the Oklahoma District Court against General upon the
counterclaim of the defendant-respondent, Oklahoma City
Housing Authority (“OCHA”), a public corporate body.
The judgment was entered on the nerformance bond issued
to OCHA by General as the surety of the plaintiff, Globe

—6—

Construction Co. (“Globe”), a general contractor and a
Colorado corporation. The judgment against General in-
cluded an award to OCHA for the attorney fees of George
Seminoff, Wayne W. Bowman, and Albert W. Bode, part-
ners doing business as Seminoff-Bowman-Bode (“Archi-
tects”) that had been joined as Third-Party Defendants by
OCHA.

Globe was awarded a public construction contract by
OCHA which terminated the contract when the construc-
tion was more than ninety per cent completed. Globe filed
this action in the Oklahoma District Court, based upon the
diversity of citizenship of the parties and the amount in
controversy pursuant to 28 U.S.C. § 1331 (1970). Globe
sought to recover approximately $400,000.00 in contract
balances owing at the time of the termination. The con-
tract balances included $195,092.66 retained under the pro-
visions of the contract that permitted OCHA to withhold
ten per cent of all progress payments until the construction
was completed. OCHA counterclaimed against Globe scek-
ing liquidated damages provided by the contract, its costs
incurred in completing the project, and attorney fees. Less
than thirty days prior to trial, OCHA amended its counter-
claim to join General as a counterclaim defendant based
upon its obligations under the performance bond. OCHA
also named the Architects as third-party defendants seek-
ing indemnity from the claims made by Globe.

The mere statement of the chronology of proceedings
below will demonstrate the denial of due process to Gen-
eral and the confusion that currently exists among the
federal courts regarding the conflicting jurisdiction of the

wallen

bankruptcy court to other federal courts in pending col-
lateral proceedings.

On July 30, 1974, the trial of Globe’s complaint and
OCHA’s counterclaim commenced. In opening statement,
and without previous notice or allegation, OCHA’s attorney
declared his intent to prove the commission of fraud by
Globe. Over the objections of Globe and General, the trial
court denied a request for continuance. The first trial ses-
sion continued until August 2, 1974. On August 1, 1974,
the trial court made a “preliminary finding of fraud.” The
cause was continued until October 1, 1974.

On September 15, 1974, Globe’s chief trial counsel, a
California lawyer, withdrew without leave of court. On
October 1, 1974, Globe’s local (Oklahoma) counsel re-
quested leave to withdraw. The withdrawal was permitted
on October 2, and the trial proceeded with Globe's Presi-
dent in attendance (except for October 3) without the
assistance of any counsel. The President of Globe was not
permitted to cross-examine witnesses. The Oklahoma Dis-
trict Court also denied General’s motion for dismissal, since
its performance bond did not insure against fraud.

On October 3, 1974, Globe filed a petition for a Chap-
ter XI bankruptcy reorganization in the United States
District Court for the District of Colorado (“Colorado Dis-
trict Court”). The petition was assigned to a referee in
bankruptcy (“Bankruptcy Court”). On the schedule of
assets subsequently filed in the bankruptcy proceedings,
Globe listed OCHA as being indebted to Globe in the
amount of $601,404.00 in contract balances owing under
the construction contract.

callin

In the Oklahoma District Court, OCHA moved for
default judgment against Globe on October 3, 1974, be-
cause Globe was not represented by counse! and on that
day had no officer present in court.

On October 4, 1974, Globe’s President announced in
open court that Globe had filed a Chapter XI petition and
Suggested that the proceeding was stayed by Bankruptcy
Rule 11-44a. The Oklahoma District Court, without regard
to Bankruptcy Rule 11-44a, orally granted OCHA’s Motion
for Default Judgment. On October 7. 1974, default judg-
ment against Globe was entered in the amount of $427,-
504.00 (consisting of $177,504.00 for liquidated damages
and $250,000.00 as punitive or exemplary damages), plus
attorney fees, interest, and costs “to be fixed by the Court”
over the objection of General (App. A-33).

On November 5, 1974, upon the application of Globe,
the Bankruptcy Court enjoined OCHA from vroceeding in
the Oklahoma District Court against Globe or General for
a period of ninety days (App. A-42). Since Globe indemni-
fied General against General’s potential liability to OCHA,
the Bankruptcy Court found the Oklahoma proceedings
against General would adversely interfere with the ad-
ministration of the bankruptcy estate. On November 22,
1974, after the Colorado District Court refused to cnjoin
the Oklahoma District Court from continuing the proceed-
ings involving Globe and General, Globe filed a petition
with the Tenth Circuit to stay the Oklahoma District Court
proceedings. The Tenth Circuit ordered a stay pursuant to
Bankruptcy Rule 11-44a of the entire proceedings on No-
vember 25, 1974. The stay was modified on December 4,

ein

1974 to permit the action to proceed against General. On
January 31, 1975, the Tenth Circuit vacated the stay en-
tirely and directed the parties to pursue their remedies by
appeal (App. A-44).

On February 21, 1975, OCHA filed a proof of claim in
the Colorado Bankruptcy Court based upon the Globe de-
fault judgment of $427,504.00 ( App. A-40). Globe objected
te the allowance of OCHA’s claim and sought to set off
the contract balances owing by OCHA.

The Oklahoma District Court, having heard testimony
in November, 1974 (before the Tenth Circuit stay) and
February, 1975, rendered its judgment against General! on
April 30, 1975 by Memorandum Opinion (App. A-9). The
Opinion denied all of Globe’s claims asserted by General,
purported to make findings of fraud by Globe, found ma-
terial breaches of the contract by Globe and entered judg-
ment against General on its performance bond for the full
amount of OCHA’s claims. The judgment included an award
of attorney fees for the architects impleaded by OCHA.
The judgment was silent with resvect to the contract bal-
ances held by OCHA. General and Globe appealed the
April 30, 1975 judgment of the Oklahoma District Court
to the Tenth Circuit.

On May 30, 1975, after due notice to OCHA, the
Bankruptcy Court conducted an evidentiary hearing upon
OCHA’s claim and Globe's objections and offsets. OCHA
failed to appear, and the Bankruptcy Court received testi-
mony from a vice-president of Globe. On August 11, 1975,
the Bankruptcy Court issued its Memorandum Oninion dis-
allowing the claim by OCHA in view of setoffs owing to

|

—10—

Globe. The Bankruptcy Court also found that the October
7, 1974 default judgment against Globe had been entered
in violation of Bankruptcy Rule 11-44a and Section 311
of the Bankruptcy Act, 11 U.S.C.A. § 711 (1970), and de-
clared the judgment null and void (App. A-35). No appeal
from the Bankruptcy Court judgment was taken by OCHA.
Subsequently, the Bankruptcy Court affirmed the plan of
Globe on August 26, 1975, and all unsecured debts were
discharged.

On November 30, 1975, before briefs were to be filed
in Globe’s appeal from the Oklahoma District Court, OCHA
entered into a Stipulation and Release of Judgment with
Globe in which OCHA stipulated that the default judg-
ment entered against Globe on October 7, 1974 was null
and void. OCHA released the default judgment, expressly
reserving its rights and interests in the April 30, 1975 judg-
ment against General. The Stipulation and Release of Judg-
ment were filed in the Oklahoma District Court on De-
cember 1, 1975. On December 5, 1975, the Tenth Circuit
dismissed the appeal taken by Globe from that judgment.

On January 13, 1978, the Tenth Circuit issued its opin-
ion to which a Writ of Certiorari is sought by Genera].
The Tenth Circuit expressly found:

“The liability of General, as Surety, is joint and
several to the liability of the principal, Globe. The
power of a bankruptcy court to enjoin in personam
suits is confined to suits against the debtor, and there
is no jurisdiction to enjoin a suit brought to enforce
the personal liability of a guarantor of bonds secured
by a mortgage upon property owned by the debtor.”
(App. A-6). (Citations omitted: Court's emphasis. )

— }

The Tenth Circuit also found that the other issues as to
which General seeks review were all “questions of fact”
(App. A-5).

On January 26, 1978, General filed its Petition for Re-
hearing. After requesting briefing of the Petition by the
parties, the Tenth Circuit denied the Petition for Rehear-
ing on March 23, 1978.

On April 11, 1978, OCHA requested that the original
action between Globe and OCHA be placed on the docket
of the Oklahoma District Court for a pretrial conference.
Globe objected to the conference on the basis, inter alia,
that the Oklahoma District Court had no further jurisdic-
tion over Globe in view of the disallowance of OCHA’s
claim and the discharge by the Bankruptcy Court and the
statutory injunction set forth in 11 U.S.C.A. § 332(f )(1)
(1970), as well as the Stipulation and Release of Judg-
ment entered into by OCHA and Globe on November 30,
1975. After a full briefing of the issues, on June 6, 1978,
the Oklahoma District Court rendered a new judgment
against Globe for $250,000.00 in punitive damages. The Ok-
lahoma District Court declared that Globe was collaterally
estopped from denying liability by the prior judgment
against General (App. A-50).

On June 16, 1978, Globe filed its notice of anneal from
the June 15, 1978 District Court judgment.

Upon the basis of the foregoing facts, General re-
spectfully requests that the Supreme Court issue a Writ
of Certiorari to the Tenth Circuit for the reasons given
below.

—12—

REASONS FOR GRANTING THE WRIT

L

THE SUPREME COURT MUST RESOLVE THE
CONFLICTS AMONG THE COURTS OF APPEALS
CONCERNING THE JURISDICTION OF FEDERAL
BANKRUPTCY COURTS IN CHAPTER XI PRO.
CEEDINGS.

The Supreme Court must grant General’s petition for
writ of certiorari in order to secure uniformity in the
judgments of federal courts with respect to the national
rights provided by Chapter XI of the Bankruptcy Act,
11 U.S.C.A. §§ 701-799 (1970). The instant petition demon-
strates the extreme confusion that currently exists with
respect to the relevant bankruptcy law. As indicated in
the above Statement of the Case, four judgments have
been rendered by two different district courts upon identi-
cal issues of law and fact. The Oklahoma District Court
has rendered three different judgments! finding Globe lia-
ble to OCHA (App. A-33, A-9 and A-50). The Colorado
Bankruptcy Court has rendered a judgment that Globe is
not indebted to OCHA (App. A-35). The Bankruptcy Court
disallowed OCHA’s claims against Globe in the Chapter XI
proceeding.

The liability of General, as surety to Globe, under the
judgment of the Oklahoma District Court is dependent
upon the proper resolution of a single auestion: Which of

! The pm ace of the Oklahoma District Court include: (1 ) The de-
fault judgment against Globe on October 7, 1974: (2) the judgment
against General on April 30, 1975; and (3) the judgment against
Globe rendered on June 6, 1978.

—13—

the two district courts, Oklahoma or Colorado, had proper
jurisdiction to determine the liability of Globe to OCHA?
As indicated below, the Courts of Appeals are in conflict
concerning the extent of the jurisdiction granted the fed-
eral bankruptcy courts.

A. The Extent of the Jurisdiction of a Federal
Bankruptcy Court in a Chapter XI Proceeding
Is of National Importance.

Chapter XI of the Bankruptcy Act is currently the
most commonly used chapter of the Benkruptcy Act to re-
habilitate debtors. Chapter XI originally was designed to
provide a simple procedure for a composition of unsecured
creditors. See SEC v. American Trailer Rentals Co., 379
U.S. 594 (1965). However, the Chapter XI procedure has
become the dominant reorganization vehicle currently used
by debtors.

The Honorable Saul Seidman, Bankruptcy Judge for
the District of Connecticut and former President of the
National Conference of Bankruptcy Judges, has described
the growth in the use of the Chapter XI reorganization
in the following manner:

“In practice, Chapter XI has grown far beyond the
original concept of a simple composition with unse-
cured creditors for a mom-and-pop operation. Many
Chapter XI cases involve large publically-owned cor-

porations . . .” S. Seidman, The Plight of the Secured
Creditors in Chapter XI, 80 Conm. L.J. 343, 345
(1975).

anfiicn

Judge Seidman further observed that the current uncer-
tainty in the Bankruptcy Act and the new Bankruptcy
Rules with respect to Chapter XI proceedings “. . . has led
to confusion in the variety of decisions which the bank-
ruptcy judges are handing down.” Id. The reasons for the
confusion are described below.

B. The Courts of Appeals Are in Conflict With
Respect to the Extent of the Exclusive Juris-
diction Granted a Bankruptcy Court in a Chap-

ter XI Proceeding.

The validity of the Oklahoma District Court judg-
ment denying General, as indemnified surety and assignee
of Globe, the benefit of the contract balances held by
OCHA depends upon the ability of the Oklahoma District
Court to exercise jurisdiction over the contract balances
after Globe filed its Chapter XI petition. Although the
Tenth Circuit affirmed the Oklahoma District Court’s juris-
diction, the Courts of Appeals are in conflict over the ex-
tent of the exclusive jurisdiction granted bankruptcy courts
by § 311 of the Bankruptcy Act, 11 U.S.C.A. $711 (1970).
Section 311 states:

“Where not inconsistent with the provisions of this
chapter, the court in which the petition is filed shall,
for the purpose of this chapter, have exclusive juris-
diction of the debtor and his property, wherever lo-
cated.” Bankruptcy Act of 1898, Section 311, 11 US.
C.A. $711 (1970) (Emphasis added).

One leading treatise, CoLLieR On Bankruptcy (14th Ed.
1976) (hereinafter cited as “CoL.ier”), has interpre'ed
Section 311 to expand the jurisdiction of the bankruptcy

—15s—

courts beyond that granted under Chapters I-VII (provid-
ing for ordinary bankruptcy liquidation). Noting that there
is no provision comparable to Sectio.: 311 within Chapters
I-VII, Cottrer concludes that the bankruptcy court has
summary jurisdiction over property in the possession of
third parties in which the bankrupt claims ownership. The
summary jurisdiction of the bankruptcy court is limited
to a determination of the existence of substantial adverse
claims in the property by the third party. 8 CoLuier, at
para. 3.03, at 162-63.

Another treatise, REMmncton On BANKRUPTCY (6th Ed.
1955) (hereinafter cited as “REMINGTON”), maintains a
different position from Cottier. REMINGTON concludes that
Section 311 grants no greater jurisdiction in Chapter XI
than in Chapters I-VII. Remincron finds the jurisdiction
of the bankruptcy court to be limited to property in the
actual or constructive possession of the bankrupt. Rem-
INGTON further concludes that the bankruptcy court may
not exercise summary jurisdiction over adverse claims to
property held by third parties. 9 Remincton, at § 3574.

The Courts of Appeals are divided between the Cot-
LIER (ownership) position and the REMINGTON ( possession )
position. A summary of the division among the Courts of
Appeals is set forth below:

—16—

Courts of Appeals Adopting the
REMINGTON (possession) position:

Slenderella Systems of Berkeley, Inc. v. Pacific T. & T.
Co., 286 F.2d 488 (2d Cir. 1961) (denying bankruptcy court
summary jurisdiction over debtor’s telephone number).

Lockhart v. Garden City Bank & Trust Co., 116 F.2d
658 (2d Cir. 1940) (chattel mortgagee entitled to repossess
chattels during Chapter XI).

Sada Yoshinuma v. Oberdorfer Ins. Agency, 136 F.2d
460 (Sth Cir. 1943) (state appointed receiver has superior
claim to assets than Chapter XI estate).

In re Barasch, 439 F.2d 1393 (9th Cir. 1971) (denying
bankruptcy court summary jurisdiction over disputed
claims to community property in California).

Loyd v. Stewart & Nuss, Inc., 327 F.2d 642 (9th Cir.
1964) (denying summary jurisdiction of bankruptcy court
to award debtor retained contract funds held by property
owner).

Globe Const. Co. v. Oklahoma City Housing Authority,
571 F.2d 1140 (10th Cir. 1978) (pending determination on
General's Petition for Writ of Certiorari herein).

See also NYTCO Services, Inc. v. Hurley’s Grain Ele-
vator Co., 422 F.Supp. 114 (W.D. Tenn. 1976) (recogniz-
ing division among circuits and denying summary juris-
diction of bankruptcy court to proceeds of sale of goods
in the possession of field warehousing company ).

=s

Courts of Appeals Adopting the
COLLIER (ownership) Position:

In re Rubin, 378 F.2d 104 (3d Cir. 1967) (affirming
bankruptcy court’s summary jurisdiction over sales routes
of debtor).

In re Copeland, 391 F.Supp. 134 (D.Del. 1975), aff'd
in part and vacated in part, 531 F.2d 1195 (3d Cir. 1976)
(affirming bankruptcy court order to turn over stock cer-
tificates pledged to creditor).

In re Stockman Development Company, 447 F.2d 387
(9th Cir. 1971) (affirming summary jurisdiction of bank-
ruptcy court to order reclamation of personal property
seized by county sheriff).

In In re Stockman Development Company, supra, the
Ninth Circuit expressly indicated that its decision would
conflict with that Circuit's own opinions in In re Barasch,
supra, and Loyd v. Stewart & Nuss, Inc., supra. The Ninth
Circuit defended its adoption of the CoLirer position by
referring to the authority granted a bankruptcy court under
Section 314 of the Bankruntcy Act, 11 U.S.C.A. § 714 (1970):

“As additional evidence that the Chapter XI juris-
diction was not intended to be restricted to a theory of
possession, Section 314, 11 U.S.C.A. Sec. 714 expressly
gives the Bankruptcy Court authority to protect assets
by injunction and to stay foreclosure proceedings—
not just assets in the possession of the bankrupt.

“The cases in this circuit on the point appear to be
in some disarray.” In re Stockman Development Com-
pany, 447 F.2d 387, 390 (9th Cir. 1971).

—18—

General respectfully submits that the CoLLrer position
is the better reasoned. One of the purposes of the Bank-
ruptcy Act is to place the property of the debtor under
the exclusive control of one court for proper distribution.
Congress has recently amended the Bankruptcy Act to ex-
pand the exclusive jurisdiction of the bankruptcy courts.
See Bankruptcy Act, Section 17, 11 U.S.C.A. § 35 (1970)
(providing exclusive jurisdiction in bankruptcy courts to
determine the nondischargeability of debts for fraud). Re-
ducing the number of courts that are involved in proceed-
ings collateral to the bankruptcy proceeding will reduce
the opportunity for conflict and inconsistent findings among
different courts as have arisen in the instant case. Central-
izing the authority to resolve claims against the debtor
would be more efficient. Finally, the centralization of au-
thority in bankruptcy courts will reduce the chances for
injustice. ’

In the instant case, the Tenth Circuit failed to uphold
the jurisdiction of the bankruptcy court over the contract
balances held by OCHA. Consequently, the courts in two
different districts awarded the contract balances to differ-
ent parties. The CoL.ier interpretation of Section 311 of the
Bankruptcy Act would have avoided this anomalous result.

The Supreme Court has never interpreted Section 311
of the Bankruptcy Act, 11 U.S.C.A. $711 (1970).

The Supreme Court must issue a writ of certiorari in
this cause and resolve the conflict among the Courts of Ap-
peals upon the extent of the exclusive jurisdiction granted
the bankruptcy courts under Section 311 of the Bankruptcy
Act.

—19—

C. The Supreme Court Must Limit the Jurisdiction
of Courts Over Actions Collateral to a Chapter

XI Bankruptcy Proceeding.

1. The bankruptcy court must be held to pos-
sess exclusive jurisdiction to determine the
liability of a debtor upon an unliquidated
claim.

The Supreme Court must grant certiorari to secure
uniformity in the jurisdiction and judgments of federal
courts. The Tenth Circuit erroneously found the Oklahoma
District Court, rather than the Colorado Bankruptcy Court,
to have jurisdiction to determine the liability of Globe
(bankrupt) on the unliquidated claims of OCHA during
the pendency of the bankruptcy proceedings. The claims
of OCHA against Globe and General were unliquidated at
the time that Globe filed its Chapter XI petition. The
claims of OCHA had not been reduced to a surn certain
by agreement of the parties or judgment of a court.

The Supreme Court must find that the Colorado Bank-
ruptcy Court had exclusive jurisdiction to determine the
liability of Globe upcn all claims unliquidated at the time
of the filing of the Chapter XI vetition. The intent of Con-
gress to grant the bankruptcy court exclusive jurisdiction
over the debtor is plainly stated in Section 311 of the Bank-
ruptcy Act, 11 U.S.C.A. § 711 (1970) (discussed in nart I.B.
supra). Section 311 provides the bankruptcy court with
“. .. exclusive jurisdiction of the debtor and his property,
wherever located.” Id. The jurisdiction granted by this
section must extend to the determination of all unliqui-
dated claims against the debtor. See Texaco, Inc. vy. Lib-

niin.

erty National Bank & Trust Company of Oklahoma City,
464 F.2d 389 (10th Cir. 1972) (reversing judgment against
debtor entered in proceeding collateral to bankruptcy);
8 CoLuigRr, at para. 3.20.

The exclusive jurisdiction of the Colorado Bankruptcy
Court over OCHA'’s claims against Globe is also demon-
strated by new Bankruptcy Rule 11-44(a). This rule en-
joins “the continuation of any court... proceeding against
the debtor . . .” Bankruptcy Rule 11-44(a). The stay pro-
vided by the rule becomes effective automatically upon
the filing of a petition for relief under Chapter XI and
the giving of notice of the filing. 14 Couier, at para. 11-
44.02. Section 311 and Bankruptcy Rule 11-44(a) have been
construed to preclude creditors from pursuing their claims
against the bankrupt-debtor in any forum apart from the
bankruptcy court without first seeking relief from the auto-
matic stay before the bankruptcy court. 8 CoLLieEr, at para.
3.20; 14 CoLurer, at para. 11-44.02.

In the instant case, the Oklahoma District Court failed
to respect the exclusive jurisdiction of the bankruptcy
court. The Oklahoma District Court first entered a default
judgment against Globe itself, which was void beyond
question and subsequently released by OCHA. Thereafter,
the Oklahoma District Court made an independent deter-
mination of the liability of Globe in order to determine
the vicarious liability of General to OCHA. The result has
been the entry of conflicting judgments.

The Supreme Court must grant certiorari in order to
resolve the conflicting judgments between the Colorado
Bankruptcy Court and the Oklahoma District Court.

online

2. The filing of a proof of claim in a bank-
ruptcy proceeding by a creditor submits the
creditor to the jurisdiction of the bank-
ruptcy court on all matters arising from
the claim.

OCHA consented to the jurisdiction of the Colorado
Bankruptcy Court when it filed its proof of claim in the
bankruptcy proceeding. The consent to the jurisdiction of
the bankruptcy court extends to the determination of all
objections and counterclaims arising from the filed claim.
2 CoLuigr, at para. 23.08[5}).

This Court has expressly held that a creditor is sub-
ject to the jurisdiction of the bankruptcy court upon all
counterclaims arising from the claim filed by the creditor
in the bankruptcy proceedings. Katchen v. Landy, 382 U.S.
323 (1966) (creditor bound by bankruptcy court determi-
nation that he had received a voidable vreference). In
Katchen this Court held:

“More specifically, a creditor who offers a proof of
claim and demands its allowance is bound by what is
judicially determined, and if his claim is rejected, its
validity may not be relitigated in another proceeding
on the claim.” Id., at 334 (Citations omitted). Accord,
Century Geophysical Corp. v. Cal. Bd. of Equalization,
064 F.2d 342 (9th Cir. 1977) (action by creditor on
claim disallowed by bankruptcy court barred by res
judicata); 1B J. Moore, Fenerat Practice, para. 0.419
3-1] (1978).

OCHA submitted to a determination by the Colorado
Bankruptcy Court of its claims against Globe. OCHA must
not be permitted to litigate that liability in another pro-
ceeding, collateral to the bankrupicy court, against General.

—,

3. The liability of a debtor upon an unliqui-
dated claim must not be determined in an

action against the debtor’s surety that is
collateral to the bankruptcy proceedings.

The Oklahoma District Court must be precluded from
determining the liability of Globe upon OCHA’s unliqui-
dated claim in an action against General. The liability of
General, as surety to Globe, arises from the alleged non-
performance by Globe, its principal, of the construction
contract. A. STEARNS, THE Law or SurREtysHIP, § 1.1 (5th
Ed. 1951). The performance of Globe should be determined
by the court having proper jurisdiction over Globe before
the liability of General is determined in a collateral pro-
ceeding.

In contrast, a creditor may be permitted to proceed
against the debtor’s surety in a collateral proceeding upon
liquidated claims. Section 16 of the Bankruptcy Act, 11
U.S.C.A. § 34 (1970), provides that the discharge of a bank-
rupt does not affect the liability of the bankrupt’s surety.
A discharge in bankruptcy does not exonerate the bank-
rupt from a liquidated debt, but only provides him with
a personal defense against the creditor. Section 16 limits
this personal defense for the sole benefit of the bankrupt.
The surety remains liable uvon a liquidated debt because
the underlying debt is undisturbed. 1A Co.uzer, at para.
16.02. For this reason, creditors may proceed against the
debtor’s surety on a liquidated debt during the pendancy
of the bankruptcy, e.g., In re Stanndco Developers, Inc.
534 F.2d 1050 (2d Cir. 1976) (state court proceeding al-
lowed against surety’s bond), or after the discharge of the

=~ =

bankrupt. E.g., In re General Steel Tank Company, Inc.,
478 F.2d 294 (4th Cir. 1973) (discharge does not affect lia-
bility of surety on bond).

The Supreme Court must hold, however, that a credi-
tor may not proceed against a debtor’s surety in an action
collateral to the bankruptcy upon an unliquidated claim.
The bankruptcy court has exclusive jurisdiction to deter-
mine the liability of the debtor on unliquidated claims.
The liability is determined by the bankruptcy court in its
consideration of allowing or disallowing the claim. If the
claim is allowed, the amount of the claim is determined
and becomes liquidated. After, but only after a creditor’s
claim is allowed (i.e., is liquidated) can he proceed against
the surety.

If the claim is disallowed by the bankruptcy court
upon its merits, as it was here, the underlying debt of the
bankrupt is exonerated. The exoneration of the bankrupt
arises from the judicial determination by the bankruptcy
court that no debt exists between the bankrupt and credi-
tor. Therefore, the disallowance is an adjudication upon
the merits of the debt underlying the claim. Katchen v.
Landy, 382 U.S. 323 (1966). The disallowance of the claim
by the bankruptcy court is also res judicata between the
parties. Therefore, the creditor is collaterally estopped from
pursuing a disallowed claim against the surety of the bank-
rupt in a subsequent action. 1B J. Moore, FepERAL PRAc-
Tick, para. 0.419[3.-5] (1978); A. Srearns, THe LAw oF
SURETYSHIP § 6.43 (5th ed. 1951); J. MACLACHLAN, HANp-
BOOK OF THE LAW or Bankruptcy 139 (1956). OCHA’s
claim against Globe was disallowed upon its merits by the

—24—

Colorado Bankruptcy Court, and OCHA did not appeal.
OCHA is collaterally estopped to pursue remedies against
Globe’s surety. General is entitled to be exonerated from
all liability to OCHA because General’s principal has been
exonerated. The judgment of OCHA against General must
be set aside.

The Supreme Court must grant certiorari to prevent
future conflicts between district courts that attemnt to de-
termine the liability of a surety upon unliquidated claims
against a bankrupt-principal during the pendancy of the
bankruptcy proceedings.

II.

THE DECISION OF THE TENTH CIRCUIT DE-
NYING THE RIGHTS OF THE SURETY TO
CONTRACT BALANCES BECAUSE OF THE PUR-
PORTED FRAUD OF ITS PRINCIPAL IS IN CON.
FLICT WITH THE APPLICABLE DECISIONS OF
THE OKLAHOMA SUPREME COURT.

Even if this Court should determine that the Okla-
homa District Court, and not the Colorado Bankruptcy
Court, had jurisdiction, certiorari must nevertheless be
granted to correct an error made with respect to an im-
portant issue of state law. The action was brought in fed-
eral court based upon the diversity of citizenship of the
parties and the amount in controversy. 28 U.S.C. § 1331
(1970). In a diversity action, state law must be applied
to the substantive issues of law. Erie R. Co. y. Tompkins,
304 U.S. 64 (1938). Therefore, the law of Oklahoma must
be applied to determine the rights of General to the con-
tract balances held by OCHA.

—25—

The Tenth Circuit affirmed the decision of the Okla-
homa District Court that denied General the benefit of the
contract balances because of the purported fraud of Globe.
The effect of the Tenth Circuit’s opinion is to make Gen-
eral an indemnitor of Globe’s fraud, even though General’s
performance bond did not indemnify against fraud (App.
4-46). General indemnified OCHA against the uncompleted
work of Globe and was entitled to full credit for all com-
pleted work. The Oklahoma District Court granted OCHA
a windfall at the expense of General. The Tenth Circuit
affirmed this unjust enrichment of OCHA. The decision of
the Tenth Circuit is in conflict with the applicable decisions
of the Supreme Court of Oklahoma.

A. The Rights of a Surety to Contract Balances Is
a Matter of National Importance.

The Tenth Circuit’s denial of a surety’s right to con-
tract balances will have a substantial adverse impact upon
the national construction industry. Sureties necessarily and
justifiably rely upon their rights to retainages, progress
payments, and other contract balances in assessing the risks
that they are undertaking through their performance and
payment bonds. The assessment of these risks affect their
determination to issue indemnifying bonds and the amount
of premiums charged for the bonds.

If sureties are denied their historically protected
rights, the risks imposed upon the sureties would be greatly
increased. As a result, the number of bonds that are issued
would probably be reduced, and premium costs would most
certainly be substantially increased, with an immediate and

—26—

adverse impact on the ability of public entities to construct
buildings for the public good. All major public construction
contracts require performance and payment bonds. E.g.,
Miller Act, §§ 1 and 2(b), S.C.A. §§ 270a and b (1970);
61 Okla. Stat. § 113 (1978 Supp.). Either a significant re-
duction in the amount of construction, or a further increase
in today’s spiraling construction costs, would seriously ag-
gravate an already troubled national economy.

The importance of the present issue is further indi-
cated by the fact that the performance bond in the instant
case is in the standard form currently used by the United
States Department of Housing and Urban Development
(“HUD”). The HUD forms were used because federal fi-
nancing was provided to the project. Therefore, the per-
formance bond erroneously construed by the Tenth Circuit
is currently in use throughout the United States.

B. The Oklahoma Supreme Court Limits the Lia-
bility of a Surety to the Strict Terms of His
Indemnity Contract.

General may not be denied its rights to the contract
balances held by OCHA because of the purported fraud
by Globe. The judgment of the Oklahoma District Court
does not specify the basis upon which General was denied
credit for the contract balances held by OCHA. In the judg-
ment against General, the Oklahoma District Court entered
findings of fraud against Globe. In a single conclusory sent-
ence, the District Court found that General “._ . should have
and recover nothing as against the defendant [OCHA].”
(App. A-25). OCHA made extensive claims during trial that

—27—

the contract balances were forfeited by reason of Globe's
purported fraud. General may only assume that the Okla-
homa District Court held that the purported fraud of the
principal caused the forfeiture of the rights of the surety
to the contract balances. The Tenth Circuit affirmed the
judgment of the Oklahoma District Court without expressly
considering this issue.

The following discussion is submitted upon the as-
sumption, in arguendo, that the purported fraud of Globe
was properly found.?

The Oklahoma Supreme Court has consistently held
that a bond is not to be construed to extend the liability
of the surety beyond the terms of the contract. E.g., United
States Fidelity & Guaranty Co. v. Gray, 106 Okla. 222, 233
Pac. 731 (1925) (obligations of surety discharged because
of the failure to give notice of pvrincipal’s default as re-
quired by the bond).

In an action analogous to the instant case, the Su-
preme Court of Oklahoma denied the attempt to extend
the liability of the surety beyond that set forth in the con-
tract. In Employers’ Liability Assurance Corporation Ltd.
v. Cannon, 173 Okla. 493, 49 P.2d 10” (1935), property
owners sued a surety to collect unpaid workmen's com-

* General must emphasize its disagreement with the trial court's findings
of fraud against Globe. In 6: Sane of subsequent issues, General
tes that the determination of fraud was upon surprise
allegations made for the first time during the trial. The trial court
denied Globe and General any opportunity to effectively meet these
allegations. Furthermore, the finding of fraud was erroneous on the
merits because of the total failure of proof of at least two essential
elements of that cause of action.

—23—

pensation insurance premiums. The judgment against the
surety was reversed by the Oklahoma Supreme Court be-
cause the bond indemnified only “. . . indebtedness for
labor and material furnished.” The surety was held to have
no liability beyond the strict terms of the contract. The
Oklahoma Supreme Court stated:

“The liability of the surety in this case arises from
the terms of the bonds and statute requiring the same.
It cannot be extended beyond the limits of a fair and
liberal interpretation thereof.” Id., 49 P.2d at 105.

The decision of the Tenth Circuit that affirmed the
denial to General of the contract balances effectively ex-
tended the liability of General to indemnify against the
fraud of the contractor. The performance bond issued by
General to OCHA did not indemnify against fraud. Under
Oklahoma law, liability of a surety may not be extended
by construction or implication beyond the terms of the in-
demnity agreement.

This Court must issue a writ of certiorari to correct
the serious error of state law that has been made by the
Tenth Circuit.

en "

ere ee

—29-——

Il.

THE SUPREME COURT MUST GRANT CER-
TIORARI TO REQUIRE DISTRICT COURTS TO
APPLY FED. R. CIV P. 15(b) IN A MANNER CON.
SISTENT WITH DUE PROCESS OF LAW.

A. The Supreme Court Must Exercise Its Super-
visory Powers to Insure All Parties Receive Due
Process of Law.

The decision by the Oklahoma District Court permit-
ting OCHA to amend its causes of action to include fraud,
affirmed by the Tenth Circuit, denied General due process
of law. The proceedings departed from the two funda-
mental precepts of due process: (1) Prior notice of all
claims, and (2) an opportunity to present a defense. Both
of these prerequisites to justice were denied General.

At the time of trial, General had no prior notice of
the claims of fraud by OCHA. No allegation of fraud was
contained in any pleadings or pretrial statement. The first
notice of the fraud allegations was given in the opening
statement of OCHA’s counsel at trial. The Oklahoma Dis-
trict Court permitted OCHA to cross-examine witnesses and
introduce other evidence of fraud during the initial days of
trial. General, having no prior notice of the fraud claims,
had no opportunity to prepare a defense against the claims.
After the first three days of trial, the Oklahoma District
Court made “preliminary” findings of fraud. The Oklahoma
District Court precluded all opportunity by General to pre-
sent a defense to the fraud claims of OCHA by subse-
quently entering on October 7, 1974, a default judgment
for fraud against Globe. The earlier findings of fraud

—30—

against Globe were incorporated into the judgment against
General.

The Supreme Court has expressly recognized that the
opportunity to present a defense is guaranteed by the due
process clause of the 14th Amendment to the United States
Constitution. In Brinkerhoff-Faris Trust & Savings Co. v.
Hill, 281 U.S. 673 (1930), this Court considered the due
process clause in an action concerning local property tax
assessment. The plaintiff had brought suit to enjoin the
assessment of a property tax relying upon a decision of
the Missouri Supreme Court that the State Tax Commis-
sion was without authority to grant the relief that the tax-
payer requested. The Missouri Supreme Court reversed its
prior decision and confined the plaintiff to the sole remedy
of appealing to the State Tax Commission. By the time
the Missouri Supreme Court rendered its decision, plain-
tiff’s time for appeal to the Commission had elapsed. Plain-
tiff’s request for review by this Court was granted since
the plaintiff was precluded from al] remedies without ever
having the opportunity to present a defense. This Court
reversed the Missouri Supreme Court and declared the
plaintiff was guaranteed the right to present a defense by
the due process clause of the 14th Amendment. This Court
stated:

“It is plain that the practical effect of the judgment
of the Missouri court is to deprive the plaintiff of
property without affording it at any time an oppor-
tunity to be heard in its defense.” Id., at 678 (Emphasis
added). Cf. Sniadach v. Family Finance Corp., 395 US.

337 (1969) (Wisconsin statute permitting prejudgment
garnishment of wages without prior notice or hear-

—31—

ing denies due process of law); Fuentes v. Shevin, 407
U.S. 67 (1972) (Florida prejudgment replevin statute
permitting repossession of chattels without prior no-
tice or hearing denies due process of law).

The practical effect of the decisions of the Oklahoma
District Court was to deny General any opportunity to
present a defense to the claims of fraud against its princi-
pal, Globe.* This Court must grant certiorari to provide
General with due process of law as guaranteed by the 14th
Amendment to the federal Constitution.

B. The Supreme Court Must Exercise Its Super-
visory Powers to Insure Adherence to the
Federal Rules of Civil Procedure by the Fed-
eral District Courts.

The Oklahoma District Court allowed OCHA to amend
its pleadings and present evidence in violation of Fed. R.
Civ. P. 15(b). The Oklahoma District Court permitted
OCHA to amend its pleadings to state a cause of action
for fraud during the conduct of the trial. The decision of
the Oklahoma District Court was made without reference
to Rule 15(b), Fed. R. Civ. P.

The Supreme Court has never interpreted Rule 15(b),
Fed. R. Civ. P. One leading authority on the Federal Rules

* The default judgment against Globe for fraud was declared null and
void by the Bankruptcy Court and released by the parties. On June 6,
1978, the Oklahoma District Court rendered a final judgment of fraud
against Globe on the basis that Globe was collaterally estopped by the
finding of fraud made in the judgment against General. However, the
judgment against General was based upon the first (void) default judg-
ment against Globe. The circular reasoning of the Oklahoma District
Court has denied General and Globe any ability to defend against the
fraud charges.

—32—

of Civil Procedure has described the purpose of the rule
to permit amendments to pleadings during trial when ob-
jections are made to evidence. Although amendments are
to be freely allowed under the Rule, the authors conclude
that the court must not allow the amendment if the op-
posing party will be prejudiced in his defense of the action.
6 C. Wricut & A. MILLER, FEDERAL PRACTICE AND PROCEDURE,
$ 1491, at 453 (1971). The authors svecifically admonish:

“Of course, if a court acts arbitrarily and capriciously
in granting leave to amend under Rule 15(b), it may
constitute a violation of due process.” Id., at 455.

The allowance of the amendments by OCHA claiming
fraud substantially prejudiced the rights of General. Hav-
ing no opportunity to prepare or present a defense, judg-
ments were entered against General. Execution upon these
judgments will deprive General of substantial property
without due process of law.

The Supreme Court must grant certiorari to supervise
the conduct of federal district courts. The Supreme Court
must require district courts to apply Rule 15(b), Fed. R.
Civ. P., in a manner consistent with the due process clause
of the i4ih Amendment to the federai Constitution.

—33—

IV.

THE DECISION OF THE TENTH CIRCUIT IS IN
CONFLICT WITH APPLICABLE DECISIONS OF
THE SUPREME COURT OF OKLAHOMA RE-
GARDING THE SUBSTANTIVE RULES OF LAW
APPLIED TO THIS ACTION.

The judgment rendered by the Oklahoma District
Court conflicts with applicable decisions of the Supreme
Court of Oklahoma. The law of Oklahoma is controlling
since the action is based upon diversity of citizenship.

The Tenth Circuit refused to review several substan-
tive errors of law made by the Oklahoma District Court.
The Tenth Circuit stated:

“Many of the matters raised by General Insurance
on appeal concern what we deem to be questions of
fact which were resolved by the trial judge on the
basis of conflicting evidence.” (App. A-5).

General respectfully submits that the following issues
are questions of law. The decision of the Tenth Circuit
was error.

A. The Oklahoma District Court Applied the
Wrong Measure of Damages Against General.

Even if the judgment against General was otherwise
proper, the trial judge apnlied the wrong measure of dam-
ages against General. The Sunreme Court of Oklahoma has
declared, as a matter of law. that an owner may only re-
cover his costs of completing construction when he assumes
control of the construction. Mason v. Continental Supply
Company, 99 Okla. 32, 225 Pac. 381 (1924) (contractor

=

abandons project); Accord, New Haven v. National Steam
Economizer Co., 79 Conn. 482, 65 Atl. 959 (1907) (owner
terminates contract and completes construction); Village
of Canton v. Globe Indemnity Company, 201 App. Div. 820,
195 N.Y.S. 445 (1922) (contractor abandons project). In
Mason vy. Continental Supply Company, supra, the Supreme
Court of Oklahoma reversed an award of liquidated dam-
ages granted to a completing owner. See also, United States
v. American Surety Company, 322 U.S. 96 (1944) (govern-
ment-owner terminating contract and completing construc-
tion may recover only cost of completion).

The Oklahoma District Court awarded OCHA judg-
ment for the liquidated damages provided by the contract
from the contract completion date to the date of Globe's
termination by OCHA and thereafter to the date OCHA
completed construction. OCHA was limited by Oklahoma
law to recovering liquidated damages only to the date of
termination, together with its costs of completion, a much
smaller amount. The decision of the Oklahoma District
Court was error as a matter of law.

B. The Oklahoma District Court Failed to Require
the Proof of All Essential Elements of Fraud
as Required by Oklahoma Law.

OCHA did not prove all of the essential elements of
fraud as required by Oklahoma law. The Suvreme Court
of Oklahoma has expressly required clear and convincing
proof of: (1) reliance upon an intentional misrepresentation
and (2) injury resulting from that reliance. Both reliance
and injury, along with other elements, must be proven

ee tl ee ea, SE

i,

to establish fraud. The absence of a single element essential
for fraud is fatal to the cause of action. Steiger v. Com-
merce Acceptance of Oklahoma City, Inc., 455 P.2d 81
(Okla. 1969) (fraud in the inducement of contract not
proven); Brotherhood of Railroad Trainmen v. Brown, 180
Okla. 487, 71 P.2d 742 (1937) (fraud in obtaining a con-
tract not proven).

OCHA did not offer one iota of evidence that it had
relied upon any misrepresentations of Globe or that any
purported fraud by Globe had resulted in injury. The judg-
ments of the Oklahoma District Court finding fraud by
Globe were erroneous as a matter of law.

C. The Oklahoma District Court Erroneously Per-
mitted OCHA to Recover From General the
Attorney Fees of a Third Party Defendant

Impleaded by OCHA.

The Oklahoma District Court wrongfully permitted
OCHA to recover from General the attorney fees incurred
by an architectural firm joined as a third party defendant
by OCHA. Globe had made no claim against the architects.
OCHA joined them to seek indemnity from Globe's claims
against OCHA. The architects prevailed in their defense to
the third-party complaint. Purportedly acting pursuant to
an Oklahoma statute, 12 Okla. Stat. § 936 (1971). the Ok-
lahoma District Court assessed the attorney fees of the
architects against General, as Globe's surety.

OCHA was not entitled to recover the attorney fees
of the third-party defendants against General. The Su-
preme Court of Oklahoma has declared that the Oklahoma

= =

statute relied upon by OCHA does not apply to contracts
for labor and materials, which was the basis of Globe’s
claims. Russell v. Flanagan, 544 P.2d 510 (Okla. 1975) (con-
tract for servicing sewer line); Hamilton v. Telex Corp.,
576 P.2d 769 (Okla. 1978) (contract for services). Further-
more, ‘.1e Supreme Court of Oklahoma has held that the
Oklahoma statute permits only the awarding of attorney
fees against parties who were in direct opposition to the
prevailing party. Hardesty v. Andro Corp.—Webster Divi-
sion, 555 P.2d 1030 (Okla. 1976) (suit involving owner-
contractor, subcontractor, and manufacturer). Therefore,
the Oklahoma District Court erroneously permitted OCHA
to recover against General the attorney fees awarded to
the architects. The error of the Oklahoma District Court
was an error of law.

For the reasons given above, the Supreme Court should
grant certiorari and reverse or summarily vacate the de-
cision o: the Tenth Circuit that is in conflict with applicable
decisions of the Supreme Court of Oklahoma.

Preuss

a ee

~~ ae

—37—

CONCLUSION

For the reasons given above, General respectfully
prays that the Supreme Court issue a writ of certiorari
for the United States Court of Appeals for the Tenth Cir-
cuit to review and consider the merits of petitioner’s claims,
or to vacate summarily the decision of the Tenth Circuit
and remand for further consideration in view of the de-
cision of the Colorado Bankruptcy Court entered subse-

quent to the perfecting of the appeal before the Tenth
Circuit.

Respectfully submitted,

JUDSON S. WooprurFr
CHARLES J. Topp
JOHN N. HERMES

Fifth Floor, 100 Park Avenue
Oklahoma City, Oklahoma 73102

Counsel for Petitioner
June, 1978

APPENDIX

i eS |

Ne ee eee fe ee ne De

|

INDEX
TO THE APPENDIX

PAGE
1. Tenth Circuit Opinion — Jan. 13,1978 ss A-

. Oklahoma District Court Memorandum —
ion — April 30, 1975 - tnt . A-9

. Oklahoma District Court Default t Judgment —
October 7, 1974 . Selita sel . A-33

. Colorado Bankruptcy C Court Memorandum neni
ion — August 11, 1975 _ pilicnemnitninianinceiticcenney GRD

. Oklahoma City <r Aattnastiey Proof of

Claim in — Colorado uintnatied
Court - ae . A-40

. Colorado Bankruptcy Court ind Order — No-
vember 5, 1974. _ _ cibisebsadainemetictesnetnuiecbasns«. GRU

. Tenth Circuit Order sasenite wind — January
Sf ee | aa
8. Performance Bond — October 25,1972... ss A -46

9. Oklahoma District Court Judgment — June 15,
1978 A-50

FILED
United States Court of Appeals
Tenth Circuit
JAN 13 1978

HOWARD K. Puri Lips
Clerk

UNITED STATES COURT OF APPEALS
TENTH CIRCUIT

Nos. 75-1464, 75-1465, 75-1466, 75-1467, 75-1469, 75-1470,
75-1471, 75-1472, 75-1475, 75-1479 and 75-1480

GLose Construction Co., a corpo-
ration,
Plaintiff-Appellant in
75-1479 and 75-1480,
v.

)

)

)

)

)

)
OKLAHOMA City Housinc AUTHORITY, )
Third Party Plaintiff- )

Appellee in 75-1465, )

JACK MATHERLY, dba JACK MATHERLY )
MECHANICAL Contractor (Appellee }
in 75-1470); O. C. Mappox, dba Map-_ )
pox Paint ConTRACTING CoMPANY; )
)

)

)

)

)

)

)

)

)

)

)

)

MCS Services, INnc., a corporation Appeal from the

(Appellee in 75-1471); Rock Creek United States
Home CEnrTER, INC., a corpuration District Court
(Appellee in 75-1469); Katie ALex- for the

ANDER STATSER, as Administratrix of
of the Estate of A. F. Statser, de-
ceased (Appellee in 75-1466);
Buitpers Specraty, Inc. (Appellee
in 75-1475); OKLAHOMA TiLE Com-
PANY, Inc.; THe Ceco Corp.; Jerry W.
TAYLor, dba Concrete ConsTRUCTION
Company (Appellee in 75-1467);

Western District
of Oklahoma

A-2

(APPENDIX)

GREEN OLMAN; Ray Davis, dba Pi0-
NEER FLooR Company (Appellee in
75-1464, 75-1479 and 75-1480): Brix
Cox, dba Hom: ImproveMENT Com-
PANY (Appellee in 75-1472),

Defendants,

)

)

)

)

)
)

)
GENERAL INSURANCE COMPANY OF )
AMERICA, )
Defendant-Appellant in )

75-1464, 75-1465, 75-1466, )

75-1467, 75-1469, 75-1470, )

75-1471, 75-1472 and )

75-1475, )

Georce SEMINOFF, WAYNE W. Bow- )
MAN and ALBERT W. Bone, partners )
doing business as SEMINoFF- )
Bow MAN-Bope, )
Third-Party Defendants, )

)

)

)

SOUTHWEsT Etecrtric Co., INc.,
Intervenor-Defendant.

Submitted on July 18, 1977

Judson S. Woodruff, Oklahoma City, Oklahoma (McAfee,
Taft, Mark, Bond, Rucks & Woodruff, Oklahoma City, Ok-
lahoma with him on the briefs) for Globe Construction Co.
William B. Rogers, Oklahoma City, Oklahoma for Okla-
homa City Housing Authority.

Carl E. Moslander, Oklahoma City, Oklahoma for Jack
Matherly, dba Jack Matherly Mechanical Contractor.

John B. Hayes, Okiahoma City, Oklahoma (Looney, Nich-
ols, Johnson & Hayes, Oklahoma City, Oklahoma with him
on the briefs) for MCS Services, Inc.; Katie Alexander
Statser, as Administratrix of the Estate of A. F. Statser,
deceased; Jerry W. Taylor dba Concrete Construction Com-
pany; and Bill Cox dba Home Improvement Company.

A-3
[APPENDIX]

Kenneth Dewbre, Oklahoma City, Oklahoma for Rock
Creek Home Center, Inc.

Robert K. Roach, Wichita Falls, Texas (Gibson, Darden and
Hotchkiss, Wichita Falls, Texas with him on the brief) for
Builders Specialty Inc.

John B. Estes, Oklahoma City, Oklahoma (Stipe, Gossett,
Stipe & Harper, Oklahoma City, Oklahoma with him on the
briefs) for Ray Davis dba Pioneer Floor Company.

Byrne A. Bowman, Oklahoma City, Oklahoma (Felix, Bow-
man, McIntyre & McDivitt, Oklahoma City, Oklahoma with
him on the briefs) for General Insurance Company of
America.

Before McWILLIAMS and DOYLE, Circuit Judges, and
MARKEY, Chief Judge.*

McWILLIAMS, Circuit Judge.

This controversy arises out of a construction contract
that went awry. Globe Construction Company, a Colorado
corporation, entered into“® contract with the Oklahoma
City Housing Authority, a public corporate body organized
under the laws of Oklahoma, to perform certain rehabilita-
tion work on the Will Rogers Low Rental Housing Project
in Oklahoma City, Oklahoma. General Insurance Company,
as surety, executed a performance bond on behalf of Globe.
Various subcontractors were employed by Globe.

The prime contract called for job completion within
180 days. The Authority determined to its satisfaction that
there had been a failure by Globe to make timely perform-

*Of the United States Court of Customs and Patent Appeals, Washing-
ton, D.C, sitting by designation.

A-4
[APPENDIX]

ance, and accordingly the Authority terminated its contract
with Globe, and completed the work itself. Invoking di-
versity jurisdiction, Globe then brought suit in the United
States District Court for the Western District of Oklahoma
against the Authority based on what it alleged was a
wrongful termination of the contract between the parties.
Numerous subcontractors were also named by Globe as
parties defendant, Globe alleging that these subcontractors
had failed to perform. The Authority and the named sub-
contractors in turn asserted counterclaims against Globe.

During the course of the Oklahoma federal court pro-
ceedings, Globe filed for Chapter XI arrangement proceed-
ings under the Bankruptcy Act in Colorado. Globe’s surety
on the performance bond, the General Insurance Company,
was then joined as a party in the Oklahoma proceeding.
Trial of this case was to the court, sitting without a jury,
and culminated in a detailed, 17-page memorandum opin-
ion. In general, the trial judge held adversely as to General
Insurance on any claims asserted by it, on behalf of Globe,
against the Authority or any of the named subcontractors.
Concerning the defendants’ counterclaims, the trial court
held for the counterclaimants and against General Insur-
ance. One defendant-counterclaimant, Ray Davis, doing
business as Pioneer Floor Company, was also awarded
judgment against Globe.

Eleven notices of appeal were filed, each secking re-
view of the judgment as entered by the trial court. Nine of
the notices of appeal were filed by General Insurance and

two by Globe, We shall first consider the nine appeals of

General Insurance.

A-5
[APPENDIX)
Nos. 75-1464, 75-1465, 75-1466, 75-1467, 75-1469, 75-1470,
75-1471, 75-1472, and 75-1475

The nine appeals discussed here concern General In-
surance and its dispute with the Authority and some eight
of the subcontractors. As indicated, the trial judge dis-
missed the claims asserted by General Insurance, on behalf
of Globe, against the Authority and the subcontractors, and
at the same time awarded the Authority and the subcon-
tractors substantial damages, and attorney’s fees, against
General Insurance, based on the obligation which General
Insurance assumed when, as surety, it issued Globe a per-
formance bond. Many of the matters raised by General
Insurance on appeal concern what we deem to be questions
of fact which were resolved by the trial judge on the basis
of conflicting evidence. For example, such matters as fraud
in the inducement; waiver of such fraud; latent conditions,
defective plans, timely performance; substantial perform-
ance; waiver of any right to terminate; reasonable attor-
ney’s fees are in reality factual issues, not legal issues. It is
of course axiomatic that resolution by a trial judge of
controverted issues of fact are not to be overturned by an
appellate court uniess they are clearly erroneous. In the
instant case the trial judge’s critical findings of fact are not,
in our view, clearly erroneous. On the contrary, the court’s
findings are supported by the record and accordingly on
appeal must be accepted.

Two matters urged by General Insurance merit brief
comment. As mentioned above, after Globe instituted the
present action against the Authority and the named sub-
contractors, Globe filed for Chapter XI arrangement pro-
ceedings under the Bankruptcy Act in Colorado. The
bankruptcy referee thereafter entered an order staying all
proceedings against Globe and its surety, General Insur-
ance. The federal district court in Oklahoma ignored this
stay order and, after hearing, entered judgment against

A-6

[APPENDIX})

both Globe and General Insurance. Consideration of the
judgments thus entered against Globe will be deferred for
the moment. Speaking now only as to the judgments en-
tered against General Insurance, the surety, General argues
that because of the pending bankruptcy proceedings involv-
ing Globe in Colorado, the federal court in Oklahoma should
not have continued to proceed as to the surety, General
Insurance, nor should it have entered judgment against
General based on the latter’s performance bond. Under
the circumstances, we do not agree.

A primary purpose of the Bankrupty Act is to place
the property of the debtor under the control of the bank-
ruptcy court. To protect its jurisdiction the bankruptcy
court may enjoin suits against the debtor or involving the
debtor’s property in another court. Texaco, Inc. v. Liberty
National Bank & Trust Company of Oklahoma City, 464
F.2d 389 (10th Cir. 1972). However, the instant case, insofar
as it relates to General Insurance, is not a proceeding
against Globe nor does it concern any property belonging
to Globe. The claim by the Authority and the various sub-
contractors against General Insurance was based on the
obligation assumed by General Insurance under the terms
and provisions of the performance bond. The liability of
General, as surety, is joint and several to the liability of
the principal, Globe. The power of a bankruptcy court to
enjoin in personam suits is confined to suits against the
debtor, and there is no jurisdiction to enjoin a suit brought
to enforce the personal liability of a guarantor of bonds
sccured by a mortgage unon property owned by the debtor.

8 Collier on Bankruptcy § 3.22, at 250 (14th ed. 1976). See .

also, Loyd v. Stewart & Nuss, Inc., 327 F.2d 642 (9th Cir.
1964). For cases holding that a court of bankruntcy is with-
cut jurisdiction to enjoin proceedings where creditors of
the bankrupt institute proceedings against the surety of
the bankrupt, see Jaouith v. Rowlev, 188 U.S. 620 (1903)

‘
wee

A-7
(APPENDIX)
and Brown v. Four-in-One Coal Co., 286 F. 512 (6th Cir.
1923), cert. denied, 262 U.S. 749 (1923). See also Metcalf v.
Barker, 187 U.S. 165 (1902) and Linstroth Wagon Co. v.
Ballew, 149 F. 960 (1907).

As indicated, the trial judge permitted the Oklahoma
proceedings to continue against both Globe and General

after being advised of the institution of bankruptcy pro-

ceedings involving Globe in Colorado. J udgments were
initially entered against both Globe and General. Subse-
quently, however, the Authority became convinced that
its judgment against Globe was invalid, because such had
been entered during the pendency of the bankruptcy pro-
ceedings. During the process of Globe’s appeal, Globe and
the Authority executed a release of the judgment. The re-
lease was carefully worded to the end that it released only
the judgment obtained by the Authority against Globe, and
specifically provided that it did not release the judgment
obtained by the Authority against General Insurance. Not-
withstanding, General Insurance now contends that the
release of the judgment against Globe also released the
judgment entered against General Insurance. We do not
agree. The liability of General Insurance was both joint and
several from the liability of Globe. The fact that the Au-
thority released the judgment which it had obtained against
Globe did not release the judgment against General Insur-
ance. Under Oklahoma law the release of one joint obligor
is not a release of any other obligor when the intent to re-
serve as to the latter is clearly expressed. Barsh v. Mullins,
338 P.2d 845 (Okla. 1959) and All American Bus Lines v.
Saxon, 172 P.2d 424 (Okla. 1946). And the same rule has
been applied to releases of judgment. Hambright v. City
of Cleveland, 360 P.2d 493 (Okla. 1960).

The judgments in 75-1464, 75-1465, 75-1466, 75-1467,
79-1469, 75-1470, 75-1471, and 75-1472 and 75-1475 are sev-
erally affirmed.

A-8

(APPENDIX)
Nos. 75-1479 and 75-1480

These two appeals were filed by Globe and concern
judgments entered against it in favor of Ray Davis, doing
business as Pioneer Floor Company, one of the subcon-
tractors. The first of these two appeals, No. 75-1479, relates
to a judgment entered in favor of Davis in the sum of
$6,011.93 on his counterclaim. The second appeal, No. 75-
1480, pertains to a further judgment later entered in favor
of Davis in the amount of $1,000, this sum representing
reasonable atlorney’s fees. Davis also enjoyed a similar
judgment on its counterclaim against General Insurance,
the latter appealing that judgment in No. 75-1464.

The judgment entered against Globe in No. 75-1480
for $1,000 as attorney’s fees was entered after the institu-
tion of bankruptcy proceedings by Globe in Colorado. Davis
in this Court makes no effort to defend that particular
judgment. Accordingly, the judgment in No. 75-1480 is
vacated and set aside.

We conclude that the judgment entered in No. 75-1479
should also be vacated and set aside. Although the record
is not entirely clear, it nonetheless appears to us that prior
to the bankruptcy proceeding, the trial judge had granted
Davis’ motion for summary judgment, both on Globe's
claim against Davis and as to the Davis’ counterclaim
against Globe. However, the judgment itself was not en-
tered until after the bankruptcy proceedings had been
instituted. Accordingly, the judgment in No. 75-1479 is
vacated and set aside. Texaco, Inc. v. Liberty National Bank

& Trust Company of Oklahoma Citv, 464 F.2d 389 (10th -

Cir. 1972).

nets saasns Prnbeteatat Tete +S

{APPENDIX}

FILED
APR 30 1975

Rex B. HAwKs
CLERK U. S. DISTRICT COURT
(s) Irene Higginbotham

Deputy
IN THE UNITED STATES DISTRICT COURT
FOR THE
WESTERN DISTRICT OF OKLAHOMA

GLOBE CONSTRUCTION CO.,
a corporation,
Plaintiff,
v.

OKLAHOMA CITY HOUSING
AUTHORITY et al.,
Defendants,

eee eee eee ee a”

) No. Civ-73-641-C
and

GEORGE SEMINOFF, WAYNE L.
BOWMAN and ALBERT W. BODE,
Partners, doing business as
SEMINOFF-BOWMAN-BODE,
Third Party
Defendants.

ll i i i i a

MEMORANDUM OPINION

PRELIMINARY STATEMENT

This action was commenced by the filing of a Com-
plaint by Globe Construction Company against the Okla-
homa City Housing Authority, and others, on September
21, 1973. It arises out of a contract dated October 25, 1972,
wherein the plaintiff agreed to furnish all labor, material,
equipment, and services for the remodeling of the Housing
Authority’s Will Rogers Courts public housing facility at

A-10

[APPEND!IX)

Oklahoma City, Oklahoma. Since various allegations were
made with regard to extra labor and materials furnished
as a result of incompleie or defective plans and specifica-
tions prepared by outside architects, the architects were
joined as third-party defendants. The remaining parties-
defendant constitute subcontractors of plaintiff under its
prime contract with the Housing Authority. They filed
counterclaims against the prime contractor because of dis-
putes arising between them, including failure to pay in
accordance with the terms of the various subcontracts and
for extra labor and materials furnished at the insistence of
the prime contractor which were outside the provisions
of the various subcontracts. General Insurance Company
‘ of America as surety under the performance and payment
bonds required as a part of the prime contract became a
party to the proceedings before November 13, 1973, on
which date it filed an Answer to the Counterclaim and
Cross-claim of a subcontractor, Jerry W. Taylor. That An-
swer was filed and executed by R. Brown Wallace of
Andrews, Mosburg, Davis, Elam, Legg & Bixler and A. P.
Murrah, Jr., appeared with him on the pleading. On the
same date, the same counsel filed on behalf of the plaintiff
an Answer to the Counterclaim of the Housing Authority,
and of various subcontracting parties, and an Entry of
Appearance on behalf of General Insurance Company of
America. On July 5, 1974, the defendant Housing Authority
filed its Amendment to Counterclaim to join General In-
surance Company of America on its bond.

With the issues completely joined, pretrial conference

was held on July 16, 1974, when the Court was advised by .

counsel for the various defendants, counterclaimants, and
crossclaimants, that discovery responses from the plaintiff
had been wholly inadequate, and the case should not be
permitted to proceed to trial. At the insistence of Robert E.
Andreen, Esq., of Kaminar, Sorbo, Andreen & Thorn, San

te

A-11

[APPEND!X)
Diego, California, chief counsel for the plaintiff, and be-
cause of economic injuries being suffered by subcontractors
from delay, it was ordered that the matter proceed to trial,
commencing July 30, 1974. It was understood and agreed
by the Court and by all counsel then of record that the
proceedings should be divided into areas of subcontractors’
interest (i.e., electrical, painting, etc.) with regard to per-
formance or failure as between the prime contractor and
the pertinent subcontractor, which evidence would be con-
sidered with regard to that area of the dispute existing
between the plaintiff, Globe Construction Company, and
the defendant Housing Authority. Issues with regard to
delays and cost of completion were to be considered at a
second stage.

Trial commenced on July 30, 1974; the plaintiff’s ex-
hibits had been marked for identification only by files
containing voluminous documentation; the subcontractor
defendants had been unable to ascertain, either through
discovery or through pleadings, the exact nature and ex-
tent of the plaintiff's claims against them. Mr. Andreen
appeared as chief counsel for the plaintiff. Mr. Murrah also
appeared for the plaintiff and for its surety, General Insur-
ance Company of America.

During opening statement on behalf of the Housing
Authority, its counsel indicated it would reauest leave of
Court to amend the defendant’s counterclaim to allege that
the plaintiff fraudulently induced it to execute the re-
modeling contract.

The plaintiff elected to proceed first against Adrian
F. Statser, d/b/a A & J Electric Company. The Court re-
ceived evidence pertaining to the plaintiff’s Claim Number
36-103-127 and, on August 1, 1974, announced tentative
findings with regard to that claim, including a finding that
the plaintiff fraudulently induced the electrical subcon-
tractor to execute the pertinent subcontract and the de-

A-12

[APPENDIX)

fendant Housing Authority to execute the prime contract.
The Court further found the contractor failed to conduct
a full and complete inspection of the premises to be re-
modeled and that the contractor failed to comply with
requirements of the contract for procedures in the event
of dispute. The plaintiff was specifically informed that it
would be provided an opportunity to offer any further evi-
dence, and in fact to reopen and offer additional testimony
with regard to Claim Number 36-103-127. The defendant
Housing Authority was allowed to offer direct testimony
bearing upon the fraudulent conduct of the plaintiff, and
the plaintiff was granted the right of reserving cross-
examination of the Authority’s witnesses and the right
to controvert or rebut such evidence and such testimony,
and to file appropriate briefs prior to August 20, 1974, when
the proceedings were scheduled to recommence.

On August 19, 1974, General Insurance Company of
America, surety of the prime contractor, through its new
counsel, Mr. Byrne Bowman, requested a continuance to
October 1, 1974, in order to permit such new counsel suffi-
cient time for familiarization and preparation. That motion
was granted by agreement of the parties, and the proceed-
ings were continued to October 1, 1974. On September 25,
i974, General Insurance Company of America filed an addi-
tional motion for continuance to “about December 1, 1974”,
or until such time as the plaintiff might complete an un-
related construction project in another area. On the same
date General Insurance Company of America filed its
motion to reopen. The motion for continuance was over-
ruled by order of September 26, 1974, which order provided
the motion to reopen would be reconsidered on October 1,
1974, at recommencement of trial. On October 1, 1974, Mr.
Bowman announced his client, General Insurance Company
of America, had taken control of the plaintiff's action and
the deferse of claims and cross-claims of the various de-

A-13

{APPENDIX}
fendants. Chief counsel for the plaintiff, Mr. Andreen, with-
out leave of Court or courtesy of notice simply failed to
appear, and local counsel for both the plaintiff and its
surety requested permission to withdraw. Plaintiff’s prin-
cipal stockholder and essential witness also was not present.
The Court provided several opportunities for proffers of
testimony or other evidence by the plaintiff or its surety,
both of whom failed to produce witnesses or documentary
evidence. Nor did either the plaintiff or its surety proceed
with cross-examination, earlier reserved of witnesses for
the Housing Authority in the area of fraudulent induce-
ment. The Court adopted proposed findings of fact and con-
clusions of law with regard to Claim Number 36-103-127,
and reluctantly allowed the withdrawal of Mr. Murrah as
counsel for the plaintiff on October 2, 1974. On the follow-
ing day, when plaintiff, Globe Construction Company, failed
to appear by counsel, principal stockholder, witness, or
other representative, and in light of the refusal of Mr.
Bowman to appear on the plaintiff's behalf, the plaintiff
was declared to be in default. On October 4, 1974, the
plaintiff's President and principa! stockholder, appearing
pro se, advised the Court that the plaintiff had filed in the
United States District Court for the District of Colorado
for relief under Chapter XI of the Bankruptcy Act. Non-
jury trial was then conducted to and including October 7,
1974, then recessed to November 25, 1974, when notice was
received that a stay of proceedings had been entered by
the United States Court of Apneals. The Court of Appeals
Order was modified December 4, 1974, to permit recom-
mencement of the proceedings against the surety, and on
January 24, 1975, non-jury trial was scheduled to recom-
mence February 3, 1975. Following seven additional days
of trial, the Court announced judgment.

The proceedings, v aile comnlicated, were frustrated
bv failure of the plaintiff and its surety to avail themselvcs
of discovery procedures after admonishment by the Court,

A-14
([APPEND!x}

continuance, by refusal of the plaintiff to meet its burden
of proof or of going forward with evidence and by efforts
on four occasions to invoke the jurisdiction of the Court of

an order to disqualify the Trial Judge. These tactics ap-
peared calculated to impede the conduct of the trial, and
if so, had the desired effect.

In spite of the refusal of counsel to adequately prepare
for orderly presentation, the Court has received and con-
sidered all of the proffered evidence which might be consid-
ered relevant or material to the claims of the plaintiff and
its surety General Insurance Company of America and of
all other parties and makes the following Findings of Fact
and Conclusions of Law and concludes that judgment
should be entered as hereinafter set forth. Following receipt
of all of the evidence, findings of fact and conclusions of
law heretofore preliminarily entered are set forth and in-
corporated herein with suitable modifications.

FINDINGS OF FACT

1. As a result of requisite competitive bidding, the
plaintiff, Globe Construction Company, was awarded the
contract for the remodeling of Phase I, Project Okla 2-1,
Will Rogers Courts, at Oklahoma City, Oklahoma, by the
Oklahoma City Housing Authority, a public bedy corporate
and politic.

2. Plans and specifications for the remodeling project
were prepared by Seminoff-Bowman-Bode, architects, Ok-
lahoma City, Oklahoma. Such plans were intended to be
suggestive, only; they were intended to illustrate the com-
pleted work, and not to display existing conditions. The
plaintiff contractor was required to inspect the 40-year-old

ee eer

A-15

[APPENDIX}
buildings to be remodeled and to familiarize itself with
conditions relating to construction and labor, warranting
that it would assert no claims because of conditions regard-
ing which it should have been on notice as a result of such
inspection. It warranted that it had made such an inspec-
tion, and fully acquainted itself with conditions relating to
construction and labor. The contractor was also required
to check existing dimensions and all details. With specific
regard to electrical work, the contract provided that elec-
trical system layouts indicated on the drawings were gen-
erally diagrammatic and that location of outlets and equip-
ment should be governed by structural conditions and

obstructions.

3. General standards prevailing in this community
with regard to remodeling of an existing structure or
structures impose upon the prime contractor the duty to
examine the structure or structures to ascertain by proper
investigation defects or obstructions it might encounter
during the course of construction, and to include in its bid
en amount sufficient to compensate it for the accomplish-
ment of the work and materials reauired thereby.

4. The plaintiff Globe Construction Company failed to
conduct an inspection and examination of the structures to
be zemodeled to the extent imposed uvon it by the pro-
visions of the contract, including the plans and specifica-
tions, and impesed by the standards in the community.

5. During the progress of construction, the plaintiff
encountered certain conditions which it alleges required
the expenditure of additional sums for labor and materials.
The conditions referred to by plaintiff in its Claim Number
36-103-127, for which it claims extra compensation in the
emount of $21,045.26, involves electrical junction boxes
embedded in concrete floors of the buildings. None of the
parties involved herein, to-wit, the plaintiff, Globe Con-
struc‘ion Company, the defendant, Oklahoma City Housing

A-16

{APPENDIX}

Authority, the defendant, Adrian Statser, d/b/a A & J
Electric Company, and the third party defendants, Sem-
inoff-Bowman-Bode had knowledge of the embedded junc-
tion boxes. At least fifty percent of the junction boxes were
exposed, and would have been visible to the plaintiff upon
adequate inspection of the job site as required by the con-
tract. It could and should have anticipated that additional
labor and materials would have to be expended for elec-
trical work and should have increased its competitive bid
accordingly. The plaintiff was obligated to discover the
existence of the junction boxes during the course of its
inspection, and was further under an obligation and duty
to reveal the presence of them to the electrical subcon-
tractor, A & J Electric Company.

6. The plaintiff intentionally, willfully, materially and
falsely represented to the defendant, Okahoma City Hous-
ing Authority, that it would comply with the terms of the
construction contract for the amount of its Wid. to-wit, the
sum of $889,388.00, and that its President, G. K. Ward,
would personally supervise the construction job “full time”
The Court specifically finds that the plaintiff never intended
to perform the construction contract according to its terms,
but rather intended to rely upon asserted deficiencies in the
plans and specifications in order to profit from change or-
ders to the contract resulting in substantial increase in
price; nor did it ever intend that its President, G. K. Ward,
would provide full-time supervision.

7. The plaintiff, Globe Construction Company, fraudu-
lently induced the defendant, A & J Electric Company, its
subcontractor, to enter into the electrical subcontract by
material and false misrepresentation, known by the plain-
tiff to be false.

8. In direct violation of its executed Non-Collusion
Affidavit, plaintiff conspired, colluded, and agreed both
directly and indirectly to put in sham bids, and sought by

A-17
[APPENDIX]
agreement or collusion to fix the bid price of other bidders,
and thereby secured an advantage against the defendant,
Oklahoma City Housing Authority.

9. The plaintiff failed to comp!y with the requirements
contained in the construction contract concerning the pro-
cedure for change orders, and further failed to comply with
the provisions set forth requiring presentation in writing
to the contracting officer for decision all disputes and all
claims for alleged breach of contract.

10. The plans and specifications for the Will Rogers
Courts, prepared by Seminoff-Bowman-Bode, were pre-
pared in a reasonable and prudent manner and in accord-
ance with the standard of care exercised by other architects
in this community. They were prepared in such a manner
that they could be reasonably interpreted and followed by
any reasonably competent contractor.

11. The contractor failed to complete its work dili-
gently and in a workmanlike, orderly manner.

12. The contractor failed to fully acauaint itself with
conditions relating to construction at the job site.

13. The contractor failed to negotiate the value of
extra or omitted work in advance, and to state such value
in a change order describing the nature and extent of the
change, or to await a proceed order from the Housing Au-
thority stating the manner in which the value of any change
would be determined.

14. The contractor made changes in the work without
a written change order from the defendant Housing Au-
thority, approved on its face by the Department of Housing
and Urban Development, and in the absence of an emer-
gency or written order, made changes that were not neces-
sary for the protection of life and property.

< |

(APPENDIX) oF

15. The plaintiff failed to protest to the contracting
officer with regard to claims for extra costs or extension of
time within ten (10) days after receipt of instructions in-
volving such extra cost or extension of time.

16. The plaintiff contractor failed, within ten (10)
days from the beginning of delays caused by weather, by
ond way neglect of the local authority, or by changes in

e work, to notify the contracting officer of the cause
extent of such delays. : ”

17. The plaintiff failed to present to the contracting
cfficer for decision, in writing, all disputes and all claims
for alleged breach of contract within ten (10) days follow-
ing commencement of such disputes.

18. The plaintiff contractor failed to j rope
provide r
protection for existing work which was open or ame
during the course of construction and failed to protect its
work from damage and the Owner’s property from injury
or loss,

20. The plaintiff contractor failed to provide for tem-
porary electric service and water service needed during the
construction and failed to provide temporary local heating
re maa to prevent injury and damage from dampness
or cold.

21. The contractor failed to complete the work called
for by the contract within 180 consecutive calendar days
from the date of notice to proceed, October 1, 1973, includ-
ing time extensions of 21 days granted by the Housing
Authority.

22. The contractor failed to provide adequate super-
vision for the work in progress, resulting in complete
failure of coordination between subcontracting crafts and
unnecessary and unreasonable delays.

_

A-19
{APPENDIX}
23. The contractor failed to timely supply materials
required to be furnished by him, under the terms of various
subcontracts, which failure resulted in further unreason-
able and unnecessary delays and rendered coordination and

contact between crafts impossible.

24. The claims of the contractor, identified by control
numbers, as indicated below, resulted from failure of the
contractor in one or more of the areas of non-compliance
set forth in the preceding findings. The claims are denoted
by claim number and description of work as follows:

Globe Control Number Brief Description

36-103-103 /108 Plastering behind convex
Misc. plastering /replacing

of nipples

36-103-104/112 Replacement of Exterior
glazing

36-103-109 /111 Hollow door frames

36-103-110 Outside overhead electrical
work

36-103-114 Uniform white birch doors

36-103-115 Time extensions

36-103-117 Boiler bases

36-103-119/136 Piping to panel distribution
boxes

36-103-120 Kitchen drains

36-103-121 Off-street parking permit

36-103-122 Plaster patching

36-103-123 Drapery rod mounting boards

36-103-125 Preparation of paint surfaces

A-20
(APPENDIX)
36-103-126 Field change order—
mechanical
36-103-127 Wiremold
36-103-129 Steel door frames
36-103-134 2-way switches
36-103-140 Junction boxes

Complete details with regard to each of the foregoing items
are contained in exhibits offered by General Insurance Com-
pany of America and received by the Court.

25. Claims for time extensions on account of weather,
delay in approval of submittals, and all other claims for

tractor or of the defendant Housing Authorit
‘ y. Progress
of the work was not delayed by inclement weather, except

to the extent of 16 days allowed by the defendant, Housing
Authority.

26. The procedure which the defendant, Housing Au-
thority, is required to utilize in arriving at rentals to be
paid for its units, together with the presence or absence of
available tenants who are eligible, and the amount of rent-
als to be paid by such tenants, renders the assessment of
exact actual damages extremely difficult. Damages cannot
be measured with an exact degree of accuracy but are not,
on the face of the contract in Suit, out of proportion to
probable loss.

27. The Court concludes that the defendant, Oklahoma
City Housing Authority, should have and recover judgment
as against the General Insurance Company of America, as
surety on the performance bond of the vlaintiff, Globe
Construction Company, in the amount of $177,504.00 being
liquidated damages as provided in the construction contract
cs'culated from extended completion date of May 20, 1973,

~ et deena: i

"copia kat ia ai

A-21

(APPENDIX)
to actual date of completion on January 11, 1974, except
as to Buildings 51 and 52 which were accepted July 25,
1973. The Housing Authority should also have and recover
an amount of $1,858.71 for deletion of a parking lot the
contractor was not required to install, and $75,000.00 for
the use and benefit of its attorney, William B. Rogers, as
a reasonable fee for services performed on behalf 9f his

‘client herein; the sum of $10,070.53 for the use and benefit

of John R. Couch and Hugh M. Baysinger, as counsel for
third-party defendants, Seminoff-Bowman-Bode. From this
amount, General Insurance Company of America is entitled
to credit in the amount of $1,685.88 for net profit due the
contractor on field change orders for which payment has
been rendered to Matherly Mechanical Contractors in the
amount of $28,097.63.

28. Following receipt of notice that its bid had been
accepted, the plaintiff executed contracts for work to be
performed by various subcontractors. Almost immediately
disputes between the prime and the subcontractors com-
menced. Findings and conclusions with regard to those dis-
putes are set forth hereafter.

Builders Specialty, Inc.

29. The subcontract with this defendant called for fur-
nishing of labor and material for installation of gypsum
board, dry and metal studs, installation of steel door jambs,
and acoustical ceilings. By an executed change order, Build-
ers Specialty was directed, in addition, to install 504 new
wood interior doors at $6.00 ner door for a total increase
to the subcontract price of $3,024.00. Subsequently, the
plaintiff directed the subcontractor to furnish additional
labor and material, not called for by the subcontract, as
amended by Change Order No. 1, by mortising the new
wood doors and installation of wall molding, for which the
subcontract price should have been increased an additional

A-22

(APPENDIX)

sum of $1,059.39. In addition, the plaintiff failed to supply
proper sized steel door jambs for installation by Builders
Specialty, resulting in damages in the additional amount
of $2,778.30. About May 31, 1973, the plaintiff breached its
subcontract with this defendant by failing to timely pay
the defendant for 90% of the work, labor and materials
furnished by defendant under its contract, even though the
plaintiff had received payment from the defendant Hous-
ing Authority.

By reason of the aforesaid, the defendant, Builders
Specialty, should recover as against the surety the sum of
$20,181.69, from which should be deducted credits for 70
doors not installed by Builders Specialty having a fair and
reasonable cost of $245.00, for acoustical ceiling not in-
stalled having a fair and reasonable cost to Builders Spe-
cialty of $700.00, and for $64.00 being the reasonable cost
of performance of punch list items by the defendant, Hous-
ing Authority, and for payments made to the subcontractor
in the amount of $13,806.87, leaving a total balance due of
$5,392.82. The defendant, Builders Specialty, Inc., is en-
titled to recover the amount of $5,380.82 with interest from
August 10, 1973, and reasonable aitorneys’ fees in the
amount of $6,190.00 and all costs exvended herein.

Rock Creek Home Center, Inc.

30. This subcontract was not executed until February
16, 1973. It involves prefabrication and installation of par-
tially new and a modification of existing kitchen cabinets.
The contractor required additional performance increasing
the value of performance to $39,973.59. Again, the contractor
failed to timely make progress payments for which it had
been paid. Having been denied payment, Rock Creek Home
Center, Inc., terminated its contract and abandoned the
work on August 15, 1973, at which time it had completed
60% of the work it had agreed to verform. It received only

A-23
(APPENDIX)
$15,437.00 in payment from the prime contractor, leaving
a balance due of $15,959.35, and is entitled to recover that
amount, with interest commencing August 15, 1973, and
costs expended herein including reasonable attorneys’ fees
in the amount of $6,000.00.

Matherly Mechanical Contractors, Inc.

31. This contract for plumbing, heating, and other me-
chanical work, required performance for compensation of
$315,000.00, of which the contractor paid only $275,580.79,
leaving a balance due of $39,419.21. Additional work was
done by Matherly outside the scope of the prime contract
and of its subcontract in the amount of $28,097.63, repre-
senting field change orders. It received payment from the
owner, Housing Authority, during the course of litigation
by stipulation of the parties concerned. It also performed
additional work at the direction of the prime contractor,
having a value of $2,108.62, for which it has not been paid,
for a total balance due this subcontractor of $41,527.83, less
agreed credits due the prime contractor of $366.40. It should
have judgment. for $41,161.43, with interest thereon from
September 17, 1973, the date it completed its work, and
for costs expended herein, including reasonable attorneys’
fees in the amount of $15,000.00.

Adrian F. Statser, d/b/a A& J Electric Company

32. This defendant-electrical subcontractor performed
its contract in full and was required by the plaintiff to
perform additional work in the amount of $48,263.52. The
balance of the original contract price due the subcontrac-
tor is $66,846.20, with a balance due of $115,109.72, which
amount it is entitled to recover, with interest from Sep-
tember 20, 1973, the date the prime contract was termi-
nated by defendant, Housing Authority, and reasonable
attorneys’ fees in the amount of $25.000.00.

A-24
(APPENDIX)

M.C.S. Services, Inc.

33. This painting subcontractor is due the unpaid bal-
ance on its original subcontract price in the amount of
$13,622.00. It did additional glazing at the direction of the
plaintiff, having a value of $3,260.00, and was required to
do painting not called for by the terms of the subcontract
resulting from damage by the plaintiff to surfaces already
painted in the amount of $18,500.00. It is entitled to judg-
ment in the amount of $35,382.00, with interest from Sep-
tember 20, 1973, and all costs expended herein, including
reasonable attorneys’ fees in the amount of $8,000.00.

Jerry W. Taylor,
a‘b/a Concrete Construction Company

34. This concrete subcontractor is due an unpaid bal-
ance on its subcontract price of $3,500.00, less credit for
installation of sidewalks not properly installed by the sub-
contractor of $1,851.78, leaving a balance due of $1,648.22,
for which the subcontractor is entitled to judgment with
interest from September 20, 1973, and costs expended
herein, including reasonable attorneys’ fees in the amount
of $500.00.

Bill Cox, d/b/a Home Improvement Company

35. The balance due this subcontractor on his original
contract price is $4,700.00, for which it is entitled to judg-
ment with interest from Sentember 20, 1973, and a reason-
able attorneys’ fee in the amount of $1,250.09.

Kenneth E. Ballard, d/b/a Ballard Fence Company

36. Ballard has a balance due under its subcontract
of $1,410.00 and is entitled to recover that amount with
interest from September 20, 1973, and a reasonable ai-
torneys’ fee in the amount of $500.00.

COG ak: cet nanan mE OP a

ms mtd

A-25
(APPENDIX)

Southwest Electric Co., Inc.

37. Southwest Electric Co., Inc., furnished transform-
ers to the prime contractor having a value of $2,945.80,
which were items of equipment required to be furnished
by the defendant, Adrian F. Statser, d/b/a A& J Electric
Company. Upon payment of the transformer cost to South-
west Electric Co., Inc., credit should be issued the surety
as against the judgment of Adrian F. Statser.

38. The plaintiff and its surety failed to prove by a
preponderance of the evidence any claim or back charges
against the subcontracting parties for breach of contract,
for delay in performance or for failure to furnish and in-
Stall labor and materials in compliance therewith, except
as herein specifically allowed. The evidence shows clearly
that each of said subcontractors performed its contract
work according to the terms and conditions of its respective
subcontract, and they are entited to recover accordingly.

CONCLUSIONS OF LAW

1. The General Insurance Company of America, as
surety on the performance bond of the plaintiff, Globe Con-
struction Company, having asserted the claims and de-
fenses of the plaintiff, should have and recover nothing
as against the defendant, Oklahoma City Housing Authority
or the subcontractor-defendants and intervenors, on its
Complaint, as amended, including permissive amendment
in conformity with the proof.

2. General Insurance Company of America, as surety
upon the bonds of the principal, Globe Construction Com-
pany, the plaintiff herein, is jointly and severally liable
with the plaintiff for claims for labor and materials fur-
nished in prosecution of the work required and for per-
formance of the contract according to its terms. The bank-
ruptcy proceedings filed by the plaintiff, while overating as

A-26
{APPENDIX}
a stay of any proceedings against the plaintiff, do not affect
the right of the parties to proceed as against General In-
surance Company of America, as surety for the plaintiff,
for labor and materials furnished by subcontractors, and
for performance of the prime contract.

3. The defendant and intervening subcontractor-parties
hereto should have and recover judgment against the Gen-
eral Insurance Company of America, as surety on the statu-
tory and payment bond of the plaintiff, Globe Censtruction
Company, as follows:

a. Rock Creek Home Center, Inc., the sum of $15,-
959.35, with interest from August 15, 1973, and costs,
including reasonable attorneys’ fees in the amount of
$6,000.00;

b. Matherly Mechanical Contractors, the sum of
$41,161.43, with interest from September 17, 1973, and
costs, including attorneys’ fees in the amount of $15.-
000.00;

c. Builders Specialty, Inc., the sum of $5,380.82,
with interest from August 10, 1973, and costs, including
reasonable attorneys’ fees in the amount of $6,190.00;

d. Adrian F. Statser, d/b/a A& J Electric Com-
pany, the sum of $115,109.72, with interest from Sep-
tember 20, 1973, and costs, including reasonable attorneys’
fees in the amount of $25,000.00;

e. M.C.S. Services, Inc., the sum of $35,382.00, with
interest from September 20, 1973, and cos‘s, including
reasonable attorneys’ fees in the amount of $8,000.00; :

f. Jerry W. Taylor, d/b/a Concrete Construction
Company, the sum of $1,648.22, with interest from Sep-
tember 20, 1973, and costs, including attorneys’ fees in
the amount of $500.00:

ol ee

ee. ae} Ot ee

ON ee oe ots 2 hie

A-27

[APPENDIX)

g- Bill Cox, d/b/a Home Improvement Company,
the sum of $4,700.00 with interest from September 20,
1973, and costs, including attorneys’ fees of $1,250.00;

h. Kenneth E. Ballard, d/b/a Ballard Fence Com-
pany, the sum of $1,410.00, with interest from September
20, 1973, and costs, including reasonable attorneys’ fees
of $500.00;

i. Southwest Electric Co., Inc., the sum of $2,945.80
to be credited against the judgment herein rendered in
favor of Adrian F. Statser, d/b/a A& J Electric Com-
pany.

DATED this 30th day of April, 1975.

s/ Stephen S. Chandler
UNITED STATES DISTRICT JUDGE

A-28
(APPENDIX)
FILED
APR 30 1975

Rex B. HAwks
CLERK U. S. DISTRICT COURT
(s) Irene Higginbotham

Deputy
IN THE UNITED STATES DISTRICT COURT
FOR THE
WESTERN DISTRICT OF OKLAHOMA

GLOBE CONSTRUCTION COMPANY ,)
Plaintiff,

Vv. No. Civ-73-641-C

OKLAHOMA CITY HOUSING
AUTHORITY, et al,

i a

Defendants. )

FINAL JUDGMENTS ON ALL ISSUES
AS TO ALL PARTIES

Having considered all pleadings, stipulations, oral tes-
timony and documentary evidence, in a series of trial
sessions, and having announced from the bench the Court's
final determination of all issues as to all parties, the Court
adjudges and decrees judgments in favor of the following
parties against General Insurance Company of America,
which judgments are ordered entered in accordance with
Federal Rule of Civil Procedure No. 54 (b):

Principal Attorney
Party Amount Fee Total

Oklahoma City Housing

Authority $187,747.36 $75,000.00 $262,747.36
Adrian Statser, d/b/a

A &J Electric Company $115,109.72 $25,000.00 $140,109.72

Kenneth E. Ballard,
d‘b/a Ballard Fence $1,410.00 $500.00 $1,910.00

ae ee eee

en

ee ee

PI GOL. crs eke

A-29

[APPENDIX}
Jerry Taylor, d/b/a
Concrete Construction
Company $1,648.22 $500.00 $2,148.22

Bill Cox, d/b/a
Home Improvement Co. _ $4,700.00 $1,250.00 $5,950.00

MCS Services, Inc.

. (Maddox Paint Contract-
ing Company ) $35,382.00 $8,000.00 $43,382.00
Matherly Mechanical
Contractors, Inc. $41,161.43 $15,000.00 $56,161.43
Rock Creek Home
Center, Inc. $15,959.35 $6,000.00 $21,959.35

Southwest Electric Company, the sum of $2,945.80 to be
credited against the judgment herein rendered in favor of
Adrian F. Statser, d/b/a A & J Electric Company when
paid by General Insurance Company of America.

IT IS SO ORDERED AND ADJUDGED.
The Court previously signed (and the Clerk entered

on the docket sheet) the following judgments against GEN-
ERAL INSURANCE COMPANY OF AMERICA:

Principal Attorney

Date Party Amount Fee Total
1/6/75 Ray Davis,
d/b/a Pioneer

Floor Company $6,011.93 $1,000.00 $7,011.93

2/25/75 Builders Spec-
ialty, Inc. $5,380.82 $6,190.00 $11,570.82

Having determined all issues as to all parties, the Court
orders that said judgments now be entered in accordance
with Rule 54(b).

A-30
(APPENDIX)
The Court previously signed (and the Clerk entered on
the docket sheet) the following judgments against GLOBE
CONSTRUCTION COMPANY:

Date Party Amount
8/19/74 Ray Davis, d/b/a Pioneer Floor
Company $6,011.93
8/22/74 Oklahoma Tile Company $2,194.00
10/1/74 A.J. Statser,d/b/aA& J
Electric Company $19,657.44

10/7/74 Oklahoma City Housing Authority
Liquidated Damages $177,504
Exemplary Damages $250,000 $427,504.00

10/7/74 Ray Davis, d/b/a Pioneer Floor
Company $1,000.00

Having determined all issues as to all parties, the Court
orders that said judgments now be entered in accordance
with Rule 54(b).

This constitutes a final determination and adjudication
of all issues as to all parties; and, accordingly, the Clerk is
directed to forthwith enter said judgments in accordance
with Rule 54(b).

Dated this 30th day of April, 1975.

s/ Stephen S. Chandler
UNITED STATES DISTRICT JUDGE

ENTERED IN JUDGMENT DOCKET ON
APR 30 1975

By: CATHY JUNE JUSTICE

A tet ole ry RE Sr ea wm noes ite,

Pete alm WN, i a tat aCe alk oho

Seiad Piaigsnay Sab e

A-31
(APPENDIX)
FILED
APR 30 1975

REx B. HAWKs
CLERK, U.S. DISTRICT COURT
(s) Irene Higginbotham

Deputy
IN THE UNITED STATES DISTRICT COURT
FOR THE
WESTERN DISTRICT OF OKLAHOMA

GLOBE CONSTRUCTION COMPANY, )

Plaintiff, )

Vv. ) No. Civ-73-641-C
)
OKLAHOMA CITY HOUSING )
AUTHORITY, et al, )
Defendants. )

SUPPLEMENT TO FINAL JUDGMENTS
ON ALL ISSUES AS TO ALL PARTIES

Through inadvertence there was omitted from the list
of those entitled to judgment against General Insurance
Company of America on the first page of the Judgment filed
en April 30, 1975, the following:

Principal Attorney
Party Amount Fee Total

Oklahoma Tile Company $2,194.00 $750.00 $2,944.00

for which sum the Court had theretofore entered judgment
and said Final Judgments On All Issues As To All Parties
is so amended to include said judgment in favor of Okla-
homa Tile Company.

s/ Stephen S. Chandler
UNITED STATES DISTRICT JUDGE

ENTERED IN JUDGMENT DOCKET ON
APR 30 1975

By: CATHY JUNE JUSTICE

ae ee ee

A-32
[APPENDIX]
FILED
APR 30 1975

REX B. HAWKS
CLERK, U.S, DISTRICT COURT
(s) Irene Higginbotham

Deputy
IN THE UNITED STATES DISTRICT COURT
FOR THE
WESTERN DISTRICT OF OKLAHOMA

GLOBE CONSTRUCTION COMPANY, )
Plaintiff, )
Vv. ) No. Civ-73-641-C

OKLAHOMA CITY HOUSING
AUTHORITY, et al,

Defendants. )

SUPPLEMENT TO FINAL JUDGMENTS
ON ALL ISSUES AS TO ALL PARTIES

Through inadvertence there was omitted from the list
of those entitled to judgment against General Insurance
Company of America on the first page of the Judgment filed
on April 30, 1975, the following:

Principal Attorney
Party Amount Fee Total
Oklahoma Tile Company $2,194.00 $750.00 $2,944.00

for which sum the Court had theretofore entered judgment
and said Final Judgments On All Issues As To All Parties
is so amended to include said judgment in favor of Okla-
homa Tile Company.

s/ Stephen S. Chandler
UNITED STATES DISTRICT JUDGE

ENTERED IN JUDGMENT DOCKET ON
APR 30 1975

By: CATHY JUNE JUSTICE

A-33
[APPENDIX}

FILED

IN OPEN COURT
OCT 7 1974

Rex B. HAWKS
CLERK, U.S. DISTRICT COURT
(s) Irene Higginbotham
Deputy
IN THE UNITED STATES DISTRICT COURT
FOR THE

WESTERN DISTRICT OF OKLAHOMA

GLOBE CONSTRUCTION CoO.,
a corporation,

~~"

Plaintiff,
v.

OKLAHOMA CITY HOUSING
AUTHORITY et al.,

Defendants, ) No. Civ-73-641-C
and

GEORGE SEMINOFF, WAYNE L.
BOWMAN and ALBERT W. BODE,
Partners, doing business as
SEMINOFF-BOWMAN-BODE,
Third Party
Defendants.

JUDGMENT

This Cause came on regularly to be heard the 1st day
of October, 1974, before the undersigned District Judge
having been continued to said date by Order of this Court,
the Plaintiff Globe Construction Company appearing by its
attorney, A. P. Murrah, Jr., the Defendant Oklahoma City
Housing Authority appearing in person and by its attorney,
William B. Rogers, the Defendants, MCS Services, Inc. and
A. J. Statser d/b/a A & J Electric Company, appearing in
person and by their attorney, Clyde J. Watts, the Genera]

Ne eee eee

A-34
(APPENDIX)
Insurance Company of America appearing in person and
by its attorneys of record, A. P. Murrah, Jr. and Byrne A.
Bowman, the Third-party Defendants, Seminoff-Bowman-
Bode appearing in person and by their attorneys Hugh A.
Baysinger and John R. Couch.

Whereupon A. P. Murrah, Jr. moves the Court to with-

draw as attorney of record for Globe Construction Company :

and for General Insurance Company of America, and the
Court takes such motion under advisement, requesting said
counsel to continue in order to permit Globe Construction
Company to obtain other counsel, Robert A. Andreen, coun-
sel of record for Globe Construction Company, appears not,

Whereupon, the proceedings continue to October 2,
1974, with all remaining parties represented as hereinabove
set forth, the Plaintiff Globe Construction Company being
present in person by its President, G. K. Ward, at which
time A. P. Murrah, Jr. was granted permission to with-
draw as counsel of record for Globe Construction Company
and General Insurance Company of America, and the Court
proceeded to hear the evidence and these proceedings con-
tinued to October 3, 1974.

The Plaintiff, Globe Construction Company appears
neither in person nor by counsel, and upon motion by the
Defendant, Oklahoma City Housing Authority, said Plain-
tiff is declared to be in default.

Now on this 4th day of October, 1974, the Motion of
the Defendant, Oklahoma City Housing Authority, for
Judgment by reason of the default of the Plaintiff, Globe
Construction Company, as against said Plaintiff, is sus-
tained. ;

It is therefore ordered judged and decreed by the
Court that the Plaintiff, Globe Construction Company, re-
cover nothing by virtue of its action against the Defendant,
Oklahoma City Housing Authority, and that said Defend-

A-35

(APPENDIX)
ant, Oklahoma City Housing Authority, have and recover
Judgment as against the Plaintiff, Globe Construction Com-
pany upon its counter-claim, as amended, in the amount of
$177,504.00 for liquidated damages, and for $250,000.00 as
punitive or exemplary damages, for reasonable attorney’s
fees, to be fixed by the Court, for interest as provided by
law, for costs, and for all costs expended herein.

Dated this 7th day of October, 1974.

s/ Stephen S. Chandler
UNITED STATES DISTRICT JUDGE

FILED
AUG 11 1975

REFEREES IN BANKRUPTCY
DistRICT OF COLORADO

UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF COLORADO

In re )

) IN PROCEEDINGS FOR
GLOBE CONSTRUCTION CO., ) AN ARRANGEMENT

) No. 74 B 3023
Debtor. )

MEMORANDUM OPINION, FINDINGS OF FACT,
CONCLUSIONS OF LAW AND ORDER DENYING
CLAIM OF OKLAHOMA CITY HOUSING
AUTHORITY

THIS MATTER is before the Court upon the objection
of the Debtor to the claim filed herein by the Oklahoma
City Housing Authority in the amount of $427,504.00, plus
attorneys’ fees, costs, interest, etc., incurred in a certain
Civil Action in the United States District Court for the
Western District of Oklahoma. It appears from the record

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(APPENDIX)

that this proceeding was filed on October 3, 1974, at which
time there was pending a lawsuit before the Honorable
Stephen S. Chandler, United States District Judge for the
Western District of Oklahoma. Upon the filing of this pro-
ceeding, the counsel for the Debtor in the Oklahoma matter
was permitted to withdraw; and upon the failure within a
very short period of time of the Debtor to secure new coun-
sel, a default judgment was entered therein in the amount
of $177,504.00 liquidated damages and $250,000.00 punitive
or exemplary damages and for attorneys’ fees, interest and
costs. At the hearing in this matter upon the objection to
the claim and at several continuances thereof, the Okla-
homa City Housing Authority failed to appear, apparently
relying upon the judgment entered by Judge Chandler in
the Oklahoma proceeding.

The evidence taken by the Court indicates that suffi-
cient setoffs exist between the Debtor and the Oklahoma
City Housing Authority so as to conclude that upon the
merits of the claim now embodied in the judgment in Okla-
homa, no liability from the Debtor to the Oklahoma City
Housing Authority exists. The question, therefore, before
the Court is whether upon these facts the Court should
give credence to the judgment entered in Oklahoma after
the date of filing of the petition herein, or whether the
Court should proceed to determine the matter upon the
merits and enter judgment on the claim accordingly.

At 3A Collier § 63.11 at Page 1835, it is stated:

A judgment rendered after the institution of bank-
ruptcy proceedings stands on a different footing. A
judgment in rem, rendered in.a suit pending at the
time the petitior was filed, will bind the trustee to
the same extent as any other person who succeeds to
an interest in property pending litigation. But a judg-
ment in personam is binding on the trustee when later

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[APPEND!IX)

presented as a claim only if the trustee or receiver was
made a party and directed by the bankruptcy court to
defend the suit. And even if the trustee is made a
party, but at too advanced a stage to afford an oppor-
tunity to inquire into the merits—as, for instance, after
a judgment had been rendered by default and the term
of the court meanwhile expired— he bankruptcy court
may refuse to be bound by the judgment and require
the creditor to file his proof on the facts underlying
the judgment rather than on the judgment itself.

Section 63 of the Bankruptcy Act provides that debts
of the bankrupt may be proved and allowed which are
founded upon

(1) a fixed liability, as evidenced by a judgment or
an instrument in writing, absolutely Owing at the time
of the filing of the petition by or against him, whether
then payable or not, with any interest thereon which
would have been recoverable at that date... (5) prov-
able debts reduced to judgments after the filing of the
petition and before the consideration of the bankrupt’s
application for a discharge, less costs incurred and in-
terest accrued after the filing of the petition and up to
the time ef the entry of such judgments. ...

[Text truncated at 120,000 characters. The full text is on the page linked above.]

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385005_1191%3A1. Public record. Not legal advice.