Walton Technology, Inc. v. Weststar Engineering, Inc.

In this case, Plaintiff Walton Technology, Inc. ("Walton"),
a subcontractor on a federal construction project, claims that
the prime contractor, Defendant Weststar Engineering, Inc.
("Weststar"), failed to pay Walton rental fees for equipment
it rented from Walton for use on the project. Walton filed suit
against Weststar and its Miller Act surety, Defendant Reliance
Insurance Company ("Reliance"), alleging three causes
of action. With respect to Weststar, Walton claimed unjust
enrichment and conversion based on its alleged entitlement to
a pro rata share of Weststar's recovery from its insurance provider
representing rental fees submitted by Weststar as part of
a damage claim associated with the rental equipment. Walton
also claimed that Reliance and its principal, Weststar, were
liable on the Miller Act payment bond.

The district court granted summary judgment in favor of
Weststar on the claims for unjust enrichment and conversion,
concluding that Walton was not entitled to a share of Weststar's
insurance proceeds under either theory. The district
court also granted summary judgment in favor of Reliance
and Weststar on Walton's Miller Act claim. Because Weststar
had not been paid by the government so as to satisfy the subcontract
clause providing that Weststar would only be obligated
to pay Walton "when and if paid" by the government, the district court concluded that there were no"sums justly
due" under the Miller Act. The district court awarded attorney's
fees to both Defendants.

Walton appeals the district court's grant of summary judgment
in favor of Weststar and Reliance, as well as the award
of attorney's fees. We have jurisdiction under 28 U.S.C.
§ 1291 and affirm the district court's judgment in favor of
Weststar on the unjust enrichment and conversion claims.
However, we reverse the judgment in favor of Reliance and
Weststar on the Miller Act claim. Allowing Defendants to
avoid liability under the Miller Act based on the unsatisfied
"pay when and if paid" clause in the subcontract between
Walton and Weststar would prevent Walton from exercising
its Miller Act rights in the absence of a "clear and explicit"
waiver of those rights. Because we remand for further proceedings
consistent with this opinion against both Defendants,
we also vacate the district court's award of attorney's fees to
Defendants as premature.

* * *

Weststar was the prime contractor on a federal project
involving the repainting of the Navy Hammerhead Crane #28
in Bremerton, Washington. In compliance with the Miller
Act, 40 U.S.C. § 270a-d, Weststar obtained a payment bond
from Reliance guaranteeing payment to all those supplying
labor and materials to the project. Weststar subcontracted
with Walton to rent a fabric and frame shroud called the "Sail
System" to cover the crane as the work proceeded. The agreement
between Weststar and Walton was set forth in Weststar
Purchase Order 9601- 40 and its Agreement Addendum dated
March 18, 1996 ("Purchase Order Subcontract").

Although the rental period was originally scheduled to end
in September 1996, various delays prevented Weststar from
completing the project on schedule. By the end of October
1996, Walton claimed that Weststar was delinquent on rental fees and payments for other services in the amount of
$108,000. On November 1, 1996, Walton filed suit in federal
court alleging that Weststar had breached the Purchase Order
Subcontract by failing to make timely payment. Shortly after,
Weststar and Walton entered into settlement negotiations.

While the negotiations were pending, the Sail System was
damaged in a series of incidents. In late November 1996,
Navy personnel operating a "Hyster" forklift struck and damaged
the Sail System. The next day, a severe windstorm
caused further damage. One month later, the Sail System
incurred even more damage when Bremerton was hit by high
winds, heavy rain, and heavy snowfall. Weststar's corporate
parent, Amelco, tendered notice of property damage claims to
its insurer, St. Paul Fire & Marine Insurance Company ("St.
Paul") in December 1996 and early January 1997.

On January 13, 1997, Walton and Weststar executed the
Settlement & Agreement Modification to 9601- 40, Hammerhead
Crane Project (the "Settlement Agreement"). The Settlement
Agreement provided for (1) continuation of the rental
period for the Sail System under the Purchase Order Subcontract,
(2) Weststar's continued use of the Sail System until
completion of the project, and (3) the settlement of all existing
disputes and lawsuits, including the breach of contract
claim filed November 1, 1996. Under the Settlement Agreement,
Weststar agreed to pay Walton the sum of $62,000 "in
full settlement of all disputes and lawsuits between[Weststar
and Walton] existing at the time of the execution of [the]
agreement and in full payment of the monthly rental for the
framing system through January 31, 1997." The Settlement
Agreement also provided the terms under which Weststar
would be obligated to make future payments to Walton.

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Click the case caption above for the full text of the Court's opinion.

AFFIRMED in part, REVERSED in part, VACATED in
part, and REMANDED.

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