Tuesday, June 20, 2023

Courthouse Reporter Series: The Travails of Statutory Construction...Defining “Labor” under the Miller Act

In a recent case—United States ex rel. Dickson v. Fidelity & Deposit Co. of Maryland (“Dickson”)—the U.S. Court of Appeals for the Fourth Circuit recently re-examined and defined what work qualifies as “labor” under the Miller Act. United States ex rel. Dickson v. Fidelity & Deposit Co. of Maryland, No. 21-160, 67 F.4th 182 (4th Cir. April 26, 2023) (slip op.).

Unlike private projects, unpaid subcontractors cannot encumber the federal government’s property with mechanics liens. Instead, the Miller Act provides a remedy for subcontractors in the form of a payment bond on all federal public works contracts exceeding $100,000. 40 U.S.C. § 3131(b).

In the Dickson case, Claimant Elliot Dickson served as a subcontractor to Forney Enterprises (“Forney”), with whom the Department of Defense (the “DOD”) contracted to renovate several staircases and the fire suppression systems at the Pentagon.

In late 2018, the DOD terminated the prime contract with Forney. On January 10, 2019, Dickson submitted a bond claim to Fidelity & Deposit Company of Maryland (“Fidelity”). Fidelity denied Dickson’s claim on January 14, 2020, primarily because Dickson did not submit evidence he performed “labor” on the project. Fidelity stated it would review a revised Proof of Claim if Dickson revised it to remove hours worked off-site and clerical and administrative tasks performed on-site. Instead, Dickson sued under the Miller Act on February 5, 2020. The district court granted Fidelity’s motion for summary judgment, holding that supervisory duties do not constitute “labor” for purposes of the Miller Act, and even if supervision did qualify as “labor”, the project ended more than one year before Dickson brought suit. The district court also rejected Dickson’s contention that Fidelity’s offer to re-investigate Dickson’s claim estopped Fidelity from arguing the suit is time-barred. Dickson appealed to the Fourth Circuit.

In its decision entered on April 26, 2023, the Fourth Circuit began with a historical review of the little recourse available to a subcontractor at common law if the contractor or owner failed to pay. For government contracts, payment bonds secured subcontractors and workers from the risk of non-payment. For the federal government, Congress first enacted the Heard Act in 1894 to provide subcontractors security from non-payment by prime contractors; replaced by the Miller Act in 1935[1]. The Court acknowledged that case law on what constitutes “labor” under the Miller Act is “sparse” but looking to state “Little Miller” case law and other federal cases, the court noted the trend in the available case law that work involving “physical toil” and “on-site supervision of physical toil” generally qualify as “labor” The Court also looked to the Heard Act, the Miller Act’s predecessor, and cited a 1915 case answering the question of what constituted labor under the Heard Act—Bankers’ Surety Co. of Cleveland v. Maxwell (“Maxwell”), 222 F. 797 (4th Cir. 1915). The Maxwell Court held that “labor” included those who physically toiled on the project and those who supervised those workers, i.e., the foreman. Further, the Maxwell Court drew upon a Supreme Court case interpreting the definition of “labor” under a state mechanics lien statute where the Supreme Court distinguished services of a “professional character, such as those of a mining engineer” from physical labor performed by labors or foreman (by directly supervising labor and where necessary, assisting the labors). Id. (citing Maxwell 222 F. at 799, in turn citing Mining Co. v. Cullins, 104 U.S. 176, 177-78 (1881).

Although Maxwell did not expressly require “physical toil” to find whether a claimant performed labor, the Dickson Court noted the opinion’s emphasis on performing physical labor meant that the Heard Act only protects workers who perform physical labor.

The Dickson Court noted the Miller Act essentially was grafted on the old rootstock of the Heard Act. Slip Op. at 11 (“When a statute’s language is obviously transported from another legal source … it brings the old soil with it.”) (internal quotations omitted). Therefore, the body of law interpreting the Heard Act informs what “labor” meant in 1935. The court also that “it is far from clear that the meaning of labor changed between 1894 and 1935.” Id. at 13. Accordingly, the court held that the term “labor” had not changed appreciably in that time and to qualify under the Miller Act, only labor involving a physical component is eligible.

Having determined that “labor” required a physical element, the court turned to the work Dickson performed on the project. The court held that Dickson’s supervision of work through January 2019 qualified and found the district court erred when it ruled otherwise. However, the inventory Dickson completed on February 8, 2019, did not qualify because it did not involve “physical exertion and bodily toil.” The court rejected the notion that conducting inventory was possibly “physical” in a broad sense but is more typical of administrative or clerical work than physical exertion.

The court also rejected Dickson’s claim that Fidelity was estopped from asserting a statute of limitations defense. Fidelity stated that if Dickson completed another Proof of Claim, Fidelity would investigate. The court held that in offering to investigate, Fidelity did not promise to pay or otherwise acknowledge the claim’s validity. Because the physical labor that qualified ended more than a year before Dickson filed suit, the claim was time-barred.

However, in dissent, Senior Judge Floyd noted that he would find “mental exertion” to qualify as “labor” under the Miller Act. Id. at 19 (Floyd, J. dissenting). Judge Floyd noted that the “labor” as used in the Miller Act has no qualifying language limiting “labor” to just physical labor and that he would evaluate “labor” as the term was understood at the time of the Miller Act’s passage. Judge Floyd pointed to contemporary dictionary definitions that included mental exertion or toil. To restrict “labor” to strictly physical labor, as the Fourth Circuit held over a century earlier under the Heard Act is to employ “woefully dated conceptions of labor.” Accordingly, Judge Floyd opined that Dickson’s inventory on February 8, 2019 would qualify as “labor” under the Miller Act and would not be time-barred.

Although not cited in the majority opinion or dissent, both the Eighth Circuit and the D.C. Circuit Courts of Appeal have noted that supervisory work qualifies as “labor”; however, those cases do not address purely “mental” exertion or labor such as the inventory conducted by Dickson. United States Ex Rel. American Civil Construction, LLC v. Hirani Engineering & Land Surveying, PC, 58 F.4th 1250 (D.C. Cir. 2023); United States Ex Rel. Olson v. W.H. Cates Construction Co., 972 F.2d 987 (8th Cir. 1992).

[1] 49 Stat. 793-94 §5. 

Author Brendan J. Witry is an associate attorney with Conway & Mrowiec Attorneys LLLP in Chicago, Illinois. Brendan advises owners, general contractors, construction managers, and trade contractors in construction disputes. Brendan may be reached at bjw@cmcontractors.com

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