Unpublished Disposition, 874 F.2d 815 (9th Cir. 1988)

MEMORANDUM^* 

Richter Construction Company appeals the district court's judgment for Desert Construction Company in the amount of $566,783.39 for damages incurred by Desert because of Richter's material breach of its subcontract. Richter also appeals the district court's judgment that Industrial Indemnity Company was not liable for Richter's costs on the Miller Act bond.

FACTS

On September 25, 1981, Desert was awarded a construction contract with the United States Department of the Navy for concrete overlays of two runways located at Armitage Field in China Lake, California. Industrial Indemnity issued a Miller Act bond on the prime contract for Desert pursuant to the Miller Act, 40 U.S.C. § 270a et seq. The prime contract included specifications for fine rock aggregate to be used as a component of the asphalt concrete. Desert originally intended to use its own labor and equipment to produce the aggregate and included approximately $3.50 per ton for 27,700 tons of aggregate in its contract price with the Navy. The specifications required the fine aggregate to be free from injurious amounts of clay, loam or other deleterious material. An erroneous size requirement in the contract incorrectly stated the amount of number 100 sieve size aggregate required, and indicated no amount for number 200 sieve size aggregate.

Richter, a California corporation doing business as a rock aggregate crushing contractor, submitted a bid to Desert to crush the required aggregate at a price of $3.75 per ton. The parties agreed on a contract price of $3.50 per ton. Prior to Richter's entering the subcontract with Desert, the Navy informed Desert that section 02901, 557 6.1.2e of the prime contract would be changed by increasing the amount of number 100 fine aggregate and adding a requirement for number 200 fine aggregate.

Richter and Desert entered into a written subcontract on March 24, 1982 whereby Richter agreed to supply rock aggregate to Desert in conformity with section 02901 of the prime contract. In this subcontract Richter guaranteed that the aggregate would meet the prime contract specifications and plans. The subcontract also required Richter to comply with all laws, rules and ordinances, and with the master labor agreement and all of the union agreements. Any alterations from the plans or specifications could become an extra charge only when approved in writing by all parties.

On March 30, 1982, the Navy changed the fine aggregate specifications, as it had told Desert it would, to require a greater quantity of number 100 fine aggregate and add a requirement for number 200 fine aggregate. On April 8, 1982, Richter began to produce aggregate. On April 22, 1982, Desert notified the Navy that Richter was having a difficult time meeting the requirements of the specification change. Desert also notified the Navy that Richter's bid was based on the original specifications, and that a claim for extra costs would be made as soon as the effect of the change would be determined.

On April 29, 1982, the Navy notified Desert that the aggregate produced by Richter did not appear to comply with the contract specification in section 02901, p 4.1.2.1, which required that the aggregate be "100% manufactured product resulting from crushing." Until April 29 Richter had been producing fine aggregate by combining natural sand with sand produced by its cone crusher.

On May 28, 1982, a union official closed the crushing operation because of Richter's failure to pay a discharged employee as required under the union agreement. Richter remained closed until June 3, 1982, when Desert paid the discharged employee's wages.

On June 3, 1982 the Kern County air pollution control board inspector closed Richter's crushing operation because Richter had failed to obtain the required air pollution control permit. Richter did not begin crushing again until June 9, 1982 when Desert obtained oral permission from the Kern County air pollution control board to resume crushing while Desert obtained the necessary permit. Richter was unable to meet its payroll on June 2, 1982, and desert paid Richter's labor expenses until Richter abandoned the job on June 14, 1982.

On June 13, 1982, Richter told Desert that Desert's hot plant was wasting an excessive amount of fine aggregate material produced by Richter through the air pollution control system on the hot plant. Desert denied that there was any malfunction in its hot plant. On June 14, 1982, Richter abandoned the crushing operation, removed its equipment from the job site and ceased all further performance of the subcontract.

On May 25, 1983, Richter filed this action against Desert Construction and Industrial Indemnity, the Miller Act surety, to recover the value of labor, materials and equipment Richter supplied to the project. On February 2, 1988 the district court entered judgment in favor of Desert on its counterclaim against Richter for breach of contract, and awarded damages in the amount of $566,783.39. The district court found that the terms of the subcontract were not ambiguous or commercially impractical, and that there was no mutual mistake of fact regarding what was required of Richter under the terms of the subcontract.

ANALYSIS

Richter argues on appeal that the Navy's fine aggregate specification in the prime contract, incorporated into the subcontract, was ambiguous, and that Richter's abandonment of the subcontract was therefore justified. Section 02901, p 4.1.2 of the Prime Contract stated that:

Fine aggregate shall conform to ASTM D 1073 except as otherwise modified herein.

4.1.2.1. The fine aggregate shall be a 100 percent manufactured product resulting from crushing with particles exhibiting sharp and angular characteristics. The fine aggregate shall have a sand equivalent value of not less than 45 as determined by ASTM D 2419. (Emphasis added).

Read as a whole, the only reasonable construction of this paragraph is that 100 percent of the fine aggregate was to be crushed. The district court did not err in finding that the contract was not ambiguous.

Richter also challenges the district court's finding that there was no mutual mistake on Richter's and Desert's part as to the requirement in the specifications that the fine aggregate be "100% manufactured product resulting from crushing." The evidence on the parties' respective interpretations of the contract conflicts. Here, resolution of that conflict by the trial court turned for the most part on the credibility of the witnesses. The trial court's findings based on credibility "can virtually never be clear error." Anderson v. Bessemer City, 470 U.S. 564, 575 (1985). Richter points to the deposition introduced at trial of Albert Mendel, the President of Desert, who stated that he originally planned to use natural sand in the fine aggregate, but Mendel also testified that he recognized that the Navy might insist on having the fine aggregate 100% crushed.

The district court also found as a matter of fact that Richter had notice of the Navy's intention to change the quantity required of number 100-size particles in the fine aggregate and add a requirement for number 200-size particles. There was conflicting testimony on this point--Robert H. Richter, president of Richter, stated that he had no notice of the change, while his son, Robert V. Richter, testified that Desert informed Richter of the change before Richter executed the subcontract. The district court's finding was not clearly erroneous. Richter's argument that Desert breached the subcontract by changing the specifications without extra payment fails.

Richter further argues that Desert hindered its performance to such an extent that it amounted to a substantial breach by running an inefficient hotplant to process the fine aggregate produced by Richter, resulting in an excessive amount of fine aggregate being wasted in the dust pond next to the hotplant. Richter presented evidence that there was excessive waste in the dust pond, while Desert presented evidence that the dust plant was functioning normally. It is not clear as a factual matter, therefore, that there was excessive waste. The district court reasonably found that there was not.

Richter contends that Desert breached a fiduciary duty to prosecute a claim by Richter against the Navy for the increased costs of its work due to the change in the specification for number 100- and 200-size particles, and for the increased cost of crushing due to the alleged change in specifications requiring all of the fine aggregate to be crushed. Since the trial court's finding that Richter knew of the change in the number 100s and the addition of the requirement of number 200s prior to executing the subcontract with Desert was not clearly erroneous, Richter did not suffer any damage by the alleged breach of the duty to present that claim.

Richter argues that it is entitled to recover the reasonable value of the labor and materials furnished on the project from Industrial Indemnity as the Miller Act surety under 40 U.S.C. § 270a. The rights of a subcontractor against a Miller Act surety, however, are coextensive with and no greater than its rights against the general contractor. American Casualty Company v. Arrow Road Constr. Co., 309 F.2d 923, 924-25 (9th Cir. 1962). Richter cannot recover against the Miller Act surety when it has no right of recovery against the general contractor.

In sum, Richter has not shown that the fine aggregate specification was ambiguous, or that there was a mutual mistake of fact on the part of Richter and Desert as to the nature of Richter's obligations under the contract. Richter's performance under the contract was not excused by Desert's abandonment or breach of the contract. Richter showed no damages on its part from the alleged breach of Desert's fiduciary duty to prosecute Richter's claim against the United States. Richter is not entitled to recover against Industrial as the Miller Act surety where it has no right to recover against Desert. The district court's judgment in favor of Desert is upheld.

AFFIRMED.