R.J. Griffin v. Beach Club II Homeowners

• Decision Date: 16 September 2004
• Docket Number: No. 03-2178.,No. 03-2177.,No. 03-2179.,03-2177.,03-2178.,03-2179.
• Citation: 384 F.3d 157
• Parties: R.J. GRIFFIN & COMPANY, d/b/a Sebrell/Griffin & Company, a/k/a Sebrell/Griffin General Contractors, Plaintiff-Appellant, v. BEACH CLUB II HOMEOWNERS ASSOCIATION, INCORPORATED, Defendant-Appellee. R.J. Griffin & Company, d/b/a Sebrell/Griffin & Company, a/k/a Sebrell/Griffin General Contractors, Plaintiff-Appellant, v. Beach Club III at Windy Hill, Defendant-Appellee. R.J. Griffin & Company, d/b/a Sebrell/Griffin & Company, a/k/a Sebrell/Griffin General Contractors, Plaintiff-Appellant, v. Beach Club At Windy Hill Condominium Association, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 157

384 F.3d 157

R.J. GRIFFIN & COMPANY, d/b/a Sebrell/Griffin & Company, a/k/a Sebrell/Griffin General Contractors, Plaintiff-Appellant, v. BEACH CLUB II HOMEOWNERS ASSOCIATION, INCORPORATED, Defendant-Appellee. R.J. Griffin & Company, d/b/a Sebrell/Griffin & Company, a/k/a Sebrell/Griffin General Contractors, Plaintiff-Appellant, v. Beach Club III at Windy Hill, Defendant-Appellee. R.J. Griffin & Company, d/b/a Sebrell/Griffin & Company, a/k/a Sebrell/Griffin General Contractors, Plaintiff-Appellant, v. Beach Club At Windy Hill Condominium Association, Defendant-Appellee.

No. 03-2177.

No. 03-2178.

No. 03-2179.

United States Court of Appeals, Fourth Circuit.

Argued: June 4, 2004.

Decided: September 16, 2004.

Appeal from the United States District Court for the District of South Carolina, C. Weston Houck, J ARGUED: David Lamar Little, Jr., Robinson, Bradshaw & Hinson, P.A., Rock Hill, South Carolina, for Appellant. John Patrick Henry, Thompson & Henry, Conway, South Carolina, for Appellees.

ON BRIEF: Scott W. Gaylord, Robinson, Bradshaw & Hinson, P.A., Rock Hill, South Carolina, for Appellant. Emma Ruth Brittain, Thompson & Henry, Myrtle Beach, South Carolina, for Appellees.

Before WILKINSON, LUTTIG, and MICHAEL, Circuit Judges.

Affirmed by published opinion. Judge Michael wrote the opinion, in which Judge Wilkinson and Judge Luttig joined.

MICHAEL, Circuit Judge:

After a South Carolina homeowners association discovered construction defects in its condominium building, it sued the general contractor in state court for negligence and breach of the implied warranty of good workmanship. The general contractor then sued the association in federal court, proceeding under the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq., to force arbitration under clauses in the general construction contract and the master deed. The homeowners association is not a party to the general contract, nor does it seek a direct benefit from the contract in asserting its claims. The general contractor is not a third-party beneficiary of the master deed and is not otherwise entitled to invoke its arbitration clause. We therefore affirm the district court's order denying the general contractor's motion to compel arbitration.

I.

This consolidated appeal involves three related cases filed by R.J. Griffin & Company (Griffin), a construction company, against a homeowners association in the District of South Carolina. In each case Griffin seeks to compel the homeowners association to arbitrate claims asserted against Griffin in a state court action filed in Horry County, South Carolina. Because the arbitration provisions and legal issues are identical in the three cases before us, the parties agreed to base their arguments on the record in R.J. Griffin & Co. v. Beach Club II Homeowners Ass'n, 2004 WL 2064899 (4th Cir.). The facts are as follows.

On October 27, 1995, Drake Development Corporation IV (Drake), as owner, entered into a general construction contract with Griffin, as contractor. Drake agreed to pay Griffin $4.8 million to construct a forty-five unit condominium known as The Beach Club II at Windy Hill (The Beach Club), located in North Myrtle Beach, South Carolina. Section 7.9.1 of the general conditions in the contract requires that "[a]ll claims, disputes and other matters in question between the Contractor [Griffin] and the Owner [Drake] arising out of, or relating to, the Contract Documents or the breach thereof ... shall be decided by arbitration." J.A. 129.

After Griffin completed construction of The Beach Club in 1996, Drake filed a master deed for the property in the Register of Deeds for Horry County, South Carolina. The deed imposes certain restrictions and obligations on the Grantor (Drake), the owners of individual condominium units, and the Beach Club II Homeowners Association, Inc. (the Association), an entity charged by the deed to maintain the common elements of The Beach Club property. Article XXIV of the deed requires the arbitration of "any dispute arising out of use, ownership or occupancy of ... the Common Elements ... and any complaint against the Grantor." J.A. 114. Griffin, the contractor, is not a party to the deed, nor is it referred to anywhere in the deed's provisions.

After Drake conveyed title to the buyers of the individual condominium units, the building began leaking water through its exterior walls. A subsequent inspection revealed numerous construction defects. On March 2, 1999, the Association filed a complaint in South Carolina state court against Griffin, Drake, and two other defendants. The complaint, as amended, asserted claims against Griffin for negligence and breach of the implied warranty of good workmanship. Later, on September 7, 1999, Griffin filed a complaint in federal court seeking an order, under the FAA and South Carolina state law, to compel the Association to arbitrate its negligence and breach of warranty claims. Griffin alleged that the Association was subject to mandatory arbitration based on provisions in the general construction contract and The Beach Club master deed. Griffin filed a motion to compel arbitration, but the district court dismissed Griffin's complaint, citing principles of abstention. We reversed and remanded, instructing the district court to rule on the merits of Griffin's motion to compel arbitration. R.J. Griffin & Co. v. Beach Club II Homeowners Ass'n, 3 Fed. Appx. 43 (4th Cir.2001) (unpublished). On remand the district court denied Griffin's motion to compel, and Griffin appeals for the second time.

II.

Griffin argues that the Association is compelled to arbitrate its negligence and breach of warranty claims under two separate arbitration provisions. First, Griffin asserts that equitable estoppel binds the Association to the general contract's arbitration provision. Second, Griffin asserts that it is a third-party beneficiary of the master deed, which permits it to invoke the deed's arbitration provision. Griffin says in the alternative that the Association is equitably estopped from avoiding the master deed's arbitration provision.

A.

Griffin's main argument is that the arbitration clause in the general contract is enforceable against the Association through the doctrine of equitable estoppel.¹ Generally, "arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which [it] has not agreed" to arbitrate. Int'l Paper Co. v. Schwabedissen Maschinen & Anlagen GMBH, 206 F.3d 411, 416 (4th Cir.2000) (quoting United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960)). Of course, it is well established that "a party can agree to submit to arbitration by means other than personally signing a contract containing an arbitration clause." Id. This happens when "theories arising out of common law principles of contract and agency law" are used to bind nonsignatories to arbitration agreements. Id. at 417 (quoting Thomson-CSF v. Am. Arbitration Ass'n, 64 F.3d 773, 776 (2d Cir.1995)). In the present case Griffin asserts that the Association, though not a signatory to the general contract, is equitably estopped from avoiding the contract's arbitration provision.

The doctrine of equitable estoppel "precludes a party from asserting rights he otherwise would have had against another when his own conduct renders assertion of those rights contrary to equity." Id. at 417-18 (internal quotation marks and citations omitted). In the context of arbitration, the doctrine applies when one party attempts "to hold [another party] to the terms of [an] agreement" while simultaneously trying to avoid the agreement's arbitration clause. Hughes Masonry Co., Inc. v. Greater Clark County Sch. Bldg. Corp., 659 F.2d 836, 838 (7th Cir.1981). We have held more specifically that"[a] nonsignatory is estopped from refusing to comply with an arbitration clause when it [is seeking or] receives a direct benefit from a contract containing an arbitration clause." Schwabedissen, 206 F.3d at 418 (quotation marks and citations omitted). Our job here is to determine whether the Association is seeking a direct benefit from the general construction contract between Drake and Griffin.

Our guidance for this inquiry comes from Schwabedissen, 206 F.3d 411, where we applied the "direct benefits" theory of estoppel in affirming the enforcement of an arbitration award. In that case International Paper Company (by a predecessor) agreed to buy an industrial saw from Wood Systems, Inc., a distributor. Wood Systems, in turn, engaged its manufacturer, Schwabedissen Maschinen & Anlagen GMBH, to build the saw according to specifications set forth in a contract between Wood and Schwabedissen. The saw was delivered to International Paper in due course, but it never worked properly. Wood Systems went bankrupt in the meantime, and International Paper sued Schwabedissen in district court, alleging "breach of contract... and breach of warranties" based on the Wood-Schwabedissen contract. Id. at 414. The district court granted Schwabedissen's motion to compel International Paper to arbitrate based on an arbitration clause in the Wood-Schwabedissen contract. After Schwabedissen won in arbitration, the district court enforced the award against International Paper. On appeal to us International Paper repeated its argument that it was not bound to arbitrate because it was not a signatory to the Wood-Schwabedissen contract. We disagreed because "a party may be [equitably] estopped from asserting that the lack of his signature on a written contract precludes enforcement of the contract's arbitration clause when he has consistently maintained that other provisions of the same contract should be enforced to benefit him." Id. at 418. Because International Paper was seeking to gain a direct benefit from certain provisions in the Wood-Schwabedissen contract, we held that it was estopped from avoiding the...