[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS FILED FOR THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS ELEVENTH CIRCUIT MAY 22, 2001 ________________________ THOMAS K. KAHN CLERK No. 98-5404 ________________________
D. C. Docket No. 97-00410 CV-UUB
EMPLOYERS INSURANCE OF WAUSAU, a Mutual Company, Plaintiff-Counter- Defendant-Appellant,
versus
BRIGHT METAL SPECIALTIES, INC., Defendant-Counter- Claimant, Cross- Claimant-Cross- Defendant-Appellee,
ROGERS CONSTRUCTION COMPANY, Defendant-Cross- Defendant-Cross- Claimant-Third-Party Plaintiff-Appellee.
__________________________________________________________________ _
BRIGHT METAL SPECIALTIES, INC., Plaintiff-Cross- Defendant-Appellee,
EMPLOYERS INSURANCE OF WAUSAU, a Mutual Company, Defendant-Cross- Defendant-Appellant,
ROGERS CONSTRUCTION COMPANY, Defendant-Cross- Claimant.
________________________
No. 98-5405 ________________________
D. C. Docket No. 97-00410-CV-UUB
EMPLOYERS INSURANCE OF WAUSAU, a Mutual Company,
Plaintiff-Counter- Defendant-Appellee,
BRIGHT METAL SPECIALTIES, INC., Defendant-Counter- Claimant-Cross- Claimant-Cross- Defendant-Appellee,
ROGERS CONSTRUCTION COMPANY, Defendant-Cross- Defendant-Cross-
2 Claimant-Third-Party Plaintiff-Appellant.
__________________________________________________________________ _
BRIGHT METAL SPECIALTIES, INC., Plaintiff-Cross- Defendant-Appellee,
Defendant-Cross- Defendant-Appellee,
ROGERS CONSTRUCTION COMPANY, Defendant-Cross- Claimant-Appellant.
Appeals from the United States District Court for the Southern District of Florida _________________________
(May 22, 2001)
Before EDMONDSON, FAY and GARWOOD*, Circuit Judges.
______________________ *Honorable Will L. Garwood, U.S. Circuit Judge for the Fifth Circuit, sitting by designation.
3 FAY, Circuit Judge:
Appellants Employers Insurance of Wausau (“Wausau”) and Rogers
Construction Company (“Rogers”) appeal the district court’s order compelling
arbitration of a claim asserted by Appellee Bright Metal Specialties, Inc. (“Bright”)
arising from a dispute on a Government construction project in Everglades
National Park. The district court held that Wausau, a Miller Act surety, became a
party to
Bright’s subcontract and the arbitration provision therein by virtue of Wausau’s
Takeover Agreement with the Government, Wausau’s Completion Contract with
its completion general contractor, Rogers Construction Co. (“Rogers”), and the
Ratification Agreement with Bright. Wausau argues that it did not contractually
agree to arbitrate with Bright, that it is not bound by the arbitration provision in
Bright’s subcontract, and that the Miller Act precludes arbitration of a claim
against a Miller Act surety such as Wausau. Rogers concedes that it is bound by
Bright’s subcontract, but contends that Bright’s claim is excluded from arbitration
pursuant to an arbitration exception in the subcontract. Moreover, Bright contests
our jurisdiction to hear this appeal. We conclude that the district court’s order was
an appealable “final decision” and affirm the arbitration order with respect to both
Wausau and Rogers.
4 I. Background
The parties agree to the following facts, most of which are established by
contract. On or about July 16, 1993, the National Park Service (“Government”)
contracted with A-1 Construction/BellincCo. (“A-1") for the repair of roofs to
certain buildings located in the Everglades National Park (the “Project”). Wausau,
as contract surety, provided performance and payment bonds for the Project on
behalf of A-1, its principal, in favor of the Government, as required by the Miller
Act, 40 U.S.C. § 270, et seq. In September 1993, A-1 subcontracted a portion of
the Project work to Bright pursuant to a written agreement (the “Subcontract” or
“Bright/A-1 Subcontract”) that included an arbitration clause.
The Government subsequently terminated A-1 for its default on the Project,
and called upon Wausau to complete the work pursuant to the performance bond.
On or about May 20, 1994, the Government and Wausau entered into a Takeover
Agreement by which Wausau agreed to complete the prime contract for A-1. On
or about May 26, 1994, Wausau entered into a Contract for Completion and
Construction (the “Completion Contract”) with Rogers whereby Rogers became
the completing contractor for all remaining work under the prime contract.
Pursuant to the Completion Contract, Wausau agreed to assign to Rogers all of
5 Wausau’s right, title and interest in and to A-1's executory subcontracts for the
performance of Project work.
On or about June 14, 1994, Bright and Wausau entered into a Ratification
Agreement which resolved Bright’s payment bond claim and ratified the Bright/A-
1Subcontract. First, Wausau and Bright resolved claims relating to monies due
Bright for work performed prior to A-1's termination. Second, Bright agreed to
complete the Subcontract and agreed to start work on the Project within seven (7)
days after request by Wausau, its agent, “or assigns, including any completion
contractor engaged by [Wausau].” Third, the Ratification Agreement provided that
Wausau could “assign its rights under the [A-1] subcontract and this agreement” to
a completion contractor. Finally, the parties agreed that Wausau would pay Bright
the remaining retainage, as fulfillment of its obligations to Bright, if work did not
begin within a specified period. Thereafter, Wausau required Bright to complete
the Subcontract with Rogers as the completion contractor. Bright resumed work
on the Project in June 1994.
6 In December 1994, Bright and Wausau settled a payment bond claim
previously submitted by Bright for work, labor and/or materials performed and/or
furnished under its Subcontract with A-1.1
Near completion of the Project, Bright sought additional compensation for
delays and damages caused by the Government. Ultimately, Bright submitted to
Rogers a request for “equitable adjustment” (“REA”) under the Subcontract. As
required by the contract documents, Rogers submitted the request to Wausau for
presentation by Wausau to the Government. Bright, Rogers, Wausau and the
Government met in Denver, Colorado in February 1996 to address Project claims,
including Bright’s REA. At the meeting, the Government offered to settle Bright’s
REA for approximately $10,000, less than two percent (2%) of the amount sought
by Bright. Bright declined the settlement offer and left the meeting. After Bright
left the meeting, Wausau accepted the Government’s settlement offer without
Bright’s approval or consent. Bright did not submit any further claims against the
Government, directly or through Rogers or Wausau, regarding the amounts sought
in the REA.
1 Pursuant to this settlement agreement, Wausau paid Bright the agreed amount in exchange for a release signed by Bright of all claims of any nature which Bright might have against the Government or against Wausau under its surety bond.
7 In January 1997, Bright filed a Demand for Arbitration with the American
Arbitration Association (“AAA”) for alleged breach of contract by Rogers and
Wausau. Bright claimed losses in the amount of $944,000 plus interest, attorney’s
fees and costs.
In February 1997, Wausau filed a complaint in the District Court for the
Southern District of Florida against Rogers and Bright seeking declaratory and
injunctive relief against the arbitration (Case No. 97-410-Civ-Marcus). In a
separate action against Wausau and Rogers, Bright filed a Motion to Compel
Arbitration, pursuant to the Federal Arbitration Act, 9 U.S.C. § 4, and based on an
arbitration clause in the Subcontract between Bright and A-1 (Case No. 97-433-
Civ-Marcus). Wausau and Rogers filed claims for declaratory and injunctive relief
seeking to stay the arbitration.2
The two actions were consolidated and referred to Magistrate Judge Ted E.
Bandstra. On December 22, 1997, Magistrate Judge Bandstra issued an Amended
Report and Recommendation that Wausau and Rogers be compelled to arbitrate
2 Bright filed a counterclaim against Wausau and a cross-claim against Rogers conditioned on the Court denying arbitration. In response to Bright’s conditional pleadings, Rogers filed a counterclaim against Bright Metal and its surety, Preferred National Insurance Company.
8 Bright’s claim. The district court, Judge Ungaro-Benages presiding,3 conducted a
de novo review and by order entered September 22, 1998, affirmed the
Magistrate’s Amended Report and Recommendation granting Bright’s Motion to
Compel Arbitration, denying Wausau’s and Roger’s Motions for Injunctive Relief,
and denying all remaining motions as moot. In addition, the district court
dismissed each of the underlying consolidated actions in deference to arbitration,
and denied Roger’s request for reconsideration.
Wausau and Rogers appeal from the district court’s decision. Bright
challenges our jurisdiction to hear this appeal asserting that the district court’s
order was not a final decision with respect to arbitration under 9 U.S.C. § 16(a)(3)
of the Federal Arbitration Act (“FAA”).
II Standard of Review
The jurisdictional issue is a question of law, which we review de novo. See
Randolph v. Green Tree Fin. Corp.-Alabama, 178 F.3d 1149, 1152 (11th Cir.
1999). We review de novo the district court’s order compelling arbitration. See
Randolph, 178 F.3d at 1152.
III Analysis
3 On January 21, 1998, the district court entered an order transferring the consolidated cases to Judge Ungaro-Benages.
9 C. “Final Decision” under the Federal Arbitration Act
As a threshold matter, we decide whether we have jurisdiction over this
appeal. Special rules govern appeals from a district court’s arbitration order as set
forth in section 16 of the FAA. See 9 U.S.C. § 16; see also American Express Fin.
Advisors, Inc. v. Makarewicz, 122 F.3d 936 (11th Cir. 1997). The question here is
whether the district court’s order compelling arbitration of Bright’s claim and
dismissing the underlying actions is a “final decision with respect to an arbitration”
within the meaning of the statute. 9 U.S.C. § 16(a)(3).
In arguing that we lack jurisdiction, Bright distinguishes between
“embedded” and “independent” proceedings, a distinction this Court has
recognized, albeit without using those labels.4 See Thomson McKinnon Sec., Inc.
v. Salter, 873 F.2d 1397, 1399 (11th Cir. 1989) (cited in Randolph, 178 F.3d at
1155 n.4). Bright correctly notes that, generally speaking, a decision of the district
court is final when it disposes of all the issues framed by the litigation and leaves
nothing for the district court to do but execute the judgment. See Randolph, 178
F.3d at 1154 (quoting Catlin v. United States, 324 U.S. 229, 233, 65 S.Ct. 631, 633
(1945)). However, Bright contends that the phrase “final decision” does not
4 An “embedded” proceeding is one that involves both a request for arbitration and other claims for relief. In an “independent” proceeding, the issue of arbitration is the only issue before the court. See Green Tree Fin. Corp.-Alabama v. Randolph, 121 S.Ct. 513, 520, 148 L.Ed.2d 373 (2000).
10 include an order compelling arbitration and dismissing the other claims in the
action, when that order occurs in an “embedded” proceeding such as this one.5
We find that Bright’s argument is foreclosed by the Supreme Court’s recent
opinion in Green Tree Fin. Corp.-Alabama, 121 S.Ct. 513, 520 (2000). That
decision held that a district court order compelling arbitration and dismissing all
other claims is “final” within the meaning of § 16(a)(3), and therefore appealable,
even when that order occurs in an “embedded” proceeding involving both a request
for arbitration and other claims for relief. Green Tree Fin. Corp., 121 S.Ct. at 520-
521. Here, as in Green Tree Fin. Corp., the district court directed the parties to
resolve the dispute by arbitration and dismissed both cases,6 leaving the court
nothing to do but execute the judgment. Accordingly, we have jurisdiction over
the consolidated actions because the arbitration order disposes of all the issues
framed by the litigation and leaves nothing for the district court to resolve.
D. The Applicability of the Subcontract’s Arbitration Clause
5 Here, the consolidated actions allege, inter alia, breach of contract, release, and performance and payment bond claims related to the underlying merits of the case, in addition to the issue of arbitration. Thus, Bright claims that the arbitration order is not a final decision because it does not decide the merits of the underlying claims. 6 Although the district court did not specify whether the dismissal was with or without prejudice, the arbitration order clearly disposed of the entire case on the merits and left no part of it pending before the court. Moreover, the district court could have, but did not, stay the case pending arbitration. See Green Tree Fin.Corp., 121 S.Ct. at 520 n.2 (explaining that arbitration order staying rather than dismissing all other claims for relief would not be appealable).
11 Having determined that we have jurisdiction over this appeal, we now turn
to the question whether the parties agreed to arbitrate the present dispute. Wausau
contends that it may not be compelled to arbitrate because it is not a party to any
agreement containing an arbitration clause. Bright argues that Wausau ratified the
Subcontract and therefore, assumed the duty to arbitrate pursuant to an arbitration
provision therein.
A. Choice of Law
Federal law establishes the enforceability of arbitration agreements, while
state law governs the interpretation and formation of such agreements. See Perry
v. Thomas, 482 U.S. 483, 107 S.Ct. 2520 (1987). Federal law counsels that
questions of arbitrability, when in doubt, should be resolved in favor of arbitration.
See Moses H. Cone Mem’l Hospital v. Mercury Constr. Corp., 460 U.S. 1, 24, 103
S.Ct. 927, 941 (1983). Thus, as with any other contract, the parties’ intentions
control, but those intentions are generously construed as to issues of arbitrability.7
B. Wausau’s duty to arbitrate.
7 Although the question of which state’s law should govern is an important one, neither the parties nor the courts have focused on this issue. See Scott v. Prudential Securities, Inc., 141 F.3d 1007, 1012 n.6 (11th Cir.1998). As a federal court sitting in diversity, we apply the conflict of law rules of Florida, including Florida contract law, unless the relevant documents provide otherwise. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021-22 (1941).
12 As an initial matter, Wausau is correct that, under the FAA, no party can be
compelled to arbitrate unless that party has entered into an agreement to do so. See
AT & T Tech., Inc. v. Communications Workers, 475 U.S. 643, 649, 106 S.Ct.
1415, 1418 (1986). Courts, however, have recognized a number of theories under
which non-signatories may be bound to the arbitration agreements of others. See,
generally, Thomson-CSF, S.A. v. Am. Arbitration Ass’n, 64 F.3d 773 (2d. Cir.
1995). These theories arise out of common law principles of contract and agency
law: 1) incorporation by reference; 2) assumption; 3) agency; 4) veil-piercing/alter
ego; and 5) estoppel. See id. at 776; see also MSDealer Serv. Corp. v. Franklin,
177 F.3d 942, 947 (11th Cir. 1999).
In this case, the district court concluded that Wausau agreed to arbitrate
disputes with Bright when it “stepped into” the shoes of A-1 and signed the
Ratification Agreement with Bright. The court reasoned that the Ratification
Agreement, signed by Wausau and Bright, incorporated by reference the
Subcontract, thus, expressing Wausau’s intent to arbitrate disputes arising out of
the Subcontract in accordance with the arbitration provision therein.8 See e.g.,
United States Fidelity and Guaranty Co. v. West Point Constr. Co., 837 F.2d 1507
8 The district court applied Georgia law to interpret the Subcontract based on the choice of law provision therein. See Subcontract, ¶ 15.2. To the extent that Florida law applied, as the place of performance, the district judge cited Florida law in accord.
13 (11th Cir.1988) (compelling surety to arbitrate where performance bond
incorporated by reference subcontract that contained arbitration provision).
We agree with the district court that Wausau is bound by the arbitration
provision in the Bright/A-1 Subcontract. By signing the Takeover Agreement,
Wausau assumed all duties and responsibilities of A-1 to complete the prime
contract in exchange for the balance of the contract price. See e.g., Travelers
Indem., et al. v. United States, 16 Cl.Ct. 142 (1988) (holding that surety became a
party to the prime contract upon executing a Takeover Agreement with the United
States). While the Takeover Agreement did not specifically obligate Wausau to
any contractual provisions previously negotiated between Bright and A-1, this
agreement clearly reveals Wausau’s intent to “step into the shoes” of A-1. The
Ratification Agreement, executed with Bright, guaranteed performance of the
Subcontract work “according to the terms and conditions of the Subcontract.” This
agreement evinces Wausau’s intent to affirm the Subcontract, including the
arbitration provision therein. See Green v. Ford Motor Credit Co., 246 S.E.2d 721,
722-23 (Ga. App. 1978); Port Largo Club, Inc. v. Warren, 476 So. 2d 1330, 1333
(Fla. 3d DCA 1985). Finally, the Completion Contract granted Wausau the option
to assign its rights in the Subcontract to Rogers. Read together, these agreements
lead us to conclude that Wausau gained the benefits and obligations of the
14 Subcontract between A-1 and Bright. Thus, Wausau became bound by the
arbitration provision in the Subcontract.
Wausau does not contest that it acquired A-1's “rights” under the
Subcontract. Pursuant to the Ratification Agreement, Wausau obtained Bright’s
agreement to complete the Subcontract at no additional cost. Wausau also acquired
the right to assign its rights under the Subcontract to a completion contractor.
Wausau concedes that it exercised its right to assign the Subcontract to Rogers.9
However, Wausau contests its obligation to arbitrate under the agreement. This is
tantamount to Wausau asking the Court to recognize its rights under the
Subcontract without the correlative duties therein.
Wausau argues that it could not have assumed the obligation to arbitrate
under the Bright/A-1 Subcontract because that Subcontract automatically
terminated, by its own terms, upon the Government’s default of A-1 on April 29,
1994. A fair reading of paragraph 10.4 of the Subcontract, however, leads us to
conclude that the Subcontract became terminable, but did not automatically
9 Significantly, Rogers concedes that it succeeded to the obligations of A-1 under the Subcontract. This could only be by assignment from Wausau. See Completion Contract (obligating Wausau to assign to Rogers all “[Wausau’s] right, title and interest in and to [A-1's] executory Subcontracts”).
15 terminate when the Government defaulted A-1.10 Wausau does not assert, and we
find no evidence in the record, that Wausau or Bright terminated the Subcontract
pursuant to its termination provisions. We also find it disingenuous for Wausau to
have taken full advantage of the Subcontract and now argue that it was not in
effect.
Finally, Wausau contends that it cannot be compelled to arbitrate with
Bright because the Miller Act places exclusive jurisdiction of claims against Miller
Act sureties in federal court. The district court found that the Miller Act does not
preclude arbitration, and alternatively, that Wausau waived any such protection
afforded it. We agree.
Under the Miller Act, a claim against a surety arising under a Miller Act
bond shall be brought in federal court. See 40 U.S.C. § 270a-e. The Miller Act
does not apply here because Bright alleges that Wausau breached the Subcontract;
Bright does not pursue a claim against Wausau’s payment bond. Even if it applies,
the Miller Act does not preclude arbitration under the FAA where the parties have
10 The Subcontract provides:
10.4 TERMINATION BY OWNER. Should the Owner terminate its contract with the Contractor or any part of which includes the Subcontractor’s Work, the Contractor shall so notify the Subcontractor in writing and upon written notification, this Agreement shall be terminated ....
Bright/A-1 Subcontract, ¶ 10.4. previously agreed to arbitrate disputes. See United States ex. rel. Portland Constr.
Co. v. Weiss Pollution Control Corp., 532 F.2d 1009, 1012 (5th Cir.1976)11
(staying Miller Act suit pending outcome of arbitration where subcontract
contained arbitration provision); United States ex. rel. Capolino Sons, Inc. v.
Electronic & Missile Facilities, Inc. 364 F.2d 705 (2d. Cir.1966) (requiring
subcontractor to arbitrate Miller Act payment bond claim pursuant to arbitration
provision in subcontract, which provision was not prohibited by the Miller Act).
Accordingly, we conclude that Wausau assumed A-1's obligations to arbitrate with
Bright when Wausau took over the Project and ratified the Subcontract.12
C. Roger’s Duty to Arbitrate
Rogers concedes that it is bound by the arbitration provision in the
Subcontract. However, Rogers objects to arbitration on the basis of an exception
to arbitration contained in the Subcontract. Specifically, Rogers claims that §
14.2(b) of the Bright/A-1 Subcontract expressly excludes from arbitration “pass
11 Fifth Circuit cases decided before October, 1981 are binding precedent in this Circuit. Bonner v. City of Prichard, 661 F.2d 1206, 1210 (11th Cir.1981). 12 Having found that the dispute is arbitrable, we do not address Wausau’s claim that Bright released Wausau from its obligations under the Subcontract. See 9 U.S.C. § 4; see also Aluminum, Brick & Glass Workers Int’l Union v. AAA Plumbing Pottery Corp., 991 F.2d 1545, 1550 (11th Cir.1993) (explaining that courts are not permitted to address defenses to disputes within the scope of an arbitration clause).
17 through” claims, or claims asserted by Bright up the ladder to the Government.13
Pursuant to this exception, the agreement to arbitrate between Rogers and Bright
would not apply to any “claim” brought by Bright against Rogers if Rogers
asserted that the claim, in whole or in part, was against the Government (“Owner”)
since the contract between Rogers and the Government does not provide for
binding arbitration. Based on the Magistrate Judge’s findings, the district court
concluded that the exception does not apply for two reasons: 1) Bright’s REA was
not a “claim” under the Subcontract; and 2) Bright’s REA was never asserted
against Rogers as required by the exception provision.
Our review of the record evidence accords with the findings of the
Magistrate Judge. The arbitration exception set forth in paragraph 14.2 of the
Subcontract does not apply because Bright’s REA is not a “claim” under the
Subcontract. The Subcontract provides that claims relating to the Government had
to be submitted by Rogers “in the manner and within the time elements provided in
13 Paragraph 14.2 of the Subcontract provides in relevant part: 14.2 EXCEPTIONS. The agreement to arbitrate shall not apply to any claim: *** (b) asserted by the Subcontractor against the Contractor if the Contractor asserts said claim, either in whole or part against the Owner, or asserted by the Owner against the Contractor, when the contract between the Contractor and Owner does not provide for binding arbitration ....
Subcontract, ¶ 14.2.
18 Contract Documents for like claims by the Contractor upon the [Government].”
Subcontract, ¶ 6.2. The prime contract between A-1 and the Government required
the Contractor (A-1 and later Rogers) to submit all claims in accordance with the
Contract Disputes Act.14 See Prime Contract, Article 37. Moreover, the prime
contract provided that a demand for payment of money exceeding $50,000 was not
a claim under the Contract Disputes Act until it was certified by the Contractor.15
In the district court, Rogers conceded that Bright submitted a claim against
the Government in an amount exceeding $1,000,000 for delays and damages
caused by the Government. See Roger’s Response to Bright’s Motion to Compel.
Ultimately, Rogers and/or Wausau advised Bright to submit its claim as an REA,
rather than as a certified claim under the Contract Disputes Act. The parties agree
that Bright’s REA was never certified, as the prime contract required for any and
14 Contract Disputes Act of 1978, 41 U.S.C. § 601 et. seq 15 Article 37 of the Prime Contract provides in pertinent part:
(c) “Claim”, as used in this clause, means a written demand or written assertion by one of the contracting parties seeking as a matter of right, the payment of money in a sum certain, the adjustment or interpretation of contract terms, or other relief arising under or relating to this contract. ... However, a written demand or written assertion by the Contractor seeking the payment of money exceeding $50,000 is not a claim under the Act until certified as required by subparagraph (d)(2) below.
Government/A-1 Prime Contract dated July 16, 1993, ¶ 37 (emphasis added).
19 all claims exceeding $50,000. See Prime Contract, ¶ 37. Thus, the REA is not a
“claim” as defined in Article 37 of the prime contract, and Rogers may not rely on
the arbitration exception in the Subcontract because that same Subcontract required
Rogers to certify claims relating to the Government. See e.g., Woodrow Wilson
Constr. Co., Inc. v. MMR-Radon Constructors, Inc., 635 So.2d 758 (La. Ct. App.
1994) (affirming arbitration order, under terms of subcontract providing for
arbitration unless contractor submitted claim against owner, where general
contractor did not submit claim against owner in accordance with procedures
specified).
Given our decision that Bright’s REA was not a “claim” subject to the
arbitration exception under the Subcontract, we do not reach the district court’s
alternate basis for compelling Rogers to submit to arbitration.16 We also do not
address Roger’s argument that Bright’s claim did not require certification to be
submitted as an REA, and alternatively that only Wausau could certify Bright’s
claim. Regardless of who was responsible for certification or whether Bright’s
claim should have been certified, the exception to arbitration does not apply
because there is no “claim” as defined by Article 37 of the prime contract. See
16 Namely, the district court found that Bright never asserted its demand for additional compensation against Rogers, as required by the exception provision. See Subcontract, ¶ 14.2, supra at n.11.
20 Aluminum, Brick & Glass Workers Int’l Union v. AAA Plumbing Pottery Corp.,
991 F.2d 1545, 1550 (11th Cir.1993) (explaining that courts are not permitted to
address defenses to disputes within the scope of an arbitration clause).
Bright’s claim against Wausau and Rogers is simple. Wausau and Rogers
had no right to settle Bright’s million dollar claim against the government for any
sum and certainly not for $10,000. This dispute clearly arises out of the
contractual relationship between these parties and is covered by the arbitration
clause.
IV Conclusion
For these reasons, we AFFIRM the district court’s order compelling
arbitration as to both Rogers and Wausau and dismissing the underlying cases.
21 GARWOOD, Circuit Judge, dissenting in part.
I concur in all of Judge Fay’s cogent opinion except only so much thereof as
holds that Wausau is bound by the arbitration provisions in the Bright/A-1
Subcontract. I respectfully dissent from the latter holding.
The majority correctly recognizes that the September 1993 Bright/A-1
Subcontract does not of itself bind Wausau to its arbitration provisions,
notwithstanding Wausau’s status as Miller Act performance and payment bond
surety for the project general contractor A-1, because Wausau was not a party to
the Bright/A-1 Subcontract.1 The majority instead holds that Wausau became
bound to Bright under the Bright/A-1 Subcontract, including its arbitration clause,
by the combined effect of three documents Wausau executed subsequent to the
Government’s termination of A-1 for A-1's default on the project, namely: the May
20, 1994 Takeover Agreement between Wausau and the Government; the May 26,
1994 Completion Contract between Wausau and Rogers, the new completing prime
contractor for the project hired by Wausau; and the June 14, 1994 Ratification
Agreement between Wausau and Bright, as a result of which Bright later that
month began and ultimately completed (or mostly completed), as a Rogers
1 Cf. U.S. v. Pool and Canfield, Inc., 778 F. Supp. 1088, at 1090 (W.D. Mo. 1991) (by issuing Miller Act payment bond as to general contract, surety did not agree to arbitrate claims by subcontractor merely because the subcontract between the subcontractor and the general contractor contained an arbitration clause).
22 subcontractor, the remaining work called for in the Bright/A-1 Subcontract. I
interpret these documents, and their collective effect, differently than does the
majority.
The combined effect of the three documents relied on by the majority is
simply that Wausau, as authorized by the Government, undertook completion of
the overall project by contracting with Rogers for Rogers to complete all the
remaining work called for in A-1's contract with the Government, Wausau agreeing
to assign to Rogers its rights in the uncompleted subcontracts so that Rogers
would, in effect, be substituted for A-1 in those subcontracts with respect to the
unfinished work thereunder, and Bright and Wausau agreeing that Wausau would
pay Bright for all unpaid work done prior to A-1's termination and that Wausau
had a 120 day option to require Bright to so agree to complete for Rogers, which
option was timely exercised. The net result was in essence that Wausau paid
Bright for unpaid work performed to date and Rogers was substituted for A-1 in
the Subcontract as to the uncompleted work thereunder, and the subcontract’s
arbitration clause binds Rogers and Bright, but not Wausau, just as it had bound
Bright and A-1, but not Wausau. There is nothing unusual or unfair about this.
Bright was protected by the payment bond for the work it had done and did not
have to agree to Wausau having the option to cause Rogers to step into A-1's shoes
23 under the Subcontract; but, the Subcontract was subject to termination by virtue of
A-1's termination and Bright had no right to complete the work; and thus agreeing
with Wausau as it did gave Bright, which had performed only about a third of the
Subcontract, the opportunity, which shortly thereafter materialized, of being
awarded the contract to complete the balance of the work on the same terms for a
solvent prime contractor, Rogers.
Nothing in the documents relied on by the majority contains any agreement
on Wausau’s part be bound by A-1's obligations under the Subcontract unless
Wausau itself undertook to complete the work, as opposed to having it done by a
new completion prime contractor, and except that Wausau recognized and
discharged its payment bond obligation to pay Bright for unpaid for work
performed prior to A-1's termination.
Wausau’s Takeover Agreement with the Government allows Wausau, in
order to fulfill its performance bond obligations to the Government, to hire a
completion prime contractor to complete the job, contains no arbitration clause
(and incorporates no agreement which contains such a clause), and expressly
provides it would not “be deemed to create any rights in favor of, or inure to the
benefit of any third party or parties” (and would not enlarge Wausau’s obligations
under its bonds).
24 Wausau’s Completion Contract with Rogers obligates Wausau to assign its
rights in the uncompleted subcontracts to Rogers, but does not purport to recognize
any obligations on the part of Wausau under those subcontracts, which Wausau
was not a party to. And, of course, Bright (like the other subcontractors) was not a
party to either the Completion Contract or the Takeover Agreement.
The only agreement executed by both Wausau and Bright is the Ratification
Agreement. The Ratification Agreement commences by recitals that A-1 has been
terminated by the Government, which has called on Wausau (referred to
throughout as “Surety”) under its performance bond, that Bright (referred to
throughout as “Subcontractor”) has made a claim under the payment bond, and that
the total Subcontract amount is $493,653, the value of the work completed is
$154,609, of which $39,038.25 has been paid, leaving a balance of $107,040.30
now owing plus $7,730.45 as five percent retainage (specified in clause (8) of the
recitals). Paragraph (1) states that Wausau has paid Bright $107,040.30 and that
Bright releases Wausau from “all claims for monies due this day, excluding
retainage withheld.” Paragraph (2) provides that “Subcontractor ratifies and
agrees to complete its subcontract . . . and further agrees to start work within seven
(7) days after request by Surety . . .” (emphasis added). Paragraph (3) provides:
“Since the work under the contract with the Owner of the project may be completed by a new completion prime contractor, Subcontractor
25 agrees that Surety may assign its rights under the subcontract and this agreement to the completing prime contractor if done within one hundred twenty (120) days of the date of this agreement. Subcontractor will then look to the assignee for all further payments including all retainages whether withheld now as set forth above or in the future.”
Paragraph (4), the last paragraph, makes provision respecting payment by Wausau
to Bright of the $7,730.45 retainage for previously performed work, and states that
“such payment will constitute complete fulfillment of the obligations of Surety to
Subcontractor.”2
Nowhere does the Ratification Agreement state that Wausau ratifies or is
bound by the Subcontract. Rather, it expressly provides that if within 120 days
Wausau assigns “its rights” thereunder and under the Ratification Agreement to a
“new completion prime contractor,” Bright “will then look to the assignee for all
2 On December 14, 1994, Wausau paid Bright the $7,730.45 retainage and Bright executed a release in favor of Wausau. Arguably, the payment was not required by paragraph (4), which provides in full: “If within one hundred twenty (120) days of the date of this agreement Surety, its agent or assigns has not called upon Subcontractor to complete, Surety will pay the retainages withheld as set forth in Item (8) provided the work in place has been accepted by the Owner. Tender of such payment will constitute complete fulfillment of the obligations of Surety to Subcontractor.” Wausau explains that it construed paragraph (4) to apply whenever Wausau did not (within 120 days) call on Bright to complete for Wausau itself, as opposed to completing for the new completing prime contractor (Rogers). However, that construction is arguably inconsistent with the portion of the last sentence of paragraph (3) relating to retainages withheld “now as set forth above.” That possible inconsistency is, however, irrelevant to any issue on this appeal, as is also whether the $7,730.45 payment was required by the payment bond. Bright has been paid the retainage for work done before A-1's termination, and that was accomplished long prior to the events giving rise to the present controversy.
26 further payments.” This is just what happened. Wausau did assign its rights under
the Ratification Agreement to Rogers, Bright in June 1994 did start to complete the
unfinished Subcontract work as a subcontractor of Rogers, and Bright did look to
Rogers for further payments. Bright has been paid in full, including retainage, for
work done prior to A-1's termination. It is illogical to say that in these
circumstances Wausau is somehow implicitly bound by the Subcontract, when
Bright has expressly agreed to look only to the new prime completion
contractor–Rogers–for “all further payments” and has agreed that Wausau’s
payment of the $7,730.45 retainage for work done for A-1 “will constitute
complete fulfillment of the obligations of Surety to Subcontractor.”