«When Does the Statute of Limitations Run on Payment Bond Claims? A Review of Recent Decisions Cynthia E. Rodgers-Waire Wright, Constable & Skeen 100 ...»
When Does the Statute of Limitations
Run on Payment Bond Claims?
A Review of Recent Decisions
Cynthia E. Rodgers-Waire
Wright, Constable & Skeen
100 North Charles Street, Suite 1600
Baltimore, MD 21201
(410) 659-1350 [fax]
Cynthia E. Rodgers-Waire is a partner in the law firm of Wright, Constable &
Skeen, in Baltimore, Maryland practicing primarily in surety, fidelity, and construc-
tion law. She is admitted to practice before the Fourth Circuit Court of Appeals, the United States District Court for the District of Maryland, the Court of Appeals of Maryland, the United States District Court for the District of Columbia, the District of Columbia and the United States Court of Federal Claims, and has been admit- ted pro hoc vice in numerous other jurisdictions. She received her bachelor of arts degree from the University of Virginia in 1989, and her juris doctor degree, with honors, from the University of Maryland School of Law in 1992.
When Does the Statute of Limitations Run on Payment Bond Claims?
A Review of Recent Decisions Table of Contents I. Introduction
II. What Event or Occurrence Triggers the Commencement of the Limitations Period?
A. Limitations Period Commences on Day after Payment Bond Claimant Last Performed Work.......6 B. Statute of Limitations Based upon Acts by the Obligee such as Final Acceptance or Final Payment
C. Statute of Limitations Based upon Date When Principal Last Performed Work
D. Statute of Limitations Based upon General Limitations Statute or Contractual Limitations Provision
E. Conflicts Between Statutory and Contractual Limitations Provisions
III. Common Factual Issues Arising in Limitations Disputes
A. Original Contract Work vs. Corrective/Repair Work
B. Work Done for Another Party
IV. Practice Tips for Successful Limitations Arguments
I. Introduction Upon receipt of a payment bond claim, one of the surety’s primary areas of analysis should be a review of the factual information presented by the claimant and hopefully, by the bond principal, to determine whether the surety has a legal defense to the claim based upon limitations. Whether such a defense exists often depends on the nature of the underlying project and the principal’s role in the project – a bond issued for a public project on behalf of a general contractor principal will be governed by a statute whereas a bond issued for a public project on behalf of a subcontractor principal or a bond issued on a private contract of any kind will likely be governed only by common law.
Statutory bonds, such as those issued under the federal Miller Act, 40 U.S.C. §§3133-34, or its state counterparts known as Little Miller Acts, typically contain express limitations provisions. The Miller Act contains a one year limitation provision. Most state Little Miller Acts contain a one year limitation provision but some are as short as six months and some are much longer. Bonds provided for private jobs have the most diverse limitations periods, as the limitations period may be contractual (contained in the bond form itself) or governed by a statute (general limitations statute for contract actions or one specific to actions on bonds).
A comprehensive review of each state’s bond limitations for non-federal public bonds and private bonds is beyond the scope of this paper but is addressed in detail in Walker, Courtney Turnage; Loeffler, Eric H; and Craver, Bradford R., Suit Limitations, Chapter 6 in The Law of Payment Bonds, 2Ed. (Kevin L. Lybeck, Wayne D. Lambert and John E. Sebastian, eds. 2011).
The intent of this paper is to discuss what triggers the commencement of the limitations period, regardless of whether the applicable limitations period is six months or twenty years, analyze the various arguments raised by claimants seeking to overcome a surety’s potential limitations defense, and discuss practical tips for increasing the surety’s odds of success in presenting a limitations defense. Given the highly factual nature of a limitations defense, there is a substantial amount of case law addressing the issue and a good deal of divergence in the courts’ analysis.
II. What Event or Occurrence Triggers the Commencement of the Limitations Period?
In order to determine whether a payment bond action is time barred, it must first be determined when the limitations period begins to run. The trigger for limitations is typically contained in the bond itself, but, in some cases, it may only be found in the underlying statute or case law. The trigger will vary by jurisdiction so at the outset of any limitations analysis, it is important for the surety to carefully review the bond itself for any possible contractual limitations language, determine the type of bond at issue (Miller Act, Little Miller Act, private) to determine whether statutory limitations are at play, and governing law (federal or state, and then what state’s law applies in conflict of laws situations).
As with most papers addressing surety bonds, a primary focus of this paper will be the Miller Act, as this long-established statute has a well developed and fairly uniform body of case law. In addition, state courts will often look to Miller Act precedent for guidance when confronted with a dearth of case authority at the state level.
When Does the Statute of Limitations Run on Payment Bond Claims?... ❖ Rodgers-Waire ❖ 5 A. Limitations Period Commences on Day after Payment Bond Claimant Last Performed Work The most common trigger for commencement of the limitations period is the claimant’s completion of work on the bonded project. This is the limitations found in the Miller Act, which reads, in pertinent part: “no such suit shall be commenced after the expiration of one year after the day on which the last of the labor was performed or material was supplied” by the payment bond claimant. 40 U.S.C. §3133(b)(4). Under most statutory interpretations, work constitutes either the providing of labor or the furnishing of equipment or materials. Work performed “by the claimant” for limitations purposes also includes any work performed by the claimant’s subcontractors and suppliers. U.S. ex. rel. H.T. Sweeney & Son, Inc. v. E.J.T. Constr. Co., 415 F.
Supp. 1328, 1332 (D. Del. 1976). The period runs from the day after the last day work (meaning labor, materials or equipment) was provided, even if the work performed on the last day is not work for which the claimant is seeking payment from the surety. Gen. Elec. Co. v. Southern Constr. Co., 383 F.2d 135, 138-39 (5th Cir. 1967), cert. denied, 390 U.S. 955 (1968).
The Miller Act’s state court counterparts are usually referred to as “Little Miller Acts;” however, they do not always mimic the federal statute in all aspects. An earlier version of the federal act provided that the statute of limitations begins to run one year after performance and final acceptance of the contract. Less than half of the states have chosen to amend their statutes to reflect the Miller Act’s current limitations provisions.
For those states adopting the current Miller Act limitations provision, in the absence of applicable state case authority, recent Miller Act case law addressing limitations is very useful guidance. Older Miller Act case law may be utilized by courts construing state Little Miller Act statutes that still utilize “final acceptance” or other similar language. For a complete list of the state statutory provisions, see The Law of Payment Bonds, 2d Ed., Chapter 6 at 235.
B. Statute of Limitations Based upon Acts by the Obligee such as Final Acceptance or Final Payment As noted above, a significant number of state Little Miller Act statutes contain language similar to the prior language of the Miller Act and provide for the commencement of the payment bond limitations period based upon an action taken by the public obligee/owner, using such terms as “final acceptance” of the prime contractor’s work, “final settlement” of the prime contract, or “final payment.” “Final settlement” is usually defined as the date when the public owner determines the final contract amount owed to the prime contractor (which date is not necessarily simultaneous with final payment). See, e.g. Zimmerman’s Elec., Inc. v Fid. & Deposit Co. of Md., 231 N.W.2d 342, 345 (Neb. 1975).
As the various terms are often not defined in the statutes, uncertainty can arise in the application of the limitations defense to a particular payment bond claim, thereby spawning litigation. For example, Maryland’s Little Miller Act provides that the statute of limitations begins to run one year after final acceptance.
Md. Code Ann., State Fin. & Proc. Section 17-109(b) (1988). In U.S.F.&G. Co. v. Hamilton & Spiegel, Inc., 215 A.2d 735, 737 (Md. 1966), Maryland’s appellate court held that “final acceptance” occurred on the project at issue when the project architect issued a certificate of final completion even though the architect issued the certificate more than two years after the public owner began occupying the space. A few years later, the same court, addressing a project for which the underlying prime contract did not require an architect’s certification of final completion, determined that final acceptance occurred on the date that the public owner approved the release of final payment. Joseph J. Hock, Inc. v. Balt. Contractors, Inc., 249 A.2d 135, 140 (Md. 1969).
Given the lack of a precise definition, different parties to the same project may reach different conclusions as to when the limitations period began to run. As a result, it can be difficult for a surety faced with 6❖ Fidelity and Surety Roundtable ❖ May 2012 this limitations standard to determine whether it has a viable limitations defense and particularly so when the surety may need to obtain information from the obligee, who may be reluctant to volunteer information or provide affidavit in an ongoing lawsuit regarding its own determination as to when “final acceptance” or “final settlement” occurred.
C. Statute of Limitations Based upon Date When Principal Last Performed Work A handful of state Little Miller Act statutes provide for limitations to begin to run from the time the principal completes the work or provides notice of completion. There is lack of uniformity as to the meaning of the term as some courts interpret this provision to mean substantial completion while others construe the degree of work necessary to trigger limitations to be closer to what most in the construction industry would consider a final completion standard. See, for example, Hensel Phelps Constr. Co. v. Gen. Signal Corp., 460 F.2d 109 (10th Cir. 1972) (holding that the term “completion” in Colorado’s statute means substantial completion).
D. Statute of Limitations Based upon General Limitations Statute or Contractual Limitations Provision A few states do not have a limitations period contained in their Little Miller Acts, instead relying on a general statutory limitations provision for contract claims. Montana, for example, relies on the eight year statute of limitations applicable to all written contracts. See Mont. Code Ann. Section 27-2-202(1). Private bond forms may be entirely silent on the issue of deadlines to bring actions against the bond. In such cases, state general limitations statutes also govern the time period in which to bring suit.
Many bond forms do, however, contain contractual limitations provisions. Such bond forms are typically used on private projects, but may also be utilized on non-federal public projects if the particular public obligee does not have its own bond form. Some widely utilized bond forms are those put out by the AIA, the AGC, and ConsensusDOCS. The AIA A311 bond form is no longer distributed by the AIA but still crops up on the occasional project. This bond form requires a claimant to file suit within one year after the bond principal last provided work on the project. The A311’s purported replacement, the AIA A312, was introduced in 1984 and revised and rereleased in 2010. This bond form requires the claimant to file suit within one year of the first to occur of: 1) the claimant’s notice of its claim to the surety as required by the bond terms; or 2) the last date of performance of work by anyone on the project. The ConsensusDOCS bond forms follow the language of the Miller Act and the AGC bond form is similar to the A312 bond form. Parties who choose to use their own bond forms are free to create whatever contractual limitation provision that they choose; however, as noted below, that does not guarantee that the contractual limitations period will be enforced by the courts.
E. Conflicts Between Statutory and Contractual Limitations Provisions What happens when an applicable statutory bond limitations provision conflicts with a contractual limitations provision? The federal government has eliminated this potential problem on federal projects by requiring that the Miller Act bond form be used on all projects governed by the statute. Such a conflict can occur on Little Miller Act projects because not all state public entities have their own bond form or mandate use of a particular bond form. Conflicts in private bond situations only occur in those states where statutes or case law mandate that a specific statutory limitations provision apply to private bonds. There are a handful of states that prohibit any form of contractual limitations provision as against public policy and void. See, for example, Mo. Rev. Stat. Section 431.030. As a result of such scenarios, most widely used bond forms have a savings clause that provides that if the contractual limitations provision is unenforceable, the minimum period available under applicable law is the limitations provision.