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UNITED STATES v. H. R. HENDERSON & COMPANY

January 5, 1955

UNITED STATES OF AMERICA, FOR THE USE AND BENEFIT OF MAGNOLIA PETROLEUM COMPANY, PLAINTIFF,
v.
H. R. HENDERSON & COMPANY, C. H. LEAVELL & COMPANY, UTAH CONSTRUCTION COMPANY, THE AETNA CASUALTY AND SURETY COMPANY, AND MARYLAND CASUALTY COMPANY, DEFENDANTS.



The opinion of the court was delivered by: John E. Miller, District Judge.

  On August 31, 1954, the use plaintiff, hereinafter referred to as plaintiff, filed its complaint against defendants, seeking to recover the sum of $20,575.63, plus penalty and attorney's fee, which plaintiff claimed the defendant, H. R. Henderson & Company, a subcontractor, owed it for certain goods, wares and merchandise purchased by the said defendant from the plaintiff. The suit was brought under the Miller Act, 40 U.S.C.A. § 270a et seq., and the prime contractors, together with the sureties, were made parties defendant. It was alleged by plaintiff that all the goods furnished by it to the defendant Henderson were used in the performance of Henderson's subcontract with the prime contractors, C. H. Leavell & Company and Utah Construction Company, which in turn was a part of the prime contract between said prime contractors and the United States of America for the construction of certain smokeless powder magazines for the United States Naval Ammunition Depot at Shumaker, Arkansas.

The defendant, H. R. Henderson & Company, on September 23, 1954, filed its answer admitting that the charges for goods, wares and merchandise were substantially correct, but denying that all of said goods were used in connection with the contract or subcontract and denying that it was indebted to plaintiff in any sum. Included in the said defendant's answer was its counterclaim in which it alleged that it purchased certain motor oil from the plaintiff for use in connection with the construction contract; that the oil furnished by plaintiff to it was contaminated with rust or other foreign particles; that said contaminated oil caused damage to four Cummins NBH 600 motors being used by it on the job; that said damage was caused by the negligence of plaintiff, or, in the alternative, that the damage resulted from a breach of warranty on the part of plaintiff; and that it was damaged in the sum of $30,500, for which it should have judgment after deduction of the amount it owed plaintiff for the purchase price of the oil and other merchandise.

On the same date, September 23, 1954, the remaining defendants filed their answer containing substantially the same admissions, denials and allegations as were contained in the separate answer of H. R. Henderson & Company. In addition, these defendants alleged that the primary liability, if any, was that of H. R. Henderson & Company, and prayed recovery over against Henderson in the event plaintiff recovered a judgment against them.

A pre-trial conference was had on September 29, 1954, and at that time defendants admitted that the amount sued for by plaintiff was correct and that Henderson received and used the merchandise, but defendants did not admit at that time that all of said merchandise was used in the performance of the contract in question.

On October 2, 1954, the defendant, H. R. Henderson & Company, filed a motion for continuance on the ground that it had previously filed an action against the present plaintiff, Magnolia Petroleum Company, in the District Court of Harrison County, Texas, involving the same controversy.

Plaintiff on October 8, 1954, filed its reply to Henderson's counterclaim, denying that it was guilty of negligence or breach of warranty, and in the alternative alleging that the said defendant was precluded from recovering on its counterclaim since it was guilty of contributory negligence in the use of the oil purchased from plaintiff.

In the meantime the parties had filed briefs in support of and in opposition to the motion for continuance, and on October 8, 1954, the Court entered an order overruling said motion.

On October 23, 1954, upon agreement of the parties the case was transferred from the El Dorado Division to the Fort Smith Division for trial, and on November 3 and 4, 1954, the case was tried to the Court, without a jury. At the conclusion of the trial the Court took the case under advisement, pending receipt from the respective attorneys of briefs and proposed findings of fact and conclusions of law.

After receiving the briefs and proposed findings from the respective parties, the Court concluded that a further hearing was necessary on the question of a reasonable attorney's fee to be allowed plaintiff's attorney, and on the question of whether the defendant surety companies were entitled to recover a judgment over against H. R. Henderson & Company for the amount of attorney's fee and penalty, if any, assessed against said surety companies. The supplemental hearing was had on December 28, 1954, at which time the defendant Henderson admitted the right of the defendant surety companies to recover judgment over against Henderson for the amount of the attorney's fee and penalty, if any, and ore tenus testimony was submitted on the question of a reasonable attorney's fee to be allowed plaintiff in the event the Court awarded plaintiff an attorney's fee.

And now the Court, having considered the pleadings, ore tenus testimony, stipulations, exhibits, briefs, proposed findings of fact and conclusions of law, and oral arguments of counsel for the respective parties, makes and files herein its findings of fact and conclusions of law, separately stated.

Findings of Fact.

1.

Plaintiff is a Texas corporation. The defendant, C. H. Leavell Company, is a Texas corporation; the defendant, Utah Construction Company, is a Utah corporation; the defendant, Aetna Casualty and Surety Company, is a Connecticut corporation; the defendant, Maryland Casualty Company, is a Maryland corporation; and the defendant, H. R. Henderson & Company, is a Texas corporation.

On September 24, 1952, the defendants, C. H. Leavell & Company and Utah Construction Company, acting as associated contractors and coadventurers under the trade name of Leavell-Utah, entered into a contract with the United States of America for the construction of certain smokeless powder magazines for the United States Naval Ammunition Depot at Shumaker, Arkansas, in the Western District of Arkansas, where said work was to be performed. Leavell-Utah, as principal, and The Aetna Casualty and Surety Company and Maryland Casualty Company, as sureties, on September 24, 1952, executed a standard Government form of payment bond to the United States of America, wherein the said defendants bound themselves in the sum of $1,648,777.60, conditioned that if the principal should promptly make payment to all persons supplying labor and material in the prosecution of the work provided for in said contract and any and all duly authorized modifications of said contract, then the obligation to be void; otherwise that the bond remain in full force and effect.

The bond was accepted by the United States, and thereafter Leavell-Utah began work on the project. The defendant, H. R. Henderson & Company, hereinafter referred to as H.R. Henderson or Henderson, was a subcontractor of Leavell-Utah, and during the performance of the work under the subcontract purchased and received $20,575.63 worth of goods, wares and merchandise from the plaintiff. All of said goods were used in the performance of Henderson's subcontract, which in turn was a part of the prime contract between Leavell-Utah and the United States, and said goods were furnished and used with the knowledge, consent and approval of Leavell-Utah.

The defendant, H.R. Henderson, upon demand by plaintiff, refused to pay the $20,575.63, although it was more than ninety days past due. Plaintiff, within ninety days after supplying the last of the goods upon which the claim is based, notified the defendants, Leavell-Utah, The Aetna Casualty and Surety Company, and Maryland Casualty Company, of the failure of Henderson to pay the account, and of the nature and amount of said account.

One year had not elapsed since the date of the final settlement of the contract and no part of the said $20,575.63 has been paid to plaintiff.

All of the goods were purchased and used in the Western District of Arkansas.

2.

As heretofore stated, defendants in their separate answers admitted the accuracy of the account in question, but denied that all of the goods were used in the performance of the contract. However, two days before the trial defendants notified plaintiff that they conceded that all the goods were used in the performance of the contract and that it would not be necessary for plaintiff to have witnesses at the trial for the purpose of proving that fact. And, at the outset of the trial defendants stipulated and agreed that goods in the amount of $20,575.63 were purchased by Henderson and used in the performance of the contract.

3.

H.R. Henderson had been doing business with plaintiff since 1935. After Henderson obtained the subcontract with Leavell-Utah, J.P. McGee and. Robert Plemons, employees of plaintiff, came to his office in Marshall, Texas. They reached an oral agreement for the purchase by Henderson and the sale by plaintiff of oil and other supplies to be used by Henderson in connection with the Shumaker project.

4.

The machines which defendants claim were damaged by plaintiff's oil are Euclids, commonly called "Ukes." They are similar to an ordinary trailer truck, except that they are much larger. Three of the Euclids were purchased by Henderson in Denver, Colorado, in 1950. The fourth one was purchased in 1952. All of the Euclids were used machines at the time Henderson purchased them. After purchasing the machines Henderson had 200 horsepower motors put in them in place of the 150 horsepower motors that were in them at the time they were purchased. The Euclids were equipped with sideboards making them capable of holding a load of 20 yards rather than the 13 yards they were originally built to hold and transport. The Euclids had been used on several jobs prior to the beginning of the job at Shumaker, Arkansas. Immediately prior to the Shumaker job they had been used on a project at Corpus Christi, Texas, and while on that job the Euclid motors had been overhauled.

The Euclids were brought to the Schumaker job early in December, 1952, and were first used on the job on December 13, 1952. The operation at that time was primarily a dirt moving project. The Euclids would be loaded with dirt and then driven a distance of one-fourth to three-fourths of a mile to the dumping pit, where the dirt was dumped. Henderson also had approximately 20 other pieces of equipment on the job, including bulldozers and caterpillars.

At first the Euclids were only used ten hours a day, but starting in the latter part of December, 1952, they were operated twenty hours a day, weather permitting, and this continued until April, 1953. During the day shift Henderson had a chief mechanic and a grease foreman, each of whom had assistants, to handle the maintenance of the equipment. A grease truck was used by the grease foreman, A.L. McBeth, and his assistants for the greasing and oiling of the equipment. One or more barrels of oil would be placed on the truck. The one to be used would be placed on its side. When McBeth wanted to add oil to a Euclid or other machine, or change the oil, he would have the Euclid stop in the field and would drive the grease truck up near the Euclid. He, or one of his assistants, would drain oil from the barrel into a five gallon bucket, and then the oil would be poured from the bucket into the crankcase of the Euclid. There was a complete oil change every 60 hours of operation of the Euclids and in the other equipment it was changed every 120 hours of operation. During the operation it was often necessary to add oil before the usual time for a complete change of oil. Ordinarily, no more than two Euclids would have the oil changed on the same day, and usually it was necessary to use more than one barrel of oil a day. A barrel of oil contains 55 gallons, and the normal capacity of a Euclid is about 12 gallons, including the oil in the filter, although McBeth testified that he put 15 or 16 gallons in the Euclids when he changed the oil. But, in view of the manner in which the Euclids and other equipment were oiled, regardless of whether the Euclids held 12 gallons or 16 gallons, it is clear that all four Euclids would seldom, if ever, be oiled out of the same barrel.

During the day shift the servicing of the Euclids was done by McBeth and his assistants. On the night shift, however, there were no mechanics or grease men on duty, and whatever servicing the equipment received was done by the operators. All, or practically all, of the men working for Henderson were hired through the Union, and some of them were far from satisfactory workers. Some of the Euclid drivers were inexperienced and knew very little about the machines they were operating. In fact, one of the drivers, J.E. Waldrop, had never driven a Euclid before and on his first day as a driver he drove one of the Euclids several hours with little or no water in the radiator.

It was apparent from the evidence that the primary concern of Henderson, and of the drivers, was to move as much dirt as possible in the shortest time, and little attention was given to the proper care and maintenance of the Euclids. The only maintenance record kept by anyone was a small notebook in which McBeth made certain entries, particularly the date of oil changes and amounts of oil that were added between oil change dates. This record had been inadvertently destroyed by McBeth. Two or three of the Euclids were turned over on the job, but were set upright and put back in operation with only a cursory check for possible damage to the motors. Sometimes the Euclids were operated at night without any headlights, and there were no dash lights to enable the operator to read the oil gauge or other instruments. A good portion of the time it was extremely dusty, and it is quite likely that at least some dust got in the oil as it was transferred from the barrel to the Euclids with the use of the five gallon bucket. It is also quite likely that dust got into the five gallon bucket during the time it was not in use.

The oil pressure on two or three of the Euclids became very low, although on one of them the oil pressure was satisfactory and it was the oil gauge that was defective. One of the Euclids had gotten water into the crankcase as a result of a hole that had rusted through the sleeve wall, but it was repaired and put back in operation. One of the Euclids had a faulty oil filter which caused the oil to bypass the filter.

5.

On April 5, 6 and 7, 1953, the ground was wet and the Euclids were not operated. On April 8 they were operated two full shifts. Three of them were being operated on April 9, and at approximately 8:00 to 9:00 p. m. the motor on one of the Euclids "locked" or failed. On April 10, at about 6:00 to 7:00 p. m. one of the Euclids threw a rod through the block of the motor, On April 11, at about 2:30 p. m., a third Euclid locked or failed. Then the fourth Euclid was taken out of operation because it was not feasible to operate a single Euclid at a time. On April 13, one of the caterpillars failed.

These failures caused a considerable amount of concern to everyone. It was thought that sabotage might be involved, and the base commander and the Federal Bureau of Investigation were notified. Also, H.R. Henderson, General Manager of H. R. Henderson & Company, was notified, as were representatives of the plaintiff. Henderson ordered all the machines shut down until an investigation could be made. On Monday, April 13, J.A. Shores and J.P. McGee, employees of plaintiff, and J.H. Cox, Chief Mechanic of Henderson at Marshall, Texas, arrived in Camden to investigate the incidents.

On the morning of April 13, one sample of new oil from a barrel on the grease truck, and two samples of used oil which had been taken from two of the Euclids that had failed, were taken by Charles L. Taylor, Henderson's Euclid foreman, to the Lion Oil Company for analysis. These samples were examined and analyzed by Mr. Roy S. Wilson, Chief Chemist of the Refining Division of Lion Oil Company, and found to be normal in all respects.

On the same day, April 13, McGee took two samples of new oil, one from a drum that was still on the truck, and one from the drum that had been taken off the truck, and Shores took a sample of Diesel fuel. These three samples were taken by Shores and McGee to the Lion Oil Company for analysis and found to be normal. They advised Mr. Bert B. Aycock, Henderson's General Superintendent, that the oil was ...


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