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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. 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).