United States ex rel. TBI Investments, Inc. v. BrooAlexa, LLC
119 F. Supp. 3d 512
S.D.W. Va
2015

Background

  • BrooAlexa was prime contractor on a federal construction project; American Contractors is the surety on the project payment bond. Plaintiff was BrooAlexa’s subcontractor under two signed subcontracts.
  • Both subcontracts contained an "Alternative Dispute Resolution Process" clause (ADR Clause) requiring negotiation and mediation, then arbitration under AAA construction rules "at the sole discretion of Contractor," and, if unresolved, litigation.
  • Plaintiff performed site work, encountered differing subsurface conditions, sought change orders and payment for extra work, and alleges BrooAlexa refused payment; Plaintiff also filed a rejected claim under the payment bond.
  • Plaintiff sued in federal court asserting: (I) breach of contract (BrooAlexa), (II) Miller Act/ payment bond (American Contractors), (III) quantum meruit (both), and (IV) Prompt Payment Act (both). Contracts were not attached to the complaint but were later submitted by defendants.
  • Defendants moved to compel arbitration (and to dismiss or stay). Court treated the motion as a factual Rule 12(b)(1) attack, applied a summary-judgment-like standard, and resolved whether the ADR Clause is valid/enforceable and which claims are arbitrable.

Issues

Issue Plaintiff's Argument Defendant's Argument Held
Whether FAA requires arbitration of claims ADR Clause is invalid/unenforceable (unconscionable, ambiguous); so FAA should not compel arbitration FAA favors arbitration; ADR Clause is valid and covers the disputes Court: FAA applies; arbitration compelled for Counts I, III, IV
Whether ADR Clause is procedurally unconscionable Contracts are adhesive; disparity in sophistication; clause buried/untold Parties negotiated price; commercial parties; clause visible and readable Court: No procedural unconscionability found
Whether ADR Clause is substantively unconscionable (mutuality, costs) Clause is one‑sided (Contractor alone can require arbitration); arbitration costs would be prohibitive Clause permits relief and is typical in construction contracts; plaintiff has no proof of prohibitive costs Court: Clause lacks mutuality (one-sided) but plaintiff failed to show procedural unconscionability or prohibitive costs; overall not unconscionable under WV law
Whether Count II (Miller Act) must be arbitrated and whether case should be dismissed vs. stayed Plaintiff: even if some claims arbitrable, case should be stayed rather than dismissed Defendants: seek arbitration and dismissal; later declined to seek arbitration of Miller Act claim Court: Defendants did not move to arbitrate Miller Act claim; because not all claims are arbitrable, Court STAYS the action and ORDERS arbitration for Counts I, III, IV; DENIES dismissal

Key Cases Cited

  • Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983) (establishes federal policy favoring arbitration and standards for staying litigation)
  • Perry v. Thomas, 482 U.S. 483 (1987) (state contract‑law defenses apply to arbitration agreements but FAA supplies federal substantive law of arbitrability)
  • Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967) (distinguishes arbitrability and severability issues for arbitration clauses)
  • AT&T Technologies, Inc. v. Communications Workers, 475 U.S. 643 (1986) (courts decide arbitrability unless parties clearly assign it to arbitrator)
  • Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (1985) (FAA mandates district courts to compel arbitration when agreement covers dispute)
  • Green Tree Financial Corp.‑Alabama v. Randolph, 531 U.S. 79 (2000) (party challenging arbitration costs bears burden to show prohibitive expense)
  • Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006) (§2 places arbitration agreements on same footing as other contracts; state rules targeting arbitration clauses invalid)
  • Mitsubishi Motors Corp. v. Soler Chrysler‑Plymouth, Inc., 473 U.S. 614 (1985) (general contract defenses may invalidate arbitration agreements)
  • United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574 (1960) (arbitration is a matter of contract; scope determined by parties’ intent)
  • Adkins v. Labor Ready, Inc., 303 F.3d 496 (4th Cir. 2002) (discusses FAA’s stay/compel framework and burden to show arbitration costs)
  • Am. Recovery Corp. v. Computerized Thermal Imaging, Inc., 96 F.3d 88 (4th Cir. 1996) (broad arbitration clauses cover disputes having significant relationship to the contract)
Read the full case