Souza v. Great American Insurance Company et al

Filing 17

ORDER by Judge Joseph C. Spero granting 7 Motion to Compel; granting 7 Motion to Stay. The hearing scheduled for October 11, 2013 at 1:30 p.m. is vacated. (jcslc2, COURT STAFF) (Filed on 10/7/2013)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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MANUEL SOUZA,
Plaintiff,

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v.

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GREAT AMERICAN INSURANCE
COMPANY, et al.,
Defendants.

United States District Court
Northern District of California

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Case No. 13-cv-03361-JCS
ORDER GRANTING MOTION TO
COMPEL ARBITRATION AND
MOTION TO STAY
Dkt. No. 7

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I.

INTRODUCTION

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Plaintiff Manuel Souza filed this action against Defendants Great American Insurance

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Company (“GAIC”), H + H Builders, Inc. (“H + H”), Diversified Maintenance Systems, Inc.

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(“DMS”), and the H + H - DMS Joint Venture, alleging that Defendants failed to pay him for

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work performed under a subcontract for which a payment bond was issued under the Miller Act,

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40 U.S.C. § 3133. Plaintiff also asserts claims against Defendants H + H, DMS, and the H + H -

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DMS Joint Venture for breach of contract and quantum meruit.

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Defendants H + H, DMS, and the H + H - DMS Joint Venture filed a Motion to Compel

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Arbitration based on the arbitration clause contained in the subcontract. Defendant GAIC filed a

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Motion to Stay Proceedings. Plaintiff did not file a responsive brief in opposition, but did file

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objections to a declaration submitted by Defendants in support of the Motions. The Court finds

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the Motions suitable for decision without oral argument. The hearing scheduled for Friday,

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October 11, 2013, at 1:30 p.m., is vacated. For the reasons explained below, the Motion to

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Compel Arbitration and Motion to Stay Proceedings are GRANTED.1

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The parties have consented to the jurisdiction of the undersigned magistrate judge
pursuant to 28 U.S.C. § 686(c).

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II.

BACKGROUND

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A.

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Plaintiff Manuel Souza is an individual and a licensed California building contractor, and a

The Parties

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resident of Santa Clara, California. Complaint (“Compl.”) ¶ 4; Civil Cover Sheet. There are four

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Defendants. Compl. ¶¶ 5-6. Defendant H + H - DMS Joint Venture (hereafter “JV”) is a

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partnership between Defendant H + H and Defendant DMS. Id. ¶ 5. Plaintiff alleges that H + H

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and DMS are corporations organized under the laws of the State of Utah, have their principal

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places of business in that State, and are citizens of the State of Utah. Id. Defendant Great

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American Insurance Company (“GAIC”) is a corporation, organized and existing under the laws

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of the State of Ohio. Id. ¶ 6.

United States District Court
Northern District of California

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B.

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In or before 2012, JV contracted with the United States Department of Homeland Security

Factual Allegations

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for Contract Numbers HSCG 88-10-D-PQQ020 and/or HSTS02-12-J-CAN049 (collectively the

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“Prime Contract”). Compl. ¶ 7. The Prime Contract included a work order for an explosives

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bunker for the Transportation Security Agency at the San Francisco Airport (the “Project”). Id.

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The Project required JV to install certain concrete and other construction work at the airport. Id.

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Plaintiff alleges that JV obtained a Miller Act payment bond (the “Bond”) from Defendant

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GAIC in the amount of $320,715.00. Compl. ¶ 8. In relevant part, the Bond states: “[JV and

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GAIC] are firmly bound to the United States of America … in the [amount of $320,715.00]….

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[GAIC] binds itself, jointly and severally with [JV], for the payment of [$320,715.00].”

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Declaration of Timothy Miguel Willardson (“Willardson Decl.”), Ex. B (Payment Bond) at 1.

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The Bond also contains a “condition” which states that this “obligation is void if [JV] makes

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payment to all persons having a direct relationship with [JV] or a subcontractor of [JV] for

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furnishing labor, material or both in the prosecution of the work provided for in the [Prime

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Contract], and any authorized modifications of the contract that subsequently are made.” Id.

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Plaintiff Souza alleges that in 2013, he entered into a contract with JV (the “Subcontract”)

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“in two contracts or an original contract and a change order . . . .” Compl. ¶ 9. The Complaint

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further alleges that under the Subcontract, Souza was to furnish labor, materials, equipment, and

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other facilities required to complete certain concrete and other work on the Project, as required by

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the Prime Contract and specifications, for the total combined sum of about $221,621.00. Id. The

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Subcontract itself states that the contract price, which is subject to additions and deductions by

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“Change Orders,” is $69,427.00. Willardson Decl., Ex. A (Subcontract) at 1. Plaintiff alleges that

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JV expressly and impliedly agreed to pay Plaintiff after a reasonable time, with interest, on

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amounts due and outstanding. Compl. ¶ 10.

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The Subcontract contains an arbitration clause. In pertinent part, the Subcontract states:

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In the event of disagreement between the parties over any matters
arising out of . . . enforcement of the terms of [the Subcontract] of
whatsoever nature including, but not limited to, amounts of money
allegedly owed by one party to another party which the parties have
not resolved between themselves, either party shall select an
arbitrator and give written notice thereof to the other party of the
name and address of the arbitrator so chosen and describing the
disagreement.

United States District Court
Northern District of California

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Willardson Decl., Ex. A at 3.
Plaintiff alleges that JV wrongfully terminated the Subcontract without cause in about June

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of 2013, after Plaintiff had performed material portions of the work provided in the Subcontract.

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Compl. ¶ 11. As of June of 2013, JV allegedly failed to pay Plaintiff $80,000.00 that was due

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under the Subcontract for work performed, and labor and materials provided under the

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Subcontract, within thirty days of notice. Id. ¶ 12-13. Plaintiff does not allege the last day on

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which he performed work under the Subcontract. Plaintiff alleges that he submitted a claim for

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payment to GAIC under the Bond, but GAIC failed to pay Plaintiff the amount due. Id. ¶ 14.

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Plaintiff does not state when he submitted the claim to GAIC.

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C.

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The Complaint contains three claims for relief. Plaintiff’s first claim for relief is for breach

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of contract. Plaintiff alleges he has performed all obligations under the Subcontract, except where

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excused by the acts and conduct of Defendants. Compl. ¶ 16. According to the Complaint, JV

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wrongfully breached and terminated the Subcontract, which has resulted in damages that amount

Claims for Relief

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to $100,000.00 in lost income, profits, and wages. Id. ¶ 17-18.
Plaintiff’s second claim is for quantum meruit. Plaintiff alleges that he provided valuable

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labor, services, and materials that were necessary for JV to perform and complete its obligations

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under the Prime Contract for the completion of the Project. Compl. ¶ 21. Plaintiff alleges that JV

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benefitted from the Plaintiff’s contributions listed above, and could not have fully completed the

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Project in the absence of Plaintiff’s contributions. Id. ¶ 22. JV allegedly failed to pay Plaintiff for

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the labor, services, and materials that he provided, which led to damages for Plaintiff and unjust

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enrichment for Defendants. Id. ¶¶ 23-24.

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Plaintiff asserts his third claim for relief under the Miller Act, which provides:

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Every person that has furnished labor or material in carrying out
work provided for in a contract for which a payment bond is
furnished under section 3131 of this title and that has not been paid
in full within 90 days after the day on which the person did or
performed the last of the labor or furnished or supplied the material
for which the claim is made may bring a civil action on the payment
bond for the amount unpaid at the time the civil action is brought
and may prosecute the action to final execution and judgment for the
amount due.

United States District Court
Northern District of California

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40 U.S.C. § 3133(b)(1).
Plaintiff alleges that GAIC is obligated, pursuant to the Bond, to pay Plaintiff for the labor,

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materials, and services he furnished to fulfill the Subcontract, and for which JV failed to make

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payment. Compl. ¶ 26. Plaintiff alleges that he is entitled to payment from GAIC pursuant to the

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Miller Act, 40 U.S.C. § 3133, in the amount of $80,000.00, plus interest and costs. Id. ¶¶ 27-28.

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Plaintiff prays for judgment in his favor and against Defendants, jointly and severally, as

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follows: damages in the total amount of $180,000.00; costs of suit; and reasonable attorneys’ fees.

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Compl. at 6.

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D.

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Defendants JV, H + H, and DMS argue that Plaintiff is required to arbitrate its claims

Motion to Compel Arbitration

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against them because the parties agreed to binding arbitration in paragraph 5.1 of the Subcontract.

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Dkt. No. 7 at 4 (Motion to Compel Arbitration and Motion to Stay Proceedings) (“Motion”).

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Defendants cite the Federal Arbitration Act (“FAA”), 9 U.S.C. § 2, which provides that an

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arbitration clause in a contract “shall be valid, irrevocable, and enforceable….” 9 U.S.C. § 2.
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Defendants argue that there is “no question that the FAA applies to the contract in the instant

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case.” Motion at 4.

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Moreover, Defendants argue that section 78B-11-102 of the Utah Uniform Arbitration Act

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contains provisions similar to the FAA provision discussed above. Defendants contend that Utah

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law is applicable because the Subcontract contains a choice of law clause which requires the

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application of Utah law. See Willardson Decl., Ex. A at 4.

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E.

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Defendants further argue that the Court should stay all proceedings, including Plaintiff’s

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Motion to Stay Proceedings

Miller Act claim against GAIC, pending the outcome of binding arbitration. Motion at 5.
Defendants contend that because GAIC is not a party to the Subcontract which contains the

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United States District Court
Northern District of California

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arbitration clause, the Court has the discretion to grant the Motion to Stay Proceedings. Id. at 4

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(citing U.S. ex rel. Milestone Tarant, LLC v. Fed. Ins. Co., 672 F.Supp.2d 92, 101 (D.D.C. 2009)).

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Defendants argue that “[c]oncerns over judicial economy and the possibility of inconsistent

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results, coupled with a strong federal presumption in favor of enforcing arbitration agreements and

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the underlying purpose of the Miller Act certainly justify a stay in this case.” Id. at 5.

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Defendants also argue that Plaintiff will suffer no prejudice if the suit is stayed because

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Plaintiff prematurely asserted his claim under the Miller Act. Motion at 5. Defendants argue that

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the Miller Act only provides a civil cause of action against the surety for subcontractors doing

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working on a government project “who have not received payment within 90 days after the day on

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which the person did or performed the last day of labor or furnished or supplied the material….”

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Id. (citing 40 U.S.C. § 3133). Defendants contend that given the fact the Subcontract was

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executed on June 7, 2013, and the fact that the Complaint was filed on July 18, 2013, Plaintiff

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clearly did not wait ninety days before filing a claim under the Miller Act.

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F.

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Plaintiff filed objections to the Willardson Declaration. See Dkt. No. 11 (Plaintiff’s

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Objections to Evidence as to Willardson’s Declaration in Support of Defendants’ Motion to

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Compel Arbitration and Motion to Stay Proceedings) (“Pl. Objs.”). The Willardson Declaration

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contains a total of five paragraphs. The first two paragraphs identify Mr. Willardson as counsel

Plaintiff’s Objections

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for JV and general counsel for DMS, and state that Mr. Willardson has personal knowledge of the

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facts in the Declaration and would testify competently thereto. Willardson Decl. ¶¶ 1-2. The next

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two paragraphs incorporate the Subcontract and Bond, which are attached as Exhibits A and B to

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the Willardson Declaration. Willardson Decl. ¶¶ 3-4 and Exs. A and B thereto. The last

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paragraph states Mr. Willardson “declare[s] under penalty of perjury that the foregoing is true and

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that this declaration was executed in Salt Lake City, Utah.” Id. ¶ 5.
Plaintiff objects to the second through fifth paragraphs in the Willardson Declaration,

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stating the exact same objections for each paragraph:

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Hearsay (Fed. Rule Evid., § 801-802, 805); Improper Evidence of
Contents of a Writings (Fed. Rule. Evid., § 1004); Lack of personal
knowledge (Fed. Rule Evid., § 602(a)); Irrelevant (Fed. Rule Evid.,
§ 401-402).

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United States District Court
Northern District of California

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The Declaration is also not verified under penalty of perjury (Calif.
Code Civil Proc. § 2015.5; 28 U.S.C. § 1746; F.R.C.P. § 56 (c)(4);
N.D. Local Rule 7-5).

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The Complaint (Para 9) alleges two Subcontracts. Only one
Subcontract is referenced in this Motion.

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The insufficiently authenticated subcontract is only in the name of
one of the Defendants, not all of the Defendants.

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Pl. Objs. at 2-5.

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III.

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LEGAL STANDARD
“When evaluating a motion to compel arbitration, courts treat the facts as they would when

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ruling on a motion for summary judgment, construing all facts and reasonable inferences that can

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be drawn from those facts in a light most favorable to the non-moving party.” DeMartini v. Johns,

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No. 12-3929-JCS, 2012 WL 4808448, at *4 (N.D. Cal. Oct. 9, 2012) (citing Perez v. Maid

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Brigade, Inc., 07-3473, 2007 WL 2990368 at *3 (N.D. Cal. Oct. 7, 2007)); see also Omstead v.

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Dell, Inc., 533 F. Supp. 2d 1012, 1037-38 (N.D Cal. 2008) (citing Par-Knit Mills, Inc. v.

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Stockbridge Fabrics Co., Ltd., 636 F.2d 51 (3d Cir. 1980)) (“[W]hen considering a motion to

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compel arbitration, where the plaintiff opposes the motion on the ground that he/she/it did not

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enter into a valid agreement to arbitrate, the court is supposed to apply a standard similar to the

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Rule 56 standard.”); Three Valleys Mun. Water Dist. v. E.F. Hutton & Co., Inc., 925 F.2d 1136,
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1141 (9th Cir. 1991) (accepting the standard set forth in Par-Knit Mills). Specifically, under

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section 4 of the FAA, “a party resisting arbitration must submit evidence demonstrating a genuine

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issue fact, as when opposing a motion for summary judgment.” Perez v. Maid Brigade, Inc., No.

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07-3473, 2007 WL 2990368, at *3 n. 4 (N.D. Cal. Oct. 11, 2007) (citing Doctor’s Assocs., Inc. v.

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Distajo, 107 F.3d 126, 129-30 (2d Cir. 1997)).

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IV.

DISCUSSION

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A.

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In order to proceed in federal court, Plaintiff’s Complaint must establish the existence of

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Subject Matter Jurisdiction

subject matter jurisdiction. Indeed, “federal courts have an independent obligation to ensure that
they do not exceed the scope of their jurisdiction, and therefore they must raise and decide

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United States District Court
Northern District of California

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jurisdictional questions that the parties either overlook or elect not to press.” Henderson ex rel.

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Henderson v. Shinseki, ––– U.S. ––––, 131 S. Ct. 1197, 1202 (2011); Munoz v. Mabus, 630 F.3d

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856, 860 (9th Cir. 2010).

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Plaintiff asserts subject matter jurisdiction on the basis of federal-question jurisdiction, and

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requests the Court to exercise supplemental jurisdiction over the state-law breach of contract and

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quantum meruit claims. Compl. ¶ 1. “Federal courts have subject matter jurisdiction over Miller

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Act claims pursuant to 28 U.S.C. § 1331….” U.S. ex rel. Air Control Technologies, Inc., v. Pre

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Con Industries, Inc., 720 F.3d 1174, 1178 (9th Cir. 2013). However, the Miller Act only provides

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a cause of action to contractor who has not “been paid in full within 90 days after the day on

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which the person did or performed the last of the labor or furnished or supplied the material for

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which the claim is made….” 40 U.S.C. § 3133. The Complaint in this action was filed on July

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18, 2013, a mere forty-one days after the Subcontract was executed on June 7, 2013. See

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Willardson Decl. Ex. A. Thus, it is clear that Plaintiff did not wait ninety days before filing his

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Miller Act claim.

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Even if Plaintiff did not wait ninety days prior to filing this action, the Court finds that

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there is still federal-question jurisdiction on the basis of the Miller Act. The Ninth Circuit has

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held that the Miller Act’s one-year statute of limitations is non-jurisdictional, but rather a “claims

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processing rule.” U.S. ex rel. Air Control Technologies, Inc. v. Pre Con Indus., Inc., 720 F.3d
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1174, 1177 (9th Cir. 2013). The Ninth Circuit reasoned that Congress had not “clearly stated” that

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the statutory limitation is jurisdictional. Id. at 1176 (citing Sebelius v. Auburn Reg'l Med. Ctr., ––

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– U.S. ––––, 133 S.Ct. 817, 824 (2013). The court further reasoned that “the Miller Act was

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‘intended to be highly remedial,’ and the Supreme Court has stated that courts must construe the

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Miller Act’s provisions with this highly remedial purpose in mind.” Id. at 1178 (citing Fleisher

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Eng'g & Constr. Co. v. United States ex rel. Hallenbeck, 311 U.S. 15, 17–18 (1940)). The Court

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applies the same reasoning−there is no indication that Congress sought the ninety-day waiting

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requirement to be jurisdictional, and the Miller Act’s provisions must be construed with a remedial

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purpose. See id. Accordingly, the fact Plaintiff filed suit before waiting ninety days after the last

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day of work does not deprive this Court of federal-question jurisdiction.

United States District Court
Northern District of California

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Moreover, even if federal-question jurisdiction is lacking, the Court may adjudicate this

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action because there is diversity jurisdiction. Diversity jurisdiction exists where no plaintiff is a

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citizen of the same state as any defendant and the amount in controversy exceeds $75,000.00. 28

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U.S.C. § 1332. Plaintiff is domiciled in and is a resident of California. JV, and its partners, H + H

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and DMS are organized under the law of the state of Utah, have their principal places of business

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in Utah, and are citizens of that State. Compl. ¶ 5. GAIC is a corporation, organized and existing

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under the laws of the State of Ohio and its principal place of business is in the State of Ohio. The

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Complaint alleges the amount in controversy is $180,000.00, which is greater than the

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jurisdictional minimum.

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B.

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Plaintiff does not explain why his “objections” to the Willardson Declaration have any

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Plaintiff’s Objections

merit. Nevertheless, the Court addresses two such objections.
First, Plaintiff asserts that paragraph nine of the Complaint alleges “two Subcontracts,”

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only one of which is referenced in Defendants’ Motions. Paragraph nine of the Complaint alleges

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“H + H - DMS contracted in writing with Plaintiff Souza … in two contracts or an original

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contract and a change order to furnish labor, materials, equipment….” Compl. ¶ 9. Construed

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broadly, Plaintiff’s “objection” may assert that another contract exists which provides Plaintiff

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with a cause of action for breach of contract, and that contract does not contain a similar
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arbitration clause as does the Subcontract attached to the Williardson Declaration. Nevertheless,

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Plaintiff’s objection is, at best, attorney argument. Attorney argument is not evidence and does

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not create issues of fact. Genentech, Inc. v. Insmed Inc., 436 F. Supp. 2d 1080, 1092 (N.D. Cal.

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2006) (holding that parties “parties cannot produce evidence of triable issue of fact by relying only

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upon attorney argument.”). Plaintiff has submitted no declaration to establish that another contract

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does indeed exist.
Plaintiff asserts a second objection to the fact that the “insufficiently authenticated

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subcontract is only in the name of one of the Defendants, not all of the Defendants.”2 Pl. Objs. at

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2-5. Construing this “objection” broadly, Plaintiff appears to argue that the suit is not arbitrable

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because only JV is bound under the Subcontract. However, JV is a partnership between H + H

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United States District Court
Northern District of California

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and DMS, thus H + H and DMS are parties to the Subcontract as well. See Interserve, Inc. v.

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Fusion Garage PTE. LTD., No. 09-5812, 2010 WL 3339520, at *4 (N.D. Cal. Aug. 24, 2010)

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(stating that “courts freely apply partnership law to joint ventures when appropriate”) (citing

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Weiner v. Fleischman, 54 Cal. 3d 476, 483 (1991)); Int’l Union of Operating Engineers, Local 3 v.

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Zurich N. Am., No. 06-9567, 2006 WL 2791156 at *4 (E.D. Cal. Sept. 27, 2006) (holding that a

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partner “who enjoys the fruits of the contract and acquiesces to being bound by the acts of its

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partner may be liable for breach of contract.”) (citing DeSantis v. Miller Petroleum Co., 29 Cal.

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App. 2d 679, 683-84 (1938)). Thus, three of the four Defendants in this action are parties to the

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Subcontract. Moreover, the Court’s analysis below addresses in detail the fact GAIC is not party

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to the Subcontract.

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Plaintiff also appears to object to the authenticity of the Subcontract. See Pls. Objs. at 2-5

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(“The insufficiently authenticated subcontract ….”). To authenticate documents used to support a

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motion, a party must attach the documents as exhibits to an affidavit or declaration made by a

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person through whom the exhibits could be admitted into evidence at trial. Laasko v. Xerox Corp.,

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566 F. Supp. 2d 1018, 1021 (C.D. Cal. 2008) (citing Orr v. Bank of Am., NT & SA, 285 F.3d 764,

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773-74 (9th Cir. 2002)). The affiant must show personal knowledge of the evidence, and

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competence to testify to the matters stated in it. Id. (citing Orr, 285 F.3d at 774 n. 9). These

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requirements are met here because Mr. Willardson is counsel for JV and DMS, and states that the

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facts contained in his Declaration are within his personal knowledge, and if called upon the

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witness, he would be able to competently testify to the Subcontract and Bond. Willardson Decl.

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¶¶ 1-2.

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C.

Motion to Compel Arbitration
1.

Legal Standard

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Under the FAA, “[a] written provision in . . . a contract evidencing a transaction involving

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commerce to settle by arbitration a controversy thereafter arising out of such contract . . . shall be
valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the

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United States District Court
Northern District of California

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revocation of any contract.” 9 U.S.C. § 2. A defendant who is a party to a written arbitration

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agreement that falls within the scope of the FAA may bring a motion to compel arbitration and

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stay the proceeding pending resolution of the arbitration. See id. § 3.

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The FAA “leaves no place for the exercise of discretion by a district court, but instead

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mandates that district courts shall direct the parties to proceed to arbitration on issues as to which

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an arbitration agreement has been signed.” Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d

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1126, 1130 (9th Cir. 2000) (quoting Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218

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(1985)) (internal quotation marks omitted). Thus, the role of the court is limited to determining:

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(1) whether a valid agreement to arbitrate exists, and (2) whether the agreement encompasses the

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dispute at issue. Id.

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2.

Analysis

There is an arbitration clause in the Subcontract to which Plaintiff, as well as Defendants H

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+ H, DMS and JV, are bound. See Willardson Decl. Ex. A at 2-3 (paragraph 5-1). Plaintiff has

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not challenged the existence of this arbitration clause, or the fact that Plaintiff, by agreeing to the

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Subcontract, agreed to arbitrate any dispute arising out of the Subcontract. Thus, a valid

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agreement to arbitrate exists.

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The next question is whether the agreement encompasses the dispute in the present case.
In pertinent part, the arbitration clause reads as follows:
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In the event of disagreement between the parties over any matters
arising out of . . . enforcement of the terms of this Agreement of
whatsoever nature including, but not limited to, amounts of money
allegedly owed by one party to another party which the parties have
not resolved themselves, either party shall select an arbitrator and
give written notice thereof to the other party of the name and
address of the arbitrator so chosen and describing the disagreement.

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Willardson Decl. Ex. A at 2-3 (emphasis added). The instant case involves a disagreement arising

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out of “amounts of money allegedly owed by one party to another party.” Id. Accordingly, the

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dispute between the parties to the Subcontract (Plaintiff, H + H, DMS and JV) is within the scope

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of the agreement to arbitrate under the Subcontract.

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However, GAIC is not a party to the Subcontract which contains the arbitration provision,
thus Plaintiff need not arbitrate the Miller Act Claim against GAIC. See IDS Life Ins. Co. v.

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United States District Court
Northern District of California

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SunAmerica, Inc., 103 F.3d 524, 529-30 (7th Cir. 1996) (holding that the mandatory stay provision

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of the FAA applies only to parties to the arbitration agreement); ATSA of California, Inc. v.

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Continental Ins. Co., 702 F.2d 172, 176 (9th Cir. 1983) (finding that the movant for the stay under

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the FAA must be a party to the agreement to arbitrate, as must be the non-movant). “Indeed, the

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overriding purpose of the FAA is not judicial economy or the expeditious resolution of claims, but

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the enforcement of agreements into which parties have entered.” United States ex rel. Milestone

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Tarant, LLC v. Fed. Ins. Co., 672 F.Supp.2d 92, 97 (D. D.C. 2009). In their Motions, Defendants

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effectively concede that Plaintiff is not required to arbitrate the dispute with GAIC, as they filed a

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Motion to Compel Arbitration only for JV, H + H, and DMS, and separately filed a Motion to Stay

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Proceedings for GAIC.

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D.

Motion to Stay Proceedings
1.

Discretionary and Mandatory Stays

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Under certain circumstances, the FAA requires a district court to stay a suit pending

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resolution of arbitration. 9 U.S.C. § 3. In pertinent part, the FAA states: “the court . . . upon being

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satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an

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[arbitration] agreement, shall on application of one of the parties stay the trial of the action until

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such arbitration has been had in accordance with the terms of the agreement.” Id. (emphasis

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added). Where the issues in a suit are “referable to arbitration,” the FAA requires the district court
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to stay the suit.
Here, however, Plaintiff Souza’s claim against GAIC is not “referable to arbitration”

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because GAIC is not a party to the Subcontract with the arbitration provision. The Supreme Court

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has held that “[i]n some cases . . . it may be advisable to stay litigation among the non-arbitrating

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parties pending the outcome of the arbitration. That decision is one left to the district court . . . as

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a matter of its discretion to control its docket.” Moses H. Cone Memorial Hosp. v. Mercury

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Constr. Corp., 460 U.S. 1, 20 n. 23 (1983) (citation omitted). In a similar case cited by

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Defendants, the district court from the District of Columbia reached the same conclusion, holding

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that it is within the court’s discretion to grant a stay with respect to non-arbitrating parties because

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issues with such parties are not “referable to arbitration.” See Milestone Tarant, LLC v. Fed. Ins.

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United States District Court
Northern District of California

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Co., 672 F. Supp. 2d 92, 100-01 (D. D.C. 2009). Accordingly, the Court has discretion in

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determining whether to stay Plaintiff’s claim against GAIC while Plaintiff arbitrates its suit

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against JV, H + H, and DMS.

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2.

Whether the Court Should Exercise Discretion to Stay this Case

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Defendants argue that “[c]oncerns over judicial economy and the possibility of inconsistent

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results, coupled with a strong federal presumption in favor of enforcing arbitration agreements and

17

the underlying purpose of the Miller Act certainly justify a stay in this case.” Motion at 5. In

18

support of the Motion to Stay, Defendants cite Milestone Tarant, where a plaintiff subcontractor

19

filed two separate lawsuits−one against the contractor who failed to pay sums owed to him, and

20

one against the surety for the contractor liable for a Miller Act bond. Id. at 92. The contractor

21

moved to compel arbitration with the subcontractor under an arbitration agreement; and the surety,

22

which was not a party to the arbitration agreement, moved to stay its case pending arbitration of

23

the contractor’s case. Id.

24

The court exercised its discretion and granted the surety’s motion to stay. The court

25

reasoned that a stay “comports with judicial economy and consistency” because the surety’s

26

liability was “dependent upon” the liability of the contractor, and absent a stay, the parties would

27

be litigating and arbitrating “substantially the same issues.” Milestone Tarrant, 672 F.Supp.2d at

28

101. The court also reasoned that “[a]llowing litigation to proceed in [the suit against the surety]
12

1

wo
ould disserve the ‘liberal policy favor
e
ring arbitrati agreeme
ents.’” Id. at 103 (quotin Moses H.
t
ng
ion

2

Cone Mem’l Hosp. v. Merc
H
cury Constr. Corp., 460 U.S. 1, 24 (1983)). Fin
nally, the cou believed
urt

3

tha “not stayin litigation under these circumstanc would allow any pub works su
at
ng
ces
blic
ubcontractor
r

4

to ‘circumvent’ its agreeme to arbitr with the prime contr
ents
rate
e
ractor simply by suing th surety in
y
he

5

fed
deral court.” Id.
The Co finds the reasoning in Milestone Tarrant to b persuasiv Moreove the Ninth
ourt
e
i
be
ve.
er,

6

Cir
rcuit has add
dressed a sim
milar issue, and found tha imposing a stay of a c
a
at
case with a M
Miller Act

8

cla against th surety so arbitration on the contra claim cou proceed against the p
aim
he
o
act
uld
prime

9

con
ntractor was not an abuse of discretio See U.S for Use & Benefit of N
on.
S.
Newton v. Ne
eumann

10

Ca
aribbean Int'l Ltd., 750 F.2d 1422, 1427 (9th Cir 1985) (“Consideration of econom and
l,
F
r.
ns
my

11
United States District Court
Northern District of California

7

eff
ficiency fully support the District Co
y
e
ourt’s determ
mination that the third pa claim an other
arty
nd

12

ma
atters must aw the fina determinat
wait
al
tion made in connection with the arb
n
n
bitration.”). Here, as in

13

Milestone and Newton, the Court consi
N
iders judicia economy, c
al
consistency, and policy favoring
,

14

arb
bitration, and finds that th
d
hese factors weigh in fav of granti the Moti to Stay.
vor
ing
ion

15

Ac
ccordingly, th Court stay the entire proceeding , including P
he
ys
e
Plaintiff’s M
Miller Act Cla against
aim

16

GA pending the resoluti of the ar
AIC,
g
ion
rbitration bet
tween Plaint and Defe
tiff
endants JV, H + H, and

17

DM
MS.

18

V.

19

CONCLUSION
ted
he
are
ED.
ff’s
hall
For the reasons stat above, th Motions a GRANTE Plaintif claims sh be

20

sub
bmitted to ar
rbitration pur
rsuant to the Subcontrac arbitratio clause. In the interim this action
e
ct’s
on
n
m,
n

21

is STAYED, pending resol
S
lution of arbitration. Th parties sha notify the Court when a final
he
all
e
n

22

dec
cision has be reached in the arbitra
een
ation proces s. In the me
eantime, the Clerk is inst
tructed to

23

adm
ministrativel close the file in this ca
ly
f
ase.

24
25
26
27

IT IS SO ORDER
S
RED.
Da
ated: October 7, 2013
r
___
__________
___________
__________
________
JO
OSEPH C. SP
PERO
Un
nited States M
Magistrate Ju
udge

28
13
3