Pacific Western Inc. v. Liberty Mutual Insurance Company et al

Filing 25

ORDER granting 19 Motion to Dismiss for Failure to State a Claim. For the reasons set forth in the attached Memorandum and Order, defendants' motion to dismiss is granted. Plaintiff's claims are dismissed without prejudice. To the extent plaintiff seeks to replead, it must do so within thirty (30) days of this Order. Ordered by Judge Denis R. Hurley on 6/10/2015. (Kaley, Regina)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
-------------------------------------------------------------X
THE UNITED STATES FOR THE USE AND
BENEFIT OF PACIFIC WESTERN INC.
AND PACIFIC WESTERN INC.,
Plaintiffs,

MEMORANDUM AND ORDER
14 CV 4977 (DRH) (AYS)

- against LIBERTY MUTUAL INSURANCE COMPANY
and E & A RESTORATION INC.,
Defendant.
-----------------------------------------------------------X
APPEARANCES:
SILVERBERG, P.C.
Attorneys for Plaintiffs
320 Carleton Ave., Suite 6400
Central Islip, NY 11722
By:
Karl J. Silverberg, Esq.
FORCHELLI, CURTO, DEEGAN, SCHWARTZ, MINEO & TERRANA, LLP
Attorneys for Defendants
333 Earle Ovington Blvd., Suite 1010
Uniondale, NY 11553
By:
John Michael Comiskey, Esq.

HURLEY, Senior District Judge:
Plaintiffs the United States for the Use and Benefit of Pacific Western Inc. and Pacific
Western Inc. (“plaintiff” or “Pacific”) bring this action against Liberty Mutual Insurance
Company (“Liberty Mutual”) and E&A Restoration Inc. (“E&A”), (collectively “defendants”)
asserting a claim pursuant to 40 U.S.C. § 3131 et seq., “the Miller Act” as well as a state law
claim based on consignee liability. Presently before the Court is defendants’ motion to dismiss
these claims pursuant to Federal Rule of Civil Procedure (“Rule”) 12(b)(6). For the reasons set
forth below, defendants’ motion is granted.
1

BACKGROUND
The following facts are taken from plaintiff’s 1 Second Amended Complaint 2 and are
presumed to be true for purposes of defendants’ present motion.
The National Park Service, U.S. Department of the Interior, contracted with E&A
Restoration as the general contractor to perform improvements at the Sagamore Hill National
Historic Site, Oyster Bay, Nassau County, New York (“the Sagamore Hill Project”). For the
Sagamore Hill Project, Liberty Mutual, as surety, issued a payment bond with E&A Restoration
as the principal, pursuant to which Liberty Mutual agreed to pay any claims by parties who
performed work or supplied materials for the Sagamore Hill Project but were not paid by E&A
Restoration
According to plaintiff, E&A entered into a subcontract agreement with Soil Stabilization
Products Co. Inc. (“SSP”), under which SSP agreed to custom manufacture 80 tons of
NaturalPAVE XL Resin Pavement (“NaturalPAVE”) for the Sagamore Hill Project. According
to plaintiff, “[t]he proposal and contract between [SSP] and E&A Restoration was akin to a
subcontract agreement and did not look like a purchase order for general off-the-shelf
construction material.” (Sec. Amend. Compl. ¶ 21.)
Pacific Western, through contracts with common carriers, transported SSP’s material to
the Sagamore Hill Project. According to the bill of lading for the transportation of the goods,
1

Although the action is technically brought on behalf of the United States for the Use and
Benefit of Pacific Western and Pacific Western, the Court will refer to plaintiff in the singular.
2

On January 5, 2015, after defendants had already served their motion to dismiss,
plaintiff filed a Second Amended Complaint. The Second Amended Complaint was filed
pursuant to a stipulation between the parties allowing Pacific to add “United States for the [U]se
and Benefit of Pacific Western Inc.” as a plaintiff. Given that this was the sole change, the Court
has reviewed defendants’ motion to dismiss as it applies to the Second Amended Complaint,
which is currently the operative pleading in this case.
2

E&A Restoration was the consignee (recipient of the goods). The delivery was made to the
Sagamore Hill Historic Site in two truckloads on September 4, 2013 and September 6, 2013,
with a transportation cost of $13,100, which SSP did not prepay. The NaturalPAVE was,
however, rejected. Thereafter, Pacific demanded payment for the shipping charges from SSP,
but SSP did not pay. Pacific also made claims for the shipping costs to Liberty Mutual pursuant
to the payment bond and to E&A as the consignee, but neither party has paid the amount.
DISCUSSION
I.

Standard of Review for Motion to Dismiss
Rule 8(a) provides that a pleading shall contain “a short and plain statement of the claim

showing that the pleader is entitled to relief.” FED. R. CIV. P. 8(a)(2). In recent years, the
Supreme Court has clarified the pleading standard applicable in evaluating a motion to dismiss
under Rule 12(b)(6).
First, in Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007), the Court disavowed the wellknown statement in Conley v. Gibson, 355 U.S. 41, 45–46 (1957) that “a complaint should not be
dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove
no set of facts in support of his claim which would entitle him to relief.” Twombly, 550 U.S. at
561. Instead, to survive a motion to dismiss under Twombly, a plaintiff must allege “only
enough facts to state a claim to relief that is plausible on its face.” Id. at 570.
While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need
detailed factual allegations, a plaintiff’s obligation to provide the grounds of his
entitlement to relief requires more than labels and conclusions, and a formulaic
recitation of the elements of a cause of action will not do. Factual allegations must
be enough to raise a right to relief above the speculative level, on the assumption
that all the allegations in the complaint are true (even if doubtful in fact).
Id. at 555 (citations and internal quotation marks omitted).
More recently, in Ashcroft v. Iqbal, 556 U.S. 662 (2009), the Supreme Court provided
3

further guidance, setting a two-pronged approach for courts considering a motion to dismiss.
First, a court should “begin by identifying pleadings that, because they are no more than
conclusions, are not entitled to the assumption of truth.” Id. at 679. “While legal conclusions
can provide the framework of a complaint, they must be supported by factual allegations.” Id.
Thus, “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory
statements, do not suffice.” Id. at 678 (citing Twombly, 550 U.S. at 555).
Second, “[w]hen there are well-pleaded factual allegations a court should assume their
veracity and then determine whether they plausibly give rise to an entitlement to relief.” Id. at
679. “Determining whether a complaint states a plausible claim for relief [is] . . . a contextspecific task that requires the reviewing court to draw on its judicial experience and common
sense.” Id. The Court defined plausibility as follows:
A claim has facial plausibility when the plaintiff pleads factual content that allows
the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged. The plausibility standard is not akin to a “probability
requirement,” but it asks for more than a sheer possibility that a defendant has
acted unlawfully. Where a complaint pleads facts that are “merely consistent
with” a defendant’s liability, it “stops short of the line between possibility and
plausibility of ‘entitlement to relief.’ ”
Id. at 678 (quoting and citing Twombly, 550 U.S. at 556–57) (internal citations omitted).
In other words, “where the well-pleaded facts do not permit the court to infer more than
the mere possibility of misconduct, the complaint has alleged—but it has not ‘show[n]’—that the
pleader is entitled to relief.” Id. at 679 (quoting FED. R. CIV. P. 8(a)(2)).
II.

Plaintiff’s Miller Act Claim
Pacific Western claims that it “is entitled to payment [for its shipping charges] from

Liberty Mutual under the payment bond provided to E&A Restoration under the Miller Act . . .

4

in the amount of $13,100 plus interest and attorneys’ fees, as allowed for under Pacific
Western’s contract with [SSP].” (Sec. Amend. Compl. ¶ 33.)
“The Miller Act . . . requires a prime contractor of a federal project to furnish a payment
bond to insure payment to individuals who supply labor and/or materials for federal projects.”
United States for the Use and Benefit of Conveyor Rental & Sales Co. v. Aetna Casualty &
Surety Co., 981 F.2d 448, 450 (9th Cir. 1992) (internal quotation marks and citations omitted);
see also U.S. ex rel. Krol v. Arch Ins. Co., 46 F. Supp. 3d 347, 351 (S.D.N.Y. 2014) (“The Miller
Act requires any contractor performing on a ‘contract of more than $100,000 ... for the
construction, alteration, or repair of any public building or public work of the Federal
Government’ to furnish a ‘payment bond with a surety satisfactory to the [contracting federal]
officer for the protection of all persons supplying labor and material in carrying out the work
provided for in the contract.’ 40 U.S.C. §§ 3131(a)-(b).”). “Although the Miller Act is to be
construed liberally, it is limited by a proviso that the payment bond protects only those persons
who have a contractual agreement with a prime contractor or subcontractor engaged in a federal
project. Persons supplying labor or material to a mere materialman are not protected.”
Conveyor Rental & Sales, 981 F.2d at 450 (internal citations omitted).
Here, Pacific Western had a contractual relationship with SSP to transport the
NaturalPAVE. However, it is entitled to protection under the Miller Act only if SSP was a
subcontractor of E&A Restoration. Thus, the main issue in dispute is whether or not plaintiff has
adequately alleged that SSP is a subcontractor of E&A Restoration, rather than a materialman.
Both parties cite a Ninth Circuit case, United States for the Use and Benefit of Conveyor
Rental & Sales Co. v. Aetna Casualty & Surety Co., 981 F.2d 448 (9th Cir. 1992) for the

5

standard in determining whether an entity is a subcontractor. In that case, the court found that
the following factors weigh in favor of a subcontractor relationship:
(1) the product supplied is custom fabricated; (2) the product
supplied is a complex integrated system; (3) a close financial
interrelationship exists between the companies; (4) a continuing
relationship exists with the prime contractor as evidenced by the
requirement of shop drawing approval by prime contractor or the
requirement that the supplier's representative be on the job site; (5)
the supplier is required to perform on site; (6) there is a contract
for labor in addition to materials; (7) the term “subcontractor” is
used in the agreement; (8) the materials supplied do not come from
existing inventory; (9) the supplier's contract constitutes a
substantial portion of the prime contract; (10) the supplier is
required to furnish all the material of a particular type; (11) the
supplier is required to post performance bond; (12) there is a
backcharge for cost of correcting supplier's mistakes; and (13)
there is system of progressive or proportionate fee payment.
981 F.2d at 451-52. On the other hand, the court noted that the following factors weigh in favor
of a materialman relationship:
(1) a purchase order form is used by the parties; (2) the materials
come from preexisting inventory; (3) the item supplied is relatively
simple in nature; (4) the contract is a small percentage of the total
construction cost; and (5) sales tax is included in the contract price.
Id. at 452.
Pacific argues that it has sufficiently alleged facts relating to the above-mentioned factors
that indicate that SSP is a subcontractor. For example, plaintiff argues that the Complaint
sufficiently alleges that SSP performed work on site because it states that SSP’s “project
manager informed Pacific Western’s president, Carter Laurie, that [SSP] sent a technical
representative to the Sagamore Hill project to assist E&A Restoration in the NaturalPAVE’s
installation” and that it was SSP’s practice to do so. (Sec. Amend. Compl. ¶ 15.) It does not
allege, however, that the technical representative actually came on site or if so, what kind of

6

work he or she performed and the length of the visit. Therefore, it has not sufficiently alleged
that this factor is present in this case.
Moreover, plaintiff’s attempt to characterize its allegations as supporting the inference
that E&A back-charged SSP is unconvincing. While plaintiff alleges that “[a]ccording to an
affidavit sworn to by Peter Lacagnina, an E&A Restoration Senior Project Manager, ‘E&A . . .
reserved the right to assert a claim against [Soil Stabilization] for the amount paid by E&A for
the Pavement Mix, together with all additional costs E&A has incurred relating to the remov[al]
of the defective Pavement Mix,’ ” (Sec. Amend. Compl. ¶ 16), these allegations do not seem to
encompass what other courts have identified as a “backcharge.” See e.g., Aniero Concrete Co. v.
New York City Const. Auth., 308 F. Supp. 2d 164, 197-98 (S.D.N.Y. 2003) (discussing
“backcharge” in a situation where the contractor deducts from future payments to a subcontractor amounts the sub-contractor was obligated to pay but instead the contractor was forced
to absorb). As defendants point out, the term “backcharge” implies “an ongoing relationship
between [a contractor and a subcontractor] such that [the contractor] could simply offset
additional amounts due and owing to the [subcontractor]” by any amounts it was forced to
absorb on behalf of the subcontractor. (Defs.’ Reply at 5.) By contrast, plaintiff’s allegations are
purely that E&A reserved its right to bring a claim against SSP for the cost of the rejected
NaturalPAVE and make no mention of offsetting any future payments to SSP.
Finally, plaintiff has not sufficiently alleged that the NaturalPAVE is a complex or
custom-made product. Plaintiff cites the Complaint’s references to the environmental
advantages of NaturalPAVE and the environmentally friendly technology used to manufacture it
in support of its argument that it has sufficiently alleged the product’s complexity. (Sec. Amend.
Compl. ¶ 12.) Additionally, it cites allegations that SSP was the only company that supplied
7

NaturalPAVE and E&A Restoration had to go to California to get it. (Id. ¶ 13.) Such
allegations, however, lack details about the product itself sufficient to show that the
NaturalPAVE is “a complex, integrated system.” Aetna Casualty & Surety Co. v. U.S. for the
Use and Benefit of Gibson Steel Co., 382 F.2d 615, 618 (5th Cir. 1967).
In support of its assertion that NaturalPAVE is custom made, plaintiff alleges that SSP’s
“sales representative stated on a phone call that [SSP] generally custom fabricates NaturalPAVE
orders and does not supply NaturalPAVE from an existing inventory.” (Sec. Amend. Compl. ¶
17.) Additionally, it alleges that “[a]ccording to [SSP’s] proposal to E&A Restoration, ‘[t]here is
a prepayment and lead time associated with accessing the special aggregate materials and
preparation of the custom aggregate blend for this specific pavement mix formulation.’ ” (Id. ¶
18.) In order to assess whether these allegations are sufficient, the Court looks to cases where
courts have found that the customization of a product weighed in favor of finding a subcontractor
relationship. For example, in Miller Equipment Co. v. Colonial Steel Iron Co., 383 F.2d 669,
674 (4th Cir. 1967), the court found that the contract “called not for the mere supply of materials
but for the custom fabrication of massive girders and their accessories, key and integral
components of [a] bridge, designed and fabricated to mesh precisely in their final assembly on
the job-site.” Similarly, in United States for the Use of Wellman Engineering Co. v. MSI Corp.,
350 F.2d 285, 287 (2d Cir. 1965), the court found that a district court “properly placed the case
on the subcontractor side of the line” where subcontractor produced a “[m]echanism built to the
prime contract specifications, for the unique task of rapid movement of . . . heavy concrete roofs
of missile launchers.” By contrast, courts have found that products that conform to “relatively
uncomplicated specifications” are not custom made. See Conveyor Rental & Sales, 981 F.2d at
453 (finding that gravel provider was materialman where gravel specifications were “merely
8

descriptive of what was to be furnished”) (collecting cases). Here, despite its use of the word
“custom” in its pleading, the plaintiff has not alleged any facts regarding the contract
specifications that the NaturalPAVE was to meet, let alone, that such specifications were
anything more than a relatively simple description of the type of pavement that was to be
provided. Moreover, the allegations suggest that plaintiff’s actions in preparing the
NaturalPAVE amounted to a “mere supply of materials” and do not suggest that the pavement
was “designed and fabricated to mesh precisely” with the Sagamore Hill Project. Miller
Equipment Co., 383 F.2d at 674. As a result, plaintiff has failed to sufficiently allege that this
factor supports a finding that SSP was a subcontractor.
Furthermore, even assuming plaintiff’s allegations that E&A Restoration and SSP had an
agreement calling for a progressive system of fee payments in that SSP required “a 50%
prepayment of the order for mobilization,” (Sec. Amend. Compl. ¶ 19), and that according to the
contract, “[t]he sales prices of the [NaturalPAVE] did not include any taxes,” (Id. ¶ 20), weigh in
favor of a subcontractor relationship, alone they are insufficient as a matter of law to support the
conclusion that SSP was a subcontractor. See Conveyor Rental & Sales, 981 F.2d at 456
(dismissing Miller Act claim where “only factor tending to show a subcontractor relationship
was . . . progressive, rather than fixed, form of payment”); Gibson, 382 F.2d at 618 (dismissing
Miller Act claim where several factors weighed in favor of subcontractor relationship, including
that materialman carried no inventory and was backcharged by general contractor). Moreover,
plaintiff’s conclusory allegation that the contract between SSP and E&A Restoration “did not
look like [a] purchase order,” (Sec. Amend. Compl. ¶ 21), is simply too vague to support a
conclusion that SSP was a subcontractor. As a result, the Second Amended Complaint does not
plausibly state a claim under the Miller Act, and that claim is dismissed.
9

III.

Plaintiff’s Consignee Liability Claim
Plaintiff’s second claim states that “E&A Restoration is directly liable for Pacific

Western’s charges as the consignee (receiver) of goods under the default terms of a standard bill
of lading.” (Sec. Amend. Compl. ¶ 35.) Since this claim is based in state law, defendants argue
that “upon dismissal of the first claim of the Complaint, the Court should decline to exercise
supplemental jurisdiction over the second claim of the Complaint, and should instead dismiss
such claim.” (Defs.’ Mem. in Opp’n at 8.) Having found that plaintiff’s Miller Act claim is
dismissed, there is no longer any independent basis for federal jurisdiction in this action.
Although the Court has discretion to exercise supplemental jurisdiction over plaintiff’s state law
claim, it declines to do so. See 28 U.S.C. § 1367(c)(3) (“The district courts may decline to
exercise supplemental jurisdiction over [state law claims] if . . . the district court has dismissed
all claims over which it has original jurisdiction.”) Therefore, plaintiff’s consignee liability
claim is dismissed.
CONCLUSION
For the foregoing reasons, defendants’ motion to dismiss is granted. Plaintiff’s claims
are dismissed without prejudice. To the extent plaintiff seeks to replead, it must do so within
thirty (30) days of this Order.

SO ORDERED.
Dated: Central Islip, New York
June 10, 2015
/s/
_
Denis R. Hurley
Unites States District Judge

10