Close Encounters of the Miller Act Kind

11172627_800Some say that close only counts in horseshoes and hand grenades.

Here’s another to add to that list.

Miller Act claims.

In Ramona Equipment Rental, Inc. v. Carolina Casualty Insurance Company, Case No. 12-55156 (June 20, 2014), the U.S. Court of Appeals for the Ninth Circuit examined whether the 90-day notice deadline under the Miller Act barred a material supplier from bringing a Miller Act claim for rental equipment furnished more than 90 days before the date the material supplier served its Miller Act notice but within 90 days of the date in which the material supplier furnished its last rental equipment.

The Miller Act

For the unfamiliar, the Miller Act (40 U.S.C. §§ 3131-3134) requires that contractors who contract directly with the federal government for the “construction, alteration or repair of any public building or public work” provide both: (1) a payment bond to ensure payment to certain lower-tier subcontractors and material suppliers; and (2) a performance bond to ensure completion of the project.

The Ramona Equipment Rental case involved the first type of bond – a Miller Act payment bond.  Under the Miller Act, first-tier subcontractors and material suppliers may immediately file a lawsuit in federal court to pursue a claim against a Miller Act payment bond so long as they do so within 90 days after the date in which they completed work or ceased performing work on the project.

Miller Act - ok - New Page (2)

However, for second-tier subcontractors and second-tier material suppliers to first-tier subcontractors there’s an additional hurdle. Before filing suit, second-tier subcontractors and second-tier material suppliers to first-tier subcontractors must give notice to the general contractor “within 90 days from the date on which the person did or performed the last of the labor or furnished or supplied the last of the material for which the claim is made.”

And therein lies the rub.  Does the 90-day notice deadline only apply to material and/or equipment furnished within the last 90 days? Or does the 90-day notice deadline apply to all material and/or equipment furnished, no matter how long ago, so long as the notice is given within 90 days of the last time material and/or equipment was furnished?

The Ramona Equipment Rental Case

In Ramona Equipment Rental, Ramona Equipment Rental, Inc. (“Ramona”) leased equipment to Otay Group (“Otay”), a first-tier subcontractor to Candelaria Corporation (“Candelaria”), the general contractor on a federal construction project known as ICE El Centro SPC – Perimeter Fence Replacement/Internal Devising Fence Replacement.

Between January and July 2008, Ramona leased equipment to Otay under 89 separate rental agreements totaling $235,446.84.  In June 2008, Candelaria terminated Otay who, at the time, had only paid Ramona $17,658.57. In July 2008, Ramona served a 90-day notice under the Miller Act.  The notice was served within 90 days of the last date in which Ramona furnished rental equipment to Otay but was well beyond 90 days after the date in which Ramona first furnished rental equipment for which it was unpaid.  In September 2008, Ramona filed suit in federal court against Otay, Candelaria and Candelaria’s Miller Act payment bond surety, Carolina Casualty Insurance Company.

At trial, the Defendants argued that Ramona’s 90-day notice was untimely as to rental equipment furnished more than 90 days before its Miller Act notice in July 2008.  However, the district court rejected that argument on the ground that Ramona’s contract with Otay was an open book account and that the 90-day notice covered all rental equipment furnished by Ramona because it was served within 90 days of the last date in which Ramona furnished equipment. On appeal, the 9th Circuit affirmed.

While noting that this was a case of first impression in the 9th Circuit, the Court noted that other federal circuit courts, notably the First, Fourth and Fifth Circuit U.S. Courts of Appeal, had previously examined the issue and determined that a Miller Act notice, so long as it is given within 90 days of the last date in which material and/or equipment is furnished, applies to all material and/or rental equipment furnished on an open book account irrespective of when such material and/or equipment was furnished:

Here, the relationship between Otay and Ramona was governed by an open book account that allowed Otay to rent equipment from Ramona on an ongoing credit basis.  Ramona continued to rent equipment to Otay for use at the Project until Candelaria terminated its subcontract on June 6, 2008, and, within ninety days of the last rental, Ramona served notice of its claim for payment on Candelaria.  These circumstances are clearly analogous to those addressed by the First, Fourth and Fifth Circuits.  Accordingly, we join our sister circuits and hold that if all the goods in a series of deliveries by a supplier on an open book account are used on the same government project, the ninety-day notice is timely as to all of the deliveries if it is given within ninety days from the last delivery.

Conclusion

For second-tier material suppliers of first-tier subcontractors, the case provides some reassurance that they can collect on past due invoices under the Miller Act, even invoices for material and/or equipment furnished more than 90 days before, so long as they timely serve a Miller Act notice within 90 days of last furnishing material and/or equipment.

I do, however, question how helpful this case really is practically speaking. In this case, Ramona served its Miller Act notice within 90 days of last furnishing its equipment, which in turn allowed it to include in its Miller Act notice unpaid invoices for equipment rented more than 90 days before it sent its Miller Act notice. Hindsight, of course, is 20/20.

But, if you’re a material supplier, how do you know that the material and/or equipment you’ve furnished is in fact going to be the “last” of the material and/or equipment you furnish?

The simple answer is, you don’t.

Thus, for prudent material suppliers, you should calendar 90 days each time material and/or equipment is furnished, because, unless you have out-of-this-world powers to see into the future, there may not be a next and “last” time to serve that Miller Act notice.

2 Responses to “Close Encounters of the Miller Act Kind”

  1. Scott Wolfe

    Garret – Great chart to explain the Miller Act Requirements. The issue of “last furnishing date” and the 90 day notice requirement can get interesting and complicated for folks furnishing on an open account…but, I think the court got it right with this decision.

    Reply
    • Garret Murai

      Thanks for the comment Scott. I agree, I think the Court did get it right.

      The Miller Act says that notice must be served on the general contractor “within 90 days from the date on which the person did or performed the last of the labor furnished or supplied the last of the material for which the claim is made.” If it had been the intent of Congress that notice be served within 90 days of “each” date in which labor was performed or material was furnished then Congress presumably wouldn’t have used the word “last.” At least that’s my armchair view of things.

      But, as I suggested at the end of my post, the practical reality is that second-tier material suppliers of first-tier subcontractors still need to calendar 90 days each time they supply materials because they don’t know when the “last” time is going to be. Would you agree?

      Reply

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