Introduction
While it is well settled that the one year period for the filing of a Miller Act payment bond lawsuit may be extended in only very limited circumstances, if at all, in a recent case in which we were involved, a subcontractor raised the doctrine of relating back to assert that its late-filed Miller Act suit was valid. This was done in order to leverage a settlement. As extension of the Miller Act’s one-year deadline for payment bond suits alters the risk profile of projects both for sureties and general contractor indemnitor, attempted application of the relating back doctrine – a federal rules of civil procedure rule – particularly if it allows litigation to continue with its attendant costs, is worthy of note, if only to discredit it as a shameless red-herring assertion in most jurisdictions. And, to recommend to sureties who may be considering interpleading bond money into a court to think about waiting until after one year has expired from the last date of work and supplies before doing so – assuming they can do so without becoming subject to bad faith arguments. Doing such, may make it virtually impossible, even in those minority jurisdictions where relating back is acknowledged on affirmative positive counterclaims, for Miller Act bond claimants to leverage the theory for settlement or to preserve litigation. In sum, put the burden on the claimant, as the Miller Act intended it, to file timely.
The Miller Act
The Miller Act protects labor and material suppliers in the construction of federal projects, requiring general contractors on projects over $100,000.00 to provide a payment bond securing first and second tier subcontractors and material suppliers.1 The Act, however, provides a time limit for any lawsuit for non-payment of such suppliers, stating:
(4) Period in which action must be brought. – An action brought under this subsection 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.2
Courts have construed this one-year period strictly for the most part, viewing it either as a an “integral part of the statute and is jurisdictional in character” or “a condition precedent to bringing an action under the Miller Act that a Plaintiff must satisfy.”3 Either way, the general rule is that:
An action brought under the Miller Act must be filed 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. A plaintiff cannot survive a timeliness challenge without specific evidence of original contract work being performed within the one-year limit.4
As such, few exceptions have been recognized that allow Miller Act payment bond claimants to maintain suits after the one-year period. These exceptions relate mostly to situations where sureties’ actions interfere with the filing of a lawsuit, under the legal doctrines of equitable tolling of the period, waiver or estoppel. Examples of extensions of the one-year period were provided in Martin Marietta Materials v. DTC Eng’rs & Constructors, LLC, 2012 U.S. Dist. LEXIS 84356 (E.D. N.C. 18 June 2012)*15-16, as where “supplier failed to bring action within this filing period based on surety’s promise”; or supplier was “forbidden by a court injunction to initiate litigation.” But, as also noted by that court, “federal courts have typically extended equitable relied only sparingly.” (Id.) As such, there the court rejected a belated Miller Act suit, where the claimant supplier had initially filed suit in state, not federal, court as required under the Miller Act and then waited 6 weeks (and beyond the one-year period) to re-file in federal court. (Id. at *19.)
Perhaps given the limited availability of equitable tolling, waiver and estoppel, Miller Act payment bond claimants who file late are attempting other approaches to try and extend the time period, such as relying on the relating back doctrine.
The Relating Back Doctrine and the Argument that it Extends the Miller Act’s One Year Rule
We recently were involved in Insurance Company of the State of Pennsylvania v. Afghan ICT Solution et al, 1:14 cv 05786 (S.D.NY) (“Afghan ICT”) in which a Miller Act payment bond surety deposited approximately $5.3 Million (the remaining penal sum) into Court via an interpleader complaint. Twelve subcontractors with claims of over $15 Million sought the money. The prime contractor, Lakeshore Toltest JV LLC, had been terminated on 25 September 2013 by the U.S. Army Corps of Engineers on a project for the construction of an Afghan National Army Brigade Garrison base in Afghanistan. So, 25 September 2013 was the date on or about when the last work was performed by subcontractors and material suppliers also on the project. The surety’s interpleader action was filed with the Court 10 months later, July 28, 2014, and subcontractor/supplier claims were (mostly) made in counterclaims and answers responding to the surety’s suit – a typical interpleader scenario.5
One subcontractor filed an Answer and Counterclaim on 23 March 2015. It asserted “entitlement to payment…under the Miller Act”; that it “performed all work as required under the Subcontract until…terminated pursuant to a letter from Lakeshore dated on or about September 28, 2013”; “performed services from June 27, 2013 to September 30, 2013”; and, “provided services under the Subcontract through September 30, 2013.”
Thus, the last date of the subcontractor’s work on the project was 30 September 2013. Based on this, the Subcontractor’s Miller Act suit should ordinarily have been filed on or before 30 September 2014. Yet it filed its Miller Act lawsuit, via its counterclaim, nearly 18 months after its last project work. To try and comply with the 1 year Miller Act requirement, the subcontractor asserted that the filing of the interpleader complaint by the surety on 28 July 2014 “tolled” the subcontractor’s counterclaim and because the surety’s interpleader action was “commenced less than one-year from the date of [the subcontractor’s last service on the project] this rendered the subcontractor’s counterclaims timely.” To support this argument, the subcontractor cited the relating back doctrine and Burlington Industries Inc. v. Milliken & Co, 690 F.2d 380 (4th Cir. 1982). The subcontractor essentially said: “I am entitled to claim, and more importantly take in a settlement, some of the interpleader funds or you other claimants/the surety spend time and money to have the court declare my bond claim invalid.”
The Relating Back Rule
The relating back rule is a procedural rule that derives from the Federal Rules of Civil Procedure Rule 15 (c). If, for example, a plaintiff amends a complaint to add new legal theories or causes of action, the rule provides that the amended complaint relates back to the date of the filing of the original complaint avoiding a statute of limitations bar, so long as recovery sought in both pleadings is based upon the same general set of facts.6
In Burlington, a case involving market monopoly conspiracy allegations, Burlington, the defendant, raised by counterclaim an anti-trust violation, which the 4th Circuit found “arose out of the very transaction which was the subject matter of [the Plaintiff] Milliken’s complaint.”7 Thus, “the antitrust claims were compulsory under Rule 13(a), and related back to the dates of Milliken’s respective complaints.”8 And, as such, “the institution of plaintiff's suit tolls or suspends the running of the statute of limitations governing a compulsory counterclaim."9
Using Burlington, the subcontractor in Afghan ICT asserted that its counterclaim Miller Act bond claim arose out of the very transaction that was the subject of the surety’s interpleader complaint, the project for the work. And, as such, it was a compulsory counterclaim and thus related back so was not late under the Miller Act – being filed on 28 July 2014 effectively (10 months after the work was done) not on 23 March 205, 18 month after, when the counterclaim was filed.
The Relating Back Rule Does Not Extend the Miller Act One Year Time Period
Subject to a few minority jurisdictions mentioned below, the general rule is that the relating back rule does not extend the Miller Act’s one-year period. In the context of Afghan ICT, in the 2nd Circuit covering New York (a jurisdiction where sureties and the law governing their bonds, are prevalent), this is clearly established.
In Franklin Pavkov Constr. v. Ultra Roof Inc., 51 F. Supp. 2d 204 (N.D. N.Y. 1999), the surety asserted that Ultra Roof’s payment bond claim against it, made as a cross-claim, was barred as being made beyond the Miller Act’s one-year period. Ultra Roof’s final payroll on the project was 7 October 1995, and testimony showed it left site on 10 October. While the original complaint was filed on 13 August 1996, Ultra Roof’s counterclaim and cross claim against the surety was filed on 22 November 1996, over one year after its last work was performed. The Court squarely considered the point: “[t]he question becomes, then, whether or not the counterclaim relates back to the time the original complaint was filed.” (Id.at 222.) And answered it in the negative: “[t]o the extent that Ultra Roof’s claim seeks payment from IFIC [the surety] for its own labor and materials, it is an independent cause of action and does not relate back to the date the original complaint was filed.” (Id.) Thus, the Court noted that the rule is that whether the doctrine of relating back is applicable is dependent on if the party is asserting an affirmative cause of action or a defensive claim. Only the latter can relate back. And the latter, are unlikely to be Miller Act bond claims.10
The Franklin position was effectively followed, albeit without it being cited, in U.S. v. American Home Assurance Co., 2009 U.S. Dist. Lexis 56711 (E.D. N.Y. 2 July 2009). There, an electrical subcontractor’s electrical work was completed in August 1999 but its Miller Act complaint was not filed until February 2008. The subcontractor asserted, based on equitable principles of estoppel mainly, that the one-year period should be extended because it had been fraudulently induced to enter into a Liquidating Agreement and also that the suit filed in 2008 should relate back to a prior suit in 1998 resolved by the Liquidating Agreement. The Court rejected this position, not only on the basis that the Miller Act one-year period is jurisdictional thus preventing its expansion by equitable principles, but also that relating back had to relate to pleadings in the same case and there was provided “no authority supporting application of relating back to its Miller Act claim.”11
Similarly, Franklin’s relating back position was confirmed, albeit not in a Miller Act payment bond case context, in EverHome Mortg. Co. v. Charter. Oak Fire Ins: Co., 2012 U.S. Dist. LEXIS 34516 (14 March 2012), where the Eastern District of New York, in also dismissing claims based on relating back, expressly noted, "[t]he Franklin Pavkov court adopted the federal common law rule applied to counterclaims, that while defensive claims may relate back, affirmative claims must satisfy the applicable statute of limitations."12 The Court further stated, "La Salle did not bring its cross-claims to protect itself from EverHome's claim, but as a late attempt to recover the proceeds for itself."13 A Miller Act bond claimant does the same.
Beyond New York, other jurisdictions have come to the same conclusion holding that the relating back rule cannot extend the Miller Act’s one-year period. This was specifically held in United States ex rel. Statham Instruments, Inc. v. Western Cas. & Sur. Co., 359 F.2d 521 (6th Cir. 1966). A materials supplier, who supplied its last materials by 6 November 1962, commenced suit against the incorrect surety on 1 November 1963 and only corrected this on 4 December 1962, over a year after the materials had been supplied. The surety asserted that the suit was late and barred by the Miller Act’s one-year rule. The Court agreed. It rejected the argument that the case, once filed against the principal, tolled the Miller Act as to the surety and that the amendment of the complaint to re-file against the correct surety entity related back to the original complaint, which was timely. “Plaintiff contends that the amendment adding a new party defendant relates back to the date of the filing of the original petition, and therefore brings the new defendant within the one-year period of limitation. We do not agree.” (Id.at 523). Adding a new party “establishes a new and independent cause of action which cannot be maintained when the statute has run” (Id.)
Indeed, in the majority of federal circuits, the relation back doctrine will not toll the Miller Act’s one-year period. The overwhelming majority rule on the relating back doctrine’s application was discussed in Murray v. Mansheim, 779 N.W.2d 379 (S.D. 2010), in a case of first impression before the South Dakota Supreme Court on the doctrine, and in which the Court reviewed the applicable law extensively.14 Plaintiff had filed a personal injury action one day before the three-year statute of limitations period expired, and almost a month later, defendant filed both his answer, which was timely, and his counterclaim, which was untimely. The Court held that for the purposes of limitation laws, all counterclaims “commenced” when they were stated in the pleadings. Moreover, “the initial action did not toll the statute of limitations nor did a compulsory counterclaim ‘relate back’ to plaintiff’s initial complaint.” (Id.)
Analogous case law from other jurisdictions follows the same reasoning. For example, in Penn. R. Co. v. Miller, 124 F.2d 160, 161-62 (5thCir 1941) the Court found while a shipper’s right to claim damages by way of recoupment (more than two years after his loss claims were denied by the carrier) remained, “a counterclaim asserting an "affirmative cause of action [ ] may be barred by limitation."15
Consistent with this rule, filing a timely response to an interpleader complaint will not toll or extend the Miller Act. In Nat. Am. Ins. Co. v. P.R. Contractors Inc. et al, 2001 U.S. Dist. Lexis 9146 *4-5 (E.D. La, 28 June 2001) the surety filed an interpleader action more than one-year after the work was performed on the project to deposit payment bond money into court. No claimant to the bond had filed any suit before that or within one-year of their last work. Claimants answered the interpleader timely with claims for the bond proceeds. The Court dismissed the claims finding that mere timely response to the interpleader was not sufficient to meet the claimants' burdens to comply with the Miller Act one-year time period.
The Minority Position on Relating Back
As noted by Murray, supra, three federal circuits allow expired compulsory counterclaims to relate back to the initial, timely complaint. As discussed, one of these circuits is the 4th Circuit, which covers Virginia. Another is the Federal Circuit.16 And, the other is the 9th Circuit, covering California.17 While these circuits have this relating back rule, it is not certain that they will nevertheless apply the relating back rule in the context of the Miller Act to extend the one-year period for filing suit. For example, in Virginia, Federal Courts have refused to apply principles that might extend the Miller Act’s one-year period, based on the applicable facts and circumstances of the case. In Datastaff Tech Group Inc. v. Centex Constr. Co., 528 F. Supp. 2d 587 (E.D. Va 2007) the Court rejected a subcontractor’s Miller Act claim made beyond the one year limitation asserted under equitable estoppel principles. While the court recognized that equitable estoppel may extend the time period, it noted “it must have been the defendant’s misrepresentations, and not the plaintiff’s own failure to act that caused the plaintiff to miss the filing deadline” (Id. at 594). By analogy, a plaintiff’s own failure to file timely a Miller Act complaint and rely on relating back may be equally insufficient.
Conclusion
In the vast majority of federal jurisdictions, the relating back doctrine cannot plausibly be used to extend the one-year Miller Act filing rule to make suits timely. That said, whether in those majority jurisdictions or others which recognize equitable principles to extend the one-year rule and relating back rules, it is very plausible that Miller Act bond claimants may look increasingly, to relating back theories to seek to justify belated complaints, to at least leverage settlements via the cost of litigation (even summary proceedings). While these claims will all be affirmative claims seeking payments, rather than defensive claims, it may be important for sureties who are considering interpleading funds, especially where they are themselves going to claim those funds or not otherwise be subject to paying them out, to change the dynamics by waiting until after the one-year period of work is performed before filing their interpleader complaint. In this way, as in Nat. Am. Ins. Co. v. P.R. Contractors Inc., it makes it more difficult, if not impossible, for a late bond claimant to successfully raise a relating back argument when the interpleader surety has filed its complaint over one year from the last labor or materials being supplied.
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1 40 U.S.C. §3131 et seq.
2 Id. at (b) (4).
3 See, e.g., Highland Renovation Corp. v. Hanover Ins. Group., 620 F. Supp 2d 79,81 (D.D.C 2009) summing up the competing views on the Miller Act’s one year filing period requirement and stating that the D.C. Circuit’s view is “the one year period of limitations found in the Miller Act is substantive, not jurisdictional…”(Id.) These are by no means mere semantic differences. As noted in numerous New York cases, a jurisdictional construction of the Miller Act’s time period means that equitable tolling and estoppel will not apply as a way to extend the 1 year period. See, e.g., US. v. American Home Assurance Co.,2009 U.S. Dist. Lexis 56711, E.D. N.Y. 2 July 2009 noting, “[t]ypically, when a statute’s time-limiting provision is considered jurisdictional, it is not susceptible to expansion by equitable principles.”
4 Highland Renovation Corp., supra note 4, at 83.
5 It is unclear why the surety filed its interpleader case when it did or why it did not wait another 2+ months.
6 Fed. R. Civ. P. 15(c) provides: “When an Amendment Relates Back.—An amendment to a pleading relates back to the date of the original pleading when:
(A) the law that provides the applicable statute of limitations allows relation back;
(B) the amendment asserts a claim or defense that arose out of the conduct, transaction, or occurrence set out—or attempted to be set out—in the original pleading.”
7 Burlington, 690 F.2d at 389.
8 Id.; see also Fed R. Civ P. 13.
9 Burlington, supra note 8, at 389.
10 Citing United States ex rel. Bros. Builders Supply Co. v. Old World Artisans, Inc., 702 F. Supp. 1561, 1569 (N.D.Ga.1988) (footnote omitted) and Chauffeurs, Teamsters, Etc. v. Jefferson Trucking, 628 F.2d 1023, 1027 (7th Cir.1980), cert. denied, 449 U.S. 1125(1981)(“there is no provision in Rule 13(g) of the Federal Rules of Civil Procedure that a cross-claim may relate back to the date of the filing of an original complaint. The common law rule that statutes of limitations do not run against pure defenses does not apply to setoffs, counterclaims, or crossclaims that are affirmative, independent, causes of action.”)
11 American Home, U.S. Dist. Lexis 56711 at *20; See e.g., Iavorski v. I.N.S., 232 F.3d 124 (2d. Cir. 2000) (confirming that when a statute’s time-limiting provision is considered jurisdictional, it is not susceptible to expansion by equitable principles.)
12 EverHome Mortg. U.S. Dist. LEXIS 34516 at,*29.
13 Id. at *30.
14 The Court noted: “Our research indicates that seven federal circuit courts have refused to toll or waive the statute of limitations, or have noted counterclaims seeking affirmative relied “may not be allowed. Only three federal circuit courts allow the expired compulsory counterclaim to relate back to the initial, timely complaint.” (Murra, 779 N.W.2d at 386-87 ¶19).
15 See also Williams v. Neely, 134 F 1, 13 (8thCir 1904); United States ex. rel. Use of Soda v. Montgomery, 253 F.2d 509 (3rd Cir. 1958); In re Smith, 737 F.2d 1549, 1552-54 (11th Cir 1984) (“disallowing time-barred affirmative claim to be brought as counterclaim noting that "this change of labels does not effect a change in the essential character of the action").
16 See, e.g., Employers Ins. of Wausau v. United States 764 F.2d 1572, 1576 (Fed. Cir 1985), albeit holding that though plaintiff's suit suspended the running of limitations on a compulsory counterclaim while the suit is pending; there was no claim preclusion rising out of the failure to counterclaim, and “as a consequence, nothing happened to toll the running of limitations and the statute had run” on the entire claim.
17 See, e.g., Religious Tech. Center v. Scott, 1996 U.S. App. LEXIS 8954, 1996 WL 171443, at *8 (9thCir 1996) (unpublished), although the Court did not toll the one-year statute of limitations for Plaintiff’s emotional distress claim.