Opinion
Civil Action No. 00-2079; c/w 00-2386, SECTION "A"
October 31, 2000
ORDERS and REASONS
Before the Court is defendant Preferred Electric, Inc.'s ("PEI's") Motion for Reconsideration of this Court's Order Denying its Motion to Stay Proceedings pending arbitration filed in the lead case, which is being taken up on the briefs, along with Roxco, Ltd.'s ("Roxco's") Motion for Summary Judgment. Formal opposition memoranda were filed in connection with both PEI's Motion for Reconsideration and Roxco's Motion for Summary Judgment. The matters are deemed submitted for decision on the briefs and documents of record.
For the reasons detailed below, the Court rules as follows: (1) Roxco's Motion for Summary Judgment is DENIED; (2) PEI's Motion for Reconsideration is GRANTED; and (3) the captioned consolidated proceedings are STAYED pending the final outcome of the arbitration proceedings regarding liability/quantum in connection with the work on the St. Charles Parish Wastewater Treatment Plant Project performed by PEI under protest but pursuant to the PEI/Roxco Subcontract as directed by American Home Assurance Company (i.e., Roxco's bonding company), such subcontract work dispute/issues having been expressly excepted from the superceding PEI/Max Foote Subcontract.
BACKGROUND
PEI was an electrical subcontractor of Roxco, Ltd. ("Roxco) on St. Charles Parish Wastewater Treatment Plant Project (i.e., "the Project). On or about October 21, 1997, Roxco, Ltd., as general contractor, and the Parish of St. Charles, as owner, contracted for the construction of the St. Charles Parish Waste Water Treatment plant. On or about November 28, 1997, Roxco, the general contractor, and PEI, the electrical subcontractor, entered into a subcontract, whereby PEI agreed to perform certain work described in the subcontract. The subcontract between PEI and Roxco (PEI's Exhibit "1"/Roxco's Exhibit "A") also provides at Article 9.1 that:
Unless otherwise prohibited by this Subcontract or barred by Subcontractor's failure to adhere to terms and conditions of this Subcontract, all claims, disputes, and other matters in controversy or question between the Contractor and the Subcontractor arising out of or related to this Subcontract shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association, except where the Contractor has a claim or dispute involving the same matter either in whole or in part, with the Owner."
It is not disputed that an arbitration panel convened on June 5, 2000 pursuant to PEI's request seeking a determination of whether the disputed work it performed under protest pursuant to the PEI/Roxco subcontract was not within the scope of their work under that subcontract. A final arbitration decision issued on June 26, 2000, finding that the disputed work was not within the scope of PEI's work described in the PEI/Roxco Subcontract. It is not disputed that PEI, Roxco and American Home Assurance Company participated in the first arbitration, which determined first whether there was any further liability to PEI beyond the payments made to it by American Home, pursuant to the PEI/Roxco subcontract.
American Home Assurance Company provided the statutory bond for Roxco, such bond being required under the Louisiana Public Works Act. La. R.S. 38:2216.
It is now clear from the submissions of the parties that PEI, Roxco and American Home submitted to arbitration because all were in agreement that the subcontract work dispute arose out of and/or was related to the PEI/Roxco Subcontract. Via letter dated March 3, 1999, PEI's Marvin Fairchild was directed by Mr. Kirby Stumpf, as representative of the bonding company American Home, to "proceed with the work in the contract immediately" or "proceed in protest — but proceed." Stumpf, most apparently speaking on behalf of American Home, inter alia, explained:
Kirby Stumpf was the project manager for Roxco and later the project manager for Michael Power Company, the consultant for American Home Assurance Company (i.e., the bonding company).
See, Correspondence of Michael Power Company's Kirby Stumpf addressed to PEI's Marvin Fairchild dated March 3, 1999 [attached as PEI's Exhibit "7" to the Affidavit of Ronald Stoute appended to PEI's Opposition to Roxco's Motion for Summary Judgment].
If PEI decides not to perform the disputed work, we will be forced to take such measures as outlined in Section 7.2 [of the PEI/Roxco Subcontract]. . . . Furthermore, if PEI fails to perform we will terminate PEI, put them in default of contract and notify Ohio Casualty of such action since they will be required to complete the work.
If this action is necessary, no further payment shall be made to PEI in accordance with Section 7.5 of the [PEI/Roxco] [sub] contract. . . .
Id.
As directed by, Stumpf, the bonding company's representative, PEI proceeded with the work in dispute under the PEI/Roxco Subcontract, albeit under protest. In correspondence dated March 22, 1999, counsel for American Home acknowledged receipt of PEI's March 10, 1999 correspondence, which most apparently successfully communicated PEI's expectation that Michael Power Company/American Home would expedite arbitration to settle the responsibility and obligations under the PEI/Roxco subcontract. Via correspondence dated March 22, 1999 correspondence, counsel for the bonding company, American Home Assurance Company, agreed with PEI "that the dispute should be arbitrated" and also noted that "the subcontract between Roxco and PEI specifies that arbitration shall be in accordance with the construction industry arbitration rules of the "AAA." Counsel for American Home further sought advice as to whether PEI had filed a claim independently or wished to file a joint submission. Counsel for American Home also informed PEI in its March 22, 1999 correspondence that it was invoking the clause under Section 9.2 of PEI/Roxco subcontract, and thus, was designating New Orleans as the arbitration location. The arbitration, however, was neither conducted in New Orleans, nor Rankin County, Mississippi, apparently the parties agreed upon Baton Rouge, Louisiana.
See, Correspondence of PEI's Marvin Fairchild to Kirby Stumpf of Michael Power Company dated March 10, 2000 [Exhibit "8" to the Stoute Affidavit attached to PEI's Opposition to Roxco's Motion for Summary Judgment].
See, Correspondence of American Home's counsel dated March 22, 2000 [Exhibit "11" to the Stoute Affidavit attached to PEI's Opposition to Roxco's Motion for Summary Judgment].
The PEI/Roxco Subcontract specifies that the location of the arbitration between the contractor and subcontractor shall be Rankin County, Mississippi "unless the Contractor agrees to designate another locale to facilitate joinder of the parties, consolidation of claims, or other interests of the contractor."
See, Correspondence of American Home's counsel dated March 22, 2000 (Exhibit "11" to Stoute Affidavit attached to PEI's Opposition to Roxco's Motion for Summary Judgment].
Once it was determined in arbitration that the work performed by PEI under protest was not within the scope of the PEI/Roxco subcontract work, on July 6, 2000, PEI made a demand for payment on American Home in the full amount of $820,067.76 — the alleged value of the disputed work (i.e., forming, excavation and backfilling, and concrete work under Section 3800). American Home instituted the captioned proceeding [i.e., the lead case] seeking declaratory judgment as to the value of the disputed work performed under protest by PEI on the St. Charles Waste Water Treatment Plant Project. PEI demanded arbitration to resolve the related issue of quantum (i.e., the cost of the disputed work PEI performed under protest and pursuant to the PEI/Roxco Subcontract as directed by explicit written directive of the American Home's representative, Kirby Stumpf. At all pertinent times, American Home issued payments to PEI pursuant to the PEI/Roxco Subcontract.
See, PEI's Second Demand for Arbitration (emphasis added) [PEI's Exhibit "3"].
The issue before this Court is not whether the disputed work performed under protest was within the scope of work described in the subcontract. The issue for this Court to determine is rather whether the subject dispute (i.e., liability and concomitantly, compensation therefor) arose out of the PEI-Roxco Subcontract. Prior to the arbitration panel's decision with respect to liability, all of the parties to these consolidated proceedings were of the same mind. All concerned agreed that the dispute regarding the PEI/Roxco subcontract work performed by PEI under protest was related to and/or arose out of the PEI/Roxco Subcontract and thus, should be arbitrated. All of the parties referred to herein above participated jointly in the arbitration proceeding relative to the preliminary issue of liability — that is, the arbitration proceeding which determined whether PEI had been fully compensated for work performed on the Project by the subcontract price or, may be entitled to compensation beyond the contract price because the work performed under protest was not within the scope of the work provided by the PEI/Roxco Subcontract.
Borrowing language from the Fifth Circuit's decision in Mar-Len of Louisiana, it cannot be seriously disputed that issue of compensation for the forming, excavation, backfilling, and concrete work under Section 3800 performed by PEI under protest pursuant to the PEI/Roxco subcontract "arose out of [the] dispute regarding the performance of [that] original [sub]contract." As in the Mar-Len case discussed herein below at note 16, the PEI/Roxco arbitration clause in dispute similarly lacks any express provision excluding the claim asserted by PEI [i.e., compensation for disputed subcontract work performed under protest]. Moreover, and insofar as the arbitration of the disputed work performed under protest by PEI is concerned, the "superceding" PEI/Max Foote Construction Company subcontract expressly excepted the ongoing PEI/Roxco subcontract work dispute from its ambit. All were in agreement that such dispute should be arbitrated.
Mar-Len of Louisiana v. Parsons-Gilbane, 773 F.2d 633, 636 (5th Cir. 1985).
Id.
LAW AND ANALYSIS
Whether a dispute is subject to arbitration is determined by the existence of an arbitration clause that on its face appears broad enough to encompass a party's claims. The Fifth Circuit has distinguished between broad and narrow arbitration clauses. If, however, the clause is narrow, the court must first determine if the dispute falls within the scope of the arbitration clause. A presumption of arbitrability exists requiring that whenever the scope of an arbitration clause is fairly debatable or reasonably in doubt, the Court should decide the question of construction in favor of arbitration.
Mar-Len of Louisiana v. Parsons-Gilbane, 773 F.2d 633, 635 (5th Cir. 1985) (citing Commerce Park at DFW Freeport v. Mardian Constr. Co., 729 F.2d 334, 338 (5th Cir. 1984)).
Pennzoil Exploration and Prod. Co. v. Ramco Energy, Ltd., 139 F.3d 1061, 1067 (5th Cir. 1998).
In Matter of Complaint of Hornbeck Offshore Corp. v. Coastal Carriers Corp., 981 F.2d 752, 754-755 (5th Cir. 1993).
Mar-Len of Louisiana, 773 F.2d at 636 (citing United Steelworkers of America v. Warrior Gulf Nav. Co., 80 S.Ct. 1347, 1353 (1960)).
As before, this Court recognizes that the weight of the arbitration presumption is heavy and that it 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, 773 F.2d at (quoting Wick v. Atlantic Marine, Inc., 605 F.2d 166, 168 (5th Cir. 1979)).
The words "within the scope of the subcontract" were also the focus of the case in Mar-Len of Louisiana v. Parsons-Gilbane, 773 F.2d 633 (5th Cir. 1985). Much like PEI in the case at bar, Mar-Len too made claims beyond the scope of its responsibilities pursuant to the Mar-Len/Parsons Subcontract. Id. at 634.
The district court in Mar-Len concluded that the Parsons-Gilbane/Mar-Len arbitration agreement was not susceptible to an interpretation that covered the dispute at issue. It held that the arbitration agreement covered only disputes involving the interpretation and performance of the contract but not challenges to the validity of subsequent contractual modifications. Mar-Len, 773 F.2d at 635. Subsequently, the district court issued an injunction based on its earlier ruling and prohibited any further proceedings in arbitration. On the appeal involving the district court's ruling enjoining further proceedings in arbitration, Parsons-Gilbane argued that the district court improperly stayed the arbitration proceedings based upon its erroneous conclusion that the dispute was not arbitrable. The Fifth Circuit agreed with that contention and explained that: "the economic duress alleged by Mar-Len of Louisiana arose out of a dispute regarding the performance of the original contract." Id. at 636. The Fifth Circuit further observed that the arbitration clause in dispute "lack[ed] any express provision excluding claims such as that asserted by Mar-Len." Id.
In any event, whenever the scope of an arbitration clause is fairly debatable or even reasonably in doubt, the Court should decide a question in favor of arbitration. The Court observes that there is no language in the instant arbitration clause which can be construed so as to exclude from its broad reach, claims for compensation for work performed under protest pursuant to the Subcontract.
The Court now turns to the issue raised by parties involving the allegedly superseding April 1999 subcontract entered by and between PEI and Max Foote Construction Company, Inc. after the completion of substantial Project work. As previously mentioned, it is not disputed that PEI entered into the subcontract with Max Foote Construction Company only after PEI performed substantial Project work pursuant to the PEI/Roxco Subcontract. The Court also previously noted that as directed by the bonding company's (i.e., American Home's representative), PEI had proceeded with the work in dispute "under protest" pursuant to the PEI/Roxco Subcontract.
See, April 1999 PEI/Max Foote Subcontract [Exhibit "9" to PEI's Opposition to Roxco's Motion for Summary Judgment]. In April 1999 PEI was informed that Max Foote Construction Co., Inc., was retained by the bonding as general contractor for the Project.
The Court observes that the PEI/Max Foote Subcontract incorporates by reference the correspondence by and between PEI and Max Foote which expressly excepts from its ambit the dispute involving the work PEI performed under protest pursuant to PEI/Roxco Subcontract. All parties were in agreement, such dispute should be submitted to arbitration.
The signature page of PEI/Max Foote Subcontract bears the following notation: "subject to Preferred Electric, Inc.'s letter dated April 15, 1999 and the Max Foote Reply letter dated April 20, 1999," which letters were attached and made part of the PEI/Max Foote Subcontract. Essentially, PEI's correspondence confirms with Max Foote that PEI was performing certain Project work under protest with pending back charges depending on the outcome of the arbitration. Max Foote's April 20, 1999 response, which was also attached to and made part of its Subcontract, confirms and clarifies its intention and desire neither to become involved with nor interfere with the arbitration panel's decision regarding the scope of the PEI/Roxco subcontract work and/or pending back charges.
Accordingly,
IT IS ORDERED that:
(1) PEI's Motion to Stay is GRANTED on Reconsideration and this Court's October 20th, 2000 minute entry ruling with respect to PEI's Motion to Stay is RECALLED and VACATED;
(2) ROXCO's Motion for Summary Judgment is DENIED; and
(3) These consolidated declaratory judgment actions are STAYED pending final outcome of bifurcated arbitration proceedings as to LIABILITY and QUANTUM regarding the work performed by PEI under protest pursuant to the PEI/Roxco Subcontract.
The Clerk of Court is directed to administratively close this case for statistical purposes, subject to the parties' right to file a motion to reopen upon final and complete resolution of the issues which arose out of and are related to the PEI/Roxco Subcontract discussed herein above.