Bay South Limited, Inc. v. Stephens Construction & Concrete, Inc.
Order granting 22 MOTION to Compel Arbitration and stay judicial proceedings. This action is STAYED pending resolution of arbitration proceedings. Defendants are ordered to file a status report by 4/10/2017 and on or before the 10th day of every second month. Signed by Chief Judge William H. Steele on 2/7/2017. (tgw)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ALABAMA
THE UNITED STATES OF AMERICA,)
) CIVIL ACTION 16-0472-WS-C
INSURANCE COMPANY, et al.,
This matter is before the Court on the defendants’ motion to compel
arbitration and stay judicial proceedings. (Doc. 22). The plaintiff has filed a
response and the defendants a reply, (Docs. 24, 26), and the motion is ripe for
resolution. After careful consideration, the Court concludes the motion is due to
According to the amended complaint, (Doc. 8), the entity plaintiff (“Bay
South”) entered two subcontracts with one defendant (“Stephens”) to furnish labor
and materials on two federal construction projects. The second defendant
(“Fidelity”) issued payment bonds for the protection of Bay South and other
subcontactors, in accordance with Stephens’ obligations under the Miller Act.
Bay South fully performed, but Stephens refused to pay Bay South all amounts
due. The amended complaint asserts six causes of action (three as to each of the
projects): (1) suit on the payment bond, brought against both defendants pursuant
to the Miller Act; (2) a breach of contract claim, brought against Stephens; and (3)
a state law claim for violation of the Alabama Prompt Pay Act, brought against
The defendants seek to compel arbitration of all claims against Stephens;
they do not seek to compel arbitration of the claims against Fidelity.1 The
defendants seek a stay of all proceedings herein, including with respect to the
claims against Fidelity, pending arbitration. (Doc. 22 at 2).
The Federal Arbitration Act (“FAA”) “reflect[s] both a liberal federal
policy favoring arbitration, and the fundamental principle that arbitration is a
matter of contract.” Inetianbor v. CashCall, Inc., 768 F.3d 1346, 1349 (11th Cir.
2014) (internal quotes omitted). Thus, “courts must place arbitration agreements
on an equal footing with other contracts, and enforce them according to their
terms.” Id. (internal quotes omitted).
Both subcontracts contain the following provision:
In the event of a dispute arising between CONTRACTOR
and SUBCONTRACTOR under the Subcontract Agreement, at the
election of the CONTRACTOR, and not otherwise, the dispute shall
be settled by arbitration in accordance with the Construction Industry
Arbitration Rules of the American Arbitration Association then in
effect. Such arbitration shall be held in Birmingham, Alabama, or
another location if mutually agreeable to the parties.
(Doc. 22-2 at 4; Doc. 22-3 at 4). The plaintiff makes no argument that its claims
for breach of contract, and those for violation of the Alabama Prompt Pay Act, fall
outside the terms of this provision. Neither does the plaintiff assert any objection
or defense to the arbitrability of these claims. As to the Miller Act claims asserted
against Stephens, however, the plaintiff raises three objections – one statutory, one
contractual, and one procedural. The Court considers these in turn.
Because the defendants do not seek to arbitrate the claims against Fidelity, the
Court need not consider the plaintiff’s arguments as to why it cannot be compelled to
arbitrate those claims. (Doc. 24 at 7-10).
I. Statutory Prohibition on Arbitration.
The plaintiff argues that “the plain language of the Miller Act rejects
arbitration.” (Doc. 24 at 2). The plaintiff relies on the following provision, added
to the Miller Act by amendment in 1999:
(c) A waiver of the right to bring a civil action on a payment bond
required under this subchapter is void unless the waiver is –
(1) in writing;
(2) signed by the person whose right is waived; and
(3) executed after the person whose right is waived has furnished
labor or material for use in the performance of the contract.
40 U.S.C. § 3133(c). If a “waiver of the right to bring a civil action on a payment
bond” includes an agreement to arbitrate Miller Act claims, then Section 3133(c)
precludes arbitration of the Miller Act claims in this case, since the subcontracts –
the only documents signed by the plaintiff – were executed before the plaintiff
supplied labor and materials.2
As noted, the FAA “establishes a liberal federal policy favoring arbitration
agreements,” which “requires courts to enforce agreements to arbitrate according
to their terms.” CompuCredit Corp. v. Greenwood, 565 U.S. 95, 98 (2012)
(internal quotes omitted). “That is the case even when the claims at issue are
federal statutory claims, unless the FAA’s mandate has been overridden by a
contrary congressional command.” Id. (internal quotes omitted). The question
presented is whether Section 3133(c) constitutes such a command. “[T]he burden
In the decades preceding passage of Section 3133(c), federal courts held or
assumed that a claim under the Miller Act could be the subject of an arbitration provision.
See, e.g., United States ex rel. Capolino Sons, Inc. v. Electronic & Missile Facilities, Inc.,
364 F.2d 705, 706 (2nd Cir. 1966) (in a suit by a subcontractor against the contractor and
its surety brought exclusively under the Miller Act, “we hold the Miller Act contains
nothing that in any way prevents appellees from compelling appellant to arbitrate the
dispute between them as he previously had agreed to do.”). The plaintiff agrees that,
prior to enactment of Section 3133(c), the Miller Act “contained no protections from
mandatory arbitration clauses.” (Doc. 24 at 4). Thus, the plaintiff’s position rises or falls
on the back of that provision.
is on [the plantiff] to show that Congress intended to preclude a waiver of a
judicial forum for [Miller Act] claims.” Gilmer v. Interstate/Johnson Lane Corp.,
500 U.S. 20, 26 (1991). “If such an intention exists, it will be discoverable in the
text of the [Miller Act], its legislative history, or an inherent conflict between
arbitration and the [Miller Act’s] underlying purposes.” Id. (internal quotes
While legislative history and inherent conflict are not irrelevant, statutory
text is the most important consideration. As the Supreme Court has noted, when
Congress has prohibited arbitration of statutory claims, it has done so with explicit
“clarity.” CompuCredit, 565 U.S. at 103. The two instances cited by the Supreme
Court involved statutes expressly precluding resort to “arbitration” unless the
agreement to arbitrate was reached after the dispute arose. Id. at 103-04. As the
Eleventh Circuit has observed, “in every case the Supreme Court has considered
involving a statutory right that does not explicitly preclude arbitration, it has
upheld the application of the FAA.” Walthour v. Chipio Windshield Repair, LLC,
745 F.3d 1326, 1331 (11th Cir. 2014) (internal quotes omitted). The Walthour
Court concluded that, from among the three sources of congressional intention,
“the Supreme Court would focus primarily on the statutory text.” Id.
Section 3133(c) does not mention arbitration and so does not mirror the
clarity of the statutes the Supreme Court has found to preclude arbitration. The
plaintiff does not pretend otherwise. Instead, it argues that Section 3133(c) must
be construed to preclude arbitration because “Congress vested exclusive
jurisdiction over Miller Act suits in federal courts.” (Doc. 24 at 4). It is true that
“[a] civil action under this subsection must be brought” in federal court, 40 U.S.C.
§ 3133(b)(3), but this provision does not demonstrate that Section 3133(c) bars
arbitration of Miller Act claims. The former provision has existed as long as the
Miller Act, so the plaintiff’s concession that the Miller Act did not prohibit
arbitration prior to 1999 effectively concedes that Section 3133(b)(3) does not
impact the question of arbitration. At any rate, the Supreme Court has made clear
that similar provisions in other statutes do not support a conclusion that arbitration
of the statutory claims is prohibited. CompuCredit, 565 U.S. at 101 (citing
cases).3 “Thus, we have repeatedly recognized that contractually required
arbitration of claims satisfies the statutory prescription of civil liability in court,”
and “the contemplated availability of judicial action [can] be limited to judicial
action compelling or reviewing initial arbitral adjudication.” Id. at 101-02.4
The plaintiff next argues that the phrasing of Section 3133(c) of its own
weight unambiguously establishes that it bars arbitration of Miller Act claims.
(Doc. 24 at 3, 7). Even ignoring the provision’s failure to mention arbitration
expressly, the Court cannot agree. What Section 3133(c) voids are certain
“waiver[s] of the right to bring a civil action on a payment bond.” The phrase,
“bring a civil action,” may reasonably be read to encompass only the filing of a
lawsuit. See, e.g., Black’s Law Dictionary 219 (9th ed. 2009) (“bring an action”
defined as “[t]o sue; institute legal proceedings”). Under this reading, Section
3133(c) precludes waivers of the right to file suit under the Miller Act unless
certain conditions are met but does not restrict arbitration of the Miller Act claims
once suit is filed. Such a reading is consonant with CompuCredit’s statement that
Two of the statutes (the ADEA and RICO) provided for concurrent state and
federal jurisdiction. The third (the Clayton Act), like the Miller Act, provided for
exclusive federal jurisdiction. Aquatherm Industries, Inc. v. Florida Power & Light Co.,
84 F.3d 1388, 1391 n.2 (11th Cir. 1996).
“[B]y agreeing to arbitrate a statutory claim, a party does not forgo the
substantive rights afforded by the statute; it only submits to their resolution in an arbitral,
rather than a judicial, forum.” Gilmer, 500 U.S. at 26 (internal quotes omitted). Thus, if
resolution in a judicial forum constitutes a substantive right rather than a merely
procedural one, waiver of that right through arbitration could be barred. Mitsubishi
Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985); see also
Walthour, 745 F.3d at 1336 (addressing the difference between a “non-waivable,
substantive right” and a “waivable procedural mechanism”). The plaintiff, however, has
not argued – much less demonstrated – that Section 3133(b)(3) creates a substantive right
to a judicial resolution of a Miller Act claim. Given CompuCredit and the cases cited
therein, that would seem a Herculean task.
“contractually required arbitration of claims satisfies the statutory prescription of
civil liability in court.” 565 U.S. at 101.
As noted, legislative history and inherent conflict are not irrelevant to the
inquiry, although it remains doubtful that either can overcome the lack of express,
or at least clear, preclusion of arbitration in the statute itself. The plaintiff resists
the defendants’ efforts to introduce legislative history, (Doc. 24 at 3, 7), yet it
insists that Section 3133(c) was passed “specifically to protect sub-contractors
from the greedy government contractors who insert unconscionable boilerplate
arbitration clauses into their sub-contracts.” (Doc. 24 at 4). The plaintiff offers no
support for this ipse dixit. In fact, prior to 1999 numerous courts had held that “it
is possible for a supplier to waive his rights under the Act [if the] waiver [is] clear
and explicit.” United States ex rel. Youngstown Welding and Engineering Co. v.
Travelers Indemnity Co., 802 F.2d 1164, 1166 (9th Cir. 1986). E.g., id.; United
States ex rel. Friedrich Refrigerators, Inc. v. Forrester, 441 F.2d 779, 782 (5th Cir.
1971); United States ex rel. Clark-Fontana Paint Co. v. Glassman Construction
Co., 397 F.2d 8, 10 (4th Cir. 1968); United States ex rel. Industrial Contractors
Corp. v. William Clairmont, Inc., 341 F. Supp. 940, 943 (D. Neb. 1972). These
cases did not involve arbitration clauses but waivers of any remedy under the
Miller Act. Section 3133(c) is thus perfectly consistent with a congressional
desire to rein in these negations of relief on payment bonds without altering the
recognized permissibility of arbitration clauses as providing the means of
obtaining such relief.
Because Section 3133(c) does not unambiguously forbid the arbitration of
Miller Act claims, the Court may review the legislative history of the amendment.
E.g., United States v. Mount Sinai Medical Center, Inc., 486 F.3d 1248, 1251 (11th
Cir. 2007). The House Committee on Government Reform submitted a report
recommending that H.R. 1219 (which proposed, among other revisions to the
Miller Act, the addition of Section 3133(c)) be enacted into law. In discussing that
provision, the committee stated the following:
… [T]he bill would void waivers of Miller Act payment bond
protections prior to commencing the work.
The bill also specifies workable limitations on the conditions under
which the Act’s payment protections could be waived by an intended
beneficiary of those protections. … At the same time, the bill would
preserve the right of a subcontractor or supplier to waive its Miller Act
right under the payment bond once it has commenced performance under
This bill does not void subcontract provisions requiring arbitration
or other alternative methods of resolving disputes. Such provisions
would remain enforceable with a claimant’s Miller Act rights preserved
by a timely suit that can be stayed pending the outcome of the subcontract
dispute resolution procedure. The bill respects the freedom of the parties
to the subcontract to specify means to resolve their disputes and the
exclusive jurisdiction of the district court to decide issues arising under
the Miller Act.
H.R. Rep. No. 106-277(I), at *2, *5 (1999) (emphasis added). It seems
inescapable from this statement that the purpose of Section 3133(c) is to protect
subcontractors and suppliers from waiving their rights to recover on the payment
bonds required by the Miller Act and not to forbid the arbitration of such claims
after suit is filed. The plaintiff, which understandably fought mightily to prevent
the Court from considering the report, offers no alternative construction of its
import. Even if such a thing were possible, it could not provide the “clarity” that
the Supreme Court has required before finding a statutory preclusion of
While not directly referring to “inherent conflict” between arbitration and
the Miller Act’s underlying purpose, the plaintiff reminds the Court that the Miller
Act is “highly remedial in nature.” (Doc. 24 at 4 (internal quotes omitted)). And
so it is, with the result that it is “entitled to a liberal construction and application.”
F.D. Rich Co. v. United States ex rel. Industrial Lumber Co., 417 U.S. 116, 124
(1974) (internal quotes omitted). That status, however, is unhelpful to the
plaintiff’s position. “So long as the prospective litigant effectively may vindicate
[his or her] statutory cause of action in the arbitral forum, the statute will continue
to serve both its remedial and deterrent function.” Gilmer, 500 U.S. at 28 (internal
The plaintiff points to a sister court as having concluded that Section
3133(c) applies to agreements to submit claims to administrative dispute
resolution. (Doc. 24 at 4-5). Because the opinion in United States ex rel. Zurich
American Insurance Co., 99 F. Supp. 3d 543 (E.D. Pa. 2015), is not based on the
governing analysis as identified in Gilmer, CompuCredit and other cases, the
Court does not find that opinion (to the uncertain extent it stands for the
proposition for which the plaintiff cites it) persuasive.5
In summary, the plaintiff has not met its burden of demonstrating that
Congress has precluded the arbitration of Miller Act claims.
II. Scope of Arbitration Provision.
“[T]he federal policy favoring arbitration … cannot serve to stretch a
contract beyond the scope originally intended by the parties.” International
Underwriters AG v. Triple I: International Investments, Inc., 533 F.3d 1342, 1347
(11th Cir. 2008) (internal quotes omitted). The plaintiff argues that Stephens’
Miller Act claim is not “a dispute arising … under the Subcontract Agreement”
between them within the contemplation of the arbitration provision. (Doc. 24 at
10-11). The defendants disagree. (Doc. 26 at 10-11). Neither side addresses the
The plaintiff, (Doc. 24 at 5), also considers United States ex rel. Lighting and
Power Services, Inc. v. Interface Construction Corp., 553 F.3d 1150 (8th Cir. 2009), to be
helpful to its cause, due to the panel’s statement that Section 3133(c) “cut[s] strongly
against using equitable estoppel to weaken the Act’s cause of action.” Id. at 1156. The
Court is unable to follow the plaintiff’s unarticulated reasoning; in any event, such
general judicial statements cannot substitute for the clear congressional statement
required by the Supreme Court.
Finally, the plaintiff, (Doc. 24 at 5-6), quotes a former Fifth Circuit opinion for
the proposition that agreements to litigate Miller Act claims in state court are void as
violating the exclusive federal jurisdiction provision of Section 3133(b)(3). United States
ex rel. Portland Construction Co. v. Weiss Pollution Control Corp., 532 F.2d 1009, 1012
(5th Cir. 1976). This case, of course, involves no such attempt, and Portland
Construction says nothing about the impact of Section 3133(c) on arbitration agreements.
antecedent issue of whether the scope of the arbitration provision is to be
determined by the Court or by the arbitrator.
“Unless the parties clearly and unmistakably provide otherwise, the
question of whether the parties agreed to arbitrate is to be decided by the court, not
the arbitrator.” AT&T Technologies, Inc. v. Communications Workers of America,
475 U.S. 643, 649 (1986). That clear and unmistakable provision can arise from
the parties’ agreement to use particular arbitration rules that themselves call for the
arbitrator to decide questions regarding the scope of arbitration. Terminix
International Co. v. Palmer Ranch Limited Partnership, 432 F.3d 1327, 1332 (11th
Cir. 2005) (where the parties agreed that the Commercial Arbitration Rules of the
American Arbitration Association (“AAA”) would apply, and where Rule 8(a) of
those rules provided that “[t]he arbitrator shall have the power to rule on his or her
own jurisdiction, including any objections with respect to the existence, scope or
validity of the arbitration agreement,” the parties “clearly and unmistakably agreed
that the arbitrator should decide whether the arbitration clause is valid.”); U.S.
Nutraceuticals, LLC v. Cyanotech Corp., 769 F.3d 1308, 1311 (11th Cir. 2014)
(“When the parties incorporated into the 2007 contract the rules of the [AAA],
they clearly and unmistakably contracted to submit questions of arbitrability to an
As noted, the subcontracts provide that arbitration will be conducted “in
accordance with the Construction Industry Arbitration Rules of the American
Arbitration Association then in effect.” (Doc. 22-2 at 4; Doc. 22-3 at 4). As in
Terminix, Rule 8(a) provides that “[t]he arbitrator shall have the power to rule on
his or her own jurisdiction, including any objections with respect to the existence,
scope, or validity of the arbitration agreement.” Construction Industry Arbitration
Rules and Mediation Procedures (July 2015) (available online at
adr.org/construction). Because the parties have clearly and unmistakably provided
that the arbitrator will decide the scope of their arbitration agreement, any question
whether the agreement extends to Miller Act claims must be decided by the
arbitrator, not by the Court.
III. Procedural Violations.
The motion to compel arbitration is supported by the affidavit of Stephens’
president and by the two subcontracts. (Docs. 22-1 to -3). The plaintiff argues
that the defendants’ motion is brought under Rule 12(b)(6) and that, pursuant to
Rule 12(d), the Court cannot consider the affidavit or subcontracts without
transforming the motion into one for summary judgment, the resolution of which
would be premature before the plaintiff is given an opportunity to conduct
discovery. (Doc. 24 at 13-14). The plaintiff cites no judicial authority in support
of its position.
The defendants do not identify their motion as being brought under Rule
12(b)(6), or under any other procedural rule. “Motions to compel arbitration are
treated generally as motions to dismiss for lack of subject matter jurisdiction
pursuant to Federal Rule of Civil Procedure 12(b)(1).” Owings v. T-Mobile USA,
Inc., 978 F. Supp. 2d 1215, 1222 (M.D. Fla. 2013) (internal quotes omitted);
accord Maestre v. American Express Co., 2014 WL 12605504 at *1 (S.D. Fla.
2014). Alternatively, “[m]otions to compel arbitration … concern venue and are
brought properly under Federal Rule of Civil Procedure 12(b)(3) ….” Grasty v.
Colorado Technical University, 599 Fed. Appx. 596 (7th Cir. 2015). Both rules
permit the consideration of material beyond the pleadings, and neither is subject to
Rule 12(d). The plaintiff’s ipse dixit that Rule 12(b)(6) applies furnishes no
persuasive reason to reject these authorities.6
Nor would it make any discernible sense to delay a ruling on the defendants’
motion based on the consideration of outside materials. The plaintiff does not dispute
that the subcontracts are genuine and that they accurately reflect the parties’ agreement.
The only purposes of the affidavit are to authenticate the subcontracts and to show the
interstate commerce element necessary under the FAA – points with which the plaintiff
does not disagree.
IV. Stay of Proceedings.
As noted, the defendants seek a stay of all proceedings herein pending
arbitration of the claims against Stephens. The plaintiff, apparently cognizant of 9
U.S.C. § 3, voices no opposition to a stay with respect to the claims against
Stephens. However, the plaintiff objects that a stay as to its Miller Act claims
against Fidelity “would wreak damage on [the plaintiff] and … would subvert the
rationale for the Miller Act.” (Doc. 24 at 12). Its sole authority in support of
denying a stay is United States ex rel. Pensacola Construction Co. v. St. Paul Fire
and Marine Insurance Co., 705 F. Supp. 306 (W.D. La. 1988).
The defendants do not suggest that Fidelity is entitled to a stay under
Section 3. Instead, they argue for a discretionary stay as contemplated by the
Supreme Court. (Doc. 22 at 14). “In some cases, of course, it may be advisable to
stay litigation among the non-arbitrating parties pending the outcome of the
arbitration. That decision is one left to the district court … as a matter of its
discretion to control its docket.” Moses H. Cone Memorial Hospital v. Mercury
Construction Corp., 460 U.S. 1, 20 n.23 (1983). The defendants cite a wealth of
cases granting or upholding a stay of a Miller Act claim against a surety pending
arbitration of the subcontractor’s claims against the contractor.7 They also cite
several cases questioning or criticizing the Pensacola Construction decision. The
These include Warren Brothers Co. v. Cardi Corp., 471 F.2d 1304 (1st Cir.
1973); United States ex rel. Capolino Sons, Inc. v. Electric & Missile Facilities, Inc., 364
F.2d 705 (2nd Cir. 1966); Agostini Brothers Building Corp. v. United States ex rel.
Virginia-Carolina Electrical Works, Inc., 142 F.2d 854 (4th Cir. 1944); United States ex
rel. Maverick Construction Management Services, Inc. v. Consigli Construction Co., 873
F. Supp. 2d 409 (D. Me. 2012); United States ex rel. Milestone Tarant, LLC v. Federal
Insurance Co., 672 F. Supp. 2d 92 (D.D.C. 2009); United States ex rel. MPA
Construction, Inc. v. XL Specialty Insurance Co., 349 F. Supp. 2d 934 (D. Md. 2004);
United States ex rel. Tanner v. Daco Construction, Inc., 38 F. Supp. 2d 1299 (N.D. Okla.
1999); United States ex rel. John Jamar Construction Services v. Travelers Casualty and
Surety Co. of America, 2015 WL 757858 (S.D. Tex. 2015); United States ex rel. Vining
Corp. v. Carothers Construction, Inc., 2010 WL 1931100 (M.D. Ga. 2010); A.A. Bellucci
Construction Co. v. United States Surety Co., 2010 WL 456775 (M.D. Pa. 2010).
defendants presented these cases and arguments at length in their principal brief,
(Doc. 22 at 13-19), yet the plaintiff declined to acknowledge, much less counter,
the defendants’ presentation. Without belaboring the point, the Court concludes
that, for reasons set forth in the authorities cited by the defendants, the plaintiff’s
Miller Act claims against Fidelity should be stayed pending arbitration of the
plaintiff’s claims against Stephens.
For the reasons set forth above, the defendants’ motion to compel
arbitration and stay judicial proceedings is granted. This action is stayed pending
resolution of the arbitration proceedings. The defendants are ordered to file and
serve, on or before April 10, 2017 and on or before the tenth day of every second
month thereafter, a report detailing the status of the arbitration proceedings. The
defendants are furthered ordered to file and serve, within fourteen days of the
conclusion of arbitration proceedings, notification of same.
DONE and ORDERED this 7th day of February, 2017.
s/ WILLIAM H. STEELE
CHIEF UNITED STATES DISTRICT JUDGE
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