United States ex rel. Harbor Constr. Co. v. T.H.R. Enters., Inc.
| Decision Date | 26 April 2018 |
| Docket Number | CIVIL NO. 4:17–cv–146 |
| Citation | 311 F.Supp.3d 797 |
| Court | U.S. District Court — Eastern District of Virginia |
| Parties | The UNITED STATES of America EX REL. HARBOR CONSTRUCTION COMPANY, INC., Plaintiff, v. T.H.R. ENTERPRISES, INC., et al., Defendants. |
Francis John Driscoll, Jr., Law Office of Frank J. Driscoll, Jr. PLLC, Philip Lee Russo, Jr., Philip L. Russo, Jr. PC, 4669 South Boulevard, Suite 107, Virginia Beach, VA 23452, for Plaintiff.
Neil Samuel Lowenstein, John Ralph Lockard, Vandeventer Black, LLP, 101 West Main Street, Suite 500, Norfolk, Virginia 23510, for Defendants, T.H.R. Enterprises, Inc., The Hanover Insurance Company.
This matter comes before the Court on the defendant T.H.R. Enterprises, Inc.'s ("THR") Motion to Compel Arbitration, ECF No. 14, and accompanying motion to stay this action pending arbitration ("Motion to Stay"), ECF No. 16. Despite THR's request for a hearing on same, the Court dispenses with oral argument because the facts and legal contentions are adequately presented in the materials before the Court, and argument would not aid in the decisional process. For the reasons below, THR's Motions to Compel Arbitration and to Stay are GRANTED and this action is STAYED for a period of six months as set forth in this Order.
On December 15, 2017, Plaintiff United States of America for the use of Harbor Construction Company, Inc. ("Subcontractor" or "Harbor") filed a complaint against T.H.R. Enterprises, Inc. ("Contractor" or "THR") and Hanover Insurance Co. ("Hanover" or "Surety") (collectively, "Defendants") pursuant to the Miller Act, 40 U.S.C. §§ 3131 – 34. See Complaint ("Compl."), ECF No. 1. Defendants initially moved to dismiss the complaint or, alternatively, stay the action, but on April 9, 2018, such motion was denied after a hearing. ECF No. 13. With leave of court, THR then filed the instant Motion to Compel Arbitration, ECF No. 14, and Motion to Stay, ECF No. 16, on April 12, 2018.1 These motions are now ripe for decision.
At all relevant times, THR has been the prime contractor for the United States government on a construction and building repair project at Langley Air Force Base in Hampton, Virginia ("Project"). Compl. ¶ 6. At all relevant times, Hanover has been the surety under the Project contract having furnished to the United States a payment bond under such contract and pursuant to the Miller Act. Id.; see Payment Bond executed 10/24/2011, id. at Ex. A.
On October 19, 2011, THR entered into a written subcontract agreement, as amended, with Plaintiff Harbor ("Subcontract") to perform certain work under the Project contract. Id. ¶ 11; see Subcontract, id. at Ex. B. Pursuant to the terms of the Subcontract, Harbor agreed to render electrical services and certain labor and materials for the Project, and THR agreed to pay the agreed contract price of $1,400,000.00, "excluding change orders and additional work." Id. ¶ 12; see Subcontract ¶ 4. Article 5 of the Subcontract provides that such sum shall be paid to Harbor in partial progress payments. See Compl. ¶ 12; Subcontract ¶ 5.
Harbor last performed work under the Subcontract in September 2017. Id. ¶ 16. According to Harbor, it has completed all of the work required under the Subcontract as well as all change orders and directions for extra work, and it has demanded payment for same from THR. Id. ¶ 13. Harbor claims that, to date, THR has failed to pay $269,056.86 owed to Harbor under the Subcontract. Id. ¶ 14.
Count I of Harbor's complaint seeks action on THR's payment bond with Hanover to recover the monies owed under the Subcontract; Count II alleges breach of contract by THR; and Count III alleges unjust enrichment by THR. Id. Harbor ultimately seeks a judgment against the Defendants, jointly and severally, awarding Harbor compensatory damages in the amount of $269,056.87 plus interest, costs, and attorneys' fees. Id. at 6.
THR asks the Court to compel arbitration pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq., on the grounds that the contractual dispute at issue in Harbor's complaint is subject to an alternative dispute resolution ("ADR") provision in Article 13 of the Subcontract. This provision, entitled "Disputes and Dispute Resolution," states in relevant part:
Subcontract ¶ 13, Compl. at Ex. B.
To show that THR has elected arbitration under Article 13 to resolve the contract disputes at issue here, THR submitted the following documents in support of its Motion to Compel Arbitration: (1) a copy of its letter, dated April 12, 2018, to the American Arbitration Association ("AAA") requesting initiation of arbitration with Harbor, enclosing its Arbitration Demand with respect to same, and remitting fees to the AAA in the amount of $2,500; and (2) a copy of THR's letter, also dated April 12, 2018, to Harbor's counsel furnishing copies of THR's Arbitration Demand and its related correspondence with the AAA. See ECF No. 14 at Ex. 1.
The Federal Arbitration Act ("FAA") provides:
A written provision in any ... contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.
9 U.S.C. § 2. The FAA further authorizes a party "aggrieved by the alleged failure, neglect, or refusal of another to arbitrate" under a written arbitration agreement to petition the district court for an order compelling that "arbitration proceed in the manner provided for in such agreement." Id. § 4. Here, there is no dispute that the Subcontract evidences a transaction involving commerce. However, before compelling arbitration pursuant to the FAA, a court must first engage in a two-step inquiry: (1) it must determine whether a binding arbitration agreement exists between the parties and then (2) determine whether the dispute falls within the parameters of the arbitration agreement. Hightower v. GMRI, Inc., 272 F.3d 239, 242 (4th Cir. 2001).
Whether Harbor's breach of contract claim falls within the parameters of Article 13 in the Subcontract is not at issue. Rather, Harbor argues that the ADR provision of Article 13 is invalid and unenforceable for three different reasons: (1) the provision is impermissibly vague; (2) it fails to comply with the Miller Act; and (3) it is illusory because there is no mutuality of obligation. Harbor also argues that, regardless of the provision's validity, THR has waived its right to elect arbitration at this stage. The Court shall address each argument in turn.
First, Harbor argues that the ADR provision of Article 13 is unenforceable because it is "impermissibly vague." Opp., ECF No. 19, ¶ 7. Specifically, it argues that the use of the word "may" in the provision is vague or, in the alternative, makes the entire provision permissive requiring Harbor to consent to any ADR procedures even upon THR's "election" of same. Id. The Court disagrees.
In TM Delmarva Power, L.L.C. v. NCP of Virginia, L.L.C., 263 Va. 116, 557 S.E.2d 199 (2002), the Virginia Supreme Court considered a similar argument regarding the use of the word "may" in an arbitration provision in a contract. The only difference in that case was that the arbitration provision allowed either party to compel arbitration; it was not unilateral as is the case here. Id. at 120, 557 S.E.2d 199. The relevant provision read:
(b) Resolution by Arbitration. If any material dispute, disagreement or controversy concerning this Agreement is not settled in accordance with the procedures set forth [in a prior section] ... then either Party may commence arbitration hereunder by delivering to the other Party a notice of arbitration.
Id. at 120, 557 S.E.2d 199 (emphasis added). NCP, the party seeking to avoid arbitration, argued that the use of the word "may" above means that the consent of the non-initiating party is required before arbitration can commence. Id. at 121, 557 S.E.2d 199. But the Virginia Supreme Court disagreed. It found that the use of the word "may" means Id. at 120, 557 S.E.2d 199. The court also reasoned that, if the entire arbitration provision were permissive, "the provision would be rendered meaningless and unnecessary," which is not a permissible interpretation under contract law "when a reasonable meaning can be given." Id. at 121, 557 S.E.2d 199 (citation omitted).
Likewise, here, Harbor asks the Court to render the ADR provision of the Subcontract meaningless and unnecessary by interpreting it as requiring a mutual agreement to arbitrate. But such interpretation is not permissible because another reasonable interpretation can be given. TM Delmarva Power, 263 Va. at 121, 557 S.E.2d 199 ; see also Reid v. Boyle, 259 Va. 356, 367, 527 S.E.2d 137 (2000) ().
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