POST, LLC v. Berkshire Hathaway Specialty Ins. Co.
| Docket Number | Civil Action 20-2972 (JDB) |
| Decision Date | 05 August 2022 |
| Parties | POST, LLC Plaintiff, v. BERKSHIRE HATHAWAY SPECIALTY INSURANCE COMPANY, Defendant. |
| Court | U.S. District Court — District of Columbia |
Plaintiff POST, LLC (“POST”) brings this suit against defendant Berkshire Hathaway Specialty Insurance Company (“BHSIC”) in its capacity as a surety for WCS Construction, LLC (“WCS”). POST, a construction company, alleges that WCS failed to pay for work POST performed as a subcontractor to WCS and that, by the terms of a payment bond issued by BHSIC to WCS, BHSIC is liable for the unpaid sum. BHSIC moves to dismiss, arguing that POST's complaint is barred by res judicata because its functionally identical claim against WCS in arbitration proceedings was “dismissed with prejudice” due to POST's failure to pay the required fees. Because that dismissal with prejudice would bar POST from proceeding against WCS in federal court, the argument goes, so too does it bar POST's claim against BHSIC. The Court does not agree: a dismissal by an arbitrator for nonpayment of fees, even a dismissal “with prejudice,” is not a judgment “on the merits” entitled to claim-preclusive effect in related litigation. However, in light of the narrow grounds for dismissal presented by BHSIC gaps in the record before the Court, and the need for further briefing regarding the best path forward for this suit, the Court will stay BHSIC's deadline to answer POST's amended complaint and permit the parties to file supplemental submissions.
This action stems from a dispute between a general contractor WCS, and one of its subcontractors, POST. On January 24 2019, WCS hired POST to perform “certain masonry restoration and related work” on the renovation of an apartment complex. Am. Compl. [ECF No. 10] ¶¶ 8-9. POST alleges that, in the course of performing this work WCS-and in particular Vice President David Jones, see id. ¶ 18-singled POST out for unfair and degrading treatment. This treatment allegedly included “demand[ing] that POST work evenings and weekends at no additional cost to WCS,” id. ¶ 25; arbitrarily altering POST's work assignments, including by “demanding that POST perform work not shown on the drawings and/or not within the scope of the POST subcontract,” id. ¶ 19; and “malign[ing], berat[ing] and denigrat[ing] [POST] for not having sufficient manpower onsite” despite the fact that POST “had the most employees and subcontractor partners at the site working,” id. ¶ 22. Perhaps most relevant to the present action, POST also alleges that WCS delayed and/or outright refused to pay POST for its work, either by “rescind[ing], alter[ing] and modify[ing] POST's pay applications downwards, even after they were approved during the ordinary course of dealing,” id. ¶ 20, or by “issu[ing] . . . a pretextual, bald ‘Notice of Default' with generic boilerplate averments of default” whenever “a payment was due and/or POST management would ask WCS to issue payment,” id. ¶ 33. POST, which is owned, operated, and almost exclusively staffed by African-Americans, id. ¶ 12, also strongly implies that this treatment was motivated by racial animus, see id. ¶¶ 28-30, 32, 35-36.[1] Ultimately-and, POST alleges, pretextually-WCS terminated POST's subcontract, id. ¶ 32, and both POST and WCS now argue that the other is liable for significant damages, see id. ¶¶ 38-39 (seeking damages of “at least $305,271.24”); Def.'s Consent Mot. to Stay Pending Arbitration [ECF No. 9] at 1 ().
On October 15, 2020, POST filed this case against BHSIC, asserting a claim for “breach of payment bond.” Compl. [ECF No. 1] at 8 (cleaned up). POST alleges that BHSIC issued a payment bond to WCS, Am. Compl. ¶¶ 2, 38-39, in which BHSIC “[bound] itself to pay claimants having furnished labor and materials to the . . . construction project” in question, Id. ¶ 2. As BHSIC explains in its motion to dismiss:
[A] payment bond . . . guarantees that a claimant . . . who performs work for the principal on a project[] will be paid for the work it performs. If the principal does not make the payment, the surety will make the payment in its place. In that regard, in the context of a construction contract, the surety acts as a backstop to the principal failing to pay its subcontractors and suppliers amounts actually owed.
BHSIC's Mem. in Supp. of Its Mot. to Dismiss with Prejudice for Failure to State a Claim Upon Which Relief Can Be Granted [ECF No. 14] (“Def.'s Mot.”) at 6. Thus, because POST alleges that the principal (WCS) has failed to pay POST what it owes, POST now seeks funds from the surety (BHSIC) to fulfill that unpaid obligation. See Am. Compl. ¶ 39 (). On February 19, 2021, the Court stayed this action at the parties' request in light of pending arbitration proceedings between WCS and POST, Min. Order, Feb. 19, 2021, in hopes that “[r]esolution of that [arbitration] w[ould] substantially narrow the issues before this Court,” Def.'s Consent Mot. to Stay Pending Arbitration at 1.
Suffice it to say, those proceedings did not go smoothly. As relevant here, POST encountered difficulty in paying the arbitration fees, and after receiving multiple extensions, POST failed to make the required payment to the American Arbitration Association (“AAA”) by the due date of January 10, 2022. Ex. A to Joint Status Report [ECF No. 13-1] (“Arbitrator's Order”) ¶¶ 4-6; Def.'s Mot. at 5. After this deadline passed, first POST's counsel and then its President informed the arbitrator that POST “did not have the funds to make a deposit at this time,” Arbitrator's Order ¶¶ 7-8, and requested that the arbitration-then a little over a month away-be postponed in order to give POST time to pay on an installment plan, id. The arbitrator denied this request, noting that such a postponement “would work a hardship on [WCS],” id. ¶ 11, and concluding that “there is no reason to permit POST to postpone this Arbitration for what may become an extended period in the hope that payment will be made,” id. ¶ 13. On January 13, 2022, the arbitrator, relying on her authority to take “measures . . . limiting a party's ability to assert or pursue their claim,” see id. ¶ 3 (quoting Am. Arbitration Ass'n, Construction Industry Arbitration Rules & Mediation Procedures R-59(b) (July 2015) (“AAA Construction Rules”),[2] ordered that “the counterclaims of [POST] are hereby dismissed with prejudice,” Arbitrator's Order at 3, but she also specified that nothing about the order “prohibits or affects POST's ability to defend against [WCS's] claims,” id. ¶ 14. Nonetheless, on the following day WCS voluntarily dismissed its claim against POST, and the AAA “immediately began the process of closing the case as no claims remained.” Joint Status Report [ECF No. 13] at 1.
On February 14, 2022, just shy of one year after the Court stayed this litigation, the parties informed the Court of these developments and expressed their respective positions regarding the “impact of [the] arbitration on [the] instant matter.” Joint Status Report at 1 (cleaned up). BHSIC argued that “the arbitrator's decision to dismiss POST's claims with prejudice requires the dismissal of this action as well” under principles of res judicata (, the doctrine of claim preclusion), id., while POST contended that “this matter may proceed as originally pled” because “[n]o final arbitration award was received by WCS,” id. at 2. Concluding that one paragraph apiece in a joint status report was an insufficient basis for determining whether dismissal was warranted, the Court lifted the stay in this matter and ordered BHSIC to file a motion to dismiss on the grounds articulated in the status report. Min. Order, Feb. 15, 2022. BHSIC filed its motion on March 11, see generally Def.'s Mot.; POST timely filed its opposition on April 1, see generally Opp'n to Def.'s Mot. [ECF No. 15] (“Pl.'s Opp'n”); and BHSIC filed its reply brief on April 15, see generally BHSIC's Reply in Supp. of Def.'s Mot. [ECF No. 16] (“Def.'s Reply”). The motion is now fully briefed and ripe for decision.
Under District of Columbia law, “[t]he doctrine of res judicata (claim preclusion) dictates that a final judgment on the merits of a claim bars relitigation in a subsequent proceeding of the same claim between the same parties or their privies.” Bell v. First Invs. Servicing Corp., 256 A.3d 246, 253 (D.C. 2021) (); accord Jackson v. Off, of the Mayor of D.C., 911 F.3d 1167, 1170-71 (D.C. Cir. 2018) .[3] Although res judicata is an affirmative defense more at home in an answer than a pre-answer motion to dismiss, a res judicata argument “is properly brought in a pre-answer Rule 12(b)(6) motion when all relevant facts are shown by the court's own records,” including documents of which the court takes judicial notice.[4] Perez v. KIPP DC Supporting Corp., Civ. A. No. 21-929 (RC), 2022 WL 474143, at *3 (D.D.C. Feb. 16, 2022) (); see also Fordham v. Fannie Mae, 49 F.Supp.3d 77, 83 (D.D.C. 2014) ...
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