United States v. Consigli Constr. Co., 2:12–cv–023–NT.

• Citation: 873 F.Supp.2d 409
• Decision Date: 05 June 2012
• Docket Number: No. 2:12–cv–023–NT.,2:12–cv–023–NT.
• Parties: UNITED STATES f/u/b/o Maverick Construction Management Services, Inc., Plaintiff, v. CONSIGLI CONSTRUCTION CO., INC. and Federal Insurance Company, Defendants.
• Court: United States District Courts. 1st Circuit. United States District Court (Maine)

873 F.Supp.2d 409

UNITED STATES f/u/b/o Maverick Construction Management Services, Inc., Plaintiff,

v.CONSIGLI CONSTRUCTION CO., INC. and Federal Insurance Company, Defendants.

No. 2:12–cv–023–NT.

United States District Court,

D. Maine.

June 5, 2012.

Benjamin S. Piper, Timothy J. Bryant, Preti, Flaherty LLP, Portland, ME, Douglas L. Patin, Bradley Arant Boult Cummings LLP, Washington, DC, for Plaintiff.

John P. Giffune, Verrill Dana LLP, Portland, ME, Robert V. Lizza, Scott A. McQuilkin, Hinckley, Allen & Snyder, Boston, MA, for Defendants.

ORDER ON DEFENDANTS' MOTION TO STAY AND COMPEL ARBITRATION

NANCY TORRESEN, District Judge.

Defendants Consigli Construction Co. (“Consigli”) and Federal Insurance Company (“FIC”) move to stay the suit of Plaintiff Maverick Construction Management Services, Inc. (“Maverick”) for payment under the Miller Act, 40 U.S.C.A. §§ 3131–3134,¹ and to compel arbitration pursuant to the parties' contract. For the reasons that follow, the Defendants' motion to stay and compel arbitration is GRANTED.

I. Factual Background

Maverick alleges that in September of 2010 it entered into a subcontract with general contractor Consigli in which Maverick agreed to perform certain construction work at the Portsmouth Naval Shipyard (the “Subcontract”). Although the Subcontract price originally totaled $1,192,455, Maverick claims that site conditions and delays ² that were outside of Maverick's control resulted in a cost overrun of $1,964,924.³ On September 6, 2011, Consigli terminated the Subcontract “for convenience,” pursuant to Article 16 of the Subcontract. Maverick was paid $571,758. Maverick does not contest Consigli's convenience termination, but it has sued Consigli and its surety, FIC, to recover the $1,964,924 it claims it is due under the terms of the Subcontract.

The Defendants have moved to stay this litigation and compel arbitration pursuant to Article 17 of the contract, (the “Arbitration Clause”), which provides:

A. [Maverick] agrees to strictly adhere to the requirements of any provisions in the General Contract Documents ⁴ relating to notice, submission, processing, and resolution of claims or disputes. Any and all claims or disputes arising out of or relating to this Agreement or breach thereof shall be decided, at the sole discretion of [Consigli], either by submission to (1) arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association or (2) judicial decision by the Superior Court in the State of Maine; provided, however, the determination by the Owner, the Engineer, or any Court, Board of Arbitration, or other tribunal pursuant to the provisions of the General Contract Documents with respect to any dispute or claim relating to this Subcontract or the Work performed or to be performed hereunder shall be binding upon [Maverick], and [Maverick] agrees to accept such determination, provided [Maverick] shall have been given reasonable notice of such dispute, proceeding, or litigation and opportunity to defend or present claims. At the sole discretion of [Consigli], any arbitration with [Maverick] shall be consolidated with any other arbitration proceeding relating to the work under the General Contract. The parties agree to waive their rights to trial by jury since the subject matter of such disputes would, in most instances, be too complex for presentation to a jury and would best be served by a jury-waived proceeding.

B. The parties further agree that, at [Consigli's] discretion, as a condition precedent to instituting legal action against each other or their sureties, they shall participate in non-binding mediation pursuant to the Mediation rules of the American Arbitration Association.

Subcontract, p. 5 of 29 (Doc. # 14–1).

The Plaintiff counters that the Arbitration Clause is unenforceable because it is illusory and unsupported by adequate consideration. Next the Plaintiff argues that because Consigli takes the position that cost overruns relating to equipment rates must be decided by the U.S. Navy, those disputes fall outside the scope of the Arbitration Clause. Finally, the Plaintiff argues that Consigli's surety, FIC, has not agreed to be bound by any decision of the arbitrator, and thus litigation against FIC should not be stayed.

II. Legal Standard

The parties agree that the Arbitration Clause is governed by the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1–16. Federal courts will grant a motion to stay a case and compel arbitration pursuant to the FAA when “(i) there exists a written agreement to arbitrate, (ii) the dispute in question falls within the scope of that arbitration agreement, and (iii) the party seeking an arbitral forum has not waived its right to arbitration.” Combined Energies v. CCI, Inc., 514 F.3d 168, 171 (1st Cir.2008) (quoting Bangor Hydro–Elec. Co. v. New England Tel. & Tel. Co., 62 F.Supp.2d 152, 155 (D.Me.1999)).

The First Circuit has conveniently set forth several basic arbitration principles that have been developed by the Supreme Court. Municipality of San Juan v. Corporación Para El Fomento Económico De La Ciudad Capital, 415 F.3d 145, 149 (1st Cir.2005).

First, “ ‘arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.’ ” AT & T Techs., Inc. v. Commc'ns Workers, 475 U.S. 643, 648, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986). Second, “the question of arbitrability ... is undeniably an issue for judicial determination.” Id. at 649, 106 S.Ct. 1415. Third, a court deciding whether the parties have agreed to submit a particular grievance to arbitration is “not to rule on the potential merits of the underlying claims.” Id. And, finally, when a contract contains an arbitration clause, “ ‘[d]oubts should be resolved in favor of coverage.’ ” Id. at 650, 106 S.Ct. 1415 (citation omitted); see also, e.g., First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944–45, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995).

Id.

An arbitration clause, like the one at issue, which defines its scope to include “[a]ll claims, disputes and other matters in questions arising out of, or relating to, this Agreement or the breach thereof” is “facially broad in scope.” Winterwood Farm, LLC v. JER, Inc., 327 F.Supp.2d 34, 39 (D.Me.2004). “The existence of a broad agreement to arbitrate creates a presumption of arbitrability which is only overcome if it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.” MSAD No. 68 v. Johnson Controls, Inc., 222 F.Supp.2d 50, 55 (D.Me.2002) (quoting Smith/Enron Cogeneration Ltd. P'ship. v. Smith Cogeneration Int'l, Inc., 198 F.3d 88, 99 (2nd Cir.1999), cert. denied,531 U.S. 815, 121 S.Ct. 51, 148 L.Ed.2d 20 (2000) (citing WorldCrisa Corp. v. Armstrong, 129 F.3d 71, 74 (2nd Cir.1997))).

Under Section 2 of the FAA, a written provision to arbitrate “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.A. § 2. “One important constraint is that the federal policy favoring arbitration does not totally displace ordinary rules of contract interpretation.” Kristian v. Comcast Corp., 446 F.3d 25, 35 (1st Cir.2006). Thus, when the parties' argument regarding arbitrability turns not on whether their underlying dispute is covered by the arbitration clause (“scope questions”) but rather on whether the arbitration agreement itself is revocable at law or in equity, the federal presumption favoring arbitrability is set aside, and ordinary rules of contract construction apply. See id. (citing Paul Revere Variable Annuity Ins. Co. v. Kirschhofer, 226 F.3d 15, 25 (1st Cir.2000)).

III. DiscussionA. Whether Grounds Exist at Law or in Equity for Revocation

Maverick claims that the Arbitration Clause is unenforceable because it is illusory. Specifically, Maverick argues that: (1) the arbitration clause does not bind Consigli to the results of arbitration; (2) the arbitration clause allows Consigli alone to switch to the State courts at any stage of the arbitration; and (3) the unilateral nature of the arbitration clause makes it unenforceable for lack of mutuality or consideration. Since Maverick's illusoriness arguments challenge the validity of the arbitration agreement and not its scope, the Court applies ordinary rules of contract construction under applicable state law. See Kristian v. Comcast Corp., 446 F.3d at 35. Maine state law governs the parties' contract in this case.

With respect to Maverick's first argument, the Arbitration Clause incorporates by reference the AAA arbitration rules for the construction industry. These rules state that parties who submit to arbitration must consent to entry of judgment upon the arbitration award in any federal or state court having jurisdiction of the matter. See AAA Construction Industry Arbitration Rule 51(c). Even though Consigli has the option to choose arbitration under the contract, in so choosing, it submits to the binding effects of such arbitration. Accordingly, Consigli will be bound by the results of arbitration.

Second, Maverick argues that Consigli may elect to arbitrate but may change its mind at any time after an election to arbitrate and bring the case to State court.⁵ Maverick's concern regarding the ability of Consigli to change its mind at any time is not borne out by the language of the Arbitration Clause. Unlike the case of Stevens/Leinweber/Sullens, Inc. v. Holm Dev. and Mgmt., Inc., 165 Ariz. 25, 795 P.2d 1308, 1313 (Ariz.App.1990),⁶ cited by Maverick, there is no language in the ArbitrationClause that gives Consigli the option to change its mind after electing either arbitration or litigation. The plain language of the clause requires Consigli to choose either arbitration or litigation. Consigli retains no contractual right to change its mind.

Maverick's third illusoriness...