Datastaff Technology Group, Inc. v. Centex Construction Co.

MEMORANDUM OPINION

Plaintiff, a second-tier subcontractor on a federal construction project, brings this suit against the prime contractor and the issuer of the performance and payment bond for the project to recover for work performed on the project pursuant to a contract with a defaulting first-tier subcontractor. Plaintiff asserts (i) an untimely Miller Act 1 claim against both defendants, (ii) constructive fraud claims against both defendants, and (iii) a quantum meruit claim against the prime contractor. At issue on defendants’ motion for summary judgment are the following questions:

1. Whether the undisputed facts preclude plaintiff from relying on equitable estoppel to rescue its untimely Miller Act claim;

2. Whether the undisputed factual record demonstrates that plaintiff can *590 not show the reasonable reliance required to establish its claims for constructive fraud; and

3. Whether plaintiff can recover in quantum meruit from the prime contractor when the plaintiff also had an express contract covering the subject matter with the first-tier subcontractor.

For the reasons that follow, summary judgment must be granted in part and denied in part.

I. 2

On September 28, 2004, Plaintiff, Da-tastaff, Inc. (“Datastaff’) entered into a contract with Accutronics Datacom, Inc. (“Accutronics”) to provide personnel for several projects, including a federal construction project at the Defense Threat Reduction Center, located in Fort Belvoir, Virginia (the “Project”). Accutronics had earlier entered into a subcontract with defendant Centex Construction Company, Inc. (“Centex”), the prime contractor on the Project, to complete telecommunications work on the Project. Accutronics’s subcontract with Centex provided that the day-to-day administration of the subcontract would be handled by Centex’s electrical subcontractor, Dynaelectric Company (“Dynaelectric”), but reserved Centex’s right to administer any part of the subcontract. Work on the Project was secured by a performance and payment bond between Centex and Travelers Casualty and Surety Company of America (“Travelers”).

As these undisputed facts reflect, Accu-tronics was a “first-tier” subcontractor, while Datastaff was a “second-tier” subcontractor. So-called “first-tier” subcontractors refer to the first level of subcontractors below the prime contractor, namely those subcontractors in privity with the prime contractor. The “second-tier” subcontractors are those in privity with a “first-tier” subcontractor. Second-tier subcontractors are typically referred to as sub-subcontractors. “Third-tier” subcontractors are in privity only with a “second-tier” subcontractor. These classifications are important in determining eligibility to sue on the bond: First- and second-tier subcontractors are covered by the bond, while third-tier subcontractors are not. 40 U.S.C. § 3133(b)(2).

The record reflects that by the summer of 2005, Accutronics was in default on its obligation to pay Datastaff for work on the Project. Accordingly, in July or August 2005, Datastaffs President, Keith Ricks, called Centex and threatened to stop work on the Project. 3 James Anderson, Cen-tex’s Project Executive, assured Ricks that the Project was properly bonded and that Datastaff would be compensated for its services in the event that Accutronics did not pay Datastaff. According to Datastaff, Anderson also told Ricks that the project would be “crippled” if Datastaff pulled its employees. After this conversation, Da-tastaff continued work on the Project, *591 which it completed on August 28, 2005. Datastaff then promptly obtained counsel to resolve its payment dispute with Accu-tronics.

On September 21, 2005, in response to further inquiries by Datastaff, Anderson stated that Accutronics was “under” Dy-naelectric, which was “under” Centex. This conversation apparently led Datas-taffs counsel to believe that Datastaff was a third-tier subcontractor on the Project behind Dynaelectric and Accutronics, and hence ineligible to sue on the bond. On October 18, 2005, because Accutronics had not fully paid for Datastaffs services, Da-tastaff submitted a claim on the bond to Travelers in which Datastaff, allegedly relying on Anderson’s representations, 4 stated that Datastaff was “a third tier subcontractor under ... Accutronics.” Travelers responded on October 24, 2005, requesting additional information, including an Affidavit of Claim form to be executed by Datas-taff. Datastaff returned the completed form on November 28, 2005. Then, on December 2, 2005, Travelers notified Da-tastaff that it was denying the claim on the ground that, “[i]n reviewing the support ... received from Data Staff Technology Group, Inc. and Centex Construction Company, Inc. it appears that Data Staff Technology Group, Inc. is a 3rd tier contractor and therefore not protected by this bond.” Despite indicating that she had used information from Centex in arriving at this conclusion, Inez Meyerholz, the Travelers agent who investigated the claim and wrote the letter, admitted later that she based her statement that Datastaff was a third-tier subcontractor solely on Datas-faffs October 18, 2005 letter stating that it believed itself to be a third-tier subcontractor. Significantly, the letter also stated that Travelers was open to considering “evidence to the contrary,” and invited Da-tastaff to provide additional information that might have been overlooked. Datas-taff chose not to respond, even though by this time it had retained counsel to pursue this claim. Indeed, Travelers received no further correspondence from Datastaff on this matter until January 19, 2007.

On December 13, 2005, Centex sent a separate response to Datastaff regarding Datastaffs October 18, 2005 claim submitted to Travelers. The letter stated that Centex had forwarded Datastaffs claim to Acstar Insurance Company, Accutronics’s surety, because Centex believed Accutron-ics was the proper party to whom Datas-taffs claim should be addressed. Notwithstanding Travelers’s earlier denial of Datastaffs claim, Centex stated that it was investigating Datastaffs claim and requested that Datastaff submit further documentation in support of its claim within seven days. 5 Datastaff apparently never responded to this request.

Meanwhile, Centex pursued a suit against both Accutronics and its surety, Acstar, alleging Accutronics’s breach of its subcontract with Centex. The complaint was filed in the U.S. District Court for the Eastern District of Virginia on January 17, 2006, and on February 2, 2006, Centex forwarded a copy of the complaint to Da-tastaff. Eight days later, pursuant to its subcontract with Accutronics, Datastaff initiated arbitration proceedings against *592 Accutronics. Datastaff prevailed in this arbitration, winning an award against Ac-cutronics, which Accutronics refused to pay. Then, Datastaff, on the basis of the arbitration award, obtained a judgment against Accutronics in North Carolina Superior Court on November 14, 2006 and thereafter domesticated this judgment in Virginia on or about January 23, 2007. Accutronics has failed or otherwise refused to satisfy this judgment.

On August 24, 2006, a memorandum opinion and order issued in Centex’s suit against Accutronics and Acstar, ruling that Centex had a valid claim against Accutron-ics notwithstanding Centex’s partial assignment of the subcontract to Dynaelec-tric. 6 Datastaffs counsel received a copy of the opinion and order at or about this time. Sometime later, in September or October 2006, Datastaffs counsel read the opinion and order and realized, for the first time, that Datastaff was a second-tier subcontractor, rather than a third-tier subcontractor, as previously believed. Yet, not until January 19, 2007, did Datastaff communicate this view to Travelers and request payment for the amount of the judgment Datastaff had obtained against Accutronics. Travelers denied Datastaffs request on February 15, 2007, on the ground that the Miller Act’s limitation period had expired.

Finally, on May 3, 2007, Datastaff filed the complaint in this action against Centex and Travelers, alleging four causes of action: (i) that the Miller Act afforded Da-tastaff substantive rights under the bond as a second-tier contractor (Count 1); (ii) that Datastaff conferred a material benefit upon Centex for which it has not been compensated and, therefore, is entitled to quantum meruit recovery (Count 2); and (iii) that both Centex and Travelers committed constructive fraud by making false representations on which plaintiff detrimentally relied (Counts 3 and 4). Defendants moved to dismiss, which motion was converted into a motion for summary judgment. See Rule 12(b) and Rule 56, Fed. R.Civ.P. Following focused discovery, defendants’ motion was fully briefed and argued and is now ripe for disposition.

II.

The summary judgment standard is too well-settled to require elaboration here. In essence, summary judgment is appropriate only where, on the basis of undisputed material facts, the moving party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). And importantly, the non-moving party may not rest upon a “mere scintilla” of evidence to defeat summary judgment, but must set forth specific facts showing a genuine issue for trial. Id. at 324, 106 S.Ct. 2548; Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

III.

A.

The Miller Act requires that a payment bond and surety must be furnished “for the protection of all persons supplying labor and material in carrying out the work provided for in the contract” on all federal construction contracts of more than $100,000. 40 U.S.C. § 3131(b)(2). The Act further provides that any person who furnishes labor or materials for such a bonded project and has not been paid may *593 sue on the bond for the amount due. § 3133(b)(1). The statute limits recovery-on the bond to first- and second-tier subcontractors. § 3133(b)(2). Importantly, a cause of action under the Miller Act “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.” § 3133(b)(4).

Here, Datastaff does not dispute that it brought this action more than one year after completing work on the Project. 7 Nevertheless, it contends that the claim should not be barred because Centex and Travelers led Datastaff to believe that it was a third-tier subcontractor ineligible to recover on the Project’s bond and thus that a suit under the Miller Act against Centex and Travelers would be futile. Datastaff claims these misrepresentations are the reason it failed to file its claim within the Miller Act’s one-year limitations period, and consequently the doctrine of equitable estoppel bars defendants from asserting the statute of limitations as a defense. Because this claim arises under the Miller Act, federal law applies. See United States ex rel. Texas Bitulithic Co. v. Fid. & Deposit Co. of Md., 813 F.2d 697, 700 (5th Cir.1987) (“The Miller Act provides a federal cause of action, and the extent of the limitation period must be determined in accordance with federal law.”).

The doctrine of equitable estop-pel is a “well-established concept invoked by courts to aid a party who, in good faith, has relied, to his detriment, upon the representations of another.” United States ex rel. Humble Oil & Ref. Co. v. Fid. & Cas. Co. of New York, 402 F.2d 893, 897 (4th Cir.1968) (finding that equitable estoppel barred defendant’s assertion of a statute of limitations defense). Based on “the maxim that no man may take advantage of his own wrong,” 8 equitable estoppel bars a statute of limitations defense by a defendant who, “by his conduct, lulls another into a false security, and into a position he would not take only because of such conduct.” Humble Oil, 402 F.2d at 897 (quoting McWaters & Bartlett v. United States ex rel. Wilson, 272 F.2d 291, 296 (10th Cir.1959)). In this circuit, a plaintiff need not demonstrate actual fraud or deception by a defendant to invoke equitable estop-pel. Id. at 898; see also United States ex rel. J. Bobby Currin & Sons v. J & W Builders, Inc., 17 F.Supp.2d 462, 465 (M.D.N.C.1996). 9 Rather, equitable estop-pel may apply where a defendant makes no intentional misrepresentations, but merely takes actions it “should unmistakably have understood would cause the [plaintiff] to delay filing his charge.” Felty v. Graves-Humphreys Co., 818 F.2d 1126, 1128 (4th Cir.1987) (quoting Price v. Litton Bus. Sys., 694 F.2d 963, 965-66 (4th Cir.1982)). A plaintiff must also demonstrate that it actually and reasonably relied on these misrepresentations. Id. at 1128-29; Humble Oil, 402 F.2d at 898 (citing Bergeron v. Mansour, 152 F.2d 27, *594 30 (1st Cir.1945)). Thus, “[i]f, at the time when he acted, such party had knowledge of the truth, or had the means by which with reasonable diligence he could acquire the knowledge so that it would be negligence on his part to remain ignorant by not using those means, he cannot claim to have been misled by relying upon the representation or concealment.” Heckler v. Cmty. Health Servs. of Crawford, 467 U.S. 51, 59-60 n. 10, 104 S.Ct. 2218, 81 L.Ed.2d 42 (1984). 10 In other words, it must have been the defendant’s misrepresentations, and not the plaintiffs own failure to act, that caused the plaintiff to miss the filing deadline. See Felty, 818 F.2d at 1129; see also United States v. Aetna Cas. & Sur. Co., 480 F.2d 1095, 1099 (8th Cir.1973).

These principles are well-illustrated in the many reported cases in which equitable estoppel has been employed as a defense to the Miller Act’s one-year statute of limitations. For example, courts have held that the doctrine applies where a defendant explicitly states that it will not seek to enforce the statute of limitations 11 or where a defendant admits liability and promises to pay a plaintiff, yet cuts off negotiations after the Miller Act limitations period has run. 12 Although courts have found that prolonged negotiations and assurances of forthcoming settlements may be grounds for estoppel, 13 courts have consistently declined to apply equitable es-toppel to bar the Miller Act’s statute of limitations where a surety has merely indicated to a complaining subcontractor that the subcontractor’s claim was being investigated. 14 Likewise, courts have consistently declined to apply the doctrine to a *595 surety that flatly denied a subcontractor’s claim and did nothing to lead the subcontractor “to believe that it would acknowledge and pay the claim.” 15

These principles, applied here, compel the conclusion that equitable estop-pel does not apply in this case. First, the record is devoid of any evidence that Cen-tex or Travelers did or said anything to “lull[ ] [Datastaff] into a false security” that its claim would be paid. 16 To the contrary, both Travelers and Centex told Datastaff that its claim' would not be paid unless Datastaff could demonstrate that it was not a third-tier subcontractor. Both defendants also explicitly reserved all their rights and defenses in rejecting Datastaffs claims. 17 Thus, defendants’ representations bear none of the hallmarks of those representations typically found to merit equitable estoppel, but instead resemble more closely the kinds of representations in cases where estoppel was found not to apply because the subcontractor’s claim was flatly denied by the surety. See, e.g., McWaters & Bartlett, 272 F.2d at 296. These cases sensibly hold .that, absent some promise or suggestion by a defendant that plaintiffs claim will be settled through informal means, a plaintiff has “no impediment to timely filing [its] action.” See E. Coast Contracting, 133 Fed.Appx. at 60. In other words, a plaintiff whose letters or other informal demands for payment are unequivocally rejected should understand that its only recourse is to file a claim for relief under the Miller Act in district court.

Datastaff contends that while equitable estoppel is usually applied when a defendant makes assurances of forthcoming payment, this precise factual scenario is not necessary for equitable estoppel to apply. Rather, it contends that any statement or conduct by a surety or general contractor that leads the plaintiff to delay filing suit is sufficient to establish equitable estoppel. Here, Datastaff claims that Centex and Travelers, by stating that Da-tastaff was a third-tier subcontractor, “lull[ed] [Datastaff] into a false security” that a Miller Act suit would be futile.

This argument fails because it ignores whether Datastaffs claim of being “lulled” is reasonable. It is not. Even assuming, arguendo, that defendants should have known their misrepresentations would delay Datastaffs filing of a Miller Act complaint, Datastaffs own dealings with Accu-tronics and Centex put it on notice that it was a second-tier subcontractor. Datas-taff never dealt with Dynaelectric, the contractor it was told was “above” Accutron-ics. Rather, when Accutronics failed to pay Datastaff for its services, Datastaff sought relief by appealing directly to Cen-tex. Moreover, Datastaff admitted it knew payment flowed from Centex directly to Accutronics, and then from Accutronics to Datastaff. This alone should have been a strong clue to Datastaffs counsel to regard with skepticism any statement that Datastaff was a third-tier contractor and to conduct its own due diligence on the issue.

*596 Nor are these the only signs that should have alerted Datastaff that its reliance was unreasonable. Additionally, Datastaff received a copy of Centex’s complaint against Accutronics on February 2, 2005, more than six months before the end of the statute of limitations. This complaint referenced and quoted from the subcontract between Centex and Accutronics, making clear that Centex believed it had a right to sue on its subcontract with Accu-tronics notwithstanding the assignment of the day-to-day administration of the Accu-tronics subcontract to Dynaeleetric. This complaint put Datastaff on notice that it was a second-tier subcontractor. Thus, even if Datastaff did not know it was a second-tier subcontractor when it initially made its claim in October 2005, by February 2, 2006, it certainly had the means to discover this fact well before the end of the Miller Act’s claim period. See Cada v. Baxter Healthcare Corp., 920 F.2d 446, 453 (7th Cir.1990) (“When as here the necessary information is gathered after the claim arose but before the statute of limitations has run, the presumption should be that the plaintiff could bring suit within the statutory period and should have done so.”).

While certainly not dispositive, it is important to note that Datastaff was represented by counsel regarding its claim against Accutronics starting on August 30, 2005, only two days after the one-year limitations period began to run. See Bobby Currin & Sons, 17 F.Supp.2d at 466 (citing Humble Oil, 402 F.2d at 900 & n. 9). Datastaffs counsel made virtually no effective effort to determine whether Da-tastaff was a third-tier subcontractor. As further evidence that Datastaffs status as a third-tier subcontractor was far from certain, Datastaffs counsel called Centex once in December 2005 for information on this point. When Anderson returned Da-tastaffs call, he did not mention whether Datastaff was a second- or third-tier subcontractor, but merely stated that Centex was still “having issues with Accutronics.” Yet, Datastaff never followed up with Cen-tex to determine whether it was a second-tier subcontractor covered by the bond. Nor did Datastaff submit further documentation in response to Travelers’s and Centex’s requests for more information regarding Datastaffs claims. Instead, it chose to accept, uncritically and at face value, statements by defendants that Da-tastaff was a third-tier subcontractor. And significantly, Datastaff chose to do so notwithstanding the signs pointing to the contrary and notwithstanding that the source of the statements on which it chose to rely were parties with interests plainly adverse to Datastaffs.

Finally, despite Datastaffs claims that defendants’ misrepresentations caused Da-tastaff to delay filing a Miller Act suit, the evidence suggests that Datastaff knowingly chose to focus its efforts instead on Accutronics. Eight days after learning that Centex had sued Accutronics, Datas-taff initiated arbitration proceedings against Accutronics and vigorously pursued a judgment against Accutronics alone. Datastaff did not contact defendants in September or October 2006, when it claims it learned it was a second-tier contractor, but waited until after Accutron-ics failed to pay Datastaffs judgment to demand payment on the bond in January 2007. Even then, Datastaff then waited four more months to file its Miller Act claim. Hence, the causal nexus between defendants’ alleged misrepresentations and Datastaffs failure to file a timely claim is weak at best.

In sum, there are no material facts in dispute regarding Datastaffs Miller Act claim. The claim is untimely, and equitable estoppel does not apply to excuse this untimeliness because defendants’ representations gave Datastaff no reason to be *597 lieve that it would be paid if it delayed filing suit. In any event, Datastaffs reliance on these representations was unreasonable. Equitable estoppel was not designed to rescue an untimely claimant from circumstances where, as here, parties adverse consistently denied to the claimant any responsibility to pay under the bond. Defendants are therefore entitled to summary judgment on Datastaffs Miller Act claim.

B.

Datastaff next asserts constructive fraud claims against Centex and Travelers. Specifically, Datastaff contends that Cen-tex is hable for constructive fraud based on Anderson’s misrepresentations about the bond’s coverage and Datastaffs status as a third-tier subcontractor. It further contends that Travelers is liable for constructive fraud based on the representations in the December 2, 2005 letter stating that Datastaffs claim was denied because it was a third-tier subcontractor. Datastaff claims these misrepresentations led it to pursue its claim against Accutronics directly, rather than to file a Miller Act suit on the bond. In short, Datastaffs constructive fraud claims stem from the same factual circumstances as its Miller Act equitable estoppel claim. 18

To prove constructive fraud under Virginia law, a plaintiff must show “by clear and convincing evidence that a false representation of a material fact was made innocently or negligently, and the injured party was damaged as a result of his reliance upon the misrepresentation.” Prospect Dev. Co. v. Bershader, 258 Va. 75, 515 S.E.2d 291, 297 (1999) (internal punctuation and citations omitted). The plaintiff must also show that a reasonable person would believe in and rely on the false representation. Evaluation Research Corp. v. Alequin, 247 Va. 143, 439 S.E.2d 387, 390 (1994). Reliance is not reasonable if the party asserting constructive fraud “makes a partial inquiry, with full opportunity of complete investigation, and elects to act upon the knowledge obtained from the partial inquiry.” Hitachi Credit Am. Corp. v. Signet Bank, 166 F.3d 614, 629 (4th Cir.1999) (citing Harris v. Dunham, 203 Va. 760, 127 S.E.2d 65, 71-72 (1962)).

Thus, in certain pertinent respects, the elements of constructive fraud in Virginia are essentially similar to the elements of equitable estoppel. To establish constructive fraud, Datastaff must prove not only that defendants made misrepresentations, but that Datastaff reasonably relied on those misrepresentations in foregoing a Miller Act suit. Yet, as demonstrated above, Datastaff has not shown that its reliance on defendants’ alleged misrepresentations was reasonable. Despite signs that defendants’ statements were not correct, Datastaff made no effort to determine for itself whether it had a viable Miller Act claim, choosing instead to rely on the assertions of adverse parties. Hence, as with the equitable estoppel argument, Datastaffs constructive fraud claims fail and defendants are entitled to summary judgment on these claims.

C.

Datastaffs final claim is that it conferred a material benefit upon Centex by providing labor for the Project notwithstanding Accutronics’s nonpayment. It claims that because it has not been paid for this work, Centex unjustly enriched itself at Datastaffs expense, and that Da-tastaff is entitled to quantum meruit for the services rendered.

*598 To recover for quantum me-ruit, a plaintiff must show that “(i) he rendered valuable services, (ii) to the defendant, (iii) which were requested and accepted by the defendant, (iv) under such circumstances as reasonably notified the defendant that the claimant, in performing the work, expected to be paid by the defendant.” Raymond, Colesar, Glaspy, & Huss, P.C. v. Allied Capital Corp., 961 F.2d 489, 491 (4th Cir.1992); see also Unidyne Corp. v. Aerolineas Argentinas, 590 F.Supp. 391, 397 (E.D.Va.1984). The doctrine is “based on equitable principles ... that a man shall not be allowed to enrich himself unjustly at the expense of another.” Kern v. Freed Co., 224 Ya. 678, 299 S.E.2d 363, 365 (1983) (internal punctuation and citations omitted). Whether the defendant has been unjustly enriched is therefore essential to recovery for quantum meruit. Thus, “[w]here one is obligated by an express contract to pay for a benefit he receives, and has in fact paid, he is not liable for that benefit to another party under a theory of unjust enrichment.” Cummins Atlantic, Inc. v. G.H. Glover, Inc., No. 112346, 1992 WL 884731, at *1 (Va. Cir. Ct. June 15, 1992) (unpublished). This point is well-illustrated in the Kern case, where the Supreme Court of Virginia held that a plaintiff that sold goods to defendant’s agent, but was not paid, could not recover from the defendant, because the defendant had already paid the agent for the goods. 19

Centex argues that summary judgment is appropriate because Datastaff had a contract with Accutronics for work on the Project. In support of this argument, Centex relies on Virginia law holding that “[i]n no event ... will a court impose an implied contractual relation on parties in contravention of an express contract.” 20 While some courts have held that this rule applies to bar a suit between A and B where an express contract on the same subject matter exists between A and C, 21 other courts have rejected such an application of this rule. 22

*599 In any event, while “the existence of an express contract between A and B undermines a quantum meruit claim between A and C for those same services,” 23 summary judgment on this claim is improper on the current record, which is anemic regarding whether Centex was unjustly enriched by Datastaffs services. Were the undisputed factual record to show that Centex paid Accutronics for Da-tastaffs services, then it would follow that, because Centex has not been unjustly enriched, Datastaff could not recover from Centex simply because Accutronics failed to pay Datastaff. See, e.g., Kern, 299 S.E.2d at 365. Accordingly, the quantum meruit claim requires further litigation, either by summary judgment or trial. 24

In conclusion, the undisputed material facts reflect that Datastaff is not entitled to recover under the Miller Act, as it filed suit well after the one-year statute of limitations had run. Moreover, because Da-tastaff has not shown that it reasonably relied upon defendants’ alleged misrepresentations, equitable estoppel and constructive fraud do not apply. Thus, defendants are entitled to summary judgment on Counts 1, 3, and 4 of Datastaffs complaint. Yet, material facts are still in dispute regarding Datastaffs quantum me-ruit claim against Centex. Therefore, Centex is not entitled to summary judgment on Count 2 of the complaint.

An appropriate Order will issue.