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United States ex rel. Red Hawk Contracting, Inc. v. MSK Construction, Inc.

United States District Court, M.D. North Carolina

May 8, 2018



          OSTEEN, JR., District Judge

         Presently before this court is Defendant MSK Construction, Inc.'s (“MSK”) Motion to Dismiss or Stay Pursuant to the Federal Arbitration Act (“FAA”). (Doc. 19.) Plaintiff the United States of America, for the use and benefit of Red Hawk Contracting, Inc. (“Plaintiff”) has responded. (Doc. 21.) No. reply was filed, and the matter is now ripe for resolution. For the reasons stated herein, this court will grant in part and deny in part Defendant's motion.

         I. BACKGROUND

         Plaintiff's Complaint brings a breach of contract claim and, in the alternative, an unjust enrichment claim against MSK.

         (Complaint (“Compl.”) (Doc. 1) at 4-5, 7-8.) Plaintiff also asserts a claim under the Miller Act, 40 U.S.C. § 3131 et seq., [1]against MSK and Defendant Endurance American Insurance Company (“Endurance”) to enforce a claim on a payment bond executed between MSK and Endurance as surety, (Compl. (Doc. 1) at 5-7).

         Plaintiff's claims arise out of a subcontract agreement between Plaintiff and MSK. (See id. at 2-4.) MSK was awarded a contract by the federal government for a Department of Veterans Affairs construction project in Durham, North Carolina. (See Id. at 2; Compl., Ex. A (Doc. 1-2) at 1.) In connection with this project, MSK executed a subcontract with Plaintiff, (Compl., Ex. A (Doc. 1-2)), wherein MSK would pay Plaintiff $400, 404.00 in exchange for Plaintiff performing a variety of services, including demolition, earthwork, and sewerage and drainage installation, (see id. at 2).

         According to the Complaint, Plaintiff has fully performed according to the terms and conditions of the subcontract. (Compl. (Doc. 1) at 4, 6.) Plaintiff claims MSK breached the subcontract by failing to fully pay for materials, equipment, and labor; attempting to force Plaintiff to complete work outside the subcontract's scope; failing to maintain the project schedule; asserting wrongful back charges; and wrongfully terminating Plaintiff. (Id. at 4-5.) Plaintiff asserts that, after applying all payments and credit due, $80, 180.90 is past due and owing under the subcontract. (Id.)

         MSK, as principal, and Endurance, as surety, executed a Miller Act payment bond in connection with the contract between MSK and the federal government. Plaintiff contends that it has performed all conditions precedent to payment and that MSK and Endurance are jointly and severally liable for the amount claimed, with interests and costs allowable by statute. (Id. at 2, 6-7.)

         MSK's[2] motion is based on an arbitration clause in the subcontract, including the following provisions:

ARBITRATION: Subject to the requirements above, this AGREEMENT is subject to arbitration pursuant to S.C. Code Ann. §15-48-10, et. seq. [sic] All claims, disputes, or other matters in question arising out of, or relating to this AGREEMENT, the relationship of the parties hereto, the Project, the WORK, or the Contract Documents, including any breach thereof, shall, at either party's option, be fully and finally decided by arbitration. . . . Either party may join (by consolidation, joinder, or otherwise) such other entities or persons whom that party believes to be substantially involved in a common question of fact or law as may be at issue in the arbitration. However, in the event either party is for any reason unable to compel such entities or persons to participate in the arbitration, then either party may declare this arbitration provision absolutely null and void, and any pending arbitration shall be dismissed by the parties in favor of litigation in the courts. . . . The arbitration shall be conducted in Charleston, South Carolina. Any demand for arbitration hereunder shall be made in writing before the date when institution of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statute of limitations or statute of repose.

         (Compl., Ex. A (Doc. 1-2) at 15-16.) The subcontract also contains a provision stating that the agreement shall be governed by South Carolina law. (Id. at 15.) MSK asserts that the arbitration provisions deprive this court of subject matter jurisdiction over all of Plaintiff's claims, and that the Complaint should be dismissed under Federal Rule of Civil Procedure 12. (Defendant MSK's Memorandum of Law in Support of its Motion to Dismiss or Stay Pursuant to the Federal Arbitration Act (“Def.'s Br.”) (Doc. 20) at 4-6.) Alternately, MSK asserts that if this court finds any of the claims not to be arbitrable, that the court should stay the action until arbitration between Plaintiff and MSK is completed. (Id. at 6)[3]


         MSK cites only to § 2 of the FAA, which provides that a written arbitration agreement “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. Two other sections of the FAA are relevant: §§ 3 and 4 “provide[ ] two parallel devices for enforcing an arbitration agreement: a stay of litigation in any case raising a dispute referable to arbitration, 9 U.S.C. § 3, and an affirmative order to engage in arbitration, § 4.” Chorley Enters., Inc. v. Dickey's Barbecue Rests., Inc., 807 F.3d 553, 563 (4th Cir. 2015) (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 22 (1983)). While not specifically invoking either §§ 3 or 4 of the FAA, MSK's motion seeking enforcement of the arbitration agreement will nonetheless be construed as asking for both a stay and an order compelling arbitration. See Rota-McLarty v. Santander Consumer USA, Inc., 700 F.3d 690, 698 (4th Cir. 2012) (favoring “substance rather than nomenclature” in determining whether movant adequately invoked the FAA's remedies).

         In determining whether a stay of litigation is required under § 3, courts must “engage in a limited review to ensure that the dispute is arbitrable - i.e., that a valid agreement to arbitrate exists between the parties and that the specific dispute falls within the substantive scope of that agreement.” Murray v. United Food & ...

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