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Island Insurance Company, Limited v. Noresco

December 18, 2012

ISLAND INSURANCE COMPANY, LIMITED, PLAINTIFF,
v.
NORESCO, LLC., AMERICAN ARBITRATION ASSOCIATION, INC., JOHN DOES 1-10, JANE DOES 1-10, DOE TRUSTEE 1-10, DOE PARTNERSHIPS 1-10, AND DOE CORPORATIONS 1-10,
DEFENDANTS.



The opinion of the court was delivered by: J. Michael Seabright United States District Judge

ORDER (1) DENYING NORESCO, LLC.'S MOTION TO DISMISS ISLAND INSURANCE COMPANY LIMITED'S COMPLAINT OR STAY PROCEEDINGS PENDING ARBITRATION; AND (2) GRANTING ISLAND INSURANCE COMPANY, LIMITED'S MOTION FOR SUMMARY JUDGMENT ON COUNT I OF THE COMPLAINT FILED SEPTEMBER 5, 2012

I. INTRODUCTION

In May 2008, Plaintiff Island Insurance Company, Limited ("Plaintiff" or "Island") issued a performance bond guaranteeing Lighting Services, Inc.'s ("LSI") work on a subcontract awarded by Defendant NORESCO, LLC ("NORESCO"). In August 2011, NORESCO notified Island that LSI failed to pay its employees in accordance with the Davis-Bacon Act and that NORESCO may make a claim on the performance bond should LSI fail to make payments. NORESCO has since demanded that Island arbitrate this dispute pursuant to an arbitration provision provided in the subcontract between Island and NORESCO.

On September 5, 2012, Island brought this action against NORESCO and the American Arbitration Association ("AAA") seeking injunctive and declaratory relief that this dispute is not subject to arbitration. Currently before the court is (1) NORESCO's Motion to Dismiss Island's Complaint or Stay the Proceedings Pending Arbitration; and (2) Island's Motion for Summary Judgment on Count I of the Complaint seeking declaratory relief that it is not required to arbitrate any dispute with NORESCO regarding the performance bond. Based on the following, the court DENIES NORESCO's Motion to Dismiss,*fn1 and GRANTS Island's Motion for Partial Summary Judgment. ///

II. BACKGROUND

A. Factual Background

1. The Agreements at Issue

NORESCO, an energy services company, entered into a contract with the United States to perform certain work on a construction project known as Marine Corps Base Hawaii Lighting Retrofit-Upgrades, Project No. 540005.CN.001. On or about April 25, 2008, NORESCO entered into a Subcontract Agreement ("Subcontract") with LSI for LSI to perform a portion of the work for a contract price of $3,640,534. Doc. No. 11-3, Pl.'s Ex. A (Subcontract).

The Subcontract includes the following provision regarding arbitration between NORESCO, as the Contractor, and LSI, as the Subcontractor:

ARTICLE 6 - ARBITRATION

6.1 Agreement to Arbitrate. Claims, disputes, and matters in question arising out of or relating to this Agreement as to matters solely between Contractor and Subcontractor, except for claims which have been waived by the making or acceptance of final payment, shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association. The location of the arbitration proceedings shall be in the State in which the Subcontractor's Work is being performed. All other claims, disputes and matters in questions [sic] shall be decided in the manner provided in the Agreement between the Owner and the Contractor.

Doc. No. 11-3, Pl.'s Ex. A at ECF page 4 of 13.

The Subcontract further requires LSI to obtain "performance and payment bonds running to the Contractor in a sum equal to the total price of this contract with corporate sureties satisfactory to the Contractor . . . ." Id. at ECF page 9 of 13. LSI met this obligation by having Island issue Subcontractor Performance Bond number CSB-22862 (the "Performance Bond") and Subcontractor Labor and Material Payment Bond number CSB-22862 (the "Payment Bond"). Doc. Nos. 11-4, -5, Pl.'s Exs. B, C. The Performance Bond provides:

KNOW ALL MEN BY THESE PRESENTS,

THAT WE, Lighting Services, Inc. (hereinafter called "Principal), as Subcontractor, and ISLAND INSURANCE COMPANY, LIMITED, authorized to transact business in the State of Hawaii (hereinafter called "Surety"), as Surety, are held and firmly bound unto Noresco, LLC (hereinafter called "Obligee"), as General Contractor, in the penal sum of Three Million, Six Hundred Forty Thousand, Five Hundred Thirty Four Dollars and No Cents Dollars (3,640,534.00) for the payment whereof Principal and Surety bind themselves, their heirs, executors, successors and assigns, jointly and severally, firmly by these presents.

Doc. No. 11-5, Pl.'s Ex. C. The Performance Bond further recites that LSI has entered into the Subcontract, "[a] copy of which is or may be attached and is hereby referred to as part of this obligation." Id.

2. LSI's Work on the Subcontract and the Present Dispute

At some point during LSI's work on the Subcontract, the United States Department of Labor began an investigation into whether LSI's employees were paid in accordance with the requirements of the Davis-Bacon Act. As a result, on August 9, 2011, NORESCO provided notice to Island that it intended to make a claim on the Performance Bond should LSI fail to correct these violations. Doc. No. 11-6, Pl.'s Ex. D. In an October 14, 2011 response, Island asserted that NORESCO has no basis to make any claim on the Performance Bond for a variety of reasons. Doc. No. 11-7, Pl.'s Ex. E.

In a July 26, 2012 letter, NORESCO provided Island a Demand for Arbitration with the AAA. Doc. No. 11-8, Pl.'s Ex. F. The Demand for Arbitration states that LSI failed to pay its employees proper wages pursuant to the Davis-Bacon Act, and that Island is responsible for any back wages that LSI cannot pay pursuant to the Performance Bond. Id. at 1-2. The Demand for Arbitration further asserts that this dispute is arbitrable because the Subcontract provides for arbitration of all claims relating to the Subcontract, and the Performance Bond expressly incorporates the Subcontract by ...


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