## Facts

- Art’s Decorating and Cleaning Co. entered a General Services Administration (GSA) contract to provide cleaning services.
- Reliance Insurance Co. issued a performance bond to protect the United States against loss from the contractor’s nonperformance.
- Industrial Bank of Washington loaned money to the contractor and took, as collateral, an assignment of all monies due or to become due under the GSA contract; the bank gave notice of the assignment to GSA and the surety.
- The contractor defaulted; GSA terminated the contract and obtained substitute performance, causing a loss to the United States.
- Although the contractor had earned but unpaid contract funds, the United States refused to pay the bank and asserted a right to set off those funds against the loss from termination and reprocurement.
- The bank sued the United States under the Tucker Act and joined the surety; the district court assumed jurisdiction but granted summary judgment to the United States and the surety and denied the bank’s motion.

## Issues

1. Whether the district court had Tucker Act jurisdiction over the bank’s contract-based claim against the United States when a private surety was joined as a co-defendant.
2. Whether, after default and termination, the bank’s assignment of contract proceeds had priority over (a) the government’s setoff for completion-related loss and (b) the surety’s equitable subrogation rights under a performance bond.

## Decision

- The court held the district court had jurisdiction under 28 U.S.C. § 1346(a)(2) because the claim was founded on a contract with the United States, sought less than $10,000, and joinder of a private defendant did not defeat jurisdiction.
- The court affirmed summary judgment for the United States and the surety, holding the bank had no superior right to the undisbursed contract funds needed to cover the government’s loss.
- The judgment dismissing the bank’s action with prejudice was affirmed.

## Legal Principles

- Tucker Act jurisdiction under 28 U.S.C. § 1346(a)(2) is not eliminated merely because a plaintiff joins a private party, where the contract claim against the United States is independently justiciable.
- The United States may apply earned but unpaid contract funds to set off losses caused by a contractor’s default and the government’s costs of obtaining substitute performance.
- A performance-bond surety has equitable subrogation rights that may take priority in undisbursed contract funds required to satisfy the government’s loss, and those rights relate back to the issuance of the bond.
- The Assignment of Claims Act permits enforcement of qualifying assignments against the United States but does not create a superior statutory priority over the government’s setoff rights or a surety’s subrogation rights in funds needed to cover default-related losses.

## Conclusion

The D.C. Circuit held that the district court properly exercised Tucker Act jurisdiction, but the bank’s assignment could not defeat the government’s setoff and the surety’s equitable subrogation rights to undisbursed contract funds needed to cover the government’s loss after termination for default.


Industrial Bank of Wash. v. United States, 424 F.2d 932 (D.C. Cir. 1970)