United States ex rel Jack Daniels Construction, Inc. v. Liberty Mutual Insurance Company, 2015 U.S. Dist. LEXIS 172189 (M.D. Fla. Dec. 28, 2015)

This action arises from the construction of the Joint Intelligence Technical Training Facility at Goodfellow Air Force Base in San Angelo, Texas (the “Project”).  Plaintiff Jack Daniels Construction, Inc. (“Jack Daniels”) was a sub-subcontractor who was retained by the subcontractor, Ragghianti Foundations III, Inc. (“Ragghianti”), to perform certain concrete work at the Project.  Jack Daniels commenced its work on the Project in late August of 2011, but it was demobilized by early September as a result of problems encountered by Ragghianti and the prime contractor.  Jack Daniels resumed its work in late October, but by November of 2011, the Project was behind schedule.

In January of 2012, Jack Daniels submitted invoices and change order requests to Ragghianti seeking payment for additional costs incurred as a result of delay.  Shortly thereafter, as a result of disputes relating to those invoices and change order requests, Jack Daniels provided Ragghianti a notice of contract termination.  It also served a Miller Act notice of nonpayment on Ragghianti, the Project’s prime contractor, and the sureties who executed the Project’s payment bond.  Jack Daniels then filed this action against the sureties, seeking payment under the Miller Act for costs incurred in the performance of its work on the Project.

During the litigation, Jack Daniels alleged that it had provided labor and incurred out of pocket costs in the performance of its work, but that it never received payment.  Consequently, it argued that it was entitled to payment from the sureties out of the Miller Act payment bond.  The sureties, in turn, raised a number of defenses, arguing that Jack Daniels was not entitled to payment.  The parties cross-moved for summary judgment raising a number of arguments regarding Jack Daniels’ entitlement to payment from the bond.

First, the sureties argued that Jack Daniels was not entitled to recover from the bond because certain of its invoices sought lost profits, which are not recoverable under the Miller Act as a matter of law.  Jack Daniels did not dispute that it is not entitled to recover lost profits under the Miller Act, but argued that summary judgment was inappropriate because its invoices did not seek lost profits.  Thus, because there were questions of fact regarding the costs claimed in Jack Daniels’ invoicing, the court held that summary judgment was not appropriate.

Next, the sureties argued they were entitled to summary judgment on certain of Jack Daniels’ change orders because the underlying invoices included charges for demobilization and remobilization of its crews, but that such charges were not recoverable because, in its subcontract with Ragghianti, Jack Daniels had agreed that its lump sum subcontract prince included all costs of performing the work in a non-continuous sequence.  In response, Jack Daniels argued that its change order claims were not for multiple mobilizations, but rather, were for costs incurred by Jack Daniels as a result of delays caused by the prime contractor.  These costs are recoverable, Jack Daniels argued, because the Miller Act allows for recovery costs incurred as a result of delays caused by the prime contractor.  The district court agreed with Jack Daniels and held that the sureties were not entitled to summary judgment.  In particular, the court held that there were factual disputes regarding whether the costs captured in Jack Daniels’ change orders were incurred as a result of the prime contractor’s delays or whether those costs merely resulted from Jack Daniels’ demobilizations and remobilizations.  To the extent those costs were caused by the prime contractor’s delays, Jack Daniels would be entitled to recover.

The sureties next argument was that they were entitled to summary judgment because, even if Jack Daniels was legally entitled to recover the types of costs it claimed, it had failed to prove that it “actually expended” its invoiced “standby crew” costs because it failed to produce certified payrolls showing actual payment.  Jack Daniels responded that its subcontract with Ragghianti did not require the submission of certified payrolls for standby crew and that, in any event, the record contained sufficient evidence to demonstrate that Jack Daniels had “actually expended” these costs.  The district court agreed with Jack Daniels that record testimony and the documentation Jack Daniels submitted with its change order requests adequately demonstrated that it had actually expended these amounts.  Accordingly, the sureties were not entitled to summary judgment.

Finally, the sureties argued that they were entitled to summary judgment on Jack Daniels’ Miller Act claim to the extent Jack Daniels sought recovery of its attorneys’ fees, because the Miller Act does not provide for attorneys’ fees to the prevailing party and Jack Daniels had not identified anything in its subcontract that it would entitle it to recover its fees.  In response, Jack Daniels argued that its entitlement to attorneys’ fees is governed by state law and that, under Texas law, such fees are recoverable.  On this point, the district court granted the sureties’ motion, holding that “[a]lthough a surety must pay attorney fees when there is an agreement” providing for such fees, attorneys’ fees are not recoverable in the absence of such agreement, because Miller Act remedies are a matter of federal law, and the Miller Act does not provide for the recovery of attorneys’ fees.

The district court next turned to the arguments raised in Jack Daniels’ cross-motion.  The court entered summary judgment in favor of Jack Daniels on the sureties’ affirmative defense of prior breach.  The sureties argued that Jack Daniels had materially breached its contract by failing to properly and timely complete its work on the Project.  Jack Daniels argued that the sureties were not entitled to assert this defense because, while a surety is entitled to stand in the shoes of its principal, the sureties’ principal here was the prime contractor, who was not in privity of contract with Jack Daniels.  Consequently, Jack Daniels argued that the sureties were not entitled to raise the defense of breach of contract.   The district court agreed with Jack Daniels and entered summary judgment on the sureties’ affirmative defense.  The prime contractor was not a party to any contract with Jack Daniels and, moreover, Jack Daniels’ subcontract did not expressly incorporate any contracts to which the prime contractor was a party.  “Therefore, as [the prime contractor] and Jack Daniels are not privies, the Sureties, standing in the shoes of [the prime contractor], cannot assert prior breach of contract as a defense.”

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