Auto Parts Mfg. Miss., Inc. v. King Constr. of Hous., L. L.C.

Decision Date26 March 2015
Docket NumberNos. 14–60217,14–60287.,s. 14–60217
Citation782 F.3d 186
PartiesAUTO PARTS MANUFACTURING MISSISSIPPI, INCORPORATED, a Mississippi Corporation, Plaintiff–Appellee v. KING CONSTRUCTION OF HOUSTON, L.L.C., a Mississippi Limited Liability Company, Defendant–Appellee v. Noatex Corporation, a California Corporation; Kohn Law Group, Incorporated, Defendants–Appellants.
CourtU.S. Court of Appeals — Fifth Circuit

Otis Ray Tims, Martha Bost Stegall, Mitchell McNutt & Sams, Tupelo, MS, for PlaintiffAppellee.

James C. Simpson, Jr., Esq., Wise Carter Child & Caraway, P.A., Gulfport, MS, Robert Espensen Kohn, Esq., Kohn Law Group, Incorporated, Santa Monica, CA, for DefendantsAppellants.

William Lawrence Deas, Deas & Deas, L.L.C., Tupelo, MS, for DefendantAppellee.

Appeals from the United States District Court for the Northern District of Mississippi.

Before HIGGINBOTHAM, CLEMENT, and HIGGINSON, Circuit Judges.

Opinion

STEPHEN A. HIGGINSON, Circuit Judge:

Noatex Corp. (Noatex) and Kohn Law Group, Inc. (Kohn) appeal two district court decisions in an interpleader action brought by Auto Parts Manufacturing Mississippi, Inc. (APMM) that named Noatex, King Construction of Houston, L.L.C. (King), and Kohn as claimants. Appellants claim that the district court erred in discharging APMM from the action, enjoining all parties from filing any proceedings relating to the interpleader fund without a court order, and in denying their motion to compel arbitration.

FACTS AND PROCEEDINGS

APMM contracted with Noatex to build an automotive parts factory in Guntown, Mississippi. Noatex hired King as subcontractor to provide services and materials to Noatex. A dispute arose between Noatex and King over the quality of King's work and payments allegedly due to King. On September 23, 2011, King filed a Stop Notice pursuant to Mississippi's Stop Notice statute, Miss.Code Ann. § 85–7–181 (repealed 2014).1 King informed APMM that Noatex owed King $260,410.15. The Stop Notice had the effect of binding APMM to hold the disputed funds to secure the payments that Noatex allegedly owed to King. See id. On October 18, 2011, Noatex filed a complaint in the U.S. District Court for the Northern District of Mississippi against King and its principal alleging that the Stop Notice statute was unconstitutional for violating due process.2 On November 30, 2011, Noatex filed a second action in federal district court against King and its principal alleging breach of contract, negligence, and conversion. Noatex Corp. v. King Constr. of Hous., LLC, No. 3:11–cv–00152 (N.D.Miss. Nov. 30, 2011), ECF No.1.3

On November 15, 2011, APMM filed a complaint for interpleader against King and Noatex in Mississippi state court. APMM alleged that it was a disinterested stakeholder of the $260,410.15, disclaimed any further right to the funds, alleged that it could be exposed to double liability from the claims of multiple claimants, and alleged that it was unable to determine which of King's and Noatex's claims were valid. APMM asked the court for permission to tender the funds to the court, and asked that the court determine the claimants' rights to the interpleaded funds and enjoin King, Noatex, and any other person from instituting an action against APMM for recovery of the funds. On December 5, 2011, Noatex removed the interpleader complaint to federal district court, noting that “APMM is only a nominal party.” Soon after, APMM deposited $260,410.15 into the district court's registry.

In April 2012, the district court granted King's motion to remand due to lack of complete diversity between the parties. Noatex Corp. v. King Constr. of Hous., LLC, 864 F.Supp.2d 478, 483 (N.D.Miss.2012). In December 2012, the district court withdrew its remand, finding that APMM could have commenced the case in federal court under 28 U.S.C. § 1335. The court directed APMM to redeposit the interpleader funds with the court, and APMM complied.

While the interpleader action was on remand, Noatex's counsel, Kohn, filed suit against APMM in the U.S. District Court for the Central District of California. Kohn alleged that Noatex had defaulted on its obligations to pay for legal services. Kohn claimed that an October 5, 2011 engagement agreement between Kohn and Noatex (“Engagement Agreement”) “confer[red] a lien in favor of Kohn Law upon APMM's obligations to pay Noatex the amount of $260,410.15,” that took priority over any other liens against Noatex. The Engagement Agreement also contained an arbitration clause:

Except to the extent otherwise required by the Mandatory Fee Arbitration Act or other similar law, any dispute arising from this engagement shall be resolved by binding arbitration as provided by the rules of ADR Services, Inc. and in the Century City office of ADR Services, Inc....

The California action was stayed “in favor of the ongoing Mississippi interpleader action.”4 APMM moved to join Kohn to the interpleader action on the ground that Kohn claimed attorneys' fees owed by Noatex related to the APMM construction project and the only sums paid for such project were interpleaded. APMM filed an amended complaint adding Kohn as a defendant.

APMM filed a motion for discharge as a disinterested stakeholder, which Noatex and Kohn—but not King—opposed. In their joint opposition and in a joint motion to dismiss, Noatex and Kohn argued that APMM and King were bound by the Engagement Agreement to arbitrate this dispute and that the district court proceedings should be stayed pending arbitration. Noatex and Kohn also argued that the interpleader complaint failed to allege a claim for relief between Noatex, Kohn, and King.

On March 3, 2014, the district court granted APMM's motion to dismiss or discharge. The court found that the requirements for statutory interpleader under 28 U.S.C. § 1335 had been satisfied. The district court rejected Noatex's and Kohn's arguments that the discharge should be stayed pending arbitration and that APMM could not be discharged because it owed interest on the fund. It decided that the appropriate action was to discharge APMM as a disinterested stakeholder and proceed to determine the respective rights of the claimants. The district court discharged APMM and enjoined King, Noatex, and Kohn from filing any proceedings against APMM relating to the interpleader fund without authorization from the court.

On March 17, 2014, the district court denied Noatex and Kohn's motion to compel arbitration and to stay the proceedings pending arbitration, without prejudice to possible future arbitration between Noatex and Kohn.5 The court found that Noatex and Kohn had waived their right to arbitration by substantially invoking the judicial process to King's detriment, that the motion to compel arbitration was not timely since it was filed after the commencement of the interpleader action, that no valid agreement bound King to arbitrate, and that this dispute was beyond the scope of any agreement to arbitrate.

Noatex and Kohn appealed the discharge order, as well as “all matters inextricably bound up” with that decision—over ten additional district court decisions. They also appealed the district court's denial of their motion to compel arbitration and to stay the action pending arbitration.

On March 24, 2014, the district court dismissed Kohn from the action, finding that any possible claims that Kohn had to the interpleader funds were not ripe because any lien depends on Noatex having rights in the fund. The district court also found Kohn's dismissal proper because Kohn's claim was asserted after the interpleader action was commenced. No party has appealed Kohn's dismissal.

On October 20, 2014, after the appeals were fully briefed, King and Noatex informed the district court that they had reached a settlement, and the district court dismissed the action without prejudice, retaining “complete jurisdiction to vacate this order and to reopen the action upon cause shown that settlement has not been completed and further litigation is necessary.” Auto Parts Mfg. Miss. v. King Constr. of Hous., LLC, No. 1:11–cv–00251 (N.D.Miss. Oct. 20, 2014), ECF No. 262. King and Noatex filed a joint settlement motion with this court asking this court to distribute the registry funds according to the terms of settlement ($109,750 to King and $150,660.15 to Noatex) and to dismiss the appeals solely as against King. This panel dismissed the appeal for lack of jurisdiction, noting that we do not have jurisdiction to distribute the funds. The district court granted King's and Noatex's subsequent motion to distribute the registry funds and dismissed the action without prejudice. Id., ECF No. 264. The district court's distribution order did not address the injunction, and APMM filed a motion to reopen and for clarification that asked the district court to explicitly state that the injunction remains in effect. Id., ECF No. 265. Noatex and Kohn opposed APMM's motion. Id., ECF No. 266.

This complicated procedural history leaves the following issues to be resolved on appeal: 1) appellants' motion to dismiss the appeals solely as to King; 2) APMM's invitation to dismiss the appeals in their entirety as moot, and, if granted, appellants' contingent motion to vacate the district court's injunction; 3) appellants' appeal of the district court's order discharging APMM and enjoining appellants from filing any proceedings related to the interpleader funds; and 4) appellants' appeal of the district court's denial of their motion to compel arbitration and to stay the interpleader action pending arbitration.

DISCUSSION
I.

To begin, appellants move to dismiss the appeals as to King after King's settlement agreement with Noatex and the district court's distribution of the interpleader funds. Neither King nor APMM opposes the motion.6 Accordingly we grant appellants' motion to dismiss the appeals as to King.

II.

Next, we address appellants' appeal of the district court's order discharging APMM and enjoining appellants from filing any proceedings...

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