F. D. Rich Co. v. United States Ex Rel. Industrial Lumber Co.

Background

The dispute involved F. D. Rich Co., the prime contractor on housing at Beale Air Force Base; Cerpac Co., a closely linked company that supplied plywood and custom millwork; and Industrial Lumber, a broker who sold plywood to Cerpac. Industrial delivered multiple shipments to the Beale site, one shipment was diverted to a South Carolina project, Cerpac fell behind in payments, and Industrial sued on the Miller Act payment bond for nine unpaid invoices.

Reasoning

The Court addressed whether Cerpac was a subcontractor (so its supplier could sue the prime contractor) and whether attorneys' fees could be recovered. Applying the Court's earlier functional test, it looked at the total business relationship and found Cerpac performed a substantial part of the prime contract and was therefore a subcontractor. The Court also held venue in the Eastern District of California was proper because the contract was made and performed there. But the Court reversed the award of attorneys' fees, explaining the Miller Act is silent on fees and federal courts follow the "American Rule" unless Congress or contract provides otherwise.

Real world impact

The ruling lets suppliers who sell to an integral subcontractor bring Miller Act claims against the prime contractor and supports venue where the contract is to be performed, even if a shipment was diverted. However, suppliers cannot recover attorneys' fees under the Miller Act unless a statute or contract expressly allows them, so successful plaintiffs may still bear their own legal costs.

Dissents or concurrances

Justice Douglas (in part) disagreed about fees, arguing the Miller Act should be read like state lien laws so the "sums justly due" would include costs of collection, including attorneys' fees.