Are Attorney’s Fees Permitted Under State Law Recoverable Against a Miller Act Payment Bond Surety?

In a recent federal district court Memorandum Opinion and Order, Federal Engineers and Constructors, Inc. v. Relyant Global, LLC, et al., No. 3:19-CV-73-KAC-JEM, 2022 WL 1721454 (E.D. Tenn. May 27, 2022), the court addressed, among other issues, whether a payment bond claimant could recover attorney’s fees under a state law in its claim against a Miller Act payment bond surety. To cut to the chase—and not leave you long in suspense, the court held that the claimant could not recover attorney’s fees pursuant to the Tennessee Prompt Payment Act (TPPA) in its claims against the payment bond surety because federal law provides the exclusive remedies under the Miller Act, which does not authorize the recovery of attorney’s fees. But read on to find out the caveat to that holding.

The suit arose from prime contractor Relyart Global’s (Relyart) termination of a subcontract with Federal Engineers and Constructors (FE&C) to renovate a U.S. Air Force dormitory in Missouri. The U.S. Army Corps of Engineers (USACE) contracted with Relyart as the prime contractor for the renovation project.  Relyart, a Tennessee company, subcontracted with FE&C for the project. Lexon Insurance Company (Lexon) issued the bonds required by the Miller Act on behalf of Relyart.

About one year later, Relyart terminated the subcontract with FE&C. In response to the termination, FE&C filed suit asserting various claims related to the alleged breach of contract, including violation of the Tennessee Prompt Payment Act and a claim for attorney’s fees. Relyart and Lexon moved for judgment on the pleadings. (To survive a motion for judgment on the pleadings, a complaint must contain sufficient facts “to state a claim for relief that is plausible on its face.”)

If the counts of the complaint asserting violation of the TPPA and the Miller Act, FE&C sought recovery of attorney’s fees. Relyart and Lexon argued that, as a matter of law, the subcontract precluded FE&C from recovery of attorney’s fees.  The relevant subcontract language provided as follows:

In a dispute arises relating to the performance of the Work covered by the Agreement, and legal or other costs are incurred by the Parties, it is agreed that each party shall be responsible for its own costs, attorney’s fees, and any other related legal expenses.

FE&C argued that the TPPA provides that “[r]easonable attorney’s fees may be awarded against the nonprevailing party, provided, that such nonprevailing party has acted in bad faith.” In addition, the TPPA provides that its provisions cannot be waived by contract and apply to all private and state contracts. FE&C further argued that, with regard to the Miller Act claim, Lexon’s liability is that of Relyart’s; and because Relyart may be liable for attorney’s fees under the TPPA, Lexon may be liable as well.

Lexon asserted that Miller Act claims cannot include recovery of attorney’s fees based on state law. The court agreed with Lexon, noting initially that the TPPA does not apply to “insurance companies” (this is the court’s infelicitous language referring to sureties) and cannot be the basis of recovery of attorney’s fees against Lexon. The court observed that Miller Act remedies are generally a matter of federal law. The court cited to the well-known Supreme Court case, F.D. Rich Co. v. U.S. ex rel. Indus. Lumber Co., 417 U.S. 116 (1974), superseded by statute on other grounds, 31 U.S.C. § 3905(j):  “’The Miller Act provides a federal cause of action, and the scope of the remedy as well as the substance of the rights created thereby is a matter of federal not state law.’” In so concluding, the Supreme Court emphasized that federal courts should be free “‘from the morass of trying to divine a “state policy” as to the award of attorney’s fees in suits on construction bonds.’”

The Relyart court observed that “the Miller Act’s uniform national rule better serves the expectations of potential litigants, especially because federal contracts often involve construction in multiple states and –as is the case here—parties often have little connection to the state where the project is located.”

The court thus held that federal law provides the exclusive remedies under the Miller Act and that the Miller Act does not authorize the recovery of attorneys’ fees. BUT the court, additionally, observed that attorney’s fees could be awarded for a Miller Act claim based on an express contractual attorney’s fees provision. The court stated that, “[i]f the Parties’ subcontract expressly provided for payment of attorney’s fees, this language could authorize the payment of contractually-obligated attorney’s fees.” As already noted, the subcontract waived recovery of attorney’s fees; and Lexon’s payment bond did not mention attorney’s fees.

Accordingly, there was no basis for the recovery of attorney’s fees; and the court dismissed the claim for attorney’s fees against Lexon.

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.