Opinion
Case No. 01-4156-SAC
February 20, 2002
MEMORANDUM AND ORDER
This case comes before the court on the motion of defendants The Law Company, Inc., and United States Fidelity and Guaranty Company ("USF G") to stay this action and compel arbitration, in accordance with the written agreement of the parties. Plaintiff opposes the motion.
Facts
The facts are few and undisputed. Plaintiff's complaint asserts four causes of action, all arising from its contention that it is owed $49,676.13 for work it performed in a construction project for the United States under a written subcontract. The first cause of action is brought under the Miler Act, 40 U.S.C. § 270. The remaining three are brought under state law.
These are for breach of contract, quantum merit, and unjust enrichment.
Plaintiff, as subcontractor, entered into a written subcontract with The Law Company, as contractor, by which plaintiff agreed to perform certain flooring construction work on a project for the United States Army at Fort Riley. USF G is surety for The Law Company. Plaintiff's claims are based upon amounts it believes are owed under the subcontract.
The written subcontract contains an arbitration provision, which defendants allege covers all claims made in this action. It states in pertinent part:
§ 20. Dispute Resolution
20.1 In the event a dispute arises between Contractor [The Law Company] and Subcontractor [plaintiff] in regard to this Subcontract (a Contractor-Subcontractor dispute) . . . Subcontractor shall be conclusively bound by Contractor's decision unless Subcontractor initiates arbitration or commences a legal action, as provided below, within thirty (30) days following Subcontractor's receipt of notification of Contractor's decision.
. . .
20.2 A Contractor-Subcontractor dispute shall be resolved through an arbitration proceeding as described below, unless the amount involved in the Contractor-Subcontractor dispute exceeds $200,000. . .
Dk. 10, p. 3-4.
Section 20.3 of the subcontract sets forth certain arbitration procedures, including the use of American Arbitration Association ("AAA") Construction Industry Rules, AAA's "Regular Track" procedures, and the number of arbitrators to be used. Id.
Plaintiff contends that despite the express language in the agreement quoted above, it is not bound to arbitrate this dispute because it asserts a Miller Act claim which can be waived only expressly, and which plaintiff has not expressly waived.
General Law
Section 2(a) of the Miller Act, § 40 U.S.C. § 270b(a), provides that every person who has furnished labor or materials in the prosecution of a construction project for the United States subject to the terms of the Act and who has not been paid therefor within ninety days "shall have the right to sue on such payment bond for the amount, or the balance thereof, unpaid at the time of institution of such suit and to prosecute said action to final execution and judgment. . . ." Section 2(b) of the Miller Act, § 40 U.S.C. § 270b(b), further provides that every such suit "shall be brought in the name of the United States for the use of the person suing, in the United States District Court for any district in which the contract was to be performed and executed and not elsewhere. . . ."
Plaintiff cites no case in support of its assertion that Miller Act claims are not arbitrable. In fact, every case located by this court which has examined this issue rejects the very proposition that plaintiff asserts. See e.g., Employers Ins. of Wausau v. Bright Metal Specialties, Inc., 251 F.3d 1316, 1324 (11th Cir. 2001) (holding Miller Act does not preclude arbitration under the FAA where the parties have previously agreed to arbitrate disputes); United States ex rel. Portland Constr. Co. v. Weiss Pollution Control Corp., 532 F.2d 1009, 1012 (5th Cir. 1976) (staying Miller Act suit pending outcome of arbitration where subcontract contained arbitration provision); United States ex rel. Capolino Sons, Inc. v. Electronic Missile Facilities, Inc., 364 F.2d 705 (2d. Cir.), cert. dismissed, 385 U.S. 924 (1966) (requiring subcontractor to arbitrate Miller Act payment bond claim pursuant to arbitration provision in subcontract, which provision was not prohibited by the Miller Act); United States ex rel. Air-Con, Inc. v. Al-Con Development Corp., 271 F.2d 904 (4th Cir. 1959); Agostini Bros. Building Corp. v. United States ex rel. Virginia-Carolina Electrical Works, 142 F.2d 854 (4th Cir. 1944).
The language of Capolino Sons is particularly on point, in stating:
Appellant contends it cannot be required to arbitrate its dispute with Electronic Missile Facilities, even though it agreed to do so, because the language of the Miller Act, quoted above, not only guarantees it a right to sue the prime contractor and the surety in the federal district court for any district where the contract was to be performed, but also prohibits it from agreeing to substitute the mechanisms of arbitration for this right. In short, appellant urges us to hold that an otherwise valid agreement appellant entered into to arbitrate is repugnant to Section 2 of the Miller Act and thus cannot be enforced against appellant in proceedings instituted pursuant to that Section.
We are entirely unpersuaded by appellant's argument. First, it is quite clear that there is no explicit inconsistency between the provisions of the Miller Act and the provisions of the United States Arbitration Act. §§ 9 U.S.C. § 1-14. Certainly both acts can apply simultaneously to situations like that now before us. Though a materialman like appellant would otherwise be free, pursuant to Section 2(a) of the Miller Act, if he were not paid within ninety days after the last material had been furnished, to sue the prime contractor and the surety on the contractor's payment bond, there is no inconsistency in requiring that an arbitration precede resort to the courts if the materialman and the contractor had previously agreed to arbitrate disputes. Pending the arbitration a materialman could protect against the running of the one year statute of limitations found in Section 2(b) of the Miller Act by filing a protective suit, and the complaint could later be amended in the light of the arbitration award.Capolino Sons, 364 F.2d at 706-07.
The contract between plaintiff and The Law Co. clearly and unequivocally expresses the intention of those parties that all disputes between them of this nature shall be resolved through arbitration. Nothing has been presented that would warrant this court's interference with the terms of the contract, nor is it alleged that this contract is no longer in effect or is otherwise not valid.
No change in the terms of the contract is warranted merely by virtue of the fact that plaintiff brings a Miller Act claim, as the language below emphasizes:
The fact that this is a case under the Miller Act does not change the contract, or substitute that act for its terms. (footnote omitted.) Section 270b of the Miller Act requir[ing] plaintiffs to sue in a federal district court for a district in which the contract was to be performed and not elsewhere is a venue provision benefitting defendants in some cases. (citation omitted.) It follows that this section was not intended to benefit plaintiffs. It should not be destroyed, by court construction, to vary the unambiguous terms of the written contract.The United States ex rel. Delay Daniels, Inc. v. American Emp. Ins. Co. of Mass., 290 F. Supp. 139, 140-41 (D.S.C. 1968).
Plaintiff's assertion that arbitration of his Miller Act claims constitutes a waiver thereof is unsupported by law. "Arbitration is merely a form of trial, to be adopted in the action itself, in place of the trial at common law; it is like a reference to a master, or an 'advisory trial' under Federal Rules of Civil Procedure 39(c)." Id. Plaintiff's agreement to arbitrate his disputes does not effect a waiver of his Miller Act claim, as plaintiff's remedy of a suit under the Miller Act is unchanged by the arbitration procedures mandated by the parties' agreement. See e.g., United States ex rel. Nat. Roofing Services, Inc., v. Lovering-Johnson, Inc., 53 F. Supp.2d 1142 (D.Kan. 1999) (ruling on motions to confirm or vacate arbitration award and enter judgment, after having stayed Miller Act case pending arbitration.)
The court has reviewed the cases cited in plaintiff's brief, and finds them not on point because they do not address the situation where the contractor and subcontractor have entered into an arbitration agreement. See e.g., H.W. Caldwell Son, Inc. v. United States ex rel. John H. Moon Sons, Inc., 407 F.2d 21 (5th Cir. 1969) (finding subcontractor not bound by terms of agreement between contractor and government regarding dispute resolution); United States ex rel. B's Co. v. Cleveland Elec. Co. of South Carolina, 373 F.2d 585 (4th Cir. 1967) (same); United States ex rel DDC Interiors, Inc. v. Dawson Constr. Co., Inc., 895 F. Supp. 270, (D.Colo. 1995) (denying stay pending completion of dispute resolution process with the United States General Services Administration where no agreement to arbitrate existed); United States ex rel. Trans Coastal Roofing Co., Inc. v. Boland, 922 F. Supp. 597 (S.D.Fla. 1986) (finding express waiver of subcontractor's rights where the subcontract made the disputes clause of the primary contract expressly applicable to the subcontract and stated that the "[s]ubcontractor shall first pursue and fully exhaust [the procedures set forth in the standard disputes clause of the primary contract] before commencing any other action against Contractor for any claims it may have arising out of its performance of the Work herein."); United States ex rel. N.U., Inc. v. Gulf Ins. Co., 650 F. Supp. 557, 558 (S.D.Fla. 1986) (denying stay where subcontract did not make disputes clause of general contract expressly applicable or waive Miller Act remedy); Liebman et al v. United States ex rel. California Elec. Supply Co., 153 F.2d 350 (1946) (finding stipulation between contractor and creditor of a bankrupt subcontractor not to constitute a waiver or release of creditor's rights against contractor and surety under the Miller Act.)
The court finds that this agreement between the contractor and subcontractor to arbitrate their dispute will be upheld even though Miller Act jurisdiction exists, and that this suit brought in federal court under the Act should be stayed pending such arbitration. The Miller Act does not prohibit arbitration before resort to the courts where, as here, the subcontractor and contractor have previously agreed to arbitrate disputes. Plaintiff is not entitled to proceed without first complying with the arbitration provision of the subcontract.
Claims Against USF G
Plaintiff next alleges that this action should not be stayed pending arbitration, because even if it has agreed to arbitrate its claims involving The Law Company, it has not agreed to arbitrate its claims against USF G. This contention is based upon the fact that the arbitration agreement was solely between plaintiff and The Law Company, as subcontractor and general contractor, and not between plaintiff and the contractor's surety, USF G, coupled with the legal premise that one not a party to an agreement is not bound thereby.
The court agrees that a contractor's surety is not bound by an arbitration agreement between the subcontractor and the general contractor. See Weiss Pollution Control Corp., 532 F.2d at 1012.
However, the fact that this court cannot require USF G to participate in arbitration is no reason not to stay the case. Plaintiff will be contractually bound by the decision of the arbitrators and, if they resolve the dispute in favor of The Law Company, no Miller Act remedy will likely be necessary. In the event the arbitrators resolve the dispute in plaintiff's favor, plaintiff is adequately protected against the possibility that The Law Co. may become insolvent and unable to pay an arbitration award in plaintiff's favor by its Miller Act suit still pending in this court against the surety.
IT IS THEREFORE ORDERED that defendants' motion to stay action and to compel arbitration (Dk. 9) is granted.