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United States v. International Fidelity Insurance Co.

United States District Court, C.D. California

September 4, 2019





         This action involves a dispute between Plaintiff United States of America, for the use and benefit of Nasatka Barrier, Inc., d/b/a Nasatka Security (Nasatka), and Third-Party Defendant North American Specialty Insurance Company on the one hand, and Defendants and Cross-claimants International Fidelity Insurance Company, Insight Environmental Engineering & Construction, Inc. (IFIC), Cesight Joint Venture (Cesight), and Everest Re-Insurance Company (Defendants) on the other hand. Nasatka filed suit for breach of contract, recovery under the Miller Act, and quantum meruit on February 19, 2016. This action was tried before the Court from October 16, 2018 to October 18, 2018.

         Having heard and reviewed the evidence and having considered the parties' post-trial briefs, the Court makes the following findings of fact and conclusions of law.[1]


         1. CeSight entered into contract Number W912DW-13-C-0024 (the Prime Contract) with the United States Army Corps of Engineers (USACE-Seattle) under Project Name FY2012 Access Control Point Infrastructure Phase I, PN 66206, as the prime contractor for construction at Joint Base Lewis-McChord, WA (the Project). Tr. Ex. 74 (Prime Contract); Tr. Ex. 39 (defining contract as Prime Contract).

         2. USACE-Seattle was the Prime Contract holder for the Project. Tr. Ex. 74, Bates NASATKA 0000295 (Contract No. W912DW-13-C-0024 issued by Seattle District, Corps of Engineers); Tr. Ex. 39 (Subcontract), Bates NASATKA 0004037 (defining USACE-Seattle as the Client); 3. The contracting authority for the Project was the contracting officer (KO) at the Lewis Resident Office under the USACE, Seattle District. TT at 422:12-424:12; 436:17-25.

         4. IFIC and Everest, together with CeSight, as principal, furnished a Miller Act Payment Bond according to 40 U.S.C. § 3131, to ensure payment to subcontractors and suppliers furnishing labor, materials, or both in the prosecution of the work on the Project. Tr. Ex. 141.

         5. CeSight subcontracted with co-defendant Insight Environmental Engineering & Construction, Inc. (Insight) to provide steel decking, electrical and exterior improvements, including the Active Vehicle Barrier (AVB) and Passive Vehicle Barrier (PVB) systems. Tr. Ex. 39, Bates NASATKA 0004037; Dk. 117-1 at 3.

         6. Insight entered into a $1, 121, 539.30 subcontract (Subcontract) with Nasatka to provide all labor, material, transportation, equipment, and other facility barriers with full controls, automation and chain link fencing, including the installation of the specified AVB and PVB systems in compliance with USACE-Seattle's Prime Contract specifications. Tr. Ex. 39 (Subcontract).

         7. NAS furnished a Performance Bond to Nasatka for the Project.[2]

         8. A dispute arose regarding Nasatka's performance on the Project and on February 19, 2016, Nasatka filed suit for breach of contract, recovery under the Miller Act, and quantum meruit, seeking $1, 280, 423.69 plus attorney's fees, interest, and penalties for alleged late payment.

         9. Nasatka seeks payment of (1) the unpaid contract balance under the Subcontract, (2) costs associated with work performed after it completed the cinch-rampart controller, and (3) unpaid service call invoices. In the alternative, Nasatka seeks equitable relief under quantum meruit.

         A. Nasatka's Subcontract Requirements

         10. The Subcontract incorporates provisions of the Prime Contract that relate in any way to Nasatka's work under the Subcontract, including provisions of the Prime Contract required by law and referenced within the Subcontract. Tr. Ex. 39, Bates NASATKA 004037 (Recitals); id. at Bates NASATKA 0004038, §§ 2.1-2.6 (Incorporation of the Prime Contract).[3]

         11. Section 14 of the Subcontract provides, “If any claim or dispute shall arise between [Insight] and [Nasatka] regarding performance of the Work, or any alleged change in the Work, [Nasatka] shall timely perform the disputed Work and shall give written notice of a request or claim for additional compensation for the disputed Work within ten (10) days after commencement of the disputed Work. [Nasatka's] failure to give written notice within the ten (10) day period constitutes an agreement by [Nasatka] that it will receive no extra compensation for the disputed Work.” Id. at Bates NASATKA 0004044.[4]

         12. Under Section 15 of the Subcontract, “[Nasatka] shall perform all warranty obligations and responsibilities assumed by [Insight] under the Prime Contract with respect to the Work. All Work not conforming to these requirements may be considered defective. [Nasatka] shall promptly correct any Work rejected by [Insight] as defective or as failing to conform to the Subcontract Documents, whether observed before or after completion, and shall correct any Work found to be defective or nonconforming within a period of one (1) year from the date of completion of the Project. Should [Nasatka] fail to correct any defective Work, [Insight] may perform or cause to be performed the same at [Nasatka's] expense. . . .”. Id. at Bates NASATKA 0004045.

         13. Insight retained the right to reject Nasatka's Work after completion of the Work if it did not conform to the Prime Contract. See id.

         14. Section 23.4 of the Subcontract permits Insight to offset any claims for any amount due to Insight, including without limitation, an amount resulting from the expense of completing the Work, together with a reasonable charge for awarding and administering any subcontract, any damages caused by delays in completing the Work, and any amounts resulting from Insight repairing or causing to be repaired any deficiency in the Work attributable to Nasatka. Id.

         15. Exhibit B to the Subcontract sets forth the Statement of Work, which obligated Nasatka to comply with all General Requirements and the Project Specifications, including without limitation: Specifications 01 32 01, governing Project Schedule; 01 33 00, governing Submittal Procedures; 01 45 01, governing Contractor Quality Control; 01 45 01.10, governing Quality Control System; 01 78 00, governing Closeout Submittals; 01 78 23, governing Operation and Maintenance Data; and 34 41 26.00 10, governing Access Control Point Control System (ACPCS). Id., Ex. B, at Bates NASATKA 0004051.

         16. Pursuant to Exhibit B of the Subcontract, Nasatka's work included the installation of the Access Control Point Control System (ACPCS) as identified in the Prime Contract's Projection Specifications under Division 34, Transportation, Section 34 41 26.00 10, Part 1:

Furnish and install a complete, integrated, and functional ACPCS for the Access Control Point including active vehicle barriers, active vehicle barrier controls, traffic signals, traffic signal controls, traffic warning signals, traffic signs and pavement markings, wrong-way detectors, vehicle presence detectors, Sequence of Events Recorder, data transmission, and all interconnecting conduit and wiring.

Id. at Bates NASATKA 0004051 (listing Division 34, Transportation, Section 34 41 26.00 ...

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