KBW Assocs. v. Jaynes Corp., 2015 U.S. Dist. LEXIS 18220 (D. Nev. Feb. 13, 2015)

This action arose out of the construction of additions to existing buildings at Creech Air Force Base in Indian Springs, Nevada (the “Project”).  The United States Army Corps of Engineers (the “COE”) contracted with Defendant Jaynes Corporation, Inc. (“Jaynes”) to perform the work.  Jaynes then subcontracted with Plaintiff, KBW Associates, Inc. (“KBW”), to construct the metal framing and outer shell of the buildings.

Following construction delays, Jaynes found itself involved in two separate actions.  In the first action (the “Prime Contract Litigation”), Jaynes was defending against liquidated damages assessed by the COE under the prime contract.  In the instant action (the “Subcontract Litigation”), Jaynes was defending a Miller Act suit for contract balances brought by KBW.  KBW alleged Jaynes was responsible for the construction delay, through a “pattern of mismanagement”, involving failure to timely approve work, unilateral imposition of work beyond the scope of the subcontract and improper scheduling.  Jaynes asserted several affirmative defenses and filed counterclaims against KBW, on grounds that KBW failed to perform in accordance with the subcontract and failed to meet construction schedules.

Jaynes filed a motion to stay the Subcontract Litigation indefinitely until a final decision and expiration of appeals in the Prime Contract Litigation.  In the motion, Jaynes asserted three bases for stay, all of which were rejected by the Court.

First, Jaynes argued that KBW was contractually obligated to stay under a provision in the subcontract which provided, in pertinent part: “If Subcontractor files a Miller Act suit or other action against the Contractor…which may relate in whole or in part to the rights or duties of the Owner as the Subcontractor’s work, Subcontractor shall, upon the Contractor’s request, consent to a stay of such suit or action pending the exhaustion of the procedures for the resolution of disputes under the Prime Contract.”  Even assuming this provision applied, however, the Court determined that a stay extending through final disposition and the appeals process was not required.  The Court reasoned that the prime contract was subject to the Contracts Disputes Act (“CDA”), 41 U.S.C. §§ 7101 et seq., which provides an administrative claims process for the contract-based claims between Jaynes and the COE.  In this context, the Court concluded that the term “exhaustion of procedures” is more appropriately viewed as pertaining to administrative procedures which must be satisfied under the CDA as a condition to initiating a proceeding in court or in a Board of Contract Appeals.  Thus, the Court refused to interpret the language “exhaustion of procedures for resolution” to mean “final resolution” of any claim, including an appeal.

Second, Jaynes argued that the Subcontract Litigation and Prime Contract Litigation were “concurrent actions” that are so intertwined that to attempt to litigate and resolve the actions separately would be an unnecessary use of judicial resources, and cause the parties to incur unnecessary time, expense, and effort.  In concluding that Jaynes failed to make out a clear case of hardship or inequity, the Court found significant the fact that a positive outcome for Jaynes in the Prime Contract Litigation would only partially or potentially resolve or simplify the issues in the Subcontract Litigation.  Regardless of the outcome of the Prime Contract Litigation, the Court reasoned that Jaynes would still have to show that delay was caused by KBW.  The Court noted that this also lessened any concern regarding the potential duplication of work, as it was clear that substantial discovery would need to take place regardless of the outcome in the Prime Contract Litigation.  Thus, the Court did not believe that staying the case for an indefinite period to accommodate the Prime Contract Litigation would have any appreciable effect on simplifying the issues, nor would permitting the cases to go forward simultaneously complicate the issues.

Third, Jaynes suggested that to allow the Subcontract Litigation and the Prime Contract Litigation to continue simultaneously would increase the risk of inconsistent verdicts creating potentially conflicting liabilities.  The Court discredited this argument by again noting the reality that the Subcontract Litigation would continue regardless of the outcome of the Prime Contract Litigation.  Absent a showing that KBW was required to adjust its claims based on the outcome of the Prime Contract Litigation, the Court disagreed that the proposed stay was necessary to avoid conflicting or inconsistent decisions.

Consequently, the Court allowed the Subcontract Litigation to proceed.

To view the full text of the court’s decision, courtesy of Lexis ®, click here.