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United States v. Continental Casualty Co.

United States District Court, D. Maryland

August 24, 2017



          Ellen Lipton Hollander United States District Judge.

         This case arises under the Miller Act, 40 U.S.C. § 3131, et seq. Plaintiff, the United States of America f/u/b/o Aarow Electrical Solutions, LLC (“Aarow”), a subcontractor, alleges that it provided labor and materials to Grunley Construction Company, Inc. (“Grunley”), the general contractor, for a project at the Social Security Administration complex in Woodlawn, Maryland, for which Aarow has not been paid in full. ECF 1. Therefore, on September 1, 2016, pursuant to the Miller Act, Aarow filed suit to recover on the payment bond issued by Grunley's sureties, Continental Casualty Company and Liberty Mutual Insurance Company. Id.

         Four months later, on January 19, 2017, Grunley filed a motion to intervene as a defendant, pursuant to Fed.R.Civ.P. 24(a) and (b). ECF 14 (“Motion to Intervene”).[1]Defendants join in the motion. ECF 21. Aarow opposes the Motion to Intervene (ECF 19, “Opposition”), and Grunley has replied. ECF 23 (“Reply”). In addition, Grunley filed a motion to stay the case, “pending the outcome of the Government claims and appeals process.” ECF 16 (“Motion to Stay”). Defendants consent to the motion (ECF 22) but Aarow opposes it (ECF 20, “Opposition to Stay”). Grunley has replied. ECF 24 (“Reply-Stay”).

         No hearing is necessary to resolve the motions. See Local Rule 105.6. For the reasons that follow, I shall grant the Motion to Intervene but I shall deny the Motion to Stay.

         I. Factual Summary[2]

         Grunley, as general contractor, [3] entered into a construction contract ("Prime Contract") with the United States, by and through the General Services Administration (“Owner” or the "Government") to perform electrical and other work at the Social Security Administration complex in Woodlawn, Maryland (the "Project"). ECF 1 ¶ 6.[4] As a condition of the Prime Contract, and pursuant to section 3131(b) of the Miller Act, [5] Grunley obtained “a labor and material payment bond” (the “Bond”), secured jointly and severally by Continental Casualty Company and Liberty Mutual Insurance Company (collectively, "Sureties"). Id. ¶ 7; see also ECF 1-1 (Bond).

         On or about December 26, 2013, Grunley entered into a subcontract ("Subcontract") with Aarow. Among other things, Aarow agreed to perform certain electrical, fire alarm, and security work for the Project for the “lump sum price” of $3, 945, 743.00. ECF 1, ¶ 8; see also ECF 1-2 (Subcontract.).

         Aarow claims that it remains unpaid for certain work it performed on the Project. ECF 1. In particular, Aarow contends: “In order to perform some of its electrical work on the Project, the Government, Grunley and Aarow scheduled a number of power outages so that the new electrical equipment and systems could be brought online and integrated into the existing systems. However, for reasons unrelated to Aarow, and in some cases unknown to Arrow, the Government cancelled and rescheduled some of the power outages.” Id. ¶ 9. Aarow alleges that, “[a]s a result of the cancelled and rescheduled power outages, Aarow's work on the Project was delayed by a total of 115 days, ” and it incurred additional costs in the amount of $272, 756.00. Id. ¶ 10. Aarow also claims that it incurred additional costs of $76, 572.00 as a result of certain rescheduled fire alarm outages. Id. ¶ 14; see also Id. ¶ 13.

         According to Aarow, “through Grunley” it “requested compensation from the Government for the additional time and costs incurred as a result of the cancelled and rescheduled power outages.” Id. ¶ 11. Then, by letter dated February 10, 2015, the Government “unilaterally increased” the Prime Contract price by $143, 000.00, and “unilaterally increased the Project time by 112 calendar days, ” so as “to compensate Grunley (and Aarow) for the additional time and costs incurred as a result of the cancellation and rescheduling of the power outages.” Id. Of the $143, 000.00 awarded to Grunley by the Government, Grunley attributed $103, 235.00 to Aarow's additional costs and paid that sum to Aarow. Id. ¶ 12. According to Arrow, a total of $246, 093.00 remains due and owing for labor and materials that it provided, “relating to the power and fire alarm outages . . . after providing credit for the partial payment of $103, 235.00.” Id. ¶ 15.

         By letter dated June 15, 2016, “Aarow submitted its detailed narrative, proposal, and backup information relating to the additional monies due and owing to it for the labor and materials it rendered to the Project relating to the power and fire alarm outages (the ‘Claim').” Id. ¶ 16. Two days later, by letter dated June 17, 2016, “Grunley elected to mark up Aarow's Claim and submitted Aarow's Claim to the Government.” Id. ¶ 16. A copy of Grunley's “Certified Claim and Request for Final Decision”, dated June 17, 2016, is docketed at ECF 1-3.

         As discussed, infra, the Government's claims and appeals process is conducted pursuant to the Contract Disputes Act, 41 U.S.C. 7101, et seq. However, the Government has not yet reached a decision regarding the Claim.

         Additional facts are included in the Discussion.

         II. Discussion

         A. The Miller Act

         Before addressing the parties' arguments, it is helpful to review the Miller Act.

         The Miller Act, 40 U.S.C. § 3131 et seq., imposes certain obligations on the prime contractor on any “contract of more than $100, 000 ... for the construction, alteration, or repair of any public building or public work of the Federal Government.” 40 U.S.C. § 3131(b). Of import here, the Miller Act requires the contractor to furnish a payment bond, through a satisfactory surety, “for the protection of all persons supplying labor and material in carrying out the work provided for in the contract.” Id. § 3131(b)(2).

         In F.D. Rich Co., Inc. v. United States f/u/o Indus. Lumber Co., Inc., 417 U.S. 116, 122 (1974), the Supreme Court explained that, ordinarily, a supplier of labor or materials on a private construction project could obtain a mechanic's lien, but such a lien “cannot attach to Government property.” (Citing Illinois Surety Co. v. John Davis Co., 244 U.S. 376, 380 (1917)). Because suppliers on government projects “are deprived of their usual security interest, ” the Miller Act “was intended to provide an alternative remedy to protect the rights of these suppliers.” F.D. Rich Co., Inc., 417 U.S. at 122. And, in U.S. for Benefit & on Behalf of Sherman v. Carter, 353 U.S. 210, 216-17 (1957), the Supreme Court explained:

The Miller Act represents a congressional effort to protect persons supplying labor and material for the construction of federal public buildings in lieu of the protection they might receive under state statutes with respect to the construction of nonfederal buildings. The essence of its policy is to provide a surety who, by force of the Act, must make good the obligations of a defaulting contractor to his suppliers of labor and material. Thus the Act provides a broad but not unlimited protection.[]

         To achieve these purposes, the Miller Act authorizes any “person that has furnished labor or material in carrying out work” under a Miller Act contract and who “has not been paid in full within 90 days after the day on which the person did or performed the last of the labor furnished or supplied the material” to bring “a civil action on the payment bond.” 40 U.S.C. § 3133(b)(1). Such a civil action must be filed “in the name of the United States for the use of the person bringing the action.” Id. § 3133(b)(3)(A). An action brought under 40 U.S.C. § 3133(b) “must be brought no later than one year after the day on which the last of the labor was performed or material was supplied by the person bringing the action.” Id. § 3133(b)(4).

         “Federal law, not state statute or common law principles, controls in Miller Act suits.” United States for use & benefit of Tusco, Inc. v. Clark Constr. Grp., LLC, 235 F.Supp.3d 745, 756, n. 13 (D. Md. 2016); see F.D. Rich Co., Inc., 417 U.S. at 127 (“The Miller Act provides a federal cause of action, and the scope of the remedy as well as the substance of the rights created thereby is a matter of federal not state law.”).

         B. Motion to Intervene

         As noted, Grunley seeks intervention under Rule 24, which governs intervention. It provides, in relevant part:

(a) Intervention of Right. On timely motion, the court must permit anyone to intervene who:
(1) is given an unconditional right to intervene by a federal statute; or
(2) claims an interest relating to the property or transaction that is the subject of the action, and is so situated that disposing of the action may as a practical matter impair or impede the movant's ability to protect its interest, unless existing parties adequately represent that interest.
(b) Permissive Intervention.
(1) In General. On timely motion, the court may permit anyone to intervene who:
(A) is given a conditional right to intervene by a federal statute; or
(B) has a claim or defense that shares with the main action a common question of law or fact.
(2) Delay or Prejudice. In exercising its discretion, the court must consider whether the intervention will unduly delay or prejudice the adjudication of the original parties' rights.

         1. Intervention of Right In Stuart v. Huff, 706 F.3d 345 (4th Cir. 2013), the Fourth Circuit explained the standard for intervention of right under Rule 24(a)(2). It said, id. at 349-50 (quoting Teague v. Bakker, 931 F.2d 259, 260-61 (4th Cir. 1991)):

[A] district court must permit intervention as a matter of right if the movant can demonstrate “(1) an interest in the subject matter of the action; (2) that the protection of this interest would be impaired because of the action; and (3) that the applicant's interest is not adequately represented by existing parties to the litigation.”

         In addition to the three factors articulated in Stuart, “timeliness is [also] a ‘cardinal consideration' of whether to permit intervention . . . .” Houston Gen. Ins. Co. v. Moore, 193 F.3d 838, 839 (4th Cir. 1999) (citation omitted). When assessing the timeliness of a motion to intervene, the court “is obliged to assess three factors: first, how far the underlying suit has progressed; second, the prejudice any resulting delay might cause the parties; and third, why the movant was tardy in filing its motion.” Alt v. U.S. EPA, 758 F.3d 588, 591 (4th Cir. 2014). “The determination of timeliness is committed to the sound discretion of the trial court and will not be disturbed on appeal absent an abuse of that discretion.” Id.

         In order to intervene as of right, a movant's interest in the action must be “‘significantly protectable'” and a movant must “stand to gain or lose by the direct legal operation.” Teague, 931 F.2d at 261 (quoting Donaldson v. United States, 400 U.S. 517, 531 (1971)). “With respect to the [adequacy] requirement [of Rule 24(a)(2)], the Fourth Circuit has indicated that an intervenor's burden of showing inadequacy of representation is ‘minimal.'” First Penn-Pac. Life Ins. Co. v. William R. Evans, Chartered, 200 F.R.D. 532, 536 (D. Md. 2001) (quoting Commonwealth of Virginia v. Westinghouse Elec. Corp., 542 F.2d 214, 216 (4th Cir.1976); alterations added). But, “[w]hen the party seeking intervention has the same ultimate objective as a party to the suit, a presumption arises that its interests are adequately represented, against which the [movant] must demonstrate adversity of interest, collusion, or nonfeasance.” Virginia v. Westinghouse Elec. Corp., 542 F.2d 214, 216 (4th Cir. 1976) (alteration added); see also Stuart, 706 F.3d at 350.

         When the existing party has a legal obligation to represent the interests of the intervenor, then the intervenor has the “‘onerous'” burden of making a “‘compelling showing of inadequate representation.'” See In re Richman, 104 F.3d 654, 660 (4th Cir.1997) (quoting In re Thompson, 965 F.2d 1136, 1142 (1st Cir.1992)) (emphasis in In re Thompson). Indeed, “ “courts now presume that the principal is adequately represented by its surety because they both have the ‘same ultimate objective, ' i.e., to avoid liability on the payment bond.” Atl. Refinishing & Restoration, Inc. v. Travelers Cas. & Sur. Co. of Am., 272 F.R.D. 26, 30 (D.D.C. 2010).

         Grunley contends that it has satisfied all of the requirements of Rule 24(a). ECF 14 at 3. Grunley posits that its Motion to Intervene is timely, because the Court's Scheduling Order of October 20, 2016 (ECF 12) set January 20, 2017, as the deadline for motions to join additional parties. ECF 14 at 3; see also ECF 12 at 1. Further, Grunley claims that it “has a direct and substantial interest in this action because if its Sureties are found liable to Aarow, the Sureties will tum to Grunley for indemnification.” ECF 14 at 3 (citing US. ex rel. MPA Canst., Inc. v. XL Specialty Ins. Co., 349 F.Supp.2d 934, 937 (D. Md. 2004)). With respect to the remaining factors, Grunley states that its “ability to protect its interest may be impaired if not allowed to intervene in the case.” ECF 14 at 3. Grunley explains, id.: “While the Sureties may defend against Aarow's claims, given Grunley's indemnification obligations to its Sureties, Grunley is effectively the party ultimately responsible for payment of the claims. The Sureties cannot adequately represent Grunley's interests. While the Sureties and Grunley have a common interest in defending Aarow's claims, the two parties' interests are not fully coextensive.” Aarow concedes that Grunley timely submitted its Motion to Intervene and that it has an interest in the transaction at issue. ECF 19 at 2. However, Aarow contends that “Grunley's interests are well represented by the Defendants, who have a vested interest in defending Aarow's claim as best as possible to ensure that they will be able to recover any monies awarded to Aarow from Grunley under their indemnity agreements. In fact, the Defendants are legally obligated by the surety's good faith obligations to its principal to adequately represent Grunley's interests.” Id. at 3. In addition, Aarow argues that Grunley's proposed breach of contract counterclaim lacks merit because to the extent that certain provisions of the Subcontract bar Aarow from filing a Miller Act case, they are “void as a matter of law, and are unenforceable.” Id. at 5.

         Judge Chasanow's analysis in United States ex rel. MPA Construction, Inc. v. XL Specialty Insurance Co., 349 F.Supp.2d 934 (D. Md. 2004), a Miller Act case, is instructive. In that case, the “National Institute for Health” (“NIH”) awarded a contract to Jowett, Inc. (“Jowett”), a general contractor. Id. at 935. Pursuant to 40 U.S.C. § 3131(b), Jowett obtained a payment bond from Defendant XL Specialty Insurance Co. (“XL”). Id. at 935-36. Jowett subsequently entered into a subcontract with MPA Construction, Inc. (“MPA”) for work on the federal project. Id. at 936. Thereafter, MPA filed suit against XL, pursuant to the Miller Act, alleging that it remained unpaid for certain work it performed on the project.

         Jowett moved to intervene as a defendant. Judge Chasanow determined: “[Jowett]…clearly has a ‘direct and substantial interest' in the transaction, because XL, if held liable, will turn to [Jowett] for indemnification.” Id. at 937. However, she observed that “[w]hether [Jowett's] interests would be impaired and whether [Jowett's] interests are adequately represented by XL are closer questions”, id., in part because of XL's “good faith obligation as surety” to “defend in the present ...

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