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Imperial Manufacturing Ice Cold Coolers, Inc. v. Shannon (11/19/2004) sp-5845
Imperial Manufacturing Ice Cold Coolers, Inc. v. Shannon (11/19/2004) sp-5845
Notice: This opinion is subject to correction before
publication in the Pacific Reporter. Readers are
requested to bring errors to the attention of the Clerk
of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501, phone (907) 264-0608, fax (907) 264-0878,
e-mail corrections@appellate.courts.state.ak.us.
THE SUPREME COURT OF THE STATE OF ALASKA
IMPERIAL MANUFACTURING ICE )
COLD COOLERS, INC., an Oregon ) Supreme Court No. S-11045
Corporation, )
)
Appellant, )
) Superior Court No.
v. ) 3AN-01-8270 CI
)
CLIFTON SHANNON, a/k/a CLIF ) O P I N I O N
SHANNON, individually and d/b/a )
ARCTIC CONSTRUCTION )
ENTERPRISES, STATE FARM FIRE )
& CASUALTY CO., and LOWER )
KUSKOKWIM SCHOOL DISTRICT, )
)
Appellees. ) [No. 5845 - November
19, 2004]
)
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Anchorage, Morgan Christen, Judge.
Appearances: Calvin R. Jones, Jones &
Colver, LLC, Anchorage, for Appellant. Saul
R. Friedman, Matthew Singer, Jermain,
Dunnagan & Owens, P.C., Anchorage, for
Appellee Lower Kuskokwim School District.
Before: Bryner, Chief Justice, Matthews,
Eastaugh, and Carpeneti, Justices. [Fabe,
Justice, not participating.]
MATTHEWS, Justice.
I. INTRODUCTION
A subcontractor asks this court to hold that the Little
Miller Act provides it with a private right of action through
which it can sue a school district for failing to ensure that the
bonding requirements of the act were met. Because we can find no
indication that the legislature intended to impose such liability
on public entities, we affirm the superior court's decision.
II. FACTS AND PROCEEDINGS
The Lower Kuskokwim School District contracted with
Clifton Shannon, d/b/a Arctic Construction Enterprises, to
deliver, assemble, and install two two-bedroom panel houses in
Tooksook Bay and Kwillingok. The contract acknowledged that
Shannon had provided no bonding under the Little Miller Act, AS
36.25.010.1 (2) a payment bond with a corporate surety
qualified to do business in the state, or at least two individual
sureties who shall each justify in a sum equal to the amount of
the bond for the protection of all persons who supply labor and
material in the prosecution of the work provided for in the
contract; when the total amount payable by the terms of the
contract is not more than $1,000,000, the payment bond shall be
in a sum of one_half the total amount payable by the terms of the
contract; when the total amount payable by the terms of the
contract is more than $1,000,000 and not more than $5,000,000,
the payment bond shall be in a sum of 40 percent of the total
amount payable by the terms of the contract; when the total
amount payable by the terms of the contract is more than
$5,000,000, the payment bond shall be in the sum of $2,500,000.
Shannon purchased the house packages from Imperial Manufacturing
Ice Cold Coolers, Inc., and Imperial delivered them to the
villages. Shannon did not pay Imperial.
Imperial sued, among others, the school district on the
theory that the school district had failed to require that
Shannon obtain a payment bond and thereby had breached duties
owed to Imperial. On cross-motions for summary judgment, the
superior court granted the school district's motion and ruled
that AS 36.25.010 does not provide a private cause of action
against a political subdivision. As this is the ruling that is
challenged on appeal, we assume for present purposes that AS
36.25.010 applied to the contract.2 A Civil Rule 54(b) partial
final judgment was entered from which Imperial appeals.
III. DISCUSSION
Alaska Statute 36.25.010 requires contractors who are
awarded public construction contracts to furnish payment bonds
for the protection of those who supply labor and materials. The
remedy of a supplier who is not paid is set forth in AS
36.25.020. Under this section the supplier may sue on the bond
in the name of the political subdivision for the use of the
claimant.3 (c) A suit brought under this section shall be
brought in the name of the state or the political subdivision of
the state for the use of the person suing in the court with
jurisdiction. A suit under this section is subject to AS
08.18.151. A suit may not be started after the expiration of one
year after the date of final settlement of the contract. The
state or political subdivision of the state is not liable for
costs or expenses of the suit. Alaska Statute 36.05.035(2), a
section of the Little Davis Bacon Act concerning wages and hours
of labor on public construction projects, provides that political
subdivisions shall verify that the bonding requirements of AS
36.25 have been met.4 (2) verify that the bonding requirements
of AS 36.25 have been met and that the requirements of AS 08.18
have been met.
Imperial argues on appeal that AS 36.25.010 should be
construed to provide an implied private right of action in favor
of an unpaid supplier against a political subdivision that fails
to require a contractor to purchase a payment bond. It also
contends that the duty expressed in AS 36.05.035 to verify
whether bonding requirements have been met should be enforceable
by a civil claim brought by a party in its position. The school
district argues that no right of action against a political
subdivision by entities with which it has no contractual
relationship is expressed either in the Little Miller Act or in
AS 36.05.035, and that none is implied.
Subcontractors and suppliers cannot lien public
projects.5 They thus would be dependent on the financial
solvency of prime contractors and might be reluctant to supply
labor or material to public projects were there not an
alternative remedy. The Little Miller Act was designed to
address these problems.
The purpose of the statute is:
to protect persons who furnish
labor or material for a state
public works project from the risks
of nonpayment. In exchange for
providing such protection the state
is assured that material and labor
will be readily furnished for its
projects. Persons who furnish
labor and material for the state's
projects do so in reliance on the
existence of a valid payment
bond.[6]
Since the Little Miller Act is modeled on the federal Miller Act,
we look to cases construing the federal act for guidance in
interpreting the Alaska statute.7 The Alaska statute, "like the
federal Miller Act, is remedial in nature and is to be liberally
construed to effectuate its purpose."8
We conclude that the superior court was correct in
granting summary judgment to the school district. To accept
Imperial's claim would be contrary to the premise on which the
Little Miller Act is based, which is that neither the government
nor government property may be charged by those with whom the
government has no contractual relationship. We believe that if
the legislature had intended to impose government liability - in
effect as the school district puts it, to require public entities
"to pay twice for a public project" - this intention would have
been expressed because it is a significant variation from the
existing norm.
This conclusion is supported by the rule prevailing in
cases decided under the federal Miller Act that the government is
not liable for negligent failure to insist that its contractors
furnish Miller Act payment bonds.9 As one court has put it:
The purpose of the Miller Act is to ensure
that subcontractors have some remedy if they
are not paid, since on public projects they
cannot protect themselves by filing a lien.
The Act, however, creates no affirmative
rights against the government. The
government does not recognize or deal with
the sub-contractor and has no obligation to
him for work performed or materials
furnished. A plaintiff's sole remedy under
the Miller Act is to institute suit against
the prime contractor or the surety.[10]
In another case, Arvanis v. Noslo Engineering Consultants, Inc.,
the court stated:
The Act grants a very narrow and specific
right to those in appellants' position: the
right to sue on the bond (if there happens to
be one) "in the name of the United States for
the use of the person suing." 40 U.S.C.
270b(b). (The United States is thus aligned
on the plaintiff's rather than the
defendants' side by the equation, providing
an additional reason for concluding that the
United States cannot properly be a defendant
in a Miller Act suit.) . . . . There does
seem to be a gap in the statute; there is no
provision for the contingency that both the
contractor and the government contracting
officer will ignore the bonding requirement.
However, this is not a gap that we can fill
with a remedy--especially in view of the very
narrow remedy actually granted by the
statute.[11]
Under Alaska's act, as under the federal act, the suit
must be brought in the name of the government entity that owns
the project.12 It would be unusual for an act requiring suits to
be brought in the name of a government entity to permit such
suits to be brought against the government entity. Again, if
such was intended one would expect to see the intention
expressed.
Imperial argues that Alaska should not follow Miller
Act precedent in this area since the federal Miller Act does not
contain an explicit mandate requiring the government to verify
the existence of required bonding, whereas AS 36.05.035
explicitly requires such verification. We question the premise
of this argument. In Arctic Contractors, Inc. v. State, we
stated that the Miller Act did impose a burden on the contracting
officer to verify bonding.13 We further noted that although less
explicit, there was a similar duty implicit in the Little Miller
Act:
Statutes such as the Miller and Capehart
acts put the burden on the contracting
officer to determine the vitality of the
surety. Although absent from AS
36.25.010(a)(1), that burden can be read into
the language "the contractor shall furnish to
the state . . . a performance bond with a
corporate surety qualified to do business in
the state . . . ."
We hold that the burden was on the State
to verify the bonds.[14]
Consistent with the observations in Arctic Contractors, we think
it is difficult to say that the contracting officer under the
federal Miller Act has merely a passive role with respect to
bonding compliance. It is therefore debatable whether the
textual differences on which Imperial relies should lead to
differing results.
Further, we believe that the duty-to-verify statute, AS
36.05.035, adds little to this case. This case is not about the
negligent failure of a public entity to verify that a Little
Miller Act contractor had obtained the bonds required under the
act. The contract specifically exempted the contractor from
compliance. If this was wrong, it was wrong because the school
district either intentionally, negligently, or reasonably
believed that the Little Miller Act did not apply to the
contract. The question thus is not as to liability for failure
to verify but as to liability of a public entity for exempting a
project from Little Miller Act coverage that properly should have
been covered. Given these circumstances, we believe that
liability, if it exists, must be assessed under the Little Miller
Act.
Arctic Contractors is a case that arose under the
Little Miller Act at a time before the duty-to-verify provision
of AS 36.05.035(2) was effective.15 As already noted, this court
held that a duty to verify was implied by the language of the
act.16 The facts in Arctic Contractors were that the state had
withheld progress payments from the prime contractor after the
state discovered that the prime contractor's bonds were invalid.
The question was whether this withholding of progress payments
was justified.17 Using a standard that "[t]he right to withhold
progress payments is limited to circumstances which clearly
warrant it," we held that the state was not justified in
withholding progress payments in order to protect itself against
claims by laborers and materialmen.18 In support of this
conclusion we stated:
Under the majority rule, a public body which
fails to obtain bonds as required by law is
not thereby liable to materialmen and
laborers. This issue has not been ruled upon
in Alaska, and we do not pass upon it at this
time. It would appear, however, that the
first reason advanced by the State [to
protect itself against claims by laborers and
materialmen arising from an unbonded
contractor] for the withholding is not a
circumstance which clearly warrants the
withholding.[19]
Arctic Contractors thus holds that a public entity's violation of
its duty implied in the Little Miller Act to ensure bonding for
public construction does not clearly give rise to liability, and
suggests that a rule of nonliability should apply. We agree with
the majority rule of nonliability stated in the first sentence in
the above excerpt from Arctic Contractors. It is in accord with
the case law construing the federal Miller Act,20 substantial case
law from our sister states,21 and our belief as expressed above
that if the legislature had intended to impose government
liability for Little Miller Act violations that intention would
have been expressed.
IV. CONCLUSION
For these reasons the judgment is AFFIRMED.
_______________________________
1AS 36.25.010(a) provides:
Except as provided in AS 44.33.300,
before a contract exceeding $100,000 for the
construction, alteration, or repair of a
public building or public work of the state
or a political subdivision of the state is
awarded to a general or specialty contractor,
the contractor shall furnish to the state or
a political subdivision of the state the
following bonds, which become binding upon
the award of the contract to that contractor:
(1) a performance bond with a corporate
surety qualified to do business in the state,
or at least two individual sureties who shall
each justify in a sum equal to the amount of
the bond; the amount of the performance bond
shall be equivalent to the amount of the
payment bond;
2The school district contends that AS 36.25.010 did not apply,
arguing that the contract was a contract of supply rather than
for the construction of a public building. The district relies
on the definition of "public construction" defined in AS
36.95.010(3) as the "on-site . . . erection of buildings." The
district contends that the $100,000 threshold of AS 36.25.010 was
not met here because the on-site construction component of the
contract was less than $100,000.
3AS 36.25.020 provides:
(a) A person who furnishes labor or
material in the prosecution of the work
provided for in the contract for which a
payment bond is furnished under AS 36.25.010
and who is not paid in full before the
expiration of 90 days after the last day on
which the labor is performed or material is
furnished for which the claim is made, may
sue on the payment bond for the amount unpaid
at the time of the suit.
(b) However, a person having direct
contractual relationships with a
subcontractor but no contractual relationship
express or implied with the contractor
furnishing the payment bond has a right of
action on the payment bond upon giving
written notice to the contractor within 90
days from the last date on which the person
performed labor or furnished material for
which the claim is made. The notice must
state with substantial accuracy the amount
claimed and the name of the person to whom
the material was furnished or for whom the
labor was performed. The notice shall be
served by mailing it by registered mail,
postage prepaid, in an envelope addressed to
the contractor at any place where the
contractor maintains an office or conducts
business, or the contractor's residence, or
in any manner in which a peace officer is
authorized to serve summons.
4AS 36.05.035 provides:
Upon awarding a public construction
contract, the state or a political
subdivision of the state shall
(1) immediately notify the commissioner
of labor and workforce development of the
amount of the contract, the effective date of
the contract, the identity of the contractor
and all subcontractors, the site or sites of
construction, and provide a project
description; and
5United States v. Munsey Trust Co. of Washington, D.C., 332 U.S.
234, 241 (1947) ("But nothing is more clear than that laborers
and materialmen do not have enforceable rights against the United
States for their compensation. They cannot acquire a lien on
public buildings, and as a substitute for that more customary
protection, the various statutes were passed which require that a
surety guarantee their payment."); Univ. of Alaska v. Simpson
Bldg. Supply Co., 530 P.2d 1317, 1322 (Alaska 1975) ("Although
the question has not yet been decided by this court, the weight
of authority in other jurisdictions holds that there can be no
mechanics' or materialmen's liens on property owned by the public
and used for public purposes.").
6SKW/Eskimos, Inc. v. Sentry Automatic Sprinkler Co., 723 P.2d
1293, 1297 (Alaska 1986) (quoting State v. Neal & Sons, Inc., 489
P.2d 1016, 1020 (Alaska 1971)).
7State ex rel. Palmer Supply Co. v. Walsh & Co., 575 P.2d 1213,
1218 (Alaska 1978).
8SKW/Eskimos, 723 P.2d at 1297.
9Hardaway Co. v. U.S. Army Corps of Eng'rs, 980 F.2d 1415 (11th
Cir. 1993); Westbay Steel, Inc. v. United States, 970 F.2d 648
(9th Cir. 1992); Arvanis v. Noslo Eng'g Consultants, Inc., 739
F.2d 1287 (7th Cir. 1984); 4-Star Constr. Corp. v. United States,
6 Cl. Ct. 271 (1984); Baudier Marine Elecs. Sales & Serv., Inc.
v. United States, 6 Cl. Ct. 246 (1984), aff'd, 765 F.2d 163 (Fed.
Cir. 1985).
10United States ex rel. Fred's Plumbing & Heating, Inc. v. Small
Bus. Admin., 807 F. Supp. 675, 677-78 (D. Colo. 1992) (citations
omitted).
11739 F.2d at 1290.
12AS 36.25.020(c).
13564 P.2d 30, 39 (Alaska 1977), disapproved of on different
grounds by Native Alaskan Reclamation & Pest Control, Inc. v.
United Bank Alaska, 685 P.2d 1211 (Alaska 1984).
14Id. The court's observation concerning the Miller Act duty was
a reference to the provisions of that act requiring a contractor
to furnish to the federal contracting officer "[a] payment bond
with a surety or sureties satisfactory to such officer." Id.
(quoting 40 U.S.C. 270a(a), which is now found at 40 U.S.C.
3131(b)(2)).
15AS 36.05.035 became effective in 1972.
16Arctic Contractors, 564 P.2d at 39.
17Id. at 43.
18Id. at 43-45.
19Id. at 43.
20See supra note 9.
21A majority of states that do not have explicit statutory
provisions that expressly provide for the liability of public
entities for failing to ensure that the contractor secures proper
bonding have declined to find liability by implication. "Courts
interpreting bond statutes that do not specifically provide for
liability have often construed them strictly. Without a clear
expression of legislative intent to render government agencies
subject to suit from subcontractors and materialmen, such courts
are often reluctant to impose liability on the agencies." George
E. Powell, Jr., Annotation, State or Local Government's Liability
to Subcontractors, Laborers, or Materialmen for Failure to
Require General Contractor to Post Bond, 54 A.L.R. 5th 649
(1997). See e.g., Flori Corp. v. Yellow Rose Dev. & Constr.,
Inc., 911 P.2d 546 (Ariz. App. 1995); O & G Indus., Inc. v. Town
of New Milford, 640 A.2d 110 (Conn. 1994); Emulsicoat, Inc. v.
City of Hoopeston, 425 N.E.2d 1349 (Ill. App. 1981); ABC Supply
Co. v. City of River Rouge, 549 N.W.2d 73 (Mich. App. 1996);
Cassady-Pierce Co. v. Spagnol, 635 A.2d 746 (Pa. 1993); Accent
Store Design, Inc. v. Marathon House, Inc., 674 A.2d 1223 (R.I.
1996); City of Corpus Christi v. Acme Mech. Contractors, Inc.,
736 S.W.2d 894 (Texas App. 1987). But at least one court has
reasoned that public entities have a duty to ensure that proper
bonding is secured and that liability can arise from a breach of
this duty. Palm Beach County v. Trinity Indus., Inc., 661 So. 2d
942 (Fla. App. 1995).
