U.S. for the Use & Benefit of Spirtas Worldwide, LLC v. SGLC Consulting LLC

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USA FOR THE USE AND BENEFIT OF SPIRTAS WORLDWIDE, LLC, Plaintiff, v. SGLC CONSULTING LLC, ET AL., Defendants.

No. 3:21-CV-00182-MAB

United States District Court, S.D. Illinois

June 13, 2022

MEMORANDUM AND ORDER

MARK A. BEATTY UNITED STATES MAGISTRATE JUDGE

Background

Plaintiff The United States for the Use and Benefit of Spirtas Worldwide, LLC, (“Plaintiff”) filed this lawsuit on February 16, 2021 pursuant to 40 U.S.C. § 3131 et seq., (“The Miller Act”), for uncompensated subcontracting work Plaintiff alleges was conducted pursuant to a Trade Partners Agreement (“TPA”) (Docs. 1, 43, 60). Prior to filing his lawsuit, Plaintiff contends that Defendant SGLC (“SGLC”) entered into a contract with the Department of the Interior, U.S. Fish and Wildlife Service for a demolition project and cleanup of a particular area located at the Crab Orchard National Wildlife Refuge (“Crab Orchard”) in Marion, Illinois (Doc. 60 pp. 1-2). Pursuant to the Miller Act, Defendant Westchester Fire Insurance Company (“Westchester”) provided payment and performance bonds for this project (Id. at p. 2).

Plaintiff signed a TPA with SGLC on or around September 1, 2020 (Id.). While the parties disagree as to the applicability of certain terms of this agreement, the agreement generally outlined that Plaintiff would perform as a subcontractor on projects for SGLC. Id. Approximately two months later on November 4, 2020, SGLC ordered Plaintiff off of the project. Plaintiff complied and stopped working, but, to date, SGLC has not paid Plaintiff for the work performed during those two months. Id. Approximately three months later, Plaintiff filed this lawsuit, attempting to recoup the cost of materials and labor for the projects Plaintiff completed for SGLC. When Plaintiff first filed the lawsuit, there were a total of four claims: 1) a Miller Act claim; 2) implied subcontract; 3) quantum meruit; and 4) fraud (Doc. 1).

Plaintiff filed a motion to amend its complaint on March 30, 2021, seeking to correct the name of one of the Defendants (Doc. 36). As the Defendants had not filed their responsive pleadings to Plaintiff's complaint, the Court granted Plaintiff's motion and the first amended complaint was filed on April 8, 2021 (Docs. 42, 43). After seeking a few extensions of time, SGLC filed a motion to compel arbitration (Doc. 47). The same day, Defendant Grant Cunningham (“Cunningham”) filed his motion to dismiss (Doc. 48). The following day, on April 22, 2021, Westchester filed a motion to stay the proceedings or, in the alternative, motion for extension of time to file a response to Plaintiff's amended complaint (Doc. 50). Westchester explained that, to avoid bifurcated proceedings, it would prefer to file its responsive pleading to Plaintiff's complaint once the motion to compel arbitration was decided. As Plaintiff did not object to this motion, the Court granted it on July 7, 2021, and stayed Westchester's responsive pleading (Doc. 55).

On August 26, 2021, Plaintiff filed its second motion to amend/correct the complaint, seeking to file an amended complaint eliminating Counts I and II of Plaintiff's April 8, 2021 complaint. Plaintiff argued that filing this complaint would moot the motion to compel arbitration, saving the Court the trouble of issuing a decision on that motion (Doc. 56, pp. 1-2). SGLC and Cunningham opposed the motion, filing their joint response on September 1, 2021 (Doc. 58). The Court granted Plaintiff's motion and allowed Plaintiff one more opportunity to amend the complaint, which it did on November 29, 2021 (Doc. 59). Additionally, the Court denied, without prejudice and with leave to refile, SGLC and Cunningham's motions (Docs. 47; 49).

The operative complaint is similar to Plaintiff's first amended complaint in that Plaintiff brings a Miller Act claim against SGLC and then a second claim under the Illinois Consumer Fraud and Deceptive Practices Act (815 Ill. Comp. Stat. § 505/2) against Cunningham (Doc. 60, pp. 1; 8-10). In filing this complaint, Plaintiff dropped its two other claims: implied subcontract and quantum meruit claims (Doc. 43, pp. 8-10). SGLC, Cunningham, and Westchester filed their renewed motions to dismiss and to stay on December 17 and 20, 2021, respectively (Docs. 61, 62, 63). These motions, and the responsive briefings, are presently before the Court.

Discussion

Plaintiff brings two claims against Defendants in this matter. The first is a Miller Act claim against SGLC. The second is an Illinois fraud claim against SGLC's President Co-Defendant Grant Cunningham. Westchester is added as a Defendant in Plaintiff's Miller Act claim, as they issued the bonds to both SGLC and Plaintiff for the construction work at the Crab Orchard site. Before the Court are two main pending motions. The first is SGLC's motion to dismiss Count I, or in the alternative, motion to compel arbitration as to Count I and stay the proceedings (Doc. 61). The second is Cunningham's renewed motion to dismiss Count II of Plaintiff's amended complaint. While the Court will address these motions separately for the majority of this Order, there are certain arguments that Plaintiff makes in responses to both motions that may be referenced.

I. SGLC's Motion to Dismiss Count I for Improper Venue

Plaintiff brings this case in federal court first and foremost under the Miller Act. Count I of Plaintiff's complaint, which is against SGLC, is Plaintiff's Miller Act claim. The Miller Act, 40 U.S.C. § 3131 et seq., seeks to protect subcontractors against nonpayment for work performed on federal government construction projects by requiring the prime contractor to provide a payment bond on which the subcontractor can then make a claim for payment. A&C Constr. & Installation, Co. WLL v. Zurich Am. Ins. Co., 963 F.3d 705, 706 (7th Cir. 2020). Courts within the Seventh Circuit have held that a contract of some sort is necessary for a Miller Act claim. “On its face, the Miller Act provides a right of action only for those who have a contract to furnish labor or material to the contractor or subcontractor; it does not provide a right of action for those who have a guaranty agreement with the contractor or subcontractor.” U.S., Dep't of the Navy v. Norden Enterprises, LLC, No. 01-C-8968, 2004 WL 42318, at *5 (N.D. Ill. Jan. 6, 2004) (quoting U.S. ex rel. Gold Bond Bldg. Prods. v. Blake Constr. Co., Inc., 820 F.2d 139, 142 (5th Cir.1987)). Furthermore, courts have repeatedly held that Miller Act claims are arbitrable. Gatlin Plumbing & Heating, Inc. v. Welty Bldg. Co., No. 212-CV-114-TLS, 2013 WL 704736, at *7 (N.D. Ind. Feb. 26, 2013); U.S. for Use & Benefit of Frank A. Trucco & Sons Co. v. Bregman Const. Corp., 256 F.2d 851 (7th Cir. 1958).

SGLC argues that dismissal of the Miller Act claim is appropriate for two main reasons (Doc. 61). The first is that an agreement to arbitrate exists between the parties, contained in the parties' TPA; therefore, Plaintiff's claim must be dismissed so that the parties can seek arbitration pursuant to the language of the TPA. SGLC further argues that Plaintiff cannot avoid the arbitration clause in the TPA by only filing certain claims, like a claim under the Miller Act, because ultimately, the TPA governs the parties' interactions. Any question as to its contents must be settled by the arbitrator and not the district court.^[1] Plaintiff counters each of SGLC's arguments, basing the response on Plaintiff's central belief that the TPA is not a valid and legally binding arbitration agreement. Furthermore, Plaintiff argues that the undersigned should examine the TPA and find as such, and that this determination is best left to the district court as opposed to the arbitrator. Based on these arguments, the Court must determine whether the TPA containing an arbitration provision is actually valid and commands dismissal.

As an initial matter, motions to compel arbitration concern venue and, as SGLC has asserted here, are properly addressed under Federal Rule of Civil Procedure 12(b)(3).^[2] Muhammad v. Tree, No. 18 C 04192, 2020 WL 1530750, at *2 (N.D. Ill. Mar. 31, 2020) (citing Grasty v. Colo. Tech. Univ., 599 Fed.Appx. 596, 597 (7th Cir. 2015)). See also Jackson v. Payday Fin., LLC, 764 F.3d 765, 773 (7th Cir. 2014); Johnson v. Orkin, LLC, 556 Fed.Appx. 543, 544 (7th Cir. 2014) (an arbitration clause is “simply a type of forum-selection clause, ” and a motion seeking dismissal based on an agreement to arbitrate therefore should be decided under Rule 12(b)(3)). The Court may consider materials outside the pleadings when evaluating such a motion. Muhammad, 2020 WL 1530750 at *2 (citation omitted).

Since SGLC has asserted that an arbitration agreement exists between the parties, this matter implicates the Federal Arbitration Act ("FAA"). The FAA “reflects both a liberal federal policy favoring arbitration ... and the fundamental principle that arbitration is a matter of contract." Gupta v. Morgan Stanley Smith Barney LLC, 934 F.3d 705, 710 (7th Cir. 2019) (quoting AT&T Mobility LLC v. Concepcion, 564 U.S. 333, 339 (2011)). See also Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983) (“[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration."). The FAA reflects the overarching principle that arbitration is a matter of contract. Jackson v. Payday Financial, LLC, 764 F.3d 765, 773 (7th Cir. 2014) (citing Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 67 (2010)). Under the FAA, arbitration agreements “‘shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.'” Janiga v. Questar Cap. Corp., 615 F.3d 735, 740 (7th Cir. 2010), citing 9 U.S.C. § 2. A court should grant a ...