Asbestos Abatement Contractors, Inc. v. Home Guard Environmental Restoration Services, Inc. et al

Filing 42

ORDER & REASONS re Asurety Partners, LLP's 27 Motion to Set Aside Default, Motion to Dismiss for Lack of Jurisdiction: for the reasons stated the Court GRANTS Asurety's motion to dismiss and dismisses pla's claim without prejudice. Signed by Chief Judge Sarah S. Vance on 5/11/2012. (rll, )

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA

ASBESTOS ABATEMENT
CONTRACTORS, INC.

CIVIL ACTION

VERSUS

NO: 11-3118

HOME GUARD ENVIRONMENTAL
RESTORATION SERVICES, INC.,
ET AL.

SECTION: R(5)

ORDER AND REASONS
Defendant Asurety Partners, LLP moves to set aside default
and moves to dismiss for lack of subject matter jurisdiction.1
Plaintiff Asbestos Abatement Contractors, Inc. does not oppose
the motion to set aside default, but opposes the motion to
dismiss.2

The Court grants the motion to set aside default and

holds that because plaintiff’s claim is not based on the general
contractor’s payment bond, the Court lacks subject matter
jurisdiction.

I.

BACKGROUND
On March 24, 2011, defendant Jacobs Technology, Inc., the

general contractor on a demolition project at the Michould
Assembly Facility in New Orleans, Louisiana, subcontracted with

1

R. Doc. 27.

2

R. Doc. 35.

defendant Home Guard Environmental Restoration Services, Inc. for
Home Guard to provide “all labor, equipment, materials, tools,
supplies, supervision, and insurance necessary” for the
demolition of MAF Building 105 at the Michould Assembly
Facility.3

The subcontract was identified as No. 1075-CY2-MAF-C

and stated that it related to Prime Contract No. NNM09AA20C.4
The same day, Home Guard entered into an oral subcontract with
plaintiff Asbestos Abatement Contractors, Inc. (“AAC”) for the
removal of transite panels from the building to be demolished.5
On April 11, 2011, Home Guard posted a payment bond in the
penal sum of $517,750.00 with defendant Asurety Partners, LLLP as
surety.6

The payment bond listed Jacobs as the obligee and

stated that the it related to Contract No. 1075-CY2-MAF-C.7

In

addition, AAC asserts that Jacobs posted a performance bond with
an unknown surety binding themselves to the United States in
connection with Contract No. NNM09AA20C.8

3

R. Doc. 1 at ¶8; R. Doc. 1-3 at 2 (Jacobs Contract).

4

R. Doc. 1-3 at 2.

5

R. Doc. 1 at ¶11.

6

R. Doc. 35-1 at 1.

7

Id. at 1,3.

8

R. Doc. 1 at ¶10.
2

AAC began work on May 3, 2011.

AAC both removed transite

panels and supplied the necessary labor and materials to do so.9
On June 3, Jacobs notified Home Guard that it was terminating its
contract with Home Guard, citing safety violations, compliance
issues, and “a general failure for overall project management
endangering successful completion of the contract.”10

The letter

instructed Home Guard to “expeditiously advise all lower-tier
subcontractors” of the termination and to cease work related to
the contract immediately.11

Home Guard notified AAC of the

termination on June 6, 2011.12

AAC asserts that it ceased work

immediately upon receiving Home Guard’s e-mail.13

AAC contends

that it is owed $33,480.00 for the work, services, equipment, and
materials it provided under its contract, and filed this action
against Home Guard, Jacobs, Asurety, and XYZ Insurance Company.14
ACC alleges (1) that Home Guard is liable to AAC for damages
caused by Home Guard’s breach of contract; (2) that Home Guard
and Jacobs are liable to it on open account; (3) that AAC is
entitled to payment by Asurety under the Miller Act; and (4) that

9

Id. at ¶12.

10

R. Doc. 1-3 at 6 (Jacobs letter dated June 3, 2011).

11

Id.

12

R. Doc. 1-3 at 8 (Mitchell e-mail dated June 6, 2011).

13

R. Doc. 1 at ¶15.

14

R. Doc. 1 at ¶16.
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Home Guard and Jacobs must compensate AAC for the services and
equipment it provided under a theory of unjust enrichment.

On

March 9, 2012, the Court entered an order of default as to
Asurety.15
Asurety now moves to vacate the default and for dismissal
for lack of subject matter jurisdiction.16

AAC opposes the

motion to dismiss, but not the motion to vacate the default.

II.

VACATING DEFAULT

A.

Standard
Rule 55(c) provides that “[t]he court may set aside an entry

of default for good cause, and it may set aside a default
judgment under Rule 60(b).”

Fed. R. Civ. P. 55(c).

In

determining whether good cause exists to set aside an entry of
default, the Court considers: whether the default was willful;
whether setting it aside would prejudice the adversary; whether a
meritorious defense is presented; whether the public interest was
implicated; whether there was significant financial loss to the
defendant; and whether the defendant acted expeditiously to
correct the default.

Jenkins & Gilchrest v.Groia & Co., 542 F.3d

114, 119 (5th Cir. 2008).

The Court need not necessarily

consider each of these factors; “the imperative is that they be
15

R. Doc. 17.

16

R. Doc. 27.
4

regarded simply as a means of identifying circumstances which
warrant the finding of ‘good cause.’” Id.

The wilfulness and

meritorious defense factors, however, may be dispositive.

B.

Discussion
Having considered Asurety’s argument, the Court grants

Asurety’s motion to set aside default.

First, as detailed below,

the Court finds that Asurety has presented a meritorious defense.
Second, although Asurety waited nearly three weeks to set aside
default, this delay does not amount to prejudice to AAC.

See

Lacy v. Sitel Corp., 227 F.3d 290, 293 (5th Cir. 2000)(“mere
delay alone does not constitute prejudice”).

That AAC does not

oppose the motion to set aside default is additional evidence
that AAC will not be prejudiced.

Accordingly, the Court grants

Asurety’s motion to set aside default.

III. MOTION TO DISMISS
A.

Standard
Federal Rule of Civil Procedure 12(b)(1) requires dismissal

of an action if the court lacks jurisdiction over the subject
matter of the plaintiff’s claim.

In ruling on a Rule 12(b)(1)

motion to dismiss, the court may rely on (1) the complaint alone,
presuming the allegations to be true, (2) the complaint
supplemented by undisputed facts, or (3) the complaint
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supplemented by undisputed facts and by the court’s resolution of
disputed facts.

Den Norske Stats Oljeselskap As v. HeereMac Vof,

241 F.3d 420, 424 (5th Cir. 2001); see also Barrera-Montenegro v.
United States, 74 F.3d 657, 659 (5th Cir. 1996).

The plaintiff

bears the burden of demonstrating that subject matter
jurisdiction exists.

See United States ex rel. Ondis v. City of

Woonsocket, 587 F.3d 49, 54 (1st Cir. 2009); Paterson v.
Weinberger, 644 F.2d 521, 523 (5th Cir. 1981).

When examining a

factual challenge to subject matter jurisdiction that does not
implicate the merits of plaintiff's cause of action, the district
court has substantial authority “to weigh the evidence and
satisfy itself as to the existence of its power to hear the
case.”

Garcia v. Copenhaver, Bell & Assocs., 104 F.3d 1256, 1261

(11th Cir. 1997); see also Clark v. Tarrant County, 798 F.2d 736,
741 (5th Cir. 1986). Accordingly, the Court may consider matters
outside the pleadings, such as testimony and affidavits. See
Garcia, 104 F.3d at 1261.

A court’s dismissal of a case for lack

of subject matter jurisdiction is not a decision on the merits,
and the dismissal does not ordinarily prevent the plaintiff from
pursuing the claim in another forum.

See Hitt v. City of

Pasadena, 561 F.2d 606, 608 (5th Cir. 1977).

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B.

Discussion
The Miller Act is designed “to protect persons supplying

labor and material for the construction of federal public
buildings in lieu of the protection they might receive under
state statutes with respect to the construction of public
buildings.”

Arena v. Graybar Elec. Co., Inc., 669 F.3d 214, 220

(5th Cir. 2012)(quoting Water Works Supply Corp. v. George Hyman
Constr. Co., 131 F.3d 28, 31 (1st Cir. 1997)).

See also United

States v. Johnson Controls, Inc., 713 F.2d 1541, 1553-54 (Fed.
Cir. 1983)(“the general purpose of the Miller Act is to protect
subcontractors against nonpayment, as it is generally recognized
that a subcontractor cannot directly sue the government and
cannot obtain a lien against property supplied to the
government”).

The Miller Act provides that:

Before any contract of more than $100,000 is awarded
for the construction, alteration, or repair of any
public building or public work of the Federal
Government, a person must furnish to the Government
[performance and payment] bonds, which become binding
when the contract is awarded.
40 U.S.C. § 3131(b).

“The performance bond secures the

performance of the contract for the benefit of the government,
while the payment bond protects persons supplying labor and
material in the prosecution of the contract work.”

Government

Contracts: Law, Administration, Procedure (Walter Wilson, Gen.
Ed.), Ch. 49A, § 49A.20 (Matthew Bender).

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If an entity does not receive payment within 90 days of
furnishing labor or material under a contract for which a payment
bond is furnished under § 3131, that entity may file a civil
action in federal court for the amount unpaid.
3133(b).

40 U.S.C. §

The Miller Act provides that:

(1) In general.-–Every person that has furnished labor or
material in carrying out work provided for in a contract
for which a payment bond is furnished under section 3131
of this title and that has not been paid in full within
90 days after the day on which the person did or
performed the last of the labor or furnished or supplied
the material for which the claim is made may bring a
civil action on the payment bond for the amount unpaid at
the time the civil action is brought and may prosecute
the action to final execution and judgment for the amount
due.
(2) Person having direct relationship with contractor.--A
person having a direct relationship with a subcontractor
but no contractual relationship, express or implied, with
the contractor furnishing the payment bond may bring a
civil action on the payment bond on giving written notice
to the contractor within 90 days from the date on which
the person did or performed the last of the labor or
furnished or supplied the last of the material for which
the claim is made.
The action must state with
substantial accuracy the amount claimed and the name of
the party to whom the material was furnished or supplied
or for whom the labor was done or performed. . . . .
40 U.S.C. § 3133(b) (emphasis added).

Thus, a “subcontractor’s

right to sue for recovery under the Miller Act is traditionally
limited to a general contractor’s payment bond.”

Arena, 669 F.3d

at 220 (citing Superior Sys. Inc. v. Levy Wrecking Co., Inc., No.
93-2440, 1994 WL 142113, at *1 (8th Cir. Apr. 22,
1994)(unpublished)).

Here, AAC has not sued on a payment bond

issued by the general contractor.
8

AAC points out that the subcontractor, Home Guard, posted a
payment bond covering its subcontractors with the general
contractor and argues that because Home Guard was a subcontractor
under the Miller Act, AAC may bring a civil action under that
provision.17

In support, AAC relies on two cases that it

contends hold that “a second-tier subcontractor with a
contractual relationship with the first-tier subcontractor is
covered by the Miller Act.”
AAC’s contention.

Neither case, however, supports

In Polied Envtl. Servs., Inc. v. Incor Grp.,

238 F. Supp. 2d 456 (D. Conn. 2002), the court held that it had
subject matter jurisdiction under the Miller Act when the subsubcontractor sued the sub-contractor and the general contractor
pursuant to the payment bond provided for in the prime contract.
Id. at 459.

The court expressly reserved the question of whether

the plaintiff could sue the subcontractor under the payment bond
issued in connection with the subcontract.

Id. at 458.

Likewise, the Tenth Circuit held that a subcontractor’s supplier
could maintain an action against the general contractor under the
Miller Act when the supplier sued on the payment bond between the
general contractor and the United States.

Olmsted Elec., Inc. v.

Neosho Constr. Co., Inc., 599 F.2d 930, 932 (10th Cir. 1979).

In

sum, neither case addresses the situation at issue here - namely,
whether a sub-subcontractor’s suit based on a payment bond issued

17

R. Doc. 35 at 2.
9

in conjunction with the subcontract, not the prime contract,
falls under the Miller Act.
Rather, the plain language of the statute makes clear that
the Miller Act provides a cause of action only on the payment
bond between the general contractor and the United States.
Section 3131(b) requires a payment bond between a contractor and
the government; the right to bring a civil action under section
3133(b) is “on the payment bond” required by section 3131(b).
See 40 U.S.C. § 3131(b); 40 U.S.C. § 3133(b); Tri-State Road
Boring, Inc. v. United States Fid. & Guar. Co., 959 F. Supp. 345,
347 (E.D. La. 1996)(Miller Act contains a “specific requirement
that a payment bond be furnished to the United States when the
work is a public work”); Capps v. Fid. & Dep. Co. of Md., 875 F.
Supp. 803, 808 (M.D. Al. 1995)(“By statute, the payment bond must
run to the benefit of the United States, and subcontractors and
suppliers are permitted to sue on the bond in federal court in
the name of the United States.”).

See also Gen. Elec. Supply Co.

v. United States Fid. & Guar. Co., 11 F.3d 577, 579-580 (6th Cir.
1993)(“[A] laborer or materialman working on a public building or
public work of the United States who has not been paid in full
can sue in federal court on the payment bond required in section
[3131(b)].”) (emphasis added)(internal quotations omitted);
Dallas G. Olson v. W.H. Cates Constr. Co., Inc., 972 F.2d 987,
989 (8th Cir. 1992) (noting that every person who furnished labor

10

or material has the right to sue on the payment bond procured by
the general contractor”)(emphasis added).
Further, the Fifth Circuit has made clear that an action
under the Miller Act must be instituted on the general
contractor’s bond.

Arena, 669 F.3d at 220 (a “subcontractor’s

right to sue for recovery under the Miller Act is traditionally
limited to a general contractor’s payment bond”); J.D. Fields &
Co., Inc. v. Gottfried Corp., 272 F.3d 692, 696 (5th Cir.
2001)(discussing a right of action against “the general
contractor’s payment bond” under the Miller Act).

See also Gen.

Rock & Sand Corp. v. Chuska Dev. Corp., 55 F.3d 1491, 1493 (10th
Cir. 1995)(in order to establish jurisdiction under the Miller
Act, plaintiff must demonstrate, inter alia, that a payment bond
was furnished to the United States); Superior Systems, Inc., 1994
WL 142113, at *1 (“While we have recognized that subsubcontractors are entitled to recover under the Miller Act,
their right to sue has traditionally been limited to suit on the
prime contractor’s payment bond.”) (gathering cases).

It is

therefore clear that, under the Miller Act, AAC cannot base its
action on the bond Asurety issued on the Jacobs/Home Guard
subcontract.
Other than the Asurety bond, AAC does not point to any other
jurisdictional basis for its action.

Although AAC alleges that

Jacobs posted a bond for the benefit of the United States, the

11

bond AAC mentions is a performance bond, which merely guarantees
performance of the contract to the United States.

In contrast,

“[t]he purpose of the payment bond is to protect all persons
supplying labor and materials for the completion of the
[p]roject.”

Terracom v. Valley Nat. Bank, 49 F.3d 555, 557 (9th

Cir. 1995).

Thus, the existence of a performance bond has no

bearing on AAC’s purported Miller Act claim.

As the party that

bears the burden of establishing jurisdiction, AAC fails to
establish, let alone plead, the existence of a payment bond
between the general contractor and the United States that could
provide jurisdiction under the Miller Act.

In the absence of a

payment bond required by § 3131(b), the Court lacks subject
matter jurisdiction to consider AAC’s claim.

Because AAC

asserted the Miller Act as its sole basis for federal
jurisdiction, the complaint must be dismissed in its entirety.

IV.

CONCLUSION
For the foregoing reasons, the Court GRANTS Asurety’s motion

to dismiss and dismisses plaintiff’s claim without prejudice.

New Orleans, Louisiana, this 11th day of May, 2012.
__
_________________________________
SARAH S. VANCE
UNITED STATES DISTRICT JUDGE

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