Court Opinion

ID: 9466964
Source: CourtListenerOpinion
Date Created: 2023-08-05 01:34:04.241686+00
Date Added: 2024-06-11T17:40:04.426120
License: Public Domain

WILKEY, Circuit Judge,
dissenting:
This case involves a subtle point concerning ascertainment of state law by a federal court in a diversity case. Because I find this point of law controlling, and because the majority opinion goes counter to it, regretfully, I must dissent.
The pivotal issue to which I refer concerns the precedential effect of United States Plywood Corporation v. Continental Casualty Company.1 This case, cited by the majority, is the only District of Columbia precedent on the substantive issue now before us, whether a surety can be held liable when the claimant does not give timely notice in accordance with a contractual notice provision.
Under the rule of Erie V. Tompkins,2 we are to look to state law to decide the case now before us. Our jurisdiction is founded upon diversity; the controlling issue is non-federal in nature; and because the contract at issue was formed in the District of Columbia, it is undisputed that the law of D.C. controls. Thus it is our task to ascertain what is the law of the District as to the substantive issue before us.
If the U.S. Plywood opinion were a clear holding as to D.C. law, our task would be simple. That case involved a contractual notice provision identical in substance to the one in the present case, with a claim against a surety by a subcontractor who had not given timely notice in compliance with the provision. The D.C. Court of Appeals held that strict compliance was a condition precedent, and that the lack of timely notice therefore barred the subcontractor’s claim.3
The complication is that U.S. Plywood constitutes a holding as to Virginia law rather than D.C. law. Because the contracts in that case were executed and performed in Virginia,4 choice of law principles dictated that the case be decided according to Virginia law. Thus the D.C. Court of Appeals opinion did not create a holding as to D.C. law.
But unlike the majority, I do not believe that this fact ends all possible relevance of the U.S. Plywood opinion. Where a federal court finds no holding of the highest state court, there are further steps it must take to see if there are other indications of how the highest state court would decide the issue. For example, decisions of lower state courts are to be given “proper regard” and are generally to be followed unless there is evidence that the highest court would rule otherwise.5 In the present case, however, we have no D.C. lower court decisions on point.
A further step, of direct relevance here, is to see if there is a considered dictum of a state court that indicates how the highest state court would decide the substantive issue.6 When the dictum is from the high*319est court of the state, and thoroughly reasoned and unequivocally expressed, a federal court must follow it. This point is established by Nolan v. Transocean Air Lines,7 in which the federal district court, affirmed by the Second Circuit, had ascertained state law by reference to holdings of intermediate state appellate courts. The Supreme Court remanded for consideration in light of a “considered dictum” by the state supreme court, which went contrary to the lower court holdings.8
The degree to which dictum is controlling, as we have stated, depends on the thoroughness of reasoning, the explicitness and conclusiveness of expression, and the level of the state court expressing it. All these factors indicate the predictive value of the dictum as an indicator of how the highest state court would hold on the issue. A mere “chance expression” of dictum, by contrast, is to be given little weight.9 Upon remand in the Nolan case, for example, the Second Circuit decided that the one-sentence state supreme court dictum, given without any reference to the lower court holdings, and without benefit of briefing on the issue, was not a reliable indication that the state supreme court wished to overturn the lower court line of decisions.10 But the Supreme Court holding in Nolan clearly indicates that where a state supreme court dictum is thoroughly reasoned and considered, and thus represents a reliable indication of how that court would hold on the issue, then federal courts must follow the dictum, even where lower state court holdings are contrary. When no contrary lower court holdings exist, Nolan logically applies a fortiori to compel federal courts to follow a considered dictum.
With these precedents in mind, we must examine the U.S. Plywood opinion to assess its reliability as an indication of what the D.C. Court of Appeals would hold on the substantive issue before us. We find that the opinion speaks at considerable length on the issue of whether plaintiff must strictly comply with a notice provision in a surety contract.
The D.C. Court of Appeals opinion mentions at the outset that the contracts in question were executed and performed in Virginia, leaving the reader to infer, but not expressly stating, that Virginia law would apply. But rather than examine Virginia law at this point, the court immediately launches into a presentation of its own views on the issue. The opinion observes that courts of several states have relaxed requirements of strict compliance with notice provisions in surety contracts and have favored recovery for claimants under a surety bond where the surety was not prejudiced by lack of notice. The D.C. Court of Appeals decisively rejects this view, based not on Virginia law, but rather on its own notion of wise policy and on its observation that the weight of authority holds a surety contract notice provision to be a condition precedent to recovery.11
In expressing its own policy views, the Court of Appeals states that courts should not “circumvent the plain language and intent of the contracting parties,” that a surety “is free to impose conditions on its liability so long as they are reasonable,” and that courts should not adopt rules simply to impose liability on those in the business of insuring risks.12 In a space of two pages the court expounds its own reasons for requiring strict compliance with the notice provision, not once in this section mentioning or citing a single Virginia authority.
Only in the final paragraph of its opinion does the court state, “we think our decision conforms to Virginia law,” based on an analogy to the Virginia law of conditions precedent in liability insurance policies. *320But this is at most an afterthought, for the court states expressly that it has been unable to find any Virginia case in point and that none have been cited to it.13
The unavoidable conclusion from the body of the opinion is that the D.C. Court of Appeals clearly decided the case based on its own view of which rule of law was preferable. If technically it was deciding the case under Virginia law, then its expression of its own views states a very thoroughly considered, extensively reasoned, and unequivocally stated dictum as to its view of how it would decide a similar case as a matter of D.C. law. In our present task of trying to ascertain D.C. law, we could not ask for a more “considered” dictum in the absence of a state holding on point; If dictum is ever to play a decisive role in the ascertainment of state law, as the Nolan case indicates that it should, then the language of U.S. Plywood epitomizes a considered dictum of the highest court of a state which we are bound to follow.
There is no need, then, to look to the law of Maryland on the hypothesis that D.C. courts would follow Maryland precedent. Even if we did this, as the majority advocates, we could not conclude that Maryland is in the minority of jurisdictions which hold a surety excused for lack of timely notice only where the surety shows prejudice from the lack of notice. Although Maryland has renounced, at least as concerns sureties for profit, the ancient rule that the surety is the favorite of the law;14 nevertheless the Maryland Court of Appeals has never required a surety to show prejudice before being excused for plaintiff’s noncompliance with a clear contractual condition precedent. On the contrary, that court has held that a notice provision is “of the essence” of a surety contract, and that lack of timely notice bars recovery — without any inquiry as to whether the surety was prejudiced.15 Based on that precedent, the U.S. Plywood court listed Maryland as among those states taking the majority position on this issue.16 But the long and short of this matter is that rather than speculate about what Maryland would do, and whether D.C. would follow her lead, we do much better simply to follow the clear and considered dictum of the U.S. Plywood opinion.
Once we acknowledge that we are bound to follow the considered dictum of U.S. Plywood, the result in the present case follows simply and logically. The surety contract in the present case contains a notice provision identical in substance to that in U.S. Plywood. The provision in both cases requires notice within a certain ninety-day period to “any two of the following: The PRINCIPAL, the OWNER, or the SURETY above named.”17 Unless this condition is fulfilled, “No suit or action shall be commenced by any claimant.”18
In U.S. Plywood the D.C. Court of Appeals has already stated that it believes this same contractual language to be an unambiguous condition precedent to a right of action.19 Therefore “the surety had the right to stand upon the terms of the agreement and to exact compliance with them.”20
In the present case, District Judge Gesell found that the plaintiff gave notice only to one of the required parties, the general contractor. Plaintiff did not give notice to the surety, Judge Gesell found, until after the notice period had expired.21 No error has been demonstrated in these findings; *321we must therefore conclude that plaintiff did not strictly comply with the provision and thus, under the reasoning of U.S. Plywood, has no right of action for recovery on the bond.
The U.S. Plywood dictum also answers the specific argument of the majority in the present case. First, the majority opinion adopts the minority position that a surety must show prejudice before raising lack of timely notice as a defense;22 but the D.C. Court of Appeals expressly rejects this position as contrary to its ideas of good policy and law.23 Second, the majority states that by requiring notice to only two of three named parties, the surety contract did not make notice to the surety a condition precedent to recovery.24 In U.S. Plywood, however, the D.C. Court of Appeals faced the same requirement for notice to two of three named parties and reasoned simply that plaintiff must give notice to two of them as unambiguously required by the contract. The fatal defect in plaintiff’s case here is not that plaintiff failed to give timely notice to the surety in particular, but that it gave timely notice to only one rather than two of the required parties. Since this action did not comply with the contractual notice provision, plaintiff’s suit is barred under the reasoning of U.S. Plywood.
A further error now alleged against the district court opinion is that it stated that under the contract plaintiff must give notice to the general contractor and the surety.25 This is indeed erroneous in omitting that plaintiff may give notice to the owner in lieu.of one of the others. But it is important that thei district court did not find, and we have no ground to suppose, that timely notice was given to the owner. In light of this fact, plaintiff’s claim is barred as a practical matter if it did not give timely notice to both the general contractor and the surety. The district court’s statement, therefore, is at most a harmless error.
Finally on this issue, I cannot accept the majority’s inference from contractual language that notice to the general contractor constituted notice to the owner.26 This is a factual judgment as to the intended meaning of contractual language, to be made by the district court in the first instance, based on such factors as customary meaning of such provisions and intent of these parties; it is not properly open to us to draw such an inference now upon appeal.
One final, unrelated point deserves comment. The majority opinion states that the wording of the notice requirement in this contract constituted “an admission at law” that lack of notice was not prejudicial to the surety27 First, as a matter of fact a surety could be prejudiced by lack of notice, even though the contract required notice only to two of the three named parties. But more important, as a practical matter, is that this contract is a standard form contract used throughout the construction industry; so that the effect of the majority opinion is to say that whenever this standard contract is used, a surety can never be prejudiced by lack of notice and claimants need never concern themselves with giving notice to a surety. Entirely apart from the question of whether this interpretation comports with the intent of the parties to such a contract, I think it is important that parties understand that in the future, under the precedential effect of the majority opinion, their use of this particular form contract will be deemed to obviate the need to give notice to the surety.
I would affirm the result in the district court, and so I respectfully dissent.

. 157 A.2d 286 (D.C.Mun.App.1960).

. 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).

. See 157 A.2d at 287-89.

. See id. at 287.

. See, e. g., Commissioner v. Estate of Bosch, 387 U.S. 456, 465, 87 S.Ct. 1776, 1782, 18 L.Ed.2d 886 (1967); West v. American Telephone & Telegraph Co., 311 U.S. 223, 61 S.Ct. 179, 85 L.Ed. 139 (1940); Six Companies of California v. Joint Highway District No. 13, 311 U.S. 180, 61 S.Ct. 186, 85 L.Ed. 114 (1940).

. See Mooney Aircraft, Inc. v. Donnelly, 402 F.2d 400, 405 (5th Cir. 1968); 1A Moore’s Federal Practice 0.307[2] at 3093-97. Cf. In re Weeks’ Will, 294 N.Y. 516, 63 N.E.2d 85, 87 (1945) (in ascertaining Florida law, the N.Y. Court of Appeals followed dicta of highest court of Florida which “were carefully considered and deliberately made”).

. 365 U.S. 293, 81 S.Ct. 555, 5 L.Ed.2d 571 (1961) (per curiam).

. Id. 295-96, 81 S.Ct. 557.

. See New England Mutual Life Ins. v. Mitchell, 118 F.2d 414, 420 (4th Cir.), cert. denied, 314 U.S. 629, 62 S.Ct. 60, 86 L.Ed. 505 (1941).

. See Nolan v. Transocean Airlines, 290 F.2d 904, 905-07 (2d Cir. 1961).

. See 157 A.2d at 288.

. Id. at 288-89.

. Id. at 289.

. See, e. g., Lange v. Board of Education, 183 Md. 255, 37 A.2d 317, 320 (1944).

. See Levy to Use of Walbrook Mill & Lumber Co. v. Glens Falls Indemnity Co., 210 Md. 265, 123 A.2d 348, 352 (1956).

. See 157 A.2d at 288 & n.8.

. J.A. at 13; see U.S. Plywood, 157 A.2d at 287.

. J.A. at 13; see 157 A.2d at 287.

. 157 A.2d at 289.

. Id.

. Conesco Indus., Ltd. v. Conforti & Eiseli, Inc., No. 77-0977, mem. op. at 2 (D.D.C. 24 Apr. 1978); J.A. at 10.

. Supra p. 317 & n.6.

. 157 A.2d at 288.

. Supra p. 315.

. Conesco Indus., Inc. v. Conforti & Eiseli, Inc., No. 77-0977, mem. op. at 2 (D.D.C. 24 Apr. 1978); J.A. at 10.

. Supra p. 317.

. Id. at 317-318.