U.S. ex rel. Mpa Const. v. Xl Specialty Ins. Co.

• Citation: 349 F.Supp.2d 934
• Decision Date: 22 December 2004
• Docket Number: No. CIV.A.DKC 2004-1681.,CIV.A.DKC 2004-1681.
• Parties: UNITED STATES of America for the use and benefit of MPA CONSTRUCTION, INC. v. XL SPECIALTY INSURANCE CO.
• Court: U.S. District Court — District of Maryland

349 F.Supp.2d 934

UNITED STATES of America for the use and benefit of MPA CONSTRUCTION, INC.

v.

XL SPECIALTY INSURANCE CO.

No. CIV.A.DKC 2004-1681.

United States District Court, D. Maryland.

December 22, 2004.

Scott Brian Hillman, Shannon J. Briglia, Wickwire Gavin PC, Vienna, VA, for Plaintiff.

Sean Patrick Foley, Goldberg Pike and Besche PC, Baltimore, MD, Lawrence Michael Prosen, Bell Boyd and Lloyd PLLC, Washington, DC, for Defendants.

MEMORANDUM OPINION

CHASANOW, District Judge.

Presently pending and ready for resolution are the motions of Movant Jowett, Inc. ("Jowett") (1) for leave to intervene pursuant either to Fed.R.Civ.P. 24(a), or, alternatively, to Fed.R.Civ.P. 24(b)(2); and (2) to stay this litigation pending arbitration. The issues are fully briefed and the court now rules pursuant to Local Rule 105.6, no hearing being deemed necessary. For the reasons that follow, the court grants both of petitioner's motions and directs Plaintiff MPA Construction, Inc. ("MPA")¹ and Movant to initiate arbitration.

I. Background

The following facts are undisputed except where otherwise noted. On September 28, 2001, the federal government's National Institute for Health ("NIH") awarded a contract (the "prime contract") to Jowett, a general contractor, for construction of a fire station in Bethesda, Maryland. Because the prime contract was awarded for the construction of a federal building and exceeded $100,000 in value, Jowett was required by section 3131(b) of the Miller Act, 40 U.S.C. § 3131(b),² to furnish NIH with a payment bond. Jowett obtained that payment bond from Defendant XL Specialty Insurance Co. ("XL"), an authorized payment bond surety.

On or about June 3, 2002, Jowett entered into a subcontract with MPA for drywall and ceiling work on the fire station project. Article 12 of that subcontract requires that "[a]ll disputes between the Contractor and Subcontractor, not involving the Owner's acts, omissions or responsibilities shall be resolved by arbitration in accordance with the rules of the American Arbitration Association." Paper no. 6, Exh. A, art. 12. In connection with the subcontract work, MPA submitted invoices to Jowett requesting payment of $179,608, but received from Jowett payments totaling only $133,968.50.

MPA contends it is owed the balance of $45,639.50 because it successfully completed its work on the project and because Jowett has received full payment from NIH for all the work MPA performed on the project. Jowett disputes MPA's contention that Jowett owes MPA the $45,639.50 balance. Jowett explains that on or about July 29, 2003, NIH terminated the prime contract. NIH did not state why the contract was terminated, but invited a "termination for convenience" settlement proposal, see generally 48 C.F.R. 49.000 et seq, which Jowett submitted on June 23, 2004. Jowett believes that allegedly defective work performed by MPA may be part or all of the reason for the termination. See paper no. 14, Exh 2, at 1. Jowett also asserts that it is still owed payment from NIH, and that included in that balance owed are monies owed to MPA. See Id. at 2. Jowett claims that if it ultimately recovers from NIH, "MPA would be reimbursed for that portion of work to which it is properly due on a pro rata basis." Id.

Having been refused payment by Jowett, MPA timely filed this complaint against XL pursuant to the Miller Act, which states that "every person that has furnished labor or material in carrying out work provided for" in a contract subject to the Act, when not paid in full for work within 90 days, "may bring a civil action on the payment bond for the amount unpaid at the time the civil action is brought and may prosecute the action to final execution and judgment for the amount due." 40 U.S.C. § 3133(b)(1).

Jowett now seeks to intervene, asserting that, "[s]hould this Court find that the surety is liable to MPA, the surety will in turn seek indemnification from Jowett for such judgment." Paper no. 6, at ¶ 2. Jowett also moves the court to stay this action pending arbitration between MPA and Jowett pursuant to the subcontract's mandatory arbitration clause. See paper no. 7.

II. Motion to Intervene

Jowett moves the court (1) to grant intervention of right under Fed.R.Civ.P. 24(a)(2), or, alternatively, (2) to permit intervention under Fed.R.Civ.P. 24(b)(2).

Fed.R.Civ.P. 24(a) states, in pertinent part:

Upon timely application anyone shall be permitted to intervene in an action: ... (2) when the applicant claims an interest relating to the property or transaction which is the subject of the action and the applicant is so situated that the disposition of the action may as a practical matter impair or impede the applicant's ability to protect that interest, unless the applicant's interest is adequately represented by existing parties.

To establish the right to intervene in an action under Rule 24(a), an intervenor must (1) submit a timely motion; (2) demonstrate a "direct and substantial interest" in the property or transaction; (3) prove that the interest would be impaired if the intervention was not allowed; and (4) establish that the interest is inadequately represented by existing parties. First Penn-Pacific Life Ins. Co. v. William R. Evans, Chartered, 200 F.R.D. 532, 536 (D.Md.2001) (citing In re Richman, 104 F.3d 654, 659 (4th Cir.1997)). A party moving for intervention under 24(a) bears the burden of establishing a right to intervene, and must do so by satisfying all four requirements. In re Richman, 104 F.3d at 658.

Jovett has moved timely to intervene and clearly has a "direct and substantial interest" in the transaction, because XL, if held liable, will turn to Jovett for indemnification. Whether Jovett's interests would be impaired and whether Jovett's interests are adequately represented by XL are closer questions.

Traditionally, it has been assumed that "in a suit brought by a subcontractor on the bond, the principal may intervene to assert any claim which he may have against the subcontractor and the United States." 20B Appleman, Insurance Law and Practice § 11804 (1980) (citing United States ex rel. Foster Wheeler Corp. v. American Sur. Co., 25 F.Supp. 700 (E.D.N.Y.1938)). While the Fourth Circuit has not ruled on this question, courts in the Second and Fifth Circuits have held that a contractor which has agreed to indemnify its surety on a bond can intervene as a party defendant as of right in a suit on that bond against the surety. See United States ex rel. Foster Wheeler Corp. v. American Sur. Co., 142 F.2d 726, 728 (2nd Cir.1944) (hereinafter "Foster Wheeler 1944") (general contractor "was properly allowed to intervene in the suit" against payment bond because "[i]t would have been bound by a judgment against its surety entered after it had received due notice of the suit, and it was entitled to an opportunity to defend that action."); Coleman Capital Corp. v. Fid. & Deposit Co., 43 F.R.D. 407, 408 (S.D.N.Y.1967) (motion of general contractor to intervene of right granted in suit against payment bond) (noting that "[a] general contractor may intervene as of right in a suit by a subcontractor against a surety on a performance bond.") (citing Foster Wheeler 1944); accord Revere Copper & Brass, Inc. v. Aetna Cas. & Sur. Co., 426 F.2d 709, 716 (5th Cir.1970) (general contractor has right of intervention as defendant against suit on performance bond).

The reasoning in these cases, however, is sparse; primarily, they appear to draw on Washington Gaslight Co. v. District of Columbia, 161 U.S. 316, 16 S.Ct. 564, 40 L.Ed. 712 (1896), where the Court approvingly quoted a New Hampshire state court:

"When a person is responsible over to another, either by operation of law or by express contract, and he is duly notified of the pendency of the suit, and requested to take upon him the defence of it, he is no longer regarded as a stranger, because he has the right to appear and defend the action, and has the same means and advantages of controverting the claim as if he were the real and nominal party upon the record. In every such case, if due notice is given to such person, the judgment, if obtained without fraud or collusion, will be conclusive against him, whether he has appeared or not."

Id. at 330, 16 S.Ct. 564 (quoting Littleton v. Richardson, 34 N.H. 179, 187 (N.H.1856)). In short, these courts seem to have simply asserted that a principal may, per se, intervene of right.

Such a per se right, however, appears to conflict with Rule 24(a)(2). MPA asserts that Jovett's interests are neither impaired nor inadequately represented, thereby failing the third and fourth elements of the First Penn-Pacific test for satisfying Rule 24(a)(2). MPA argues that XL is (1) required to defend this case in good faith according to the law of surety agreements, and (2) has incentive to do so, because if it does not, Jowett will have grounds to refuse to indemnify. MPA thus contends that Jowett has not met its burden to show that XL's representation will be inadequate, citing First Penn-Pacific, where another court in this district recited the movant's burden:

With respect to the [adequacy] requirement [of Rule 24(a)(2)], the Fourth Circuit has indicated that an intervenor's burden of showing inadequacy of representation is "minimal." Commonwealth of Virginia v. Westinghouse Elec. Corp., 542 F.2d 214, 216 (4th Cir.1976) (citing Trbovich v. United Mine Workers, 404 U.S. 528, 538 n. 10, 92 S.Ct. 630, 30 L.Ed.2d 686 (1972)). However, when the moving party has the same ultimate objective as a party to the suit, then a presumption arises that the moving party's interests are adequately represented. Westinghouse Elec. Corp., 542 F.2d at 216. Indeed, when the existing party has a legal obligation to represent the interests of the intervenor, then the intervenor has the "onerous" burden of making a "compelling showing of inadequate representation." See In re Richman, 104 F.3d 654, 660 (4th...