Source: http://openjurist.org/243/f3d/1367/insurance-company-of-the-west-v-united-states
Timestamp: 2013-12-06 12:28:41
Document Index: 332893192

Matched Legal Cases: ['§ 1491', '§ 270', '§ 1491', '§ 1292', '§ 1292', '§ 270']

243 F3d 1367 Insurance Company of the West v. United States | OpenJurist
243 F. 3d 1367 - Insurance Company of the West v. United States	Home243 f3d 1367 insurance company of the west v. united states
243 F3d 1367 Insurance Company of the West v. United States 243 F.3d 1367 (Fed. Cir. 2001)
INSURANCE COMPANY OF THE WEST, PLAINTIFF-APPELLEE,v.UNITED STATES, DEFENDANT-APPELLANT.United States Court of Appeals for the Federal Circuit
No. 00-5039
Appealed from: United States Court of Federal ClaimsRobert M. Wright, Whiteford, Taylor & Preston, L.L.P., of Baltimore, Maryland, argued for plaintiff-appellee. With him on the brief was Gerard P. Sunderland.
James M. Kinsella, Deputy Director, Commercial Litigation Branch, Civil Division, Department of Justice, of Washington, Dc, argued for defendant-appellant. On the brief were David M. Cohen, Director; Robert E. Kirschman, Assistant Director; and Katherine A. Barski, Attorney. Of counsel on the brief was Major James D. Slear, Attorney, Commercial Litigation Division, Aflsa/jacn, Department of the Air Force, of Arlington, Virginia.
Edward G. Gallagher, Wickwire Gavin, P.C., of Vienna, Virginia, for amicus curiae The Surety Association of America.
Before Clevenger, Circuit Judge, Smith, Senior Circuit Judge,* and Dyk, Circuit Judge.
Judge Christine O.C. Miller
This case requires us to decide whether a subrogee, after stepping into the shoes of a government contractor, may rely on the waiver of sovereign immunity in the Tucker Act, 28 U.S.C. §§ 1491, and bring suit against the United States. We hold that the Supreme Court's decision in Dep't of the Army v. Blue Fox, Inc., 525 U.S. 255 (1999), did not upset the longstanding rule that such a suit is not barred by the doctrine of sovereign immunity, and that this case is governed by the Supreme Court's earlier decision in United States v. Aetna Cas. & Sur. Co., 338 U.S. 366 (1949).
Insurance Company of the West ("ICW") issues performance and payment bonds for government contractors in accordance with the Miller Act, 40 U.S.C. §§ 270a(a)-(d). It brings this suit against the United States to recover $174,000 in contract funds paid to a prime contractor, P.C.E., Limited ("PCE"). ICW alleges that the government should have paid the funds to it as surety, based upon its right of subrogation.
On August 28, 1997, the United States Department of the Air Force awarded contract number F64605-97-C-0013 to PCE. The contract called for the replacement of automatic doors in the commissary at Hickham Air Force Base. ICW provided performance and payment bonds for the work to be performed by PCE.
PCE notified the United States by letter on November 21, 1997, that it would be financially unable to fulfill its obligations under the contract and that ICW would be responsible for assuming control and assuring completion of the contract. PCE "voluntarily and irrevocably" directed that all contract funds currently remaining due be paid to ICW. On December 4, 1997, ICW confirmed in writing to the contracting officer that it was to receive all payments due on the contract. On January 29, 1998, the Air Force executed a unilateral modification to change the remittance address for payments to PCE at ICW's address. ICW did not execute a takeover agreement, and the contract with PCE was never terminated. ICW financed completion of the contract to the extent of $354,744.34.
Instead of sending payment on the contract to PCE at ICW's address, the government continued to make payments directly to PCE, which apparently retained the funds and did not forward them to ICW. The government states that the Defense Finance and Accounting Service Center in Columbus, Ohio never received the contract modification. When ICW inquired about the payments, the government informed it that payments had been made to PCE and told it to "settle this problem with P.C.E."
ICW filed suit in the United States Court of Federal Claims under the Tucker Act, 28 U.S.C. §§ 1491, claiming entitlement to $174,000 in wrongfully disbursed funds. The government filed a motion to dismiss on the ground of sovereign immunity. Although this court had previously established in Balboa Ins. Co. v. United States, 775 F.2d 1158, 1161-63 (Fed. Cir. 1985), and other cases that a surety could recover from the United States payments made to a contractor after the surety had notified the government of the contractor's default, the government argued that the Supreme Court's decision in Dep't of the Army v. Blue Fox, Inc., 525 U.S. 255 (1999), had effectively overruled Balboa and these other cases. The government asserted that Blue Fox demonstrates that the government has not waived sovereign immunity for a surety's claims based on equitable subrogation.
At a hearing on August 11, 1999, the Court of Federal Claims concluded that it was bound by Balboa, which had not been overruled directly by Blue Fox. The Court of Federal Claims, however, certified the issue to this court upon motion by the government pursuant to 28 U.S.C. §§ 1292(d)(2). Initially, this court denied the government's petition for interlocutory appeal, finding that the Court of Federal Claims had not entered an order denying the government's motion to dismiss, and thus that there was no definitive order for this court to review. On December 10, 1999, the Court of Federal Claims entered both an Amended Order (following Balboa and denying the government's motion to dismiss) and also an order certifying the issue for interlocutory appeal. Ins. Co. of the West v. United States, No. 99-124C (Fed. Cl. Dec. 10, 1999). This court then granted the government's petition for interlocutory appeal pursuant to 28 U.S.C. §§ 1292(d)(2).
Whether the United States has waived sovereign immunity for the equitable subrogation claims of a surety is a question of law, which we therefore review without deference. See Khan v. United States, 201 F.3d 1375, 1377 (Fed. Cir. 2000).
The Miller Act requires prime contractors to post performance bonds on all federal construction contracts. See 40 U.S.C. §§ 270a. Sureties such as ICW supply these bonds. The surety guarantees that a contract will be completed in the event of the principal's default and that the government will not have to pay more than the contract price. See United States v. Munsey Trust Co., 332 U.S. 234, 244 (1947). A performance bond generally gives the surety the option of taking over and completing performance or of assuming liability for the government's costs in completing the contract which are in excess of the contract price. A surety has yet a third alternative. It may provide funds to an insolvent contractor to complete performance, the course which was followed here. See Aetna Cas. & Sur. Co. v. United States, 845 F.2d 971, 975 (Fed. Cir. 1988).
A surety bond creates a three-party relationship, in which the surety becomes liable for the principal's debt or duty to the third party obligee (here, the government). Balboa I