Archive: July 2, 2014

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No License? No Problem. The Ninth Circuit Holds That Unlicensed Contractors May Maintain Claims For Compensation Under The Miller Act

No License? No Problem. The Ninth Circuit Holds That Unlicensed Contractors May Maintain Claims For Compensation Under The Miller Act

By Heather W. Habes and Tyler J. Cesar, K&L Gates, Los Angeles

In a matter of first impression in Technica, LLC ex rel. United States v. Carolina Casualty Ins. Co., No. 12-56539, 2014 WL 1674108 (9th Cir. April 29, 2014), the Ninth Circuit held that California’s contractor’s licensing law, does not bar unlicensed contractors from recovering on Miller Act claims. The Ninth Circuit’s refusal to impose state law limitations on a contractor’s remedies under the federal Miller Act is consistent with prior rulings of the Supreme Court and the Eighth and Tenth Circuits. In the interest of uniform enforcement of federal law and the reduction of hurdles to recovery by federal subcontractors, the Ninth Circuit reversed the district court’s grant of summary judgment to the prime contractor and its surety.

The underlying dispute arose from work performed in connection with the federal work of improvement located in California on the ICE El Centro SPC – Perimeter Fence Replacement/Internal Devising Fence Replacement (the “Project”). Candelaria Corporation, as prime contractor, secured a payment bond from its surety, Carolina Casualty Insurance Company (“CCIC”), in connection with the Project. Candelaria’s sub-subcontractor, Technica, LLC (“Technica”) provided almost $900,000 worth of labor, material, and services to the Project, yet only received payments for this work in the amount of $300,000. Technica did not possess a California contractor’s license during its performance of the work at issue. Invoking its rights under the Miller Act to recover the outstanding amounts, Technica filed a complaint in district court against Candelaria and CCIC. Pursuant to California Business and Professions Code section 7031(a), which bars a contractor from recovering compensation for work that was performed without a license, Candelaria and CCIC sought, and were granted, summary judgment of Technica’s claims. Technica appealed.

On appeal, the Ninth Circuit emphasized that the purpose of the Miller Act is to provide a remedy to contractors and materialmen denied compensation on federal construction projects. The Miller Act requires a general contractor on a federal project to obtain a payment bond for the benefit of “persons supplying labor and material in carrying out the work provided for in the contract.” 40 U.S.C. § 3133(b)(2). Since it is the Miller Act, and not California state law, that provides Technica with a right to recover on the Project, the Ninth Circuit reasoned that the scope of this federal remedy should not be conditioned by state law. In reaching this conclusion, the Ninth Circuit drew upon the holding of the Supreme Court in F.D. Rich Co. Inc. v. United States ex rel. Indus. Lumber Co., 417 U.S. 116, 127 (1974), and other similar Circuit Court decisions. In F.D. Rich, the Supreme Court relied upon the federal interest in uniform application of the law in determining that state law could not be used to provide an award of attorney’s fees to a Miller Act claimant when federal law provides no such right. F.D. Rich, 417 U.S. at 127-28. In Aetna Casualty & Surety Co. v. United States ex rel. R.J. Studer & Sons, 365 F. 2d 997 (8th Cir. 1966), the Eighth Circuit held that a Colorado law requiring a partnership to record an affidavit with the county recorder’s office was not applicable to the contractor’s Miller Act claim. Likewise, in Hoeppner Constr. Co. v. United States ex rel. E.L. Magnum, 287 F.2d 108 (10th Cir. 1960), the Tenth Circuit acknowledged that the Miller Act is highly remedial, and therefore the contractor’s remedies thereunder should not be limited by a South Dakota statute forbidding enforcement of a contract on behalf of a foreign corporation.

The Ninth Circuit’s decision does not change any current California law. Nonetheless, the decision is significant for its fresh look on the purpose of the Miller Act. Construction counsel should take note that courts may be unwilling to limit the remedies of contractors under the Miller Act in accord with state law requirements.

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