Ninth Circuit Holds Subcontractor’s Lack of License Required By California Law Did Not Bar Its Pursuit of Federal Miller Act Claim

Technica LLC v. Carolina Casualty Ins. Co., 749 F.3d 1149,2014 U.S. App. LEXIS 8023 (9th Cir., April, 29, 2014)

This payment dispute arose out of the ICE El Centro SPC – Perimeter Fence Replacement/Internal Devising Fence Replacement federal project in California.  Candelaria was the prime contractor.  Candelaria entered into subcontract with Otay, who contracted with Technica to act as a sub-subcontractor.  After submitting invoices for labor, material and services, Technica received only partial payment for its work.

Technica filed a Miller Act claim authorized by federal statute  to recover the outstanding amount owed on its sub-subcontract against Candelaria’s payment bond.  Candelaria and its surety filed a motion for summary judgment, arguing that the California Business and Professions Code precludes any contractor from maintaining a collection action, unless the contractor was licensed during the performance of the contract.  Since Technica lacked a California contactor license, the district court held that Technica could not pursue a Miller Act claim.

Technica appealed the district court’s ruling,  asking the Ninth Circuit to address whether the application of California’s contractor’s licensing law permissibly restricted  the substantive rights afforded to Technica under the Miller Act.  Although a matter of first impression for the Ninth Circuit, the Supreme Court, and the Eighth and Tenth Circuits have all held that rights and remedies under the Miller Act may not be conditioned by state law.

The Ninth Circuit reversed the district court’s holding, and Technica was permitted to pursue its Miller Act claim.  The Court held that the Miller Act provides Technica a federal cause of action because both the scope of its remedy and the substance of its rights is a matter of federal not state law.  The Court noted that federal rights to relief “under a federally declared standard could be defeated if states were permitted to have the final say as to what defenses could and could not be properly interposed to suits under the Act.”  The Court concluded that the Miller Act’s remedies could not be conditioned by state law.

The Court relied on the following three holdings from the Supreme Court, and the Eighth and Tenth Circuits.  First, in F.D. Rich Co., Inc., v. United States ex rel. Indus. Lumber Co., 417 U.S. 116, 127 (1974), the Supreme Court held that state law be used to provide an award of attorneys’ fees to a Miller Act claimant where such a right was not provided by federal law.  Second, in Aetna Casualty & Surety Co. v. United States ex rel. R.J. Studer & Sons, 365 F.2d 997, 999-1000 (8th Cir. 1966), the Eighth Circuit held that  a state law limiting rights of suit by foreign corporations could not restrict the ability to bring a Miller Act suit.  Finally, in Hoeppner Constr. Co. v. United States ex rel. E.L. Mangum, 287 F.2d 108, 110 (10th Cir. 1960), the Tenth Circuit concluded that a state statute conditioning suits by partnerships could not condition Miller Act rights because state laws “do not condition or otherwise proscribe in any manner the right of the United States to institute and maintain in the United States Court for the use and benefit of a subcontractor an action against the prime contractor.”

To view the full text of this decision, courtesy of Lexis ®, click here.

Robert A. Gallagher

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