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Arvanis v. Noslo Engineering Consultants Inc.

*fn*: July 31, 1984.


Appeals from the United States District Court for the Central District of Illinois, Rock Island Divison. Nos. 82 C 4025 and 82 C 4026 82 C 4026 -- Michael M. Mihm, Judge

Bauer, Cudahy, and Eschbach, Circuit Judges.

Author: Per Curiam

The ultimate question we are asked to decide is who is left holding the bag when a prime contractor on a federal construction project fails to obtain a Miller Act payment bond and then defaults without paying his subcontractors. We conclude that the answer is the hapless subcontractor, not the United States.


On a private construction project, mechanic's and materialmen's liens secure payment of the subcontractors. Such devices are obviously unavailable on a government project; sovereign immunity bars liens against government property. Equally obvious, potential subcontractors would be very reluctant to participate if they had nothing better than the status of a general creditor of the prime contractor to secure payment. The answer to this problem was the Miller Act, 40 U.S.C. §§ 270a-270d, 49 Stat. 793 (1935) (as amended). Section 270a provides that the prime contractor must post a payment bond to guarantee payment of the subcontractors. Section 270b provides that if not paid, the subcontractor may sue on the bond in federal district court.

Defendant Noslo Engineering Consultants, Inc. was the prime contractor for the installation of a "noise attenuator" at the Rock Island, Illinois United States Army arsenal. Plaintiffs-appellants John V. Arvanis and Baer Electric Co., Inc. were subcontractors. Unbeknownst to them, Noslo failed to obtain a payment bond. Noslo also failed to complete the project or pay the two subcontractors for the materials and services they had supplied, and subsequently filed for bankruptcy. Arvanis and Baer then filed essentially identical suits against Noslo and the United States, each seeking to recover the full amount of his damages ($105,080 for Arvanis and $30,464 for Baer) from each defendant.*fn1 Noslo failed to answer, and default judgments were entered. The claims against the government were dismissed on grounds of sovereign immunity and lack of subject matter jurisdiction.

Arvanis and Baer appeal from the district court decision dismissing their three-count amended complaint against the United States. Count III was based on the Federal Tort Claims Act (FTCA), 28 U.S.C. § 2671 et seq., and 28 U.S.C. § 1346(b), and alleged that the government was negligent in failing to require Noslo to post a Miller Act payment bond. Count IV, premising jurisdiction on the Miller Act and 28 U.S.C. § 1331 (federal question jurisdiction), also alleged a failure to require the payment bond. Count V again claimed to base jurisdiction on § 1331 and the Miller Act, and alleged both that the government was negligent in failing to retain sufficient progress payments and should thus be liable to the subcontractors, and that plaintiffs should be compensated out of the $50,000 retainage which the government did hold.*fn2 On appeal, plaintiffs continue to argue that the suits were improperly dismissed as the United States had implicitly waived sovereign immunity under the Miller Act or the Tort Claims Act, or both.


Count IV: Negligence Under the Miller Act

Appellants argue that the Miller Act requires the government to insist that its contractors furnish Miller Act payment bonds. This is incorrect. The statute requires only that contractors obtain performance and payment bonds. The statute places no affirmative obligation on the government, and says absolutely nothing about what happens when the contractor fails to furnish the bond. 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 is clearly no waiver of sovereign immunity here. 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. No citation is needed to reject appellants' suggestion that 28 U.S.C. § 1331 waives sovereign immunity. It merely gives the district court jurisdiction to hear federal claims that are not otherwise barred.

Count III: Negligence Under the Tort Claims Act

Three other circuits presented with a Tort Claims Act suit against the United States for failure to require a Miller Act bond have given the argument short shrift, deciding it on the basis of a simple syllogism. The FTCA provides that the government may be sued in tort only in "circumstances where the United States, if a private person, would be liable to the claimant in accordance with the law of the place where the act or omission occurred." 28 U.S.C. § 1346(b) (1976). Because the Miller Act deals with federal contracts, a private party could never be in a position to require a Miller Act bond, and thus of course could never be liable for failure to require the bond. In the absence of such liability, the analogy required for governmental liability under the FTCA never comes into play.*fn3 McMann v. Northern Pueblos Enterprises, Inc., 594 F.2d 784 (10th Cir. 1979); Devlin Lumber and Supply Corp. v. United States, 488 F.2d 88 (4th Cir. 1973); United States v. Smith, 324 F.2d 622 (5th Cir. 1963). This Circuit has not previously been faced with the question.

We think the syllogistic analysis assumes the answer to the question at issue. It should be posible to define governmental action in almost any situation narrowly enough to render it "uniquely governmental" (e.g., no private party could negligently drive a truck carrying the U.S. mail). The better approach is to focus on the behavior involved, not the legal labels applied, and then look for analogies with private conduct.For example, private parties in many situations are required by contract or by state law to obtain bonds -- and often fail to do so.

Appellants argue that Illinois has adopted the "good Samaritan" rule as set forth in Section 324A of the Restatement of Torts (Second). Under this theory, the United States, knowing that a third party (the subcontractor) would be affected by its direct dealings with the prime contractor, had gratuitously undertaken a duty of care towards the subcontractor, and can be held liable for a breach of that duty. Appellants specifically argue that this case is analogous to United Scottish Ins. Co. v. United States, 692 F.2d 1209 (9th Cir. 1982), in which the United States was held liable under the FTCA for injuries resulting from an airplane crash; Federal Aviation Administration (FAA) inspectors were negligent in certifying that the aircraft met fire safety standards. The government argued that there was no private activity analogous to an FAA inspection. The Ninth Circuit, applying the good Samaritan (Section 324A) doctrine, found liability for a voluntarily assumed, negligently performed duty to third parties (passengers) who were in no position to do anything other then rely on FAA safety inspections. The Supreme Court, however, ...

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