Unlicensed Subcontractor Not Precluded From Recovering Against Miller Act Bond

On April 29, 2014, the Ninth Circuit Court of Appeals held that a California law limiting the right of an unlicensed contractor to maintain an action for collection of unpaid services did not apply in an action to recover against a Miller Act Bond.

In Technicana LLC ex rel. U.S. v. Carolina Cas. Ins. Co., the U.S. Immigration and Customs Enforcement (“ICE”) agency contracted with Candelaria Corporation to act as the prime contractor on the El Centro SPC-Perimeter Fence Replacement Project.[i]  As required by the terms of the contract and the Miller Act, Candelaria provided a payment bond with the Carolina Casualty Insurance Company (“CCIC”) as the surety.  Candelaria contracted with Otay Group, Inc. (“Otay”) to perform a portion of the work, and Otay contracted Technicana, Inc. (“Technicana”) to act as a sub-subcontractor on the Project.  Technicana provided $893,697 worth of labor, materials, and services to the Project, but received only partial payments totaling $287,861.81.  Technicana was not a licensed contractor during the performance of its work on the Project.

Technicana filed suit in U.S. District Court for the Southern District of California, invoking its rights under the Miller Act to recover against CCIC’s payment bond.  Since Technicana was an unlicensed contractor, Candelaria and CCIC filed a Motion for Summary Judgment arguing that California’s contractor licensing statute precludes an unlicensed contractor from maintaining an action for collection of compensation for services.  Section 7031(a) of the California Business and Professions Code states, in part, that:

no person engaged in the business or acting in the capacity of a contractor, may bring or maintain any action, or recover in law or equity in any action, in any court of this state for the collection of compensation for the performance of any act or contract where a license is required by this chapter without alleging that he or she was a duly licensed contractor at all times during the performance of that act or contract, regardless of the merits of the cause of action brought by the person….

The district court agreed with the defendants and dismissed Technicana’s claims.

On appeal, the Ninth Circuit Court of Appeals disagreed and reversed the District Court’s ruling.  The Court began by noting that the Miller Act was designed to protect subcontractors from nonpayment in lieu of the protections they might receive under state statutes with respect to the construction of nonfederal buildings (e.g. lien claims). Furthermore, the Miller Act is intended to reduce the hurdles placed on federal contractors in seeking payment denied to them.  The scope of the Miller Act, the Court found, was a matter of federal law, not state law.

In this case, the Court held that California’s limitation “on the right of a non-licensed contractor to maintain an action for collection of unpaid services does not apply to an action under the Miller Act.”  In reaching this conclusion, the Court stated that:

[A]pplication of California’s licensing statute as a defense to a Miller Act claim would, at best, condition the rights of a subcontractor on the procedural requirements of state law, and, at worst, result in the nullification of those rights entirely.  Neither result is in accordance with the remedial purposes of the Miller Act.

Moreover, the Court found that enforcement of state licensing requirements would wreak havoc on the uniform application of the Miller Act.

[i] 2014 WL 1674108 (9th Cir. April 29, 2014).

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