Erdman Co. v. Phoenix Land & Acquisition Llc

• Decision Date: 16 August 2011
• Docket Number: No. 10–2854.,10–2854.
• Citation: 650 F.3d 1115
• Court: U.S. Court of Appeals — Eighth Circuit
• Parties: ERDMAN COMPANY; Erdman Architecture & Engineering Company, Plaintiffs–Appellants,v.PHOENIX LAND & ACQUISITION, LLC; Phoenix Health, LLC; et al., Defendants–Appellees.

650 F.3d 1115

ERDMAN COMPANY; Erdman Architecture & Engineering Company, Plaintiffs–Appellants,
v.
PHOENIX LAND & ACQUISITION, LLC; Phoenix Health, LLC; et al., Defendants–Appellees.

No. 10–2854.

United States Court of Appeals, Eighth Circuit.

Submitted: March 29, 2011.Filed: Aug. 16, 2011.

[650 F.3d 1116]

Russell C. Atchley, argued, Fayetteville, AR, for appellant.Craig Dirrim, argued, Lincoln, NE, for appellee.Before LOKEN, SMITH, and GRUENDER, Circuit Judges.LOKEN, Circuit Judge.

Erdman Company (“Erdman”) and Erdman Architecture & Engineering Company (“EAEC”) filed this diversity action to foreclose a contractor's lien and an architect's and engineer's lien against Phoenix Land & Acquisition, LLC (“Phoenix Land”), and Phoenix Health, LLC (“Phoenix Health”), as owners of the property, and three financial institutions with recorded security interests in the property. Phoenix Land filed a counterclaim, asserting breach of contract, negligence, breach of implied warranty, breach of fiduciary relationship, and deceptive trade practices by Erdman, and negligence by EAEC. Erdman and EAEC now appeal the district court's ¹ order denying their motion to compel arbitration of Phoenix Land's counterclaim. We have jurisdiction over an appeal from an interlocutory order “denying an application ... to compel arbitration.” 9 U.S.C. § 16(a)(1)(C). The district court held that Erdman waived the right to arbitrate by evidencing its intent to resolve the entire dispute through litigation. Reviewing the waiver determination de novo but the district court's underlying factual findings for clear error, we affirm. See Lewallen v. Green Tree Servicing, L.L.C., 487 F.3d 1085, 1090 (8th Cir.2007) (standard of review).

I.

Erdman, a Wisconsin-based contractor specializing in health care facilities, entered into a Design–Build Contract with Phoenix Land as Owner to design and build a one-story addition to a surgical center in Fort Smith, Arkansas. Section 12.2 of the Contract provided that “[a]ny controversy or claim arising out of or relating to this Contract or its breach not resolved by mediation, except for claims relating to Design–Builder's lien rights ... shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association then in effect.” The Contract identified EAEC as a wholly-

[650 F.3d 1117]

owned subsidiary of Erdman that would perform Erdman's obligations to provide Design Services for the project. The Contract was signed by Erdman's Executive Vice President on behalf of both Erdman and EAEC. Phoenix Health has an unexplained ownership interest in the project site but was not named or referred to in the Contract.

After work on the project began, Phoenix Land signed a series of change orders that altered the plans by adding a second floor “dead shell space” for future expansion and by allowing for the addition of a third floor at a later date. Excavation for the elevator included in the new plans went below the area covered by a geotechnical report prepared for the project and penetrated an abandoned mineshaft. A sinkhole developed, damaging completed work and delaying the project. Erdman demanded time and extra monies to remediate this allegedly unforeseen condition. Phoenix Land investigated, concluded Erdman was responsible for the sinkhole, and refused to make progress payments when Erdman would not complete the project without additional funding. Erdman halted construction with the project not completed.

Erdman and EAEC then filed this action to foreclose their respective liens for amounts unpaid under the Contract. The Complaint also alleged a breach of contract claim against Phoenix Land, and unjust enrichment claims against Phoenix Land and Phoenix Health. Their answer denied the lien claims, asserting numerous affirmative defenses, and pleaded Phoenix Land's counterclaim. After obtaining a three-week extension, Erdman and EAEC filed their reply to the counterclaim, and Erdman moved to dismiss Phoenix Land's fraudulent misrepresentation claim or, in the alternative, for a more definite statement of that claim. On the same day, Erdman and EAEC moved to compel arbitration of the counterclaim and to stay adjudication of the counterclaim but permit adjudication of the lien claims pending the arbitration. Though they argued that there was nothing to arbitrate until Phoenix Land asserted its counterclaim, footnote 9 to their lengthy Motion to Compel acknowledged that their initial claims for breach of contract and unjust enrichment “are also covered by the agreement to arbitrate and ... should also be referred to mediation and arbitration.” ² Two weeks later, Erdman and EAEC also filed a third party complaint against the geotechnical consultant and two Erdman subcontractors.

II.

Federal policy favors arbitration as a form of dispute resolution, as reflected in the Federal Arbitration Act. 9 U.S.C. § 1 et seq. But a party may waive its contractual right to arbitrate. See Lewallen, 487 F.3d at 1090. Although the issue of waiver arises under a variety of arbitration agreements and in a variety of procedural settings, we apply a uniform three-factor test in determining whether a party has waived its right to arbitration, finding waiver when the party seeking arbitration “(1) knew of its existing right to arbitration; (2) acted inconsistently with that right; and (3) prejudiced the other party by its inconsistent actions.” Hooper v. Advance Am., Cash Advance Ctrs. of Mo., Inc., 589 F.3d 917...