Arbitration between S&R Co. and Latona Trucking

• Decision Date: 08 September 1997
• Docket Number: No. 97-CV-0865.,97-CV-0865.
• Citation: 984 F.Supp. 95
• Parties: In the Matter of the Application to Compel Arbitration Between S & R COMPANY OF KINGSTON, a New York General Partnership and Hartford Fire Insurance Company, Petitioners, and LATONA TRUCKING, INC., Respondent.
• Court: U.S. District Court — Northern District of New York

984 F.Supp. 95

In the Matter of the Application to Compel Arbitration Between S & R COMPANY OF KINGSTON, a New York General Partnership and Hartford Fire Insurance Company, Petitioners and LATONA TRUCKING, INC., Respondent.

No. 97-CV-0865.

United States District Court, N.D. New York.

September 8, 1997.

COPYRIGHT MATERIAL OMITTED

Gleason, Dunn, Walsh & O'Shea (Mark T. Walsh, of Counsel), Albany, NY, for petitioners.

Lewis & Greer, P.C. (J. Scott Greer, of Counsel), Poughkeepsie, NY, for respondent.

MEMORANDUM-DECISION & ORDER

McAVOY, Chief Judge.

Petitioners, S & R Company of Kingston ("S & R") and Hartford Fire Insurance Company ("Hartford"), brought this petition, pursuant to Section 4 of the Federal Arbitration Act, 9 U.S.C. § 4, seeking to compel arbitration of a dispute presently pending before this Court in an action entitled Latona Trucking, Inc. v. Hartford Fire Ins. Co. et al., (96-CV-306) ("Latona v. Hartford" or "pending action"). The Petitioners commenced the instant action following an Order by Magistrate Judge David R. Homer, in Latona v. Hartford, denying Petitioners' request to extend the deadline for pre-trial motions, thus precluding Petitioners from making a motion in that action, pursuant to 9 U.S.C. § 3, to stay Latona v. Hartford pending the enforcement of arbitration.¹

Latona opposes the instant petition asserting that (1) it has not agreed to arbitrate its claims against Hartford; (2) its claim against S & R does not fall within the scope of the arbitration agreement; and (3) Petitioners waived their right to arbitrate claims in Latona v. Hartford.

For the reasons that follow, Petitioners' request to compel arbitration is denied in its entirety.

I. BACKGROUND

In July, 1995, Latona executed a contract with S & R to provide "Phase I + Site Work including site work for a Toys "R" Us Retail Store" at the Hudson Valley Plaza in Kingston, New York (the "project"). S & R was the owner and developer of the project, and Toys "R" Us ("Toys") was a part owner of the project. Hartford was the surety on a payment bond obtained by S & R to secure payment of the contract price to Latona.

Article 18.1 of the contract contained an arbitration clause providing:

In the event any dispute arises between the Parties relative to this contract which cannot be resolved by the Parties within thirty (30) days from the date first noticed, the Parties agree to refer the dispute to an arbitrator in accordance with the rules of the American Arbitration Association.

Additionally, the payment bond included a clause incorporating the contract into the bond, which read as follows:

WHEREAS, PRINCIPAL (S&R) has entered into a contract with OBLIGEE (Latona) dated July 12, 1995 designated Phase 1 + Site Work ... which is made a part hereof as fully as if copied verbatim herein.

Disputes arose between the parties regarding work completion and payments. On February 20, 1996, Latona commenced the pending action to collect $650,000 from Hartford under the payment bond as a result of S & R's failure to make payments due under the contract. Latona further sought to recover attorney's fees from S & R and Toys, pursuant to New York General Obligations Law § 5-322.3, for failure to file the payment bond with the County Clerk. In answering the complaint, Hartford and Toys did not directly include "arbitration and award" as an affirmative defense. They did, however, plead a defense of unspecified "documentary evidence."

On June 28, 1997, a stipulation and consent order was filed allowing S & R to intervene as a defendant. Latona thereafter served an amended complaint. In answering the amended complaint, neither Hartford, Toys nor S & R pleaded "arbitration and award" as an affirmative defense. However, each asserted the defense of unspecified "documentary evidence." S & R also counterclaimed against Latona alleging breach of contract.

The pending action continued with all parties actively participating in the discovery process. On June 5, 1997, Magistrate Judge Homer held a telephone conference regarding defendants' request to substitute counsel. During the course of that conference, defendants' new attorneys moved for an order to extend the May 15, 1997 deadline for filing pre-trial motions. Specifically, defendants intended, inter alia, to apply for a stay of the proceedings pending enforcement of the arbitration clause contained in the contract. By an Order dated June 6, 1997, Magistrate Judge Homer granted defendants' request for substitution of counsel, but denied its request for leave to file pre-trial motions. Defendants have appealed that Order to this Court. The pending action presently is scheduled for trial on October 20, 1997.

On June 18, 1997, defendants commenced this separate action, pursuant to 9 U.S.C. § 4, to compel arbitration of the pending action.

The Court now turns to the issues presented.

II. DISCUSSION

A) The Federal Arbitration Act

The Petitioners filed this action, pursuant to 9 U.S.C. § 4, to compel arbitration of disputes between the parties in accordance with the terms of an arbitration clause contained in the contract executed between Latona and S & R. Latona opposes the petition asserting that (1) it has not agreed to arbitrate its claims against Hartford; (2) its claim against S & R does not fall within the scope of the arbitration agreement; and (3) Petitioners waived their right to arbitrate claims in Latona v. Hartford.

The Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq., requires courts to enforce arbitration agreements in contracts involving interstate commerce. Section 4 of the FAA, 9 U.S.C. § 4, governs the procedure for filing a petition to compel arbitration, and provides:

A party aggrieved by the alleged failure, neglect, or refusal of another under a written agreement for arbitration may petition any United States district court ... for an order directing that such arbitration proceed in the manner provided for in such agreement.... The Court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement.

9 U.S.C. § 4.

A strong presumption exists in favor of arbitrating disputes. See, e.g, Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 941-42, 74 L.Ed.2d 765 (1983) ("Moses"); Scherk v. Alberto-Culver Co., 417 U.S. 506, 510-11, 94 S.Ct. 2449, 2452-53, 41 L.Ed.2d 270, reh'g denied, 419 U.S. 885, 95 S.Ct. 157, 42 L.Ed.2d 129 (1974). Indeed, "[a]ny doubts concerning the scope of arbitration issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense of arbitrabililty." Moses, 460 U.S. at 24-25, 103 S.Ct. at 941-42.

The initial inquiry a court makes in deciding an arbitration petition is to ask whether the parties agreed to arbitrate, and if so, whether the claims fall within the scope of the arbitration agreement. See 9 U.S.C. §§ 3-4; Moses, 460 U.S. at 24, 103 S.Ct. at 941; Progressive Cas. Ins. Co. v. C.A, Reaseguradora Nacional De Venezuela, 991 F.2d 42, 45 (2d Cir.1993) ("Progressive") (quoting David L. Threlkeld & Co. v. Metallgesellschaft Ltd., 923 F.2d 245, 249 (2d Cir.), cert. denied, 501 U.S. 1267, 112 S.Ct. 17, 115 L.Ed.2d 1094 (1991)). "If the court concludes that some, but not all, of the claims in the case are arbitrable, it must then determine whether to stay the balance of the proceedings pending arbitration." Genesco. Inc. v. T. Kakiuchi & Co. Ltd., 815 F.2d 840, 845 (2d Cir.1987).

1. Agreement to Arbitrate as between Latona and Hartford

Initially, the Court notes both parties' uncertainty regarding whether State law or Federal law controls the determination of whether the parties agreed to arbitrate. The Second Circuit has instructed that although "§ 2 of the (FAA) preempts state law which treats arbitration agreements differently from any other contracts, it also `preserves general principles of state contract law as rules of decision on whether the parties have entered into an agreement to arbitrate.'" Progressive, 991 F.2d at 46 (quoting Cook Chocolate Co. v. Salomon, Inc., 684 F.Supp. 1177, 1182 (S.D.N.Y.1988)). Even where state law applies, however, "questions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration." Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth Inc., 473 U.S. 614, 626, 105 S.Ct. 3346, 3353, 87 L.Ed.2d 444 (1985).

In the instant case, Latona avers that it never agreed to arbitrate its disputes with Hartford. Specifically, Latona cites to the absence of an arbitration clause in the payment bond as support for its argument. Petitioners, by contrast, assert that the payment bond incorporates the arbitration clause contained in the contract between Latona and S&R.²

An inspection of the payment bond reveals that the payment bond incorporates by reference the contract between Latona and S&R.³ The more difficult question, however, is whether, under New York law, the incorporation clause binds Latona to arbitrate disputes with the surety Hartford.

The New York Court of Appeals held, in Fidelity and Deposit Co. of Maryland v. Parsons & Whittemore Contractors Corp.,, 48 N.Y.2d 127, 128, 421 N.Y.S.2d 869, 397 N.E.2d 380, 381 (1979) ("Fidelity"), that a surety was not entitled to a stay of arbitration when its performance bond incorporated by reference a subcontract containing a broad arbitration clause. The Court reasoned that by "accept[ing] the agreement of the general contractor and subcontractor to arbitrate disputes" it implicitly agreed to "be bound by the resolution reached in the arbitration forum of any dispute between the general contractor and the subcontractor." Fidelity, 48 N.Y.2d at 131-32, 421...