Anne Arundel County v. Fidelity & Deposit Co.

RODOWSKY, Judge. In this appeal we hold that the one year statute of limitations under the Little Miller Act applies only to claims on payment bonds and does not apply to claims on performance bonds. The appellant, Anne Arundel County, Maryland (the County), owns and operates the Cattail Creek Sewage Pumping Station. On or about February 26, 1986, a sixteen inch, cast iron pipe, force main on the discharge side of the pumping station ruptured, causing erosion and other damage.

The pumping station and its associated mains had been constructed for the County by Dunton, Inc. under a contract dated August 24, 1976. Also on that dáte the appellee, Fidelity & Deposit Company of Maryland (F & D), as surety, and Dun-ton, Inc., as principal, jointly and severally bound themselves to the County, as obligee, under a bond conditioned on the performance of the pumping station construction contract. To recover its costs of clean up and repair, the County filed this action on June 6, 1988 against F & D and others. The claim against F & D alleges breach of the performance bond.

Approximately four years later F & D moved for summary judgment, contending that the State statute relating to security for construction contracts of state and local subdivisions (the Little Miller Act or LMA) required that the County’s performance bond claim have been filed “within 1 year after the [County] finally accepts the work performed under the contract.” Maryland Code (1985, 1988 Repl.Vol.), § 17-109(b) of the State Finance and Procurement Article (FP). Work under the pumping station contract had been conditionally accepted by the County on or about November 16, 1977, subject to a one year maintenance period. The County con ²⁸⁵ tended that the one year period provided by FP § 17—109(b) applied only to payment bonds and that the twelve year period of limitations for suits on certain specialties was applicable. 1 The circuit court agreed with F & D’s construction of the LMA and granted summary judgment dismissing F & D from the case. The circuit court also certified the judgment in favor of F & D as final, pursuant to Maryland Rule 2-602.

After the County had appealed to the Court of Special Appeals, this Court granted the County’s petition for certiorari prior to the consideration of the matter by the intermediate appellate court. We also granted leave to the State of Maryland to file a brief as amicus curiae. The ground of decision by the circuit court on summary judgment presents an issue of construction of the Little Miller Act, FP §§ 17-101 through 17-110. Understanding the issue requires us to present a considerable portion of the statute.

The LMA “applies only to security for a construction contract,” § 17-102(b), that is let by a “public body,” meaning, in general, the State or a local government. § 17-101(d). “Before a public body awards a construction contract exceeding $50,000, the contractor shall provide payment security and performance security that meet the requirements of § 17-104 of this subtitle.” § 17—103(a)(1). “ ‘Payment security’ means security to guarantee payment for labor and materials ... under a contract for construction.” § 17-101(b). “ ‘Performance security’ means security to guarantee the performance of a contract for construction.” § 17-101(c). The security ²⁸⁶ may be a bond executed by a surety company, cash, or other security satisfactory to the public body. § 17-104. Under the LMA the term “supplier” is defined to mean “a person who supplies labor or materials.” § 17-101(e). Section 17-108, dealing with an action by a supplier, reads: “(a) In general.—Subject to subsection (b) of this section, a supplier may sue on payment security if the supplier: (1) supplied labor or materials in the prosecution of work provided for in a contract subject to this subtitle; and (2) has not been paid in full for the labor or materials within 90 days after the day that the person last supplied labor or materials for which the claim is made.

(b) Payment owed by subcontractor.—(1) A supplier who has a direct contractual relationship with a subcontractor or sub-subcontractor of a contractor who has provided payment security but no contractual relationship with the contractor may sue on the security if the supplier gives written notice to the contractor within 90 days after the labor or materials for which the claim is made were last supplied in prosecution of work covered by the security. (2) A notice under this subsection: (i) shall state with substantial accuracy the amount claimed and the person to whom the labor or material was supplied; and (ii) shall be sent by certified mail to the contractor at the contractor’s residence or a place where the contractor has an office or does business. (c) Certification of security.—(1) On request by a person who submits an affidavit verifying that the person has supplied labor or materials but has not been paid or is being sued under this section, the Comptroller or the officer in charge of the office where the payment security or evidence of security is required to be filed shall issue: (i) a certified copy of the payment bond; or (ii) for other security, a certified statement of the security- ²⁸⁷ (2) The person requesting certification shall pay a reasonable fee, set by the Comptroller or other officer required to issue the certification, to cover costs of preparation. (3) A certification under this section is prima facie evidence of the contents, execution, and delivery of payment security.” Venue, limitations, and costs are addressed in § 17-109 which reads: “(a) Venue.—An action under this subtitle shall be filed in the appropriate court of the county where: (1) the contract was executed and performed; or (2) the contractor has its principal place of business.

(b) Limitations period.—An action under this subtitle shall be filed within 1 year after the public body finally accepts the work performed under the contract. (c) Costs.—An obligee named in a bond or a trustee for any other security is not liable for any costs in connection with an action under this subtitle.” In the action before us F & D, relying on § 17—109(b), submits that a suit on a performance bond is “[a]n action under this subtitle.” F & D points to the requirement in § 17-103(a) that the contractor provide both payment security and performance security on public construction contracts over $50,000, from which F & D concludes that an action is “under this subtitle” if it claims breach of the condition of any bond required by the subtitle. The circuit court considered that construction to be the plain meaning of the statute. F & D’s reading of the statute finds support in a dicta statement, concerning an earlier codification of the LMA, made by this Court in United States Fidelity & Guar.

Co. v. Hamilton & Spiegel, Inc., 241 Md. 133 , 215 A.2d 735 (1966). In presenting the question to be decided, this Court said: “Since subsection (d) of § 11 of Art. 90, relating to where and when suits on performance and payment bonds should be brought, provides in pertinent part that ‘no such suit shall be commenced after the term of one year after the ²⁸⁸ date of final acceptance of the work performed under the contract,’ the question to be decided is on what date was the work contracted for finally accepted under the terms and conditions of the construction contract.” Id. at 135, 215 A.2d at 736-37 . There was, of course, no limitations issue in that case, and this Court was not required to focus on any distinction between payment and performance bonds as is here argued by the County. The County points out that there are no provisions of the LMA that deal with actions on performance bonds.

Actions on payment bonds, by contrast, are expressly dealt with in § 17-108. Thus, argues the County, an action “under this subtitle” is only an action on a payment bond. When a public body sues on a performance bond, it sues directly on the bond, under the County’s theory, and not “under this subtitle.” When a supplier sues on a payment bond, the supplier brings an action that is specifically authorized by the subtitle, and therefore sues “under” it. The County finds further support for its reading in § 17-109(c) which exonerates an obligee named in a bond from liability for costs “in connection with an action under this subtitle.” It would be an absurd construction of § 17-109(c), argues the County, to absolve the public body obligee from liability for costs in an action on a performance bond that the public body brings and then loses, while it is entirely reasonable to exonerate the public body obligee in an action brought by a supplier on a payment bond.

The parties also argue from the legislative history of the LMA in support for their respective positions. That history ultimately traces to the Heard Act. Act of August 13, 1894, ch. 280, 28 Stat. 278 . The present LMA, FP §§ 17-101 through 17-110, in the particulars relevant to the case before us, is substantially Chapter 10 of the Acts of 1959. 2 The 1959 ²⁸⁹ Maryland statute was “patterned after the Miller Act which has been enacted by the Congress for the Federal Government .... ” Report of the Legislative Council of Maryland to the General Assembly of 1959—Proposed Bills—Special Committee Reports at 17.

The Miller Act, 40 U.S.C. §§ 270a through 270d, is the Act of August 24, 1935, ch. 642, 49 Stat. 793 . It superseded the Heard Act. The 1959 Maryland statute also repealed Md.Code (1957), Art. 90, § 11 which had been enacted by Chapter 127 of the Acts of 1918. The 1918 Maryland statute had been “Maryland’s version of the federal Heard Act.... ” Atlantic Sea-Con, Ltd., 321 Md. at 278 n. 2, 582 A.2d at 982 n. 2.

The LMA of 1959 contains the same problem of statutory construction as does the present LMA. The 1959 enactment consisted of one Code section, former Art. 90, § 11. Subsection (a) contained the requirement for the contractor to post both types of bonds. Subsection (c) provided for an action on a payment bond by one “who has furnished labor or material in the prosecution of the work provided for in such contract, in respect of which a payment bond is furnished under this section.... ” Subsection (d), the precursor of present FP § 17-109, read: “(d) Every suit instituted under this section shall be brought ... in the political subdivision in which the contract was to be performed ... but no such suit shall be commenced after the term of one year after the date of final acceptance of the work performed under the contract.

The obligee named in the bond shall not be liable for the payment of any cost or expenses of any such suit.” This above-quoted subsection was patterned on 40 U.S.C. § 270b(b) which, prior to its amendment in August 1959, read: “(b) Every suit instituted under this section shall be brought in the name of the United States for the use of the person suing, in ... any district in which the contract was ²⁹⁰ to be performed and executed ... but no such suit shall be commenced after the expiration of one year after the date of final settlement of such contract. The United States shall not be liable for the payment of any costs or expenses of any such suit.” 3 40 U.S.C. § 270b consists only of subsections (a) and (b), and (a) deals exclusively with actions on payment bonds by persons who had “furnished labor or material in the prosecution of the work provided for in such contract....” Thus, the structure of the Miller Act is such that the reference to a suit “instituted under this section” does not present the problem of construction found in FP § 17—109(b). . Here the County submits that, because the LMA is patterned after the Miller Act, the action “under this subtitle” referred to in FP § 17—109(b) is limited to an action on a payment bond. F & D counters by noting the different structure of the LMA from that of the Miller Act.

The General Assembly in the 1959 enactment did not divide the statute into separate sections, but instead placed the require- v ment for both a performance bond and a payment bond in one and the same Code section with all of the other provisions, and then the General Assembly made the one year limitations provision applicable to “every suit instituted under this subtitle.... ” In the instant matter the circuit court considered that difference from the Miller Act to be intentional and further to evidence a legislative intent to establish a one year statute of limitations for actions on both performance and payment bonds. The County further submits that a construction that limits suit on a performance bond by a public body to a one year window following final acceptance produces an absurd result in comparison to suits by private owner-obligees. A private owner has twelve years within which to sue on a common law ²⁹¹ performance bond and, argues the County, there is no public policy reason for disadvantaging taxpayers in suits on statutorily required, public works performance bonds. Indeed, argues the County, were such a startling result actually intended, it necessarily would be spelled out much more explicitly than the ambiguous reference to an action “under this subtitle.” In opposition to the County’s policy argument, F & D submits two points.

First, it compares the 1959 LMA with the 1918 Maryland version of the Heard Act. The 1918 Maryland statute read in part that “any bond ... conditioned for the faithful performance of any contract for construction ... shall not be approved ... unless the obligors bind themselves therein to the payment of all just debts for labor and materials incurred, through sub-contract or in any other manner, by ... the person ... to whom such contract has been given.... ” The 1918 statute provided that, in the event there was liability to the State, that liability was to be preferred and paid in full before any payment was made for labor or materials. The statute further provided that an action to enforce the payment features of the bond should be brought in the name of the obligee, for the benefit pro rata of all labor or materials creditors, and be instituted within one year from completion of the whole work. F & D contends that, under this combination bond, the State or its agency necessarily had to assert its claim against the bond within the same one year period applicable to claims of suppliers of materials and of labor.

Otherwise, the obligee would risk loss of the penal amount of the bond, and of the State’s preference, because the claims of suppliers could exhaust the bond. Thus, argues F & D, as a practical matter, a one year statute operated against the State and its agencies under the 1918 enactment. As F & D sees it, the 1959 Maryland statute simply made into law what the prior practice had been. This argument rests entirely on inferences drawn from the face of the 1918 statute, without citation to any additional legal or historical support. ²⁹² Second, F & D submits that there is a sound policy reason for the General Assembly to have imposed in 1959 a one year statute of limitations on actions by any public body on performance as well as on payment bonds.

A one year statute keeps performance bonds available at reasonable costs. Absent the special