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Real Estate Law

Is Arbitration Okay Under the Miller Act? It Is if You Don’t Object

I have discussed both payment bond claims under the Miller Act and alternate dispute resolution (ADR) here at Construction Law Musings on many an occasion. A question that is sometimes open is what to do when there is contractually mandated arbitration for claims “relating to the contract or the work.”

While here in Virginia, as in most places, the courts will almost automatically send any breach of contract case with such a clause to arbitration, a question exists whether the claim against the bond held by a surety that is not a party to the contract is subject to being referred. Well, in a recent opinion the District Court for the Eastern District of Virginia in Norfolk weighed in on this question where there was no opposition or objection to a motion to stay pending arbitration.

In U.S. for Use of Harbor Construction Co. Inc. v. THR Enterprises Inc. the Court considered a fairly typical payment dispute leading to a Miller Act claim. The general contractor and surety filed a motion to dismiss or alternatively stay the litigation based upon a clause in the contract between general contractor and subcontractor allowing the general contractor to elect the type of ADR to be used to resolve the dispute.

For reasons not set forth in the opinion, Harbor Construction did not file any opposition or objection to the motion. After emphasizing this key point and finding the arbitration provision of the contract to be enforceable, the court, [enhanced version available to subscribers], stayed the litigation and sent it to arbitration stating:

Both Virginia law and federal policy favor arbitration of disputes. . . Here, this court lacks any evidence or argument contending that THR’s invocation of the contractual arbitration clause is untimely, is based on an unenforceable contract provision, or is otherwise improper. Absent any challenge to the validity or invocation of the contractual arbitration clause, the court views the clause as enforceable under general principles of Virginia contract law.

In short, the Court had nothing before it to give it reason to take the drastic action of refusing to enforce a contractual provision. The full opinion is linked above and I commend it to your reading.

The lessons? 1. If you have reason to object, always do so. Failing to show up for court is never a good idea. 2. At least when there is no reason stated not to do it, the Virginia Federal Court may enforce an ADR provision of a construction contract even in the case of a Miller Act bond claim. 3. Consult with your local and experienced construction attorney when deciding how, when and where to file your Miller Act, [enhanced version available to subscribers], claim. Doing so could help to avoid the type of unnecessary expense that Harbor Construction probably incurred by failing to object.

As always, I welcome your comments. Please subscribe to keep up with this and other Construction Law Musings.

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