Maryland and DC Courts Hold That Dispute Resolution Clause in Prime Contract Does Not Require Stay of Subcontractor's Payment Bond Suit

In two recent cases in the U.S. District Courts for the Districts of Maryland and the District of Columbia, the federal courts both held that dispute resolution clauses contained in the contracts between the owners and general contractors do not require subcontractors to wait indefinitely until the general contractor and owner have resolved their disputes in order to proceed with their Miller Act lawsuits.

First, in Clark Construction Group, LLC v. United States ex rel. Tusco, Inc., No. PJM 15-2885, 2016 WL 4269078 (D.Md. Aug. 15, 2016), a payment bond surety moved to stay the subcontractor's Federal Miller Act claim due to a dispute resolution provision located in the subcontract. For owner-caused issues, the subcontract required the subcontractor to first submit its claim to the general contractor, who would in turn review and determine whether to submit the claim to the owner or permit the subcontractor to pursue the owner under the general contractor's name. The court denied the stay, finding that the Miller Act trumped any dispute resolution clause that constrained the subcontractor's expeditious right of action against the payment bond surety guaranteed by the Miller Act. The surety's argument that the refusal to stay could create inconsistent results and duplicative litigation did not overly concern the court, as a more troublesome result would occur if the subcontractor were required to wait indefinitely for payment.

Second, in District of Columbia ex rel. Strittmatter Metro, LLC v. Fidelity & Deposit Co. of Maryland, No. 15-2114, 2016 WL 5108021 (D.D.C. Sep. 20, 2016), a payment bond surety moved to dismiss or stay a subcontractor's D.C. Little Miller Act claim due to a dispute resolution clause that required the subcontractor to wait for the prime contractor to resolve its claims with the District of Columbia government. As in Clark Construction, the Strittmatter Metro court rejected the surety's argument, noting that not only does the subcontractor lack any control over the recovery efforts made by the general contractor, but a dismissal or stay would run counter to the express purpose of the Little Miller Act - to provide a prompt remedy to any aggrieved subcontractor. Both Strittmatter Metro and Clark Construction emphasized that no provision in a subcontract – be it a pay-if-paid clause or a dispute resolution clause – could operate to delay a subcontractor's right to a speedy resolution of its claim under the statutory ambit of the Federal Miller Act and corresponding Little Miller Acts.

Categories: Legal Updates