Technica LLC v Carolina Casualty Insurance Co et al (2014) DJDAR 5353

SUBCONTRACTOR ON FEDERAL CONSTRUCTION PROJECT IN CALIFORNIA MAY SUE PRIME GOVERNMENT CONTRACTOR FOR PAYMENT UNDER MILLER ACT, ALTHOUGH IT LACKED A CALIFORNIA LICENSE

IN THE CASE OF Technica LLC v Carolina Casualty Insurance Co et al (2014) DJDAR 5353

Technica was a subcontractor on a Federal construction in California.  The prime contractor was Candelaria–The district court would not  allowed Technica to recover under a Miller Act claim for payments due under its subcontract–although Technica was not licensed in California. The 9th Circuit Court of Appeal reversed

Between late 2007 and June 2008 Technica provided $893,697.77 worth of labor, material and services to a Perimeter Fence Replacement project .  Only partial payments totaling $287,861.81 were received.

Candelaria filed a motion for summary judgment pursuant to California Business and Professions Code Section 7031(a) as a defense to the Miller Act Claim because Technica was not licensed in California –7031 precludes any contractor from maintaining an action for collection of compensation for services if the contractor was not licensed during the performance of the contract.

The Miller Act is the modern-day remedy to the historical dilemma faced by contractors and material men denied compensation in federal construction projects.  The Miller Act allows other parties beside the prime contractor to recover for monies due them on a federal construction project through the furnishing of a payment bond by the prime contractor.  The Miller Act specifically extends to sub-subcontractors such as Technica   A person having a direct contractual relationship with a subcontractor but not contractual relationship, express or implied, with the contractor furnishing the payment bond may bring a civil action on the payment bond.

The question before the Court is whether California’s contractor’s licensing law restricts “the substance of the rights” afforded to Technica under the Miller Act.  This was a matter of first impression for the 9th Circuit.  The US Supreme Court, and the 8th and 10th Circuit Court of Appeals(Federal) have held that rights and remedies under the Miller Act may not be conditioned by state law.  The 9th Circuit concluded that their reasoning applied with equal force to this case where Technica was not licensed in California.

The Court when onto state that Candelaria(the Subcontractor) and CCIC (Carolina Casualty Insurance Company-the Surety) urged the Court to consider case law in the 9th circuit that applied state law in Miller Act claims, these cases were distinguished because they dealt with the application of the substantive law of contracts and not the rights established by the Miller Act.  For instance the Court cited Continental Casualty Co v Schaefer -which held Washington’s substantive law of contracts applied to an issue that does not involved  construction or application of a federal statute.  The issue was whether the parties had created an implied agreement.

The 9th Circuit panel therefore held that the limitation in B&P Code Section 7031(a) on the right of a non-licensed contractor to maintain an action for collection of unpaid services did not apply to an action under the Miller Act.  The rights under a federally declared standard could otherwise be defeated if states were permitted to have the final say as to what defenses could and could not be properly interposed to suits under the Miller Act.

The Court likened the situation to state restrictions on a foreign corporation’s right to maintain a suite at issue in Aetna Casualty Surety Co–application of California’s licensing statute as a defense to a Miller Act Claim would, at best, condition the rights of a subcontractor on the procedural requirements of state law, and, at worst, result in the nullification of those rights entirely–Neither result is in accordance with the remedial purposes of the Miller Act–

Therefore the unlicensed-sub-subcontractor Technica could recover under the Miller Act Bond.

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