THE DIFFICULTY IN RAISING EQUITABLE TOLLING TO JUSTIFY AN UNTIMELY MILLER ACT PAYMENT BOND LAWSUIT

untitledPreviously, I discussed the statute of limitations for a Miller Act payment bond claim and the equitable tolling of the limitations based on a claimant’s late filing of a Miller Act payment bond lawsuit.    

 

Another decision came out in U.S. ex rel. Walter Toebe Construction Co. v. The Guarantee Co. of North America, 2014 WL 7211294 (E.D. Mich. 2014), dealing with the exact same subject matter of a claimant raising equitable tolling to overcome filing a Miller Act payment bond lawsuit outside of the statute of limitations.   Understanding the statute of limitations for a Miller Act payment bond claim is vital to a claimant’s rights on a federal construction project because the doctrine of equitable tolling (of the statute of limitations) is not designed to simply allow a careless claimant to untimely file a lawsuit.

 

In this case, a sub-subcontractor was hired to install drilled shafts on a federal project.  The sub-subcontractor was owed approximately $500,000 and demanded arbitration with the subcontractor that hired it and the Miller Act payment bond surety. The surety apparently participated in the arbitration hearing and on the last day of the hearing the arbitrators dismissed the surety from the arbitration pursuant to the surety’s motion to dismiss for lack of jurisdiction. The arbitrators then issued an award in favor of the sub-subcontractor against the subcontractor that was confirmed by a Michigan circuit court.  The subcontractor failed to pay the judgment and the sub-subcontractor demanded that the Miller Act payment bond surety pay the judgment.  The surety (properly) refused stating that the sub-subcontractor failed to file a lawsuit within the one year limitations period set forth in the Miller Act.

 

The sub-subcontractor then filed a Miller Act payment bond lawsuit in federal court and argued that the statute of limitations to file a Miller Act payment bond lawsuit should be equitably tolled in light of the arbitration proceeding and the surety’s participation in the arbitration (until it was dismissed because there was no jurisdiction to bind the surety to an arbitration award).

 

A Miller Act payment bond lawsuit must be brought no later than one year after a claimant’s final / last furnishing of labor or materials.  Here, it was clear that the lawsuit was filed well outside of the one-year statute of limitations.  Appreciating this, the sub-subcontractor argued the statute of limitations should be equitably tolled.

 

“Equitable tolling allows a federal court to toll a statute of limitations when a litigant’s failure to meet a legally-mandated deadline unavoidably arose from circumstances beyond that litigant’s control.  

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To determine whether equitable tolling is available to a plaintiff, a court considers five factors: (1) the plaintiff’s lack of notice of the filing requirement; (2) the plaintiff’s lack of constructive knowledge of the filing requirement; (3) the plaintiff’s diligence in pursuing her rights; (4) an absence of prejudice to the defendant; and (5) the plaintiff’s reasonableness in remaining ignorant of the particular legal requirement.”

United States ex. rel. Walter Toebe Construction Company, supra, at *3-4 (internal citations and quotations omitted).

 

Unfortunately for the sub-subcontractor, its failure to file a lawsuit within the one-year limitations period did not fit into any of the equitable tolling factors.   The sub-subcontractor did not suggest, nor could it really, that it did not have notice of the statute of limitations to file a Miller Act claim.  The sub-subcontractor could not argue that it actively took steps to timely file the lawsuit, because it did not. And, the sub-subcontractor could rely on no law to support its argument that the statute of limitations should be tolled pending an arbitration; and, in fact, there is law that states otherwise. 

 

This case has important considerations:

  • It is important for a potential Miller Act payment bond claimant on a federal project to know what it needs to do to preserve payment bond rights including the timely filing of a lawsuit no later than one year from its last furnishing of labor or materials. 

 

  • It is important for a potential Miller Act payment bond claimant to timely file its lawsuit in federal district court to ensure its lawsuit is timely filed.  Even if a claimant wants to arbitrate with the party that hired it, it is still imperative that the claimant timely files the lawsuit to preserve its payment bond rights and avoid any argument that the lawsuit was not timely filed.

 

  •  Equitable tolling is a challenging doctrine, especially in the Miller Act context where claimants have statutory notice of their rights.  Claimants certainly do NOT want to be in a position where they are trying to rely on this doctrine to overcome the late filing of a Miller Act payment bond claim because it is more often than not a losing argument.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

THE STATUTE OF LIMITATIONS ON A MILLER ACT PAYMENT BOND CLAIM AND THE DOCTRINE OF EQUITABLE TOLLING

UnknownComplying with the one-year statute of limitations to assert a Miller Act (40 USC s. 3133) payment bond claim is an absolute must! Not complying will likely deprive the claimant of its payment bond rights. A claimant should never want this scenario as, in most instances, it is always better to file a lawsuit and preserve the rights to the payment bond. In a recent non-Florida federal case, U.S.A ex rel. Liberty Mechanical Services, Inc. v. North American Specialty Ins., 2014 WL 695106 (E.D.Pa. 2014), the Court discussed whether the doctrine known as equitable tolling could toll the statute of limitations to file a Miller Act payment bond action so that a late filed payment bond lawsuit was deemed timely filed.

 

In Liberty Mechanical Services, the Department of Veteran Affairs hired a contractor to preform renovation work. The prime contractor hired a mechanical and plumbing subcontractor. The subcontractor completed its work in January 2012 and was owed approximately $53,000. As a result of nonpayment, it obtained a copy of the prime contractor’s payment bond from the Department of Veteran Affairs in September 2012 (nine months from completing its work–there were allegations that it had difficulty obtaining a copy of the bond from the government). The subcontractor then sent a letter to the surety advising that it would not provide close out documents until it was paid in full and that its lawyer will be filing a claim against the bond. The surety responded that it would get the ball rolling regarding the claim while reserving all of its rights. Subsequently, the prime contractor reached out to the subcontractor and advised that it would pay and, therefore, an action against the bond would not be necessary. However, in February 2013, more than a year after the subcontractor completed its work, it still had not received payment from the prime contractor. Then, the surety told the subcontractor that it would not pay because the subcontractor’s claim was now time-barred by the one-year statute of limitations to sue on a Miller Act bond. Accordingly, in June 2013, approximately fifteen months from the subcontractor’s completion date, it filed a Miller Act lawsuit.

 

The Miller Act mandates:

 

“[E]very contractor on a federal government contract exceeding $100,000 to provide ‘[a] payment bond with a surety … for the protection of all persons supplying labor and material in carrying out the work provided for in the contract. Any supplier or sub-contractor who has not been paid in full within 90 days for labor performed or supplies furnished may bring a civil action on the payment bond for the amount unpaid at the time the civil action is brought and may prosecute the action to final execution and judgment for the amount due… The Act requires that suit must be brought no later than one year after the day on which the last of the labor was performed or material was supplied by the person bringing the action.” Liberty Mechanical Services, supra, *3 (internal citations and quotations omitted).

 

Here, the Miller Act lawsuit was admittedly outside the one-year statute of limitations (more than one year from the subcontractor’s final furnishing date in January 2012); however, the subcontractor argued that the limitations period should be equitably tolled to allow it to move forward with the lawsuit and excuse its late filing.

 

The Third Circuit has explained that the doctrine of equitable tolling can apply to excuse a late filing after the expiration of the statute of limitations under the following circumstances:

 

“(1) where the defendant has actively misled the plaintiff respecting the plaintiff’s cause of action; (2) where the plaintiff in some extraordinary way has been prevented from asserting his or her rights; or (3) where the plaintiff has timely asserted his or her rights mistakenly in the wrong forum.” Liberty Mechanical Services, supra, at *8 quoting Oshiver v. Levin, Fishbein, Sedran & Berman, 38 F.3d 1380, 1387 (3d Cir. 1991).

 

The plaintiff, or late-filer, in applying the circumstances, must show it exercised reasonable diligence in investigating its claim and filing suit on its claim.

 

Notably, Florida district courts have applied equitable tolling under analogous circumstances:

 

(1) the late filing plaintiff has been misled by defendant’s misconduct into allowing the statutory period to expire; (2) the plaintiff was unaware that his/her rights had been violated and therefore of the need to seek redress; or (3) the plaintiff actively pursued his/her judicial remedies but filed a defective pleading during the limitations period, timely filed in an improper forum and has exercised due diligence in all other respects in preserving his legal rights.” Booth v. Carnival Corp., 510 F.Supp.2d 985, 988 (S.D.Fla. 2007) citing Justice v. U.S., 6 F.3d 1474, 1479 (11th Cir. 1993).

 

The subcontractor in Liberty Mechanical Services alleged random facts to support its late filing. It first argued that it took roughly nine months from its final furnishing date to receive a copy of the payment bond from the Department of Veteran Affairs. Yet, this argument failed because the subcontractor still had three months left under the statute of limitations to timely pursue an action on the bond. The subcontractor argued that the prime contractor indicated it would pay so there was no need for the subcontractor to file a bond claim. Yet, this argument failed because nothing prevented the subcontractor from timely preserving its rights and filing a claim. In other words, the prime contractor indicating its intent to pay did not deprive the subcontractor of timely pursuing its rights. And, the subcontractor argued that the surety indicated that it would “get the ball rolling” once it was notified of the claim while reserving all rights. Yet, this argument failed because the surety never represented that it would pay, but, in essence, simply responded that it received and would investigate the claimant’s claim–a common response from a surety.

 

While equitable tolling could possibly work to support the basis for a late filed Miller Act payment bond claim, the plaintiff / claimant must plead and prove: 1) it used due diligence to timely file its claim and 2) the circumstances fit into one of the three limited categories identified above as to why the plaintiff could not have timely filed the lawsuit even exercising due diligence. However, the facts to support equitable tolling should be severe such that equity would require the tolling of the limitations so that a late filed Miller Act lawsuit is excused and deemed timely filed. Otherwise, claimants would simply conjure up excuses to support the late filing and completely water down the intent of the statute of limitations. The key for a claimant is to: 1) know the statute of limitations for a Miller Act payment bond claim, 2) know the final furnishing date, and 3) timely file the payment bond claim – no excuses!

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.