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Boneso Brothers Construction, Inc. v. Sauer, Inc.

United States District Court, N.D. California, San Jose Division

May 25, 2018

SAUER, INC., et al., Defendants.



         Plaintiff Boneso Brothers Construction, Inc. (“Plaintiff”) sues Defendants Sauer, Inc. (“Sauer”), Sauer Group, Inc. (“SGI”), and Federal Insurance Company (“FIC”) (collectively, “Defendants”) for causes of action arising out of a federal construction project. See ECF No. 6 (“FAC”). Before the Court is FIC's motion to dismiss three of Plaintiff's causes of action. ECF No. 18 (“Mot.”). Having considered the submissions of the parties, the relevant law, and the record in this case, the Court hereby GRANTS FIC's motion to dismiss with leave to amend.

         I. BACKGROUND

         A. Factual Background

         Under the Miller Act, 40 U.S.C. §§ 3131-34, “[b]efore any contract of more than $100, 000 is awarded [to a general contractor] for the construction, alteration, or repair of any public building or public work of the Federal Government, [the general contractor] must furnish to the Government, ” inter alia, a “payment bond with a surety . . . for the protection of all persons supplying labor and material in carrying out the work provided for in the contract.” 40 U.S.C. § 3131(b)(2). Pursuant to the Miller Act, any person that (1) “has furnished labor or material in carrying out work provided for in a contract for which a payment bond is furnished”; and (2) “has not been paid in full” for that labor or material, “may bring a civil action on the payment bond for the amount unpaid at the time the civil action is brought.” Id. § 3133(b)(1).

         On February 16, 2014, Defendant Sauer, “a corporation existing under the laws of the State of Pennsylvania with a principal place of business” of Jacksonville, Florida, was awarded a contract (the “Prime Contract”) by the United States Army Corps of Engineers “to design and build the Operational and Readiness Training Complex at Fort Hunter Liggett Army base” in California (the “Project”). FAC ¶¶ 2, 8. To meet the requirements set forth in the Miller Act (as described above), Sauer obtained a payment bond from Defendant FIC, a surety “operating and existing under the laws of the State of Indiana, with a principal place of business” of Indianapolis, Illinois, ” on February 6, 2014. Id. ¶¶ 4, 9, Exh. 2. In the payment bond, Sauer and FIC agreed to be bound jointly and severally for the payment of any persons furnishing labor and materials on the Project in the event that Sauer failed to make prompt payment. Specifically, the payment bond (1) lists Sauer as the “Principal” and FIC as the “Surety”; (2) lists a “penal sum of bond” of $56, 038, 640.00; (3) states that FIC agrees to “bind[] itself, jointly and severally with the Principal, for the payment” of up to $56, 038, 640.00; and (4) states that the “above obligation”-meaning the joint and several obligation of FIC and Sauer to pay up to $56, 038, 640.00-“is void if the Principal promptly makes payment to all persons having a direct relationship with the Principal or a subcontractor of the Principal for furnishing labor, material, or both in the prosecution of the work provided for in the contract” between the government and Sauer. FAC Exh. 2.

         Plaintiff alleges that Sauer “committed . . . to self-perform 15% of the Prime Contract amount” and “listed their affiliated company, SGI, as the entity to self-perform the mechanical portion of [the Prime Contract], estimated at approximately $10, 000, 000.” Id. ¶ 10. SGI is a “subsidiary corporation of” Sauer “operating and existing under the laws of the State of Ohio with a principal place of business” of Columbus, Ohio. Id. ¶ 3. Thus, Plaintiff states that Sauer “entered into a subcontract agreement with SGI for the subcontract work of plumbing, HVAC, and controls & testing” on June 16, 2014. Id. ¶ 11.

         However, Plaintiff alleges that “SGI did not actually perform any work on the Project, or performed only de minimus work on the Project, with [its] own forces, ” and instead “subcontracted the majority of their responsibility for the mechanical work to [Plaintiff], excluding controls and testing, which was subcontracted to others.” Id. ¶¶ 12-13. Specifically, Plaintiff states that on October 30, 2015, SGI and Plaintiff “entered into a plumbing and HVAC subcontract for the Project . . . for $9, 697, 177.” Id. ¶ 14. Because of the self-performance requirements on Sauer and SGI in the Prime Contract, Plaintiff alleges that SGI demanded that its subcontract with Plaintiff “be reduced by the amount of labor SGI would supply to [Plaintiff] . . . and the equipment and services SGI would purchase directly for [Plaintiff's] scope or work.” Id. ¶ 15. As a result, Plaintiff asserts that the “effective” value of the subcontract between Plaintiff and SGI was $6, 609, 462. Id. Plaintiff also alleges that Plaintiff “was to remain responsible for all administration and performance of the SGI ‘self-performance' work.” Id.

         Plaintiff asserts that Plaintiff “has fully performed all obligations required to be performed by it under” its subcontract with SGI, but “has not been paid in full and is still owed at least $4, 574, 138 for the value of labor, services, materials, equipment, and supplies furnished to the Project.” Id. ¶¶ 19, 21. Plaintiff further alleges that SGI “caused a multitude of . . . disruptions that resulted in cost overruns on labor, material, and equipment by [Plaintiff], ” such as “numerous and continuous changes to the sequence and order of the work” and “Delays in access to the work, ” “all of which resulted in additional costs to [Plaintiff] in an amount in excess of $4, 574, 138.00.” Id. ¶ 43. In addition to SGI's failure to pay Plaintiff in full, Plaintiff appears to allege two other ways that SGI breached its subcontract with Plaintiff. First, Plaintiff asserts that SGI was contractually obligated, but failed, to provide Building Information Modeling (“BIM”) services to Plaintiff. Id. ¶¶ 29, 44. Second, Plaintiff alleges that SGI breached its subcontract with Plaintiff “by, inter alia, [] fail[ing] to timely and adequately schedule the various trades on the Project and [] fail[ing] to properly administer the Project.” Id. ¶ 45.

         Relatedly, Plaintiff alleges that “within the past four years, SGI has become indebted to [Plaintiff] because an account was stated in writing by and between SGI and [Plaintiff], in which it was agreed that SGI would be indebted to [Plaintiff].” Id. ¶ 49. Plaintiff further states that “the sum of $4, 574, 138.00, which is the reasonable value of services and materials provided by [Plaintiff] to SGI, invoiced by [Plaintiff] to SGI . . . is due and unpaid despite [Plaintiff's] demands.” Id. ¶ 50. Further, Plaintiff asserts that, also “within the past four years, ” “SGI has become indebted to [Plaintiff] on an open book account for money due in the sum of $4, 574, 138.00, invoiced by [Plaintiff] to SGI, ” and that SGI has “failed and refused . . . to pay” Plaintiff even though “[d]emand has been made on SGI for the above-mentioned sum.” Id. ¶ 52.

         Finally, Plaintiff asserts that “pursuant to the Payment Bond, [FIC] and SGI are jointly and severally liable for the damages sustained by [Plaintiff].” Id. ¶ 47.

         B. Procedural History

         On May 5, 2017, Plaintiff filed its original complaint on May 5, 2017. ECF No. 1. In its original complaint, Plaintiff named only one defendant-Sauer-and asserted only one cause of action (negligent administration of construction project) against Sauer. Id. at 4. The instant case was originally assigned to Magistrate Judge Howard R. Lloyd. See ECF No. 3.

         On June 12, 2017, Plaintiff filed its first amended complaint (“FAC”). FAC. Plaintiff's FAC asserts seven causes of action, including: (1) recovery on the payment bond under the Miller Act (against Sauer and FIC), id. at 4-5; (2) negligent administration of construction project (against Sauer), id. at 5-7; (3) breach of contract (against SGI and FIC), id. at 7-8; (4) account stated (against SGI and FIC), id. at 8; (5) open book (against SGI and FIC), id. at ...

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