Atlantic Sea-Con, Ltd. v. Robert Dann Co.

CHASANOW, Judge. On March 18, 1986, Petitioner, Atlantic Sea-Con, Ltd. (Atlantic), entered into a contract with the State of Maryland for scour protection at the Route 50 bridge in Ocean City, Maryland. The work covered under the contract included, among other things, the placement of stone and rock (riprap) under and adjacent to the bridge, as well as along the bulkhead and shore. Atlantic was responsible for furnishing riprap that met State guidelines and State specifications, as well as for installing it at the Ocean City job site.

Pursuant to the “Maryland Little Miller Act,” Maryland Code (1985), State Finance and Procurement Article, § 13-501, 1 Atlantic posted a payment bond in the amount of the total contract price with Federal Insurance Company, Co-Petitioner, as its surety. On May 12, 1986, Atlantic issued a purchase order for the rock needed for the Route 50 bridge project to Marine Structural Applications, Inc. (MSA). MSA was to deliver the rock to a location in Snow Hill, Maryland, from where Jarmon’s Construction would truck the riprap to the job site ²⁷⁸ in Ocean City. MSA purchased the rock from an approved quarry in Occoquan, Virginia.

At that quarry, MSA sorted the riprap according to contract specifications and loaded it onto barges for transport from Occoquan to Snow Hill via the Potomac River, Chesapeake Bay, and Pocomoke River. In delivering the rock to Snow Hill, MSA initially used its own barges and tugboats. When one of MSA’s tugboats failed, MSA contracted with the Respondent, Robert Dann Company (Dann), for towing services. From August 11 to August 31, Dann tugged MSA’s barges carrying the riprap from Occoquan to Snow Hill.

Dann billed MSA for its services rendered, but MSA never paid. In the fall of 1986, MSA filed for bankruptcy and Dann filed suit for payment under Atlantic’s payment bond for its towing services in the amount of $37,100.00. Atlantic refused to pay Dann’s claim, contending that Dann was not entitled to recover under the Maryland Little Miller Act 2 because MSA, the entity with which Dann had contracted, was an ordinary material suppliér and not a subcontractor of Atlantic. ²⁷⁹ Atlantic filed a motion for summary judgment before trial and made a motion for judgment at trial alleging there was no dispute as to any material fact and that it was entitled to judgment as a matter of law. The trial judge denied the motions and submitted the case to the jury.

The court instructed the jurors that if they found that MSA was a subcontractor of Atlantic, then they should find for Dann; but if they found that MSA was an ordinary material supplier of Atlantic, they should find in favor of Atlantic. The jury found that MSA was a subcontractor of Atlantic, and a verdict was returned in favor of Dann. Upon appeal, the Court of Special Appeals initially noted that the issue of MSA’s status as a subcontractor or materialman should not have been submitted to the jury because “the evidence failed to generate any material disputed facts____” The intermediate appellate court then held that, even though Dann was a supplier of labor to a materialman, Dann was “nevertheless” entitled to coverage under Atlantic’s payment bond as a matter of law. Atlantic Sea-Con v. Dann Co., 80 Md.App. 161, 164 , 560 A.2d 592, 593 (1989).

We agree that there was no dispute of material facts and that, as a matter of law, MSA was a materialman rather than a subcontractor. We granted certiorari, however, to review the Court of Special Appeals’ determination that one who supplies labor or materials to a materialman is entitled to the protection of the Little Miller Act. The statutory language at issue in this case was found in section 13-501(c) of the State Pin. & Proc. Art., which is now codified at State Pin. & Proc.

Art., § 17-108. 3 Section 13-501(c) states: ²⁸⁰ “(c) Suits on payment bonds — Right to institute.— Every person who has furnished labor or material in the prosecution of the work provided for in such contract, in respect of which a payment bond or other security is furnished under this section and who has not been paid in full therefor before the expiration of a period of 90 days after the day on which the last of the labor was done or performed by him or material was furnished or supplied by him for which such claim is made, shall have the right to sue on the payment bond or other security for the amount, or balance thereof, unpaid at the time of institution of such suit and to prosecute said action to final judgment and execution for the sum or sums justly due him; provided, however, that any person having direct contractual relationship with a subcontractor of the contractor, or with any sub-subcontractor of the contractor but no contractual relationship express or implied with the contractor furnishing said payment bond or other security, shall have a right of action upon the payment bond or other security upon giving written notice to the contractor____” (Emphasis added.) As the Court of Special Appeals recognized in its discussion of this language, there are two clauses dealing with who may assert a claim under a Little Miller Act bond. Under the first part of section 13-501(c) (which is now codified at section 17-108(a)), to acquire a lien one must have supplied “labor or material in the prosecution of the work.” The last clause of this statute (which is now codified at section 17-108(b)(l)), however, is susceptible to more than one interpretation. Atlantic Sear-Con, 80 Md.App. at 166-67 , ²⁸¹ 560 A.2d at 594-95 . It is either a notice requirement or a limitation on who may make a claim on the contractor’s bond.

The intermediate appellate court construed the last clause of the Little Miller Act as merely a requirement of notice to the principal contractor by claimants as a prerequisite to collection under the payment bond. Atlantic Sea-Con, 80 Md.App. at 168 , 560 A.2d at 595 . This interpretation deviates from the construction accorded a similar provision contained in the federal Miller Act, 40 U.S.C. § 270b(a) (1988), 4 which has been interpreted by the federal courts since 1944 as a limitation restricting the class of persons who have standing to file a claim against a payment bond under the Act. See J. W. Bateson Co. v. United States ex rel.

Bd. of Trustees, 434 U.S. 586 , 98 S.Ct. 873 , 55 L.Ed.2d 50 (1978); Clifford F. MacEvoy Co. v. United States, 322 U.S. 102 , 64 S.Ct. 890 , 88 L.Ed. 1163 (1944); U.S. for Use of Morris Const. v. Aetna Cas. Ins., 908 F.2d 375 (8th Cir. 1990); United States v. Blount Brothers Construction Co., 168 F.Supp. 407 (D.Md.1958). We conclude that the Maryland Legislature, when it patterned the Maryland Little Miller Act after the federal Miller Act in 1959, intended to import the federal judicial interpretation that this provision restricts the class of persons who may claim under the statute. ²⁸² When the Little Miller Act was adopted in Maryland, it contained the following explanatory preamble: “This Bill is recommended by the Budget and Finance Committee of the Legislative Council following a study of Senate Bill No. 91 which was introduced in 1958 by Senator George B. Rasin. The main purpose of the Bill is to provide greater protection to sub-contractors on contracts awarded by the State____ The present law on this subject, it is pointed out, does not adequately cover sub-sub-contractors.

The Bill ... is patterned after the Miller Act which has been enacted by the Congress for the Federal Government and is frequently referred to as a ‘Little Miller Act.’ ” Legislative Council of Maryland, Report to the General Assembly of 1959, at 17 (1959). We presume the Maryland Legislature was aware that, in the years between 1935 when the federal Miller Act was passed and 1959 when it adopted the Maryland Little Miller Act, the federal Act was the subject of judicial interpretation in the federal courts. See Farmers & Merchants Bank v. Schlossberg, 306 Md. 48, 60 , 507 A.2d 172, 178 (1986). Certainly, if the Maryland Little Miller Act was “patterned after” the federal Miller Act, federal authority that existed at the time it was enacted should be persuasive in interpreting the statute.

Faulk v. State’s Attorney for Harford Co., 299 Md. 493, 506 , 474 A.2d 880, 887 (1984). Our conclusion that the last clause is a limitation — not a notice requirement — is further bolstered by the fact that in 1988, when the Little Miller Act was last revised, subsection 17-108(a), which grants power to claim under the statute, is expressly made “subject to” subsection 17-108(b)(1), which is the provision we now construe as a limitation. 5 In order to determine the scope of protection afforded by the Maryland Little Miller Act to those who supply labor or materials to public construction projects, we must resolve two issues. We have resolved the first issue by determin ²⁸³ ing that the Legislature, when it enacted the Little Miller Act, intended to restrict its coverage to persons who contract directly with the contractor, a subcontractor, or a sub-subcontractor. We must now determine how the Legislature intended that we construe the terms “subcontractor” and “sub-subcontractor.” At the outset, we should distinguish between “material-man” and “subcontractor.” A meaningful analysis of the Maryland Little Miller Act requires that we emphasize that these two words are not interchangeable.

With regard to the federal Miller Act, “the Supreme Court indicated that the word ‘subcontractor’ as used in the Miller Act is to be interpreted in its technical sense and was intended by Congress to distinguish a subcontractor from either a laborer or material supplier.” United States, etc. v. Lane Const. Corp., 477 F.Supp. 400, 410 (M.D.Pa.1979) (citing MacEvoy). MacEvoy recognized that the framers of the Act “had in mind a clear distinction between subcontractors and materialmen” when they formulated the Miller Act. 322 U.S. at 109 , 64 S.Ct. at 894 , 88 L.Ed. at 1168 . A materialman is “[a] person who has furnished materials or supplies used in the construction or repair of a building, structure, etc.” Black’s Law Dictionary 881 (5th ed. 1979).

Generally, a person supplying labor or materials does so as a result of some sort of contractual relationship. An evaluation of coverage under the Little Miller Act, however, requires a determination of whether that contractual relationship elevates the materialman to the status of a subcontractor. “Whether a person is a materialman or a subcontractor is determined by the nature of his undertaking.” 13 Couch on Insurance 2d, § 47:239 (rev. ed. 1982). The precise definition of subcontractor will be explored in depth in this opinion. For clarity’s sake, we stress that the word “materialman” is used in this opinion as a term of art to denote one who supplies labor or materials but who does not qualify as a subcontractor.

Historically, when interpreting the Maryland Little Miller Act, we have analogized the Act with the Maryland mechan ²⁸⁴ ics' lien statute, Williams Constr. v. Constr. Equip., 253 Md. 60, 67 , 251 A.2d 864, 868 (1969); Peerless v. Prince George’s County, 248 Md. 439, 441 , 237 A.2d 15, 17 (1968); Montgomery County v. Glassman, 245 Md. 192, 201 , 225 A.2d 448, 453-54 (1967), and we have looked to federal cases interpreting the Miller Act for guidance. Ruberoid v. Glassman, 248 Md. 97, 106 , 234 A.2d 875, 880 (1967); Montgomery County v. Glassman, 245 Md. at 202 , 225 A.2d at 454 . In this case, an analogy of the Little Miller Act to the mechanics’ lien statute is not helpful.

Maryland case law on the issue of whether one who supplies labor or materials to a materialman would be entitled to a mechanics’ lien is sparse. A majority of the states that have decided the issue have held that a material-man of a materialman is not entitled to a mechanics’ lien. 6 We have found one Maryland Court of Appeals case which involves a seemingly remote supplier of materials, 5500 Coastal Hwy. v. Elec. Equip. Co., 305 Md. 532 , 505 A.2d 533 (1986), but this case is not clearly determinative of the issue before us.

In Coastal Hwy., two materialmen sought to place mechanics’ liens against a condominium building in Ocean City, Maryland, based on materials they had supplied ²⁸⁵ to a modular home builder who assembled the modular units in Delaware and transported them to Maryland for incorporation into the completed structure. In deciding that the materialmen were entitled to a mechanics’ lien, this Court concluded that the “claims here were for ‘materials furnished for or about the building____’” Id. at 540 , 505 A.2d at 537 . We determined that it was insignificant that the materials were originally delivered in Delaware as long as those materials were ultimately incorporated into the structure. Id.

The decision did not rest on a determination of the status of the modular home builder with whom they had dealt as either a materialman or a subcontractor. That was not an issue in the case, and it is not clear from the facts whether the modular home builder was a subcontractor or merely a materialman. Although the Court of Special Appeals cites London Etc. Indemnity Co. v. State, 153 Md. 308 , 138 A. 231 (1927), as a Maryland mechanics’ lien case which is analogous to the case at bar, Atlantic Sea-Con, 80 Md.App. at 169 , 560 A.2d at 596 , we do not find London authoritative.

The London Court ruled that a hauler of sand and gravel was entitled to sue for services rendered under the general contractor’s bond pursuant to the Maryland Highway Construction Act, but the hauler of sand and gravel in London had a direct contractual relationship with the principal contractor and delivered the material directly to the job site. The relationship was not remote. While the public policies underlying the Little Miller Act and the mechanics’ lien statute coincide, the scope of our review must center not on policymaking but on statutory construction of the particular act under consideration. The language of the mechanics’ lien statute differs significantly from the Little Miller Act.

As illustrated by Coastal Hwy., a materialman need only show that the materials were supplied “for or about the building” to secure a mechanics’ lien. Although the Maryland Little Miller Act provides coverage to those who supply labor or materials “in the prosecution of the work,” it contains additional language, ²⁸⁶ absent from the mechanics’ lien statute, which had been interpreted at the time the Little Miller Act was enacted to restrict the class of persons eligible for its protection. Whereas Maryland mechanics’ lien law is unenlightening in this case, federal authority interpreting the federal Miller Act is not only instructive, it is persuasive. The class of persons protected by the federal Miller Act has been well settled since 1944, long before the Maryland Legislature modeled the Little Miller Act after it.

In MacEvoy, the Supreme Court held that, under the Miller Act, a person supplying materials to a materialman or a government contractor cannot recover on the payment bond executed by the contractor. The Court stated that, although “[ostensibly the payment bond is for the protection of ‘all persons supplying labor and material in the prosecution of the work’ and ‘every person who has furnished labor or material in the prosecution of the work’ is given the right to sue on such payment bond,” it could not disregard the limitations imposed by section 270b(a) (which is analogous to our section 17-108(b)(l)). MacEvoy, 322 U.S. at 107 , 64 S.Ct. at 893 , 88 L.Ed. at 1167 . Writing for the Court, Justice Murphy stated, “The proviso of [§ 270b(a) of the Miller Act], ... 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.

To allow those in more remote relationships to recover on the bond would be contrary to the clear language of the proviso and to the expressed will of the framers of the Act.” Id. at 107-08, 64 S.Ct. at 894 , 88 L.Ed. at 1168 ; see also Morris Const., 908 F.2d at 377 . The MacEvoy Court was persuaded by its recognition that any other interpretation “would lead to the absurd result of requiring notice from ²⁸⁷ persons in direct contractual relationship with a subcontractor but not from more remote claimants.” 322 U.S. at 108 , 64 S.Ct. at 894 , 88 L.Ed. at 1168 . In interpreting the reach of the statute, MacEvoy defined “subcontractor” based upon the “more technical meaning, as established by usage in the building trades,” as “one who performs for and takes from the prime contractor a specific part of the labor or material requirements of the original contract, thus excluding ordinary laborers and material-men.” 322 U.S. at 108-09 , 64 S.Ct. at 894 , 88 L.Ed. at 1168 . The Supreme Court declined to apply the “broad, generic” definition that “a subcontractor includes anyone who has a contract to furnish labor or material to the prime contractor.” Id.

This definition of “subcontractor” was further clarified by the Eighth Circuit Court of Appeals in Morris Const.: “When considered together, Bateson, MacEvoy, and [F.D. Rich Co. v. United States ex rel. Industrial Lumber Co., 417 U.S. 116 , 94 S.Ct. 2157 , 40 L.Ed.2d 703 (1974)] stand for the proposition that a company is a subcontractor if: (1) it has contracted to supply labor or material to the prime contractor; and (2) it plays a sufficiently substantial role in the construction project that the general contractor could have negotiated to have the subcontractor assume the risk of the subcontractor’s default.” Morris Const., 908 F.2d at 377 . According to this refinement “one who performs for and takes from the prime contractor a specific part of the labor or material requirements of the original contract,” as described in MacEvoy, must play a “substantial role” in the construction project to qualify as a subcontractor. “Practical considerations” also concerned the Supreme Court in MacEvoy, which found that many “ordinary” materialmen, including retailers, wholesalers or manufacturers, are involved in large projects, and thus they in turn deal with innumerable sub-materialmen. “To impose unlimited liability under the payment bond to those sub-materialmen ²⁸⁸ and laborers is to create a precarious and perilous risk on the prime contractor and his surety. To sanction such a risk requires clear language in the statute and in the bond so as to leave no alternative.” 322 U.S. at 111 , 64 S.Ct. at 895 , 88 L.Ed. at 1169 .

Other federal cases applying the MacEvoy rationale include Aetna Casualty & Surety Company v. United States, 382 F.2d 615 (5th Cir.1967) (supplier of materialman had no standing to sue on Miller Act payment bond); United States v. Lembke Construction Company, 370 F.2d 293 (10th Cir.1966) (supplier of materialman could not recover under prime contractor’s bond); Eastern Indus. Marketing v. Desco Elec. Supply, 651 F.Supp. 140 (W.D.Pa.1986) (supplier of supplier not eligible to recover under payment bond); United States, Hasco Elec. Corp. v. Reliance Ins.

Co., 390 F.Supp. 158 (E.D.N.Y.1975) (materialman of materialman of subcontractor did not qualify to bring suit on payment bond under Miller Act); United States v. Wright Contracting Company, 194 F.Supp. 444 (D.Md.1961) (trucking company that delivered concrete to job site for concrete supplier could not recover under Miller Act payment bond). See also 10 Appleman, Insurance Law and Practice § 5877 (rev. ed. 1981); 13 Couch on Insurance 2d § 47:251 (rev. ed. 1982). In reviewing the history and legislative intent of the Maryland Little Miller Act, the Court of Special Appeals traced the history of Maryland’s public works statute which required contractors on public works projects to post a bond and bind themselves to pay all just debts for labor and materials incurred in the construction. Atlantic Sea-Con, 80 Md.App. at 168 , 560 A.2d at 595 .

The court concluded that the legislative purpose of this requirement was to secure laborers and materialmen on public projects who otherwise were not protected against insolvent contractors under the lien laws. Id. at 169 , 560 A.2d at 596 . While we agree that the object of the Maryland Little Miller Act and its predecessors is to protect laborers and materialmen on public projects, that protection is not without limits. ²⁸⁹ We recognize that the Maryland Little Miller Act was designed to afford greater protection to sub-subcontractors, who were not covered at the time either under the prevailing Maryland bond statute or under the federal Miller Act. Indeed, the only significant deviation of the Maryland statute from