LABOR UNDER THE MILLER ACT AND ESTOPPEL OF STATUTE OF LIMITATIONS

Posted on April 29, 2023April 29, 2023 by David Adelstein

If you want a case that goes into history of the federal Miller Act, check out the Fourth Circuit Court of Appeal’s opinion in U.S. ex rel. Dickson v. Fidelity and Deposit Company of Maryland, 2023 WL 3083440 (4^th Cir. 2023). While I am not going to delve into this history, it’s a worthwhile read. It is also a worthwhile read for two other points.

First, it discusses what constitutes “labor” under the Miller Act.

Second, it discusses doctrine of estoppel to prevent a surety from raising the statute of limitations to bar a Miller Act payment bond claim, which is a doctrine you do NOT want to rely on, as this case reinforces.

Both of these points applicable to Miller Act claims are discussed below.

This case dealt with a prime contractor renovating staircases that was terminated by the federal government. The prime contractor hired a professional engineer as its subcontractor to serve as its project manager and supervise labor on the project. The engineer/subcontractor also had “logistical and clerical duties, taking various field measurements, cleaning the worksite, moving tools and materials, and sometimes even watering the concrete himself.” Dickson, supra, at *1.

The subcontractor submitted an approximate $400,000 claim to the prime contractor’s Miller Act payment bond. Roughly a year later, the surety denied the claim stating the subcontractor was pursuing labor not covered under the Miller Act. The surety asked the subcontractor to resubmit its claim and, once received, will conduct another review while reserving all rights. The subcontractor elected to sue the Miller act payment bond surety.

The trial court granted summary judgment in favor of the surety finding the subcontractor’s work did not qualify as recoverable labor under the Miller Act. The trial court further held there were no grounds for an estoppel argument to estop the surety from raising the statute of limitations since the subcontractor’s payment bond claim was filed more than a year after its final furnishing. The subcontractor appealed.

Labor under the Miller Act

What constitutes labor under the Miller Act is important because it determines what is recoverable and, equally important, “‘[t]he statute of limitations funs ‘one year after the day on which the last of the labor was performed.’” Dickson, supra, at *6 (citation omitted).

“While published caselaw interpreting the word ‘labor’ under the Miller Act is sparse, courts have largely agreed that tasks involving “physical toil” are labor and that on-site supervision of “physical toil” is also labor.” Dickson, supra, at *3.

With respect to the subcontractor’s on-site supervision, the Fourth Circuit found this was recoverable labor under the Miller Act. “The bulk of [the subcontractor’s] work involved both direction and supervision of manual labor and occasional performance of manual labor and therefore qualifies as ‘labor.’” Dickson, supra, at *6.

The subcontractor’s supervision, however, was performed outside the one-year limitations period. In furtherance of trying to create an argument that the Miller Act payment bond lawsuit was timely filed, he argued that he performed a (timely) final inventory which should constitute labor under the Miller Act. The Fourth Circuit found this did NOT constitute labor or physical toil under the Miller Act and was merely clerical—“And we agree with the district court’s conclusion that, based on this record, taking the final inventory of a job site lacks the ‘physical exertion’ and ‘[b]odily toil’ required to qualify as labor.” Dickson, supra, at *7.

Notably, this case does have an interesting dissent that touches on a discussion that mental toil or mental exertion should constitute labor. Sure, this dissent is not the law. Yet, if you need to create an argument in this regard, this dissent provides the basis to do so.

Estoppel

For the subcontractor to have a valid Miller Act payment bond claim, the surety must be estopped from raising the statute of limitations; otherwise, the lawsuit was untimely filed. But for estoppel to apply, the subcontractor would have to demonstrate it was misled by the surety to its prejudice. Dickson, supra, at *7 (“And in Miller Act disputes, estoppel ‘arises where one party by his words, actuals, and conduct led the other to believe that it would acknowledge and pay the claim, if, after investigation, the claim were found to be just, but when, after the time for suit had passed, breaks off negotiations and denies liability and refuses to pay.’”) Id. (citation omitted).

Unfortunately for the subcontractor, estoppel did not apply. This means the lawsuit was untimely filed!

Here, there was no affirmative indication [the surety] would acknowledge and pay the claim. There were no negotiations or promises to pay. Instead, [the surety] only promised to investigate the claim. Not only did [the surety] not promise to acknowledge and pay the claim, but it repeatedly made clear its communications were for investigative purposes and reserved all rights and defenses.

Dickson, supra, at *8.

Don’t let this happen to you. Timely file your Miller Act payment bond lawsuit.

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.

Narrow Promissory Estoppel Exception to Create Insurance Coverage

Posted on July 17, 2022July 18, 2022 by Edward Garber

There is an affirmative claim known as promissory estoppel. (Whereas equitable estoppel is used an affirmative defense, promissory estoppel is used as an affirmative claim.)

To prove promissory estoppel, a plaintiff must plead and prove the following three elements: “(1) a representation as to a material fact that is contrary to a later-asserted position; (2) a reasonable reliance on that representation; and (3) a change in position detrimental to the party claiming estoppel caused by the representation and reliance thereon.” Romo v. Amedex Ins. Co., 930 So.2d 643, 650 (Fla. 3d DCA 2006) (citation and quotation omitted). Stated differently: “A party will be estopped from denying liability under the principle of promissory estoppel when the party makes ‘[a] promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance…[and] injustice can be avoided only by enforcement of the promise.’” Criterion Leasing Group v. Gulf Coast Plastering & Drywall, 582 So.2d 799, 800 (Fla. 1^st DCA 1991).

When it comes to insurance coverage, generally, insurance coverage is not created by an estoppel argument. JN Auto Collection, Corp. v U.S. Security Ins. Co., 59 So.3d 256, 258 (Fla. 3d DCA 2011). However, there is a narrow promissory estoppel exception to prevent injustice or the perpetration of fraud by a misrepresentation. Id. at 259 (quotation omitted); Kissimmee Utilities Authority v. Florida Municipal Ins. Trust, 686 So.2d766 (Fla. 5^th DCA 1997) (“[T]he doctrine of promissory estoppel may be utilized to create insurance coverage when a refusal to do so would sanction fraud or injustice.”).

This promissory estoppel exception to create insurance coverage is a very limited exception. E.L.S.R. Corp. v. Geico General Ins. Co., 183 F.Supp.3d 1273, 1277 (S.D.Fla. 2016). For this reason, a plaintiff must prove this promissory estoppel exception to create insurance coverage with clear and convincing evidence. Id.

Insurance is important. An extension of this is insurance coverage. What if you receive a denial or declination of coverage or do not have coverage you firmly believed you maintained? Maybe, just maybe, there is a promissory estoppel argument that can be used to create coverage. Look, I don’t want to get your hopes up that this is the fallback position anytime an insurer issues a denial or declination of coverage. It is definitely not, which is why this is a narrow exception and limited remedy. But this is why working with counsel that understands insurance coverage is a MUST. If there are facts that can support a promissory estoppel argument with clear and convincing evidence to create coverage you can can prove you thought you maintained, and there was a representation that you maintained such insurance, working with insurance coverage counsel can assist in maximizing this promissory estoppel coverage argument.

QUICK NOTE: PURCHASE-AND-SALE CONTRACTS AND THREE POINTERS

Posted on June 5, 2022June 5, 2022 by Edward Garber

When you enter into a purchase-and-sale contract for real estate, keep in mind that you can modify the contract to include terms particular to the transaction. These modifications can be important if an issue arises such as if closing does not timely occur. In a new case, discussed here, three noteworthy pointers can be found below:

Including an addendum with a drop-dead closing date can be valuable to a buyer and seller because it prevents any excuse to the closing date. For example, if the seller cannot deliver marketable title by this drop-dead date, the buyer has the option to terminate the contract. However, the addendum can include any modification or provision important to you for purposes of the transaction.
The arguments of waiver and estoppel are very difficult arguments to raise when it comes to real estate contracts. This is because: (a) the contract will provide that modifications to it must be in writing and signed by the parties, and (b) the statute of frauds requires contracts relating to real estate transactions to be in writing and signed by the party to be charged. In other words, if the objective is to modify the contract, that modification needs to be in writing and signed otherwise the statute of frauds and the contract itself can bar that argument.
A lis pendens does create a cloud on title. Thus, if you purchase a property with a lis pendens, this prevents the seller from delivering marketable title to you as the buyer. A lis pendens remains a cloud on title until the appellate time period expires as it pertains to any order to discharge the lis pendens.

SUBSTITUTING MATERIALS AND FAILURE TO COMPLY WITH CONTRACTUAL REQUIREMENTS

Posted on November 7, 2021November 7, 2021 by Edward Garber

It is important to remember that if you are going to substitute materials from those specified, you need to make sure there is proper approval in doing so–make sure to comply with the contractual requirements to substitute materials. Otherwise, you could be in a situation where you are contractually required to remove the installed substituted materials and replace with the correct specified materials. This is not the situation you want to find yourself in because this is oftentimes a costly endeavor. This was the situation in Appeal-of-Sauer, Inc., discussed below, on a federal project. The best thing that you can do is comply with the contractual requirements if you want to substitute materials. If you are in the situation where it is too late, i.e., you already installed incorrect materials, you want to demonstrate the substituted materials are functionally equivalent to the specified materials and/or come up with an engineering solution, as required, that could be less costly then ripping out the installed material and replacing with the correct material. Even doing so, however, is not a “get out of jail free card” and does not necessarily mean there is not a strong basis to require you to install the correct specified material.

In Appeal of- Sauer, Inc., ASBCA 61847, 2021 WL 4888192 (ASBCA September 29, 2021), a federal project’s engineering requirements required cast iron piping for the above ground sanitary system. However, the prime contractor installed PVC piping instead of cast iron piping. The prime contractor believed it had the appropriate approval through its submittal. The government, through its contracting officer, directed the prime contractor to remove installed PVC piping to replace with cast iron. The government did not believe PVC piping was the functional equivalent of cast iron piping for the above ground sanitary system due to its concern with the noise level of waste materials flowing through the piping. The prime contractor submitted a claim for its removal and replacement costs which was denied by the contracting officer. On appeal with the Armed Services Board of Contract Appeals, the Board agreed with the contracting officer explaining: “While we agree that a design change could be approved by the designer of record and brought to the attention of the government before being incorporated into the design documents, the [prime contractor’s] task order required that such a design change meet the minimum requirements of the solicitation and accepted proposal. The plumbing submittal [the prime contractor] issued here, showing the use of PVC instead of cast iron for the above ground waste piping, did not meet the minimum requirements of the solicitation.” Appeal of-Sauer, Inc., supra.

The prime contractor argued the government approved the deviation and use of PVC by another government representative. This argument failed because only the contracting officer had the authority to change a contract or task order. Appeal of-Sauer, Inc., supra (citing FAR clauses that reference that only the contracting officer has authority to modify or deviate from a contract).

Next, the prime contractor argued estoppel and waiver in that government personnel were present and observed the construction of the above ground sanitary piping with PVC and waited 16 weeks before directing the prime contractor that it could not use PVC piping. The prime contractor argued this unreasonable delay should be deemed the government constructively accepting PVC and the government either waived the right to demand strict compliance with cast iron or should be estopped from demanding such compliance. This argument failed:

Here, only the contracting officer could vary the task order requirements. Therefore, to establish waiver, [the prime contractor] must demonstrate that the contracting officer knowingly rescinded the government’s right to require compliance with a task order minimum requirement. Even assuming government personnel on site may have observed the installation and use of PVC pipe, there is no evidence that the contracting officer knowingly waived the task order requirement.

The government is generally entitled to insist upon strict compliance with the contract specifications and to require correction of nonconforming work. There are instances, however, where the government may waive strict compliance with contractual requirements and is estopped from later re-imposing those requirements upon the contractor. These cases require knowing failure to exact performance – presumably by one with authority to waive contractual terms.

Appeal of-Sauer, Inc., supra (internal quotations mitted).

Lastly, the prime contractor argued under the economic waste doctrine—that removing the PVC and replacing it was cast iron constituted economic waste, particularly since PVC and cast iron piping are functionally equivalent. “To establish economic waste, the work performed must substantially comply with the specifications; the work must be adequate for the intended purpose; and the cost of correction must be economically wasteful. Economic waste does not ipso facto excuse non-performance but serves to limit excessive damages for repair of non-conforming work.” Appeal of-Sauer, Inc., supra(internal quotation omitted).

The Board found that economic waste did not apply because the prime contractor did NOT substantially comply with the specification and PVC was not the functional equivalent to cast iron based on the intended application (which was to control the noise level and sound transmission of waste materials flowing through the piping). Further, while the government was receptive to another remedial measure, none was offered to the government.