Federal Miller Act Rights Trump State Statute Precluding Claims By Non-Licensed Contractors

Westlaw Journal - 7/7/2014

In a recent decision, the 9th U.S. Circuit Court of Appeals held, for the first time, that California's contractor licensing requirement cannot be used to bar a federal subcontractor from pursuing a claim under the Miller Act, 40 U.S.C. § 3131, for payment in connection with a federal government contract. In reversing the district court's grant of summary judgment in favor of the defendant prime contractor and its surety, the 9th Circuit joined the 10th and 8th circuits and the U.S. Supreme Court in holding "that rights and remedies under the Miller Act may not be conditioned by state law." Technica LLC ex rel. United States v. Carolina Cas. Ins. Co., 749 F.3d 1149 (9th Cir. Apr. 29, 2014). The 9th Circuit's decision is noteworthy because it provides much-needed clarity regarding the rights and defenses available to federal contractors and their sureties in the context of Miller Act suits.

The dispute in Technica arose out of a federal construction project, the Immigration and Customs Enforcement Detention Center in El Centro, Calif., a city situated near the U.S.– Mexico border. As required by the Miller Act and the terms of its contract with the government, the prime contractor on the project, Candelaria Corp., provided a payment bond, which was issued by its surety, Carolina Casualty Insurance Co. In December 2007, Candelaria entered into a subcontract with Otay Group Inc. under which Otay was to perform a portion of the work that was called for by the prime contract. Otay, in turn, contracted with Technica LLC to act as a sub-subcontractor on the project.

Between 2007 and June 2008, Technica provided $893,698 worth of material, labor and services in connection with the project. Technica invoiced both Otay and Candelaria for this work, but it only received payments totaling $287,862. In June 2008, Otay's subcontract was terminated by Candelaria and, in September 2008, Technica filed suit in the U.S. District Court for the Southern District of California, invoking its rights under the Miller Act to recover against the payment bond for outstanding amounts owed pursuant to the subcontract.

Candelaria and Carolina Casualty subsequently filed a motion for summary judgment, arguing, among other things, that California's contractor licensing statute, Cal. Bus. & Prof. Code § 7031(a), precludes Technica's Miller Act claim. In pertinent part, the statute provides:

Except as provided in subdivision (e) [i.e., the "labor...