United States District Court, D. Maryland
W. GRIMM UNITED STATES DISTRICT JUDGE
Construction Corp. ("State Construction") has
brought this federal lawsuit seeking compensation for labor,
materials, and services it provided in the course of a
protracted construction project on a military facility in
Maryland. It accuses Defendants, including the project's
prime contractor, of scheming to deny it the protections
accorded under the Miller Act, a law that shields certain
classes of subcontractors and suppliers on federally funded
construction sites from the risk they will not be paid for
their work. Defendants argue this Court lacks jurisdiction
over the suit and that, even if jurisdiction does exist, the
Amended Complaint fails to state a claim upon which relief
may be granted.
with Defendants that, under the express terms of State
Construction's subcontract, the company is a
"third-tier" subcontractor without standing to
bring suit under the Miller Act. I find, though, that the
Amended Complaint adequately pleads a claim that the prime
contractor breached an implied-in-fact contract to pay State
Construction for costs associated with delays on the project
and that this claim supplies a basis for federal
jurisdiction. I also conclude that Defendants are not
entitled to a dismissal of State Construction's Miller
Act bond claim, nor of its claims for breach of the
implied-in-fact contract and unjust enrichment. I also am
permitting the fraud claim against the prime contractor to
proceed but am ordering State Construction to further amend
its complaint to indicate precisely where the alleged
misrepresentations were made and whether they were oral or in
writing. The fraud claim against the putative first-tier
subcontractor will, however, be dismissed.
case involves five companies, all of which were involved, to
varying extents, in a federally funded construction project
at Fort Meade, a military installation in Anne Arundel
County, Maryland. The differing roles each of these
companies played in the project is critical to the resolution
of the matter before me, and so, for the reader's sake, I
will pause a moment to introduce them.
with the defendants. Slone Associates, Inc.
("Slone") was the prime contractor on the project.
Am. Compl. ¶ 11, ECF No. 29. U.S. Specialty Insurance
Co. ("U.S. Specialty") was the surety that provided
the payment bond required under the Miller Act to protect the
subcontractor and a limited class of construction companies
and labor and material suppliers involved in the project.
Id. ¶ 12; see 40 U.S.C. §
3131(b)(2) (requiring the prime contractor on certain federal
construction projects to furnish a payment bond "for the
protection of all persons supplying labor and material in
carrying out the work provided for in the contract").
C&S Aircraft Service, Inc. ("C&S
Aircraft"), based in Georgia, was the putative
subcontractor (though, as will soon be made clear, the
Amended Complaint alleges its only true function was to
shield Slone and U.S. Specialty from Miller Act claims like
the ones asserted here). See Id. ¶ 3. Two
Rivers Site Development ("Two Rivers") was the
putative second-tier subcontractor (or sub-subcontractor).
Id. ¶ 23. And, at the end of this chain, there
is the Plaintiff, State Construction, which at one time
identified itself as a third-tier subcontractor but here
seeks to reclassify itself as either a second-tier
subcontractor or, under an alternative legal theory, a
subcontractor. See Id. ¶ 25.
Federal Highway Administration, an agency within the U.S.
Department of Transportation, awarded the prime contract to
Slone on May 9, 2013, for a price of just under $8.1 million.
Id. ¶ 11. The agreement called for Slone to
design and build an "access control point" at the
entrance to Fort Meade. Id. ¶¶ 10-11.
Slone furnished the required Miller Act payment bond on May
13, 2013, with U.S. Specialty serving as surety. See
Id. ¶ 15.
soon entered into a subcontract with C&S Aircraft, under
which the latter company would "perform erosion control,
clearing/site demolition, earthwork, surveying and layout,
and maintenance of traffic work." Id. ¶
16. The contract price was $992, 473.29. See Id. In
its Amended Complaint, State Construction asserts it is
"unaware of what line of business C&S engages in,
although the name suggests 'aircraft services.'"
Id. ¶3. The sole shareholders, it states,
"are Charles Adon Clark and his wife, and according to
the internet, it has one employee and had $5, 000 annual
income before entering into the purported Subcontract
Agreement with Slone" on July 15, 2015. Id.
Under these circumstances, it is hardly surprising that State
Construction views the bona fides of the Sloane-C&S
"subcontract" with considerable skepticism.
Aircraft and Two Rivers entered into a sub-subcontract
agreement one week later, on July 21, 2015. Id.
¶ 23. This agreement delegated to Two Rivers the
entirety of C&S Aircraft's performance obligations
under the July 15, 2015 subcontract, further strengthening
State Construction's suspicions. See id.
summer progressed, Slone and Two Rivers forged ahead with
negotiations on an agreement with State Construction (the
plaintiff in this case) for "storm drainage, water and
sanitary sewer utility work." Id. ¶ 18.
C&S Aircraft did not participate in the negotiations.
Id. The talks culminated on September 24, 2015, when
State Construction and Two Rivers entered into a written
agreement. Id. ¶ 24. The deal, worth $670, 000,
called for State Construction to install the underground
water, storm, and sewer utilities for the
project. See id.; State-Two Rivers
Agreement 12, ECF No. 34-7.
September 24, 2015 contract was later supplemented by a
"Joint Check Agreement," which authorized Slone to
pay C&S Aircraft, Two Rivers, and State Construction
"by check made jointly" to those three
companies. State-Two Rivers Agreement 17;
see Am. Compl. ¶ 25. This agreement, signed by
representatives of all four parties (including C&S
Aircraft), listed Slone as the project's "general
contractor," C&S Aircraft as the "first tier
subcontractor," Two Rivers as the "second tier
subcontractor," and State Construction as the
"third tier subcontractor." State-Two Rivers
Agreement 17; see Am. Compl. ¶ 25.
Construction's responsibilities under the September 24,
2015 contract fell outside of the scope of work that Slone
had outlined in its July 2015 subcontract with C&S
Aircraft. That changed, though, on November 2, 2015, when
Slone issued a change order awarding C&S Aircraft an
additional $728, 079.25 "to perform the underground
storm drainage, water, and sanitary sewer work for the
Project, the same scope of underground utility work to be
performed by State [Construction]." Am. Compl. ¶
17. That same month, C&S Aircraft issued an
"identical" change order adding these duties to Two
Rivers's scope of work. Id. ¶ 18.
similar sequence of events soon followed, when another change
order expanded State Construction's scope of work to
include "some miscellaneous curb and gutter work."
Id. ¶ 24. The change order, dated December 2,
2015, entitled State Construction to $22, 000 for this work.
Id. One month later, Slone issued a change order
inserting this same curb and gutter work, among other
"miscellaneous paving work," into its subcontract
with C&S Aircraft for the added sum of $33, 808.34.
Id. ¶ 19.
work proceeded, State Construction personnel never saw anyone
from C&S Aircraft on thejobsite. Seeid.¶2\.
No one from C&S Aircraft ever attended any project
meetings. Id. And daily reports prepared by Slone or
Two Rivers made no mention of C&S Aircraft workers.
Id. The company's "only known
activity," according to the Amended Complaint, "was
to sign checks written by Slone [in return] for a nominal
Construction began to experience delays on site as early as
the fall and winter of 2015. See Id. ¶ 28.
Though the company had expected to complete its work by April
2016, poor coordination and other failures it attributes to
Slone and Two Rivers left it unable to complete more than 20
percent of its work by that time. See Id. ¶ 30.
To ensure that State Construction would "keep its major
equipment and manpower on site," Slone Vice President
William Slone and two State Construction executives
"entered into an agreement... on or about April 1, 2016,
for Slone to be directly responsible for the additional costs
stemming from the delays and impacts in performing and
completing the remaining eighty percent of the underground
utility work." Id. ¶ 32. The Amended
Complaint characterizes this agreement as an
"implied-in-fact agreement," saying it was
"based upon conversations and conduct."
Id. ¶¶ 32-33.
this agreement in place, Slone "resumed" making
interim progress payments for State Construction's work
during the spring and summer of 2016. Id. ¶ 33.
State Construction kept its excavation equipment and
personnel on site, but the progress payments ceased. See
Id. At some point (the Amended Complaint is unclear on
when), State Construction President Joaquim Mendez reached
out to Slone VP William Slone to seek overdue payments.
See Id. ¶ 39. William Slone told him to seek
payment from Two Rivers. See Id. Subsequent
communication with Two Rivers revealed that Slone had
withheld progress payments from that company as well. See
Construction ceased working on the site on May 24, 2017.
Id. ¶ 38. The company ended up taking in $354,
954.94 for its work but estimates that because of the
"substantial cost overruns" it incurred, it is
entitled to an additional $550, 000 under the implied-in-fact
agreement with Slone. M¶¶35, 37.
the Miller Act, a company with a "direct contractual
relationship with a subcontractor but no contractual
relationship, express or implied, with the contractor
furnishing the payment bond" must, before bringing suit
on the payment bond, give "written notice to the
contractor within 90 days from the date on which the
[company] performed the last of the labor" for which the
claim is made. 40 U.S.C. § 3133(b)(2). State
Construction did not send any such written notice to Slone.
However, on August 22, 2017, its project manager, Ernest J.
Clemens, sent a letter to Two Rivers President Stephen Allen
in which he asserted that State Construction had
"incurred significant increased costs" because of
the project's various delays. August 22, 2017 Letter, ECF
No. 34-24; see Am. Compl. ¶¶ 40-41. The
It is imperative that, you give notice . . . pursuant to the
Miller Act to the Prime Contractor Slone Associates Inc. . .
. and its Miller Act Surety, U.S. Specialty Insurance
Company, for these unpaid costs of State Construction Corp.
for the utility work as well as any costs incurred by your
firm that remains unpaid in order to maintain the protection
of the Miller Act bond, by August 22, 2017 close of business.
22, 2017 Letter, ECF No. 34-24; see Am. Compl.
¶ 40. Two Rivers forwarded the letter to Slone that same
day. See Am. Compl. ¶¶ 41, 43.
government terminated Slone's prime contract on November
24, 2017, for default. See Id. ¶ 13. One week
later, Two Rivers sent State Construction an email, to which
was attached a letter from Slone. See Id. ¶ 44.
The letter, which featured Two Rivers's letterhead,
asserted that State Construction could not bring a Miller Act
claim against Slone because State Construction was a mere
third-tier subcontractor. See id.
Construction brought this lawsuit on February 14, 2018,
naming Slone, C&S Aircraft, Two Rivers, and U.S.
Specialty as defendants. See Compl., ECF No. 1. Its
Amended Complaint, filed on June 19, 2018, asserted five
claims in all: (1) breach of contract against Two Rivers
(Count I); (2) breach of implied-in-fact contract against
Slone (Count II); (3) quantum meruit against Slone and Two
Rivers (Count III); (4) Miller Act bond claim against U.S.
Specialty (Count IV); and (5) fraud against Slone, C&S
Aircraft, and Two Rivers (Count V).
Rivers filed an answer to the Amended Complaint and is not
presently seeking dismissal of any of the claims against it
(Counts I, III, and V). ECF No. 31. However, the other three
defendants (to whom I will refer, collectively, as
"Defendants," for the sake of simplicity) have
filed a Consolidated Motion to Dismiss the Amended Complaint.
Mot. to Dismiss, ECF No. 32. The motion first seeks a
dismissal under Rule 12(b)(1) of the Federal Rules of Civil
Procedure, arguing that this Court lacks subject matter
jurisdiction over the Amended Complaint. See Id. at
6-12. It next seeks to dismiss Counts II through V under Rule
12(b)(6) for failure to state a claim upon which relief may
be granted. See Id. at 13-28.
parties have fully briefed their arguments. See ECF
Nos. 32-37. No hearing is necessary. See Loc. R.
seek a dismissal under either Rule 12(b)(1) or 12(b)(6) of
the Federal Rules of Civil Procedure. A 12(b)(1) motion
challenges the district court's subject matter
jurisdiction, asserting, in effect, that the plaintiff lacks
any "right to be in the district court at all."
Holloway v. Pagan River Dockside Seafood, Inc., 669
F.3d 448, 452 (4th Cir. 2012). The burden of establishing the
court's subject matter jurisdiction rests with the
plaintiff. Evans v. B.F. Perkins Co., 166 F.3d 642,
647 (4th Cir. 1999).
Fourth Circuit has recognized that a defendant may challenge
the district court's subject matter jurisdiction in
either of two ways. See Kerns v. United States, 585
F.3d 187, 192 (4th Cir. 2009). He may, for one, mount a
facial challenge, in which he "contend[s] 'that a
complaint simply fails to allege facts upon which subject
matter jurisdiction can be based.'" Id.
(quoting Adams v. Bain, 697 F.2d 1213, 1219 (4th
Cir. 1982)). In that situation, the court takes the
complaint's allegations as true and denies the motion
"if the complaint alleges sufficient facts to invoke
subject matter jurisdiction." Id.
Alternatively, the defendant may mount a factual challenge,
asserting that the complaint's jurisdictional allegations
are not true. See Id. In that case, the court
'"may go beyond the allegations of the complaint and
in an evidentiary hearing determine if there are facts to
support the jurisdictional allegations,' without
converting the motion to a summary judgment proceeding."
Id. (quoting Adams, 697 F.2d at 1219).
the Consolidated Motion to Dismiss asks me to "assume
that the factual allegations in the complaint are true"
for purposes of ruling on the jurisdictional issues under
Rule 12(b)(1). Mot. to Dismiss 4. It further explains that
the Court must "grant a motion to dismiss for lack of
subject matter jurisdiction where the plaintiff Fails to
plead fads that meet 'the plausibility standard of
Rule 12(b)(6) and Iqbal/Twombly.`"` Id.
(emphasis added). I infer from this language that
Defendants' invocation of Rule 12(b)(1) presents a facial
challenge, and so in ruling on their motion I will assume all
allegations in the Amended Complaint are true.
12(b)(6) motion, in contrast with a motion to dismiss for
lack of jurisdiction, "tests the sufficiency" of
the plaintiffs complaint. Vance v. CHF Int'l,
914 F.Supp.2d 669, 677 (D. Md. 2012). Under Rule 8(a)(2), the
complaint must contain "a short and plain statement of
the claim showing that the pleader is entitled to
relief." Fed.R.Civ.P. 8(a)(2). Beyond that, the Supreme
Court has held that claims for relief must be
"plausible," specifying that "[t]hreadbare
recitals of the elements of a cause of action, supported by
mere conclusory statements, do not suffice."
Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009).
"A claim has facial plausibility when the plaintiff
pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the
misconduct alleged." Id. at 678.
Consolidated Motion to Dismiss begins by questioning this
Court's power to hear this case. This is a threshold
question, and I will start my analysis there. Because, in the
end, I conclude that State Construction has pleaded
sufficient facts to survive a Rule 12(b)(1) motion, I will
proceed to review Defendants' arguments for a dismissal
under Rule 12(b)(6).
courts are courts of limited jurisdiction. They possess only
that power authorized by the Constitution and statute."
Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S.
375, 377 (1994); see Hagans v. Lavine, 415 U.S. 528,
538 (1974). Here, State Construction has sought to invoke
this Court's jurisdiction under 28 U.S.C. § 1331 and
the Miller Act, 40 U.S.C. § 3133(b). The latter statute
authorizes suits by two classes of claimants: "(1) those
materialmen, laborers and subcontractors who deal directly
with the prime contractor and (2) those materialmen, laborers
and sub-contractors who, lacking [an] express or implied
contractual relationship with the prime contractor, have [a]
direct contractual relationship with a subcontractor and who
give the statutory notice of their claims to the prime
contractor." Clifford F. MacEvoy Co. v. United
States ex rel. Calvin Tomkins Co., 322 U.S. 102, 107-08
(1944); see 40 U.S.C. § 3l33(b)(1)-(2). As I
will discuss in more detail below, the statute does not allow
would-be claimants with "more remote relationships"
to recover on the payment bond. Clifford F. MacEvoy,
332 U.S. at 108.
Construction does not deny that its status as a
"third-tier subcontractor" (as the company was
expressly labeled in the Joint Check Agreement) would
ordinarily preclude it from bringing claims under the Miller
Act. It nevertheless asks this Court to disregard that label
for either of two reasons. First, it urges the Court to treat
the company as a second-tier subcontractor and allow its
recovery under § 3133(b)(2) on the ground that the
putative subcontract between Slone and C&S Aircraft was a
"sham" - that is, a ploy to shield Slone from
Miller Act claims like the ones asserted here. Alternatively,
State Construction asserts the Court may treat it as a
first-tier subcontractor on the theory that it formed an
implied-in-fact contract with Slone in April 2016.
challenge both of these contentions. They further argue that,
should I accept State Construction's contention that it
ought to be treated as a second-tier contractor, it would
nevertheless be statutorily barred from bringing a Miller Act