United States Ex Rel. Sherman v. Carter Constr. Co.

Background

The dispute involved a contractor who agreed to build public buildings at Air Force bases in California and the company that guaranteed his payments on a federal payment bond. The contractor’s work was covered by master labor agreements that required him to pay wages and a per-hour contribution to a health and welfare fund (described in the opinion as "7% cents per hour"). The contractor paid employees’ cash wages but failed to make the fund contributions for February through April 1953. The trustees of the fund sued on the Miller Act payment bond, in the name of the United States, seeking unpaid contributions, liquidated damages, attorneys’ fees, and costs; the District Court and the Court of Appeals ruled for the guarantor.

Reasoning

The central question was whether the Miller Act’s payment bond covered employer contributions to the health and welfare fund and whether the trustees could sue on the bond. The Court concluded that the unpaid contributions were part of the compensation the employees had earned and thus were "sums justly due" under §2(a) of the Miller Act. The trustees’ right to collect under the master labor agreements and the trust agreement made them analogous to assignees of the employees’ claims, so they could sue on the bond. The Court also held the guarantor is liable for the stipulated liquidated damages, attorneys’ fees, court costs, and related expenses, and it reversed the Court of Appeals and remanded for determination of amounts.

Real world impact

The decision makes the company that guarantees a contractor’s federal payment bond responsible for unpaid employer contributions to an employee welfare fund and related litigation costs. That expands who can recover under federal payment bonds and protects workers’ benefit funds when contractors default; the exact dollar amounts remain to be fixed on remand.