PROFESSIONAL MALPRACTICE STATUTE OF LIMITATIONS IN CONSTRUCTION CONTEXT

Posted on June 4, 2023June 4, 2023 by David Adelstein

In an interesting dichotomy, which statute of limitations applies to professional malpractice claims relating to construction claims, i.e., in the construction context?

Is it the two year statute of limitations in Florida Statute s. 95.11(4)( a) that governs professional malpractice claims or is it the four year statute of limitations in Florida Statute s. 95.11(3)(c) that governs actions “founded on the design, planning, or construction of an improvement toot real property”? This dichotomy led the appeal in American Automobile Ins. v. FDH Infrastructure Services, LLC, 48 Fla.L.Weekly D1091a (Fla. 3d DCA 2023).

This case sadly involved a construction accident that led to deaths. A contractor was engaged to install an antenna on an existing television tower. The contractor hired an engineering firm “to perform a structural analysis as to the stability and weight-bearing capacity of the tower. [The engineer] was contractually obligated to assess the proposed rigging plan…to lift the loads necessary to construct the antenna.” FDH Infrastructure Services, supra. Unfortunately, after the installation of the antenna commenced, the rigging components failed resulting in workers falling to their deaths. After insurers paid out benefits, they sued the engineering firm under equitable and contractual subrogation theories. The engineering firm moved for summary judgment arguing the subrogation claims were barred by the professional malpractice two year statute of limitations in section 95.11(4)(a). The trial court agreed and granted summary judgment in favor of the engineering firm.

On appeal, the insurers argued the trial court applied the wrong statute of limitations. The trial court should have applied the four year statute of limitations in section 95.11(3)(c) governing the construction context. The appellate court agreed:

Section 95.11(3) applies narrowly to only construction-based claims. This provision stands in contrast to section 95.11(4), which encompasses any “professional malpractice” action. Consistent with this distinction, in Kelley v. School Board of Seminole County, 435 So. 2d 804 (Fla. 1983), the Florida Supreme Court approved the application of section 95.11(3) in a case of professional negligence associated with the provision of architectural services. Id. at 805, n.2 (“Both the trial court and the [F]ifth [D]istrict found the 4-year statute applicable, and we agree with the district court that the language of (3)(c), rather than (4)(a), is more specifically applicable to this case.”). The same view has been adopted by several other courts. See Havatampa Corp. v. McElvy, Jennewein, Stefany & Howard, Architects/Planners, Inc., 417 So. 2d 703, 704 (Fla. 2d DCA 1982) (applying section 95.11(3)(c) to an action by building owner against architect, contractor, subcontractor, materialmen, and bonding company utilized in design and construction of new manufacturing facility); Hotels of Deerfield, LLC v. Studio 78, LLC, No. 21-60980-CIV, 2022 WL 1666976, at *4 (S.D. Fla. Mar. 7, 2022) (“[B]ecause [section] 95.11(3)(c) is more specific than 95.11(4)(a) regarding claims against design professionals arising out of designs or improvements to real property, the former should control because more specific statutes preempt more general statutes as a matter of law.”); see also Luis Prat & Cary Wright, Rights and Liabilities of Architects and Engineers, in Florida Construction Law and Practice ch. 3.5 (10th ed. 2022) (quoting § 95.11(3)(c), Fla. Stat.) (“Actions for professional malpractice by privity claimants against the design professional, other than those actions arising out of the ‘design, planning, or construction of an improvement to real property,’ must be commenced within two years . . . .”); cf. Lillibridge Health Care Servs., Inc. v. Hunton Brady Architects, P.A., No. 6:08-CV-1028, 2010 WL 3788859, at *18 (M.D. Fla. Sept. 24, 2010) (footnote omitted) (rejecting defendant’s contention that section 95.11(4)(a) was more specific statute in action by owner of medical office building against architect and engineering firm for problems arising during construction of building and observing “Florida courts — to which this [c]ourt must defer on issues of state law — have repeatedly applied paragraph (3)(c) rather than (4)(a) in suits against architects and engineers”).

***

[I]n the instant case, FDH was contractually obligated to assess the structural integrity of the tower and rigging plan prior to the commencement of construction. Performing the calculations necessary to enable the construction of the new antenna on the existing building was part and parcel of that task. Given the parameters of the contract, the summary judgment record established the subrogation “action[s] [were] founded on the . . . planning . . . of an improvement to real property.” § 95.11(3)(c), Fla. Stat. Consequently, we find this action falls within the ambit of the four-year limitation.

FDH Infrastructure Services, supra.

The appellate court did note a contrast with a case where the two-year professional malpractice statute of limitations applied. In that case, an engineering firm was hired to review construction drawings and inspect a newly constructed home. Since the inspection involved already completed construction, “‘this [did] not transform the claim into one founded on the ‘construction’ of an improvement to real property, as that term is commonly understood.'” FDH Infrastructure Services, supra, quoting Manney v. MBV Engineering, Inc., 273 So.3d 214, 216, 217 (Fla. 5th DCA 2019).

When assessing professional malpractice claims against a design professional, etc., in the construction context, please do so with the advice and strategic input from construction counsel.

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.

FLORIDA’S STATUTE OF LIMITATIONS / REPOSE FOR ACTIONS FOUNDED ON CONSTRUCTION IMPROVEMENT MODIFIED

Posted on April 22, 2023April 23, 2023 by David Adelstein

On April 13, 2023, Florida’s all-important four-year statute of limitations–Florida Statute s. 95.11(3)(c)–relating to actions founded on construction of an improvement of real property was modified. This is a key statute of limitations for ALL construction practitioners because it also includes the statute of repose for latent construction defects.

At the bottom of this posting is the current version fo s. 95.11(3)(c) with the underlined section being recent additions. (They hyperlink above will identify the deletions and additions.) Important things to note:

 Statute of Repose. The statute of repose has been reduced from 10 years to 7 years. There is now an objective date for when the repose period commences: “within 7 years after the date the authority having jurisdiction issues a temporary certificate of occupancy, a certificate of occupancy, or a certificate of completion, or the date of abandonment of construction if not completed, whichever date is earliest.”

 Statute of Limitations. Similarly, the commencement of the statute of limitations now commences based on an objective date: “with the time running from the date the authority having jurisdiction issues a temporary certificate of occupancy, a certificate of completion, or the date of abandonment of construction if not completed, whichever date is earliest.”

 Multiple Buildings. If dealing with a project regarding multiple buildings with each building getting its own TCO, CO, or certificate of completion: “[I]f the improvement to real property consists of the design, planning, or construction of multiple buildings, each building must be considered its own improvement for purposes of determining the limitations period set forth in this paragraph.”

 Application. The modifications to this statute of limitations apply “to any action commenced on or after the effective date of this act, regardless of when the cause of action accrued, except that any action that would not have been barred under s. 95.11(3)(c), Florida Statutes, before the amendments made by this act must be commenced on or before July 1, 2024. If the action is not commenced by July 1, 2024, and is barred by the amendments to s. 95.11(3)(c), Florida Statutes, made by this act, then the action is barred.”

Florida Statute 95.11(3)(c)

An action founded on the design, planning, or construction of an improvement to real property, with the time running from the date the authority having jurisdiction issues a temporary certificate of occupancy, a certificate of occupancy, or a certificate of completion, or the date of abandonment of construction if not completed, whichever date is earliest; except that, when the action involves a latent defect, the time runs from the time the defect is discovered or should have been discovered with the exercise of due diligence. In any event, the action must be commenced within 7 years after the date the authority having jurisdiction issues a temporary certificate of occupancy, a certificate of occupancy, or a certificate of completion, or the date of abandonment of construction if not completed, whichever date is earliest. However, counterclaims, cross-claims, and third-party claims that arise out of the conduct, transaction, or occurrence set out or attempted to be set out in a pleading may be commenced up to 1 year after the pleading to which such claims relate is served, even if such claims would otherwise be time barred. With respect to actions founded on the design, planning, or construction of an improvement to real property, if such construction is performed pursuant to a duly issued building permit and if the authority having jurisdiction has issued a temporary certificate of occupancy, a certificate of occupancy, or a certificate of completion, then as to the construction which is within the scope of such building permit and certificate, the correction of defects to completed work or repair of completed work, whether performed under warranty or otherwise, does not extend the period of time within which an action must be commenced. If a newly constructed single-dwelling residential building is used as a model home, the time begins to run from the date that a deed is recorded first transferring title to another party. Notwithstanding any provision of this section to the contrary, if the improvement to real property consists of the design, planning, or construction of multiple buildings, each building must be considered its own improvement for purposes of determining the limitations period set forth in this paragraph.

FIVE-YEAR STATUTE OF LIMITATIONS ON PERFORMANCE-TYPE SURETY BONDS

Posted on November 30, 2017November 30, 2017 by Edward Garber

The statute of limitations on a claim against a performance-type bond is 5 years from the breach of the bond, i.e., the bond-principal’s default (based on the same statute of limitations that governs written contracts / obligations). See Fla. Stat. s. 95.11(2)(b). This 5-year statute of limitations is NOT extended and does NOT commence when the surety denies the claim. It commences upon the default of the bond-principal, which would be the act constituting the breach of the bond. This does not mean that the statute of limitations starts when a latent defect is discovered. This is not the case. In dealing with a completed project, the five-year statute of limitations would run when the obligee (beneficiary of the bond) accepted the work. See Federal Insurance Co. v. Southwest Florida Retirement Center, Inc., 707 So.2d 1119, 1121-22 (Fla. 1998).

This 5-year statute of limitations on performance-type surety bonds has recently been explained by the Second District in Lexicon Ins. Co. v. City of Cape Coral, Florida, 42 Fla. L. Weekly D2521a (Fla. 2d DCA 2017), a case where a developer planned on developing a single-family subdivision.

In 2005, the developer commenced the subdivision improvements. Pursuant to a City ordinance governing commercial and residential development of 446.09 acres, the developer was required to provide a surety bond to the City “in an amount of the estimated cost to complete all required site improvements, as determined by the City.” The developer provided the City two surety bonds totaling $7.7 Million representing the estimated cost to complete the remaining subdivision work. The surety bonds stated:

NOW, THEREFORE, THE CONDITION OF THIS OBLIGATION IS SUCH, that if the said Principal [DEVELOPER] shall construct, or have constructed, the improvements herein described, and shall save the Obligee [CITY] harmless from any loss, cost or damage by reason of its failure to complete said work, then this obligation shall be null and void, otherwise to remain in full force and effect, and the Surety, upon receipt of a resolution of the Obligee indicating that the improvements have not been installed or completed, will complete the improvements or pay to the Obligee such amount up to the Principal amount of this bond which will allow the Obligee to complete the improvements.

In March 2007, construction of the subdivision improvements ceased due to nonpayment by the developer.

In 2010, the City contacted the developer’s surety claiming it wants to have the outstanding subdivision work completed. The surety sent a letter to the City requesting information so that it could review the City’s claim. The City did not provide the requested information because the City was considering selling the project.

In 2012, a buyer purchased the project from the City for $6.2 Million.

In 2012, the City sued the surety bonds and assigned its claim to the new buyer. The surety argued that the five-year statute of limitations expired on the surety bonds before the City filed suit in 2012. The trial court rejected this argument and after a bench trial judgment was entered against the surety.

On appeal, Second District reversed the trial court’s judgment against the surety and remanded for the trial court to enter judgment in favor of the surety holding that the claims against the surety bond are barred as a matter of law by the 5-year statute of limitations.

The surety bond here, no different than a performance bond, required the developer (bond principal) to construct and complete the subdivision improvements. When the developer failed to do so (defaulted under the bond), the City’s rights under the bond accrued. Here, construction ceased in 2007; thus, the City’s rights against the bond accrued in 2007 when the developer stopped the development of the subdivision improvements.

The surety bonds the developer provided the City are analogous to obligations in a performance bond. These are analogous to performance-based obligations in a warranty bond. These surety bonds with performance based obligations will be governed by the five-year statute of limitations governing written contracts / obligations. The statute of limitations will accrue when the bond-principal defaults and otherwise breaches the terms of the bond.

If you are dealing with issues relating to a performance-type surety bond, it is important that you consult with counsel to make sure your rights are preserved. There are many considerations with the statute of limitations being one of those considerations.

NEGLIGENCE OF PROPERTY APPRAISER

Posted on September 27, 2017September 27, 2017 by Edward Garber

A new appellate decision came out discussing the statute of limitations associated with a negligence claim against a property appraiser. In this case, Llano Financing Group, LLC v. Petit, 42 Fla. L. Weekly D2071a (Fla. 1^st DCA 2017), the court held that the four year statute of limitations for negligence claims commences when the lender relied on the appraisal to fund the loan. The statute of limitations does not commence years later when the property is ultimately sold at a loss. Oh no. Once the lender receives the appraisal and funds the loan, the statute of limitations for the negligence claim begins. Applying this rationale in other contexts, the statute of limitations to sue a property appraiser in negligence would commence once an appraisal is received and relied on. This is best explained by the following hypothetical footnoted by the court:

Consider this example: An appraiser negligently appraises a $100,000 house at $150,000. A buyer reasonably relies on that negligent appraisal and buys the $100,000 house for $150,000. The buyer’s damages ($50,000) are easily determined immediately after the sale. Those damages would be the same whether the buyer promptly sold the home at a loss, lived in it forever, or sold it for $200,000 after decades of market appreciation.

Llano Financing Group, supra, n. 3.

If you feel like you suffered a loss at the hands of a negligent appraisal, make sure you consult counsel. Based on the court’s decision in this case, the lender’s statute of limitations expired. Make sure this does not happen to you.

OWNERS: DON’T IGNORE THE STATUTE OF LIMITATIONS IN FLORIDA STATUTE s. 95.11(3)(c) FOR CONSTRUCTION DEFECTS / DAMAGE

Posted on March 5, 2016March 5, 2016 by Edward Garber

If you are an owner experiencing construction defects or corresponding damage (e.g., water intrusion) please consult with counsel. Not doing so can result in your lawsuit being forever time-barred by the statute of limitations! Do NOT let this happen to you; this means that any valid claims you may have associated with the construction defects or corresponding damage are gone.

The statute of limitations for construction disputes including construction defect disputes is embodied in Florida Statute s. 95.11(3)(c), set forth at the bottom of this posting. Please check out this article and this article for more information on the statute of limitations for construction defects.

For example, in Brock v. Garner Window & Door Sales, Inc., 2016 WL 830452 (Fla. 5^th DCA 2016), homeowners experienced water intrusion from their windows and sued the company that installed the windows. The problem, however, was that the homeowners sued the window installer more than four years after the homeowners discovered the defect (the statute of limitations in s. 95.11(3)(c) as set forth below) but less than five years after the discovery of the defect. The homeowners tried to creatively argue that the five-year statute of limitations governing written contracts should control because the window installer was not a licensed contractor and should not reap the benefit of the shorter four-year statute of limitations. The Fifth District rejected this argument.

Regardless of whether your claims are against a licensed or unlicensed contractor, the four-year statute of limitations in s. 95.11(3)(c) is going to control your construction defect lawsuit. In the case above, the homeowners waited more than four years after discovering the water intrusion to sue their window installer. As a result, their counsel had to come up with an argument to try to circumvent the four-year statute of limitations. Unfortunately, the argument was not successful and the homeowners potentially valid claims were time-barred. Clearly, this is a situation you want to avoid so that you are not having to defend your valid claims with a statute of limitations defense.

Florida Statute s. 95.11(3)(c)

(3) WITHIN FOUR YEARS.—

***

(c) An action founded on the design, planning, or construction of an improvement to real property, with the time running from the date of actual possession by the owner, the date of the issuance of a certificate of occupancy, the date of abandonment of construction if not completed, or the date of completion or termination of the contract between the professional engineer, registered architect, or licensed contractor and his or her employer, whichever date is latest; except that, when the action involves a latent defect, the time runs from the time the defect is discovered or should have been discovered with the exercise of due diligence. In any event, the action must be commenced within 10 years after the date of actual possession by the owner, the date of the issuance of a certificate of occupancy, the date of abandonment of construction if not completed, or the date of completion or termination of the contract between the professional engineer, registered architect, or licensed contractor and his or her employer, whichever date is latest.

TIMELY FILE YOUR MILLER ACT PAYMENT BOND LAWSUIT

Posted on January 15, 2016January 15, 2016 by Edward Garber

If you are a subcontractor, sub-subcontractor, or supplier on a federal construction project, please make sure to preserve your Miller Act payment bond rights. This includes filing suit in a federal district court against the payment bond surety. The Eleventh Circuit’s ruling in Thomas v. Burkhardt, 2016 WL 143351 (11^th Cir. 2016) illustrates what can happen if you do not properly pursue your Miller Act payment bond rights.

In Thomas, a subcontractor sued a contractor in state court and recovered a judgment against the contractor. When the subcontractor could not collect on its judgment, it sued the contractor’s Miller Act payment bond surety. The problem was the subcontractor filed its lawsuit many years after the statute of limitations expired on the Miller Act. The subcontractor argued the contractor’s surety should be bound by the state court judgment against the contractor (the principal of the payment bond). The Eleventh Circuit said “No!” The surety was not bound by the state court judgment. Indeed, even if the surety had notice of the subcontractor’s state court suit against the contractor, the Eleventh Circuit still maintained that the surety would not be bound by the state court judgment and would not be estopped from raising the statute of limitations as a defense:

[T]he doctrine of estoppel against the surety rests on the principle that a surety with knowledge of a suit against the principal has a “full opportunity to defend” the suit and to protect its rights. But there is no such equitable principle at work here. The surety cannot protect its rights by joining in the defense of the suit. It cannot intervene as defendant any more than it could be named as defendant in the first place.

Thomas, supra, at *3 quoting U.S. Fid. & Guar. Co. v. Hendry Corp., 391 F.2d 13, 17 (5^th Cir. 1968).

The morale is to timely file your Miller Act payment bond claim against the payment bond surety. There is no reason not to!

STATUTE OF LIMITATIONS AND REPOSE FOR INDEMNIFICATION CLAIMS (STEMMING FROM CONSTRUCTION DEFECT)

Posted on September 6, 2015September 6, 2015 by Edward Garber

I have written articles regarding the statute of limitations and statute of repose relating to construction disputes governed under Florida Statute s. 95.11(3)(c):

Within Four Years. An action founded on the design, planning, or construction of an improvement to real property, with the time running from the date of actual possession by the owner, the date of the issuance of a certificate of occupancy, the date of abandonment of construction if not completed, or the date of completion or termination of the contract between the professional engineer, registered architect, or licensed contractor and his or her employer, whichever date is latest; except that, when the action involves a latent defect, the time runs from the time the defect is discovered or should have been discovered with the exercise of due diligence. In any event, the action must be commenced within 10 years after the date of actual possession by the owner, the date of the issuance of a certificate of occupancy, the date of abandonment of construction if not completed, or the date of completion or termination of the contract between the professional engineer, registered architect, or licensed contractor and his or her employer, whichever date is latest.

In the construction defect context, a claimant has four years to sue from the date they knew or reasonably should have known with the exercise of due diligence the defect (e.g, the latent defect). This is the statute of limitations. Nonetheless, a claimant must sue no matter what on a latent defect within ten years from the project’s completion (see statute above). This is the statute of repose. A construction defect lawsuit cannot be initiated after the expiration of the statute of repose.

Let’s assume the following dates:

Project completion (start of limitations) 2005

First discovery of water intrusion 2008

General contractor completes repairs 2011

General contractor sues subcontractor for indemnification 2013

In this scenario, the subcontractor may argue that the general contractor’s statute of limitations to sue the subcontractor for the defect and damage is barred by the statute of limitations since the first discovery of water intrusion was in 2008 and the general contractor waited to sue until 2013 (five years later).

But, wait…the general contractor is going to sue the subcontractor for indemnification (preferably, contractual indemnification based on the terms of the subcontract). In this scenario, the general contractor is suing after it completed repairs and established its liability to the owner for repairing the defects and damage.

“The statute of limitations for an action seeking indemnity does not being running until the litigation against the third-party plaintiff [general contractor] has ended or the liability [against the third-party plaintiff], if any, has been settled or discharged by payment.” Castle Constr. Co. v. Huttig Sash & Door Co., 425 So.2d 573, 575 (Fla. 2d DCA 1982) (finding general contractor’s indemnity claim against subcontractor did not accrue until the owner’s litigation against the general contractor ended or the general contractor’s liability determined). Stated differently, the statute of limitations for the general contractor’s indemnification claim did not begin to start running until 2011 when its liability to the owner for the defects was discharged / settled.

Now, let’s assume the following dates:

Project completion (start of limitations) 2005

First discovery of water intrusion 2008

General contractor completes repairs 2013

General contractor sues subcontractor for indemnification 2016

In this instance, the subcontractor may argue that the statute of repose expired because the general contractor waited until 2016 or eleven years after the statute of limitations started to accrue in 2005. Guess what? The subcontractor would be right. See Dep’t of Transp. V. Echeverri, 736 So.2d 791 (Fla. 3d DCA 1999) (explaining that the statute of repose for construction defect claims still applies to claims for indemnity). Stated differently, even though the general contractor sued the subcontractor for indemnification within three years of establishing its liability, it was still bound by the ten year statute of repose that started accruing in 2005, meaning such lawsuits were barred after 2015.

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

Posted on December 23, 2014December 23, 2014 by Edward Garber

Previously, 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.

***

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.

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

Posted on March 9, 2014March 9, 2014 by Edward Garber

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!

THE DRAWBACK OF BEING A THIRD-PARTY DEFENDANT IN A CONSTRUCTION DISPUTE

Posted on February 28, 2014February 28, 2014 by Edward Garber

The Florida Supreme Court just entered an opinion that potentially has huge implications in construction defect disputes. In Caduceus Properties, LLC v. William G. Graney, P.E., 39 Fla. L. Weekly S93a (2014), an owner sued its architect for design defects with its HVAC system. The architect third-partied into the dispute its mechanical engineer (sub-consultant). The architect’s third-party claims were dismissed for failure to comply with a court order and the architect ultimately declared bankruptcy. The owner, AFTER the statute of limitations expired to assert defect claims, amended its complaint to assert direct claims against the mechanical engineer (also, after the mechanical engineer had already been dismissed from the dispute). The issue the Florida Supreme Court analyzed was whether the owner could assert these claims after the expiration of the statute of limitations since the mechanical engineer was previously a third-party defendant in the dispute. Stated differently, did the owner’s claims against the mechanical engineer relate back to the original third party complaint the architect timely asserted against the mechanical engineer such that the claims were timely filed within the statute of limitations? The Florida Supreme Court held the owner could do this: “[A]n amended complaint filed after the statute of limitations has expired, naming a party who had previously been made a third-party defendant as a party defendant, relates back…to the filing of the third party complaint.”

Why are the implications huge? In a construction defect case, oftentimes there are third-party defendants. In this case, it was a sub-consultant of the architect. In many cases, it is the general contractor that asserts third-party claims against subcontractors. Sometimes, a subcontractor moves to dismiss the claims and prevails and/or settles directly with the general contractor. Well, now, based on this ruling, even if the subcontractor is dismissed, as long as a third-party complaint was asserted against it, it could potentially be back-doored into the dispute by the owner / plaintiff. The owner would just assert a claim against the subcontractor, even after the expiration of the statute of limitations, and argue that under the Florida Supreme Court’s ruling its claims against the subcontractor relate back to the initial third-party complaint that the general contractor timely filed against the subcontractor. Ouch! Therefore, now, a third-party defendant may not get the solace they think they deserve from getting dismissed from a lawsuit or settling directly with the party that sued it. So, a subcontractor or third-party defendant that wants to settle is best getting the owner to sign off on the settlement to ensure it does not get back-doored into the very lawsuit it was dismissed from. On the other hand, this gives the owner options to sue third-party defendants brought into the dispute after the expiration of the statute of limitations if there are concerns with the solvency of the defendant it sued (e.g., general contractor or architect that are usually in direct privity of contract with the owner).