Here at Construction Law Musings, I’ve discussed arbitration clauses (pros and cons) as well as the fact that in our fair Commonwealth, contracts are enforced as written (for better or worse). A case out of the Eastern District of Virginia takes both of these observations and uses them to make it’s decision.
In United States ex rel. Harbor Constr. Co. v. T.H.R. Enters., the Newport News Division of the Eastern District of Virginia federal court considered the following provision and it’s enforceability:
At CONTRACTOR’s sole election, any and all disputes arising in any way or related in any way or manner to this Agreement may be decided by mediation, arbitration or other alternative dispute resolution proceedings as chosen by CONTRACTOR…. The remedy shall be SUBCONTRACTOR’s sole and exclusive remedy in lieu of any claim against CONTRACTOR’s bonding company pursuant to the terms of any bond or any other procedure or law, regardless of the outcome of the claim. The parties further agree that all disputes under this Subcontract shall be determined and interpreted pursuant to the laws of the Commonwealth of Virginia….
This provision was the crux of the argument made by T. H. R., the Defendant, in making a motion to dismiss or stay the lawsuit for payment filed by Harbor Construction. As background, Harbor Construction contracted with T. H. R. to perform work at Langley Air Force Base. Alleging non-payment of approximately $250,000.00, Harbor filed a complaint with three counts, one under the Federal Miller Act, one for breach of contract, and a third for unjust enrichment.
Citing the above referenced clause, T. H. R. moved to stay the Miller Act claim, a claim that the Court agreed was not subject to the arbitration provision, and to compel arbitration of the remaining claims. The Court considered and rejected arguments by Harbor Construction that the clause was void for vagueness and that the unilateral nature of the provision makes the obligation illusory. The Court further considered and rejected a waiver argument by Harbour based upon a 4 month delay in deciding to move to compel arbitration by T. H. R. I recommend the Court’s analysis to you (the case is linked above) because it lays out clear reasoning on these points of Virginia law.
Finally, the Court agreed to stay the Miller Act claim pending the arbitration of the other claims.
The takeaway? First of all, the contract will be enforced and one sided provisions such as this will be read as written. Second of all, arbitration is highly favored in the state and federal courts of Virginia. A court will not interpret an arbitration provision away. Because of the nuances of these sometimes one-sided provisions, when presented with a contract, the advice of an experienced Virginia construction attorney can help avoid surprises and hopefully help balance the contract.
Be sure to read the opinion for yourself and let me know if you see anything I missed or let me know if you have any other takeaways.
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