35 F.3d 133 (4th Cir. 1994), 93-2339, American Cas. Co. of Reading, Pennsylvania v. L-J, Inc.

Docket Nº:93-2339.
Citation:35 F.3d 133
Party Name:AMERICAN CASUALTY COMPANY OF READING, PENNSYLVANIA, Plaintiff-Appellant, v. L-J, INCORPORATED; U.S. Construction Company, Incorporated, Defendants-Appellees.
Case Date:September 13, 1994
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit

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35 F.3d 133 (4th Cir. 1994)




L-J, INCORPORATED; U.S. Construction Company, Incorporated,


No. 93-2339.

United States Court of Appeals, Fourth Circuit

September 13, 1994

Argued July 12, 1994.

ARGUED: Charles E. Carpenter, Jr., Richardson, Plowden, Grier & Howser, P.A., Columbia, SC, for appellant. Amy M. Snyder, Henry Pickett Wall, Sr., Haynsworth, Marion, McKay & Guerard, Greenville, SC, for appellees. ON BRIEF: Francis M. Mack, Deborah Harrison Sheffield, Richardson, Plowden, Grier & Howser, P.A., Columbia, SC, for appellant.

Before NIEMEYER, MICHAEL, and MOTZ, Circuit Judges.

Dismissed by published opinion. Judge MOTZ wrote the opinion, in which Judge NIEMEYER and Judge MICHAEL joined.


MOTZ, Circuit Judge:

A surety for a subcontractor appeals from the district court's order granting the general contractor's motion to compel arbitration and stay litigation "pending the outcome of arbitration between the parties." Because the arbitration claim was embedded in an action asserting other claims, the district court's order was not final. Accordingly, we lack jurisdiction to consider the appeal and so it must be dismissed.


This action arose from a $35.9 million road construction project initiated by the Georgia Department of Transportation. The general contract for this project was awarded to appellee, L-J, Inc. (L-J), who, in turn, subcontracted portions of the project to U.S. Construction Company, Inc. (U.S.). In a written subcontract, U.S. agreed to perform excavation, engineering, and traffic control.

On September 19, 1991, appellant American Casualty Company of Reading, Pa. (American), as surety for U.S., executed performance

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and payment bonds in the amount of $5,317,640 obligating American to L-J in the event of a default by U.S. on the subcontract. Both the performance and payment bonds included the following language:

WHEREAS, Principal [U.S.] has by written agreement dated June 20, 1991 entered into a subcontract with Obligee [L-J] for clearing, grading, project management and all work associated with items in Attachment # 1 of subcontract agreement ... which subcontract is by reference made a part hereof ....

L-J and U.S. included, among other provisions in the subcontract, a clause governing the resolution of disputes related to the subcontract that provided in pertinent part:

The Subcontractor agrees that if any controversy arises between Subcontractor and the Contractor and/or the Owner in respect to the amount, quantity, kind, classification, price or value of the work performed or to be performed by the subcontractor, or in respect to the kind, character, condition, suitability, utility price or value of any material or supplies furnished or to be furnished by the Subcontractor, or the proper interpretation of the plans, specifications, or original contract, or in respect to any alleged delay or delays in the prosecution or completion of the work made or caused to be made by the Subcontractor, or in respect to any kind of labor or manner of performance thereof, or in respect to any other matter or thing pertaining to or connected with the work provided for herein, the Contractor may, in its direction [sic], compromise and settle the same.... Arbitration of any controversy hereunder shall be at the sole option of the Contractor, and such arbitration, if elected by the Contractor, shall proceed under the Construction Industry Rules of the American Arbitration Association.

(emphasis added).

During the course of the project, a dispute arose over U.S.'s ability to complete its obligations under the subcontract. L-J accordingly sent a demand for arbitration to both U.S. and American, which L-J also filed with the American Arbitration Association. In its demand, L-J stated that U.S. had encountered financial difficulties, which caused U.S. to be unable to fulfill its obligations without advance payments from L-J for labor and materials. L-J further stated that when U.S. defaulted under the subcontract and was unable to repay L-J for these advance payments, L-J had requested that American cure the default, which American refused to do. L-J sought to recover over $2.1 million in "actual damages" from U.S. and American and over $2.6 million in punitive damages from American for its alleged "bad faith refusal to honor its obligations under the performance bond."

In response to this demand, American filed the instant action seeking (1) a declaration that the "payment and performance bonds," which it had executed as surety for U.S., were "null, void, and of no effect[,]" (2) a preliminary injunction to stay arbitration pending litigation as to the underlying bonds and contracts, (3) a permanent injunction barring "all arbitration proceedings related to this matter," and (4) a declaration as to American's obligations under its bonds and whether it "acted in bad faith" in its handling of this matter. American moved to stay arbitration; L-J moved to stay litigation and compel arbitration. The court granted L-J's motion to stay litigation and compel arbitration and denied American's motion to stay arbitration. When American asked the court to reconsider its order the court denied the motion. American now appeals the court's order compelling arbitration and "statistically stay[ing]" the litigation "pending the outcome of arbitration between the parties."

American challenges the lower court's order, asserting that it is not bound by the terms of the arbitration clause contained in the subcontract. American further argues that even if it had a duty to arbitrate certain aspects of the subcontract, the "narrowly drawn" arbitration clause does not encompass the issues of the surety bond's validity or L-J's allegations as to American's bad faith. We cannot reach these issues because

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the district court's decision was not final and so we have no jurisdiction over this appeal. 1


Section 16 of the Federal Arbitration Act governs the...

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