311 F. Supp. 3d 797
E.D. Va.2018Background
- Harbor Construction (subcontractor) contracted with T.H.R. Enterprises (prime contractor) to provide electrical work on a federal project; subcontract price ~$1.4M; Harbor alleges final unpaid balance $269,056.86.
- Harbor sued THR and Hanover (surety) under the Miller Act and for breach of contract and unjust enrichment in Dec. 2017.
- Subcontract Article 13 contains a unilateral ADR clause allowing CONTRACTOR (THR) "at its sole election" to decide disputes by mediation, arbitration, or other ADR; clause also states ADR is subcontractor's exclusive remedy in lieu of bond claims.
- THR elected arbitration in April 2018, filed an arbitration demand with AAA, and moved the district court to compel arbitration and to stay the federal action.
- Harbor opposed, arguing the ADR clause is impermissibly vague, violates the Miller Act (waives bond rights), is illusory (no mutuality), and that THR waived arbitration by litigating; court held clause enforceable and THR had not waived arbitration.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Enforceability of ADR clause (vagueness) | Clause uses "may" and is ambiguous; requires mutual consent | "May" means THR may elect ADR; once elected Harbor must participate | Clause is not vague; "may" permits election and binds other party to participate |
| Validity under Miller Act | Clause unlawfully waives Harbor's Miller Act bond rights because subcontract signed before work | THR did not assert Miller Act claim is arbitrable; seeks stay of Miller Act claim pending arbitration | Clause not invalidated by Miller Act; Miller Act issue not a defense to enforcing arbitration election/stay |
| Unilateral arbitration (mutuality/illusory) | Clause is illusory because only THR can elect ADR; lacks mutual obligation | Virginia law permits unilateral arbitration provision so long as contract has consideration | Under Virginia law, unilateral ADR provision valid if contract supported by consideration; clause enforceable |
| Waiver by litigation participation | THR delayed and undertook litigation activity, prejudicing Harbor | THR timely elected arbitration and limited litigation activity; no actual prejudice to Harbor | No waiver: delays minimal, no significant litigation progress or prejudice; arbitration compelled |
Key Cases Cited
- Hightower v. GMRI, Inc., 272 F.3d 239 (4th Cir. 2001) (two-step FAA arbitrability inquiry)
- TM Delmarva Power, L.L.C. v. NCP of Virginia, L.L.C., 263 Va. 116 (Va. 2002) ("may" in arbitration clause allows election; other party bound once invoked)
- Dan Ryan Builders, Inc. v. Nelson, 682 F.3d 327 (4th Cir. 2012) (discussion of jurisdictional split on unilateral arbitration provisions)
- Patten Grading & Paving, Inc. v. Skanska USA Bldg., Inc., 380 F.3d 200 (4th Cir. 2004) (delay in seeking arbitration alone insufficient to show waiver)
- Maxum Foundations, Inc. v. Salus Corp., 779 F.2d 974 (4th Cir. 1985) (party may waive FAA rights by substantial use of litigation machinery causing prejudice)
- American Home Assurance Co. v. Veccor Concrete Constr. Co., 629 F.2d 961 (4th Cir. 1980) (stay of non-arbitrable claims appropriate when common facts and judicial economy favor staying entire action)
- C.G. Blake Co. v. W.R. Smith & Son, 147 Va. 960 (Va. 1926) (mutuality of obligation not required where contract has adequate consideration)