Depot subcontractors' suit against Army denied

This story was published Thu, Jan 21, 1999

By The Associated Press

WASHINGTON - Companies that serve as subcontractors on federal projects may not force the government to pay them in full when the prime contractors fail to do so, the Supreme Court ruled Wednesday in a dispute at the Umatilla Chemical Depot.

Chief Justice William H. Rehnquist, writing for a unanimous court, cited "the established rule that, unless waived by Congress, sovereign immunity bars subcontractors and other creditors from enforcing liens on government property or funds to recoup their losses."

Justice Department lawyers had warned the court against allowing such legal actions, saying government agencies should not be concerned "with whether new money will have to be found to pay unpaid subcontractors."

The Army signed a $432,000 contract in 1993 with Verdan Technologies for installation of a telephone switching system at the depot.

Verdan, in turn, hired Blue Fox Inc. as a subcontractor to construct a concrete block building to house the telephone system and install certain safety and support systems. Verdan agreed to pay Blue Fox $186,000.

Government contractors usually are required to post bonds guaranteeing payment to project subcontractors and suppliers but Verdan's contract was treated as a services agreement and it was not required to post such a payment bond. When Blue Fox completed its work, Verdan paid it a little less than $140,000 - leaving more than $46,000 unpaid. Blue Fox sued and won a default judgment against Verdan but concluded that it would never be able to collect the owed money. So it sued the Army.

Federal law allows people and companies with a grievance against some agency to sue the government as long as the lawsuit seeks some relief other than "money damages."

Blue Fox contended that is was seeking an "equitable lien" and not damages.

A federal trial judge threw out the lawsuit in 1996, but the 9th U.S. Circuit Court of Appeals reinstated it.

Wednesday's decision said the appeals court was wrong.

"It is clear," Rehnquist said, "that the equitable nature of the lien sought by ... (Blue Fox) does not mean that its ultimate claim was not one for 'money damages' within the meaning" of federal law. "Liens, whether equitable or legal, are merely a means to the end of satisfying a claim for the recovery of money," he said.

 

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