Miller Act, you’re not in Kansas anymore. In a recent bankruptcy case, the court in Kansas addressed issues of jurisdiction and venue raised by claims asserted by the debtor, an electrical contractor on a federal government project.
The dispute, In re International Electric, Inc., 557 B.R. 204 (Bkrtcy. D. Kan. 2016), arose from a federal government project to build an Army Reserve Center in Roanoke, Virginia International Electric entered into a subcontract with the general contractor, whose surety provided a payment bond. The subcontract included a dispute resolution provision under which claims would be arbitrated, and litigation “may be filed in the appropriate state or federal court.” (The provision is not a model of clarity, as it is unclear whether arbitration is optional, or if litigation would be limited to an action to confirm an arbitration award.)
In October 2013, International Electric notified the surety that the general contractor was in default on payment. Several months later, in March 2014, International Electric filed a Chapter 11 bankruptcy. After not receiving payment from the general contractor on the Virginia project, International Electric in July 2015 filed an adversary proceeding in the U.S. Bankruptcy Court for the District of Kansas against the general contractor, asserting claims for breach of contract and unjust enrichment, and a claim for recovery on the payment bond. The general contractor moved to dismiss on grounds relating to the Bankruptcy Court’s authority to enter a final judgment, lack of personal jurisdiction, and improper venue under the Miller Act, which requires bond claims to be filed in the federal district where the project is located. The surety joined in the motion to dismiss.
Regarding the issue of personal jurisdiction, the nationwide jurisdiction of bankruptcy courts in adversary proceedings means it has jurisdiction anywhere, anytime. That is, the issue was not whether the general contractor and surety had minimum contact with Kansas, but whether they had minimum contact with the United States, which they obviously did.
As for the Bankruptcy Court’s authority, in this non-core proceeding the court did not have authority to enter a final judgment in light of the holdings in Stern v. Marshall, 564 U.S. 462 (2011) and Northern Pipeline Construction Co. v. Marathon Pipeline, 458 U.S. 50 (1982). The typical procedure in such situations is for a bankruptcy court to issue proposed findings of fact and conclusions of law, which a district court would review de novo. However, in this case the general contractor and surety disputed the personal jurisdiction of the Kansas federal court. But the Bankruptcy Court trumps all: because the adversary proceeding was commenced under bankruptcy rules providing for nationwide service of process, the Bankruptcy Court had jurisdiction over the breach of contract, unjust enrichment, and Miller Act claims.
With that issue resolved, the court turned to the issue of proper venue for the Miller Act claim.
Under the applicable venue statute, adversary proceedings may be filed in the district court where the underlying bankruptcy case is pending. By contrast, the competing language of the Miller Act provides that claims must be brought in the district court where the contract was to be performed, which in this case was the Western District of Virginia. The Bankruptcy Court followed the well-established principle that the specific statute governs the general, also noting the remedial nature of the Miller Act. International Electric’s fallback position was to rely on the litigation venue language in the dispute resolution provision of the subcontract. The court easily rejected this position, as the venue provision lacked specificity and really wasn’t a clause to select venue. Rather, it provided for litigation in addition to arbitration.
Rather than dismiss the adversary proceeding, the Bankruptcy Court transferred the case to the Western District of Virginia, concluding that transferring a non-core case would not substantially interfere with International Electric’s ability to reorganize in bankruptcy.