Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_04-cv-01955/USCOURTS-caed-2_04-cv-01955-3/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 31:3729 False Claims Act

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

----oo0oo----

UNITED STATES OF AMERICAN and

the STATE OF CALIFORNIA ex rel

MIKE STIERLI,

NO. CIV. S 04-1955 MCE PAN

Relator Plaintiff,

v. ORDER

SHASTA SERVICES INC. dba

TIMBERWORKS; and DOES 1 

through 50, inclusive,

Qui Tam Defendants.

----oo0oo----

This case arises from a construction contract between the

State of California Department of Transportation (“CALTRANS”) and 

Defendant Shasta Services Inc. dba Timberworks (“Timberworks”)

for work on a weighing facility on Interstate 5 near Mt. Shasta,

California. That contract contained provisions which required

either the participation of Disabled Business Enterprises

(“DBEs”), as defined in Title 49, Code of Federal Regulations,

Part 26, in the project or a demonstration of good faith efforts

Case 2:04-cv-01955-MCE -PAN Document 37 Filed 09/20/05 Page 1 of 7
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The first paragraph of Plaintiff’s complaint makes it clear 1

that “this is an action to recover damages and civil penalties on

behalf of the United States of America arising out of false

claims presented by defendants...” (Complaint, ¶ 1)

Additional qui tam claims under the California False Claims 2

Act, California Government Code § 12651(a) et seq., and the

Federal Racketeering Influence and Corrupt Organizations Act

(“RICO”), 18 U.S.C. § 1961 et seq., are also asserted on behalf

of the United States. 

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aimed at such participation. The contract was ultimately awarded

to Timberworks after it submitted the low bid and presented

evidence to CALTRANS as to its inability to secure DBE

participation. The second lowest bidder, MDS Construction,

through its owner, Mike Stierli, thereafter challenged the award

of that contract, alleging that Timberworks made material

misrepresentations in its documentation as to DBE participation. 

The contract between CALTRANS to Timberworks was nonetheless

finalized after CALTRANS determined that DBE goals had been met. 

 MDS then proceeded to file a protest with the United States

Department of Transportation (“USDOT”) on grounds that the

project in question received federally apportioned funds

contingent on DBE participation. The USDOT ultimately determined

that the contract was ineligible for federal aid participation

because of inadequate documentation as to DBE compliance.

CALTRANS maintains that it elected to proceed with the project

without obtaining federal aid.

Mike Stierli instituted the present action on behalf of the

United States pursuant to the Federal False Claims Act, 31 1

U.S.C. § 3729, on grounds that federal aid monies were 2

nonetheless utilized. Because he asserts that any such use of

federal funds was improper, Mr. Stierli, as a qui tam relator

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pursuant to Section 3730(b), filed his lawsuit on the

government’s behalf to recoup monies improperly paid to

Timberlake under its contract with CALTRANS.

The contract between CALTRANS and Timberworks contained an

arbitration provision, pursuant to which the parties to that

contract agreed to submit to arbitration all claims arising under

or related to the contract. Timberworks has now filed a motion

to compel arbitration, and to stay the present action pending

such arbitration. Timberworks contends that the arbitration

clause contained in its contract with CALTRANS applies to Mr.

Stierli’s qui tam claim on behalf of the United States despite

the fact that neither Stierli nor the United States was a party

to that contract.

Timberworks properly points out that the Federal Arbitration

Act (“FAA”), 9 U.S.C. § 3, provides that if a suit is brought in

federal court upon an issue referable to arbitration under a

written agreement, the court may stay such action pending

arbitration. In addition, Section 4 of the FAA authorizes the

court to compel arbitration in accordance with the terms of such

agreement.

It is nonetheless axiomatic that a party cannot ordinarily

be required to submit to arbitration a dispute which it has not

agreed to arbitrate. United Steelworkers v. Warrior & Gulf

Navigation Co., 363 U.S. 574, 582 (1960). “Ultimately, the issue

of arbitrability ‘is to be determined by the contract entered

into by the parties.’” Mediterranean Enterprises, Inc. v.

Ssangyong Corp., 708 F.2d 1458, 1463 (9 Cir. 1983). th

Mike Stierli, the relator plaintiff in this action, was

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See United States v. Health Possibilities, P.S.C., 207 F.3d 3

335, 341 (6 Cir. 2000). th

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undisputedly not a party to the contract between CALTRANS and

Timberworks which contained the arbitration provision at issue. 

It is only through the United States, which remains the real

party in interest in this case even though it has elected not to

intervene, that Timberworks argues an obligation to arbitrate is 3

present. 

The contract at issue, however, is between CALTRANS and

Timberworks, only, and the operative portions (attached as

Exhibit “A” to the Declaration of Harold J. Knight) contain no

reference to the federal government aside from a federal aid

agreement number as identified in the Instructions to Bidders and

General Conditions for Building Construction (see Plaintiff’s

Disclosure of Material Information and Evidence, p. 0007), which

is incorporated by reference. While the Instructions to Bidders

document does set forth DBE requirements, they do not

specifically state that federal project aid is contingent on

meeting those requirements, indicating only that “the Department

(CALTRANS) has established (a certain) goal for Disadvantaged

Business Enterprise (DBE) participation in this project.” Id. at

p. 0017.

Any agreement by the United States to provide federal aid

for the project at issue in this case would appear to be the

subject of a separate agreement between CALTRANS and the United

States. That agreement, or the terms thereof, cannot be

ascertained through reference to the CALTRANS/Timberworks

contract except on the most inferential of levels. Nonetheless,

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even though the United States was not a signatory to the contract

and has formally objected to submission of this lawsuit to

arbitration, Timberworks argues that it, and consequently Mike

Stierli acting on behalf of the United States in this qui tam

proceeding, should nonetheless be required to arbitrate. To

support that proposition, Timberworks contends “the intertwined

exception (to the general rule that an agreement to arbitrate

does not apply to a non-party) allows this court to compel

arbitration.” (Reply to the United States’ Opposition, 2:26-27).

Examination of cases applying the so called “intertwined

claims” exception indicate that they primarily were decided under

circumstances where there was a business relationship between the

party to the arbitration contract and the non-signatory making it

disingenuous for the non-signatory to argue it was not bound by

the terms agreed to by the related party. See, e.g., Sunkist

Soft Drinks, Inc. v. Sunkist Growers, Inc., 10 F.3d 753 (11th

Cir. 1993) (non-signatory licensor could not refuse to arbitrate

intertwined claims involving licensee parent); Grigson v.

Creative Artists Agency, LLC, 210 F.3d 524 (5 Cir. 2000) th

(claims by non-signatory actor and his agent intertwined with

movie distribution agreement containing arbitration clause).

The present case is distinguishable from cases recognizing

the “intertwined claims” exception. Any agreement between the

United States and CALTRANS to provide construction funding is

separate and distinct from CALTRANS’ contract to actually

complete the construction itself, which contained the arbitration

provision now asserted by Timberworks as binding on the United

States.

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While Timberworks also argues that the United States should

be equitably estopped from arguing it was not a party to the

contract, that contention has force only where the non-signatory

receives a “direct benefit” from a contract containing an

arbitration clause. See American Bureau of Shipping v. Tencara

Shipyard S.P.A., 170 F.3d 349, 353 (2d Cir. 1999). Although

Timberworks contends that the DBE provisions upon which this

lawsuit is founded stem from “provisions inserted for the benefit

of the Federal government” (Reply to United States’ Opposition,

3: 2-3), it stretches credulity to argue that the United States

directly benefits from provisions which, at most, are a

prerequisite to the State of California receiving benefits in the

form of federal funding. 

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Because oral argument would not be of material assistance, 4

this matter was deemed suitable for decision without oral

argument. E.D. Local Rule 78-230(h).

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In sum, Timberworks has not established any exception to the

general rule that a non-signatory like the United States herein

cannot be compelled to arbitrate claims pursuant to an agreement

to which it was not a party. Because the United States is the

real party in interest in this qui tam proceeding, neither it nor

Mike Stierli, who is pursuing the claim on the government’s

behalf, can be compelled to arbitrate the claims asserted through

this lawsuit. Timberworks’ motion is accordingly DENIED. 

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IT IS SO ORDERED.

DATED: September 20, 2005

_____________________________

MORRISON C. ENGLAND, JR

UNITED STATES DISTRICT JUDGE

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