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United States v. Zurich American Insurance Co.

United States District Court, E.D. Pennsylvania

March 13, 2015

UNITED STATES OF AMERICA and MARENALLEY CONSTRUCTION, LLC, Plaintiffs,
v.
ZURICH AMERICAN INSURANCE COMPANY and NASON CONSTRUCTION, INC., Defendants

Page 544

For UNITED STATES OF AMERICA, FOR THE USE AND BENEFIT OF MARENALLEY CONSTRUCTION, LLC, MARENALLEY CONSTRUCTION, LLC, Plaintiffs: WILLIAM D. AUXER, LEAD ATTORNEY, KAPLIN STEWART MELOFF REITER AND STEIN, BLUE BELL, PA.

For ZURICH AMERICAN INSURANCE COMPANY, Defendant: WILLIAM J. TAYLOR, LEAD ATTORNEY, WHITE AND WILLIAMS, LLP, PHILADELPHIA, PA.

For NASON CONSTRUCTION, INC., Intervenor: JASON C. TOMASULO, LEAD ATTORNEY, COHEN SEGLIAS PALLAS GREENHALL & FURMAN PC, PHILADELPHIA, PA.

Page 545

MEMORANDUM OPINION

WENDY BEETLESTONE, J.

This case involves a payment dispute between a government contractor, Nason Construction, Inc. (" Nason" ); its surety, Zurich American Insurance Company (" Zurich" ); and a subcontractor, Marenalley Construction, LLC (" Marenalley" ), with respect to a construction project for the United States Department of Veterans Affairs (the " VA" ) located in Philadelphia, Pennsylvania (the " Project" ). Marenalley claims it is owed compensation for certain additional work it performed on the Project. Nason currently is pursuing additional payment from the VA relating to Marenalley's and other claims in an administrative dispute resolution process set out in its contract with the VA. To date, the VA has not approved payment for the additional work.

Marenalley filed this action pursuant to the Miller Act, 40 U.S.C. § § 3131-33, to recover against Zurich's surety bond for the additional work. The Miller Act provides a subcontractor the right to bring suit against the prime contractor's surety bond if the subcontractor is not paid within ninety days of the completion of its work. Id. § 3133(b)(1). Nason and Zurich have moved to dismiss, arguing that Marenalley agreed in its subcontract with Nason to pursue any claims it may have involving the VA through the administrative disputes resolution process set out in Nason's prime contact with the VA prior to bringing suit against the bond. In the alternative, Nason and Zurich request this action be stayed pending completion of that process.

The issues before the Court are: (1) whether the terms of the subcontract between Nason and Marenalley effectively require Marenalley to await the resolution of the administrative dispute resolution process provided for by the prime contract between Nason and the VA before pursuing a claim against Nason's bond; (2) whether this action should be dismissed pending resolution of the administrative process; and (3) whether, in the alternative, this action should be stayed pending the resolution of the administrative process.

Page 546

The answer to each of these questions is no. The Court finds that the subcontract provisions on which Nason and Zurich rely do not waive Marenalley's Miller Act rights and, thus, will deny the motion to dismiss. Neither, for the reasons set forth below, will it stay this action pending completion of the administrative process.

I. BACKGROUND

The VA awarded a contract to Nason on December 18, 2009, for the construction of a parking garage at the VA Medical Center in Philadelphia, Pennsylvania (the " Prime Contract" ). Compl. ¶ 5. Zurich issued a bond on behalf of Nason to guarantee payment to those who furnished labor or materials to the Project (the " Payment Bond" ). Id. ¶ 6. On or about May 3, 2010, Marenalley entered into a subcontract with Nason to perform work on the Project in exchange for a lump sum payment of $1,330,000 (the " Subcontract" ). Id. ¶ 8. In the course of contract performance, the VA added additional work for Marenalley, and Marenalley encountered unexpected conditions that added to the costs of its work (together, the " Additional Work" ). Id. ¶ ¶ 10-11. Marenalley submitted proposed change orders and requests for equitable adjustment to Nason to compensate it for the Additional Work. Id. 8 ¶ 11; Opp'n. at 4.

On August 7, 2014, Nason sought additional compensation from the VA pursuant to the terms of the Prime Contract (Nason's " Certified Claim" ). Mot. 18 at 6. Included along with its own claims and the claims of other subcontractors, Nason sought compensation for the Additional Work performed by Marenalley. Opp'n at 4-5, 14-15. Marenalley assisted Nason in the preparation of the claim to the VA that Nason submitted with respect to Marenalley's Additional Work. Id. at 7. The VA has yet to issue a decision on Nason's request for additional compensation. Mot. at 6. While Nason's Certified Claim remains pending, Marenalley filed this action against Zurich, seeking to recover from the surety bond. Marenalley seeks $590,345.91 in compensation for labor and materials it furnished in completing the Additional Work. Nason intervened as a party to this action.

The Prime Contract contains a disputes resolution clause incorporating the terms of the Contracts Disputes Act of 1978 (41 U.S.C. § § 601-613). Mot. Ex. 2 ¶ 4.31(a). The Contract Disputes Act (the " CDA" ) provides for an administrative process in which Nason first was required to submit its claims for payment to the government's contracting officer. 41 U.S.C. § 605(a) (1978), amended by 41 U.S.C. § 7103. The statute requires that the officer issue a decision " within a reasonable time, . . . taking into account such factors as the size and complexity of the claim and the adequacy of the information in support of the claim provided by the contractor." Id. § 605(c)(3).[1] If the contractor chooses to do so, it may appeal the contracting officer's decision to ...


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