Duncan Telcom, Inc. v. Pond Constructors, Inc. et al

Filing 14

MEMORANDUM OPINION re Motion to stay, Motion for extension time. Signed by District Judge James C. Cacheris on 10/11/16. (klau, )

IN THE UNITED STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF VIRGINIA
Alexandria Division
UNITED STATES OF AMERICA
For the use and benefit of
DUNCAN TELCOM, INC.,
Plaintiff,
v.

POND CONSTRUCTORS, INC., and
BERKLEY REGIONAL INSURANCE CO.,
Defendants.

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1:16-CV-01086

M E M O R A N D U M

O P I N I O N

This case is before the Court on Defendants’ motion to
stay litigation pending binding arbitration.

Defendants have

also filed a motion for extension of time to file responsive
pleadings.
I.

Background

The facts upon which the Court relies are taken
primarily from Plaintiff’s Complaint.
(“SOF”)).

(See Compl. [Dkt. 1]

They are undisputed unless otherwise noted.
Plaintiff Duncan Telcom, Inc. (“Duncan”) is a data

communication services firm incorporated and having its
principal place of business in Virginia.

Defendant Pond

Constructors, Inc. (“Pond”) is a Georgia corporation, with its
principal place of business also in Georgia.

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Pond provides

professional engineering services.

Defendant Berkley Regional

Insurance Company (“Berkley”) is a Delaware corporation, with
its principal place of business in Connecticut.

Berkley

underwrites insurance policies.
In September 2013, Pond entered into a contract (the
“Prime Contract”) with the United States Army Corps of Engineers
(“Corps”) to provide labor and supply materials to make fueling
system improvements on United States facilities in Fort Lee,
Virginia.

(SOF ¶¶ 4, 14.)

As a requirement of the Prime

Contract, Pond provided a payment bond (the “Payment Bond”),
identifying itself as the principal and Berkley as the surety.
(Id. ¶ 5.)

On March 28, 2014, Pond then subcontracted a portion

of its work to Duncan, through Duncan’s division of Duncan
Energy Systems.

(Id. ¶ 5.)

The first subcontract agreement

(the “Subcontract”) stated that Pond would pay Duncan
$371,868.00 to provide labor and materials.

(Id. ¶ 17.)

On May

14, 2014, Pond submitted “Subcontract Change Order No. 1” to
Duncan, asking for Duncan to provide a 4500 gallon temporary
storage tank for a maximum of four weeks.

(Id. ¶ 19.)

This

increased the amount that Pond owed Duncan by $2,480.00, for a
revised payment of $374,348.00.

(Id.)

On June 21, 2016, an underground tank “floated,” or
rose completely out of the ground, independent of the actions of
any workers on-site.

(Id. ¶ 21.)

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This caused extensive damage

to the project site and had to be repaired in order to complete
the work outlined in the Prime Contract.

(Id.)

Thus, Pond

submitted Subcontract Change Order No. 2 and No. 3 in September
2014, increasing the total amount owed to Duncan to $392,600.56.
(Id. ¶¶ 25-27.)

Duncan alleges that neither subcontract change

fully compensated it for the costs of labor or materials to
repair the floating underground tank.

(Id. ¶ 28.)

Two

additional subcontract change orders were submitted in May 2015,
bringing the total owed by Pond to Duncan to $478,091.56.
¶¶ 30-32.)
2015.

(Id.

Duncan completed its subcontract work in September

(Id. ¶ 33.)
Following the completion of its work, Duncan alleges

that it submitted seven Subcontractor’s Applications for Payment
to Pond.

(SOF ¶ 37.)

Duncan also submitted separately all

payroll, invoices, and daily activity reports related to all
labor and materials provided by Duncan to repair the floating
underground tank.

(Id. ¶ 36.)

Duncan alleges that Pond

continues to owe $351,376.03 for the costs of labor and
materials provided by Duncan to Pond to carry out the Prime
Contract.

(Id. ¶¶ 38, 41, 43.)
On August 23, 2016, Duncan filed a complaint in this

court, alleging: (1) breach of contract against Pond; (2) breach
of surety obligation/contract against Pond and Berkley; and (3)
quantum meruit against Pond and Berkley.

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(See Compl. [Dkt. 1]

at 8-9.)

On September 19, 2016, Pond and Berkley jointly filed

a motion to stay litigation pending binding arbitration.
6.]

[Dkt.

They also filed a motion for extension of time to reply.

[Dkt. 8.]

Duncan filed a response to both motions on September

30, 2016.

[Dkt. 10, 11.]

Defendants submitted a response

regarding the motion to stay litigation on October 4, 2016.
[Dkt. 12.]

These motions are now ripe for disposition.
II. Standard of Review
Under the Federal Arbitration Act (“FAA”), 9 U.S.C.

§§ 1 et seq., a court must enforce an arbitration agreement that
meets the following requirements: (1) is part of a written
contract between the parties “if the contract or transaction
involves interstate commerce;” (2) pertains to the specific
dispute at issue; and (3) is “valid under general principles of
contract law.”

Hendrick v. Brown & Root, Inc., 50 F. Supp. 2d

527, 531-32 (E.D. Va. 1999) (citing 9 U.S.C. § 2).

Section 3 of

the FAA requires that:
If any suit or proceeding be brought in any
of the courts of the United States upon any
issue referable to 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[.]
Id. at 532 (quoting 9 U.S.C. § 3).

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Stated differently, a presumption exists in favor of
arbitration.

See AT&T Techs, Inc. v. Communications Workers,

475 U.S. 643, 650 (1986) (“An order to arbitrate the particular
grievance should not be denied unless it may be said with
positive assurance that the arbitration clause is not
susceptible of an interpretation that covers the asserted
dispute.

Doubts should be resolved in favor of coverage.’”)

(quoting United Steelworkers of Am. v. Warrior & Gulf Navigation
Co., 363 U.S. 574, 582-83 (1960)).

Despite this presumption,

the party requesting the stay bears the burden of proving that
the claim is “referable to arbitration under the contract.”
Hendrick, 50 F. Supp.2d at 532 (citing Carson v. Giant Food,
Inc., 175 F.3d 325, 331 (4th Cir. 1999)).

To determine whether

the claim can be referred, “[o]rdinary state law” contractformation principles control.
quotations omitted).

Id. at 533 (citations and

The party requesting the stay “‘must

[also] justify it by clear and convincing circumstances
outweighing potential harm to the party against whom it is
operative.’”

Wallace v. Baylouny, No. 1:16-cv-0047, 2016 U.S.

Dist. LEXIS 65122, at *14 (E.D. Va. May 17, 2016) (quoting
Williford v. Armstrong World Indus., Inc., 715 F.2d 124, 127
(4th Cir. 1983)).
III. Analysis
A.

Defendants’ Request for a Stay Pending Arbitration

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The Subcontractor Agreement that governed Duncan and
Pond’s business dealings provided that:
In the event any controversy or dispute arises between
Subcontractor and Construction Manager relating to
this Subcontract or breach thereof which dispute or
controversy does not involve the correlative rights
and duties of the Owner, then either party may seek
redress of its grievances at law or in equity in any
court having jurisdiction over the office of
Construction Manager set forth on page 1 thereof, or
at the sole option of Construction Manager, any such
dispute shall be settled by binding arbitration filed
with the office of the American Arbitration
Association which is in the city where the office of
Construction Manager set forth on page one is located
and decided in accordance with the Construction
Industry Arbitration Rules of the American Arbitration
Association.
(Subcontract Agreement (the “Agreement”) [Dkt. 1] Exh. 1 at 13,
¶ 27 (emphasis added).)
Both parties appear to agree that Duncan’s claims
against Pond are subject to arbitration under the Agreement.
Thus, the Court will grant Defendants’ motion to stay Duncan’s
claims against Pond.
The parties disagree about whether Duncan’s claims
against Berkley should also be stayed pending arbitration.
Defendants argue that “it is clear from the face of the
Complaint that the nature of the claim asserted by Plaintiff is
a dispute solely between Pond and Duncan.”
[Dkt. 7] at 1.]

(Def. Mem. in Supp.

However, one only has to read the Complaint to

see that Duncan, in fact, has asserted claims against Berkley

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for its role as surety as well.

(Compl. [Dkt. 1] at 7-8.)

Before turning to Duncan’s claims against Berkley, the Court
will provide a brief history of the federal law underlying
Duncan’s claims.
The Miller Act (the “Act”) requires a general
contractor on a federal construction project to furnish a
payment bond, guaranteed by a surety, “for the protection of all
persons supplying labor and material in the prosecution of work
provided for in the contract.”

40 U.S.C. § 3131(b)(2).

The Act

was designed to achieve certain policy objectives, namely, to
create a cause of action for any person(s) who have not been
paid in full within 90 days of last providing labor or material
to a federal project.

Id.

Through its cause of action, the Act

provides a prompt means of recovering payment.

United States ex

rel. Acoustical Concepts, Inc. v. Travelers Cas. & Sur. Co. of
Am., 635 F. Supp. 2d 434, 438-39 (E.D. Va. 2009) (internal
citations omitted).
According to the United States Supreme Court, the Act
is “highly remedial in nature” and should be given “a liberal
construction and application” in order to carry out “the
Congressional intent to protect those whose labor and materials
go into public projects.”

U.S. for the Benefit and on Behalf of

Sherman v. Carter, 353 U.S. 210, 216 (1957) (internal citations
omitted).

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Based on the Miller Act, Plaintiff argues: (1) that it
has not agreed to arbitrate its claims against Berkley, via
written agreement or otherwise; (2) that it has independent
claims against Berkley under the Act; and (3) that Berkley has
different potential defenses than Pond.
11] at 2.)

(Pl. Mem. in Opp. [Dkt.

For these reasons, Duncan alleges that Berkley is

independently liable for the money owed Duncan for its work on
the federal project and, thus, the suit against Berkley should
proceed.

(Id.)
Defendants appear to argue that the Court should stay

Duncan’s claims against Berkley, pending arbitration, based
upon: (1) the general presumption in favor of arbitration; (2)
the co-extensive liability of Berkley and Pond for the alleged
debts; and (3) the “voluminous authority” that supports a stay.
(Def. Rep. Br. at 2, 4-5.)

At the same time, Defendants concede

that Berkley is not subject to the Subcontract Agreement’s
arbitration provision, but believe that problem to be solved by
the assertion that Berkley is willing to participate voluntarily
as a party to the arbitration.

(Id. at 6.)

Notably absent from

Defendants’ reply brief is any statement that Berkley will also
agree to be bound by the resulting arbitration decision.

Even

if such a statement existed, however, Plaintiff clearly objects
to pursuing arbitration with Berkley now.
Ultimately, the Court is unconvinced by Defendants’

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arguments.

While there is a general presumption in favor of

arbitration, see AT&T, 475 U.S. at 650, the moving party “must
demonstrate a pressing need for [a stay]” and that “the
need . . . outweighs any possible harm to the nonmovant.”

Elite

Constr. Team, Inc. v. Wal-Mart Stores, Inc., No. CIV. JKB-142358, 2015 WL 925927, at *3 (D. Md. Mar. 2, 2015) (internal
quotations and citation omitted).
meet that burden here.

Defendants have failed to

Their initial memorandum provided no

evidence whatsoever that Duncan’s claims against Berkley should
be stayed.

Their reply brief did not fare much better, placing

much of the analysis in the hands of conclusory statements that
were devoid of evidentiary support.

Far from convincing this

Court that these claims are referable to arbitration, Defendants
admitted that Duncan and Berkley have never agreed to arbitrate.
In addition, case law does not support Defendants’
proposition that the liability of the general contractor and its
surety are always the same.

Although “the general rule of

suretyship law” is that a “surety’s liability is coextensive
with that of its principal,” see United States ex rel. Walton
Tech. v. Weststar Eng’g, Inc., 290 F.3d 1199, 1206-07 (9th Cir.
2002), in Miller Act cases, the liability of the surety is “at
least coextensive with the obligations of the Act.”
1206.

Id. at

Under the Act, Duncan’s cause of action accrued 90 days

after completion of its work.

The Act permits Duncan to bring

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suit at that time, not when and if Duncan recovers from Pond.
Moreover, conditioning Duncan’s right to recover from Berkley on
the completion of the arbitration process with Pond – a process
that has not yet been initiated and, under the terms of the
Subcontract Agreement itself, can only be initiated by Pond – is
at odds with the terms of the Miller Act itself.
Finally, it is important to point out that the
decision whether to stay a federal case pending arbitration for
claims that are not clearly referable to arbitration is made at
the Court’s discretion, “as part of its inherent power to
control its own docket.”
*3.

See Elite Const., 2015 WL 925927, at

Many of the cases cited by Defendants as “voluminous

authority” in support of a stay are, in fact, evidence of this
discretionary power at work.
Because Defendants have failed to meet their burden of
proof to justify staying Duncan’s claims against Berkley, this
Court will deny Berkley’s motion for a stay pending arbitration.
B.

Defendants’ Motion for Extension of Time to File
Defendants have requested that this Court extend the

filing deadline for responsive pleadings until 14 days after the
Court rules on Defendants’ motion to stay litigation pending
arbitration.
[Dkt. 10.]

[Dkt. 8.]

Plaintiff does not oppose this motion.

Accordingly, Defendant Berkley’s motion for an

extension of time will be granted.

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Berkley shall file an answer

to Plaintiff’s complaint on or before October 25, 2016.

As

noted above, Defendant Pond’s motion for a stay was granted.
Thus, no responsive pleading is required at this time.
V.

Conclusion

For the foregoing reasons, Defendant Pond’s motion to
stay litigation is granted.

Duncan’s claims against Pond will

be stayed, pending arbitration.

Pond is instructed to file a

notice of arbitration by October 28, 2016.
motion to stay litigation is denied.

Defendant Berkley’s

Duncan’s claims against

Berkley will proceed as scheduled, taking into account Defendant
Berkley’s motion for an extension of time to file responsive
pleadings.
granted.

Defendant Berkley’s motion for an extension is
Berkley shall file an answer to Plaintiff’s complaint

on or before October 25, 2016.

An appropriate Order shall

issue.

October 11, 2016
Alexandria, Virginia

/s/
James C. Cacheris
UNITED STATES DISTRICT COURT JUDGE

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