Daniel Lund III | Phelps Dunbar
A general contractor on a federal highway project in Arizona refused to pay in excess of $800,000 to its site preparation subcontractor. The sub filed suit in federal court against the GC and its Miller Act surety.
After being served with the suit, the general contractor and surety – rather than answering the suit – requested a stay. The request was predicated in principal part upon GC friendly heavy-handed dispute resolution processes set forth in the subcontract. For example, the subcontract provided that if the dispute between GC and sub “is connected to” an ongoing dispute between the GC and the federal owner, litigation between the GC and sub must be stayed until resolution of the GC/owner dispute. Added to the foregoing were requirements for claims disconnected from GC/owner disputes, which required initial discussions, followed by mediation, followed by arbitration or litigation.
The court wrestled with the stay request because the “framework” for that as presented by both parties, according to the court, was off base. The court eventually held that the stay request was to be handled under its inherent power to grant that type of relief and attributed the arbitration argument of the GC to a request for a stay under the Federal Arbitration Act.
Concerning the alleged GC/owner dispute, the subcontract called for a stay if those parties are in a “dispute resolution proceeding.” Noting that “dispute resolution proceeding” was not defined in the subcontract, the court – not requiring the term to entail a formal proceeding – nonetheless held that the GC had not provided evidence of “ongoing discussions and meetings” between the GC and the owner “in sufficient detail to determine that they meet the bare minimum of being a ‘dispute resolution proceeding.’” Hence, the court refused the argument of the general contractor.
Regarding the mediation and arbitration requirements, the court also ruled in favor of the sub. Concerning mediation, the court noted that the subcontract provided that only the general contractor could invoke mediation (mediation was at the “sole discretion” of the GC) and determined that it would be “inappropriate to bar [subcontractor] from pursuing litigation before mediation when [subcontractor] has no ability to demand mediation.”
The court was unpersuaded by GC arguments that it planned to “invoke mediation at some identified point” in the future.
On arbitration, the court pointed out that the parties had literally not checked a box in the subcontract document to select either arbitration or litigation. Scrambling, the general contractor argued that because arbitration was the first listed of the two options, the parties “intended to select the arbitration provision by not checking the box for arbitration or litigation.” Naturally, the court rolled its eyes at this, determining that there was no agreement to arbitrate.
In issuing its ruling refusing the stay, the court noted the possibility that a stay might later be requested but admonished the GC that a renewed request “must provide authority… that a federal court lacks discretion” to refuse a stay under the circumstances presented – a high hurdle for the future.
Stormwater Plans LLC v. Cincinnati Ins. Co., 2023 U.S. Dist. LEXIS 180549 (D. Ariz. Oct. 6, 2023)
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