Category Archives: Miller Act

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

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Complying 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.

MILLER ACT – CONSIDERATIONS INVOLVING SUBCONTRACTOR WHEN GOVERNMENT ASSESSES LIQUIDATED DAMAGES

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Prime contractors and subcontractors that work on federal construction projects often find themselves in the garden variety payment dispute dealing with (1) entitlement and liability for additional work and  (2) project delays, especially when the government assesses liquidated damages. These issues can put the prime contractor in the undesirable position because it may not have been paid for the additional work items and the government may be assessing liquidated damages against the prime contractor for the delays.

 

The case of U.S. ex rel. W.W. Gay Mechanical Contractor, Inc. v. Walbridge Aldinger Co., 2013 WL 5859456 (11th Cir. 2013), illustrates this garden variety construction payment dispute scenario between a subcontractor and prime contractor on a delayed federal project. This case involves a subcontractor asserting a Miller Act payment bond claim (pursuant to 40 U.S.C. s. 3133) against the prime contractor’s surety for unpaid retainage and additional work items, as well as a breach of contract claim against the prime contractor for the same amounts. The prime contractor argued that it was entitled to withhold payment from the subcontractor due to delays to the completion date of the project that the subcontractor was responsible for causing. In particular, the prime contractor was being assessed sizable liquidated damages from the government (Navy) and although it was appealing the liquidated damages exposure through the Contract Disputes Act, it wanted to offset monies that were owed to the subcontractor based on its potential liquidated damages exposure. The prime contractor relied on subcontract provisions that contained that “time is of the essence” as to the subcontractor’s performance; that it was entitled to withhold sums from the subcontractor for its breach of contract; and that the subcontractor may be liable for liquidated damages and other damages for causing delays in the progress of the project.

 

At the trial court level, the district court granted partial summary judgment in favor of the subcontractor finding that the subcontractor was entitled to payment for the retainage and additional work. Attorneys‘ fees were also granted to the subcontractor.

 

On appeal, the Eleventh Circuit first discussed the purpose of the Miller Act and what a party needs to do to assert a Miller Act claim:

 

“The MIller Act protects subcontractors on federal projects by requiring contractors to post a bond to ensure payment to their subcontractors. To establish a Miller claim, W.W. Gay [subcontractor] must show (1) that it supplied labor and materials for work in the particular contract at issue; (2) that it is unpaid; (3) that it had a good faith belief that the materials were for the specified work; and (4) that jurisdictional requisites are met.” Walbridge Aldinger, 2013 WL at *1 (internal citations omitted).

 

Irrespective of favorable contractual provisions, the Eleventh Circuit held that the prime contractor “has failed to produce more than a ‘scintilla of evidence’ that W.W. Gay’s alleged delays resulted in the liquidated damages assessed against it by the Navy.” Walbridge Aldinger, 2013 WL at *2.  Although the prime contractor tried to rely on deposition testimony that correspondence was sent to the subcontractor regarding the delays, this was not proof that the subcontractor actually caused delays to the project. This is especially true because the prime contractor was also arguing that the Navy caused delays to the project, i.e., the likely reason it was appealing the liquidated damages assessment.

 

The Eleventh Circuit further analyzed the issue of whether the subcontractor was entitled to monies for additional work pertaining to re-routing an underground storm pipe. The Court found that the record reflected that when the subcontractor learned of the issue regarding the planned location of the storm pipe it notified the prime contractor and the prime contractor directed the subcontractor to install the pipe in the planned location. The prime contractor then waited six weeks before sending a request for information to the government and the government responded telling the prime contractor to re-route the pipe. The prime contractor then directed the subcontractor to re-route the pipe (through the constructive change directive provision or CCD provision in the subcontract). The subcontractor then notified the prime contractor that it expects to get paid for this work and the prime contractor indicated it would pay. The government, however, only paid for a fraction of the additional work item. For this reason, the prime contractor argued that even though it directed the extra work it was only responsible for paying the subcontractor the amount allowed by “applicable provisions” of the prime contract (agreement with the government). In support of this, the prime contractor relied on the following language in its subcontract:

 

“Contractor may, without invalidating the Subcontract or any bond given hereunder, order extra and/or additional work, deletions, or other modifications to the Work, such changes to be effective only upon written order of Contractor. Any adjustment to the Subcontract Price or the time for completion of the Work shall be made in accordance with the applicable provisions of the Agreement between Owner and Contractor and the lump sum or unit prices set forth in Exhibit E or, in the absence of such provisions on an agreed, equitable basis. Notwithstanding any inability to agree upon any adjustment or the basis for an adjustment, Subcontractor shall, if directed by Contractor, nevertheless proceed in accordance with the order, and the Subcontract shall be adjusted as reasonably determined by the Contractor with any dispute to be resolved after the completion of the Work. If requested by the Contractor, the Subcontractor shall perform extra work on a time and material basis, and the Subcontract price shall be adjusted based on time records and materials checked by the Contractor on a daily basis.”

 

Yet, the prime contractor never advised what “applicable provisions” of the prime contract supported its argument. Thus, the Eleventh Circuit maintained that the subcontractor should be entitled to be paid for its work on a time and materials basis based on time sheets per the very provision the prime contractor relied upon. Notably, the Eleventh Circuit minimized the significance of the contractual language by stating:

 

“Even assuming that the interpretation of the contract raises issues of material fact, Walbridge is still liable, as the district court found, under the duty of good faith and fair dealing implied in all contracts. Walbridge ordered W.W. Gay to install the storm pipe despite the problem that W.W. Gay had promptly called to Walbridge’s attention; Walbridge then waited six weeks to ask the Navy for advice; and after W.W. Gay had already finished installing the pipe, Walbridge ordered W.W. Gay to reroute the pipe. W.W. Gay understandably insisted that it receive full compensation for its work, and Walbridge accepted, or at least manipulatively encouraged, this expectation. Moreover, the only reason that the Navy did not pay for W.W. Gay’s work is because of Walbridge’s initial error in judgment. Thus, Walbridge cannot now invoke the Navy’s refusal to pay to avoid its obligations to W.W. Gay.” Walbridge Aldinger, 2013 WL at *5.

 

 

CONSIDERATIONS:

  • It’s hard to play both sides of the fence. In this case, the prime contractor wanted to play both sides by arguing on one hand that the Navy (government) caused delays it was assessing liquidated damages for and on the other side arguing that the subcontractor caused delays. It takes more than “conjecture” or argument to establish an actual delay. If a party argues delay, it needs to prove the delay (to the critical path that contributed to the overall delay to the project’s schedule) and not just that it “may” have caused delay or that it “could” have caused the delay based on the outcome of the dispute with the government over the assessment of liquidated damages. If the prime contractor wants to employ this tactic, it should include a provision that would allow it and its surety to withhold sums for any potential delay, although unsupportable, if the government assesses liquidated damages until the government’s assessment of liquidated has been resolved and that all claims between the parties regarding such sums shall be stayed pending the resolution. Naturally, such a clause needs to be ironed out with much more specificity and thoroughly considered because there are pros and cons to the provision including whether such a provision would be enforceable against a Miller Act surety (considering suits against the surety must be filed within a year from the subcontractor’s final furnishing). Otherwise, playing both sides can be challenging unless the prime contractor is taking the position with supportable schedule analysis that the subcontractor actually caused delays to the critical path.

 

  • The entitlement to additional work items is a common dispute between subcontractors and prime contractors. Thus, it is important to ensure that there are good notice provisions in the subcontract and that the subcontract clearly specifies what a subcontractor needs to do to be entitled to additional work. In this case, the subcontractor did send notice and was directed to proceed with the work and maintained time sheets verifying its additional work amounts. Too often subcontractors do not keep track of such amounts on a time and materials basis as specified in the subcontract and/or fail to submit timely notice.

 

  • The Eleventh Circuit’s discussion of the implied obligation of good faith and fair dealing is an interesting discussion. The reason being is that it creates an argument that a subcontractor could be entitled to additional work items even if it did not truly comply with contractual provisions, especially if the subcontractor was directed to perform the work pursuant to a construction change directive or another provision.

 

For more information on the a Miller Act payment bond, please see https://floridaconstru.wpengine.com/522/ and https://floridaconstru.wpengine.com/an-argument-to-recover-attorneys-fees-against-a-miller-act-payment-bond/

 

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.

 

RECOVERING DELAY RELATED DAMAGES FROM PUBLIC PAYMENT BOND

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One of the advantages to subcontractors of public payment bonds issued under the Federal Miller Act (or even the Little Miller Act) is that there is an argument for the recovery of unexecuted change orders and, and as it particularly pertains to this article, impact-related costs (whether delay or inefficiency / lost productivity). This should not be overlooked although language in the governing subcontract, etc. could dilute these arguments. However, having the argument and opportunity to recover impact-related costs from a payment bond is a huge upside.

 

If a subcontractor is owed money for inefficiency or delay, etc., and there is a public payment bond in place, it should not automatically forego pursuing these claims against the bond. Unlike a lien where these types of costs / damages are not lienable and could render an otherwise valid lien fraudulent in Florida, these are damages that could be pursued against a public payment bond. The subcontractor should carefully craft its argument in furtherance of maximizing its best chance to recover these types of damages.

 

For example, in the opinion of Fisk Elec. Co. v. Travelers Cas. and Sur. Co., 2009 WL 196032 (S.D.Fla. 2009), a subcontractor sought inefficiency / lost productivity damages against a payment bond surety that appeared to be issued under Florida Statute s. 255.05 (also known as Florida’s Little Miller Act). The payment bond surety moved to dismiss the subcontractor’s complaint arguing that these types of damages are not recoverable under the bond. The Southern District, relying on federal cases interpreting the Federal Miller Act, found that a subcontractor can pursue such damages against the payment bond for its out-of-pocket unreimbursed expenses. See, e.g, U.S. f/u/b/o Pertun Const. Co. v. Harvesters Group, Inc., 918 F.2d 915, 918 (11th Cir. 1990) (finding that subcontractor could recover under Federal Miller Act bond for out-of-pocket expenses resulting from prime contractor’s delay).

 

To maximize the recoverability for impact-related costs, the costs should be supportable costs that the subcontractor actually incurred in the performance of its contract work. Organizing the back-up supporting these costs and theory of the impact is critical and the subcontractor looking to pursue these costs from a public payment bond should consult counsel to best position its arguments to support recovery.  On the other hand, the prime contractor should ensure that its subcontract has contractual provisions that will make it challenging and provide hurdles for the subcontractor to recover such damages.

 

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.

ARGUMENTS TO RECOVER ATTORNEYS’ FEES AGAINST A MILLER ACT PAYMENT BOND

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For those subcontractors and suppliers providing labor, services, or materials to federal construction projects, understanding your rights under the Federal Miller Act (40 USC s. 3131 et seq.) is important. Among other things, the Miller Act advises what a subcontractor and supplier need do to preserve a right against the prime contractor’s payment bond, from providing the prerequisite notice of nonpayment to the surety within 90 days from final furnishing / performance (if there is no privity of contract with the prime contractor) to ensuring suit is filed in federal court within a year from final furnishing / performance. Obtaining a copy of the payment bond and understanding these timeframes is critical to an unpaid subcontractor or supplier; otherwise, their claim will be barred against the payment bond.

 

One of the downsides to Miller Act bond claims is that there is no statutory right to the recovery of attorneys’ fees under the Federal Miller Act. This means that every dollar spent on lawyers is potentially reducing the amount in recovery because there is no avenue to recoup those attorneys’ fees under the Miller Act.  Unless this claim is significant, this downside often demotivates a supplier or subcontractor from filing suit in federal court against a Miller Act payment bond.

 

There are, however, arguments to recover attorneys’ fees in a Miller Act action.  The first argument is if there is an underlying contract involving the claimant relating to the project that provides for attorneys’ fees (such as the contract between the subcontractor and prime contractor), the claimant can recover its attorneys’ fees.  See, e.g., U.S. f/u/b/o Southeastern Mun. Supply Co., Inc. v. National Union Fire Ins. Co. of Pittsburg, 876 F.2d 92 (11th Cir. 1989) (finding that attorneys’ fees provision in contract between supplier and subcontractor was enforceable to enable supplier to recover attorneys’ fees against Miller Act surety).

 

There is also a second argument that attorneys’ fees should be recoverable in Florida against a Miller Act bond under a 1968 Fifth Circuit Court of Appeal’s decision in United States Fidelity and Guaranty Co. v. Hendry Corp., 391 F.2d 13, 20-21 (5th Cir. 1968). This case analyzed Florida law to fill in the gap to determine whether attorneys’ fees were recoverable under the Miller Act (since the Act is silent on the issue). In doing so, the Fifth Circuit analyzed Florida’s Insurance Code and maintained that provisions in Florida’s Insurance Code (still in effect today) allow for the recoverability of attorneys’ fees in a Miller Act bond dispute.

 

Parties pursuing Miller Act actions for Florida-based federal projects should plead for attorneys’ fees whether through a contractual provision and/or the Fifth Circuit’s ruling in Hendry Corp.  Now, it is uncertain whether the Fifth Circuit’s ruling would still apply today; however, it is an argument that should still be pursued in furtherance of trying to recover attorneys’ fees in an action against a Miller Act payment bond, especially if there is not an underlying contract that provides for attorneys’ fees.

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.