City of Westfield v. Harris & Associates Painting, Civil Action No. 07-30241-MAP.

• Decision Date: 24 July 2008
• Docket Number: Civil Action No. 07-30241-MAP.
• Citation: 567 F.Supp.2d 252
• Parties: CITY OF WESTFIELD, Plaintiff v. HARRIS & ASSOCIATES PAINTING, INC., Defendant.
• Court: U.S. District Court — District of Massachusetts

567 F.Supp.2d 252

CITY OF WESTFIELD, Plaintiff v. HARRIS & ASSOCIATES PAINTING, INC., Defendant.

Civil Action No. 07-30241-MAP.

United States District Court, D. Massachusetts.

July 24, 2008.

Kathleen E. Degnan, City of Westfield Law Department, Westfield, MA, for City of Westfield.

Ronald C. Morton, Morton Law Firm, PLLC, Clinton, MS, Stephen M. Reilly, Sr., Law Offices of Stephen M. Reilly, Sr., Springfield, MA, for Harris & Associates Painting, Inc.

MEMORANDUM AND ORDER REGARDING PLAINTIFF'S MOTIONS FOR SUMMARY JUDGMENT AND TO DISMISS DEFENDANTS AMENDED COUNTERCLAIM AND DEFENDANT'S MOTION TO DISMISS OR TO COMPEL ARBITRATION (Dkt. Nos. 17, 26, 30)

PONSOR, District Judge.

I. INTRODUCTION

Plaintiff City of Westfield ("Westfield") and Defendant Harris & Associates Painting, Inc. ("Harris") entered into a public works contract in 2001 that was completed past deadline in June 2003. In the ensuing litigation, Westfield discovered that Harris had not fully complied with the certification requirements of Mass. Gen. Laws ch. 30, § 39L and moved both for summary judgment on the ground that the contract was void for illegality and for dismissal of Defendant's counterclaims. (Dkt. Nos. 17, 30.) Harris meanwhile sought to enforce the arbitration clause contained in the parties' contract. (Dkt. No. 26.) The court's analysis reveals that if Massachusetts courts were presented with the issue, they would conclude that a failure to comply with section 39L does not, at least on these facts, render the underlying contract void. Defendant's motion will therefore be allowed in part, and Plaintiffs motions will be denied.

II. FACTS

On July 30, 2001, Harris and Westfield entered into a public works contract in which Defendant agreed to (a) groove and mark a runway at the Westfield-Barnes Airport; (b) upgrade the runway's Surface Sensor System; and (c) install a Rotating Beacon at the airport. (Dkt. No. 4, Ex. 3 at 34-36.) The contract included an arbitration clause providing that:

Any controversy or claim arising out of or relating to this Contract, or the breach thereof ... which cannot be resolved by mutual agreement, shall be settled by arbitration in accordance with the Construction Industry Arbitration Rules of American Arbitration, and judgment upon the award rendered by the Arbitrator(s) may be entered in any Court having jurisdiction thereof.

(Dkt. No. 4, Ex. 4 at 46.)

At the time the parties entered into the contract, the city was subject to Mass. Gen. Laws ch. 30, § 39L, which provided:

The commonwealth and every ... city ... which, as the awarding authority, requests proposals, bids or sub-bids for any work in the construction, reconstruction, alteration, remodeling, repair or demolition of any public building or other public works (1) shall not enter into a contract for the work with, and shall not approve as a subcontractor furnishing labor and materials for a part of the work, a foreign corporation which has not filed with the awarding authority a certificate of the state secretary stating that the corporation has complied with requirements sections three and five of chapter one hundred and eighty-one and the date of compliance, and (2) shall report to the state secretary and to the department of corporations and taxation any foreign corporation performing work under such contract....

Sections 3 and 5 of Massachusetts General Laws chapter 181 required a foreign corporation doing business in the commonwealth to file with the Massachusetts Secretary of State certain corporate information including its location, the names and contact information of its officers, and a brief description of its activity within the state, as well as an annual report.¹

Harris is a foreign corporation within the meaning of section 39L, incorporated in the state of Florida. Defendant did not register with the Secretary of State before entering into its agreement with Plaintiff, nor did it provide Westfield with a certificate from the Secretary of State verifying its compliance with chapter 181. Harris did eventually register with the Secretary of State on May 14, 2008. (Dkt. No. 25, Ex. A.) However, at the time it signed the contract with the city, Harris incorrectly represented that it was in compliance with section 39L. (Dkt. No. 4, Ex. 4 at 3, ¶ 2(b).) Defendant also specifically, and incorrectly, certified in the contract that it had filed a statement of management on internal accounting controls, in accordance with Mass. Gen. Laws ch. 30, § 39R(b)(4). (Dkt. No. 4, Ex. 4 at 3, ¶ 2(d).)

By June 2003, Harris had performed all of its obligations as set out in the contract. However, the parties had agreed that, absent any authorized stoppage in contract time, the work would be completed almost two years earlier, in September 2001. (Dkt. No. 4, Ex. 4 at 11.) Citing Defendant's delay, Westfield gave Defendant only a partial payment of $328,631.93, seeking to withhold $152,400 of liquidated damages and $25,317.47 in retainage from the agreed upon payment.

Harris then filed a complaint in this court on June 19, 2003, blaming Westfield for the tardy completion of the project and asking for full compensation for the work performed. (No. 03-30164.) At the time, Westfield did not proffer any argument that the contract was invalid, being unaware (as it claims now) of Harris' failure to comply with section 39L. In October 2003 the parties agreed to submit their dispute to arbitration, pursuant to the arbitration clause in the contract, and jointly stipulated to an order dismissing the case without prejudice. (Dkt. No. 7, Ex. 1.) Arbitration began before the American Board of Arbitration in December 2003, but stalled. According to Plaintiff, Harris has failed to take steps to move the arbitration process forward.²

Seeking to conclude the matter, in December 2007 Westfield filed a new complaint in Massachusetts superior court requesting a stay of arbitration and a declaratory judgment holding the contract illegal and unenforceable because of Harris' failure to comply with section 39L. (Dkt. No. 4, Ex. 1, Compl. for Stay of Arbitration and Injunctive and Declaratory Relief.) Defendant chose to remove to this court based on diversity jurisdiction.

Harris has since filed several counterclaims charging Plaintiff with breach of contract (Counterclaim I); seeking quantum meruit compensation for the work it performed (Counterclaim II); alleging that Westfield violated its implied duty of good faith and fair dealing (Counterclaim III); requesting enforcement of the arbitration clause in the parties' contract (Counterclaim IV); claiming that Plaintiff has been unjustly enriched by withholding money due under the parties' agreement (Counterclaim V); and bringing a replevin action to gain possession of the improvements it made to the Westfield-Barnes Airport (Counterclaim VI). (Dkt. No. 23, Am. Countercl. ¶¶ 34-56.) The first three counterclaims reiterate claims brought by Harris in the original 2003 litigation. (No. 03-30164, Dkt. No. 1, Compl. ¶¶ 38-48.)

In January 2008, Plaintiff filed a motion to certify a question of state law regarding , the validity of a public works contract entered into by a foreign corporation that had not registered with the Massachusetts Secretary of State as required by state regulations. (Dkt. No. 5.) The court denied that motion at a hearing on March 25, 2008, reasoning that it was competent to resolve the state law question at issue based on available state law sources.

Westfield now seeks summary judgment in its favor, arguing that the parties' contract is void for illegality based on Harris' failure to comply with Mass. Gen. Laws ch. 30, § 39L. (Dkt. No. 17, Pl.'s Mot. for Summ. J.) Additionally, Plaintiff has moved to dismiss Defendant's counterclaims. (Dkt. No. 30, Pl.'s Mot. to Dismiss Def.'s Amended Counterclaim.) Harris has meanwhile moved to dismiss Westfield's claims either on the merits or in favor of arbitration. (Dkt. No. 26, Defendant's Mot. to Dismiss, or in the Alternative, Mot. To Consolidate the Two Actions and Compel Arbitration.)

III. DISCUSSION

A. Relevance of the Arbitration Clause.

Before reaching the merits of this dispute, the court must first determine whether the contract's arbitration clause deprives it of jurisdiction. Put differently, the preliminary issue is whether the court or an arbitrator must decide whether the underlying contract is valid. For the reasons set forth below, the court will conclude that it may resolve the substantive question of the validity of the contract rather than referring that question to an arbitrator.

Generally an arbitration clause in a contract is severable, with the result that challenges to an agreement's validity must be arbitrated if the contract so provides. Prima Paint Corp. v. Flood.& Conklin Mfg. Co., 388 U.S. 395, 403-04, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967). However, this rule is subject to several exceptions, including where the parties dispute "whether the signor lacked authority to commit the alleged principal." Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444-46 & n. 1, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006) ("The issue of the contract's validity is different from the issue whether any agreement between the alleged obligor and obligee was ever concluded."); see also Fox Int'l Rels. v. Fiserv Sees., Inc., 418 F.Supp.2d 718, 723-24 (E.D.Pa.2006). Since Westfield contends its officials did not have the authority to consent to the agreement where section 39L had not been complied with, the question of the contract's validity is a matter for judicial review rather than arbitration.

B. Validity of the Contract.

Moving on to the key question, the court must decide whether Defendant's failure to comply with section 39L renders the parties' contract, including the arbitration clause, invalid and thus unenforceable by Harris.³ In ruling on this state law issue the court must look to decisions of the highest state court, but in...