Summary
dismissing third-party complaint in favor of arbitration rather than staying proceedings
Summary of this case from Renegade Technology Group, Inc. v. Cash USA, Inc.Opinion
No. 3-01-CV-1077-BD(X)
October 8, 2002
MEMORANDUM OPINION AND ORDER
Petron, Inc. ("Petron") has filed a motion to compel arbitration of all claims asserted by PDG, Inc. ("PDG") in its third-party complaint. For the reasons stated herein, the motion is granted.
I.
Beginning in 1998, Albertson's, Inc. ("Albertson's") entered into a series of contracts with PDG for the construction of fuel centers adjacent to various grocery stores in Texas, Louisiana, Mississippi, Florida, Oklahoma, and Idaho. (Plf. Sec. Am. Compl. at 2, ¶ 6). Although the general contract forms contain an arbitration clause, the parties deleted this provision from their final agreement. ( See PDG App. at 19, ¶ 4.5.1 38, ln. 66). PDG, in turn, contracted with Petron to provide labor and materials for the installation of fuel delivery systems at the Albertson's stores in Mesquite and Sherman, Texas, Alexandria, Louisiana, and Jackson, Mississippi. (PDG Third-Party Compl. at 2, ¶ 5). Each subcontract contains the following arbitration provision:
Subparagraph 4.5.1 of the General Conditions of the Contract for Construction, AIA Document A201, provides in pertinent part:
Any controversy or Claim arising out of or related to the Contract, or the breach thereof, shall be settled by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association . . . Such controversies or Claims upon which the Architect has given notice and rendered a decision as provided in Subparagraph 4.4.4 shall be subject to arbitration upon written demand of either party. Arbitration may be commenced when 45 days have passed after a Claim has been referred to the Architect as provided in Paragraph 4.3 and no decision has been rendered.
(PDG App. at 19, ¶ 4.5.1). This provision was deleted in its entirety by the Supplementary Conditions agreed to by the parties. ( Id. at 38, ln. 66).
All claims, disputes and other matters in question arising out of, or relating to, this Subcontract or the breach thereof, shall be decided by arbitration in the same manner and under the same procedure as provided in the Contract Documents with respect to disputes between the Owner and the Contractor except that a decision by the Architect shall not be a condition precedent to arbitration.
(Petron Mot., Exhs. A, B C at 4, ¶ 14).
Dissatisfied with the construction of the fuel centers at its grocery stores, Albertson's sued PDG in federal district court for breach of contract, breach of warranty, negligent misrepresentation, and negligence. PDG then filed a third-party action against its subcontractor, Petron, for any damages caused by the improper installation of fuel delivery systems at the Mesquite, Sherman, Alexandria, and Jackson locations Petron now moves to compel arbitration of all claims raised by PDG in its third-party complaint. The motion has been briefed by the parties and is ripe for determination.
PDG also asserts third-party claims against two other subcontractors, Construction Management Group ("CMG") and Bionomics, Inc. ("Bionomics"), for alleged construction defects at the Azle, Texas and Mesquite, Texas stores. It is unclear whether those subcontracts contain an arbitration provision.
II.
The decision whether to enforce an arbitration clause involves a two-step inquiry. First, the court must determine whether the parties agreed to arbitrate the dispute. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, 473 U.S. 614, 626, 105 S.Ct. 3346, 3353, 87 L.Ed.2d 444 (1985); R.M. Perez Associates, Inc. v. Welch, 960 F.2d 534, 538 (5th Cir. 1992). The court then must consider whether any statute or policy renders the claims non-arbitrable. Mitsubishi Motors, 105 S.Ct. at 3355; R.M. Perez, 960 F.2d at 538. PDG contends that because the subcontract requires that arbitration "be conducted in the same manner and under the same procedure" as provided in general contract, and because the owner and contractor deleted the arbitration provision from their final agreement, there no longer is an agreement to arbitrate disputes arising under the subcontract. In a related argument, PDG maintains that the only remedies available to Petron under paragraph 11.1 of the subcontract are those that PDG has against Albertson's, which do not include arbitration. Both arguments implicate the first prong of the arbitration analysis — whether the parties agreed to arbitrate their disputes.
A.
Arbitration is strongly favored by federal law. Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524, 526 (5th Cir.), cert. denied, 121 S.Ct. 570 (2000), citing Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983). Thus, there is a heavy presumption that claims are arbitrable and arbitration should not be denied "unless it can be said with positive assurance that an arbitration clause is not susceptible of an interpretation that could cover the dispute at issue." Mar-Len of Louisiana, Inc. v. Parsons-Gilbane, 773 F.2d 633, 636 (5th Cir. 1985), quoting Wick v. Atlantic Marine, Inc., 605 F.2d 166, 168 (5th Cir. 1979). If the scope of an arbitration clause is fairly debatable or reasonably in doubt, the claims should be referred to arbitration. Id. at 635; see also Dr. Pepper Bottling Co. of Texas, Inc. v. Presidential Life Insurance Co., 2002 WL 628658 at *2 (ND. Tex. Apr. 16, 2002).
1.
PDG and Petron agreed to arbitrate:
All claims, disputes and other matters in question arising out of or relating to, this Subcontract or the breach thereof, . . . in the same manner and under the same procedure as provided in the Contract Documents with respect to disputes between the Owner and the Contractor except that a decision by the Architect shall not be a condition precedent to arbitration.
(Petron Mot., Exhs. A, B C at 4, ¶ 14) (emphasis added). According to PDG, this provision is no longer valid because the subcontract specifically refers to and incorporates the arbitration procedures in the general contract between PDG and Albertson's and those parties deleted the arbitration provision from their final agreement.
A similar argument was rejected by the Fifth Circuit in Midwest Mechanical Contractors, Inc. v. Commonwealth Construction Co., 801 F.2d 748, 753 (5th Cir. 1986). In that case, Commonwealth Construction Company, a subcontractor, sought to compel arbitration of a dispute with Midwest Mechanical Contractors, a general contractor, involving work performed at the Port Acres Sewage Treatment Plant. Midwest Mechanical, 801 F.2d at 749. The subcontract contained the following arbitration provision, which is virtually identical to the provision at issue in the instant case:
All claims, disputes and other matters in question arising out of, or relating to, this Subcontract, or the breach thereof, shall be decided by arbitration, which shall be conducted in the same manner and under the same procedure as provided in the Contract Documents with respect to disputes between the Owner and Contractor, except that a Decision by the Architect shall not be a condition precedent to arbitration.801 F.2d at 753 (emphasis added). The contractor interpreted this language to mean that the terms of the general contract dictated whether the parties were required to arbitrate disputes arising under the subcontract. Because the general contract provided for arbitration only "if the parties mutually agree," the contractor argued that it could unilaterally decline arbitration with its subcontractor. Id. at 753. The Fifth Circuit disagreed. In its opinion, the court held:
The agreement to arbitrate in the subcontract is unambiguous. Reference to the general contract is required only to determine which procedures will govern the arbitration process; it does not control whether or not disputes will be arbitrated, a question that is not left open by the subcontract.Id. at 753 (emphasis in original).
The same result follows here. The subcontract between PDG and Petron unambiguously requires arbitration of "[a]ll claims, disputes and other matters in question arising out of, or relating to, this Subcontract or the breach thereof. . ." (Petron Mot., Exhs. A, B C at 4, ¶ 14). The reference to "procedure as provided in the Contract Documents" refers only to procedures governing the arbitration process. It does not alter the parties' agreement to arbitrate disputes arising under the subcontract.
PDG cites Teal Construction Co./Hillside Villas, Ltd. v. Darren Casey Interests, Inc., 46 S.W.3d 417 (Tex.App.-Austin 2001, pet. denied), as a case "interpreting documents virtually identical to those at issue herein." (PDG Resp. at 5, ¶ 9). However, a careful reading of Teal reveals otherwise. The only contract at issue in Teal was an AIA standard-form contract that incorporated a general-conditions document with an arbitration clause. There was no subcontract with a separate arbitration provision. Teal Construction, 46 S.W.3d at 420. Moreover, the dispute in Teal did not involve interstate commerce and was not governed by the Federal Arbitration Act. Id. at 420 n. 1. For these reasons, Teal is wholly inapposite.
PDG also relies on paragraph 11.1 of the subcontract in an attempt to avoid the arbitration agreement with Petron. This paragraph provides:
The Subcontractor shall be bound to the Contractor by the terms of this Agreement and of the Contract Documents between the Owner and Contractor, and shall assume toward the Contractor all the obligations and responsibilities which the Contractor, by those documents, assumes toward the Owner, and shall have the benefit of all rights, remedies, and redress against the Contractor which the Contractor, by those Documents has against the Owner, insofar as applicable to this Subcontract, provided that where any provision of the Contract Documents between the Owner and Contractor is inconsistent with any provision of this Agreement, this Agreement shall govern.
(Petron Mot., Exhs. A, B C at 2, ¶ 11.1) (emphasis added). PDG interprets this provision to mean that the only remedies available to Petron are those that PDG has against Albertson's, which do not include arbitration.
In construing contracts, Texas law requires that courts ascertain and give effect to the parties' intentions as expressed in the document. Harris v. Parker College of Chiropractic, 286 F.3d 790, 793 (5th Cir. 2002), citing Lopez v. Munoz, Hockema Reed, LLP., 22 S.W.3d 857, 861 (Tex. 2000). The court must consider the entire writing and give effect to all provisions so that none will be rendered meaningless. See National Center for Policy Analysis v. Fiscal Associates, Inc., 2002 WL 433038, at * 3 (ND. Tex. 2002). PDG's suggested reading of paragraph 11.1 would effectively negate the parties' agreement to arbitrate their disputes. The court refuses to interpret this paragraph in such a manner.
B.
Section 3 of the Federal Arbitration Act ("FAA") provides:
If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been held in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.9 U.S.C. § 3. Although a stay is mandatory, the Fifth Circuit has held that the FAA "was not intended to limit dismissal of a case in the proper circumstances." Fedmet Corp. v. M/V Buyalyk, 194 F.3d 674, 678 (5th Cir. 1999), quoting Alford v. Dean Witter Reynolds, Inc., 975 F.2d 1161, 1164 (5th Cir. 1992). A district court is not precluded from dismissing an action where all issues are properly subject to arbitration. Id.; Alford, 975 F.2d at 1164.
Such is the case with respect to PDG's third-party claims against Petron for breach of contract, breach of warranty, and negligence. The court observes that these claims are predicated on a finding that PDG is liable for the faulty construction of fuel centers at Albertson's stores in Mesquite and Sherman, Texas, Alexandria, Louisiana, and Jackson, Mississippi. If PDG prevails in the underlying case, there is no claim against Petron on the subcontracts and no need for arbitration. In the event that Albertson's prevails at trial, PDG and Petron can proceed to arbitration at that time. Under either scenario, the third-party claims against Petron should be dismissed rather than stayed.
CONCLUSION
Petron's motion to compel arbitration is granted. PDG's third-party claims against Petron are dismissed in favor of arbitration.
SO ORDERED.