GOOD-TO-KNOW POINTS REGARDING (I) MILLER ACT PAYMENT BONDS AND (II) PAYMENT BOND SURETY COMPELLING ARBITRATION

Every now and then I come across an opinion that addresses good-to-know legal issues as a corollary of strategic litigation decisions that are questionable and/or creative.  An opinion out of the United States District Court of New Mexico, Rock Roofing, LLC v. Travelers Casualty and Surety Company of America, 2019 WL 4418918 (D. New Mexico 2019), is such an opinion.

In Rock Roofing, an owner hired a contractor to construct apartments. The contractor furnished a payment bond.  The contractor, in the performance of its work, hired a roofing subcontractor.  A dispute arose under the subcontract and the roofer recorded a construction lien against the project. The contractor, per New Mexico law, obtained a bond to release the roofer’s construction lien from the project (real property).  The roofer then filed a lawsuit in federal court against the payment bond surety claiming it is entitled to: (1)  collect on the contractor’s Miller Act payment bond (?!?) and (2) foreclose its construction lien against the lien release bond furnished per New Mexico law.

Count I – Miller Act Payment Bond

Claiming the payment bond issued by the contractor is a Miller Act payment bond is a head scratcher. This claim was dismissed with prejudice upon the surety’s motion to dismiss. This was an easy call.

A Miller Act payment bond is a bond a prime contractor gives to the United States (US) for a public project. Here, the contractor entered into a contract with a private developer for a private apartment project. There was nothing to suggest that the private developer was, in fact, the US government or an agent of the US government.  There was also nothing to suggest that the apartment project was, in fact, a public project.  The roofer alleged that it believed the US Department of Housing and Urban Development provided funding for the project. The Court found this allegation as a big so-what: “The Court finds this allegation insufficient to demonstrate either the payment bond was furnished to the [US] Government as required by the [Miller Act], or that the apartment complex was a public building or public work as required by the [Miller Act].” Rock Roofing, LLC, 2019 WL at *3.

Count II – Foreclosure of Construction Lien Against Lien Release Bond

The surety moved to compel the roofer’s foreclosure claim against the lien release bond to arbitration pursuant to the contractor’s subcontract with the roofer.  The roofer countered that arbitration was inappropriate since the surety was not a party to the subcontract.

The Court (relying on a Florida district court opinion I was intimately involved with) found that the doctrine of equitable estoppel applied to compel the roofer to arbitration because the roofer’s claim for payment was based on its subcontract that contains the arbitration provision. “Because [the roofer’s] claim on the payment bond depends on its subcontract with [the contractor], the arbitration clause in the subcontract must precede [the roofer’s] right to bring suit as provided by the payment bond.Rock Roofing LLC at *7.

 

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.

 

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