U.S. for the United Statese & Benefit of Auto-Owners Ins. Co. v. Fid. & Deposit Co. of Md.

• Decision Date: 01 December 2016
• Docket Number: Case No. 3:15-cv-1423
• Parties: United States for the Use and Benefit of Auto-Owners Insurance Company, Plaintiff v. Fidelity and Deposit Company of Maryland, et al., Defendants
• Court: U.S. District Court — Northern District of Ohio

United States for the Use and Benefit ofAuto-Owners Insurance Company, Plaintiff v. Fidelity and Deposit Company ofMaryland, et al., Defendants

Case No. 3:15-cv-1423

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF OHIO WESTERN DIVISION

December 1, 2016

MEMORANDUM OPINION

This matter comes before me on Defendants, Fidelity and Deposit Company of Maryland and Custom Mechanical Systems, Corp.'s motion to dismiss. (Doc. No. 23). Also before me are Plaintiff's opposition (Doc. No. 25), Defendants' reply (Doc. No. 26), Plaintiff's sur-reply (Doc. 31), as well as Defendants' sur-rebuttal. (Doc. No. 35)

I. BACKGROUND

In 2012, the United States contracted with Custom Mechanical Systems, Corp. ("CMS") for work on a project known as the Army Truck Plant in Lima, Ohio. CMS became a prime contractor on the project. As part of its statutory duty, CMS was required to obtain a payment and performance bond for the project. In August 2012, Fidelity and Deposit Company of Maryland issued the requested surety bond to CMS.

CMS subcontracted with DEC, LLC to perform work on the project. DEC, in turn, contracted with Sidney Electric Company to perform a portion of the work required under the subcontract. As a condition of the subcontract between DEC and Sydney, DEC was required to obtain a surety bond.

In May 2013, Auto-Owners Insurance Company ("AOIC") issued a surety bond naming DEC as principal and Sidney Electric as obligee. As a condition of the DEC bond, AOIC required DEC, Chuck Zell, Kelly Zell, and Shannon Smith to execute an indemnity agreement.

AOIC alleges Sidney Electric asserted a claim against the DEC bond for labor and materials supplied to the project as the claim was not paid by DEC. AOIC paid Sidney Electric $60,000 pursuant to a claim on the DEC bond.

This case is brought by United States of America, for the Use and Benefit of AOIC, against Fidelity, CSM, DEC, Chuck Zell, Kelly Zell, and Shannon Smith. The causes of action include: (1) breach of contract against CMS; (2) a quantum merit claim against CMS; (3) a payment bond claim against Fidelity; and (4) contractual indemnification against DEC and its indemnitors. DEC and its indemnitors assert cross-claims against CMS sounding in: (1) breach of contract; (2) unjust enrichment; and (3) quantum merit.

Defendants Fidelity and CMS move to dismiss the complaint alleging a lack of subject matter jurisdiction and a failure to state a claim upon which relief can be granted.

II. STANDARDS OF REVIEW

A defendant may seek to dismiss a plaintiff's complaint on the ground the complaint fails to state a claim upon which relief may be granted. Fed. R. Civ. P. 12(b)(6). When ruling on a motion to dismiss, a court construes the complaint in the light most favorable to the plaintiff and accepts as true well-pleaded factual allegations. Daily Servs., LLC v. Valentino, 756 F.3d 893, 896 (6th Cir. 2014) (citing Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009)). Factual allegations must be sufficient to state aplausible claim for relief. Iqbal, 556 U.S. at 678. Legal conclusions and unwarranted factual inferences are not entitled to a presumption of truth. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).

A motion brought under Fed. R. Civ. P. 12(b)(1), challenging subject matter jurisdiction falls into two categories: facial attacks and factual attacks. FED. R. CIV. P. 12(b)(1); United States v. Ritchie, 15 F.3d 592, 598 (6th Cir. 1994). A facial attack challenges the sufficiency of the pleading itself. Upon receiving such a motion, the Court must take all of the material allegations in the complaint as true and construe them in the light most favorable to the non-moving party. Id. (citing Scheuer v. Rhodes, 416 U.S. 232, 235-37 (1974)).

In contrast, a factual attack challenges the factual existence of subject matter jurisdiction. See Ohio Hosp. Ass'n v. Shalala, 978 F. Supp. 735, 739 (N.D. Ohio. 1997). When a Court considers whether it has subject matter jurisdiction, "no presumptive truthfulness applies to the factual allegations, and the court is free to weigh the evidence and satisfy itself as to the existence of its power to hear the case." United States v. Ritchie, 15 F.3d 592, 598 (6th Cir. 1994) (internal citations omitted). See also RMI Titanium Co. v. Westinghouse Elec. Corp., 78 F.3d 1125, 1135 (6th Cir. 1986).

Under either inquiry, the plaintiff bears the burden of demonstrating that the Court has and may appropriately exercise jurisdiction over the subject matter. DXL, Inc. V. Commonwealth of Kentucky, 381 F.3d 511, 516 (6^th Cir. 2004).

III. POSITIONS OF THE PARTIES AND THE MILLER ACT

Defendants Fidelity and CMS move for dismissal for a failure to state a claim inasmuch as they contend AOIC does not have standing to bring this action under the Miller Act. Second, they contend this Court does not have subject matter jurisdiction because Plaintiff does not present aviable or timely claim under the Miller Act. In contrast, Plaintiff contends it does have standing via a valid assignment and that the claims against the Defendants are timely. Under 49 U.S.C. § 3133, the Miller Act addresses the right to bring a civil action:

(1) In general.—Every person that has furnished labor or material in carrying out work provided for in a contract for which a payment bond is furnished under section 3131 of this title and that has not been paid in full within 90 days after the day on which the person did or performed the last of the labor or furnished or supplied the material for which the claim is made may bring a civil action on the payment bond for the amount unpaid at the time the civil action is brought and may prosecute the action to final execution and judgment for the amount due.

(2) Persons having direct contractual relationship with a subcontractor.—A person having a direct contractual relationship with a subcontractor but no contractual relationship, express or implied, with the contractor furnishing the payment bond may bring a civil action on the payment bond on giving written notice to the contractor within 90 days from the date on which the person did or performed the last of the labor or furnished or supplied the last of the material for which the claim is made. The action must state with substantial certainty the amount claimed and the name of the party to whom the material was furnished or supplied or for whom the labor was done or performed. The notice shall be served - -

(A) by any means that provides written, third-party verification of delivery to the contractor at any place the contractor maintains an office or conducts business or at the contractor's residence; or

(B) in any manner in which the United States marshal of the district in which the public improvement is situated by law may serve summons.

The purpose behind the Miller Act was succinctly stated by the district court in United States ex. Rel. Acoustical Concepts, Inc. v. Travelers Casualty and Surety Co. of America, 635 F.Supp.2d 434 (E.D. Va. 2009) as follows:

[T]he Miller Act's purpose is to ensure that subcontractors are promptly paid in full for furnishing labor and materials to federal construction projects. See, e.g., United States ex rel Sherman v. Carter, 353 U.S. 210, 217, 77 S.Ct. 793, 1 L.Ed.2d 776 (1957). ("The essence of [the Miller Act's] 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."). In effect, therefore, the Miller Act provides subcontractors on federal construction projects with the functional equivalent of a mechanic's lien typically available to subcontractors on non-federal projects.

Id. at pp. 438-39. See also United States for Use of General Elec. Supply Co, a Division of General Electric Co., 11 F.3d 577, 580 (6^th Cir. 1993). Stated differently, "[t]he Act provides a supplier of labor or material who has not been paid in full a right of action to sue on the payment bond." United States for the use and benefit of Interstate Mechanical Contractors, Inc., 200 F.3d 456, 459 (6^th Cir. 2000).

A. Statute of Limitations and Jurisdiction

Defendants argue there is an absence of subject matter jurisdiction as Plaintiff's claims fall outside of the statute of limitations. Because the time limit is jurisdictional, Defendants contend the cause of action is insufficient to confer subject matter jurisdiction upon this Court. I disagree.

Defendants rely on United States v. International Fidelity Ins. Co., 200 F.3d 456, 460 (6^th Cir. 2000), for proposition that the one year statute of limitations is jurisdictional and not procedural. The issue there involved which test to apply to the words "labor" and "material" in the context of statutory interpretation for purposes of determining whether remedial or corrective work to a project was subject to the statute of limitations:

The majority of circuits that have addressed this issue have held that remedial or corrective work or materials, or inspection of work already completed, falls outside the meaning of "labor" or "materials" under § 270b(b). Hence, performing such work or supplying such materials will not toll the Miller Act's one-year statute of limitations. . . . The majority rule requires the trier of fact to distinguish "whether the work was performed. . . as a 'part of the original contract' or for the 'purpose of correcting defects, or making repairs following inspection of the project.'"

Id. (Citations omitted). While the Sixth Circuit took note of the one year statute of limitations as part of its discussion, the majority opinion did not discuss the jurisdictional aspect of the statute.

In contrast, the following circuits have taken up this question and determined the one year time limit under the Miller Act is not jurisdictional. U.S. ex rel. Air Control Technologies, Inc. v. pre Con Indus. Inc., 720 F.3d 1174, 1176-78 (9^th Cir. 2013); Arena v. Graybar Elec. Co. Inc., 669 F.3d 214, 221 (5^th Cir. 2012); Animal Sci. Products, Inc. ...