Tolling Agreements and Little Miller Act Bonds

Overview 

         Many states have statutes requiring payment bonds for certain state and local government construction projects.  Many of these statutes are called Little Miller Acts because they are patterned after the federal Miller Act.  Like the Miller Act, an action on a Little Miller Act bond must be brought within one-year after the claimant’s work was performed.  Both federal and state courts consider the one-year rule jurisdictional and, as such, it cannot be waived.  If nonpayment occurs on a Little Miller Act project, the contracting parties may agree to payment in installments, but what happens when the installment period falls outside the one-year limitation period?   Can parties enter into a tolling agreement extending the one-year period? Can the parties agree that the Little Miller Act does not apply and that the bond is a common law bond?  The Supreme Court of Connecticut in Paradigm Contract Management Co. v. St. Paul Fire and Marine Insurance Co., 293 Conn. 569 (2009)  held that the one-year limitation period was jurisdictional, could not be extended by agreement and there was no cause of action for a common law bond where the bond was supplied pursuant to Connecticut’s Little Miller Act.

Factual Background

         Paradigm was a second tier subcontractor on a construction project to close a municipal landfill in the city of Danbury, Connecticut.  St Paul, the surety, issued a labor and material bond as required by Connecticut’s Little Miller Act.  In 1999 Paradigm brought a timely bond action against St. Paul seeking payment for labor and materials it provided to the project.    On April 19, 2002 Paradigm and St. Paul entered into a written tolling agreement whereby Paradigm agreed to dismiss its action against the bond and St. Paul agreed to a one year waiver of any statute of limitations defenses.  The parties’ tolling agreement provided in relevant part that “[ St. Paul] hereby waives, and is estopped from asserting, any and all defenses or bars based upon any statute of limitations, or based on any theory premised on laches or delay. . . .”

         On February 26, 2003 Paradigm brought another action seeking payment under the bond.  St. Paul filed a motion to dismiss the lawsuit on the ground that it was brought more than one year from the time Paradigm performed work on the project in violation of the time limitation set forth in Connecticut’s Little Miller Act.  Notwithstanding the tolling agreement, the trial court granted St. Paul’s motion to dismiss. Paradigm argued that the second bond claim was not made pursuant to the Little Miller Act; instead it was a common law bond to which the one-year limitation did not apply.  In essence, Paradigm contended that the tolling agreement converted the statutory bond into a common law bond.  On appeal, the Supreme Court of Connecticut was asked to determine whether there was a common law right to sue on a bond issued pursuant to the Little Miller Act.

Conversion Theory Rejected

         The Supreme Court of Connecticut started its analysis by reaffirming that the one year time limitation is jurisdictional; therefore bringing a law suit within one year is an absolute condition precedent to maintaining an action under the Little Miller Act.  The court pointed out that the jurisdictional requirement could not be waived or altered by agreement.  In other words, the tolling agreement was not binding on St. Paul, in terms of the extension of the one-year statute of limitations. 

         Seeking to avoid this strict rule, Paradigm argued that the one-year limitation did not apply because the tolling agreement modified the bond and removed it from the Little Miller Act. Paradigm also argued that the tolling agreement converted the bond into a common law bond.  While the court acknowledged that the language of the Little Miller Act statute supported Paradigm’s argument that parties can expand substantive coverage of the bond beyond what is required by the act (e.g., extending coverage to more tiers), the court rejected Paradigm’s argument that the parties can, by agreement, convert a Little Miller Act bond to a common law bond.   The court noted if parties can remove the bond from purview of the statute then the rule that the parties cannot agree to waive the one-year limitation provisions by agreement would apply only when the parties have not waived the provision by agreement leading to an absurd result.

Practical Tip

         Paradigm timely filed a bond action then entered into a tolling agreement with the surety.  The court’s opinion does not indicate why Paradigm dismissed the first lawsuit. Often times when non-payment occurs, the bond principal and claimant will work out a settlement agreement where the bond principal agrees to make payment in monthly installments.    If the bond principal defaults under the installment agreement outside the one-year limitation period, the claimant is left without the protection of the payment bond.  The better practice is to timely file the lawsuit against the payment bond surety, and ask the court to stay the lawsuit until payment is made in full.