Foreign Contractor’s Failure to Register with Secretary of State Does Not Void Contract or Arbitration Clause

City of Westfield v. Harris & Assocs. Painting, Inc., 567 F. Supp. 2d 252 (D. Mass. 2008)

In this case, the Federal District Court for the District of Massachusetts allowed a contractor’s motion to compel arbitration and remanded the case to arbitration despite the fact that the contractor failed to register as a foreign corporation with the Massachusetts Secretary of State as required by M.G.L. c. 30, § 39L.

In this dispute, the City of Westfield partially paid the contractor, claiming the right to withhold the remaining amount because the contractor did not complete the project on time.  The parties agreed to arbitrate the dispute pursuant to an arbitration clause in the contract.  During arbitration, the City discovered that the general contractor had failed to register with the Massachusetts Secretary of State as required by M.G.L. c. 30, § 39L, which requires certification of foreign corporations performing public works contracts in Massachusetts.  In light of this failure, the City filed a complaint in the Massachusetts Superior Court requesting a stay of arbitration and a declaratory judgment holding the contract illegal and unenforceable.  After removal to the federal district court, the City filed motions for summary judgment and dismissal of Harris’ counterclaims.

The court held that the issue of whether the contract was valid, in light of the contractor’s failure to register, was a threshold issue for judicial review rather than determination by an arbitrator.  Ultimately, the court concluded that the contractor’s technical violation of M.G.L. c. 30, § 39L did not frustrate that statute’s fundamental purpose, and thus did not void the contract or the arbitration clause. Accordingly, the court remanded the remaining substantive issues to arbitration.