Source: https://www.gordonrees.com/publications/2015/a-note-from-the-field-sureties-beware-of-attempts-to-extend-the-miller-act-s-1-year-limitation-period-using-the-reaching-back-doctrine
Timestamp: 2019-04-24 09:51:21+00:00

Document:
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.
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.
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.
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.
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.
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.
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.
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.
1 40 U.S.C. §3131 et seq.
2 Id. at (b) (4).
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.
7 Burlington, 690 F.2d at 389.
8 Id.; see also Fed R. Civ P. 13.
9 Burlington, supra note 8, at 389.
12 EverHome Mortg. U.S. Dist. LEXIS 34516 at,*29.
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.

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