In a Miller Act payment bond lawsuit (or any payment bond lawsuit for that matter), there are many times where a claimant (subcontractor, sub-subcontractor, or supplier) will sue the Miller Act payment bond surety and NOT the prime contractor or principal of the payment bond. There are also times where the prime contractor moves to intervene in the lawsuit as the principal of the payment bond. Perhaps the prime contractor wants to assert a counterclaim against the claimant or a third-party claim. These affirmative claims would belong to the prime contractor and not its surety; thus, the prime contractor moves to intervene in the lawsuit so that it can assert such affirmative claim(s) in the context of the dispute against its surety. Oftentimes, a federal district court will allow the prime contractor to permissively intervene in the lawsuit as the principal of the payment bond, especially if the prime contractor plans to assert an affirmative claim to allow for the efficient resolution and disposition of all such claims.
For example, in U.S. f/u/b/o Jackson Geothermal HVAC & Drilling, LLC v. Western Surety Co., 2016 WL 1030392, (D.N.J. 2016), the prime contractor hired a subcontractor to provide HVAC, geothermal services, plumbing, and sprinklers. The subcontractor, in turn, subcontracted the geothermal services to the claimant–a sub-subcontractor on the project. The sub-subcontractor (claimant) filed a lawsuit against the Miller Act payment bond surety for approximately $300,000. The prime contractor, as principal of the payment bond, moved to intervene in the lawsuit primarily to (a) assert an affirmative claim for negligence against the sub-subcontractor and (b) assert a third-party claim against its subcontractor for breach of contract and negligence. The issue before the court was whether the prime contractor should be able to intervene in the sub-subcontractor’s lawsuit against the Miller Act payment bond surety. The district could found that permissive intervention was appropriate to allow the prime contractor to intervene in the sub-subcontractor’s Miller Act payment bond lawsuit:
[T]he Court finds no reason to believe that permitting Ranco [prime contractor / principal of payment bond] to intervene in this matter will unduly delay these proceedings or unfairly prejudice the adjudication of Jackson’s rights. While Ranco could pursue its state law claims against B&S [subcontractor] and Jackson [sub-subcontractor claimant] in state court, “notions of judicial economy suggest aggregating them in a single proceeding […] rather than have different tribunals examine these issues at different times.” Indeed, as the Third Circuit has noted, the court’s policy preference, i.e., “judicial economy, favors intervention over subsequent collateral attacks.” As a result, the Court finds that intervention will protect all of the parties from having to revisit the main issues being litigated here in separate proceedings. Thus, the Court shall permit Ranco to intervene in this matter.
Western Surety Company, supra, at *4 (internal citation omitted).
There are times where a principal prime contractor intervening into a lawsuit against its surety may not be appropriate. But, if the principal has affirmative claims or if the surety happens to be represented by different counsel (such that the surety is not allowing the principal to defend it with the principal’s preferred counsel) the prime contractor has a stronger basis to intervene in the lawsuit as a principal of the payment bond. A prime contractor intervening in a lawsuit against its Miller Act payment bond surety is an important consideration based on the factual circumstances of the dispute.
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.