235 F. Supp. 3d 745
D. Maryland2016Background
- Clark was prime contractor on a federal project (ICC‑B North Campus); Clark obtained a Travelers payment bond. Tusco was subcontractor under a written subcontract.
- Subcontract fixed an original price ($615,000 paid) and contained change‑order provisions: Article 9(c) makes Clark’s receipt of owner payment a condition precedent for owner‑directed changes; Article 9(d) provides equitable adjustment for changes ordered by Clark.
- Tusco performed additional change‑order work at Clark’s request, claims Clark accepted the work but failed to pay $100,852.69 for those extras. Tusco alleged breach of contract (Count I), quantum meruit (Count II), and Miller Act/payment bond claim against Travelers (Count III).
- Clark moved to dismiss Counts I and II arguing Tusco failed to plead satisfaction of the subcontract’s “condition precedent” (pay‑if‑paid). Travelers moved to stay the Miller Act claim pending exhaustion of subcontract dispute procedures.
- The court denied Clark’s motion to dismiss Counts I and II (without prejudice) and denied Travelers’ motion to stay Count III, allowing the Miller Act bond suit to proceed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether breach‑of‑contract claim must be dismissed for failure to allege satisfaction of subcontract condition precedent (Article 9(c) pay‑if‑paid) | Tusco: pleading that it performed all contractual duties is sufficient; satisfaction of condition precedent is an affirmative defense not required in the complaint | Clark: Article 9(c) makes owner payment a condition precedent, and Tusco does not allege owner paid Clark | Court: Denied dismissal—plaintiff need not allege satisfaction of condition precedent at pleading stage; facts unresolved whether work was owner‑directed (9(c)) or Clark‑directed (9(d)) so claim plausible. |
| Whether quantum meruit claim must be dismissed because an express contract exists | Tusco: may plead alternative theories; if change work falls outside subcontract scope quantum meruit could apply | Clark: expressed contract governs, barring quasi‑contract remedy | Court: Denied dismissal—quantum meruit permitted as alternative pleading pending factual development. |
| Whether court should stay Miller Act/payment bond claim pending subcontract dispute resolution | Tusco: subcontract dispute procedures cannot delay statutorily created Miller Act rights; indefinite delay would prejudice subcontractor | Travelers/Clark: Article 11(b) binds subcontractor to subcontract dispute processes; stay avoids duplication and inconsistent results | Court: Denied stay—Miller Act entitlement accrues by statute after work completion; subcontract clauses cannot effectively delay or defeat Miller Act rights absent a clear, explicit waiver. |
| Whether surety may enforce subcontract pay‑when/if‑paid or dispute‑resolution clauses to defeat Miller Act claim | Tusco: Miller Act rights are federal and preempt subcontract terms that would delay recovery | Travelers: surety’s liability is derivative of Clark’s and should reflect subcontract terms | Court: Rejected attempt—surety may not invoke subcontract delay provisions to frustrate Miller Act claims absent explicit waiver; allowing stay would undermine Miller Act protections. |
Key Cases Cited
- U.S. v. Sherman, 353 U.S. 210 (Sup. Ct.) (describing Miller Act purpose to protect suppliers on federal projects)
- U.S. for Use & Benefit of Walton Tech., Inc. v. Weststar Eng’g, Inc., 290 F.3d 1199 (9th Cir.) (subcontractor’s Miller Act right accrues by statute and cannot be conditioned on owner payment)
- Universal Concrete Prods. v. Turner Constr. Co., 595 F.3d 527 (4th Cir.) (discussing enforceability and effect of pay‑when‑paid/pay‑if‑paid clauses under state law)
- MidAmerica Constr. Mgmt., Inc. v. MasTec N. Am., Inc., 436 F.3d 1257 (10th Cir.) (distinguishing pay‑when‑paid and pay‑if‑paid clauses and their effect)
- F.D. Rich Co. v. United States ex rel. Indus. Lumber Co., Inc., 417 U.S. 116 (Sup. Ct.) (Miller Act gives a federal cause of action; scope of remedy is federal)
- United States v. Zurich Am. Ins. Co., 99 F. Supp. 3d 543 (E.D. Pa.) (declining to stay Miller Act suit pending prime contractor’s administrative dispute; subcontract terms that conflict with Miller Act are ineffective)