In a matter of first impression, the United
States Court of Appeals for the Ninth Circuit ruled that even though a contractor
violated a state law requiring it to have a contractor’s license, the contractor
was still eligible to make a claim under the Miller Act on a federal
construction project. This decision brings the Ninth Circuit into a general agreement
with other federal appellate courts that state law cannot abridge or condition
a contractor’s rights and remedies under the Miller Act.
Plaintiff Technica was a subcontractor
on a federal project in California. Technica provided almost $900,000 worth of
labor and materials, but received less than $300,000 in payments. As a result,
Technica filed suit under the Miller Act against the general contractor and its
payment-bond surety.
Section 7031(a) of California’s
Business and Professions Code precludes a contractor from maintaining an action
to collect compensation for its services unless the contractor was licensed
during the performance of the contract. Technica did not hold a California
contractor’s license. The district court granted summary judgment in favor of
the general contractor and the surety, holding that the state-licensing statute
barred Technica from pursuing claims for nonpayment under the Miller Act.
In considering the appeal, the Ninth
Circuit examined the Miller Act’s strong policy in favor of protecting
subcontractors on public projects. Sovereign immunity prevents liens from being
placed on public land, so Miller Act bonds are used to provide contractors an
alternative means of securing payment on federal construction projects. Moreover,
the Miller Act is considered highly remedial in nature and is liberally
construed to protect entities that labor and/or provide material to public
projects. The remedy provided by the Miller Act was federal in nature and the
law that would prevent the unlicensed contractor from recovering was a state
law. In addition, the court felt that enforcement of state-licensing
requirements against Miller Act claims would “wreak havoc” on the uniform
application of federal law, particularly in federal projects spanning multiple
states.
The Ninth Circuit focused on the
distinction between federal and state law as well as federal preemption in
reversing the decision of the district court. It found that the state law could
not abridge an entity’s right to pursue a Miller Act claim. The court conceded
that while state contract law was sometimes used in evaluating a Miller Act
claim, state contract law was not used to affect the rights established by the
Miller Act.
This decision was one of first
impression. It likely has broad applicability beyond the Ninth Circuit, as many
states have contractor-licensing requirements.
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