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.

SUPERINTENDENT’S ON-SITE SUPERVISION COMPENSABLE AS LABOR UNDER MILLER ACT

Posted on February 26, 2023February 26, 2023 by David Adelstein

A recent Miller Act payment bond decision out of the District of Columbia Circuit Court of Appeals, U.S. f/u/b/o Civil Construction, LLC v. Hirani Engineering & Land Surveying, PC, 58 F.4^th 1250 (D.C. Circ. 2023), dealt with the issue of whether a subcontractor’s superintendent constitutes recoverable “labor” within the meaning of the Miller Act and compensable as a cost under the Miller Act that typically views labor as on-site physical labor.

The issue is that the Miller Act covers “[e]very person that has furnished labor or material in carrying out work provided for in a contract.” Civil Construction, supra, at 1253 quoting 40 U.S.C. s. 3133(b)(1). The Miller Act does not define labor. The subcontractor claimed labor includes actual superintending at the job site. The surety disagreed that a superintendent’s presence on a job site constitutes labor as the superintendent has to actually perform physical labor on the job site to constitute compensable labor under the Miller Act.

The subcontractor argued its subcontract and the government’s quality control standards required detailed daily reports that verified manpower, equipment, and work performed at the job site. It further claimed its superintendent had to continuously supervise and inspect construction activities on-site: “[the] superintendent had to be on-site to account for, among other things, hours worked by crew members, usage and standby hours for each piece of equipment, materials delivered, weather throughout the day, and all work performed. These on-site responsibilities reflected the government’s quality control standards, under which the superintendent as ‘the most senior site manager at the project, is responsible for the overall construction activities at the site…includ[ing] all quality, workmanship, and production of crews and equipment.” Civil Construction, supra, at 1253-54.

The DC Circuit Court of Appeals, importantly, looked at how other appellate courts analyzed this issue:

Other courts have taken into account the nature of a superintendent’s oversight responsibilities in concluding that a superintendent’s cost was compensable “labor.” Referencing the trend in other courts, the Eighth Circuit concluded that “the on-site supervisory work of a project manager falls within the purview of the Miller Act if such a superintendent did some physical labor at the job site or might have been called upon to do some on-site manual work in the regular course of his job.” That is,“only certain professional supervisory work is covered by the Miller Act, namely, ‘skilled professional work which involves actual superintending, supervision, or inspection at the job site.’ ” The Eighth Circuit acknowledged that the term labor generally includes physical rather than professional work but distinguished those professionals who superintend on-site as performing labor.

Civil Construction, supra, at 1254 (internal citations omitted).

Based on this, the DC Circuit Court of Appeals, reviewing this issue for the first time, held: “Given that the construction work at issue had to be supervised and inspected for conformance with the subcontract and other requirements, such as government quality control standards, the superintendent’s on-site supervisory work constitutes “labor” within the meaning of the Miller Act.” Civil Construction, supra, at 1254.

If confronted with this issue as to the recovery of an analogous labor cost under a Miller Act payment bond claim, do exactly what the subcontractor did which is to tie the actual superintending, i.e., supervision, to the requirement of the subcontract itself including incorporated documents.

“LABOR” THAT CAN BE PURSUED AGAINST A MILLER ACT PAYMENT BOND

Posted on June 23, 2019April 24, 2020 by Edward Garber

It is important to ensure you consult with counsel when it comes to Miller Act payment bond rights and defenses. One consideration is the type of “labor” that can be pursued against a Miller Act payment bond. The opinion in Prime Mechanical Service, Inc. v. Federal Solutions Groups, Inc., 2018 WL 6199930 (N.D.Cal. 2018) contains a relevant and important discussion on this topic.

In this case, a prime contractor on a federal construction project hired a subcontractor to prepare and install a new HVAC system. The subcontractor was not paid and filed a lawsuit against the prime contractor’s Miller Act payment bond. The prime contractor moved to dismiss the claim, with one argument being that design work the subcontractor was suing for was NOT “labor” that can be pursued against a Miller Act payment bond. The Court agreed:

As used in the Miller Act, the term “labor” primarily encompasses services involving “manual labor,” see United States ex rel. Shannon v. Fed. Ins. Co., 251 Fed. Appx. 269, 272 (5th Cir. 2007), or “physical toil,” see United States ex rel. Barber-Colman Co. v. United States Fid. & Guar. Co., No. 93-1665, 1994 WL 108502, at *3 (4th Cir. 1994). Although “work by a professional, such as an architect or engineer” generally does not constitute “labor” within the meaning of the Miller Act, see United States ex rel. Naberhaus-Burke, Inc. v. Butt & Head, Inc., 535 F. Supp. 1155, 1158 (S.D. Ohio 1982), some courts have found “certain professional supervisory work is covered by the Miller Act, namely, skilled professional work which involves actual superintending, supervision, or inspection at the job site” see United States ex rel. Olson v. W.H. Cates Constr. Co., 972 F.2d 987, 990-92 (8th Cir. 1992) (internal quotation and citation omitted) (citing, as examples, “architect … who actually superintends the work as it is being done” and “project manager … [who] did some physical labor at the job site” (internal quotation and citation omitted)).

Here, plaintiff alleges it “attended 4 or 5 on-site field meetings … to determine the location and layout of the new equipment, … performed on-site field coordination with the existing equipment, … took on-site field measurements for fabrication of duct work and support hangers, … scheduled the start date and while on-site planned site access and crane locations, prepared product and equipment submittals, and obtained security passes.” (See FAC ¶ 12.) The above-listed services are, however, “clerical or administrative tasks which, even if performed at the job site, do not involve the physical toil or manual work necessary to bring them within the scope of the Miller Act.” See United States ex rel. Constructors, Inc. v. Gulf. Ins. Co., 313 F. Supp. 2d 593, 597 (E.D. Va. 2004) (holding subcontractor did not furnish “ ‘labor’ within the contemplation of the Miller Act” where subcontractor’s duties entailed paying invoices, reviewing subcontractor and vendor proposals, supervising the hiring of site personnel, and providing site coordination services). Although taking “on-site field measurements” (see FAC ¶ 12) may have involved some minor physical activity, it does not amount to the physical “toil” required by the Miller Act.

Prime Mechanical Service, 2018 WL 6199930, at *3.