Free Reply to Response to Motion - District Court of Arizona - Arizona

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William F. Haug (000843) Chad L. Schexnayder (009832) James L. Csontos (010823) JENNINGS, HAUG & CUNNINGHAM, LLP 2800 N. Central Avenue, Suite 1800 Phoenix, Arizona 85004-1049 602-234-7800 Attorneys for Travelers Casualty and Surety Company of America

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA

The United States of America for the benefit and use of EPC CORPORATION, an Arizona corporation, Plaintiff, vs. TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA, a Connecticut corporation, Defendant.

Consolidated Case No.: 02-CV-2313 PHX ROS REPLY SUPPORTING MOTION FOR SUMMARY JUDGMENT

And All Related Proceedings

Travelers Casualty and Surety Company of America ("Travelers"), replies to Standard Constructions separate Response as follows: I. Introduction: In Standards Complaint, it alleged at page 6, paragraph 25 that it provided certain notices. In its Motion, Travelers stated that Standard could not prove the allegations of its Complaint. In its Separate Statement of Facts (Document 118), Standard agrees that the notices described in the Complaint do not exist.

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However, Standard offers different notices to argue that it complied with the statutory notice provision of 40 U.S.C. § 270b. However, the notices offered with Standards Response fall short of the statutory requirement, and Standard offers no legal authorities that would permit these untimely and defective notices to allow a party to pursue a claim under a Miller Act payment bond. II LEGAL ANALYSIS. A. Standard Failed to Provide Beneco with any form of Notice.

The notice requirement of 40 U.S.C. § 270b is simple. Within 90 days of last providing labor or materials to the bonded project, Standard must provide Beneco with written notice stating with substantial accuracy the amount claimed and the name of the party to whom the material was furnished or supplied or for whom the labor was done or performed. This statutory

provision cannot be construed any different than it is written. Exxon Mobile Corp. v. Allapattah Services, Inc., --- U.S. ---, 125 S.Ct. 2611 (2005) (As we have repeatedly held, the authoritative statement is the statutory text, not the legislative history or any other extrinsic material.) The notice requirement is easy to comply with. A simple letter, sent by registered mail is all Standard had to do. A good example of the type of letter Standard could have sent is provided in Apache Powder Co. v. Ashton Co., 264 F.2d 417 (9th Cir. 1959) and is set forth in its entirety at Appendix A (page 8, hereto). The purpose of this notice requirement is to protect the contractor [Beneco] by making it possible for him to withhold monies due to the subcontractor [EPC], in order to satisfy claims asserted by third persons. U.S. ex rel. Hargin v. Maryland Casualty Co., 64 F.Supp. 522, 528 (D. Cal. 1946). This is why notice must be provided to the prime contractor [Beneco] and not to the project owner or to the surety. For example, in Standards Complaint, as well as

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in EPC original and amended Complaints, Standard and EPC describe how Beneco paid certain subcontractors and suppliers of EPC after EPCs termination from the project. This is precisely how the notice requirements of 40 U.S.C. 270b serve to protect In Standards Response and Statement of Facts (Docket 117, 118) Standard admits it failed to provide Beneco with the type of notice required by the Miller Act, or with any similar type of notice. Instead, Standard claims it provided a notice to Travelers. Notice to the surety is not required by the statutory

language; instead 40 U.S.C. § 270b requires written notice to said contractor. Notice to the surety does not satisfy the notice requirements of 40 U.S.C. § 270b. U.S. ex rel. Pomona Tile Mfg. Go. V. Kelley, 456 F.2d 148, 150 (9th Cir. 1973) (An unpaid materialman must notify the prime contractor of his claim within 90 days of the last delivery to the subcontractor.); In re Flotation Systems, 65 F.Supp. 698, 701 (D. Cal. 1946) (They [unpaid 2nd tier subcontractors] are protected under it [Miller Act] for having the contractors bond with the Government inure to their benefit, provided they give notice to the contractor, and not to the Government , or to the surety.). Standard cites no authorities that would substitute notice to the surety for notice to the contractor. For this reason alone, the Court should grant Travelers Motion, and enter a judgment of dismissal of Standard Constructions claims. B. Standards Notices Do Not Comply with Statutory Requirements. If Standards notice to the surety could satisfy the statutory requirement of notice to the prime contractor, Standards notices fail to satisfy the other requirements of 40 U.S.C. § 270b. Namely, the only notice sent within the 90 day period fails to state with substantial accuracy the amount claimed. The March 23, 2002 letter Standard attaches to its Statement of Facts does not state any

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amount of the claim, let alone state the claim with substantial accuracy as required by law. As Standard agrees, Travelers promptly responded to the March 23, 2002 correspondence, and specifically reserved all of its rights and defenses, including but not limited to all defenses resulting from any failure to comply with the applicable notice requirements and statute of limitations. See

Standards Statement of Facts, Exhibit B. Although Travelers sent its April 5, 2002 letter expressly reserving its defense on within 90 days, thus allowing Standard time to comply, Standard admits it still failed to provide any notice to anyone within 90 days stating with substantial accuracy the amount claimed as required by 40 U.S.C. § 270b. Moreover, even if the Court were to accept Standards unsupported argument that its subsequent letter to Travelers, sent admittedly well beyond the 90 days allowed under 40 U.S.C. § 270b, constituted the notice require by law, even that notice is defective. That untimely notice sent to the improper party states a claim of $65,292.80. Yet, Standard has described its claim in this action to be many, many times that amount. Should the Court determine that Standards letters fulfilled the condition precedent under 40 U.S.C. § 270b, the Court must at least limit Standards claim to $65,292.80. U.S. ex rel. Honeywell, Inv. V. A. & I Mechanical Contractors, Inc., 677 F.2d 383, 386 (D.C. N.C. 1982) (However, it clearly sufficed to give notice of the claim in the maximum amount of $27,161.56.) C. Standard Cites No Authorities Prohibiting the Provision of Statutory Notice to Beneco. At page 2, lines 8-11, Standard seems to claim statutory notice could not be given to Beneco because of the automatic stay. Standard does not cite any legal authority to support this argument. Standard makes no analysis of the automatic stay, and does not even provide a citation to the applicable statute. Standard

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does not discuss how sending a letter such as the one set forth in Appendix A, hereto, would violate the automatic stay provisions. Standards inability to provide legal analysis or authority is because there are no legal authorities that support Standards argument. The reason Standard did not cite let alone analyze any of the subsections of 11 U.S.C. § 362 is because none of the subsections prohibit the provision of statutory notice under 40 U.S.C. § 270b. A statutory surety bond is not property of the estate. See In re Lockard (OMalley v. Lockard), 884 F.2d 1171 (9th Cir. 1989). Any act done to perfect a claim under the statutory bond could therefore not be an act to collect property of the estate. This is why Standard failed to provide the court with any

discussion let alone authorities supporting its argument that it could not provide statutory notice. D. A.R.S. § 12-341.01 Does not Apply

In its Complaint, Standard alleged its claims arise out of contract within the meaning of A.R.S. § 12-341.01. In its Motion, Travelers explained how

Standards claims against Travelers do not arise out of contract within the meaning of A.R.S. § 12-341.01. Standard makes no arguments to controvert Travelers Motion, and Standard cites no authorities in support of its claim that litigation under a statutory bond falls under A.R.S. § 12-341.01. authorities are to the contrary. The Court should now rule that Standards claims against Travelers do not arise out of contract within the meaning of A.R.S. § 12-341.01. This is a purely legal issue, and the requested ruling would eliminate the largest single line item of Standards claim. Travelers asserts that elimination of the largest portion of Standards claim should go a long way to allowing the parties to discuss settlement. All of the

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III

CONCLUSION Standard has the burden of proof and persuasion on establishing a claim

under the Miller Act payment bond. However, Standard cites no authorities allowing notice to a surety to satisfy the notice requirements of 40 U.S.C. 270b. Standard does not explain why it failed to fulfill the notice requirements of 40 U.S.C. § 270b, even though it admits receiving Travelers letter specifically reserving the notice defense prior to the expiration of the 90 days. Standard also cites no authorities standing for the proposition that the prime contractors involuntary bankruptcy action prohibits the provision of statutory notice. Standard makes no attempt to explain how sending a letter like the one listed in Appendix A, below, would violate the automatic stay, and there are no prior authorities that have so held. Likewise, on Standards allegation that this litigation under Travelers bond is a matter arising out of contract within the meaning of A.R.S. § 12341.01, Standard cites no authorities that would support this position. Standard also fails to discuss the authorities cited in Travelers Motion that stand for a contrary result. The Court should therefore grant Travelers Motion as it applies to Standard. For these reasons, Travelers respectfully requests the following relief. Travelers requests this Courts order granting summary judgment on Standard Constructions claims. Travelers requests the Court enter its judgment of

dismissal of Standard Constructions claims against Travelers. Upon doing so, the Court will lack any further basis to maintain jurisdiction of Standard Constructions breach of contract claims asserted against EPC. Finally, Travelers requests the Court grant attorney fees in Travelers favor. This result is permitted under Standard Constructions claim that this matter arises out of contract within the meaning of A.R.S. § 12-341.01. As the Arizona

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courts have held, a party who proves that the matter is not a claim arising out of contract may recover attorney fees under this statute. Colberg v. Rellinger, 160 Ariz. 42, 770 P.2d 346 (App. 1989) (Awarding defendant attorney fees in defending tort claims because plaintiff alleged claims arose out of contract). RESPECTFULLY SUBMITTED this 29th day of August, 2005. JENNINGS, HAUG & CUNNINGHAM, LLP

By /s/ James L. Csontos William F. Haug Chad L. Schexnayder James L. Csontos Attorneys for Defendant Travelers

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Evans, Kitchel & Jenckes 8th Floor Title & Trust Building Phoenix, Arizona

APPENDIX A

April 25, 1957 Registered Mail Ashton-Mardian Company(Joint Venture) P. O. Box 7065 Tucson, Arizona Ashton Building Company P. O. Box 7065 Tucson, Arizona Mardian Construction Company 1314 North 21st Avenue Phoenix, Arizona Re: Corps of Engineers, U.S. Army Contract for Air Force Station TM-181 at Ajo, Arizona Gentlemen: Pursuant to subparagraph (a), § 270b, Title 40, United States Code Annotated, you are hereby notified as the contractor in the above-mentioned contract, who furnished the Payment Bond to the United States of America, that from and including June 13, 1956, to and including March 12, 1957, Apache Powder Company of Benson, Arizona, furnished or supplied materials consisting of explosives and blasting supplies to Pioneer Constructors and Construction Materials Company of Tucson, Arizona, for use in the prosecution of the work provided for in said above-mentioned contract in the amount of Thirty-three Thousand Four Hundred Fifty-three and 71/100ths Dollars ($33,453.71), of which Twelve Thousand Five Hundred Fifty-three and 02/100ths Dollars ($12,553.02) has been paid, leaving a balance of Twenty Thousand Nine Hundred and 69/100ths Dollars ($20,900.69). The last of said materials was furnished on March 12, 1957, and all of said materials was delivered by Apache Powder Company on the job and was used in the prosecution of the work provided for in said above-mentioned contract. Yours very truly, Apache Powder Company By Evans, Kitchel & Jenckes By (s) William A. Evens By (s) William A. Evans Powder Company

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CERTIFICATE OF SERVICE I hereby certify that on August 29, 2005, I electronically transmitted the attached document to the Clerks Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrants: Troy J Aramburu Steven D Jerome David E Leta Jay Max Mann Hank E Pearson Robert J Berens David F Gaona [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

I hereby certify that on _____________, I served the attached document by (insert service method: mail, courier service, in-person delivery, e-mail) on the following, who are not registered participants of the CM/ECF System: