Electrical Contractors, Inc. v. Insurance Company of the State of Pennsylvania

Filing 67

Order certifying questions to the Connecticut Supreme Court. See attached order. Signed by Judge Vanessa L. Bryant on 12/3/2012. (Fernandez, Melissa)

UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
ELECTRICAL CONTRACTORS, INC.
PLAINTIFF,

v.
INSURANCE COMPANY OF THE
STATE OF PENNSYLVANIA
DEFENDANT.

:
:
: CIVIL ACTION NO. 3:11cv1432(VLB)
:
: DECEMBER 3, 2012
:
:
:
:

ORDER CERTIFYING QUESTIONS TO THE CONNECTICUT SUPREME COURT
This Court has the discretion to certify a question of law to the Connecticut
Supreme Court “if the answer may be determinative of an issue in pending
litigation in the certifying court and if there is no controlling appellate decision,
constitutional provision or statute of this state” pursuant to Conn. Gen. Stat. §51199b. Although courts “may ordinarily interpret ambiguous state statutes using
the normal rules of statutory interpretation, even in the absence of controlling
state authority,” certification may be appropriate if other “factors strongly
suggest that we defer to the Connecticut Supreme Court.” Sealed v. Sealed, 332
F.3d 51, 59 (2d Cir. 2003).
The Second Circuit has indicated that the following factors provide helpful
guidance in assessing whether to certify a question to the Connecticut Supreme
Court: “(1) whether ‘Connecticut has a compelling interest’ in the issue presented
by the case; (2) whether the statutory provision at issue ‘forms only one part of a
detailed administrative scheme’ in an area of law ‘in which the federal courts have
little familiarity or expertise’; and (3) whether the ‘question of statutory

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interpretation implicates the weighing of policy concerns,’ especially if such
policy concerns are expressed in the statutory scheme.” Davis v. Mara, 587
F.Supp.2d 422, 427 (D. Conn. 2008) (quoting Sealed, 332 F.3d at 59). These
factors are not “exhaustive of considerations a court may use” but instead
provide helpful guidance. Id.
The Second Circuit has emphasized that “[w]here a question of statutory
interpretation implicates the weighing of policy concerns, principles of comity
and federalism strongly support certification.” Sealed, 332 F.3d at 59. The
Second Circuit explained that “[n]otably, the Connecticut Supreme Court has
recently indicated that it adopts a broad approach to statutory interpretation that
looks beyond the statutory text ‘to the legislative history and circumstances
surrounding [the statute's] enactment, to the legislative policy [the statute] was
designed to implement, and to [the statute's] relationship to existing legislation
and common law principles governing the same general subject matter.’” Id.
(quoting State v. Courchesne, 262 Conn. 537, 577, 816 A.2d 562 (2003)).
Therefore, “the Connecticut Supreme Court may well exercise more flexibility and
broader interpretive power than the federal courts in analyzing the meaning” of a
particular statute. Id. (internal quotation marks and citations omitted). This Court
is persuaded that all three criteria have been met in the instant case warranting
certification to the Connecticut Supreme Court.
The dispute at issue arises over the interpretation of Conn. Gen. Stat. §4942(a). “Under Connecticut law, a municipality contracting for work in excess of
$100,000 is required to obtain a labor and material bond. The statutory
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framework adopted by Connecticut models the federal Miller Act and is often
referred to as the ‘Little Miller Act.’” Emerson-Swan, Inc. v. Harrington
Engineering, Inc., No.DBDCV106004228S, 2011 WL 2417381, at *5 (Conn. Super.
Ct. May 13, 2011). “[Connecticut] General Statutes §§ 49–41 through 49–43,
which provide for the furnishing of bonds guaranteeing payment (payment
bonds) on public works construction projects, were enacted to protect workers
and materials suppliers on public works projects who cannot avail themselves of
otherwise available remedies such as mechanic's liens ... Section 49–41 requires
that the general contractor provide a payment bond with surety to the state or
governmental subdivision, which bond shall guarantee payment to those who
supply labor and materials on a public works project ... Section 49-42 provides
that any person who has performed work or supplied materials on a public works
project, but who has not received full payment for such materials or work, may
enforce his right to payment under the payment bond.” Id.
At particular issue is the meaning of the following provision of Section 4942(a):
The notice of claim shall state with substantial accuracy the amount
claimed and the name of the party for whom the work was performed or to
whom the materials were supplied, and shall provide a detailed description
of the bonded project for which the work or materials were provided. If the
content of notice prepared in accordance with subsection (b) of section 4941a complies with the requirements of this section, a copy of such notice,
served within one hundred eighty days of the payment date provided for in
subsection (a) of section 49-41a upon the surety that issued the bond and
upon the contractor named as principal in the bond, shall satisfy the notice
requirements of this section. Within ninety days after service of the notice
of claim, the surety shall make payment under the bond and satisfy the
claim, or any portion of the claim which is not subject to a good faith
dispute, and shall serve a notice on the claimant denying liability for any
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unpaid portion of the claim. The notices required under this action shall be
served by registered or certified mail, postage prepaid in envelopes
addressed to any office at which the surety, principal or claimant conducts
his business, or in any manner in which civil process may be served. If the
surety denies liability on the claim, or any portion thereof, the claimant may
bring action upon the payment bond in the Superior Court for such sums
and prosecute the action to final execution and judgment.
Conn. Gen. Stat. §49-42(a) (emphasis added). The Plaintiff argues that Section
49-42 is a waiver provision whereby a surety’s failure to either pay, assert a good
faith dispute to, or deny a subcontractor’s claim within 90 days constitutes a
waiver of all the surety’s defenses, entitling the claimant to a judgment for the full
amount of the payment bond claim. Contrastly, the Defendant argues that
Section 49-42 does not impose any ineluctable penalty for such a failure, but
instead entitles the claimant to file a suit for judicial adjudication of the claim,
upon the expiration of the 90 day deadline, to recover payment on the bond,
together with costs, interest and reasonable attorney fees.1
The Plaintiff points to a 2000 Connecticut superior court decision in
support of its interpretation. Barreira Landscaping & Masonry v. Frontier Ins. Co.,

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Defendant’s interpretation is comparable to other statutory schemes in which
inaction on the underlying claim is deemed an exhaustion of remedies providing
a right to initiate suit on the underlying claim. See e.g., 49 U.S.C. §20109(d)(3)
permits a claimant under the Federal Rail Safety Act to bring an original action at
law for de novo review in an appropriate district court if the Secretary of Labor
has not issued a final decision within 210 days after the filing of the complaint to
the Secretary; 29 C.F.R. §2560.503-1 and 29 U.S.C. §1132 provides that in the case
of the failure of an ERISA plan to establish or follow claims procedures
consistent with ERISA regulations, the claimant “shall be deemed to have
exhausted the administrative remedies available under the plan” and shall be
entitled to bring a civil action to recover benefits due under the plan; see also
Escalera v. Commissioner of Social Sec., 457 F. App’x. 4, 6 (2d Cir. 2011) (noting
that an “[A] plaintiff's failure to exhaust administrative remedies [under the Social
Security Act] can be excused if (1) the claim is collateral to a demand for benefits,
(2) exhaustion would be futile, or (3) requiring exhaustion would result in
irreparable harm.”) (internal quotation marks and citation omitted).
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47 Conn. Supp. 99 (Conn. Super. Ct. 2011). In Barreira, the Superior Court, ruling
in a matter of first impression, held that a surety’s compliance with the 90 day
period under Section 49-42 for providing notice of denial of claim was mandatory
and that noncompliance resulted in the “automatic approval of payment to the
plaintiff subcontractor.” Id. at 110. In reaching this conclusion, the Barreira
court analogized to administrative law noting that “the result that has uniformly
emanated from our case law when a mandatory statutory time limit has been
violated in the context of administrative law, has been to invalidate the action of
the particular agency which committed the violation,” and therefore “if the action
of an administrative agency in denying an application for a specified form of relief
is null and void because of failure to comply with a mandatory time limit, the legal
effect is that the relief requested is granted.” Id. at 111. The Barreira court
concluded that “it does not matter whether the surety's denial of the plaintiff's
claim was in bad faith or without substantial basis in law or in fact. The surety's
failure to act within the prescribed ninety day period was equally illegal and the
plaintiff is entitled to the relief sought in its notice of claim.” Id.
The Defendant argues that numerous Connecticut superior court decisions
have declined to follow Barreira whereas the Plaintiff argues that Connecticut
courts have consistently interpreted the ninety-day time limit as mandatory and
no court, state or federal, has contradicted or countermanded these decisions.
However, none of the caselaw that either Plaintiff or Defendant cites squarely or
thoroughly addressed the question at issue besides the Barreira decision.
Barreira appears to be the only case on point. Furthermore, no Connecticut
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Appellate or Supreme Court decisions have interpreted this particular section of
Connecticut’s Little Miller Act.
In the instant case, there is no doubt that the answer to the question of law
certified will be determinative of an issue in the pending litigation and there is no
controlling appellate decision, constitutional provision or statute. Although this
Court may interpret an ambiguous state statute, the factors identified by the
Second Circuit strongly suggest that deferring to the Connecticut Supreme Court
is warranted in the instant case despite Defendant’s objections. Defendant
argues that certification is not appropriate because the language of Section 49-42
is clear and unambiguous as it fails to provide any penalty or remedy. However,
Defendant’s argument is unpersuasive as the ambiguity results from this very
fact that the statute does not expressly provide a remedy or penalty and therefore
this Court could not resolve the dispute solely by reference to the text of the
statute. This Court would necessarily have to weigh public policy issues
attendant to public infrastructure contracting to determine what remedy results
from a surety’s failure to meet the 90 day deadline. Because the instant question
of statutory interpretation implicates the weighing of policy concerns, “the
principles of comity and federalism strongly support certification.” Sealed, 332
F.3d at 59.
Connecticut clearly has a compelling interest in the issue presented by this
case as Connecticut’s Little Miller Act undeniably affects the public’s interest in
public works and municipal finance. See Royal School Laboratories, Inc. v. Town
of Waterton, 236 F.Supp. 950, 955 (D.Conn. 1965), rev’d on other grounds, 358
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F.2d 813 (1966) (“The mandatory requirement of a payment bond, however, has as
its primary purpose the protection of those in the position of the plaintiff-at-bar
from the failures and insolvencies of contractors on public projects. It may also
serve to encourage an increased number of competitive bids from subcontractors
and materialmen because of the assurance of payment…”). As the Second
Circuit recognized in connection with the federal Miller Act which Connecticut’s
act is modeled on “while the United States has an interest in the payment of all
persons furnishing labor and materials to government projects, it also has an
interest in the prompt settlement of accounts between contractors and
subcontractors and in avoiding undue and preventable losses to contractors and
their sureties— costs which in the long run the public pays.” U.S. for Use and
Benefit of J.A. Edwards Co. v. Thompson Const. Corp., 273 F.2d 873, 876 (2d Cir.
1959). Here, Connecticut has an interest in the payment of subcontractors
furnishing material and labors on municipal public works. It appears that the
detailed notice and payment-denial claim provisions of Section 49-42 were
implemented to assure prompt settlement of accounts to avoid undue and
preventable losses and delays which in the long run the citizens of Connecticut
pay through the increased cost of municipal finance.
Notably, in 2006 the Connecticut legislature proposed legislation which
would have essentially codified the Barreira decision by adding the following
language to Section49-42: “Failure of the surety to either pay or identify the
portion of the claim that is subject to a good faith dispute within such ninety-day
period shall operate as a waiver of such surety’s defenses to the entire claim.”
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Raised Bill No. 493, LCO No. 2468, 2006. This bill was never adopted and its
legislative history provides no insight as to why. The proposed legislation further
illustrates that this is a matter of important public concern in which Connecticut
has a compelling interest.
Lastly, Section 49-42’s 90 day provision clearly forms only one part of a
detailed administrative scheme as reflected in the complex statutory framework
of the Little Miller Act as provided in Sections 49-41 through 43. A federal court
sitting in diversity has little familiarity or expertise in connection with this
detailed administrative scheme underlying the furnishing and satisfaction of
payment bonds on public works construction projects.
As the parties are asking the federal court to determine an important issue
of state law, certification is patently appropriate. This conclusion is underscored
by the fact that the Defendant has invited this Court to overturn the superior
court’s decision in Barreira on an important issue of state law. The Second
Circuit has “long recognized that state courts should be accorded the first
opportunity to decide significant issues of state law through the certification
process.” Parrot v. Guardian Life Ins. Co. of America, 338 F.3d 140, 144 (2d
Cir.2003). As the parties do not agree on certification, this Court is sensitive to
and understands the demands of dealing with uncooperative parties. However,
this Court is persuaded that uncooperative parties would not burden the
Connecticut Supreme Court because there is no important disagreement on the
underling facts of this case. The particular facts of the instant matter are mostly
irrelevant to the questions of law at issue. Moreover, if this Court did not certify
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the question and the losing party appealed to the Second Circuit, the Second
Circuit would likely certify the question itself to the Connecticut Supreme Court.
In sum, under the factors identified by the Second Circuit and pursuant to Conn.
Gen. Stat. §51-199b, this Court finds that certification is warranted.
I.

The following questions of law are certified to the Connecticut
Supreme Court:

Because the parties have presented unsettled and significant questions of
state law that will control the outcome of this case, this Court certifies the
following questions to the Connecticut Supreme Court:  
Question 1:
(a) Is a surety’s failure to meet the 90 day deadline under Section 4942 deemed to be an exhaustion of remedies entitling claimants to
bring suit for an adjudication of their claim or
(b) Does the failure to meet the 90 day deadline operate as a waiver
of a surety’s defenses directing the Court to enter judgment for the
claimant in the full amount of the claim?
Question 2:
Does a surety’s request for further information to substantiate
a claim constitute:
(a) a “denial” of the claim under Section 49-42, or
(b) a “good faith dispute” of the claim under Section 49-42?

This Court invites the Connecticut Supreme Court to construe liberally and,

if necessary, expand the certified questions to address related or other relevant
issues in connection with this appeal. This Court will retain jurisdiction over the
case once the Supreme Court has either ruled on the certified questions or has
declined certification.

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II.

Facts relevant to these questions, showing fully the nature of the
controversy out of which the questions arose:

As noted above, there are no disputed facts relevant to the question
certified. However in order to aid the Connecticut Supreme Court and pursuant
to Conn. Gen. Stat. §51-199b, the Court will provide a brief description of the
relevant facts as part of this certification order. The Defendant surety issued a
$33.7 million dollar labor and materials payment bond for its principal, the
Morganti Group (“Morganti”), in July 2009. [Dkt. #48, p.4]. Morganti was the
general contractor on the Newtown High School Additions Renovations Project.
Id. The Plaintiff, Electrical Contractors Inc. (“ECI”) entered into a subcontract
with the Morganti to provide labor, equipment and materials relating to the
electrical work for the project. Id. On April 27, 2011, ECI submitted to Morganti a
request for equitable adjustment to the subcontract price in the sum of
$751,190.63 as a result of additional costs incurred allegedly as a result of
Morganti’s deficient performance. Id. at 5. On May 9, 2011, ECI updated and
adjusted it claim to Morganti to $746,300.25. Morganti failed to respond to ECI’s
claim. Id.
On June 3, 2011, ECI sent by certified mail to Defendant Insurance
Company of the State of Pennsylvania (“ICSP”) notice of its claim pursuant to
Conn. Gen. Stat. §49-42. Id. ICSP received ECI’s notice of claim on June 10,
2011. Id. On June 13, 2011, ICSP sent ECI a letter acknowledging receipt of claim
and requesting additional information from ECI to substantiate the claim. Id. at 6.
By letter dated July 1, 2011, ECI responded to ICSP’s request for additional

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information. ECI provided the requested documentation despite its belief that it
had fully complied with Section 49-42’s requirements for payment. Id. ICSP
responded by letter dated July 6, 2011 acknowledging receipt of ECI’s further
documentation. ICSP indicated that it was taking the matter up with Morganti to
ascertain its position on the claim. Id. On September 16, 2011, ECI brought the
instant suit in this Court which was 98 days after ICSP’s receipt of ECI’s initial
claim on June 10, 2011 but only 72 days after ICSP’s acknowledgment of receipt
of ECI’s further documentation on July 6, 2011.
III.

Names and Addresses of Counsel:

Pursuant to Conn. Gen.Stat. § 51–199b(f)(4), the names and addresses of
counsel are as follows:
Counsel for Plaintiff:
Paul Randall Fitzgerald
Michelson Kane Royster & Barger- ColumbusBlvdHtfd
Hartford Square North
10 Columbus Blvd.
Hartford, CT 06106
860-522-1243
Fax: [phone]
Email: [e-mail]
Steven B. Kaplan
Michelson Kane Royster & Barger- ColumbusBlvdHtfd
Hartford Square North
10 Columbus Blvd.
Hartford, CT 06106
860-522-1243
Fax: [phone]
Email: [e-mail]

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Counsel for Defendant:
Frank Audemars Sherer , III
McElroy, Deutsch, Mulvaney & Carpenter/PH, LLP
One State Street
14th Floor
Hartford, CT 06103
860-241-2637
Fax: [phone]
Email: [e-mail]
Gary F. Sheldon
McElroy, Deutsch, Mulvaney & Carpenter/PH, LLP
One State Street
14th Floor
Hartford, CT 06103
860-241-2623
Fax: [phone]
Email: [e-mail]
Todd R. Regan
Robinson & Cole, LLP-HTFD
280 Trumbull St.
Hartford, CT 06103
860-275-8293
Fax: [phone]
Email: [e-mail]
Conclusion
Based upon the above reasoning, the Court finds certification to the
Connecticut Supreme Court appropriate in the instant matter. It is hereby
ordered that the Clerk of the Court shall transmit to the Connecticut Supreme
Court under the official seal of this Court a copy of the Court’s Certification
Order, and all or any part of the record in this case that may be requested by the
Connecticut Supreme Court for its use in deciding the questions certified.

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The parties are hereby ordered to supply the Clerk no later than January 3,
2013, with eight copies of those pleadings and briefs filed in the instant matter
that are necessary for the Connecticut Supreme Court’s consideration of the
certified questions. See Conn. R. App. Proc. §82-4 (requiring eight (8) copies of
all documents relating to the questions certified). The Court will also direct the
Clerk to administratively close this matter pending the Connecticut Supreme
Court’s ruling on the certified questions or its declination of certification.

IT IS SO ORDERED.

________/s/__ ________
Hon. Vanessa L. Bryant
United States District Judge
Dated at Hartford, Connecticut: December 3, 2012

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