Court Says It’s a Ripe Claim Under the Miller Act
Two subcontractors pursued recovery of unpaid funds under the Miller Act, while simultaneously pursuing claims through administrative proceedings. The contractor and surety argued the Miller Act claims are void, because both subcontractors waived their rights to claim within their respective subcontracts. When that argument failed, the contractor and surety argued the Miller Act claims were premature, stating the subs should have to wait until the administrative proceedings have been resolved.
What does the court say? Read on to learn more.
The Case: Pinnacle Crushing and Construction LLC v. Hartford Fire Insurance Company, Dist. Court, WD Washington 2018
The United States Army Corp of Engineers (Corps) hired general contractor, Cherokee General Corporation (Cherokee) for the demolition and reconstruction of an existing airfield. Cherokee provided a payment bond, issued by surety Hartford Fire Insurance Company (Hartford).
Cherokee subcontracted with SCI Infrastructure, LLC (SCI) and SCI subcontracted with Pinnacle Crushing and Construction LLC (Pinnacle).
According to the legal decision, Cherokee allegedly owed Pinnacle $1,057,597.95 and SCI $2,595,116.96. SCI and Pinnacle submitted pass-through claims for non-payment via Cherokee, which Cherokee passed to Corps. (Within both subcontracts, there was language regarding pass-through claims.) In addition to the pass-through claims, SCI and Pinnacle filed suit under the Miller Act.
“Claims are Unripe” … Like a Green Banana?
Cherokee and Hartford argued the federal court “lacks subject matter jurisdiction” and SCI and Pinnacle’s “claims are unripe.” Before we get to the green banana, let’s address subject matter jurisdiction.
Cherokee and Hartford argued that SCI and Pinnacle should not be permitted to pursue claims under the Miller Act, because SCI and Pinnacle were actively “…pursuing their claim[s] administratively using the subcontracts’ pass-through mechanisms.”
Which leads to the green banana, aka, the unripe claim. Because SCI and Pinnacle were actively pursuing administrative claims, Cherokee and Hartford argued that SCI and Pinnacle’s claims under the Miller Act were premature — SCI and Pinnacle should wait until the administrative claims were resolved before pursuing the Miller Act.
The court disagreed.
Ripeness – No Really, that’s a Subheading in the Legal Opinion
The court confirmed SCI and Pinnacle were permitted to pursue recovery of their claims under the Miller Act, because SCI and Pinnacle were unpaid for completed work.
“‘[A] subcontractor’s right of recovery on a Miller Act payment bond is conditioned on the passage of time from completion of work or provision of materials.’ The case therefore presents concrete legal issues that are ripe for review.”
The court further clarified that SCI and Pinnacle didn’t waive their right to claim under the Miller Act just because SCI and Pinnacle are actively seeking payment via administrative claims. In fact, according to the court decision “The Miller Act also provides that a waiver must be in writing, signed by the person whose right is waived, and executed after that person has furnished labor or material used in performing the contract.”
Did the Subcontracts Include a Waiver of Rights?
Nope. Well, SCI’s subcontract didn’t explicitly waive rights of a Miller Act bond claim. Pinnacle’s subcontract, on the other hand, did include language regarding the waiver of rights.
Fortunately for Pinnacle, the Miller Act permits the waiver of rights only AFTER the subcontractor has furnished to the project. In this case, the subcontract was signed prior to Pinnacle furnishing.
“Defendants are correct that the SCI-Pinnacle Subcontract explicitly purports to waive Pinnacle’s Miller Act claim during any dispute resolution between SCI and Cherokee… However, a subcontractor can waive its Miller Act rights only after furnishing labor or material used in performing the contract… Pinnacle executed the subcontract before it provided labor or materials, and the waiver is therefore invalid.”
“But, but, but… SCI and Pinnacle said they wouldn’t pursue the Miller Act while Cherokee and Corps resolved issues”
Cherokee and Hartford wanted the court to stay the Miller Act proceedings, because allegedly SCI and Pinnacle agreed to hold off on pursuing the Miller Act until Cherokee and Corps worked out the administrative claims.
Court denied Cherokee and Hartford’s request to the stay the Miller Act proceedings, due to language within the subcontracts.
Let this case serve as a reminder of the importance of understanding the terms of your contract. Watch for clauses waiving your rights to pursue a claim and be cautious with pass-through claims (as we learned a few weeks ago). Also, never underestimate the power of the Miller Act!
As always, if in doubt, seek legal guidance.