United States v. Int’l Fid. Ins. Co., No. 16-0472-WS-C, 2017 U.S. Dist. LEXIS 16791 (S.D. Ala. Feb. 7, 2017)

This action arose out of a payment dispute between Bay South Limited, Inc. (“Bay South”) and Stephens Construction & Concrete, Inc. (“Stephens”). Bay South entered into two subcontracts with Stephens, whereby Bay South agreed to furnish labor and materials to Stephens on two federal construction projects.  In connection therewith, International Fidelity Insurance Company (“Fidelity”) issued payment bonds (the “Bonds”) to Stephens.  Bay South filed a complaint in federal court to assert claims against the Bonds under the Miller Act (40 U.S.C. §3133), as well as other claims.  Stephens sought to compel arbitration of Bay South’s claims, pursuant to the arbitration provision in the subcontracts, which provided:

“In the event of a dispute arising between [Stephens] and [Bay South] under the Subcontract Agreement, the dispute shall be settled by arbitration in accordance with the Construction Industry Rules of the American Arbitration Association then in effect …”

Bay South argued that the 1999 Amendment to the Miller Act prohibits such claims from being arbitrated, and, in the alternative, even if these claims may be arbitrated generally, Bay South’s specific claims are not subject to arbitration because they are not within the scope of the parties’ arbitration agreement.

To support its first argument, Bay South took the position that the Miller Act requires all claims to be brought in “a civil action” in federal court, and pursuant to the 1999 Amendment to the Miller Act, a waiver of this requirement is void unless such a waiver (1) is in writing; (2) signed by the person whose right is waived; and (3) is executed after the performance being given. 40 U.S.C. §3133(c).  However, the district court noted that where Congress has prohibited arbitration of statutory claims, Congress has done so with “explicit clarity.” CompuCredit Corp. v. Greenwood, 565 U.S. 95, 103 (2012).  Thus, if Congress intended to prohibit arbitration of Miller Act claims, such a prohibition would be found in statutory text.  In interpreting the waiver requirements of 40 U.S.C. §3133(c), the district court found that the phrase “bring a civil action” may be reasonably read to encompass only the filing of a lawsuit, and section 3133(c) precludes waivers of the right to file suit unless certain conditions are met, but does not restrict arbitration of the Miller Act claims.  Also, the court noted that in other instances, the Supreme Court has repeatedly recognized that arbitration satisfies a statutory prescription of the right to bring a civil suit in court.  The district court then looked to the legislative history of 3133(c), which was added in 1999.  In that legislative history, the House Committee specifically stated that “[t]his bill does not void subcontractor provisions requiring arbitration or other alternative methods of resolving disputes.”  In sum, the district court found that the Bay South had not met its burden of proving that in adopting the 1999 Amendments, Congress had precluded the arbitration of Miller Act claims.

Bay South’s second argument was based on the language of the arbitration provision itself. Bay South contended that its Miller Act claims do not arise “under the Subcontract Agreement.”  The district court noted that the arbitrator, and not the court, is to decide the “arbitrability” of these claims (whether the claims are within the scope of the parties’ arbitration agreement), where the parties have “clearly and unmistakably” delegated this decision to the arbitrator. See AT&T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 649 (1986).  This delegation can be found where the parties have agreed to use particular arbitration rules that themselves call for the arbitrator to decide questions regarding the scope of arbitration.  Here, the parties agreed to the “Construction Industry Rules of the American Arbitration Association then in effect …”  These rules provide that “[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the … scope … of the arbitration agreement.”  The district court ultimately held that by selecting the AAA rules, the parties had clearly and unmistakably provided that the arbitrator would decide the scope of the arbitration agreement, and, therefore, the question of whether the agreement extends to Miller Act claims must be decided by the arbitrator, and not by the court.

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