1st Circuit Pending Appeal - Construction Contract Defenses & Miller Act

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In Endicott Constructors Corp. v. E. Amanti & Sons, Inc., No. 1:14-CV-12807-LTS, 2017 WL 3028877 (D. Mass. July 14, 2017), the plaintiff-subcontractor Endicott Constructors Corp. (“Plaintiff”) filed a lawsuit claiming breach of contract and quantum meruit against the defendant-general contractor E. Amanti & Sons, Inc. (“Defendant Contractor”) on a construction renovation project at a Veterans Affairs building in Bedford, Massachusetts. Plaintiff also brought a claim against Safeco Insurance of America (“Defendant Surety”) pursuant to the Miller Act, 40 U.S.C. § 3133.  The two Defendants moved for summary judgment against Plaintiff's claims. The District of Massachusetts granted the motions. Plaintiff is now appealing the decision to the First Circuit.

Though factually detailed, the decision serves as a review of numerous key concepts in construction law including the requirement of strict performance to recover on a contract breach, requirement of substantial performance to recover under quantum meruit, cardinal change, necessity of expert testimony, contractual notice provisions, and tolling applicable to the Miller Act statute of limitations.

• The Court held that Plaintiff could not, as a matter of law, show "complete and strict performance of all its terms" because Plaintiff walked off the project with 1/3 of the subcontract to complete, and therefore could not recover on the contract itself.  

• Moreover, in addition to walking off the job, Plaintiff acknowledged, inter alia, that it performed defective work and did not pay federally-required wages.  Accordingly, the Court concluded that the Plaintiff, as a matter of law, "did not substantially perform its contract obligations" which extinguished its claim for "quantum meruit" as well.

• To avoid this harsh result on its contract-based claims, Plaintiff argued that a "cardinal change" had occurred excusing its performance.  The Court hesitated to confirm that Massachusetts has adopted this doctrine, but in any event, held that the elements of a cardinal change were not present. The Court observed that there must be "alteration in the work [effected by the government] so drastic that it effectively requires the contractor to perform duties materially different from those originally bargained for."  Here, because Plaintiff only pointed to the government adding supervisory personnel to its payroll and a large number of change orders, the Court was not persuaded that Plaintiff's scope was "drastically altered." Indeed that court emphasized that, In re Boston Shipyard Corp., 886 F.2d 451, 456 (1st Cir. 1989) the court had held that even 86 change orders was not sufficient to show a cardinal change to construction contract.

• With respect to Plaintiff's extended time claim, the Court, in dicta, questioned whether an expert is required to prove such a delay claim, but also noted that Plaintiff's failure to do so may be at its peril as it had not presented a "coherent analysis" to allow a factfinder to could find in its favor.

• Adding to Plaintiff's challenges, it failed to present evidence that it had given notice of its claims within 7 days as required by the contract. The Court, without delving into whether the defendant was prejudiced by the delay, succinctly held that failure to comply with the contractual provision "will generally preclude all relief."

• With respect to the Miller Act action that Plaintiff filed on the bond provided by Defendant Surety, the Court was not persuaded that presence of Plaintiff's trailers on the construction site would extend limitations period.  The Miller Act requires that any action on the bond must be brought within one year of the "last of the labor was performed or material was supplied" by the contractor or supplier bringing the action.

If the First Circuit has an opportunity to weigh in, the law in these areas, as recounted above, may be further honed by its decision. If so, we will update this blog.

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The author, Katharine Kohm, is a committee member for The Dispute Resolver. Katharine practices construction law and commercial litigation in Rhode Island and Massachusetts. She is an associate at Pierce Atwood, LLP in Providence, Rhode Island. She may be contacted at 401-490-3407 or kkohm@PierceAtwood.com.

Federal District Court in California Holds that Subcontract Provision Binding Subcontractor to Result of Dispute Resolution Under Prime Contract Was Not an Effective Waiver of Miller Act Rights

Robert A. Gallagher, Associate, Pepper Hamilton LLP

DVBE Trucking and Construction Co., Inc. v. McCarthy Building Companies, Inc., 2015 U.S. Dist. LEXIS 90052 (N.D. Cal. July 10, 2015)

This payment dispute case arises out of a Veterans Affairs (“VA”) construction project located in Palo Alto, California. McCarthy Building Companies, Inc. (“McCarthy”) was the prime contractor, Federal Insurance Company and Travelers Casualty and Surety provided the performance and payment bonds on behalf of McCarthy mandated by the Miller Act, and DVBE Trucking and Construction Company, Inc. (“DVBE”) was McCarthy’s subcontractor. Section 11.1 of DVBE’s subcontract required that, for any dispute involving the VA, it would follow the dispute resolution procedures agreed to by McCarthy in its contract with the VA, and agreed to be bound by the result of any such dispute resolution procedures to the same degree as McCarthy.

During the project, the VA issued a notice of suspension of the work, preventing McCarthy and DVBE from beginning work as planned. The work was also delayed due to differing site conditions relating to underground utilities. As a result, both McCarthy’s and DVBE’s work was performed behind schedule, during the winter. Once performed, the work was impacted by adverse weather.  McCarthy was also required to perform additional unforeseen work. McCarthy, on behalf of itself and its subcontractors (including DBVE) submitted claims to the VA for additional compensation.

While McCarthy’s claims remained pending with the Civilian Board of Contracting Appeals (“CBOCA”), the DVBE sued McCarthy, Federal Insurance Company and Travelers Casualty & Surety for recovery on the Miller Act Payment bond, breach of contract, account stated and quantum meruit. While the parties initially stipulated to stay the action pending resolution of McCarthy’s action before the CBOCA, they later agreed to lift the stay. Defendants then moved to stay the proceedings pending the outcome of McCarthy’s CBOCA appeal, arguing that Section 11.1 of the subcontract bound DVBE to the result of McCarthy’s proceeding with the VA. Defendants argued that, because the outcome of DVBE’s claim was entirely dependent on the outcome of McCarthy’s pending claim against the VA, the action should be stayed until McCarthy’s claim was resolved. In response, DVBE argued that Section 11.1 of the subcontract was not an effective waiver of its Miller Act claim.

The Court denied Defendants’ motion to stay. It concluded that it was contrary to the intent of the Miller Act to require DVBE to await, and be bound by, the result of a process in which it was not permitted to participate. The Court concluded that Section 11.1 of the subcontract would, if effective, waive DVBE’s Miller Act rights. The Court noted that an effective waiver of the Miller Act must be (1) in writing, (2) signed by the person whose right is waived, and (3) executed after the person whose right is waived has furnished labor or material for use in the performance of the contract. The Court also noted that the waiver must be clear and explicit. The Court found that Section 11.1 was not an effective waiver of DVBE’s Miller Act claim for two reasons. First, the subcontract was signed before the work began. And second, it was not a “clear and explicit” waiver of DVBE’s Miller Act rights. As such, the Court refused to enforce Section 11.1 of the subcontract and denied Defendants’ motion for stay of the proceedings. 

Article originally posted October 22, 2015 on Constructlaw, an update and discussion of recent trends in construction law and construction, maintained and edited by Pepper Hamilton's Construction Law Practice Group.