Min. Co. v. Collins, 104 U.S. 176, 26 L. Ed. 704 (1881)).
Consistent with this construction, this court holds that, to the event that the terms of the subject bond are more restrictive than those mandated by § 137, its terms are unenforceable. To enforce the requirement that the materials be delivered to the site of the Housing Projects would be contrary to the principles of statutory construction articulated above and would undermine the purposes of § 137.
The cases cited by IFIC are not to the contrary. Salvino, 398 Pa. Super. 86, 580 A.2d 853; Reliance Universal, Inc. v. Ernest Renda Contracting Co., 308 Pa. Super. 98, 454 A.2d 39, 45 (Pa. Super. 1982); Can-Tex Indus. v. Safeco Ins. Co., 460 F. Supp. 1022, 1025 (W.D. Pa. 1978).
In fact, on closer examination, they tend to support the above construction. None of the cases involved bonds which contained provisions narrower than those of the statute pursuant to which they were issued. In Salvino and Can-Tex, the language of the bonds at issue tracked that of the authorizing statutes. Thus, the Salvino court, construing a Pennsylvania statute, held that, "where the bond is statutorily required and the bonds terms are framed in the language of the statute, the obligations to which the surety agreed are specifically stated in and limited by the bond and are those obligations required by the statute." 580 A.2d at 856 (emphasis added). The court reasoned that because "the wording of the statute is narrow, . . . bonds drafted pursuant to the statute may be equally narrow." Id. Section 137 is not written as narrowly as the Pennsylvania statute at issue in Salvino. Further, the Salvino court did not say that the bond could be narrower than the statute which authorized and rehired the bond. It only asserted that the bond could be as narrow as the statute permitted.
Similarly, in Can-Tex, the court held that "the law cannot impute an intent to cover such additions beyond the statutory requirements of the Payment Bond without express inclusion in the Bonding Agreement." 460 F. Supp. at 1025 (emphasis added). The court did not say that the law cannot impute an intent to cover those subjects mandated by statute.
Reliance is not applicable.
That case merely asserted that the language of the bond controls the agreement between a supplier and contractor. 454 A.2d at 45. It did not address the construct ion of a statutory bond which is more restrictive than the statute pursuant to which it was issued.
Therefore, the delivery prong of the above-mentioned diversion exception test is satisfied in this case.
C. The Intended Use of the Pennex Materials
IFIC also disputes the final prong of the diversion exception test. IFIC asserts that Pennex cannot prove that the subject materials were purchased for use in the Housing Projects. Pennex, on the other hand, asserts that there is no genuine dispute that the materials at issue were purchased specifically for use at the Housing Projects. In support of this assertion, Pennex provided testimony from Joseph Golec, the Pennex Sales Manager who negotiated the supply contract with Bettina Kapp, the President of Air Master, James Hillig, Air Master's Purchasing Manager, and Harold Kapp, Chairman of the Board and sole owner of Air Master.
Mr. Golec testified in his deposition that Ms. Kapp told him during their initial conversation that Air Master "had bid on a New York Housing Authority job involving three locations and that if they got that, they would highly consider giving that contract to Pennex Aluminum." (Golec Dep. at 19-20, Motion, Ex. F.) During subsequent conversations with Ms. Kapp, Mr. Golec inquired into "the status of the contract, was it let by the Housing Authority, did Air Master get it, and, if they did, would they consider Pennex as a vendor." (Id. at 20.) Subsequently, an order was placed by Ms. Kapp with Mr. Golec. (Confirmation letter from Golec to B. Kapp, dated Aug. 28, 1990, Def. App. at 100.)
Mr. Hillig testified that, Ms. Kapp "spoke to me one day [in the fall of 1990] about the possibilities of placing an order with Pennex Aluminum." (Hillig Dep. at 10, Reply, Ex. C.) This conversation involved projects at Lattimer Gardens and Twin Parks, "a job . . . that was coming through for a lot of weight." (Id.) At that time, the company practice was for Ms. Kapp to choose the supplier and negotiate a price. After Ms. Kapp chose the company from which materials were to be purchased, Mr. Hillig would place an order "to cover the material for a particular job. . . . I would order by the job." (Id. at 12, 15.) Mr. Hillig would place the job name on certain large purchase orders because
it helps me to go back in a period of time and say we have our tails covered for this job. . . . I would put a name in that customer box right there to help me know that this particular job has been covered. But it's only basically for my own use from a reference point.
(Id. at 44.) Further, each Air Master purchase order at issue identifies a specific building in the box labelled "Customer." (Motion, Ex. H; Reply at 6, 9.)
Mr. Kapp testified that Air Master ordered certain specially fabricated parts from Pennex. (H. Kapp Dep. at 28-29, Motion, Ex. J). There is no question that these parts were ordered specifically for the subject Housing Projects. See discussion, supra, at 8-10.
In response to these contentions, Defendants assert that there is a genuine issue of material fact as to whether at least the standard materials were purchased exclusively for the Housing Projects. In support of this, Defendants offer the deposition testimony of Bettina Kapp. Ms. Kapp testified that she had approached Pennex because Air Master was "looking for a third supplier to purchase aluminum. And at the time, we had a substantial amount of work on my side, both housing and private work." (B. Kapp Dep. at 14, Def. App. at 54.) When asked if Air Master was looking for a third supplier for all of its requirements or just for the particular Housing Projects, Ms. Kapp responded, "All of our requirements." (Id. at 15.)
Harold Kapp testified that the notation of job names in the "Customer" box was something done only on larger projects: "When the jobs got to be more than a certain quantity of windows, let's say the larger jobs, then the purchasing department would so note that they had covered those larger jobs by putting a name on them." (H. Kapp Dep. at 21-22, Def. App. at 15-16.) As noted above, the Air Master's Purchasing Manager testified that these notations were, "to help me know that this particular job has been covered. But it's only basically for my own use from a reference point." (Hillig Dep. at 44, Reply, Ex. C.)
Defendant's responses, however, are not inconsistent with the testimony offered by Plaintiff. The fact that Ms. Kapp intended to or did use Pennex as a supplier for other projects does not contradict Plaintiff's assertion that the particular orders placed by Mr. Hillig were intended for the Housing Projects. Further, the fact that Ms. Kapp began negotiating with Pennex in August 1990, near the time of their bid and the award of the Housing Project contracts only bolsters this conclusion. At or around the same time, Air Master admits that it specially ordered parts for the Housing Projects from Pennex. Even if Mr. Hillig used the notation in the customer box only for his reference, it is clear from his testimony that the material he ordered was intended to ensure sufficient inventory to meet the needs of the Housing Projects, one of Air Master's largest contracts.
Thus, this court concludes that there is no genuine issue of material fact that the materials purchased by Air Master from Pennex were intended for use in the Housing Projects.
V. Division of Liability Between Bonds
IFIC argues that Pennex should not recover because it has made a single undifferentiated claim against two separate bonds. The court would first note that this claim was not pled as an affirmative defense. That alone is sufficient reason to defeat this contention. In any event, this court does not find IFIC's argument convincing.
First, the purchase order forms indicate the particular building and, therefore, the bond to which they relate. (Motion, Ex. H; Reply at 6, 9.) Second, it would be fairly simple to determine how much of the material was required for each building and apportion the amounts between the bonds.
Ultimately, such calculations are not necessary in this case, however. This is not a case in which two different entities hold the two bonds. This court has found that Pennex is entitled to recover the full amount due it under one or the other bond. IFIC is the party responsible for covering losses under both of the bonds. There has been no assertion that the funds of either bond are insufficient to cover the entire loss. Indeed, the face amounts of the bonds are $ 599,990.00 and $ 630,000. (Motion, Ex. A.) Therefore, on the facts of this case, the court does not find this ground meritorious.
VI. Attorney Fees and Interest
Pennex has requested attorney's fees alleging that IFIC's defense was interposed without substantial basis in law or fact. Section 137 provides the court with discretion to award attorney's fees in such cases:
In any action on a payment bond furnished pursuant to this section, any judgment in favor of a subcontractor or material supplier may include provision for the payment of interest upon the amount recovered from the date when demand for payment was made pursuant to the labor and material payment bond and provided further that the court may determine and award reasonable attorney's fee to either party to such action when, upon reviewing the entire record, it appears that either the original claim or the defense interposed to such claim is without substantial basis in fact or law.
N.Y. State Fin. Law § 137(c). See, e.g., Riluc Co. v. Reliance Ins. Co., 181 A.D.2d 1048, 582 N.Y.S.2d 585 (App. Div. 1992).
This court does not believe that IFIC's defense was without a substantial basis in law or fact. Accordingly, Pennex's request for attorney's fees is denied.
Pennex has also requested an award of statutory interest of nine percent running from December 12, 1991. Section 137(c) allows the court discretion to award the "payment of interest upon the amount recovered from the date when demand for payment was made pursuant to the labor and material payment bond." N.Y. State Fin. Law § 137(c).
An award of interest is designed to "compensate a person who has been temporarily deprived of the use of moneys to which he or she is entitled." Love v. State, 164 A.D.2d 155, 561 N.Y.S.2d 945, 946 (App. Div. 1990) aff'd, 78 N.Y.2d 540, 583 N.E.2d 1296, 577 N.Y.S.2d 359 (N.Y. 1991). Under New York law, the rate of interest to be awarded in the absence of statutory specification to the contrary is nine percent per annum. N.Y. Civ. Prac. L. &. R. § 5004.
Pennex made a formal demand upon IFIC for payment under the bonds on December 12, 1991. IFIC has not disputed that Pennex would not be entitled to the payment of interest in the event that it prevailed. This court has found IFIC liable under the bonds. IFIC has been denied the use of funds to which it had legal right as of December 12, 1991. Accordingly, the court will award Pennex statutory interest from that date.
An appropriate order will follow.
SYLVIA H. RAMBO, Chief Judge
Middle District of Pennsylvania
Dated: April 9, 1983.
ORDER - April 9, 1993, Filed
In accordance with the accompanying memorandum, IT IS HEREBY ORDERED THAT:
1) Plaintiff's motion for summary judgment is GRANTED in favor of Plaintiff and against defendant International Fidelity Insurance Company in the amount of $ 91,333.72, plus interest at a rate of nine percent (9%) per annum running from December 12, 1991.
2) The Clerk of Court is directed to defer the entry of judgment until the conclusion of the third party claims in this action.
3) A case management conference will be conducted by the court on Friday, April 23, 1993 at 8:45 a.m. in the chambers of Courtroom No. 2, Ninth Floor, Federal Building, Third and Walnut Streets, Harrisburg, Pennsylvania, for the purpose of establishing the trial track for the third party claims in this action. This conference will be in person unless a party requests that the conference be held by telephone and the request has the concurrence of all parties. It will then be the responsibility of the requesting party to so inform the court and to place the conference call.
4) The primary purpose of this conference will be to establish case management deadlines to enable the remainder of this action to go forward as efficiently as possible. Participation in this conference by counsel or by pro se litigants is mandatory.
5) If counsel of record is unable to participate in the conference, the court shall be notified of the name of the substitute counsel two business days in advance of the date of the conference. The telephone number to call is (717) 782-3938.
6) Counsel are advised to consult one another prior to this conference and discuss the following:
a) the opportunity to consent to the exercise of civil jurisdiction of this case by a magistrate judge. See attachments. If this election is made, the court staff must be advised to cancel the case management conference;
b) the anticipated length of the discovery period;