J. W. Bateson Company, Inc. v. United States ex rel. Board of Trustees of National Automatic Sprinkler Industry Pension Fund – Oral Argument – November 30, 1977

Media for J. W. Bateson Company, Inc. v. United States ex rel. Board of Trustees of National Automatic Sprinkler Industry Pension Fund

Audio Transcription for Opinion Announcement – February 22, 1978 in J. W. Bateson Company, Inc. v. United States ex rel. Board of Trustees of National Automatic Sprinkler Industry Pension Fund

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Warren E. Burger:

We will hear arguments next in 1476 Bateson against United States.

Mr. Rephan, I think you may proceed whenever you are ready.

Jack Rephan:

Mr. Chief Justice and may it please the Court.

The issue before the Court in this case involves interpretation of the Miller Act, which is of the utmost importance to the construction industry, particularly those contractors doing construction for the federal Government.

The petitioners maintain that the Court of Appeals for the District of Columbia, misconstrued the Miller Act in defining the term subcontractor and in holding that the respondents may maintain this action.

We feel Your Honors that the decision of the Court of Appeals is contrary to this Court’s opinion in Clifford F. MacEvoy which was decided back in 1944 and also the case of F. D. Rich Co. which was decided in 1974.

Also, Your Honors we submit that the Court of Appeals’ decision for the District of Columbia Circuit is contrary of the holdings of the First, Fourth, Fifth and Ninth Circuits which have all passed in this issue.

We believe those decisions are consistent with the Rich case and with the MacEvoy case and they are in proper interpretations of the terms of the Miller Act.

The material facts are very simple.

Warren E. Burger:

Yes.

Jack Rephan:

The General Service Administration awarded a contract to Bateson to bill in addition to the Howard University Hospital in Washington D.C., a contract of some $39 million.

Bateson subcontracted to Pierce Associates all of the mechanical work which consisted of the heating, ventilation, air conditioning and also included the installation of a automatic fire sprinkler system.

Pierce Associates in turn entered into a subcontract agreement with Colquitt Sprinkler Co. where the installation for the automatic sprinkler system.

Colquitt had a collective-bargaining agreement with the respondent union and under the terms of the collective-bargaining agreement, Colquitt was required to withhold certain union dues and fringe-benefits from the pay of its employees and paid over to the union trustees.

Colquitt got into financial trouble, failed to pay these monies over for the period of May 1973, through December ’73 and the Union Trustees thereupon gave notice to Bateson under the Miller Act which is required within 90 days after the last of the work is done and thereafter when Bateson refused to make payment, they brought suit in the United States District Court for the District of Columbia.

William H. Rehnquist:

Do you question that they have the same standings as with the laborers for?

Jack Rephan:

Yes, Your Honor, we will concede that issue and I think it was resolved in another case by this Court; however, we do maintain they are one tier down and they are at a little bit different position in the one case we referred to.

William H. Rehnquist:

How Colquitt did do installation work on the job?

They did not simply furnish material?

Jack Rephan:

That is true Mr. Justice Rehnquist.

They actually before in the installation and furnishing of the sprinkler system itself.

Now, in the MacEvoy case, this Court had before the issue of whether a material man to a material man on a federal construction project was covered under the terms of the Miller Act and after reviewing the statute and the legislative history, the Court said that the bond ran only to those material men, and laborers, and subcontractors who deal directly with the prime contractor and those material men, laborers and subcontractors who lacking any express or implied contract with the prime contractor, nevertheless had a direct contractual relationship with a subcontractor and who give the requisite 90 day notice.

This principle was reaffirmed by this Court, we believe Your Honors in the Rich case, the distinction in Rich was that the material men or subcontractor in that case, a company by the name of SERPAC had two contracts with the prime contractor, one contract was to furnish the plywood for the exterior of the project and the other contract was to detail and install all of the mill work.

There were some other very important facts in that case namely, that the stock holdings for the two companies were closely interrelated, the management of the two companies were interrelated they had done work on other projects and we believe Your Honors that in that case when the Court said, we have got to look beyond the terms of the contract to see whether or not SERPAC was functioning as a material man or as a subcontractor, that the Court had in mind that distinction and this was the purpose of applying a substantial relationship test in the Rich case to determine whether or not the middle party was a subcontractor or a material man.

I think Your Honors, if I might refer you to the opinion of the Ninth Circuit in that case, where the Ninth Circuit said that this distinction between subcontractors and material men turns on a substantiality and importance of the relationship between the middle party and the prime contractor.

William H. Rehnquist:

Does that really make sense to you or do you support it?

Jack Rephan:

Your Honor, if you go back to the purpose of the Miller Act, it may make some sense because historically, and even the District of Columbia Mechanic’s Lien Law, for example limits, the coverage to a subcontractor not beyond.

William H. Rehnquist:

But does it not make then, a lot more sense, as they are talking about the substantiality of the relationship to draw the line between the traditional material man who simply furnishes goods to the job site which are installed by another entity and a subcontractor who installs the stuff, actually puts the stuff into the ground that he can no longer lien for because it is public ground?

Jack Rephan:

Yes, Your Honor, I would agree that, that probably makes more sense than to apply this test in a vacuum and I think that is what the Court of Appeals did.

They misconstrued and misread what this Court was talking about when they used the substantiality test that the Court in the Rich case was trying to ascertain whether this party was a material man or was a subcontractor and they elect to both contracts the entire relationship between the parties and SERPAC was doing contract work, they were not limited to supplying of material and that is what the Court had in mind of that case.

Jack Rephan:

Now, the question here is whether or not, Colquitt, the sprinkler installer was a subcontractor and we feel under the traditional view and the traditional definition of the term subcontractor that Colquitt was not a subcontractor, sure they were installing work, they were installing some of the materials on the job, but if we go back to the definition of subcontract, it would this Court referred to in the MacEvoy case one who takes part of the work from the prime contractor, we maintain Colquitt is not within that category.

Colquitt is a sub-subcontractor and these terms have been used in the construction industry and day-to-day references of the term for many years and we believe there is a distinction between a subcontractor and a sub-subcontractor.

And certainly Congress, we feel had this distinction in mind, and the committee reports because they said a sub-subcontractor is covered by the Act but that is as far as it goes.

William H. Rehnquist:

You say Congress said a sub-subcontractor is covered by the Act, but that is as far it goes?

Jack Rephan:

Yes, Your Honor I think that was even referred to by this Court in the MacEvoy opinion to the —

William H. Rehnquist:

But would not that cut against your argument here?

Jack Rephan:

The sub-subcontractor?

William H. Rehnquist:

You do not concede then that Colquitt was a sub-subcontract?

Jack Rephan:

Colquitt was a sub-subcontractor Your Honor, and Colquitt would have been covered by the Act, we are talking about the employees of Colquitt one step removed, now Colquitt, had Pierce not paid Colquitt, certainly, Colquitt could have given notice to Bateson and come and made a claim of the Act, but we are talking about their employees, which is one step removed when Colquitt as a sub-subcontractor.

William H. Rehnquist:

The employees then are in your view a step removed in the subcontractor material men?

Jack Rephan:

That is correct Your Honor.

And the material men furnishing materials to the sub-sub?

Jack Rephan:

Right.

Same category Your Honor, it would not make any difference, whether it is employees or whether it was a material man of the sub-sub, we say that neither of them would be covered.

They are all in a third-tier or beyond.

You have the prime as first-tier, you had Pierce the second-tier, Colquitt in third-tier.

The third-tier people would be covered beyond that they clearly not covered.

But what is the difference between the employees and the material men as the employees were doing work on the project?

Jack Rephan:

Well, that is true, Your Honor, but I do not think the distinction is important here, if you look at the language of the statute itself.

Now, certainly the respondents would like to say there is a distinction because these people were actually working on the project, but every bit of laborer, every bit of material man —

And they were doing it for a sub-sub who could recover the contract price?

Jack Rephan:

The sub-sub could —

And who would be protected by the Miller Act?

Jack Rephan:

The sub-sub was protected Your Honor, and that is what Congress said in the committee report and I think if we analyze a notice requirement this would support our position.

The statute requires only those persons having a direct contract with a subcontractor to give notice and only to the prime contractor, this would leave out a subcontractor such as Pierce here.

Pierce in effect would have no notice that Colquitt had not paid their employees.

The notice would go to the prime contractor and Pierce of course, is one of those protected parties under the Miller Act.

Peirce had a direct contract with the prime contractor and therefore it is expressly covered under the Act and the question arises in my mind Your Honors, as why at the end did Congress not provide that those tiers below that first-tier subcontractor give notice to the subcontractor, so that he could protect himself.

In fact, in this case if there is going to be double payment it would be by Pierce Associates, the first-tier subcontractor.

I think it is important for the Court to carefully read the Rich’s decision because I think the Rich decision and again I think too that the all of the cases which were cited in the Rich case, I believe in a footnote on the principle relied on by the Court to define the term subcontractor, involved a situation where the party, we were talking about, to be a material man or being the subcontractor, had some sort of a contractor relationship with the prime.

Jack Rephan:

Now, there are cases where you have a prime contractor, you have another corporation may be a wholly own subsidiary, of the prime, and the courts in those cases have more or less, pierced a corporate veil.

They do not feel where you have a wholly own controlled subsidiary, that has no economic reality that a prime contractor should be able to put this buried in there and push the material men or laborers down one tier and therefore exclude them from the coverage of the Act.

What if Pierce had gone to Bateson and said, “We do not think where we are going to be able to do this sprinkler work and we want your permission to assign that part of our subcontract to Colquitt” and then the same situation had developed, would the parties be in any different position for Miller Act purposes?

Jack Rephan:

Yes Your Honor, in that situation they would be because Colquitt then would have a contract with Bateson and we think this is what the court is talking about when they talk about those few contractors, of doing their job on fields.

I would not think that would give Colquitt a contract with Bateson and Bateson would have noticed that and would have consented to an assignment from Pierce to Colquitt?

Jack Rephan:

If Pierce assigned the portion of its contract work to Colquitt then it would seem Your Honor, that Colquitt would stand on the same contractual tier then with Pierce.

They would have a contract with Bateson.

They would look to Bateson for the payment.

Bateson could then control them and protect themselves.

They could say to Colquitt, we want you to put up a bond and of course, if Colquitt could not make the bond, Bateson would then have a choice not to permit the work to be done by Colquitt.

In this case Colquitt looked only to Pierce for payment?

Jack Rephan:

Yes Your Honor, yes Your Honor, Colquitt had no —

Well, then they may submit their payroll to —

Jack Rephan:

That is true Your Honor, but that is a requirement almost all federal construction projects today that these payrolls go through the general contractor to the owner.

Unless you hear this whether the Court below was correct in holding Colquitt to be a sub not a sub-sub?

Jack Rephan:

That is true Your Honor, they said that technically Colquitt was a sub-subcontractor, but then they in effect said, “This makes no difference.”

In fact, in the —

Well, here as what they said, “Colquitt therefore was a subcontractor within the Miller Act.”

That was their conclusion?

Jack Rephan:

That is true Your Honor.

You will note in the Court of Appeals’ opinion Two on page, I have a slip opinion, on page 4, they said in the case before as the union’s contract was with Colquitt which was technically a sub-subcontract —

But they went on —

Jack Rephan:

Then they went on and reached conclusion that there were a subcontractor and we take issue of that Your Honor, we think that —

But you must yeah, because if he was a sub you would not be here?

Jack Rephan:

We would not be here Your Honor.

I think one leading case the Court should look at is the Elmer case which was the Fifth Circuit case and that case followed MacEvoy and they discussed MacEvoy in that.

This precise issue is there and it is simply a question of what did Congress mean when they used the term subcontractor, were they speaking about the traditional subcontractor, one having a contractor relationship with the prime contractor or they are talking about any person who does both labor and and material and as distinguished among a pure material man.

John Paul Stevens:

Mr. Rephan, I do not find in the briefs any discussion of what the normal rule is in the Mechanics’ Lien Law of the big commercial states like New York, and Illinois and California.

Would the employees of a sub-subcontractor normally be entitled to protection under State Mechanic’s Lien Law in situation like that?

Jack Rephan:

Mr. Justice Stevens, the only jurisdictions I did check out or the local jurisdiction, Maryland, Virginia, the District of Columbia, the D.C. Code —

John Paul Stevens:

I know you say D.C. That would not be the case —

Jack Rephan:

D.C. has a definition of the term subcontract in the statute itself in Section 38103 of the D.C. Code and this defined as any person directly employed by the original contract whether as a subcontractor, material man or labor to furnish work or materials with the conditional work contracted for as aforesaid and I think —

John Paul Stevens:

And I think that is the rule in the District.

Do you have any idea what the law generally is?

Jack Rephan:

Law generally Your Honor, in my own experience has been, it only goes down to that first level.

I know in Virginia state away.

William H. Rehnquist:

Mr. Rephan —

Jack Rephan:

Yes, Your Honor.

William H. Rehnquist:

As you also I know that you did not cite any law from the fast growing south western states like, Colorado and Arizona?

Jack Rephan:

There was no slide intended Mr. Justice Rehnquist.

We had our hands full here with the District of Columbia and we thought this is where we need some clarification.

Is it usual for the main contractor to require his own consent for subcontracting?

Jack Rephan:

Well in the contracting procedures, Your Honor, normally the big contractor is your mechanical, and electrical as contrary to structural unless the general contractor does that and that is 95% of the work —

Yes, but then there is — how about in this case?

Jack Rephan:

In this case, I think that the automatic sprinkler work is sort of a specialized work, most mechanical subcontractor will not do it.

But how about the main — was the subcontractor free to sub-sub that anybody he wanted to?

Jack Rephan:

True Your Honor.

Without the main contractor having anything to set about?

Jack Rephan:

That is correct Your Honor.

The —

Could the main contractor have required the sub-sub to put up a bond?

Jack Rephan:

They could have required it, but —

Well, the Court here held that —

Jack Rephan:

It is clear I do not —

That the main contractor could have protected itself?

Jack Rephan:

They could have required a bond here Your Honor, but it is clear also that Colquitt could never have obtained a bond and this is one of the problems as you get down in the lower tiers, these people simply are not bondable.

There is no way you are going to be able to get bonds.

Further done are usually small companies —

But if Bateson leaves that to Pierce to do the mechanical and leaves Pierce free to sub out part of the mechanical, they more or less run that risk.

Jack Rephan:

That is right.

Jack Rephan:

They could not require Pierce to secure bonds from all of their sub-sub people.

They had no privity with those people.

Yeah, but they did require Pierce to provide a bond in it and would not Pierce if it had known that this —

Pierce is really the one who is going to get stuck here.

Is it not?

Jack Rephan:

That is true Mr. Justice —

Had Pierce realized how the Court of Appeals are going to decide this case it pretty surely would have required a bond from Colquitt, would it not?

Jack Rephan:

Well, they would have Your Honor, of course they were relying on what they believed to be the law at their time.

The Elmer case and the other cases and the way they interpreted the decisions of the this court —

Well, the law would not have known that the law, as it was then what they would still be stuck, if Colquitt went belly up.

Jack Rephan:

Well, it is a practical matter Your Honor, the only way that someone in Pierce’s position, could protect themselves would be to withhold payment from Colquitt and this is really contrary to the intent of the Miller Act.

The subcontractor simply can afford a man to his jobs, if the big subs are going to hold up their payment and that is the only way they can finance these jobs and this is the only way as a practical matter I think that a major sub such as Pierce could protect itself.

Colquitt was not bondable.

In fact, there was a requirement under the collective-bargaining agreement.

That Colquitt put up a bond to protect the trustees on the very payments which are in issue in this case.

The trustees waived this bond requirement, and they admit that there were not reason they waive it, there was no vehicle to sphere bound it.

This is the problem what happened is that the industry is going to be limited to those people who have the financial and size, ability to man these major projects.

We believe Your Honors, that and we are talking about those few contractors that the general contractor can protect themselves against which speaking of the major subcontractors, the mechanical, the electrical, but you have some very specialize sub-subcontractors, particularly on the federal projects being constructed today.

Security systems, security glass, and locks for a jail and it goes on down the line and these are being furnished and installed.

Theoretically, they could come within the definition of subcontractors defined by the D.C. Court of Appeals, but we think that Congress never intended that the prime contractor would have to protect themselves against these many hundreds of small subcontractors.

John Paul Stevens:

But counsel, is it not fair to say that a counsel did generally intend to provide the same kind of protection that would be available under State Mechanic’s Lien Law if it were not for the sovereignty of the federal Government?

Jack Rephan:

Mr. Justice Stevens that is exactly correct that, that the Miller Act —

John Paul Stevens:

Is it not relevant to know what the general practices throughout the country on this sort of problem, nobody seems to have talked about it and I do not mean to single out anyone jurisdiction, but is it not what Congress is trying to do?

Jack Rephan:

That is exactly what they were doing Your Honor, because there was no way you could enforce a lien against Government owned property.

The Mechanic’s Lien Law, you enforce your lien by ordering a Court, sale of the property.

This could not be done in the case of federally owned property.

As I said Your Honor, the jurisdictions, that I am familiar with all have some limitations, traditionally I think it is only going down to the first-tier subcontract, is that way in the District of Columbia, it is that way in Virginia and I think it is that way in Maryland and it seems to us that this is what was replacing when they enacted the Miller Act and certainly when they put limiting language in there and used the term sub-subcontractor as well as subcontractor that they are trying to go down to a specified tier, but the Miller Act goes one tier further than most state Mechanic’s Lien Law.

It says any —

But you do think Mechanic’s Lien Law do not pay off according to you, any worker who works on the project?

Jack Rephan:

No, Your Honor that is exactly what I was reading here, in the D.C. Code, if there is any person directly employed by the prime contractor, only, his employees, his subs, his material men – that is as far as he goes.

Jack Rephan:

And I think this is true in Virginia too.

In the Miller Act, we have those people who have a direct contract with the prime contractor that would include the laborers of the prime contractor, the material suppliers, and the subcontractors.

Then, we have any person having any a direct contract with a subcontractor, so it would be the material suppliers, the sub-subs, the laborers to a sub, and did I mention material men to the sub? Beyond that we think that, that is what this Court meant when they said those in more remote relationships.

William H. Rehnquist:

So in Virginia, Pierce’s employees who had worked on the job installing other mechanical stuff would not have any laborer’s lien plan?

Jack Rephan:

Mr. Justice Rehnquist, I think that is true, there is not mechanic’s lien, there is other statutory protection but it is not under the Mechanic’s Lien Law.

William H. Rehnquist:

That would not be true in Arizona, the law would be different; that they would have a plan.

And but Pierce would.

Jack Rephan:

Pierce would Your Honor, Pierce is a subcontractor, and of course it becomes even more difficult though in a state like, I think, Virginia, and Maryland where the general contractor has paid the subcontractor.

This will extinguish the mechanic’s lien rights, so that the rights are somewhat limited and it was quite obvious that this was what Congress was attempting to do and it — Your Honors realized it started with the Heard Act, which was the forerunner of the Miller Act.

However, the proviso was interjected into the Miller Act and this is what the Court had to interpret in the MacEvoy case.Following MacEvoy, as I mentioned earlier, there are at least four Circuits that have ruled precisely the way we are asking this Court to rule today.

And we think also that the Rich case did not alter the test in the MacEvoy case.

All Rich said was here we have an issue is this Rich man really a material man or is he really a subcontractor.

The man I am speaking about was Surpac (ph).

Surpac (ph) had a very close relationship with the prime contractor.

Obviously, the prime contractor could protect themselves.

Please the Court, I would like to reserve with the little time I have.

Warren E. Burger:

Very well.

Mr. Capuano.

Donald J. Capuano:

Mr. Chief Justice and may it please the Court.

If I may, at this point, I would like to respond to Mr. Justice Stevens before I get into my argument.

You have asked sir, whether the state Mechanic’s Lien Laws covered this problem and you did not see any discussion of it in the brief.

It is our view that when Congress adopted the Miller Act, the main purpose or in fact as Chairman Miller stated in the legislative history, the purpose of the Act was merely to correct the procedural problems in the Heard Act, so they were not adopting the Miller Act to try to conform it with state Mechanic’s Lien Laws.

They were trying to correct the procedural difficulties in the Heard Act, those difficulties were that there was only one bond, the Government had the first opportunity to sue, contractors had to wait six months before they could sue, all of the suites had to be joined in one proceeding.

These items, or difficulties made it impossible for contractors to collect their money on Government jobs, and as a result they were forced to settle for a lot less than what their claims were worth.

That was the purpose of the Miller Act and under the Heard Act, anybody who supplied labor or material to the job was entitled to go against the bond.

In other words, it was not — there was not a question of privity involved as we submit the petition —

But was it not correct that the original Heard Act was intended to provide a substitute form of protection for that normally available under state law by way of the Mechanic’s Lien Law.

Donald J. Capuano:

I believe that you are correct and of course the Heard Act covered everybody who supplied any labor or material on the job.

And your point is that Miller Act was liberalized there by recovering the payment bond as well as performance bond?

Donald J. Capuano:

Yes in that sense.

Donald J. Capuano:

Now, I do recognize that in the Miller Act, a limitation was imposed with regard to this proviso that the petitioner is relying upon, but in our view, the Miller Act did not change in the sense, the class of people who could be covered.

What the Miller Act did was, provide an opportunity for a general contract or a prime contractor to protect himself from remote claims.

Mr. Capuano, —

Donald J. Capuano:

Yes, Mr. Justice.

If Colquitt had simply delivered sprinkling equipment to the job and that Pierce’s employees had installed that, would Colquitt’s employees or their pension fund have had a claim under A, the Heard Act or B, the Miller Act?

Donald J. Capuano:

Under the Heard Act, yes, under the Miller Act no, because the Colquitt’s employees would be in the same situation they are in this case.

Now, the trustees who brought this suit are trustees of a jointly administered Pension Welfare Entrepreneurship Fund.

In other words, there are equal number of employer and union trustees on this fund or actually there are three funds involved, the money that they were trying to obtain was the contribution that Colquitt in its collective-bargaining agreement promised to make to these funds every month on behalf of the employees to fund their pension benefits, health and insurance benefits and educational benefits.

In addition, the union is a respondent in this case and was a plaintiff because Colquitt withheld money from the wages of the employees, part of which was to go towards union dues and the other deduction was to go to a vacation savings plan set up individual savings accounts in banks for each employee, of course, the employees never got this money.

Now, it is our view that what the Court of Appeals did hear was look at the facts in the case, for example, it found that the sprinkler system installed by Colquitt was specifically required by Bateson’s contract with the Government, it found that sprinkler system was an integral and significant part of the whole building, it found the work that Colquitt did was performed over substantial period of time and it found that the work was important and in support of that it showed or the Court pointed out that the work done by Colquitt’s employees was taken over by Pierce when Colquitt went broke or was unable to perform anymore.

Potter Stewart:

All of those things could be true of a identity that was concededly a sub-subcontractor which you would concede would not be under the terms of the Miller Act?

Donald J. Capuano:

No, I would not concede that Mr. Justice Stewart.

No, the point is that applying this Court’s test in Rich the Court of Appeals said you look to determine whether there is a substantial and important relationship between the prime and this other party, the defaulting party —

Potter Stewart:

Even though, the other party has a subcontractor to the ninth degree?

Donald J. Capuano:

Well, the point is you do not look at privity —

Potter Stewart:

I say this much has conceded.

Donald J. Capuano:

Yes, alright it says to the ninth degree.

You look to see whether there is a substantially important relationship.

Potter Stewart:

And if these attributes exist then he is functionally a sub-subcontractor?

Donald J. Capuano:

No, he is a subcontractor.

Potter Stewart:

Subcontractor.

Donald J. Capuano:

Under the prime and his employees or any person —

Potter Stewart:

Are covered by them.

Donald J. Capuano:

Are covered, now, the reason that this Court in our view adopted this substantial and important test was because the legislative history makes clear and the Court is repeated it many times here, that the purpose of the Act was to protect the interest of those who supply labor and material to a federal project or a public project so that they can get their money.

Now, certainly, if that is the purpose of the Act, the only reason for having the proviso in the Act, is to protect a prime contractor from some claims which are totally remote, something he could not protect himself against.

William H. Rehnquist:

Do you not have real difficulty though when you try to break it down under an abstract description like that as to just who is covered and who is not?

Donald J. Capuano:

Mr. Justice Rehnquist no, I do not have any problem with that at all because the test that this Court set up in Rich and followed by the Court of Appeals, is really no different than test that the Court has set up in other situations for example, reasonable man.

I do not believe this test is anymore difficult than a reasonable man test.

There are going to be close cases under this definition, but we submit that if you adopt the mechanical test which the petitioner is proposing here, what you wind up with is the employees and other persons who supply labor or material, being the ones who are suffering as a result of delegation, or self-delegation, or sub-delegation of work on a construction project.

In another words, if I may, in this particular case Peirce subcontracted out the sprinkler work.

Donald J. Capuano:

Now, it is not at all uncommon in a large Government project where the mechanical contractor will sub out the sprinkler, he will sub out the underground utilities, he will sub out the sheet metal work, he will sub out the pipe covering work, he will sub out the temperature control work.

May be I did not speak while asking my question, I joined Rich and I certainly understood it to focus on whether or not the person was a subcontractor as opposed to a material man and it used the close and substantial word of the language which I think it come originally from MacEvoy, but I understood your argument to be that we can more or less discard this distinction between material men and subcontractors and simply focus on this rather abstract descriptive language?

Donald J. Capuano:

Mr. Justice, if I understand your point, it is that Rich was only making a distinction between material man versus subcontractor, if that so we would still submit, although I do believe the test goes further than that in Rich, but we would still submit that the approach the Court used in Rich that is a functional type test, is the only test that is going to accommodate the two purposes that we understand to be in the Miller Act.

The first and primary purpose is to protect those whose labor or material went to the public projects.

The second purpose of the proviso or rather the purpose of the proviso to the Miller Act is simply to make sure that prime contractor has some means of protecting himself from remote claims.

Now, not remote claims in terms of number of tiers people are down where they would be 1, 5 or 10, but remote in the sense that the defaulting party does not have a substantial and important relationship with the prime because if he does have that kind of relationship, then there is no reason to eliminate contractors down this —

How about security guards hired by the prime who contribute nothing to the on the job construction, but patrol at regularly while it is under construction?

Donald J. Capuano:

Well, if they had a contract direct with the prime, I believe they would be covered under the Miller Act, there would be no issue about that.

Do you think they will be covered?

Donald J. Capuano:

I do not think that is the same type of case we are talking about.

No, I certainly do not either but do you think they will be covered under the Miller Act?

Donald J. Capuano:

Yes, I would Your Honor.

Mr. Capuano, on your remoteness argument which is very persuasive, but the problem that I have is what about the House Report, seems to draw the line one step shorter where you take this?

Donald J. Capuano:

On the language referring to the —

And the sub-subcontractor?

Donald J. Capuano:

Sub-subcontractor, yes.

That is as far as the bill goes, what do you say about that?

Donald J. Capuano:

Well, my answer to that would be first that, at best it is ambiguous because the Act itself does not define a subcontractor, so with the Act not defining a subcontractor, it is difficult to assume then that the House Report when it refers to sub-subcontractor was referring to a definition at which the petitioner urges here.

In other words, I think the functional definition that this Court laid out in Rich is a more appropriate one.

Furthermore, I believe that again as this Court has pointed out many times, there is extensive legislative history.

On the other side of this problem, and that is the legislative history, in fact, comments by Chairman Miller one of which I mentioned earlier that the basic purpose of the Miller Act was merely to straighten out these problems with the Heard Act.

Now, with that being repeated over and over again in the legislative history, I find it difficult to attribute to Congress then, by that one statement in the House Report, a wholesale elimination of classes of people who were previously covered, in effect to adopt that statement as some sort of controlling criteria, would mean that Congress decided they were going to cover just tip of the Iceberg and eliminate all these other people that previously be covered.

I believe that before we could look at that statement as controlling there would have to be far more legislative history similar to that or at least defining what they meant by subcontractor in that case.

If I may, the point I would like to make with regard to the remoteness argument and I believe I partially got into it, but I would like to stress the fact that I do not believe that Congress can be assumed, or it can be presumed that Congress intended when it adopted the Miller Act to let coverage under that Act, be controlled by the contractors who were on the job and basically if we adopt petitioner’s contention that is what happens.

If Pierce decides to do the work himself, Pierce’s employees are covered, if Pierce decides to subcontract that work to Colquitt or somebody else to do the work, Colquitt’s employees are not covered.

William H. Rehnquist:

That is true under what you say Congress did not intend in the Miller Act, is is true under most states’ mechanic lien statute is it not?

Donald J. Capuano:

There are many that do that.

There are a few Justice Rehnquist which we have found which would in effect support our position.

William H. Rehnquist:

And yet you did not say that the Heard Act as originally drafted was intended as substitute for state mechanical lien statute?

Donald J. Capuano:

Yes, in the sense that you could not have the mechanic’s lien on a federal project, the Heard Act provided for the bond to give the laborers and other persons who supplied material on the job, opportunities to collect, but I think this point is particularly crucial that the rights of both laborers and material men to seek recovery under the Miller Act bond, under the petitioner’s contention rests on how much sub delegation the prime or someone for example in Pierce’s condition decides he wants to on the job.

Donald J. Capuano:

This we submit is totally inconsistent with the Rich case and for that reason we believe that the Rich case even if it is not found controlling in this situation because it involved a supplier to a material man.

We believe the test itself is sound and was stated as a general test for determining subcontractor under the Miller Act and the functional aspects of it can be applied in this situation.

There are a couple more points, I would like to make if I could.

The another factor which I think demonstrates that the petitioner’s privity type argument is not valid in interpreting the Miller Act, is the situation we have here where Pierce took over the job after Colquitt was unable to perform.

Now, under the petitioner’s theory of the case, on the last day these people worked for Colquitt, they were not covered under the Miller Act.

They had no bond coverage.

The next day when they went to work for Pierce doing precisely the same work, probably hooking one piece of pipe up to the piece of pipe they hooked up yesterday.

They were then covered.

Warren E. Burger:

Yes, but is it not absolutely natural consequence of all kinds of line drawing but we encountered in a full range of business and commercial relationships?

Donald J. Capuano:

That is the kind of line drawing yes, Mr. Chief Justice, but my point is that line drawing based upon these relationships in business.

In other words what the Pierce and Colquitt want to do and what Bateson wants to do with them should not be controlling in interpreting the Miller Act, because Congress there said, “Look, we want to make sure people whose labor goes into that building, get paid.”

Warren E. Burger:

Well, in states’ lien actions frequently the central issue or the only issue was whether the work or the material was completed on Monday of the given week or Tuesday and that there are material lines drawn under a statute?

Donald J. Capuano:

Well, those lines as I recollect Mr. Chief Justice, really are concerned more with whether someone was prompt in getting his claim filed. For example, whether the work was done Monday, or Tuesday.

Warren E. Burger:

Well, it is the same general kind of line drawing, is it not?

Donald J. Capuano:

No, I would respectfully disagree Mr. Chief Justice, that I think the line drawing there —

Warren E. Burger:

You do not lose your case if you — I am just surprised that you would want to put so much weight on that kind of a point.

You do not lose your case on it?

Donald J. Capuano:

Yes, I realized that but —

Thurgood Marshall:

But you want us to draw a line too, do you not?

Donald J. Capuano:

No, Mr. Justice Marshall, I do not want to —

Thurgood Marshall:

You want to let it float?

Donald J. Capuano:

Pardon me sir.

Thurgood Marshall:

You want to let it float?

Donald J. Capuano:

I want you to adopt a test, as the Court of Appeals did below which says look, we look at the facts and to determine if there is this substantial and important relationship because there is only one reason why you want to find out if there is a relationship, because if there is such relationship then the defaulter is not remote from the prime.

William H. Rehnquist:

Well, how do you compute a Miller Act bond premium?

If you got that vaguer test?

Donald J. Capuano:

The Miller Act bond premium Mr. Justice Rehnquist is set in the Act.

In other words the Act provides the limit of the bond.

William H. Rehnquist:

I am not talking about the mode of coverage, I am talking about the premium that the general has to pay to the insurance company to get the bond?

Donald J. Capuano:

The premium, as I recall from the brief submitted by the Surety Association is based upon a percentage of the bond.

Donald J. Capuano:

In other words, I believe it is one half a percent for the first million or something like that.

They did also point out in their brief that they do not compute these premiums on an actuarial type basis —

William H. Rehnquist:

And we do not —

Donald J. Capuano:

But again, I do not believe that is crucial because what we have to keep in mind is what Congress intended to do when it adopted the statute.

Certainly, if Congress was concerned for example, about how the sureties were going to get the premiums or how they were going to base their premium, it would have been simple to say we are not going to have any bonds, that there would be no premium.

William H. Rehnquist:

Well, then Congress could likewise and passed a law that had none of the limitations that the Miller Act had in it and simply said that anybody who has come near the project and that it has not been paid can recover under the bond.

We both agree it has done neither of those things?

Donald J. Capuano:

No, it did not go that far and that is correct, but I would point out that if Congress fully intended his petitioner’s argument to limit the bond to the first-tier, that would have been very simple to say in the proviso, but it did not say so.

On the contrary; however, if that again as petitioner argues that Congress could easily have said who was covered it would have been very difficult to put that kind of language in the proviso.

It would have then had language sub sub sub sub or sub of the first, second, third, fourth tier, that type of language, I do not believe that we are going to attribute to Congress that intent in view of that.

Byron R. White:

Did Pierce file a bond in this case?

Donald J. Capuano:

Pierce have a bond —

Byron R. White:

The sub yeah.

Donald J. Capuano:

Well, the record does not reflect that Mr. Justice White, but Pierce had an indemnity agreement with Bateson to indemnify Bateson in the event, Bateson did —

Byron R. White:

So that they in any event these employees have no claim against Pierce?

Donald J. Capuano:

They have no claim against anyone at the present time.

Byron R. White:

Well, they have there no bond at Pierce file covers then?

Donald J. Capuano:

No, sir.

The problem that the Bateson claims exist and that is how is he going to be able to get all these bonds that were going to be bonding contractors down the row.

We do not believe exists because there are several ways that Bateson can protect themselves, one of which of course is requiring bonds.

He required one of Pierce, that certainly proves he can do, but he did not have to do it.

Pierce could certainly have required one of Colquitt.

Now, why Pierce did not require one to Colquitt.

The record does not show, counsel indicates this because Colquitt could not get bonded.

Well, if that is so, in effect then, Pierce is telling the employees, I want Colquitt on the job probably had a low price.

Colquitt can not get bonded, so if Colquitt goes belly up who is going to bear the risk of that, you employees.

I simply cannot attribute that intent to Congress.

Now, with regard to the argument that was somewhat touched down by counsel and argued extensively in the briefs and that is that the interpretation, they are suggesting would be more fair to small contractors that the interpretation we are proposing, would in effect eliminate small contractors from coming on jobs because they could not get bonds and people like Pierce’s now on would require small contractors to get bonds.

I think the argument is not appropriate in this case for several reasons.

First, the small contractors can merely be on both sides of this question.

Donald J. Capuano:

They could just as easily be claimants as they can defaulters for example, if Colquitt had subbed out half of his sprinkler system job to a small contractor, that small contractor would be standing in the shoes of Colquitt’s employees and also would come up empty handed, so I doubt if a small contractor is going to take much comfort in petitioner’s argument, that we want to get you on the job, even though you cannot be bonded and then have that same small contractor find out that when he cannot get paid, he cannot go against the bond either.

Furthermore, we do not believe that the philosophy of the Miller Act was that the employee should bear the responsibility for a marginally weak contractor.

Certainly the federal Government has provided other means to get jobs for small contractors and federal projects.

But you would make the same argument I gather it for Bateson, for Colquitt’s material men?

Donald J. Capuano:

Oh! Yes sir.

My argument would be precisely the same for Colquitt’s material men.

For anyone who had a contract with Colquitt because that is the only privity which the act requires in our view —

Because Colquitt you say was correctly held to be a subcontractor?

Donald J. Capuano:

By the Court below?

Yes sir.

The only privity that is necessary is the privity between the claimant and the defaulting party.

The Act does not require privity between the defaulting party and the prime to show that the defaulting party is a subcontractor.

I have concluded my argument and I would simply like to request that the Court affirmed the decision of the Court of Appeals which we feel fully adopted the decision of this Court in Rich, MacEvoy and properly construed the Miller Act.

Thank you.

Anything further Mr. Raphen?

Jack Rephan:

May it please the Court.

Very briefly, one of the very difficult problems we have with the test urged by the respondents is it is an unworkable test.

Here we had a $39 million contract.

Sprinkler work with approximately 155,000 and 156,000.

If we use a substantiality test let us assume we had sprinkler system in one room as $10,000 by their subcontractor, suppose it is $500,000 or they have subcontractor and who is going to make these determinations.

It is going to be the general contractor, who obviously is not in a position to do so because they are not awarding the sub-sub-subcontractors.

It is going to have to be the subcontractor and in turn his subcontractor on down the line and we believe Your Honor it is really, truly an unworkable test as far as drawing the lines, we think this Court recognized that Congress in the Miller Act drew the line not rightly or wrongly, it may well be that extension of the Miller Act should be brought.

We feel that is a matter for Congress that they feel this way they can redefine the coverage, but we think the way as to find right now this was an attempt by Congress to draw a line to show some definition and we think the Court of Appeals decision violates that boundary line, in effect it eliminates the proviso of Section 2 of the Act which this Court had before in the Rich case and MacEvoy case and which was to the proviso involved in all of the Circuit Court opinions who held that a subcontractor is a subcontractor in the usual meaning of this term and this term was used in the building trade industries, and certainly this Court recognized that in MacEvoy and we think this is what Congress meant when they said subcontractor.

Thank you.

Thank you gentleman.

The case is submitted.