Filed: Dec. 21, 2011
Latest Update: Mar. 02, 2020
Summary: [DO NOT PUBLISH] IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT FILED _ U.S. COURT OF APPEALS ELEVENTH CIRCUIT DECEMBER 21, 2011 No. 10-15519 _ JOHN LEY CLERK D.C. Docket No. 1:07-cv-02445-JOF UNITED STATES OF AMERICA FOR THE USE AND BENEFIT OF CAPITAL COMPUTER GROUP, LLC, llllllllllllllllllllllllllllllllllllllll Plaintiff - Appellee, versus THE GRAY INSURANCE COMPANY, llllllllllllllllllllllllllllllllllllllll Defendant - Appellant. _ Appeal from the United States District Court f
Summary: [DO NOT PUBLISH] IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT FILED _ U.S. COURT OF APPEALS ELEVENTH CIRCUIT DECEMBER 21, 2011 No. 10-15519 _ JOHN LEY CLERK D.C. Docket No. 1:07-cv-02445-JOF UNITED STATES OF AMERICA FOR THE USE AND BENEFIT OF CAPITAL COMPUTER GROUP, LLC, llllllllllllllllllllllllllllllllllllllll Plaintiff - Appellee, versus THE GRAY INSURANCE COMPANY, llllllllllllllllllllllllllllllllllllllll Defendant - Appellant. _ Appeal from the United States District Court fo..
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[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
DECEMBER 21, 2011
No. 10-15519
________________________ JOHN LEY
CLERK
D.C. Docket No. 1:07-cv-02445-JOF
UNITED STATES OF AMERICA FOR THE USE
AND BENEFIT OF CAPITAL COMPUTER GROUP, LLC,
llllllllllllllllllllllllllllllllllllllll Plaintiff - Appellee,
versus
THE GRAY INSURANCE COMPANY,
llllllllllllllllllllllllllllllllllllllll Defendant - Appellant.
________________________
Appeal from the United States District Court
for the Northern District of Georgia
________________________
(December 21, 2011)
Before TJOFLAT and CARNES, Circuit Judges, and MICKLE,* District Judge.
MICKLE, District Judge:
Capital Computer Group, LLC (“Capital Computer”) entered into a
subcontract to install a fiber optic network for a fire alarm system at the Centers
for Disease Control in Atlanta, Georgia. When the prime contractor failed to pay,
Capital Computer sued the Miller Act surety, The Gray Insurance Company
(“Gray’), for payment under the bond. Gray refused payment on grounds that the
subcontract was a sham and Capital Computer was merely a financier for the
project. The district court granted summary judgment in favor of Capital
Computer. Upon review, we affirm.
I. Miller Act
The Miller Act requires contractors to post bond to ensure payment of
persons supplying labor or materials on any government construction contract
exceeding $100,000.00. 40 U.S.C. § 3131(b)(2). Because federally owned
property is exempt from liens that normally protect laborers and suppliers from
non-payment, the Miller Act was enacted to provide a substitute remedy. United
States v. Munsey Trust Co., 332 U.S. 234, 241 (1947); United States ex rel. Pertun
*
Honorable Stephan P. Mickle, United States District Judge for the Northern District of
Florida, sitting by designation.
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Constr. Co. v. Harvesters Grp, Inc., 918 F.2d 915, 917 (11th Cir. 1990). The
Miller Act is to be liberally construed to carry out its remedial purpose.
Peturn,
918 F.2d at 917.
The Miller Act by its terms covers “every person that has furnished labor or
material” for the project. 40 U.S.C. § 3133(b)(1). The right of action to sue on the
bond, however, extends only to the subcontracting and sub-subcontracting level.
J.W. Bateson, Co. v. United States ex rel. Bd. of Trustees, 434 U.S. 586, 591,
98
S. Ct. 873, 876 (1978). There is no right of action for those further down the
contracting chain.
Id.
Although the term “subcontractor” is not defined within the Miller Act, the
term is construed in accordance with “usage in the building trades” to mean “one
who performs for and takes from the prime contractor a specific part of the labor
or material requirements of the original contract.”
Id. 434 U.S. at
590, 98 S. Ct. at
875-76. In general, a subcontractor’s lien covers all work that the subcontractor
provides in the performance of the subcontract, including work that the
subcontractor hires out to other entities. 56 C.J.S. Mechanics’ Liens § 88.
II. Capital Computer’s Subcontract
It is undisputed that the prime contractor originally approached a relatively
new company, Code 4 Systems, Inc. (“Code 4"), to become the subcontractor to
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complete the fiber optic network for the fire alarm project. Code 4 needed money
up front to take on the project but was unable to secure advance funding through a
factoring company1 . Code 4 contacted Capital Computer, with whom Code 4 had
worked on many other projects in the past. Capital Computer, being a more
established company that completed electronic and computer hardware installation
projects around the country, was able to secure funding through the factoring
company. Capital Computer and Code 4 made arrangements with the prime
contractor for Capital Computer to become the subcontractor for the project and
sub-subcontract all the work to Code 4. Code 4 agreed to pay Capital Computer
4% of the invoices and all the fees of the factoring company.
The terms of the subcontract were agreed upon by the prime contractor,
Capital Computer, and Code 4. Under the subcontract, Capital Computer agreed
to install a fiber-optic network for the fire alarm system on behalf of the prime
contractor. With the knowledge and consent of the prime contractor, Capital
Computer hired out the entire scope of work to Code 4. As required under the
subcontract, Capital Computer maintained insurance for the benefit of the prime
contractor and agreed to indemnify the prime contractor for losses resulting from
1
The factoring company was to buy Code 4's accounts receivables at a discounted price
and pay Code 4 in advance of completing the project.
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the work.
III. Discussion
Gray contends that Capital Computer is not entitled to seek payment on the
Miller Act bond because the subcontract was a sham. The subcontract between
Capital Computer and the prime contractor, however, legally obligated Capital
Computer to install a fiber optic network for the fire alarm project on behalf of the
prime contractor. Capital Computer also maintained insurance for the benefit of
the prime contractor and agreed to indemnify the prime contractor against loss.
Far from being a sham, Capital Computer’s subcontract placed real obligations
upon Capital Computer to complete the work and protect the prime contractor.
In determining whether one is a subcontractor under the Miller Act, the
“substantiality and importance” of the relationship between the subcontractor and
the prime contractor is what matters. F.E. Rich Co. v. United States ex rel. Indus.
Lumber Co., 417 U.S. 116, 123-24,
94 S. Ct. 2157, 2162 (1974). Here, Capital
Computer provided insurance for the prime contractor and agreed to indemnify the
prime contractor, which indicates that Capital Computer’s relationship with the
prime contractor was substantial and important.
Id. at 123-24, 94 S. Ct. 2162 (“It is
the substantiality of the relationship which will usually determine whether the
prime contractor can protect himself, since he can easily require bond security or
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other protection from those few ‘subcontractors’ with whom he has a substantial
relationship in the performance of the contract.”).
Capital Computer also functioned as a subcontractor under the Miller Act,
as “one who performs for and takes from the prime contractor a specific part of the
labor or material requirements of the original contract.” J.W. Bateson, Co., Inc.
434 U.S. at 590, 98 S. Ct. at 875-76. Capital Computer actually followed through
on its obligation and furnished labor and materials for the fire alarm project. The
fact that Capital Computer fulfilled its obligation by sub-subcontracting with Code
4 did not invalidate Capital Computer’s relationship with the prime contractor.
The subcontract specifically allowed Capital Computer to hire out its entire scope
of work. Furthermore, the prime contractor was aware that Code 4 would be
performing the work for Capital Computer.
Gray relies on Capital Computer’s financial relationship with Code 4 to
argue that Capital Computer was merely a financier, not a subcontractor. Gray
cites to cases holding that one who solely loans or advances money cannot recover
on a bond issued under the Miller Act. See United States ex rel. Wulff v. CMA,
Inc., 890 F.2d 1070, 1072 (9th Cir. 1989); United States ex rel. First Cont’l Nat’l
Bank & Trust Co. v. W. Contracting Corp.,
341 F.2d 383, 387 (8th Cir. 1965).
This case is very different, however, because Capital Computer was not merely a
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financier.
Capital Computer had a subcontract to perform the work. The subcontract
was not a sham. The subcontract imposed substantial and important obligations
that were not diminished by Capital Computer’s financial arrangement with Code
4. Capital Computer, with the knowledge and approval of the prime contractor,
fulfilled its obligation to provide labor and materials on the project by hiring out
the work to Code 4. The work was satisfactorily performed.
From all indication, had this case not involved a government contract,
Capital Computer would have been able to protect itself from non-payment
through a lien. Because the Miller Act is to be liberally construed to carry out its
remedial purpose, we find that the district court did not err in granting summary
judgment in favor of Capital Computer on its Miller Act claim.
AFFIRMED.
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