436 F. 2d 547 - Delta Electric Construction Company v. United States

February 26, 1965, Delta Electric Construction Company, Inc. and Holland & Little, Inc., for convenience hereafter referred to as Delta, entered into a contract with the United States for the construction of certain improvements at Laredo Air Force Base, Laredo, Texas.

September 9, 1965, Delta's employee, Fred Garza, was working within an electric power load transfer cubicle at the Base. An electrical 'short' occurred, with the result that Garza was seriously burned and government owned equipment was damaged to the amount of $1,162.23.

The contract authorized the contracting officer to require Delta to repair any damage done by it, but no such demand was made. Instead, Laredo Air Force personnel made the repairs.

Reports and correspondence were exchanged between officers at Laredo and the Fort Worth District of the United States Corps of Engineers relative to the amount of damage and the responsibility therefor. These reports were forwarded to the Chief, Construction Division, on October 13, 1965, after which they were forwarded to the Finance and Accounting Office.

The District Counsel of the Corps reviewed the attachments and determined that under the doctrine of res ipsa loquitur Delta had caused and was liable for the damages. Counsel stated, however, that

'This presumption may be rebutted, but there is no contrary evidence in this file.'

On December 2, 1965, Finance and Accounting returned the file with the following notation:

'Subject file is returned without action. Notification by letter to the contractor of the amount due for damages has not been made.'

Subsequently, January 14, 1966, the District Counsel added a second comment to the file addressed to Chief, Construction Division, stating:

'Since the damages incurred by the Government are chargeable against the Contractor under the provisions of the contract, they should be deducted from a Pay Estimate.'

On May 31, 1966, Chief, Construction Division, Fort Worth District, forwarded the file to the Resident Engineer in charge of this particular contract requesting that charges for the damages incurred by the government be deducted from a Pay Estimate due to the Contractor. This deduction of $1,162.23 was not made until the final estimate of August 4, 1966. Prior to that deduction Delta had received no notice whatever of the claim.

Delta promptly filed suit under the Tucker Act, 28 U.S.C.A. 1346(a)(2), to recover the amount of the deduction and moved for summary judgment. The government moved to dismiss the suit. On January 5, 1968, the District Court denied plaintiffs' motion for summary judgment on the ground that the contractors had not exhausted prerequisite administrative remedies.

The government's motion to dismiss was held in abeyance pending decision of the Armed Services Board of Contract Appeals.

Delta took its case to the Armed Services Board of Contract Appeals and received a hearing on March 13, 1968. After eight months deliberation, the Board denied Delta's claim, November 18, 1968.

Delta then filed a second amended complaint which recited the history of the matter and further alleged:

'The action, findings and conclusions of the Contracting officer and the Armed Services Board of Contract Appeals were arbitrary, capricious, an abuse of discretion and were not in accordance with law. By failing to give Plaintiffs prompt and reasonable notice that a claim was, or would be, asserted against them by reason of such alleged property damage and by unilaterally deducting $1,162.23 from Plaintiffs' Final Payment Estimate No. 14, Defendant breached the terms of its contract with Plaintiffs, acted in excess of its statutory jurisdiction and authority, deprived Plaintiffs of any effective administrative remedy to which Plaintiffs were entitled by the terms of such contract and damaged Plaintiffs in the amount of $1,162.23.'

The government answered this second amended complaint and the plaintiffs filed a second motion for summary judgment, asserting 'There is no genuine issue as to any material fact herein and, under the undisputed facts plaintiffs are entitled to judgment as a matter of law'.

The United States countered with a motion for summary judgment.

On January 12, 1970, the District Court denied plaintiffs' second motion for summary judgment and granted judgment to the government, stating that the controversy between the parties was a matter within the jurisdiction of the Armed Services Board of Contract Appeals and that there was substantial evidence in the record to support the findings of the Board. It was further held that the Board had correctly applied the law to the facts.

From this action the plaintiffs have appealed to this Court.

On appeal it is asserted that the government breached its contract by (1) delaying eleven months before notifying plaintiffs that they were being held liable for damages to government property and by (2) failing to give plaintiffs timely notice of the claim they were deprived of any opportunity of effectively defending themselves against it, which, as a practical matter, consummated an absolute set-off, in breach of the contract.

More elaborately, it is urged that the plaintiffs would not be liable unless the short circuit was caused by the fault or negligence of the employee and, if that were established, plaintiffs' liability would be limited to the damages which were the sole fault of their employee; evidence to support these defenses could only be obtained through prompt investigation which would have followed notice that plaintiffs were being held responsible for the short circuit and the resulting damage; the mere occurrence of the short circuit did not constitute such notice and the facts concerning it were so equivocal that the District Counsel's determination of plaintiffs' liability was based upon the doctrine of res ipsa loquitur.

Plaintiffs conclude by saying that they have 'expended several times the amount in controversy in an effort to secure a definitive judicial determination as to a contractor's rights when, long after the fact, when effective evidence-gathering investigation is no longer possible, the government asserts and, by withholding from contract earnings, collects a claim for property damage'.

This Court must take a very dim view of the conduct of the responsible government officers (or officials) in this case. As a matter of fair play, if not of fundamental due process, we find nothing commendable in the delay of eleven months, and until final payment on the contract was due, before asserting a claim and simultaneously deducting the money by unilateral action. The government had a right to call on the contractor to make the repairs, but did not. Eleven months of silence could have had no reasonably foreseeable result but to lead the contractor to believe that no claim was intended and none would have to be defended. We repeat, this treatment of contractors, or others having business with the Sovereign, does not deserve the badge of judicial approval.

On the other hand, the position of the contractors is not free of infirmity.

The record very convincingly reflects that Garza was advised, not once but twice, that the power to the cubicle could not entirely be cut off except from another point. He chose to proceed without such a cut off. The 'short' promptly ensued, burning him, and knocking out electrical aeronautical navigational equipment for six hours. When this case was heard before the Appeals Board in San Antonio Mr. Garza was there that day but the contractors did not put him on the witness stand.

The decision of the Armed Services Board of Contract Appeals, finding that the accident was caused by the negligence of the contractors and fixing the amount of the damages, is abundantly supported by the record.

It only remains to be decided whether as a matter of law, or of contract, the delay in giving notice defeats the government's right to retain the money.

We are of the opinion, under the facts of this case, that the issue should be answered in the negative.

As a general rule, the 'government has the same right 'which belongs to every creditor, to apply the unappropriated moneys of his debtor, in his hands, in extinguishment of the debts due to him", United States v. Munsey Trust Company, 1947, 332 U.S. 234, 239, 67 S.Ct. 1599, 1602, 91 L.Ed. 2022.

In a somewhat similar case (negligence of a subcontractor installing electrical systems at an Air Force Base) we have held that the government does not have the right arbitrarily to withhold funds, Simon v. Maryland Casualty Company, 5 Cir., 1965, 353 F.2d 608, 610.

The action taken here against Delta was first dilatory and then summary, but it was not arbitrary because the government had a just claim, the active negligence of the contractors gave birth to that claim, and Delta had the right to a plenary hearing, which it received.

The case boils down to the contention that the failure to give timely notice deprived the contractors of an opportunity effectively to defend themselves against the claim. If this were true, arbitrariness would necessarily follow.

The fact is, however, that Garza, the contractors' employee, the man who proceeded to work without totally disconnecting all electric current in the cubicle, was right there when the 'short' occurred. If not the chief actor he at least occupied a front seat at the performance. When the hearing was held before the Appeals Board Mr. Garza was available, but silent. Appellant has failed to convince us that Delta might have learned something from others that it could not have learned from its own employee. We must conclude that no prejudice is shown to have been caused by the delay in the notice.

No prejudice being shown, the government prevails, not because it failed to handle the claim as properly as it should have but because the contractors negligently caused damages which the contract required them to pay for.

Once notice was given, the procedure followed was in compliance with 41 U.S.C. 321, 322.1 See United States v. Carlo Bianchi and Company, 1963, 373 U.S. 709, 83 S.Ct. 1409, 10 L.Ed.2d 652.

We are unimpressed by argument for Delta that the controversy was not handled in compliance with the standard disputes clause of the contract,2 see United States v. Utah Construction & Mining Company, 1965, 384 U.S. 394, 86 S.Ct. 1545, 16 L.Ed.2d 642; United States v. Carlo Bianchi and Company, supra.

We likewise reject the contention that only the Comptroller General had the authority to make this deduction. It was specifically authorized by 32 C.F.R., 163.98-163.122, particularly 163.106-1.3

Affirmed.