United States of America, et al. v. The Insurance Company of the State of Pennsylvania
Filing
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MEMORANDUM OPINION AND ORDER STAYING CASE; granting 10 MOTION to Stay Pending Completion of Arbitration. Signed by Judge Paula Xinis on 6/13/2018. (aos, Deputy Clerk) Modified on 6/13/2018 (aos, Deputy Clerk).
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
*
UNITED STATES OF AMERICA EX.
REL. DEBRA’S GLASS INC.,
*
Plaintiff,
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Civil Action No. PX- 17-03564
v.
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THE INSURANCE COMPANY OF THE
STATE OF PENNSYLVANIA,
et al.,
Defendants.
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******
MEMORANDUM OPINION
Plaintiff United States of America, for the use of subcontractor Debra’s Glass, Inc.
(“DGI”) on a federal contract, filed this action against Defendant surety, The Insurance
Company of the State of Pennsylvania (“AIG”) pursuant to the Miller Act, 40 U.S.C. §§ 3131–
34. ECF No. 1. AIG moved to stay the action pending the outcome of ongoing arbitration
between the subcontractor DGI and its prime contractor on the federal project, SEMI USA
(“SEMI”). ECF No. 10. The issue is fully briefed, and the Court now rules pursuant to Local
Rule 105.6 because no hearing is necessary. For the reasons below, AIG’s Motion to Stay
Pending Arbitration is GRANTED.
I.
Background
SEMI, as the prime contractor for the NASA Flight Projects Building 36 at the Goddard
Space Center in Greenbelt, Maryland, had subcontracted with DGI for glass installation and
curtainwall assemblies for the project, and then later for the installation of terracotta tiles. ECF
No. 1 at ¶¶ 8 10, 11-12. AIG was the project surety. Id. The subcontracts between SEMI and
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DGI require that “any disputes between Contractor and Subcontractor not resolved under
Paragraph 29.2 shall be finally determined by binding arbitration in accordance with the current
Construction Industry Rules of the American Arbitration Association by one or more arbitrators
selected in accordance with said Rules.” ECF No. 10 at 6.
After the construction work was completed, a payment dispute arose between DGI and
SEMI. DGI alleges that SEMI has not paid DGI for its work, while SEMI alleges that DGI
failed to perform the work in accordance the subcontract’s terms. ECF No. 10 at 3. On May 11,
2017, SEMI filed a demand for arbitration with the American Arbitration Association (“AAA”),
to which DGI responded with an answering statement and counterclaim on May 30, 2017. Id.
Thereafter, on November 30, 2017, DGI filed the Complaint in this case against the surety, AIG,
to obtain prompt collection of payments as required under the Miller Act. ECF No. 1 at ¶ 1.
DGI alleges that SEMI owes DGI $ 581,933.38 for work performed on the subcontracts, id. at ¶
21, and $1,151,191.73 of additional “overrun” damages arising from the related delay in
construction. Id. at ¶ 32. On January 25, 2018, AIG filed a motion to stay this case pending
arbitration. See ECF No. 10.
II.
Motion to Stay Pending Arbitration
A district court has broad discretion to stay proceedings as part of its inherent power to
control its own docket. Landis v. North American, 299 U.S. 248, 254 (1936). When considering
a motion to stay, the Court balances judicial economy, hardship to the moving party, and
potential prejudice to the non-moving party. American Home Assurance Co. v. Vecco Concrete
Constr. Co., 629 F.2d 961, 964 (4th Cir. 1980). The Court must “weigh competing interests and
maintain an even balance.” Landis, 299 U.S. at 255. “[A]ny doubts concerning the scope of
arbitrable issues should be resolved in favor of arbitration.” U.S. ex rel. MPA Const., Inc. v. XL
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Specialty Ins. Co., 349 F. Supp. 2d 934, 940 (D. Md. 2004). The Federal Arbitration Act
(“FAA”) directs that this Court shall stay its own case where the parties have agreed in writing to
arbitrate claims. See 9 U.S.C. § 3. (“If any suit or proceeding be brought in any of the courts of
the United States upon any issue referable to arbitration under an agreement in writing for such
arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in
such suit or proceeding is referable to arbitration under such an agreement, shall on application
of one of the parties stay the trial of the action until such arbitration has been had in accordance
with the terms of the agreement…”).
Here, the Subcontract’s mandatory arbitration provision is subject to the Federal
Arbitration Act. See 9 U.S.C. § 3; XL Specialty Ins. Co., 349 F. Supp. 2d at 940; accord
Developers Sur. and Indem. Co. v. Resurrection Baptist Church, 759 F. Supp. 2d 665, 669–70
(D.Md. 2010). AIG has moved for a stay of this case pending the outcome of the ongoing
arbitration proceedings between SEMI (the principal in AIG’s payment bond) and Defendant
DGI. ECF No. 10 at 1. DGI contends that AIG’s motion amounts to a bald attempt to delay
litigation and runs counter to the requirements and spirit of the Miller Act, which demand timely
payment by a surety. ECF No. 12 at 2. DGI relies heavily on this Court’s decision in United
States for use & benefit of Tusco, Inc. v. Clark Constr. Grp, LLC, 235 F. Supp. 3d 745 (D. Md.
2016). See generally ECF Nos. 12 & 16. The Court disagrees with DGI’s analysis.
In Tusco, the surety moved to stay the litigation, invoking a clause in the subcontract that
required exhaustion of specific dispute resolution procedures. Id. The Court denied the motion,
finding that such an argument “ignore[d] established case law to the effect that ‘the principal’s
and the surety’s liability are only coextensive to the extent permitted by the terms of the Miller
Act.’ ” Tusco, 235 F. Supp. 3d at 758. DGI argues that Tusco is yet one example in a
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“developing national trend disfavoring the invocation of stays by sureties to enforce payment
clauses in Miller Act cases.” See ECF No. 12 at 4.
Critically, however, neither Tusco nor any of the cases upon which DGI relies have
addressed the enforcement of arbitration provisions governed by the Federal Arbitration Act in
the context of Miller Act claims. See Tusco, 235 F. Supp. 3d at 758 (denying a stay until the
parties exhausted alternative dispute resolution proceedings); U.S. v. Zurich American Ins. Co.,
99 F. Supp. 3d 543, 549–50 (E.D. Pa. 2015) (denying stay through completion of the primary
contract’s dispute resolution process); U.S. ex rel Kitchens To Go v. John C. Grimberg Co., 283
F. Supp. 3d 476, 487–88 (E. D. Va. 2017) (denying stay for the completion of alternative dispute
resolution proceedings between the primary contract parties); U.S. v. Continental Casualty Co.,
ELH-16-3047, 2017 WL 3642957, at *15 (D. Md. Aug. 24 2017) (finding that the Contracts
Dispute Act did not support a stay of the case).1 In failing to recognize this important
distinction, DGI “ignores a long history of Miller Act cases which resolve the tension between
the Miller Act and the Federal Arbitration Act (FAA) by staying the Miller Act claim pending
arbitration of the underlying dispute.” U.S. ex rel. MPA Const., Inc. v. XL Specialty Ins. Co., 349
F. Supp. 2d 934, 941 (D. Md. 2004) (quoting U.S. ex rel. Tanner v. Daco Constr., Inc., 38
F.Supp.2d 1299, 1304–05 (N.D. Okla. 1999)); see also U.S. ex rel. Milestone Tarant, LLC v.
Fed. Ins. Co., 672 F. Supp. 2d 92, 104 (D.D.C. 2009) (citing cases); U.S. ex rel. Harbor Constr.
Co., Inc. v. T.H.R. Enterprises, Inc., No. 4:17-CV-146, 2018 WL 1999538, at *7 (E.D. Va. Apr.
26, 2018).
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DGI also cites Walton Tech., Inc. v. Weststar Engineering, Inc., 290 F.3d 1199, 1205 (9th Cir. 2002) to support its
position regarding denial of a requested stay. See ECF No. 12 at 4. Walton Tech did not involve the propriety of
staying a case brought under the Miller Act in favor of arbitration. Rather, Walton Tech resolved whether a
subcontractor could implicitly waive its Miller Act rights by agreeing to a “pay when and if paid” clause that delays
payment to the subcontractor until after the contractor is paid by the United States. While this issue is sometimes
discussed in relation to stays of Miller Act litigation, see generally Tusco, 235 F. Supp. 745, DGI’s representation
that Walton Tech “deni[ied] the stay request” is not accurate. See ECF No. 12 at 4.
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Further, in weighing the considerations of the Miller Act and the FAA on a surety’s
motion to stay, courts have routinely found it necessary to prioritize the FAA. See, e.g. XL
Specialty Ins., 349 F. Supp. 3d at 941; Harbor Constr. Co., 2018 WL 1999538, at *6–*7; U.S. ex
rel. Vining Corp. v. Carothers Const., Inc., No. CAR-09-438, 2010 WL 1931100, at *4–*5
(M.D. Ga. May 12, 2010); U.S. v. Sundt Const., Inc., No. PHX-LOA-07-673, 2007 WL 1655976,
at *2–*3 (D. Az. June 7, 2007). To hold otherwise would render a subcontract’s FAA arbitration
provision “meaningless, and, in every public works project where the subcontractor agree[d] to a
similar clause, the subcontractor could circumvent the arbitration provision by suing the surety.”
Harbor Constr. Co., 2018 WL 1999538, at *7 (quoting Tanner, 38 F. Supp. 2d at 1306)).
Staying this action also makes good sense, and so the Court will exercise its discretion in
staying the case pending the outcome of arbitration. See Landis v. North American, 299 U.S.
248, 254 (1936). The common questions of fact between this action and the arbitration
proceedings, as well as the risk of inconsistent outcomes, weigh heavily in favor of a stay. This
is especially so when considering that a stay will not result in unfair delay because arbitration is
already “well underway” and formal proceedings begin this month. See ECF No. 13 at 3–6.
Accordingly, the Court grants AIG’s motion and stay this action through the completion of
arbitration proceedings.
III.
Conclusion
For the reasons stated in the foregoing Memorandum Opinion, it is this 13th day of June,
2018, by the United States District Court for the District of Maryland, ORDERED that:
1. The Motion to Stay Pending Arbitration by AIG, ECF No. 10, BE, and the same
hereby IS, GRANTED insofar as the Court hereby STAYS this action through the
completion of arbitration;
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2. The parties are directed to submit a joint written status report within ten days after
the conclusion of arbitration proceedings.
3. The Clerk shall transmit copies of this Memorandum Opinion and Order to
counsel for the parties.
6/13/2018
Date
/s/
Paula Xinis
United States District Judge
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