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United States v. International Fidelity Insurance Co.

United States District Court, S.D. Alabama, Southern Division

February 7, 2017

THE UNITED STATES OF AMERICA etc., Plaintiff,
v.
INTERNATIONAL FIDELITY INSURANCE COMPANY, et al., Defendants.

          ORDER

          WILLIAM H. STEELE CHIEF UNITED STATES DISTRICT JUDGE

         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 be granted.

         BACKGROUND

         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 Stephens.

         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).

         DISCUSSION

         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.

         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 ...

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