Federal Court Rules Against Contractor in Miller Act Dispute
In Five Rivers Carpenters Dist. Council Health & Welfare Fund v. Covenant Constr. Servs., LLC, 114 F.4th 957 (8th Cir. 2024), the United States Court of Appeals for the Eighth Circuit ruled against a contractor in a Miller Act dispute with a subcontractor’s union-based health, welfare, and educational funds. Covenant Construction Services, LLC, was the prime contractor on the federal Correct Life Safety Deficiencies construction project owned by the U.S. Department of Veteran Affairs and located in Iowa City, Iowa. Calacci Construction Company, Inc., was one of Covenant’s subcontractors on the Project. Calacci was a signatory to a Collective Bargaining Agreement (“CBA”) with various unions, and those unions were accepted for participation with Five Rivers Carpenters District Council Health and Welfare Fund, and Five Rivers Carpenters District Council Educational Trust Fund (collectively “Funds”). The CBA required Calacci to make contributions to the Funds based on work performed by Calacci’s union employees, and it allowed the Funds to recover from Calacci attorney fees incurred in collecting overdue contribution payments.
Calacci failed to make $125,739.95 in required Project-based contributions to the Funds for work performed by 21 of Calacci’s union employees. Those union employees assigned their Miller Act claims to the Funds through the CBA. The Funds sued Covenant under the Miller Act for those unpaid contributions. Because neither Calacci’s union employees nor the Funds had a direct contractual relationship with Covenant, they were subject to the Miller Act’s written notice requirement at 40 U.S.C. 3133(b)(2), which requires the written notice be delivered to the contractor no later than 90 days from the claimant’s last date of work on the project. On September 16, 2021, the Funds delivered to Covenant the required written notice. Of the 21 Calacci union employees whose work made up the Funds’ assigned claims, the written notice was untimely for 18 of them (more than 90 days from each of those 18 employees’ last dates of work). The written notice was timely only for three of the employees (within 90 days from each of those three employees’ last dates of work). Covenant argued that it was not responsible to pay anything for the 18 employees’ claims because of the untimely notice, and that it was not liable to pay any attorney fees because it was not a party to the CBA. The district court ruled against Covenant on both issues, so it appealed.
On appeal, the Eighth Circuit court addressed the following two issues: (1) For the 18 Calacci union employees who gave untimely written notice, can their untimeliness become timely if those 18 claims are aggregated with the claims of the three employees who gave timely notice? (2) Does the Miller Act allow the Funds to recover attorney fees against Covenant under the CBA’s attorney-fee provision even though Covenant was not a party to the CBA?
On the first issue, the court explained, “The Funds’ claim . . . is based on damages ‘common to the entire membership’ of the Fund participants and ‘shared by all in equal degree.’ And while the statute references the last date of labor based on a singular “person,” it is reasonable to conclude that laborers collectively provide labor for purposes of fringe-benefit fund contributions. In this sense, a claim for fund contributions—a collective claim—is distinguishable from a claim for individual wages, which are ‘peculiar to the individual member concerned.’” Based on that reasoning, the court concluded that ‘[n]otice of delinquent fund contributions . . . must be given within 90 days of the last day of the collective labor on the VA project. And as such, the Funds’ ‘claim may cover more than a single employee or incident—it may cover several employees over a period of time.’ So long as notice ‘was made within 90 days after the last of the labor was performed for that claim’—as occurred here—it is timely.” Therefore, the court ruled that all 21 union employees “timely filed their Miller Act notice within 90 days of the last day of labor performed on the project . . . [so] the Funds are . . . entitled to the past-due fringe-benefit contributions for all 21 laborers.”
This is a questionable ruling. It was undisputed that the Miller Act claimants were each of the 21 Calacci union employees, and that the written notice was untimely for 18 of them. If those 18 employees had each individually pursued their claims, all of them would have been dismissed because of the untimely notice. Assignment of those 18 claims to the Funds should not have changed the outcome because a fundamental principle of assignment law is that an assignee can have no greater rights than the assignor. Therefore, the untimely notice for 18 of the employees should have remained untimely even when they were aggregated by the Funds with the other three claims, otherwise the Funds would have greater rights than those 18 union employees. So the court’s ruling appears to violate a basic and fundamental legal principle of assignment law, thereby giving union-based health, welfare, and educational funds greater Miller Act rights than their union-employee members.
On the second issue, the court acknowledged that “‘the American Rule’—'that each party should bear the costs of its own legal representation’ and thus, attorney's fees are not recoverable as damages absent an express directive from Congress—applies to Miller Act claims.” One exception to the American Rule is that a prevailing party can recover attorney fees from its opponent if their contract contains a prevailing-party attorney-fee provision. Here, the attorney-fee provision was in the CBA. Calacci, the union, and the Funds were parties to the CBA, but Covenant was not. Nevertheless, the court concluded that, under the Miller Act, “‘[t]he obligation of the surety and contractor includes amounts owed by subcontractors to their suppliers,’” and that “‘interest and attorney's fees are recoverable if they are part of the contract between the subcontractor and supplier.’” Therefore, the court ruled that “Calacci is obligated to pay attorneys’ fees . . . to the Funds under the terms of the CBA; and, by subcontracting with Calacci, Covenant is liable for the amount due under that obligation.”
This is also a questionable ruling. It was undisputed that the only basis for the Funds’ attorney-fee claim was the CBA, and that Covenant was not a party to the CBA. Outside of the Miller Act context, federal courts are uniform that, under the American Rule, a prevailing party can recover attorney fees from its opponent only if their contract contains a prevailing-party attorney-fee provision. Because Covenant was not a party to the CBA, the Funds would not be entitled to recover attorney fees against Covenant outside of the Miller Act context. The result should not be different within the Miller Act context because the United States Supreme Court has held that the award of attorney fees under the Miller Act is governed by the American Rule. The court’s ruling appears to be directly contrary to the American Rule, thereby creating a new exception to the American Rule in the Miller Act context.
The rulings in this case are bad for contractors on federal construction projects. Therefore, it is important for such contractors to closely supervise their union subcontractors’ required fund contributions to ensure that they are being made. Failure to do so could result in contractors facing double-payment liability for union-based health, welfare, and educational fund payments.
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