United States of America v. Connelly et al
ORDER granting 27 Motion to Dismiss for Lack of Jurisdiction; dismissing as moot 42 Motion for Summary Judgment; granting 18 Motion to Dismiss for Failure to State a Claim. Counsel is reminded to read the order in its entirety for further information. Signed by Senior Judge James C. Fox on 9/25/2012. (Edwards, S.)
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
UNITED STATES OF AMERICA for the use
and benefit of CARL BURKHOLDER; and A.G. )
ENTERPRISES OF SARASOTA, L.L.C., formerly)
A.G. ENTERPRISES, L.L.c.,
RA. CONNELLY; RA. CONNELLY, INC.;
THE HANOVER INSURANCE COMPANY; and )
THE HANOVER INSURANCE GROUP, INC.,
This matter is before the court for ruling on three dispositive motions filed by some or all
of the defendants. RA. "Bob" Connelly and RA. Connelly, Inc. (collectively, "Connelly"), have
filed two motions to dismiss this action and later were joined by The Hanover Insurance
Companyl in a motion for summary judgment [DE-43]. All three of the dispositive motions are
based on the affirmative defense that the one-year statute of limitations bars the plaintiffs' Miller
Act claim. See 40 U.S.C. § 3133(b)(4). The use plaintiffs, Carl Burkholder and A.G. Enterprises
of Sarasota, L.L.C. (collectively, "A.G.E."), argue that their complaint was timely filed. A.G.E.
also alleges a supplemental claim against Connelly for breach of contract which claim Connelly
also seeks to have dismissed.
The Hanover Insurance Group, Inc., has been dismissed as a defendant. See Notice of
Voluntary Dismissal [DE-16].
Neither side of this controversy has proffered a cogent statement of the facts underlying
this lawsuit. The court's attempts to do so have come to naught. The record that has been
assembled to date has been cobbled together over many months with small pebbles and sticks that
do not form a cognizable structure. The foundation, such as it is, is too flimsy to support a
framework, and simply defies any coherent description. The court attempts, however, to relate in
a general way what it has been able to discern.
This case is in federal court because AG.E. purports to state a Miller Act claim against
Connelly and Hanover Insurance to recover for sums allegedly owed under Hanover's payment
bond. Connelly entered a prime contract with the United States Army to construct a facility in
Harnett County, North Carolina, attached to Ft. Bragg Army Base. Connelly, in turn, contracted
with AG.E. to perform certain aspects of the construction project. AG.E., as first-tier
subcontractor, then entered into an agreement with Michael Eppes whereby Eppes was to
complete a phase of the job. Eppes, therefore, was a second-tier subcontractor. All the
subcontracts among the various parties are handwritten, and the prime contract is not part of the
Connelly, through its principal, Bob Connelly, terminated AG.E.'s subcontract on August
23,2010, and ordered Burkholder and AG.E. off the job site, and it appears that they complied.
Eppes, however, whose subcontract was with AG.E., had begun his phase of the work on May 12,
2010, and he continued to perform until he had completed his job on August 29,2010. Therefore,
although AG.E. was kicked off the job and its subcontract with Connelly terminated on August
23,2010, Eppes kept working under his own subcontract. The amended complaint and its
supporting exhibits concerning events after August 23,2010, are insufficient to permit any
reliable description or analysis.
It is not contested, however, that prime contractor, Connelly, terminated the first-tier
subcontractor, A.G.E.'s subcontract on August 23, 2010, and ordered A.G.E. off the job. Nor is it
contested that Eppes continued to work through that week and weekend until he completed his
second-tier subcontract on Sunday, August 29, 2010.
AG.E. instituted this Miller Act and breach of contract action by filing a complaint [DE
1] on August 23, 2011. Eppes is not a party to this lawsuit. Connelly moved to dismiss [DE-18]
on grounds that the one-year Miller Act statute of limitations rendered the lawsuit untimely.
AG.E. then filed an amended complaint [DE-24], which it amended [DE-26] to include a missing
page, purporting to include allegations that would support a determination that its action had been
timely filed. The defendants filed a second motion to dismiss [DE-27], and A.G.E. responded.
Before the court had reached the motions to dismiss, the defendants timely filed a motion for
summary judgment [DE-42], and AG.E. responded [DE-44] in opposition thereto.
All these motions and responses were briefed and some accompanied by attachments,
including affidavits and copies of handwritten contracts, invoices, logs, etc. Although the action
was initiated just over a year ago, AG.E.'s suggestion ofa factual basis for subject matter
jurisdiction did not materialize until after it had filed an amended amended complaint and after
Connelly had filed its second motion to dismiss. At bottom, AG.E. seeks "$117,940.00, plus
interest, attorney's fees and other costs as allowed by law" pursuant to the project bond.
Connelly contends that the lawsuit must be dismissed without reaching the merits because
AG.E. filed it one day after expiration of the Miller Act limitations deadline and, therefore, this
court lacks federal subject matter jurisdiction. Connelly contends the limitation period expired on
August 22,2011, because AG.E. last supplied material or performed labor under its first-tier
subcontract on August 23, 2010, the day Connelly terminated that subcontract and ordered AG.E.
off the jobsite. In opposition, AG.E. advances the argument that the lawsuit is timely because its
complaint and amended complaint, as amended, sufficiently have pleaded that Eppes' continuing
work even after Connelly tossed AG.E. off the job "counts" for purposes of triggering AG.E.'s
one-year limitations period under the Miller Act. Accordingly, the court is asked to decide
whether work performed by a second-tiei subcontractor (Eppes) after the prime contractor
(Connelly) unilaterally terminated the first-tier subcontractor's (AG.E.'s) subcontract on August
23,2010, is attributable as labor performed or materials provided by the first-tier subcontractor
(AG.E.) for purposes of triggering the one-year limitations period for A.G.E.'s Miller Act claim.
The Miller Act
In order to conform with the specific statutory requirements of the Miller Act, "[ a]n action
brought under this subsection must be brought no later than one year after the day on which the
last of the labor was performed or material was supplied by the person bringing the action." 40
U.S.c. § 3133(b)(4). The Fourth Circuit Court of Appeals has ruled that Rule 6(a), FED. R. Crv.
P., does not apply to the Miller Act. See Masonry, Inc. v. R.T. Woodfield. Inc., 708 F.2d 249,
Connelly attempts to characterize Eppes as a "third-tier subcontractor" whose
performance may not be used to trigger the commencement of the one-year Miller Act
limitations period, citing U.S. for Use of Barber-Colman Co. v. U.S. Fid. & Guar. Co., 19 F.3d
1431 (4th Cir. 1994). This court's reading of Barber-Colman does not comport with Connelly's.
To the extent the distinction may be deemed relevant, Eppes was a second-tier subcontractor,
not a third-tier subcontractor; Eppes contracted with A.G.E., which was the first-tier
subcontractor under Connelly's prime contract with the Army Corps of Engineers. Eppes could
have sued on the project's bond, but he did not.
250 (4th Cir. 1983) (because Rule 6(a) is not applicable to Miller Act's limitation period, a
subcontractor's suit filed on July 24, 1980, seeking payment for work completed on July 23, 1979,
was time barred).3
The Fourth Circuit Court of Appeals long ago explained who is protected under the
payment bond according the Miller Act:
Under the [Miller] Act, [former 40 U.S.c. §§ 270a-270d], the
bond protects only sub-contractors and their sub-subcontractors,
laborers and materialmen. In MacEvoy v. United States, for Use
and Benefit of Calvin Tompkins Co., 322 U.S. 102, 107, 108 ...
(1944) the Court so declared and defined 'subcontractor' as follows:
'The proviso of § 2(a) (40 V.S.c. 270b(a)), ... , makes clear that
the right to bring suit on a payment bond is limited to (1) those
materialmen, laborers and subcontractors who deal directly with the
prime contractor and (2) those materialmen, laborers and
subcontractors who, lacking express or implied contractual
relationship with the prime contractor, have direct contractual
relationship with a subcontractor and who give the statutory notice
of their claims to the prime contractor.
Miller Equip. Co. v. Colonial Steel & Iron Co., 383 F.2d 669, 673 (4th Cir. 1967) (footnote
omitted). The Miller Act defines "person" to include "all persons whether individuals,
associations, copartnerships, or corporations," and former 40 U.S.C. § 270(a)(2) provides that the
payment ,bond required thereunder shall protect "all persons supplying labor and material in the
prosecution of the work." The Act's coverage is limited, however, to (1) persons in privity of
contract with the prime contractor, and (2) persons in privity of contract with a subcontractor of
the prime contractor. See former § 270(b)(2).
Rule 6(a) entitled, "Computing Time," provides that the day of the event is not
counted but the last day of the period is counted. Because the Fourth Circuit has determined that
Rule 6(a) does not apply for purposes of Miller Act limitations calculations, the period begins on
the day of the event and the last day is not counted.
A "subcontractor" is limited to one "who performs for, or takes from, the prime contractor
a specific part of the labor or material requirements of the original contract," but excludes
ordinary laborers and materialmen. See Clifford F. MacEvoy Co. v. United States, 322 U.S. 102,
109 (1944). A person in privity of contract with a "subcontractor" is protected and may recover
under the bond.
These definitions, as applied here result in the following designations: AG.E. is a first
tier subcontractor in privity with prime contractor, Connelly. AG.E., therefore, is a "person"
covered by the Miller Act bond. And as a "person" in privity of contract with the first-tier
subcontractor, Michael Eppes, a second-tier subcontractor, also is covered. That is, Eppes
presumably could have sued on the payment bond for his work had he not been paid, but he
apparently did not.
The "person bringing this action" against the prime contractor and the bond is AG.E. and
its principal, Burkholder. The facts alleged in the pleadings and represented by exhibits thereto
establish that AG.E. and Burkholder last performed labor on the jobsite on August 23, 2010. The
"person" with whom A.G.E. subcontracted was Eppes, who was not an employee of AG.E. and
who also is not a party to this action. Thus, the "day on which the last of the labor was performed
... by the person bringing the action" - AG.E. - was August 23,2010.
The court concludes that Eppes' performing labor subsequent to August 23,2010, does not
extend the trigger date for AG.E.'s one-year Miller Act limitation period. The parties have not
directed the court's attention to a case in which the performance by a second-tier subcontractor
who is not a party to a Miller Act lawsuit can extend the one-year limitation period for such a suit
by the first-tier subcontractor who is a party. The Barber-Colman case does not provide direct
support for either party here; that case explicitly declined to address "the issue of whether a firsttier sub-contractor can use the date of a second-tier subcontractor's last work." Barber-Colman,
19 F3d at *4, n.2. A.O.E.'s Miller Act claim is untimely unless A.O.E. "supplied materials"
pursuant to its subcontract with Connelly after that date.
Neither the complaint nor the amended complaint, as amended, contains allegations that
suggest A.O.E. supplied materials after August 23,2010. Only in response to Connelly'S second
motion to dismiss did A.O.E. first allege that it "supplied additional materials to the Project
through Eppes and other suppliers" during the week following August 23,2010. See Response to
Motion to Dismiss Amended Complaint [DE-32], unnumbered p. 3, citing the Second Affidavit of
Carl Burkholder at ~ 5, attached as Exhibit A.
Nothing in either Eppes' or Burkholder's Affidavits appended to the amended complaint
mentions A.O.E.' s supplying materials to the job site on or after August 23, 2010. Both are
concerned with Eppes' provision of labor between August 23 and August 29,2010. Not until
Burkholder's Second Affidavit, appended to A.O.E.'s Response [DE-32] to Connelly'S motion to
dismiss the amended complaint [DE-27], does provision of materials after August 23 enter the
picture. Discussing "the first punch list for the CESS Project, " in paragraph 5 of this second
affidavit, Burkholder avers:
5. On Exhibit 1, "110 Mech; Install damper OAU-l refers to a damper for the
outside air unit. The duct material required to complete this punch item had to be
specifically fabricated and sized to connect the damper to the OAU unit. This duct
material was ordered by AG Enterprises andpaid by AG Enterprises. This duct
work was required under my contracts with Bob Connelly. The material was
delivered to the CESSjob site later in the week, after August 23, 2010, and remains
Burkholder Second Affidavit [DE-32], Exh. A, at ~ 5 (emphasis added).
Connelly's Reply [DE-33], supported by the Affidavit of Robert "Bob" Connelly, asserted
for the first time that after Connelly had terminated A.G.E.'s subcontract and ordered Burkholder
and A.G.E. off the job, Connelly himself entered into a verbal agreement with Michael Eppes by
which Connelly would pay Eppes what he was owed under his subcontract with A.G.E. if Eppes
would complete the duct work he had started under that subcontract. See Reply [DE-33], p. 2 &
Exh. 1, Connelly Affidavit.
Moreover, Bob Connelly averred that "The duct work referenced in paragraph 5 of the
Second Affidavit of Carl Burkholder was not supplied to the job site by AG Enterprises. The duct
work was fabricated by Bass Air Conditioning Company, Inc. and picked up and paidfor by
RAC" Id. at ~ 12 (emphasis added). Connelly's statement that it paid for and picked up the
fabricated duct work directly contradicts Burkholder's sworn statement in ~ 5 of his second
affidavit that A.G.E. ordered and paid for that material.
Although the Local Rules of this court do not permit a sur-reply in a civil case, A.G.E.
nevertheless filed what it calls a "Response Memorandum" to the second motion to dismiss,
supported by a Second Affidavit of "impartial third party Michael Eppes." Response
Memorandum [DE-34] (hereinafter "Sur-Reply"), unnumbered p. 2. Eppes' second affidavit
states, in pertinent part that,
3. Everything I did on the CESS Project was under my written contract with Carl
Burkholder, even after he left the job site on August 23, 2010.
4. Specifically, the tie in duct work for the outside air unit (OAU) ... was ordered
by Carl Burkholder the week before he left the site on his contract with Bass Air
Conditioning, and delivered to the site by Bass Air Conditioning after . .. Carl had
left the job site.
5. My only agreement with Bob Connelly was that he would pay me what Carl
Burkholder owed me. I had no contract with Bob Connelly.
6. The duct work for the damper referred to in paragraph 5 of the Second Affidavit
of Carol Burkholder, was ordered by Carl Burkholder before August 23 and
delivered to the site after he had left the site on August 24 or 25, 2010.
Sur-Reply [DE-34], Exh. 1, ~~ 3-4,6-7 (emphasis added).
Had the court been able to reach it, the defendants' second motion to dismiss would have
been allowed as soon as it became ripe. That did not occur, and the defendants were compelled
by deadlines set in the scheduling order [DE-31] to file their motion for summary judgment [DE
42]. The asserted ground for entitlement to summary judgment was lack of a genuine issue of
material fact that the action is untimely under the one-year Miller Act statute of limitations.
The allegations contained in A.G.E.'s amended complaint, as amended [DE-24 & -26],
together with the exhibits appended thereto, Exh. A-J, construed on their face in the non-moving
party's favor and treated as true, see Schweikert v. Bank of America. N.A., 521 F.3d 285, 288 (4th
Cir. 2008), are insufficient to state a timely Miller Act Claim. Neither version of the complaint
alleges a factual basis on which this action could be deemed timely filed. A.G.E.'s contention that
it supplied materials after August 23,2010, did not appear in this lawsuit until A.G.E. filed its
"Second Memorandum of Law in Opposition to Defendants' Second Motion to Dismiss" [DE
32], supported by Burkholder's "Second Affidavit."
A.G.E.'s amended complaint fails, therefore, "to raise a right to relief above the
speculative level," Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007), because it does not
contain facts that support subject matter jurisdiction under the Miller Act. Although the amended
complaint declares that, "[t]he last of the labor was performed and material supplied by Plaintiffs
within the meaning of 40 U.S.C. § 3133(b)(4) on August 29,2010," that conclusory statement is
belied by a correct application of Miller Act limitation provision in light of the other allegations
and documents appended as exhibits to the amended complaint. See Papasan v. Allain, 478 U.S.
265,286 (1986) (on a motion to dismiss, courts "are not bound to accept as true a legal conclusion
couched as a factual allegation").
For the court to find that the amended complaint was timely, it would have to deem Eppes
to have been an employee or agent of A.G.E., which conclusion neither the amended complaint
nor the accompanying materials support. This court lacks subject matter jurisdiction because the
complaint and amended complaint allege facts which, taken as true, demonstrate that statute of
limitations expired on August 22, 2011, one day before this action was filed. The court declines
to exercise supplemental jurisdiction over the state law breach of contract claim. See 28 U.S.C. §
Accordingly, it is ORDERED that Connelly's Motion to Dismiss [DE-18] and Motion to
Dismiss the amended complaint [DE-27] are ALLOWED, and the instant action is DISMISSED
in its entirety. Defendants' Motion for Summary Judgment [DE-42] is DISMISSED as moot. 4
Moreover, the court lacks subject matter jurisdiction to entertain the motion for
SO ORDERED .
This, the ~ day of September, 2012.
Senior United States District Judge
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