Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_07-cv-02564/USCOURTS-cand-3_07-cv-02564-6/pdf.json

Nature of Suit Code: 130
Nature of Suit: Miller Act
Cause of Action: 28:1331 Fed. Question

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

UNITED STATES OF AMERICA,

Plaintiff,

 v.

DICK/MORGANTI,

Defendant. /

No. C 07-02564 CRB

ORDER

On October 19, 2005, this Court granted defendants’ motion to stay. This

supplemental Order addresses in greater detail third-party defendant Permasteelisa’s

contention that the stay may not be issued as a matter of law. 

BACKGROUND

This case arises from a dispute between the general contractor and a number of

subcontractors who performed work on the San Francisco Federal Building. Pursuant to the

Miller Act, 40 U.S.C. § 3131, the general contractor for the project, defendant

Dick/Morganti, purchased a bond to secure the project’s subcontractors. The bond was

furnished by co-defendants American Casualty Company of Reading, PA and National

Union Fire Insurance Company of Pittsburgh, PA (“Sureties”). 

Plaintiff Webcor Construction, Inc. (“Webcor”) entered into a subcontract agreement

with Dick/Morganti to perform work on the project. Webcor alleges that Dick/Morganti

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breached the subcontract agreement and seeks recovery in this Court under the Miller Act,

and in quantum meruit for the reasonable value of services rendered. 

Dick/Morganti, for its part, contends that defects in the government’s design

documents for the Federal Building led to the cost overruns. Dick/Morganti alleges that it

intends to submit a “Global Claim” to the General Services Administration’s contracting

officer to seek recovery of these cost overruns. According to Dick/Morganti, this Global

Claim will incorporate Webcor’s claim along with virtually all claims that have been made,

or are likely to be made, by the various subcontractors for the project.

The Sureties have moved to stay Webcor’s claim pending the administrative

resolution of the Global Claim. The Sureties have also filed a third-party complaint seeking

a declaratory judgment staying the claims of additional subcontractors that worked on the

Federal Building project (collectively “Subcontractors”). The Sureties rely on the following

language, which the parties included in each of the subcontracts: 

If the Owner [GSA] and the Contractor [Dick/Morganti], pursuant to the

General Contract or by agreement, submit any dispute, controversy, or claim

between them to arbitration or some other dispute resolution procedure

specified in the General Contract and such a matter involves or relates to a

dispute, controversy, or claim between the Contractor and the Subcontractor,

Subcontractor agrees . . . to stay any action filed by the Subcontractor until the

dispute resolution and appeals process between the Contractor and the Owner

is exhausted.

Ambroso Decl. Exh. D ¶ 38 (emphasis added).

One of the Subcontractors, Permasteelisa, argues that this provision cannot, as

a matter of law, effect a stay. Permasteelisa contends that a valid waiver of its Miller

Act right to sue must be express and specific, and that this provision lacks the

requisite specificity. 

 DISCUSSION

Permasteelisa places principal reliance on a body of case law that prohibits the

incorporation of a prime contract’s disputes clause into a subcontract by way of a

general incorporation clause. See Central Steel Erection Co. v. Will, 304 F.2d 548,

551 (9th Cir. 1962); Fanderlik-Locke Co. v. United States, 285 F.2d 939, 942-43 (10th

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Cir. 1960); Pembroke Steel v. Phoenix Gen. Constr. Co., 462 F.2d 585, 588 (4th Cir.

1972). 

In Fanderlik, for instance, a general contractor entered into an agreement with

the United States to construct dwelling units at an Air Force base. Fanderlik, 285 F.2d

at 941. The agreement provided that “any dispute arising under this contract which is

not disposed of by agreement shall be decided by the Contracting Officer.” Id. The

general contractor then entered into subcontracts which, in general language,

purported to incorporate the terms of the prime contract. See id. at 942. Because

subcontractors have no standing to present their claims to the Contracting Officer,

binding the subcontractors to the disputes clause was held to effect a complete waiver

of their right to sue under the Miller Act. See id. at 943. The Fanderlik court

concluded that “[a]n agreement should not be construed to bring about such a result

unless it be manifest by the plain language of the contract.” Id. (internal quotations

omitted); accord Central Steel, 304 F.2d at 551 (adopting Fanderlik’s analysis).

Here, however, the Sureties do not seek to bind the Subcontractors to the

disputes process of the prime contract by way of a general incorporation clause. 

Rather, the disputes process the Sureties seek to enforce is explicitly set forth in the

subcontracts themselves. As noted previously, the subcontracts expressly provide that

if Dick/Morganti avails itself of the disputes procedures of the general contract, the

“Subcontractor agrees . . . to stay any action filed by the Subcontractor until the

dispute resolution and appeals process between the Contractor and the Owner is

exhausted.” Ambroso Decl. Exh. D ¶ 38. Because this provision is contained in the

subcontracts at issue, the line of cases Permasteelisa relies on is clearly

distinguishable. See United States v. Daniel, 357 F. Supp. 853, 861 (N.D. Ill. 1973)

(Fanderlik analysis does not control when dispute process is set forth expressly in the

subcontract); United States v. Boland, 922 F. Supp. 597 (S.D. Fla. 1996) (enforcing

waiver of Miller Act rights contained in subcontract). 

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This Court is mindful that the Miller Act should be construed liberally to effect

its purpose of protecting subcontractors from unscrupulous and insolvent general

contractors. See United States v. Weststar Eng’g, Inc., 290 F.3d 1199, 1205 (9th Cir.

2002). The Miller Act does not, however, strip subcontractors of their right to specify

resolution processes that will govern contractual disputes, if any should arise. See

Fanderlik, 285 F.2d at 943; Pembroke, 462 F.2d at 1099. Indeed, in many situations,

the subcontractor may have a financial incentive to stay its Miller Act suit. For

example, by staying the judicial proceeding, a subcontractor can avoid costly litigation

and rely on the general contractor’s more ample resources to advance its claim

through the Contract Disputes Act’s administrative process. Moreover, because the

Contract Disputes Act includes stringent time limitations, see 41 U.S.C. § 605(c)(2),

resolution may be reached in a more timely manner. Thus, where the unambiguous

language of a subcontract provides for a stay, enforcing that language does not

contravene the purposes of the Miller Act. Fanderlik, 285 F.2d at 943 (holding that

Miller Act rights can be relinquished by “plain language”); Pembroke, 462 F.2d at

1099 (holding that right to sue under Miller Act can be waived by “clear and express

provisions”). 

The Subcontractors also contend that § 3133(c) of the Miller Act prohibits

staying this action. Section 3133(c) was added to the Miller Act by amendment in

1999 and provides that: 

A waiver of the right to bring a civil action on a payment bond required

under this subchapter is void unless the waiver is –

(1) in writing;

(2) signed by the person whose right is waived; and

(3) executed after the person whose right is waived has

furnished labor or material for use in the performance of

the contract.

40 U.S.C. § 3133(c). 

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 Defendants do not argue that the subcontracts at issue were executed after the

provision of labor or materials. Thus, this Court may assume that § 3133(c) would

operate to void any “waiver of the [Subcontractors’] right to bring a civil action”

under the Miller Act. This Court is confident, however, that the temporary stay at

issue does not effect a “waiver” of the Subcontractors’ Miller Act rights within the

meaning of § 3133(c).

The “first step in interpreting a statute is to determine whether the language at

issue has a plain and unambiguous meaning with regard to the particular dispute in the

case.” Robinson v. Shell Oil Co., 519 U.S. 337, 340 (1997). It is not clear from the

plain language of § 3133(c) whether a temporary stay effects a “waiver of the right to

bring an action” under the Miller Act. For instance, if the “right to bring” a Miller Act

claim encompasses the right to bring it at any point, a stay would constitute a waiver. 

On the other hand, if the “right to bring” merely means the right to bring a Miller Act

claim at some point, a stay would not constitute a waiver. 

Because the text does not resolve the ambiguity, this Court can consult the

statute’s legislative history. Coeur D’Alene Tribe of Idaho, v. Hammond, 384 F.3d

674, 692 (9th Cir. 2004). The legislative history forcefully demonstrates that the latter

interpretation is correct and that § 3133(c) does not apply to stays which merely

postpone a subcontractor’s Miller Act right to sue. Congress explained that § 3133(c)

was not intended to: 

void subcontract provisions requiring arbitration or other alternative

methods of resolving disputes. Such provisions would remain enforceable

with a claimant’s Miller act rights preserved by a timely suit that can be

stayed pending the outcome of the subcontract dispute resolution

procedure. The bill respects the freedom of the parties to the subcontract

to specify means to resolve their disputes and the exclusive jurisdiction of

the district court to decide issues arising under the Miller Act.

H.R. Rep. No. 106-277, at 5 (1999) (emphasis added). 

The subcontracts at issue do not establish a complete waiver of the 

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subcontractors’ right to bring a Miller Act claim. Rather, the subcontracts merely stay

such a claim pending the completion of the administrative resolution process. It is

clear that Congress intended such agreements to be binding notwithstanding 

§ 3133(c). Thus, § 3133(c) does not prohibit staying this action. 

For the reasons stated herein, the defendants’ motion to stay has been

GRANTED, on the condition that Dick/Morganti’s “Global Claim” be filed with the

General Services Administration’s contracting officer on or before November 30,

2007. If the “Global Claim” is not filed on or before November 30, 2007, and this

Court has not otherwise granted an extension, the stay will automatically dissolve. 

Those Subcontractors who have not yet filed claims shall be permitted to do so,

whereupon those claims will be stayed pursuant to this order. 

The parties shall appear on December 19, 2007 at 3:00p.m., to address whether

the stay should be lifted because the claims submitted in the “Global Claim” do not

involve or relate to claims filed by the plaintiffs in this Court.

IT IS SO ORDERED.

Dated: October 30, 2007 

CHARLES R. BREYER

UNITED STATES DISTRICT JUDGE

 

 

 

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