The Miller Act, which mandates payment bonds on most federal construction projects for the protection of unpaid subcontractors and suppliers, provides that any suit on the bond “must be brought . . . in the United States District Court for any district in which the contract was to be performed and executed.” 40 U.S.C. § 3133(b)(3)(B). The word “must” in this statute has been characterized by F.D. Rich Co. v. United States ex rel. Industrial Lumber Co., 417 U.S. 116, 125 (1974), as “merely a venue requirement” specifying which United States District Court will entertain the lawsuit. Because venue provisions can be waived, courts allow Miller Act claims to be litigated in a different court selected by the parties’ contract. United States on behalf of Pittsburgh Tank & Tower, Inc. v. G. & C. Enterprises, Inc., 62 F.3d 35, 36 (1st Cir. 1995).
At the same time, courts have refused to enforce forum selection clauses that pick a state court rather than a federal court for resolving Miller Act claims, given the statute’s admonishment that the suit “must be brought . . . in the United States District Court . . .” U.S. ex rel. B & D Mechanical Contractors, Inc. v. St. Paul Mercury Ins. Co., 70 F.3d 1115, 1117 (10th Cir. 1995) (“The parties’ selection of a state court forum is fatal to the clause’s enforceability. . . The Miller Act grants federal courts exclusive jurisdiction.”).
What if the parties’ contract calls for arbitration? The Federal Arbitration Act instructs federal courts to enforce arbitration agreements according to their terms. If a general contractor and subcontractor on a federal construction project have agreed to arbitrate any disputes, must the subcontractor’s payment bond claim under the Miller Act be arbitrated?
Twenty-one years ago, the answer was a rather clear Yes. But in 1999, Congress amended the Miller Act to provide that “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 performance of the contract.” 40 U.S.C. § 3133(c). An arbitration agreement is the quintessential “waiver of the right to bring a civil action,” and when contained in a signed subcontract it will necessarily be executed before labor or materials are furnished.
The legislative history of the amendment, H.R. Rep. No. 106-277 at *5 (1999), tells us: “This bill does not void subcontract provisions requiring arbitration or other alternative methods of resolving disputes. Such provisions would remain enforceable with a claimant’s Miller Act rights preserved by a timely suit that can be stayed pending the outcome of the subcontract dispute resolution procedure. The bill respects the freedom of the parties to the subcontract to specify means to resolve their disputes and the exclusive jurisdiction of the district court to decide issues arising under the Miller Act.” This language can certainly be read as evidence of congressional intent that Miller Act claims not be arbitrable.
Keeping the Miller Act claim in court, but staying it pending arbitration of the breach of contract claim between the subcontractor and the general contractor, works well if the surety is bound by the outcome of the arbitration. United States f/b/o Maverick Construction Management Services, Inc. v. Consigli Construction Co., Inc., 873 F.Supp.2d 409 (D.Me. 2012), a Miller Act and breach of contract case by a subcontractor on a project at the Portsmouth Naval Shipyard, is an example. The surety, Federal Insurance Company, acknowledged “that its liability is coextensive with Consigli’s. Maverick will not need to relitigate its claims against FIC following arbitration with Consigli. It would be duplicative and risk inconsistent adjudications to allow Maverick to pursue its Miller Act claim against FIC in this Court simultaneously with its claims against Consigli in arbitration.” Id. at 417-418.
If the surety has not agreed to be bound by the arbitration award, or if no claim is made against the general contractor at all, things get dicier. I’ll address this scenario in a future blog.
At the same time, courts have refused to enforce forum selection clauses that pick a state court rather than a federal court for resolving Miller Act claims, given the statute’s admonishment that the suit “must be brought . . . in the United States District Court . . .” U.S. ex rel. B & D Mechanical Contractors, Inc. v. St. Paul Mercury Ins. Co., 70 F.3d 1115, 1117 (10th Cir. 1995) (“The parties’ selection of a state court forum is fatal to the clause’s enforceability. . . The Miller Act grants federal courts exclusive jurisdiction.”).
What if the parties’ contract calls for arbitration? The Federal Arbitration Act instructs federal courts to enforce arbitration agreements according to their terms. If a general contractor and subcontractor on a federal construction project have agreed to arbitrate any disputes, must the subcontractor’s payment bond claim under the Miller Act be arbitrated?
Twenty-one years ago, the answer was a rather clear Yes. But in 1999, Congress amended the Miller Act to provide that “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 performance of the contract.” 40 U.S.C. § 3133(c). An arbitration agreement is the quintessential “waiver of the right to bring a civil action,” and when contained in a signed subcontract it will necessarily be executed before labor or materials are furnished.
The legislative history of the amendment, H.R. Rep. No. 106-277 at *5 (1999), tells us: “This bill does not void subcontract provisions requiring arbitration or other alternative methods of resolving disputes. Such provisions would remain enforceable with a claimant’s Miller Act rights preserved by a timely suit that can be stayed pending the outcome of the subcontract dispute resolution procedure. The bill respects the freedom of the parties to the subcontract to specify means to resolve their disputes and the exclusive jurisdiction of the district court to decide issues arising under the Miller Act.” This language can certainly be read as evidence of congressional intent that Miller Act claims not be arbitrable.
Keeping the Miller Act claim in court, but staying it pending arbitration of the breach of contract claim between the subcontractor and the general contractor, works well if the surety is bound by the outcome of the arbitration. United States f/b/o Maverick Construction Management Services, Inc. v. Consigli Construction Co., Inc., 873 F.Supp.2d 409 (D.Me. 2012), a Miller Act and breach of contract case by a subcontractor on a project at the Portsmouth Naval Shipyard, is an example. The surety, Federal Insurance Company, acknowledged “that its liability is coextensive with Consigli’s. Maverick will not need to relitigate its claims against FIC following arbitration with Consigli. It would be duplicative and risk inconsistent adjudications to allow Maverick to pursue its Miller Act claim against FIC in this Court simultaneously with its claims against Consigli in arbitration.” Id. at 417-418.
If the surety has not agreed to be bound by the arbitration award, or if no claim is made against the general contractor at all, things get dicier. I’ll address this scenario in a future blog.
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