Auto Parts Mfg. Miss. Inc. v. King Constr. of Hous., LLC, Civil Action No. 1:11–CV–00251–GHD–SAA.

• Citation: 74 F.Supp.3d 744
• Decision Date: 17 March 2014
• Docket Number: Civil Action No. 1:11–CV–00251–GHD–SAA.
• Parties: AUTO PARTS MANUFACTURING MISSISSIPPI INC., a Mississippi corporation, Plaintiff v. KING CONSTRUCTION OF HOUSTON, LLC, a Mississippi limited liability company; Noatex Corporation, a California corporation; and Kohn Law Group, Inc., a California corporation, Defendants.
• Court: U.S. District Court — Northern District of Mississippi

74 F.Supp.3d 744

AUTO PARTS MANUFACTURING MISSISSIPPI INC., a Mississippi corporation, Plaintiff

v.KING CONSTRUCTION OF HOUSTON, LLC, a Mississippi limited liability company; Noatex Corporation, a California corporation; and Kohn Law Group, Inc., a California corporation, Defendants.

Civil Action No. 1:11–CV–00251–GHD–SAA.

United States District Court, N.D. Mississippi, Aberdeen Division.

Signed March 17, 2014.

Otis R. Tims, Mitchell, McNutt & Sams, Tupelo, MS, for Plaintiff.

William Lawrence Deas, Deas & Deas, LLC, Tupelo, MS, James C. Simpson, Jr., Jennifer H. Scott, Nicole Collins Huffman, Wise Carter Child & Caraway, PA, Gulfport, MS, for Defendants.

MEMORANDUM OPINION DENYING MOTION TO COMPEL ARBITRATION FILED BY DEFENDANTS NOATEX CORPORATION AND KOHN LAW GROUP, INC.

GLEN H. DAVIDSON, Senior District Judge.

Presently before the Court is a motion to compel arbitration [177] filed by Defendants Noatex Corporation and Kohn Law Group, Inc.¹ Upon due consideration of all the parties' arguments, the Court finds that the motion should be denied.

A. Factual and Procedural History

Auto Parts Manufacturing Mississippi, Inc. (“APMM”) contracted with Noatex Corporation (“Noatex”) for Noatex to construct an auto parts manufacturing facility in Guntown, Lee County, Mississippi, near Toyota Motor Manufacturing, Mississippi, Inc. in Blue Springs, Mississippi. Noatex subcontracted with King Construction of Houston, LLC (“King Construction”), a Mississippi limited liability company, to provide some materials and labor for the construction. Noatex alleges that APMM owes it money for goods and services that Noatex provided to APMM under the contract. Noatex questions some of the invoices submitted to it by King Construction pertaining to the subcontract work. In response to this billing dispute between Noatex and King Construction, King Construction notified APMM on September 23, 2011, pursuant to Mississippi's “Stop Notice” Statute, Mississippi Code § 85–7–181 (the “Stop Notice statute”), that Noatex owed King Construction $260,410.15 and that King Construction was filing a “Laborer's and Materialman's Lien and Stop Notice” in the Chancery Court of Lee County, Mississippi. On the date of notification, APMM owed Noatex $179,707.40. The stop notice bound the disputed funds in APMM's hands to secure invoice claims that Noatex allegedly owed to King Construction. See Miss.Code Ann. § 85–7–181 (“[T]he amount that may be due ... shall be bound in the hands of such owner for the payment in full....”). King Construction's filing of the stop notice in the lis pendens record of the chancery court had the effect of establishing King Construction's lien priority over the property that was the subject of the dispute.See id. § 85–7–197. APMM later deposited the $260,410.15 in the registry of the Chancery Court of Lee County.

The dispute resulted in three lawsuits, one of which is the case sub judice.² APMM filed this interpleader action in the Chancery Court of Lee County to determine ownership of the disputed funds subject to King Construction's stop notice, naming both Noatex and King Construction as defendants. In December of 2011, Noatex removed this interpleader action to this Court. APMM deposited the money into the Court registry. The interpleaded funds are currently impounded in the Court registry pending disposition.

On May 23, 2013, Defendants Noatex and Kohn Law Group filed the present motion to compel arbitration [177], claiming that the issues raised by the amended complaint in interpleader [135] are referable to arbitration under an engagement agreement between Kohn Law Group and Noatex.³ APMM and King Construction filed responses in opposition,⁴ and Noatex and Kohn Law Group jointly filed a reply.⁵ The motion is now ripe for review.

B. Analysis and Discussion

Noatex and Kohn Law Group move the Court to compel arbitration under 9 U.S.C. § 3 of the Federal Arbitration Act (the “FAA”). This matter requires the Court to consider the intersection of interpleader and arbitration and to determine whether to compel arbitration of an engagement agreement between two of the three defendants in this case.

Section 3 provides in pertinent part:

If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration ... the court ... shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement....

9 U.S.C. § 3.

In 1925, Congress enacted the FAA in response to the longstanding, widespread judicial hostility to arbitration agreements that existed at English common law and was adopted by American courts. See, e.g., Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991) ; Am. Bankers Ins. Co. of Fla. v. Inman, 436 F.3d 490, 492–93 (5th Cir.2006).⁶ The FAA reflects an “emphatic federal policy in favor of arbitral dispute resolution.” Mitsubishi Motors Corp. v. Soler Chrysler–Plymouth, Inc., 473 U.S. 614, 631, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985). However, the FAA

does not mandate the arbitration of all claims, but merely the enforcement—upon the motion of one of the parties—of privately negotiated arbitration agreements. The House Report accompanying the [FAA] makes clear that its purpose was to place an arbitration agreement ‘upon the same footing as other contracts, where it belongs,’ H.R.Rep. No. 96, 68th Cong., 1st Sess., 1 (1924), and to overrule the judiciary's longstanding refusal to enforce agreements to arbitrate.

Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 219–20, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985). Because “arbitration is a matter of contract,” courts must “rigorously enforce arbitration agreements according to their terms.” Hendricks v. UBS Fin. Servs., Inc., 546 Fed.Appx. 514, 517–18 (5th Cir.2013) (quoting Am. Express Co. v. Italian Colors Rest., –––U.S. ––––, ––––, 133 S.Ct. 2304, 2309, 186 L.Ed.2d 417 (2013) (citation and internal quotation marks omitted)). Thus, arbitration may be compelled only if the parties agreed to arbitrate the dispute in question. See 9 U.S.C. § 4 ; Rent–A–Center, West, Inc. v. Jackson, 561 U.S. 63, 66, 130 S.Ct. 2772, 2776, 177 L.Ed.2d 403 (2010) ; VT Halter Marine, Inc. v. Wartsila N. Am., Inc., 511 Fed.Appx. 358, 360 (5th Cir.2013) (per curiam) (citing Pennzoil Exploration & Prod. Co. v. Ramco Energy Ltd., 139 F.3d 1061, 1064 (5th Cir.1998) (in turn citing AT & T Techs., Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 648, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986) )).

Against this backdrop, the Court assesses whether “the parties have agreed to arbitrate a particular claim ... [by] determin[ing]: (1) whether there is a valid agreement to arbitrate between the parties; and (2) whether the dispute in question falls within the scope of that arbitration agreement.” Hendricks, 546 Fed.Appx. at 518 (quoting Pers. Sec. & Safety Sys. Inc. v. Motorola Inc., 297 F.3d 388, 392 (5th Cir.2002) (internal quotation marks omitted)).⁷ However, first, the Court addresses King Construction's arguments that Noatex and Kohn Law Group have waived their right to arbitration and untimely filed their initial motion for arbitration after the commencement of this interpleader action.

(1) Waiver of Right to Arbitration

At the outset, the Court addresses King Construction's argument that Noatex and Kohn Law Group waived their right to arbitration by pursuing litigation concerning the same claims they now contend should be referred to arbitration. Noatex and Kohn Law Group argue that despite their involvement in ongoing litigation they have not waived their right to arbitration.

“Waiver will be found when the party seeking arbitration substantially invokes the judicial process to the detriment or prejudice of the other party.” Subway Equip. Leasing Corp. v. Forte, 169 F.3d 324, 326 (5th Cir.1999) (quoting Miller Brewing Co. v. Fort Worth Distrib. Co., 781 F.2d 494, 497 (5th Cir.1986) (internal quotation marks omitted)). “There is a strong presumption against finding a waiver of arbitration, and the party claiming that the right to arbitrate has been waived bears a heavy burden.” Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341, 344 (5th Cir.2004) (citing Subway, 169 F.3d at 326 ).

First, the Court must examine whether Noatex and Kohn Law Group substantially invoked the judicial process. To invoke the judicial process, “[t]he party must, at the very least, engage in some overt act in court that evinces a desire to resolve the arbitrable dispute through litigation rather than arbitration.” Subway, 169 F.3d at 329. “[A] party only invokes the judicial process to the extent it litigates a specific claim it subsequently seeks to arbitrate.” Id. at 328.

King Construction contends that Noatex and Kohn Law Group have invoked the judicial process to resolve its disputes with King Construction by taking such actions as filing the declaratory judgment action against King Construction in this Court for Mississippi's Stop Notice statute to be declared unconstitutional (No. 3:11–cv–137), filing the breach of contract action against King Construction in this Court (No. 3:11–cv–152), removing this interpleader action from the Chancery Court of Lee County to this Court, filing a petition of mandamus and two motions for reconsideration of the denial of same in the Fifth Circuit Court of Appeals (No. 12–60374), and indicating by their behavior a desire to litigate not arbitrate.

The Court agrees. The Fifth Circuit has explained: “In this Circuit, a bright-line rule is inappropriate for deciding whether a party has waived its right to arbitration. Rather, our precedent establishes that ‘[t]he question of what constitutes a waiver of the right of arbitration depends on the facts of each case.’ ” In re Mirant Corp., 613 F.3d 584, 589 (5th Cir.2010) (quoting Tenneco Resins, Inc. v. Davy Int'l, AG, 770 F.2d 416, 420 (5th Cir.1985) ). “A party waives arbitration by seeking a...