Chambers v. Park Square Enters., LLC (In re J.E.L. Site Dev., Inc.)
| Decision Date | 15 June 2022 |
| Docket Number | Case No. 6:19-bk-05398-LVV,Adv. No. 6:22-ap-00003-LVV |
| Parties | IN RE: J.E.L. SITE DEVELOPMENT, INC., Debtor. Gene T. Chambers, Trustee, Plaintiff, v. Park Square Enterprises, LLC and RLI Insurance Company, Defendants. |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Middle District of Florida |
Matthew G. Davis, Paskert Divers Thompson, Tampa, FL, for Defendant RLI Insurance Company.
Rosemary Hanna Hayes, Carly Marie Newman, Hayes & Newman, PL, Orlando, FL, for Plaintiff Gene T. Chambers.
John B. Hutton, Greenberg Traurig PA, Miami, FL, for Defendants Park Square Enterprises, LLC.
ORDER GRANTING MOTION TO COMPEL ARBITRATION
THIS MATTER came before the Court on Park Square Enterprises, LLC ("Park Square") and RLI Insurance Company's ("RLI") (collectively, the "Defendants") Motion to Compel Arbitration and Dismiss Adversary Proceeding (Doc. No. 7) (the "Motion"), the Trustee's response in opposition (Doc. No. 11), and the Defendants’ reply (Doc. No. 14).1 Defendants request this Court compel arbitration of the claims asserted against them by the Trustee in accordance with a prepetition agreement to arbitrate and either dismiss or stay the adversary proceeding pending completion of the arbitration. For the reasons stated below, the Court will grant the Motion.
Park Square purchased undeveloped land from an affiliate of Debtor pursuant to a vacant land contract.2 Debtor and Park Square then executed a "Site Development Contract" under which the Debtor would provide site development services to Park Square, who was developing the property into a residential subdivision.3 The site development contract contained an arbitration provision that stated:
Any and all claims, disputes, causes of action of controversies between OWNER [Park Square] and CONTRACTOR [Debtor] and/or its Surety [RLI] shall be subject to arbitration by the Arbitrator appointed by the American Arbitration Association ("AAA") as provided herein.4
This provision became relevant in early 2018 when a payment dispute arose between the Debtor and Park Square. The original contract price for the site development work was $2.8 million, which was increased to $4.3 million by a change order executed in September 2016 to account for site conditions at the property.5 Towards the end of the project, in January 2018, Debtor requested an additional change order to increase the contract price to just over $5.8 million, citing the unforeseen amount of fill dirt that had been required to prepare the property.6 Park Square denied the change order request and terminated the contract.7
Debtor maintained it furnished work and materials incorporated in the property worth just over $5.86 million and having received payment of just under $4 million was owed $1,880,542.42.8 In early April 2018, Debtor recorded a construction lien against the property for this sum.9 As part of recording the construction lien, Debtor filed its "Contractor's Final Payment Affidavit."10 The affidavit listed Debtor's outstanding payables to its subcontractors, which totaled $1,079,742.11.11 To clear title on the property, Park Square posted a construction lien bond, transferring the lien to a bond issued by its surety, RLI.12 Debtor's unpaid subcontractors also filed construction liens against the property.13
In May 2018, Debtor sued Park Square (and by June 2018 amendment, RLI) in Florida state court to foreclose on its construction lien and for breach of contract.14 Park Square moved to compel arbitration, citing the arbitration provision in the contract.15 The state court entered an agreed order to stay the case "pending disposition of the arbitration proceedings[.]"16
In the arbitration action, Park Square asserted a claim against Debtor for its costs to complete the project, for liens filed by Debtor's subcontractors, and for punitive damages in the amount of Debtor's construction lien, asserting it was fraudulently filed.17 Debtor filed a counterclaim that essentially re-stated its state court complaint.18 Some of Debtor's subcontractors also sued Park Square and RLI to foreclose on their liens. This included Star Trucking & Construction Services, Inc. ("Star Trucking") and Sunray Paving & Construction Co. ("Sunray").19 Park Square unsuccessfully sought to consolidate or stay these cases while the arbitration was pending.20
The parties selected a panel of three arbitrators, at least one of whom appears to have an extensive background in construction law, and proceeded to move forward in arbitration for close to 14 months.21 A final hearing was set for early August 2019, but continued to January 2020 while the parties engaged in settlement talks.22 At the time the arbitration was continued (June 2019), Defendants estimated they would need two months to be ready for the final hearing.23
But before the final hearing could occur, in August 2019, Debtor filed for chapter 11 bankruptcy staying the arbitration proceeding.24 Park Square filed Proof of Claim Number 39, asserting the claims it raised in the arbitration proceeding, i.e., it was owed $1,030,240.02 as costs to complete the project, $713,106.31 for liens filed by Debtor's subcontractors, and $1,880,542.42 in punitive damages.25 In the addendum attached to its proof of claim, Park Square identified its claim was currently pending in arbitration.26 Star Trucking and Sunray also filed proofs of claim in the bankruptcy.27 Park Square did not seek stay relief and Debtor did not pursue its claims against Park Square.
In July 2020, the case was converted to Chapter 7 and the Trustee was appointed.28 Later that year, Defendants made payments to Star Trucking and Sunray in exchange for releasing their liens. In January 2022, the Trustee initiated this adversary proceeding against the Defendants, filing a four-count complaint.29 Count I is for breach of the site development contract against Park Square. Count II is to foreclose on the construction lien transfer bond against RLI. Count III is an objection to Park Square's proof of claim. The Trustee objects to Park Square's proof of claim by reference to its breach of contract and foreclosure of lien claims.30 In essence, the Trustee takes issue with the amount asserted, because in her view, Park Square owes money to Debtor not the other way around.31 The Trustee also takes issue with the propriety of the post-conversion payments Defendants paid subcontractors who had sued them.32 The Trustee argues the payments made "suggest" Defendants violated the automatic stay and thwarted the administration of the estate.33 Last, the Trustee asserts that the proof of claim should be disallowed pursuant to §§ 502(d) and 547 unless Defendants return the money they paid to satisfy the subcontractors’ liens against them.34 Count IV is an unjust enrichment claim if Debtor is not found to have a contractual remedy.
As a threshold matter, Defendants argue res judicata and the Rooker -Feldman doctrine require this Court to follow the state court's "rul[ing] on the enforceability of the arbitration agreement."35 The Court does not need to wade far into either of these preclusion doctrines because Defendants read too much into the state court order.36 The order, which is titled "Agreed Order to Stay Case Pending Arbitration" only states that the case is "abated pending disposition of the arbitration proceeding."37 Defendants offer no evidence that the state court made any determination as to the enforceability of the agreement, much less a final one,38 which binds this Court.
Turning to the merits, the Eleventh Circuit provided the controlling law for motions to compel arbitration in bankruptcy proceedings in Whiting-Turner Contracting Co. v. Electric Machinery Enterprises (In re Electric Machinery Enterprises.) , 479 F.3d 791 (11th Cir. 2007). Against the backdrop of the federal policy favoring arbitration expressed by congress in the Federal Arbitration Act ("FAA"),39 Electric Machinery instructs courts to conduct a two-step inquiry. See In re Laubenstein , No. 9:20-bk-03697-FMD, 2020 WL 5746877, at *2-3 (Bankr. M.D. Fla. Sept. 9, 2020).
First, the Court must determine if the parties agreed to arbitrate their dispute. See Electric Machinery , 479 F.3d at 795 ; In re Bateman , 585 B.R. 618, 624 (Bankr. M.D. Fla. 2018). This entails an inquiry into whether there is a valid arbitration agreement, if the agreement encompasses the claims at issue, and whether the right to arbitration was waived. See Louis v. Aetna Health Inc. , No. 6:16-cv-1922-ORL-22DCI, 2017 WL 6939166, at *3 (M.D. Fla. Jan. 13, 2017). The Trustee does not seriously dispute the validity of the arbitration agreement or whether it encompasses the claims at issue,40 but instead argues that Park Square waived its right to arbitrate by filing a proof of claim and not raising the arbitration agreement or seeking relief from the stay to proceed in arbitration.41 Previously, the Eleventh Circuit applied a two-part test in determining whether a party waived its right to arbitrate. First, the party must "have acted inconsistently with the arbitration right and, [second] in so acting, has in some way prejudiced the other party." S & H Contractors, Inc. v. A.J. Taft Coal Co. , 906 F.2d 1507, 1508 (11th Cir. 1990). Recently, the Supreme Court resolved a circuit split and overruled nine circuits, including the Eleventh, that have "an arbitration-specific waiver rule demanding a showing of prejudice." Morgan v. Sundance, Inc. , ––– U.S. ––––, 142 S. Ct. 1708, 1711, 212 L.Ed.2d 753 (2022). Accordingly, the Court now applies a one-part test, and the Trustee must only show that Park Square "acted inconsistently with [its] arbitration right," such as by "substantially invoking] the litigation machinery prior to demanding arbitration." Garcia v. Wachovia Corp ., 699 F.3d 1273, 1277 (11th Cir. 2012). Under these facts, the Court finds Park...
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