Better Roads

June 2014

Better Roads Digital Magazine

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22 June 2014 Better Roads InCourt by Brian Morrow, P.E., Esq. Court Court Attorney Brian Morrow is a partner in Newmeyer & Dillion LLP and a licensed civil engineer specializing in construction law, including road and heavy construction. I n a recent case involving the intersection of state and federal law – Technica LLC v. Carolina Casualty Insurance Company (U. S. Court of Appeals, 9th Circuit, April 29, 2014) – a federal court held that a California law restricting the right of unlicensed contrac- tors to obtain payment did not apply to actions under the Miller Act. Historically, unpaid contractors, material suppliers and laborers could place a mechanic's lien against property where they worked. Mechanic's liens are a creature of statute and form an encumbrance on the owner's prop- erty. However, the doctrine of sovereign immunity, which stems from the English principle that the king can do no wrong, prevented liens against property of the federal government. As a result, the U.S. Congress passed the Heard Act in 1894 and the Miller Act in 1935, which require con- tractors on federal construction projects to obtain per- formance and payment bonds. Bonds act to ensure the contractor's performance and payment for subcontractors, material suppliers and laborers. The states have similar stat- utes through so-called "Little Miller Acts." Many states have enacted contractor-licensing statutes that prevent unlicensed contractors from seeking payment. These statutes are enforceable under state law. However, a conflict sometimes arises between state and federal law regarding the application of these statutes. The Technica matter involved a conflict between a California contractor licensing statute and the Miller Act. The dispute stemmed from a fence project for the U.S. Department of Homeland Security, Immigration and Customs Enforcement, regarding a detention facility in El Centro, California. The prime contractor, Candelaria Corporation, obtained a payment bond from its surety, Carolina Casualty Insurance Company (CCIC), as re- quired by the Miller Act. Candelaria subcontracted with Otay Group Inc. to perform a portion of the work. Otay contracted with Technica LLC to act as a sub-subcontractor. Between late 2007 and June 2008, Technica pro- vided labor, material and services to the project worth $893,697.77. Technica submitted invoices to Otay and Candelaria for its work but was paid only $287,861.81. This left Technica with an unpaid amount of more than $600,000. In June 2008, Candelaria terminated Otay's subcontract. In September 2008, Technica filed a complaint in federal court against CCIC, Candelaria and Otay, claim- ing rights under the Miller Act to recover against the pay- ment bond for outstanding amounts owed and breach of contract. Candelaria and CCIC filed a motion for summary judg- ment against Technica. They argued California's contractor licensing statute, California Business and Professions Code section 7031(a), provided a complete defense to Technica's claim under the Miller Act. Section 7031(a) precludes a contractor from bringing or maintaining an action to collect amounts owed if the contractor was not licensed during the performance of its work. Candelaria and CC1C argued that because Technica was not a licensed California Put It In Writing Claims against the Georgia DOT for increased material costs are denied due to failure to comply with claim-notice requirements. InCourt_BR0614.indd 22 6/2/14 1:12 PM

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