Construction Law Insights

United States ex rel. Harbor Constr. Co. v. T.H.R. Enters., 2018 U.S. Dist. LEXIS 72502 (E.D. Va. Apr. 26, 2018)

The United States government awarded T.H.R. Enterprises, Inc. (“THR”) a contract for construction and building repairs at the Langley Air Force Base (the “Project”). The Hanover Insurance Co. (“Hanover”) issued a Miller Act payment bond for the Project. On October 19, 2011, THR and Harbor Construction Company, Inc. (“Harbor”) entered into a subcontract regarding the Project (the “Subcontract”). Harbor last performed work under the Subcontract in September of 2017. Harbor made a demand for payment, but THR failed to pay $269,056.86 allegedly owed to Harbor under the Subcontract. On December 15, 2017, Harbor filed a complaint against THR and Hanover, asserting causes of action on the Miller Act payment bond, breach of contract, and unjust enrichment. On April 12, 2018, with the leave of the court, THR filed a Motion to Compel Arbitration and a Motion to Stay.

The court granted THR’s Motion to Compel Arbitration and its Motion to Stay for six months. THR’s motion to compel arbitration was pursuant to the Federal Arbitration Act (“FAA”) and based on the Subcontract’s Article 13 alternative dispute resolution (“ADR”) provision: 

At [THR]’s sole election, any and all disputes arising in any way or related in any way or manner to this Agreement may be decided by mediation, arbitration or other alternative dispute resolution proceedings as chosen by [THR] . . . The remedy shall be [Harbor]’s sole and exclusive remedy in lieu of any claim against [THR]’s bonding company pursuant to the terms of any bond or any other procedure of law, regardless of the outcome of the claim. . . .

Before compelling arbitration pursuant to the FAA, courts must determine: (i) whether a binding arbitration agreement exists between the parties; and (ii) whether the dispute falls within the parameters of the arbitration agreement. Here, the court determined that the use of the word “may” in the Subcontract’s Article 13 ADR provision was not vague and meant that THR: (i) may elect ADR procedures, but does not mean that THR must elect ADR procedures; and (ii) Harbor must participate in ADR procedures once elected by THR. Because THR only requested that Harbor’s Miller Act claim be stayed pending arbitration of the Subcontract dispute, the court found Harbor’s arguments that the Subcontract’s Article 13 ADR provision was unenforceable to be misplaced. The court also rejected Harbor’s argument that the Subcontract’s unilateral Article 13 ADR provision was unenforceable and held that a valid arbitration provision need not impose a mutual obligation to arbitrate as long as the contract, as a whole, is supported by adequate consideration.

Finally, the court determined that THR had not waived its right to invoke the FAA. A litigant may waive its right to invoke the FAA by substantially utilizing the litigation machinery such that subsequently permitting arbitration would prejudice the party opposing the stay. Active participation in a lawsuit, however, is not enough; the dispositive question is whether the party objecting to arbitration has suffered actual prejudice. The two-month delay between Harbor’s commencement of the lawsuit and THR’s election of the Subcontract’s ADR procedures and THR’s minimal responsive pleadings did not prejudice Harbor or constitute a waiver by THR.

PLDR Law Mark Burgin 1 PLDR Law Scott Kowalski 1 Wolf Tom v2 Stout Kenneth 2016

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