Oct 25 2013

When Does The One Year Time Limitation To File Suit On A Miller Act Claim Begin to Run?

When Does The One Year Time Limitation To File Suit On A Miller Act Claim Begin To Run?

            by Edward B. Keidan

The federal Miller Act governs payment bond claims on federal construction projects.  Under the Miller Act, “[a]n action brought under this subsection must be brought no later than one year after the day on which the last of the labor was performed.”  40 U.S.C. § 3133(b)(4).  In a recent federal case in Wisconsin, a federal court was asked to decide whether both the one-year statutory time period to file suit on a federal Miller Act bond claim, and a one-year time limitation to sue for breach of contract, had run before the subcontractor filed suit.  USA ex rel. Roach Concrete, Inc. v. Veteran Pacific JV, 2013 U.S. Dist. LEXIS 57334 (E.D. Wis. April 22, 2013).

Roach Concrete (“Subcontractor”) was a subcontractor hired by Veteran Pacific Joint Venture (“Prime Contractor”) to perform concrete work on a new U.S. Army Reserve Center in Menasha, Wisconsin.  After disputes arose on the project, Subcontractor instructed its employees not to report for work on the project on March 24, 2008.  On August 30, 2008, Subcontractor submitted its last payment application, and on September 30, 2008, Subcontractor submitted an affidavit of claim to the Prime Contractor’s surety.  By letter dated October 10, 2008, the Prime Contractor sent a notice of termination.

By December 2008, Subcontractor laid off all of its employees and stopped seeking new business.  Then, in March 2009, Subcontractor filed a petition for bankruptcy liquidation.  The physical assets of Subcontractor were sold off as part of the bankruptcy proceedings, but the bankruptcy trustee did not pursue a Miller Act or breach of contract claim against Prime Contractor.

Despite the bankruptcy, and the earlier notice of termination, in September 2009, Prime Contractor contacted the principal of Subcontractor advising him that the concrete work was ready to be completed.  For six days in September 2009, Subcontractor’s principal and another former Subcontractor employee completed the concrete work.  Neither Subcontractor’s principal nor Subcontractor submitted a payment application and neither were paid.  Subcontractor’s principal said he performed the work because he was “trying to have payments released on previous pay applications.”  Id. at *12.

A year after the completion work, in September 2010, Subcontractor filed a complaint against the Prime Contractor, under the Miller Act and for breach of contract.  The Complaint requested the same amount that Subcontractor had claimed in the affidavit of claim submitted to the Prime Contractor’s Surety two years earlier. 

Prime Contractor’s Surety filed a motion for summary judgment, stating that the work was performed outside the Miller Act’s one-year statute of limitations time period.  Because Subcontractor’s principal and one other former employee performed work in September 2009, Subcontractor claimed that the Miller Act claim was timely brought.  In reply, Surety argued that the work performed by Subcontractor’s principal and the former employee in September of 2009 was not performed on behalf of Subcontractor, because the Subcontract was terminated in October 2008 and Subcontractor had ceased doing business.  According to Surety, as a matter of law, once a Subcontract is terminated, there can no longer be contract work.

Without agreeing or disagreeing with the principle, the Court disagreed with the Surety about the termination.  The Court found evidence that the Prime Contractor retracted its termination of the Subcontract when it asked Subcontractor to complete the work:  “It would be incongruous to hold that [Prime Contractor] could terminate the [Sub]contract, later request performance by [Subcontractor], and thereafter continue to insist that the [Sub]contract was no longer operative.”  Id. at *15.

After denying Surety’s motion with respect to the timeliness of the payment bond claim, the Court next turned to the timeliness of the breach of contract claim.  The time to file suit for a breach of contract action was also one year, under the terms of the Subcontract.  The Subcontract stated that “[a]ny action resulting from any breach on the part of [Prime Contractor] as to materials or labor provided hereunder must be commenced within ONE (1) year after the cause of action accrues.”

Citing Wisconsin law, the federal court concluded that a cause of action arising under a contract arises on the date of the breach, whether or not the facts of the breach are yet known by the injured party.  But in determining when the cause of action accrued, the Court noted that, even upon termination of the Subcontract, the Subcontractor’s right to receive further payments was dependent on the cost of completion of the Subcontractor’s remaining work.  Section 9.3 of the Subcontract stated:

 “If [Prime Contractor] so terminates the contract of Subcontractor, Subcontractor shall not be entitled to any further payments under this Agreement until Subcontractor’s work has been completed and accepted by the owner, and payment has been received by [Prime Contractor] from the owner with respect thereto.  In the event that the unpaid balance exceeds [Prime Contractor’s] cost of completion, the difference shall be paid to Subcontractor, but if such expense exceeds the balance due, Subcontractor agrees to pay [Prime Contractor] such excess within thirty (30) days after written demand for such excess has been made upon him by [Prime Contractor].”

The Court denied the Prime Contractor’s motion for summary judgment, concluding that the time period for Subcontractor to sue for breach of contract had not yet expired.  The time to sue for breach of contract had not yet passed because, under this contract provision, a terminated Subcontractor is not entitled to final payment until after all of the work in the Subcontract is completed.  The Court stated that: “[t]o hold that the statute of limitations began to run on an earlier date would not only be unreasonable, it would also encourage piecemeal litigation.”  Id. at *24.

The attorneys of Conway & Mrowiec are only licensed to practice in the State of Illinois.  The attorneys of Conway & Mrowiec have represented clients in states other than Illinois only under circumstances permitted by law and do not regularly practice in states other than Illinois.

*The attorneys of Conway & Mrowiec are only licensed to practice in the State of Illinois.  The attorneys of Conway & Mrowiec have represented clients in states other than Illinois only under circumstances permitted by law and do not regularly practice in states other than Illinois.