Department of the Army v. Blue Fox, Inc.

PETITIONER: Department of the Army
RESPONDENT: Blue Fox, Inc.
LOCATION: Knowles' Car

DOCKET NO.: 97-1642
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: United States Court of Appeals for the Ninth Circuit

CITATION: 525 US 255 (1999)
ARGUED: Dec 01, 1998
DECIDED: Jan 20, 1999

ADVOCATES:
Jeffrey A. Lamken - Argued the cause for the petitioner
Thomas F. Spaulding - Argued the cause for the respondent

Facts of the case

Verdan Technology, Inc.,, a prime contractor, failed to pay Blue Fox Inc., a subcontractor, for work completed on a construction project for the Department of the Army. Under the Miller Act, a contractor working on any public building or public work of the US must post a bond for possible defaults. However, the Army treated the work agreement as a "services contract," and removed Verdan's bond requirements. When Verdan failed to pay Blue Fox, it directly sued the Army. Blue Fox sought an "equitable lien" on any funds from the Verdan contract not paid to Verdan, or any funds available or appropriated for the completion of the project, and an order directing payment of those funds to it. The District Court concluded that it lacked jurisdiction over the matter, and thus ruled in favor of the Army because the waiver of sovereign immunity in the Administrative Procedure Act (APA) did not apply to Blue Fox's claim. The Court of Appeals held that the APA waives immunity for equitable actions, thus allowing Blue Fox's equitable lien.

Question

Can subcontractors on federal projects force the government to pay when prime contractors fail to do so?

Media for Department of the Army v. Blue Fox, Inc.

Audio Transcription for Oral Argument - December 01, 1998 in Department of the Army v. Blue Fox, Inc.

William H. Rehnquist:

We'll hear argument next in 97-1642, the Department of the Army v. Blue Fox, Inc.--

We'll wait just a minute, Mr. Lamken.

Mr. Lamken.

Jeffrey A. Lamken:

Mr. Chief Justice, and may it please the Court:

For well over a century, it has been settled law that no plaintiff may obtain money from the United States Treasury absent an act of Congress entitling the plaintiff to the money or creating the... or authorizing the creation of a right to that money.

That rule has been repeatedly recognized in this Court's cases, including Buchanan v. Alexander, United States v. Nordic Village, United States v. Testan, OPM v. Richmond, and Republic National Bank.

Probably nowhere has that rule been more often repeated than in the context of subcontractor efforts to obtain payment from the United States under an equitable lien theory when the prime contractor that should have paid this prime contract... the subcontractor does not.

Mr. Lamken, I note you're getting down to this specific case, but for the broad, sweeping proposition you announced originally, I'm thinking of cases like Westcott v. Califano where Congress said benefits go to fathers not mothers, and this Court said that such a statute... its constitutionality could be saved by including mothers for benefits, for unemployment compensation benefits.

How does that fit with your theory that unless there's a specific act that covers this, no money will be paid from the Treasury?

Jeffrey A. Lamken:

Well, Your Honor, I would say that in that case the Court was construing the statute in a manner to save its constitutionality consistent with Congress' purpose.

If Congress' express purpose was to exclude somebody that the Court thought was constitutionally included... constitutionally had to be included in the category, then the answer would be that the statute could not be enforced at all.

The Court could not blue pencil in against Congress' intent a category of people or an entitlement to money that Congress did not want to be entitled.

So, that would have to be categorized as a case where the Court construed the statute in order to make it constitutional and therefore it read the statute as providing for a payment to those individuals.

That's something maybe a lawyer could follow, but the statute said unemployed father and the Court said unemployed mothers will be paid under this statute as well.

Jeffrey A. Lamken:

Yes.

It's possible, Your Honor, that the Court stretched quite a bit to save the constitutionality of that statute.

But that does not change the underlying principle that absent a statute, nobody may obtain money from the... from the public Treasury, and the courts are not entitled under principles of common law or equity to create entitlements.

The other difference--

But you could have that kind of loose interpretation of a statute that would accommodate the kind of case I just described.

Jeffrey A. Lamken:

--I'm sorry.

Could you repeat the question?

You could... you said absent a statute, but you just described a statute that on its face doesn't cover something, but will be construed by a court to cover something and that fits within your theory.

Jeffrey A. Lamken:

I think it would, but there's another point to it, which is when we say that absent a statute, we include in statutes all positive sources of law that are above common law and court-made law and we would include the Constitution.

So, if the Constitution required a payment from the United States Treasury... and I think it would be rare that it would.

If the Constitution required a payment from the United States Treasury, then the Court might have it within its power to order that payment be made.

No such problem is raised... involved here, is it?

Jeffrey A. Lamken:

No, I don't believe that there is any constitutional question in this case.

In this... in this case before the Army paid Verdan in 1994, could it have said, you know, we have 86,000 dollars we're going to pay Verdan, but we have notice that Blue Fox hasn't been paid?

We're going to put this money into a... a court escrow account and... and allow Blue Fox to make its claim in court.

Could you have done that?