As many know, under California state law, and as set forth in California Business and Professions Code § 7031, a contractor's failure to obtain a contractor's license provides a complete defense to any claim for payment for the contractor's work in any California state law action (and also results in disgorgement for amounts paid to the unlicensed contractor). An open question, however, is whether an unlicensed contractor working on a Federal government construction project located in the State of California may still assert a claim for unpaid fees under the federal Miller Act. See, 28 U.S.C. § 1491 and 40 U.S.C. § 3133(b)(1); see also, United States v. Munsey Trust Co. (1947) 332 U.S. 234, 241.1
In that regard, the United States Court of Appeal, Ninth District, has now ruled in Technica LLC v. Carolina Casualty Insurance Company (2014) DJDAR 5353 ("Technica case") that an unlicensed subcontractor performing work in California may pursue a claim under the Miller Act.
The Technica case involved disputes stemming from work performed in California on the ICE El Centro SPC-Perimeter Fence Replacement/Internal Devising Fence Replacement federal project ("Project"). Candelaria Corporation ("Candelaria"), the prime government contractor on the Project, provided a payment bond as required by the terms of the government contract and the Miller Act, and enlisted Carolina Casualty Insurance Company ("CCIC") as a surety. In December 2007, Candelaria entered into a subcontract with Otay Group, Inc. ("Otay") to perform a portion of the work required under the prime
1 The Miller Act - the modern-day remedy to the historical dilemma faced by contractors and materialmen who were denied compensation in federal construction projects because of sovereign immunity – provides that a contractor "[who] has not been paid in full within 90 days after the day on which the person did perform the last of labor . . . may bring a civil action on the payment bond for the amount unpaid at the time the civil action is brought and may prosecute the action to final execution and judgment for the amount due." 40 U.S.C. § 3133(b)(1).
contract. Shortly thereafter, Otay contracted with Technica, Inc. ("Technica") to act as a sub-subcontractor on the Project. Technica was not a licensed contractor in the State of California. Between late 2007 and June 2008, Technica provided $893,697.77 worth of labor and material and services on the Project. Technica submitted invoices to Otay and Candelaria for the work, but received only partial payments totaling $287,861.81. In June 2008, Candelaria terminated Otay's subcontract. In September 2008, Technica filed a Complaint in the Federal District Court invoking its rights under the Miller Act to recover outstanding amounts due against the CCIC payment bond.
Carolina Casualty then filed a Motion for Summary Judgment based upon Business and Professions Code, §7031(a) claiming Technica's failure to obtain a California contractor's license provided a complete defense to any claim for payment for Technica's work . Summary Judgment was granted.
On appeal, the Court of Appeal reversed the decision of the Trial Court. In that regard, the Court of Appeal initially noted that because the Miller Act provides Technica a federal cause of action, “the scope of the remedy as well as the substance of the rights created thereby is a matter of federal not state law.” F.D. Rich Co., Inc., v. United States ex rel. Indus. Lumber Co. (1974) 417 U.S. 116, 127. The Court of Appeal further noted that the Miller Act is highly remedial in nature, and “is entitled to a liberal construction and application in order properly to effectuate the Congressional intent to protect those whose labor and materials go into public projects.” United States ex rel. Sherman v. Carter (1957) 353 U.S. 210, 216. Within that framework, the Court of Appeal acknowledged California Business and Professions Code § 7031(a) but ruled that – based on the language of the Miller Act itself – the rights and remedies under the Miller Act may not be conditioned by state law. The Court of Appeal also distinguished Ninth Circuit Court of Appeal cases that applied state law in Miller Act claims because those cases dealt with the application of the substantive law of contracts and not the rights established under the Miller Act.
Based on the holding in the Technica case, federal contractors may now bid Federal government projects in located California without having obtained a California contractors license and file suit for non-payment.
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