Amicus Curiae Brief — Department of Army v. Blue Fox, Inc.

ee

(¢) FILED

No. 97-1642 ocr 8 we CC

IN THE

Supreme Court of the United States

OCTOBER TERM, 1998

THE UNITED STATES DEPARTMENT OF THE ARMY,

is Petitioner,

BLUE Fox, INC.,

Respondent.

—-

On Writ of Certiorari to the

United States Court of Appeals

for the Ninth Circuit

BRIEF OF THE AMERICAN SUBCONTRACTORS

ASSOCIATION AS AMICUS CURIAE

IN SUPPORT OF RESPONDENT

DAVID R. HENDRICK

Counsel of Record

STEPHANIE M. WARSHAL

HENDRICK, PHILLIPS, SCHEMM

& SALZMAN

1800 Peachtree Center Tower

230 Peachtree Street, N.W.

Atlanta, Georgia 30308-1514

(404) 522-1410

JOEL S. RUBINSTEIN

BELL, Borp & LLOYD

1615 L Street, N.W., Suite 1200

Washington DC 20036

(202) 466-6300

Counsel for American

Subcontractors Association

WILSON - Eras Printine Co., Inc. - 789-0096 - WASHINGTON, D.C. 20001

ae

‘BEST AVAILABLE COPY

TABLE OF CONTENTS

TABLE OF AUTHORITIES

INTEREST OF AMICUS CURIAE

THE SUBCONTRACTOR’S PAYMENT DILEMMA—

BOE GU ee VO cian ttccciscectencctitinitevisiniinntecntineariesenees

SUMMARY OF ARGUMENT

ARGUMENT

I.

PUBLIC POLICY PREDICATED UPON FAIR-

NESS AND EQUITY SUPPORTS APPLICA-

TION OF EQUITABLE LIEN DOCTRINE

BLUE FOX HAS AN ENFORCEABLE EQUI-

TABLE LIEN AGAINST THE CONTRACT

MONIES HELD BY THE GOVERNMENT

AFTER NOTICE THAT VERDAN HAD NOT

PAID BLUE FOX

THE REMEDY SOUGHT BY BLUE FOX IS

EQUITABLE IN NATURE AND CAN BE

GRANTED UNDER THE ADMINISTRATIVE

ye Fn, SE Eee

CONCLUSION

ii

TABLE OF AUTHORITIES

CASES Page

Active Fire Sprinkler Corp. v. U.S. Postal Service, ‘os

811 F.2d 747 (2nd Cir. 1987) occ 14, 15) 16

Aetna Casualty & Surety Company v. United \

States, 71 F.3d 475 (2nd Cir. 1995) , 22

Architectronics, Inc. ¥. Salem-American Ventures, pew

Inc., 350 So.2d 5681 (Fla. 2nd DCA 1977) ........... i

Arvanis v. Noslo Engineering Consultants, Inc. ° ;

789 F.2d 1287 (7th Cir. 1984)

Automatic Sprinkler Corp. v. Durla Envt'l. Spe-

cialists, Inc., 58 F-3d 181 (7th Cir. 1995) _........ 10

Bethlehem Steel Corporation v. Tidwell, 66 B.R.

982 (U.S.D.Ct., M.D. Ga. 1986) ssvsseeeseensecnsnneceee 13

Blue Foz, Inc. v. Small Business Administration, ie

121 F.8d 1357 (gth Cir. 1997) .......... ,

Bor-Son Building Corp. v. Heller, 572 F.2d 174 -

(Sth Cir. 1978) .---------------------------------s-eeneenee eee

6

Bowen v. Massachv'setts, 487 US. 879 (1988)... 1

DeKalb County v. J.A. Pipeline Co., Inc., 487

827_( 2

_E.2d 8“ EE cossoressseenenee 8,1

Py vache Comm#nity High School District No.

309 v. Grand Stage Lighting Co., 601 N.E.2d

EAN s

on Group, Inc. v. Rafcor, Inc.,

411 S.E.2d 961 (N.C. 1992) ee 11

First Bulloch & Tri4t Company v. Inca Materials,

Inc., 880 F.2d 1307 (11th Cir. 1989)... 13

First National Bank of Paonia v. K.N.J., Inc., 867

P.2d 152 (Colo, Ct App., Div. V, 1993)... 12

Fireman’s Fund ["surance Company v. United

States, 421 F.2d 706 (Ct. Cl. 1970) ............. 19, 21

General Acrylics v. USF&G, 623 P.2d 839 (Ariz. *

irall Roundy ad District v. C. Robert Beals &

Associates, 498 §-E.2d 72 (Ga. 1998) ........_.. . 8,12

neers, 980 F.2d 1415 (11th Cir. 1993) SETS 7

Henningsen v. United States Fidelity & Guaranty

Co., 208 U.S. 404 (1908) ene neeneeeneenes 13, 14, 15

iii

TABLE OF AUTHORITIES—Continued

J.A. Bateson Company v. United States ex rel

Board of Trustees of National Automatic

Sprinkler Industry Pension Fund, 484 U.S. 586

Page

eae Se ee ee ee 7

Kammer Asphalt Paving Co., Inc. v. East China

Township Schools, 504 N.W.2d 635 (Mich.

DS ES oe a Oe eee 8, 13

Katz v. Cisneros, 16 F.3d 1204 (Fed. Cir. 1994) 16

Kennedy Electric Co., Inc. v. United States Postal

Service, 508 F.2d 954 (10th Cir. 1974) 14, 15, 21

Linea Area Nacional de Chile S.A. v. Meissner,

65 F.3d 1084 (2nd Cir. 1995). sis 17

National Oil & Supply, Inc. v. Voaughts, Inc., 856

S.W.2d 912 (Mo. Ct. App. 1998)... ——its : x

National Surety Corporation v. United States, 118

F.3d 1542 (Fed. Cir. 1997) 8,17

Palm Beach Co. v. Trinity Industries, Inc., 661

So.2d 942 (Fla. DCA 4th 1995)... i iits—S 8

Pearlman v. Reliance Insurance Company, 371

2 SF eee es O07 8 eee 10, 18, 14

Peninsular Supply Co. v. C.B. Day Realty of Flor-

ida, Ine., 423 So.2d 500 (Fla. 8rd DCA 1982) 11,138

Prairie State Bank v. United States, 164 U.S. 227

Pullman Construction Industries, Inc. v. United

States, 23 F.3d 1166 (7th Cir.1994). ist 21

Rosebud Sioux Tribe ». U.S. Bureau of Indian Af-

fairs, 714 F. Supp. 1546 (D.S.D. 1989) 7 19

Selby v. Ford Motor Company, 590 F.2d 642 (6th

Cir. 1978) ...... sssmpessnencsemestahaiadlisdiaa tosstellia an daa ate a 13

Superior Glass Company, Inc. v. First Bristol

County National Bank, 406 N.E.2d 672 (Mass.

BO BIT a eee Cs Tan Oboe ae RO > Fak 13

Threlkeld-Covington, Inc. v. Baker Drywall Co..,

Inc., 837 S.W.2d 840 (Tx. App. 1992) —s 8

Transamerica Insurance Company v. United

States, 31 Fed. Cl. 582 (1994) bieasne 21

Transamerica Premier Insurance Company v.

United States, 32 Fed. Cl. 308 (1994) ss 21

iv

TABLE OF AUTHORITIES—Continued

Page

Trans-Bay Engineers and Builders, Inc. v. Hills,

551 F.2d 370 (D.C. Cir. 1976)... 15

United Pacific Insurance Co. v. Ripsom, 1984 W.L.

8269 (Del. Chancery Court, 1984)... 18

United Parcel Service Inc. v. Weber Industries,

Inc., 795 F.2d 1005 (5th Cir. RR ae 18

United States v. Mitchell, 463 U.S. 206 (1983) .... 19

D.C., 382 U.S. 284 (1947) 0 10

sevenesndinnennstibinndinessuenss 11

STATUTES

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Idaho Code § 64-1928...

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OTHER SOURCES

— Equity Jurisprudence, § 165 (1994) (5th

In THE

Supreme Court of the United States

OcTOBER TERM, 1998

No. 97-1642

THE UNITED STATES DEPARTMENT OF THE ARMY,

Petitioner,

Vv.

BLuE Fox, INc., Respondent.

On Writ of Certiorari to the

United States Court of Appeals

for the Ninth Circuit

BRIEF OF THE AMERICAN SUBCONTRACTORS

ASSOCIATION AS AMICUS CURIAE

IN SUPPORT OF RESPONDENT

INTEREST OF AMICUS CURIAE 1

The American Subcontractors Association (“ASA”)

is a national trade association representing approximately

6,000 member companies doing business in virtually all

States, who employ approximately 100,000 employees en-

gaged in the construction business. Its members com-

Prise businesses of all sizes which, as subcontractors, sup-

pliers, fabricators and manufacturers, provide labor, ma-

terials and services on public and private construction

projects throughout the United States.

1 This brief was authored in whole by David R. Hendrick, Esq.,

Stephanie M. Warshal, Esq. and Joel S. Rubinstein, Esq., counsel

mission of this brief. Letters of consent as required by Supreme

Court rule 37.3 are appropriately filed with the clerk of this court.

2

This issue now before the Court involves protection of

a subcontractor’s right to secure payment for work per-

formed on a federal public works project by impressing

an equitable lien on contract funds held by the public

owner, which the general contractor is financially unable

to pay, the statutorily required Miller Act payment bond

is non-existent or otherwise insufficient to effect payment,

and the public owner benefitting from the subcontractor’s

work is aware of the non-payment and is yet holding

funds dedicated to that construction contract. This

Court's decision will have significant impact on the sub-

contractor community. Therefore, ASA presents this

Amicus Brief to underscore the legitimate and compelling

interests of the Respondent, Blue Fox, Inc., and of sub-

contractors generally, in the validation of the established

equitable principle allowing an unpaid subcontractor on

a federal construction project to impress and enforce

against contract monies held by the government an equi-

table lien to secure its right to payment. As an Associa-

tion representing construction industry subcontractors,

many of whom do business regularly on federal construc-

tion projects, the Amicus Curiae has a strong and abiding

interest in a decision by this Court that would clearly

serve the legislatively and judicially recognized interests

in assuring payment to subcontractors for work properly

performed for the benefit of the public by securing an

equitable lien on contract funds earned, albeit indirectly,

by such performance and held by the public owner of

the project. Thus, ASA supports the position of the Re-

spondent in this equitable lien action. ASA urges that

the decision of the United States Court of Appeals for the

Ninth Judicial Circuit now before this Court for review

by writ of certiorari be affirmed.”

2 ASA is joined in the positions advanced in this Amicus Curiae

brief by the following similar situated construction industry trade

associations :

(a) The National Electrical Contractors Association, an or-

ganization of electrical construction specialty contractors,

3

THE SUBCONTRACTOR’S PAYMENT DILEMMA—

AN OVERVIEW

Considering the manner in which the industry operates,

in today’s market and economy, subcontractors are the

largest single force and factor in the actual performance

of labor on construction projects. In years past, the gen-

eral contractors performed much of the work on the proj-

ect with their own forces. Times have changed and~gen-

eral contractors, in order to reduce their risk, are acting

more and more as labor brokers by subcontracting the

lion’s share of the work to their subcontractors. The

significance of this evolving relationship is that subcon-

tractors are the major contributors in the contract chain

with the most dollars at risk. The struggle for payment

between contractors and subcontractors is an ongoing

dilemma for the industry. The public interest is best

served by policies which ensure that subcontractors will

be paid reasonably for their work.

Most of the labor and materials required for construc-

tion projects is generally provided by subcontractors, who

do not have direct contractual relationship with or re-

course against the owner of the project benefitting from

such labor and materials incorporated into it. Subcon-

tractors work behind the payment curve. On top of this,

subcontractors are generally smaller more economically

representing more than 53,000 electrical construction con-

tracting firms.

(b) The Sheet Metal Air Conditioning Contractors National

Association represents 4,500 contractors in the sheet metal

and air conditioning industry.

(ce) The Mechanical Contractors Association of America, Inc.

represents 2,000 heating, air conditioning, refrigeration,

plumbing, piping and service contractors.

(d) The Association of Wall and Ceiling Industries-

International represents wall and ceiling contractors, man-

ufacturers, suppliers/distributors and others allied to the

fields of acoustics, drywall, EIFS, fireproofing, insulation,

plaster, steel framing and stucco.

ae |

4

fragile businesses which must receive prompt payment for

their work in order to replenish their limited working

capital to stay in business. Subcontractors necessarily in-

cur the bulk of the cost of their performance as they pro-

ceed with their work, paying suppliers and laborers first

out of current funds, irrespective of whether or when they

actually receive payment for such work themselves. Then

they later seek reimbursecent of such costs through the

monthly or periodic progress payment process. There is

often a substantial lag between when the subcontractor

actually incurs these costs of performance and when its

expended working capital is replenished by payment. As

a practical matter, if subcontractors are functionally serv-

ing as bankers to a construction project, investing that

limited working capital and hoping to be repaid, they

should, like any banker, have appropriate security for

their loans. This is especially true on public projects

where the public at large benefits from the investment of

the subcontractor’s resources. Nevertheless, they commit

their labor and resources to a project trusting that when

their work has been incorporated into the project, they

will get paid within a reasonable time.

Critical to the decision of subcontractors to furnish

labor, materials and services is the assurance that they

will ultimately receive payment for the benefits that they

confer through their work on the project. Reflecting the

impact on society and the business world which would

result from chronic payment risk, there has evolved a

substantial and recognized public policy which generally

favors assurance of or security for payment of subcon-

tractors in order to encourage their participation in the

construction process. On private, non-governmental con-

struction projects, such assurance is generally derived

from the security for payment afforded by state mechanics

and materialimans lien laws. A subcontractor is able to

exercise such lien rights arising under state Statutory law

against the real property being improved with its labor

eT

5

and materials as an essential means of ultimately securing

the right to payment.

On a public project, however, there are generally no

analogous statutory lien rights allowed against the im-

proved public property itself. Legislatures have recog-

nized the need to protect the interests of subcontractors

and suppliers in obtaining payment for the labor, mate-

rials and resources invested in public works. Accordingly,

the federal government, as well as all states, have en-

acted legislation requiring contractors on public projects

to post payment bonds to ensure payment of subcontrac-

tors. On federal projects, such as that at issue here, such

protection is afforded by the Miller Act, 40 U.S.C. § 270a,

et seq. Subcontractors enter into contracts for federal

public works projects with the reasonable expectation that

their interest in payment for the labor, materials and

services provided in building public works will be ade-

quately secured by such a statutory payment bond. This

Act is for the especial protection of the subcontractor on

a government construction project by providing security

assuring their payment. This security is critical to the

decision of subcontractors and suppliers to furnish labor,

materials and services.

The Miller Act, and many similar state laws, fail to

directly address whether and in what form the subcon-

tractors are afforded recourse when either an invalid pay-

ment bond is posted or no payment bond is posted at all.

In the instant case, the Ninth Circuit recognized that the

Miller Act’s silence regarding a remedy for subcontractors

in such a circumstance does not extinguish a subcontrac-

tor’s right to equitable relief directed, not against the pub-

lic entity itself or the “public purse,” but rather as an

equitable lien against funds already dedicated to pay for

the construction services and held by the public owner.

ASA urges that the limited form of “security” for pay-

ment on public works projects allowed by the Cuurt of

Appeals below reasonably balances and protects the legiti-

6

mate public interest, on one hand, of avoiding unpredic-

table claims being asserted against public coffers, while,

on the other hand, serves the countervailing and equally

compelling public interest of assuring that subcontractors

participating in public construction projects will receive

payment that they have honestly earned.

SUMMARY OF ARGUMENT

Federal and state courts have recognized the equitable

lien doctrine and have applied the doctrine to permit a

subcontractor on a public works project, where no valid

payment bond was obtained and the general contractor

failed to pay the subcontractor, to recover directly from

contract funds held by the public owner. To hold other-

wise is to allow the public owner to be unjustly enriched

by the subcontractor’s Work. This equitable remedy does

not violate the Administrative Procedures Act, as the re-

lief sought by the subcontractor is not “money damages”

or uncommitted money from the Treasury, but instead is

drawn from funds held by the public owner specifically

for the construction project and the benefit of those work-

ing on it. This equitable lien claim is simply an equita-

ble action to recover the very thing to which the subcon-

tractor is entitled—the contract funds held by the public

owner for its payment.

ARGUMENT

I. PUBLIC POLICY PREDICATED UPON FAIRNESS

AND EQUITY SUPPORTS APPLICATION OF EQ-

UITABLE LIEN DOCTRINE

Synthesizing what appear to be uncontested facts under-

lying this dispute as set forth by the Court below and in

the “Brief for Petitioner” and the “Brief for the Respond-

ent”, it appears that substantial equities flow in favor of

the Respondent in this matter, Blue Fox, Inc. (“Blue

Fox”). That is where this Amicus Curiae submits that

inquiry should begin.

7

Clearly, this construction project by the United States

t of the Army was subject to the requirements

of the federal Miller Act, 40 U.S.C. 270a, et seq. Accord-

ingly, the prime coniractor was required to furnish, inter

alia, the statutorily required “payment bond . . . for the

protection of all persons supplying labor and materials.”

40 U.S.C. § 270a(a)(2). The Respondent would, and

should, have been an interested beneficiary entitled to the

assurance of payment afforded by such a payment bond.

As this Court has explained, “the Miller Act was de-

signed to provide an alternative remedy to the mechanics’

liens ordinarily available on private construction projects

[citation omitted] because ‘a lien cannot attach to govern-

ment property,’ persons supplying labor and materials on

a federal construction project were to be protected by a

payment bond.” J.A. Bateson Company v. United States

ex rel Board of Trustees of National Automatic Sprinkler

Industry Pension Fund, 434 U.S. 586, 589 (1978). This

whole remedial scheme, however, fails of its essential pur-

pose if the required payment bond is not procured by the

prime contractor or if the bond procured is ultimately de-

termined to be financially insufficient due to the failure,

insolvency, or inability to find the surety on the bond.*

3 Amicus Curiae acknowledges the limited access that has been

afforded subcontractors and suppliers to assert direct claims for

money damages against the federal government and federal govern-

ment employees when a Miller Act payment bond fails or is not ob-

tained. See, Blue Fox Inc. v. Small Business Association, 121 F.3d

1357 (1997) (dissent); Hardaway Company v. U.S. Army Corps of

Engineers, 980 F.2d 1415 (11th Cir. 1993); West Bay Steel, Inc. v.

United States, 970 F.2d 648 (9th Cir. 1992); Arvanis v. Noslo

Engineering Consultants, Inc., 739 F.2d 1287 (7th Cir. 1984), cert.

denied, 469 U.S. 1191 (1985). However, the existence of the statu-

tory remedy provided by the Miller Act against a surety does not

preclude other remedies which may exist under common law and

equitable remedies against the government. See, Arvanis, supra.

Many states have acknowledged this entitlement of a subcontractor

to some form of relief when a payment bond on a public project

fails or is not obtained either by statute, common law, or both.

Among the state court holdings that a public owner and/or public

Of course, the Petitioner, here, was the singular party

to this chain of contractual relationships that was in the

best position to assure that a Miller Act payment bond

was properly furnished as statutorily required. The Peti-

tioner, in fact, was the only party with the requisite knowl-

edge and authority to require that such payment bond be

furnished. However, in the instant matter, it appears not

only that the Petitioner failed to assure that the required

payment bond was furnished to afford payment protection

of subcontractors, including the Respondent, but, more

significantly, it also appears that the Petitioner improperly

and intentionally sought to avoid the Miller Act payment

bond requirement without setting in place the several al-

ternative processes permitted to protect the payment rights

of the subcontractors. This conscious avoidance of the

Miller Act bonding requirements goes beyond mere over-

sight or inadvertence—or even negligence. The Petitioner

official is liable in damages to an unpaid subcontractor providing

labor, material or services to a public works project where the statu-

tory “little Miller Act” payment bond is not furnished or required

or proves to be fraudulent, insolvent or insufficient to satisfy the

payment obligations are: Hall County School District v. C. Robert

Beals & Associates, 498 S.E.2d 72 (Ga. 1998); Palm Beach Co.

v. Trinity Industries, Inc., 661 So.2d 942 (Fla. DCA 4th 1995);

DeKalb County v. J&A Pipeline Company, Inc., 437 S.E.2d 327

(Ga. 1993); Kammer Asphalt v. East China Township Schools,

504 N.W.2d 625 (Mich. 1993); National Oil & Supply, Inc. v.

Voaughts, Inc., 856 S.W.2d 912 (Mo. Ct. App. 1993); East Peoria

Community High School District No. 309 v. Grand Stage Lighting

Co., 601 N.E.2d 972 (Ill. App. 1992); Threlkeld-Covington, Inc. v.

Baker Drywall Co., Inc., 8837 S.W.2d 840 (Tx. App. 1992). States

expresly providing a statutory right of action by subcontractors

against public owners who fail to secure a payment bond from the

general contractor on public works include Georgia (O.C.G.A. § 36-

82-102) ; Idaho (Idaho Code § 54-1928) ; lowa (lowa Code § 573.2) ;

Minnesota (Minn. Stat. § 574.28) ; Montana (Mont. Code Ann. § 18-

2-202); Oregon (Or. Rev. Stat. § 279.542); South Dakota (S.D.

Codified Laws § 5-21-2); Utah (Utah Code Ann. § 14-1-19); and

Washington (Wash. Rev. Code § 39-08.015).

9

apparently knowingly and intentionally sought to waive or

avoid the payment bond requirement without affording

subcontractors any alternative security or assurance, or

even affording them the courtesy of clear advance notice

of the absence of the payment bond protection which would

otherwise have been normally anticipated.

Respondent prosecuted and completed its subcontract

scope of work by May of 1994, at which time it was owed

by the prime contractor a final subcontract balance of

$46,586.14. When no payment of this balance due was

received from the prime contractor, Respondent gave writ-

ten notices of the nonpayment to the Petitioner on May

26 and June 15, 1994. On or about June 15, 1994, Re-

spondent first was informed that no Miller Act payment

bond had been furnished. The Petitioner was then yet

holding $171,042.85 in unpaid prime contract funds.

Respondent requested that Petitioner suspend or reduce

further payment to the prime contractor to assure pay-

ment of this subcontract balance. To the contrary, how-

ever, the Petitioner proceeded to disburse over the next

several months an additional $86,132.33 out of such con-

tract funds to the prime contractor (likely including por-

tions attributable to Respondent’s subcontract perform-

ance). The Petitioner apparently took no action to en-

force pass through of such payment and Respondent re-

ceived nothing. Eventually, several months later, Peti-

tioner terminated the prime contract while $84,910.50 of

contract funds were still held by Petitioner, noting that

one of its most severe iterms of concern was the failure by

the prime contractor to pay the $46,586.14 due its sub-

contractor, the Respondent—perhaps in its belated recog-

nition of the consequences upon Respondent arising out of

Petitioner’s ongoing failure to protect that subcontractor’s

right to payment. Respondent now asserts that it is en-

titled to impress an equitable lien on the contract funds

held by Respondent at the time of notice of nonpayment

and, if not then, at the time of termination due to that

very nonpayment.

10

Were such unpaid subcontractors left without “equitable

lien” recourse against contract funds held by the public

owner and dedicated for use in payment for construction

services provided benefitting the project, the public owner

would actually have a disincentive to require a payment

bond, with its attendant extra cost, or to declare a prime

contractor in default for failure to post a proper payment

bond with the attendant delay, disruption and expense to

the public works project. If the legal consequences on

the public owner were as advocated here by the petitioner

—namely no exposure whatsoever under legal, contrac-

tual, statutory or equitable grounds—then the unpaid

subcontractor’s plight would be as described in the dis-

sent of Judge Ryner in the Ninth Circuit’s decision below,

namely “the hapless subcontractor . . . left holding the

bag.” Blue Fox, Inc. v. Small Business Administration,

121 F.3d 1357, 1363 (9th Cir. 1997) (quoting from

Automatic Sprinkler Corp. v. Durla Envt'l. Specialists,

Inc., 53 F.3d 181, 182 (7th Cir. 1995)). Conversely,

ASA urges on behalf of its subcontractor members and the

Respondent herein that this Court take the opportunity in

resolving this case to complete the picture only roughly

suggested in United States v. Munsey Trust Co. of Wash-

ington, D.C., 332 U.S. 234, 242 (1947) by the dictum

that “[w]e need not decide whether laborers and material-

men would have any claim to the retained percentages, if

both contractor and surety failed to pay them.” This pic-

ture was further developed in this Court’s decision in

Pearlman v. Reliance Insurance Company, 371 U.S. 132,

141 (1962) in which it held that “the laborers and

materialmen had a right to be paid out of the [re-

tained contract] fund.” The Ninth Circuit, in the decision

below, has decided this issue in the affirmative, invoking

application of the “equitable lien” doctrine, in its well

reasoned majority opinion, and this Amicus Curiae submits

that this result is reasonable, equitable and fully support-

able under the guidance of the following body of estab-

lished precedent. Allowing enforcement of an equitable

11

lien against the withheld contract funds comports with the

equitable principles deeply embedded in our jurisprudence

and accomplishment of the ends of substantial justice. Cf.

Pearlman v. Reliance Insurance Company, 371 U.S. 132

(1962).

II. BLUE FOX HAS AN ENFORCEABLE EQUITABLE

LIEN AGAINST THE CONTRACT MONIES HELD

BY THE GOVERNMENT AFTER NOTICE THAT

VERDAN HAD NOT PAID BLUE FOX

“An equitable lien arises ‘[w]here property of one per-

son can by a proceeding in equity be reached by another

as security for a claim on the ground that otherwise the

former would be unjustly enriched.’” Embree Construc-

tion Group, Inc. v. Rafcor, Inc., 411 S.E.2d 9616 (N.C.

1992), quoting Restatement of Restitution § 161, “It

would be manifestly unjust for an owner to withhold

final payment from the contractor out of concern for the

subcontractors and then disregard the subcontractors’

interests by failing to distribute the retainage. In such a

case there can be no doubt that equity and justice would

recognize the subcontractors’ claims against the contract

balance.” Willard, Inc. v. Powertherm Corp., 444 A.2d

93, 97-98 (Pa. 1982); see also Restatement of Restitution

§ 160 (1937).

The equitable lien doctrine has been recognized as con-

ferring rights on unpaid subcontractors on public works

projects under both state and federal law. A number of

state courts have applied this principle to protect the

interests of subcontratcors providing services on public

works. See, e.g., Architectronics, Inc. v. Salem-American

Ventures, Inc., 350 So.2d 581 (Fla. 2nd DCA 1977);

“The doctrine of equitable liens came into existence to

remedy those situations where, as here, there is either an

absence of an available lien or no adequate remedy at

law.” Peninsular Supply Co. v. C.B. Day Realty of

Florida, Inc., 423 So.2d 500 (Fla. 3rd DCA 1982). The

equitable lien doctrine arises “out of a general considera-

12

tion of right and justice as applied to the relations of the

parties and the circumstances of their dealings in the par-

ticular case.” Jd. Courts have found the doctrine applic-

able both in instances where there the subcontractor has

a statutory right to recover from the public owner where

no valid payment bond has been obtained, and where no

such right exists. The Georgia Supreme Court has re-

cently recognized an unpaid subcontractor’s “equitable

lien” claim seeking to enforce a lien “against funds which

are being held by the Appellant [the public owner].”

DeKalb County v. J.A. Pipeline Co., Inc., 437 §.B.2d

327, 333 (Ga. 1993). That court rejected a sovereign im-

munity defense by distinguishing an equitable lien claim

as one not seeking to impose any liability against the

public owner, but rather only as an equitable remedy

against contract funds themeselves held by the public

owner. Accord, Hall County School District v. C. Rob-

ert Beals & Associates, 498 $.E.2d 72 (Ga. 1998). In

Colorado, the Colorado Court of Appeals held in First

National Bank of Paonia v. K.N.J., Inc., 867 P.2d 152,

155 (Colo. Ct. App. Div. V, 1993) that an unpaid sub-

contractor on a United States Forest Service contract,

“[iJn addition to a remedy under the Miller Act, . . . holds

an equitable lien on any earned, yet unpaid contract

funds.” Further, the court noted that this “equitable right

of material suppliers and laborers extends to money pay-

able under the contract that is still in the hands of the

United States.” Id. The Massachusetts Supreme Court

has recognized the particularly equitable claim of those

responsible for completion of building contracts to be

paid from available monies ahead of others whose claims

come from the mere advance of money, which may be

enforced by way of a “constructive trust” claim.* Superior

4 Analogously, other courts have reached essentially the same

result by employing a “constructive trust” theory to afford claims

by unpaid subcontractors on government construction projects

against contract funds held by the public owner or traceable to a

13

Glass Company, Inc. v. First Briston County National

Bank, 406 N.E.2d 672 (Mass. 1980). The Florida Court

of Appeals recognized, in a private construction project

context, that the “equitable lien doctrine is firmly estab-

lished in Florida” to benefit an unpaid subcontractor or

supplier by allowing recourse against unpaid contract

funds in Peninsular Supply Company v. C.B. Day Realty

of Florida, 423 So.2d 500, 503 (Fla. App. 3d Dist.

1982). In General Acrylics v. USF&G, 623 P.2d 839

(Ariz. App. 1980). the Arizona Court of Appeals ac-

knowledged that laborers and materialmen have an equi-

table lien as to funds in the hands of the government

which are earn but unpaid.

This equitable lien concept has been applied in the con-

text of federal public works as well. In Henningsen v.

United States Fidelity & Guaranty Co., 208 U.S. 404, 410

(1908), this Court stated that the government has an

equitable obligation to ensure the payment of laborers and

suppliers on government construction projects. This Court

found again in Pearlman v. Reliance Insurance Company,

371 U.S. 132, 141 (1962), that laborers have the right to

be paid out of any unpaid contract balance when an in-

solvent general contractor fails to pay them for their work.

In both of these cases, the Court recognized that sureties

who have compensated the unpaid laborers and sup-

pliers have a similar claim against the unpaid subcon-

third party. £.9., Kammer Asphalt Paving Co., Inc. v. East China

Township Schools, 504 N.W.2d 635 (Mich. 1998); First Bulloch &

Trust Company v. Inca Materials, Inc., 880 F.2d 1307 (11th Cir.

1989); Bethlehem Steel Corporation v. Tidwell, 66 B.R. 932

(U.8.D.Ct., M.D. Ga. 1986); United Parcel Service Inc. v. Weber

Industries, Inc., 7956 F.2d 1005 (5th Cir. 1986): United Pacific

Insurance Co. v. Ripsom, 1984 W.L. 8269 (Del. Chancery Court,

1984) (surety’s equitable lien against unpaid contractor funds

arises out of a constructive trust in favor of laborers, materialmen

and subcontractors by subrogation upon payment by the surety) ;

Selby v. Ford Motor Company, 590 F.2d 642 (6th Cir. 1978) ( apply-

ing Michigan law).

14

tract balance, which claim would be superior to claims

it

disallowing such a claim—indeed a right—to an

laborer or supplier.

The rights of subcontractors to claim

Hi

tl

ni

ue

RFS 2

Lik:

i

i

til

cf

:

ffuti

are: Wright v. U.S. Postal Service, 29 F.3d 1426 (9th

Cir. 1994); Active Fire Sprinkler Corp. v. U.S. Postal

Service, 811 F.2d 747 (2nd Cir. 1987); and Kennedy

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

15

F.2d 954 (10th Cir. ore), > As stated in Kennedy Elec-

tric Co., Inc., supra, “. . there is no discernible differ-

ee ee Oe eee and the

equities of the subcontractor. . . .” Jd. at 960. In Active

Fire Sprinkler Corp., supra, at 755, the court observed

the subcon

. . . asserts that it had equitable rights in the Con-

tract Balance held by USPS at the time this suit (the

Lien Action) was commenced. We agree. /t is not

new law that unpaid subcontractors hold an equitable

interest in a contract balance owed by a building

owner to a general contractor. (Emphasis added)

(Citations omitted. )

It is not necessary to rely on cases involving the United

States Postal Service, where sovereign immunity was ex-

pressly waived, to find decisions which recognize that sub-

contractors on federal projects other than the Postal Serv-

ice have an equitable lien on the unpaid balance. In

Trans-Bay Engineers and Builders, Inc. v. Hills, 551 F.2d

370, 382-83 (D.C. Cir. 1976), the court approved roa

doctrines of uniust enrichment and equitable lien as

matter of federal common law and held that these doc-

relief against the government. See also, e.g., Bor-Son

Building Corp. v. Heller, 572 F.2d 174, 178 (8th Cir.

1978), wherein the court held that the use of a “sue and

be sued” clause rearding sovereign immunity waived im-

munity from suit in a claim for monetary relief based on

epget yee oo meriut, pc wngeennang ete

trust

16

equitable lien doctrine for payment bond sureties assert-

ing the subrogated rights of subcontractors and suppliers

that surety has paid, the same path must be available for

direct recourse against contract funds held by the public

owner by an unpaid subcontractor on its own behalf where

no statutory payment bond exists.

For the reasons explained above, and especially the

language in Active Springler, subcontractors possess an

equitable lien in the contract balance owed by the gov-

ernment to a contractor. The government apparently ar-

gues that despite the existence of this equitable lien, the

subcontractor has no right to enforce this lien based on

the doctrine of sovereign immunity.

Ill. THE REMEDY SOUGHT BY BLUE FOX IS EQUI-

TABLE IN NATURE AND CAN BE GRANTED

UNDER THE ADMINISTRATIVE PROCEDURE

ACT

The Administrative Procedure Act (APA) waives sov-

ereign immunity to the extent that it permits suits against

the United States which seek “relief other than money

damages.” 5 U.S.C. § 702 (1977).

In Bowen v. Massachusetts, 487 U.S. 879 (1988), this

17

sought payments to which it was allegedly entitled, not

‘money as compensation for loss suffered.’ ”

volt ok ft ee, eee Circuits have held that the

a statutory requirement that disputed payments

be made directly to the plaintiff does not bar relief. In

Zellous v. Broadhead Associates, 906 F.2d 94 (3rd Cir.

1990), the government had argued that damages sought

were money damages even though the statute did not di-

rect payment to the plaintiff. In Linca Area Nacional de

Chile S.A. v. Meissner, 65 F.3d 1034 (2nd Cir. 1995),

the court held that damages were not “money damages”

even though the statute did not explicitly require the

Immigration and Naturalization Service to repay expenses

incurred by a carrier.

even involved a claim against the government. The gov-

ernment argues that all of these involved contests be-

tween private parties or refunds as to which the United

out of the Treasury. The government is simply wron

In National Surety Corporation v United Nang # F.3d

1542 (Fed. Cir. 1997), the disagreement was between a

performance bond surety of a defaulted government con-

struction contractor and the government. In that case the

18

The Second Circuit's decision in Aetna Casualty &

Surety Company v. United States, 71 F.3d 475 (2nd Cir.

that the government tortiously converted the surety’s

when it failed to assert an off-set against the

tax refund payable to the corporation, which was a prin-

cipal under the bond. The court rejected the argument

that Aetna’s amended complaint sought “money dam-

ages” which were not allowable under the APA. The

court noted that the suit was not for damages “to com-

pensate for the government’s failure to pay a duty.

Rather, it seeks to require the governmen: to perform its

duty—that is, to pay to Aetna funds heki by the govern-

ment for Aetna’s benefit.” /d. at 478. The court con-

cluded that because Aetna sought injunctive relief to

force the government to perform a legal obligation, the

action is not forbidden by the APA’s bar on money dam-

ages. Id. at 479. In short, Aetna stands for the proposi-

tion that injunctive relief to compel performance of non-

statutory legal obligations is permissible under the APA.

The court observed:

In our view, the Court referred to the question

whether there was a statutory duty because in that

case the plaintiff was claiming a statutory duty, The

opinion rests not on the fact that the federal gov-

ernment’s duty was statutory, but rather on a distinc-

tion between money damages, which seek to compen-

state for governmental failure to perform a legal duty,

and injunctive relief requiring that the duty be per-

formed. [Citations omitted]. We can see no reason

why the Bowen holding should be limited to duties

prescribed by statute as opposed to those arising un-

der some other rule of law. anv more than it should

be limited to claims brought by Massachusetts.

Id. at 479.

19

Other cases are to the same effect. For example, in

Fireman's Fund Insurance Company v. United States,

421 F.2d 706 (Ct. Cl. 1970), consistent with other case

law, the government was held liable where it had 1otice of

the supplier's suit against the surety and of the surety’s

objection to the government's final payment to the con-

tractor. Under those circumstances payment to the con-

tractor was improper and the government was liable to

the surety for improper payment.

Section 702 of the APA acts as a general consent to

suit requesting equitable relief from administrative ac-

tion or inaction. United States v. Mitchell, 463 U.S. 206

(1983). In Rosebud Sioux Tribe v. U.S. Bureau of In-

dian Affairs, 714 F. Supp. 1546, 1555 (D.S.D. 1989),

the court held that the interplay of § 702 and 28 U.S.C.

§§ 1331, 1361 and 1362 provided a sufficient waiver of

sovereign immunity and a grant of jurisdiction to enter-

tain equitable claims.

The Postal Service cases are instructive not because of

the “sue and be sued” provision but because the analysis

in those cases concludes an equitable lien should be rec-

ognized under these precise circumstances. See, for ex-

ample, Wright v. United States Postal Service, supra.

Again, as noted in the preceding section, where the pay-

iment bond surety is offered a path to equitable relief

against the public owner holding contract funds based on

rights subrogated upon its payment of subcontractors and

suppliers, those very same unpaid subcontractors and sup-

pliers should not be procedurally foreclosed from assert-

ing such an equitable lien on their own behalf.

Existence of a remedy at law does not deprive one of

equity jurisdiction unless the remedy is clear, adequate

and complete. Pomeroy, Equity Jurisprudence, § 165

(1994) (Sth Ed.) describes an equitable lien as simply

a right of a special nature over the thing, which consti-

tutes a charge or encumbrance upon the thing, so that

“the very thing itself’ may be proceeded against in an

20

equitable action and either sold or sequestered under a

judicial decree and its proceeds, in the one case, or its

rights and profits, in the other, applied upon demand of

the party in whose favor the lien exists. Of particular per-

tinence here, Pomeroy clearly delineates the distinction

between equitable liens and money damages. It will be

observed that the distinction Pomeroy draws is pertinent

to this Court’s decision in Bowen and, indeed, supports

Blue Fox’s assertion of an equitable lien as falling within

the Bowen rationale. Pomeroy describes the equitable

lien in the following terms:

The remedies of equity are, as a class, specific. Al-

though it is commonly said of them that they are not

in rem, because they do not operate by the inherent

force of the decree in an equitable suit to change or

transfer the title or estate in controversy, yet these

remedies are, as a general rule, directed against some

specific thing; they give or enforce a right to or over

some particular thing—a tract of land, personal prop-

erty, or a fund—rather than a right to recover a sum

of money generally out of the defendant's assets.

Pomeroy, § 234.

Thus, as recognized in Bowen, an equitable lien rep-

resents a peculiar right over the thing concerning which

the contract deals, and it operates directly upon that

thing. Even when the controversy concerns pecuniary

claims and obligations, and the final relief is wholly

pecuniary, the equitable remedies are administered by re-

garding the subject matter as a specific fund and by

adjudging such fund to its single owner, or by apportion-

ing it among the several claimants. Pomeroy, § 170.

This reemphasizes the distinctive feature of an equitable

lien in that it ascertains a rightful claimant’s interest in

or over a specific thing, land, chattels, choses in action,

debts and even money in the form of a fund and follows

it through the hands of successive possessors as long as

it can be identified. Pomeroy, § 170. In Transamerica

21

Insurance Company v, United States, 31 Fed. Cl. 532

(1994), the court ruled that a performance bond surety

may bring an equitable subrogation action against the

government noting that once the government is informed

of the principal’s default, it becomes a stakeholder in the

contract balance; and since the balance is measured by

the time of default, the assessment of liquidated damages

cannot operate to defeat the surety’s subrogation claim.

Similarly, in Transamerica Premier Insurance Company

v. United States, 32 Fed. Cl. 308 (1994), the surety

recovered against the government under the doctrine of

equitable subrogation where it had paid a materialman’s

claim.

In determining whether this court should recognize

Blue Fox’s equitable lien, the Tenth Circuit’s weighing

of equities in Kennedy Electric Co., supra, should be con-

sidered. There, the court found that the subrogated

surety analogy was apt and stated:

The cases such as Fireman's Fund, 421 F.2d 706, 19

Ct. Cl. 804, holding that the government cannot es-

cape liability for wrongful payment, concerned

Miller Act sureties. The principle is not changed by

the fact that here we have an unpaid subcontractor

rather than a surety. Department compounded its

error in contracting without bond by wrongly paying

to an assignee after notice for the subcontractor’s

cliam. It arrogated to itself determination of entitle-

ment to the fund which it held. The subcontractor

had a legally enforceable right against department.

. . . The subcontractor has an equitable lien both on

the funds remaining in service’s hands and on the

money wrongfully paid to the assignee.

Id. at 960.

Congress has consented to litigation in federal court

seeking equitable relief from the government. Pullman

Construction Industries, Inc. v. United States, 23 F.3d.

1166, 1168 (7th Cir. 1994). In Pullman, the Seventh

22

Circuit dealt with a civil taxation suit. However, it opined

generally on the current status of sovereign immunity,

particularly in light of the amendments to § 702 of the

APA. The court observed:

Now that 5 U.S.C. § 702 exposes the United States to

equitable relief, it is difficult to speak of federal sov-

ereign immunity as a ‘right not to be sued.’ It is

quite unlike the Eleventh Amendment, which provides

that ‘[t]he judicial power of the United States shall

not be construed to extend’ to suits against states, and

the Foreign Sovereign Immunities Act (FSIA), 28

U.S.C. § 1602-05, which gives foreign governments’

‘immunitv from the jurisdiction’ of our courts. The

only portion of the United States’ original immunity

from suit that Congress continues to assert is a right

not to pay damages—a right circumscribed by stat-

utes such as § 106, >

Id. at 1168.

The court’s decision in Aetna Casualty and Surety

Company v. United States, supra, 71 F.3d 475, is most

instructive. When the government wrongfully pays money

to which another has equitable lien. such as Blue Fox had

over the balance owed Verdan, § 702 of the APA waives

immunity for suit by the party whose equitable rights were

violated. Whether the wronged party is a surety, as in

Aetna, or an unpaid subcontractor, as is Blue Fox in this

case, the result should be the same. There is no difference

between the equities of the surety and the subcontractor.

Thus, if the surety’s claim to monies wrongfully paid by

the government is an action for relief other than money

damages, which it is, the subcontractor’s own claim must

be considered to be a suit for relief “other than money

damages.” Thus, Blue Fox’s claim of an equitable lien

falls squarelv within the waiver of sovereign immunity set

forth in § 702 of the APA. Since Blue Fox seeks to en-

force its equitable lien over the monies held by the gov-

23

ernment, the suit is not one for money damages. Thus,

§ 702 of the APA waives sovereign immunity for claims

such as Blue Fox.

CONCLUSION

For the foregoing reasons, Amicus Curiae American

Subcontractors Association respectfully requests that this

Court affirm the judgment of the Ninth Circuit Court of

Appeals below.

Respectfully submitted,

DAVID R. HENDRICK

Counsel of Record

STEPHANIE M. WARSHAL

HENDRICK, PHILLIPS, SCHEMM

& SALZMAN

1800 Peachtree Center Tower

230 Peachtree Street, N.W.

Atlanta, Georgia 30303-1514

(404) 522-1410

JOEL S. RUBINSTEIN

BELL, Boyp & LLoyp

1615 L Street, N.W., Suite 1200

Washington DC 20036

(202) 466-6300

Counsel for American

Subcontractors Association

No. 97-1642

IN THE SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1997

THE UNITED STATES DEPARTMENT OF THE ARMY,

Petitioner,

Vv.

BLUE FOX, INC.

Respondent.

On Writ of Certiorari To The

United States Court of Appeals

For the Ninth Circuit

CERTIFICATE OF SERVICE

I hereby certify that on this 8th day of October, 1998,

three copies of the Brief of The Chamber of Commerce of the

United States of America as Amicus Curiae in Support of

Respondent Blue Fox, Inc., were served by prepaid postage, first

class mail upon:

Seth Waxman, Esq.

Solicitor General

Room 5614

U.S. Department of Justice

950 Pennsylvania Ave., N.W.

Washington, D.C. 20530-0001

(202) 514-2217

Counsel for Petitioner

Thomas F. Spaulding, Esq.

Spaulding Cox & Schaeffer, LLP

1205 N.W. 25™ Avenue

Portland, Oregon 97210-2497

(503) 222-3815

Counsel for Respondent

I further certify that all parties required to be

served have been served. j

Aw f

Tami Lyn Azors

McKenna & Cuneo, L.L.P

1900 K Street, N.W.

Washington, D.C. 20006

(202) 496-7500