Fifth Circuit Affirms Federal District Court’s Dismissal of Miller Act Suit—Claim On Bond Barred by Statute of Limitations

It is black-letter law that there is a one-year suit limitation period applicable to Miller Act payment bonds. Under the Miller Act, an action on a payment bond must be commenced “no later than one year after the day on which the last of the labor was performed or material was supplied by” the subcontractor or supplier. (40 U.S.C. § 3133(b)(4)).  This statute of limitations barred a subcontractor’s claim on a payment bond in Diamond Services Corp. v. Travelers Casualty & Surety Co. of America, Case No. 22-40240, 2022 WL 4990416 (5^th Cir. Oct. 3, 2022). In this case, the U.S. Court of Appeals for the Fifth Circuit affirmed, in a brief decision, the dismissal of a suit for damages under the Miller Act, as entered by the U.S. District Court for the Southern District of Texas.

The relevant facts of the matter are as follows. The U.S. Army Corps of Engineers awarded a contract for a dredging project along the Gulf Coast of Texas to T.W. LaQuay Marine, LLC (LaQuay). In compliance with the Miller Act (40 U.S.C. § 3131 et seq.), LaQuay obtained a bond from Travelers Casualty and Surety Co. of America (Travelers). On March 24, 2020, Diamond Services Corp. (Diamond) completed repairs to a vessel chartered by LaQuay for the dredging project. When LaQuay did not pay Diamond for the repair work, Diamond submitted a claim on the bond to Travelers. On January 7, 2021, Travelers sent a claim form and a letter requesting additional information. On January 21, Diamond returned the claim form to Travelers. Travelers denied Diamond’s claim on March 26, 2021. In order to maintain its suit, Diamond was required to file suit no later than March 25, 2021, or one year and one day after March 24, 2020. However, it was on March 29 (one year and five days after completing the repairs) that Diamond filed suit against Travelers, seeking damages under the Miller Act bond.

The district court dismissed Diamond’s claim under Federal Rule of Civil Procedure 12(b)(6), finding that the claim was barred by the statute of limitations and that the doctrine of equitable estoppel did not apply. The court observed that, in order to survive a motion to dismiss, a complaint must plead “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”

While Diamond conceded that it filed the suit four days late, it argued nonetheless that its claim survived the Miller Act’s limitation provision because it relied on Travelers’ January 7 representation of an investigation into the claims and, thus, equitable estoppel applied.

While the suit limitation period under the Miller Act is routinely enforced, there are limited circumstances in which a payment bond surety might not be able to avail itself of the suit limitation period as a defense to a payment bond claim. In the context of payment bond claims, the doctrine of equitable estoppel has been described as follows:

Estoppel arises where one, by his conduct, lulls another into a false security, and into a position he would not take only because of such conduct. Estoppel, in the event of a disputed claim, arises where one party by his words, acts, and conduct, led the other to believe that it would acknowledge and pay the claim, if, after investigation, the claim were found to be just, but when, after the time for suit has passed, breaks off negotiations and denies liability and refuses to pay.

U.S. ex rel. Nelson v. Reliance Insurance Co., 436 F.2d 1366, 1370 (10^th Cir. 1971). If the surety makes misrepresentations on which the payment bond claimant relies in forbearing from filing suit, the surety may be estopped from raising the suit limitation period as a defense.

Both the district court and the Fifth Circuit disagreed with Diamond, finding that Diamond failed to plead that the January 7 letter from Travelers requesting additional information on the claim was a representation that Diamond reasonably relied on in deciding not to bring suit within the statutory limitations period. The January 7 letter gave no promise of a response, made no representations that Diamond would be paid or that Travelers would engage in claim negotiations with Diamond, and explicitly reserved “all rights and defenses . . . includ[ing], without limitation, defenses that may be available under any applicable notice and suit limitation provisions.” The court noted that, under the Miller Act, “a party asserting an estoppel defense must show that it was misled to its detriment.”

The court compared the facts in this case with those in U.S. ex rel. Atlas Erection Co. v. Continental Casualty Co., 357 F. Supp. 795, 800 (E.D. La. 1973), in which the court found equitable estoppel applied where the surety “assured [the subcontractor] that all valid invoices would be paid upon completion of [its] investigation” and “requested [the subcontractor’s] continued cooperation in an amicable resolution of the claim.”

The Diamond court concluded as follows: “Because Diamond’s reliance on the January 7 letter in delaying filing suit was unreasonable, equitable estoppel does not rescue its claim.”

The author of this article is Martha Perkins, General Counsel at NASBP. She can be reached at mperkins@nasbp.org or 240.200.1270.

This article is provided to NASBP members, affiliates, and associates solely for educational and informational purposes. It is not to be considered the rendering of legal advice in specific cases or to create a lawyer-client relationship. Readers are responsible for obtaining legal advice from their own counsels and should not act upon any information contained in this article without such advice.