In re Electric Machinery Enterprises, Inc.

• Decision Date: 23 February 2007
• Docket Number: No. 06-13733 Non-Argument Calendar.,06-13733 Non-Argument Calendar.
• Citation: 479 F.3d 791
• Parties: In Re: ELECTRIC MACHINERY ENTERPRISES, INC., Debtor. The Whiting-Turner Contracting Company, United States Fidelity and Guaranty Company, Plaintiffs-Appellants, v. Electric Machinery Enterprises, Inc., Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

479 F.3d 791

In Re: ELECTRIC MACHINERY ENTERPRISES, INC., Debtor The Whiting-Turner Contracting Company, United States Fidelity and Guaranty Company, Plaintiffs-Appellants, v. Electric Machinery Enterprises, Inc., Defendant-Appellee.

No. 06-13733 Non-Argument Calendar.

United States Court of Appeals, Eleventh Circuit.

February 23, 2007.

David M. Landis, Orlando, FL, Roger C. Jones, Huddles, Jones, Sorteberg & Dachille, P.C., Columbia, MD, for Plaintiffs-Appellants.

James Sawyer Myers, McRae & Metcalf, P.A., Tampa, FL, David J. Metcalf, McRae & Metcalf, Tallahassee, FL, for Defendant-Appellee.

Appeal from the United States District Court for the Middle District of Florida.

Before TJOFLAT, HULL and WILSON, Circuit Judges.

WILSON, Circuit Judge:

This is an interlocutory appeal in a bankruptcy case. We find that the district court erred when it upheld a bankruptcy court's denial of a motion to compel arbitration.

BACKGROUND

The Whiting-Turner Contracting Company ("Whiting-Turner") was the general contractor on the construction of certain improvements at Universal City Development Partners' ("UCDP") theme park known as "Seuss Landing."¹ Electric Machinery Enterprises, Inc. ("EME") entered into a subcontract with Whiting-Turner and agreed to provide electrical work on the project. During the course of the work, Whiting-Turner suffered scheduling delays that impacted the completion of the work. UCDP refused to grant Whiting-Turner any contract time extensions for excusable delays; therefore, both Whiting-Turner and EME were forced to expend additional costs to accelerate the work. Whiting-Turner submitted an amended claim to UCDP for these additional costs. As part of the amended claim, Whiting-Turner included (as a "pass-through" claim) the claimed additional costs submitted by EME in the amount of $5,001,644. Whiting-Turner also sought payment for additional change work that UCDP had directed Whiting-Turner and thereby EME to perform. The total amount that Whiting-Turner allocated to EME in its claim to UCDP was $6,116,467.

While Whiting-Turner was pursing these claims against UCDP, Whiting-Turner and EME entered into a Tolling Agreement, which tolled the applicable statute of limitations with respect to an action by EME against Whiting-Turner. The Tolling Agreement also acknowledged that during the course of the project, EME had incurred additional costs for change work and acceleration of contract performance. The Tolling Agreement stated that Whiting-Turner had submitted EME's claimed costs as part of Whiting-Turner's claims to UCDP, and Whiting-Turner was continuing to exhaust both Whiting-Turner's and EME's claims with UCDP. In the Tolling Agreement, Whiting-Turner and EME agreed "that any issues, claims or defenses between them shall be resolved by binding arbitration under the Construction Industry Rules of the American Arbitration Association and judgment shall be entered upon any award in such proceedings."

In June 2004, Whiting-Turner entered into a settlement agreement with UCDP in which UCDP paid Whiting-Turner $9,600,000. Following the settlement, Whiting-Turner informed EME that based on the prior payments made to EME, Whiting-Turner considered its subcontract with EME paid in full. Both before and during the Tolling Agreement, Whiting-Turner had previously paid EME $1,845,451.

In May 2003, EME had filed for Chapter 11 bankruptcy in the United States Bankruptcy Court for the Middle District of Florida. After Whiting-Turner settled with UCDP, EME filed an adversary proceeding in bankruptcy court against Whiting-Turner alleging that Whiting-Turner owes EME $5,081,286 in principal and $2,328,423 in accrued interest pursuant to a subcontract agreement between the parties. In its complaint, EME claims that the suit is for "turnover" property of the estate. Furthermore, EME claims that Whiting-Turner breached their contract and owed payment to EME based on a payment bond issued by Whiting-Turner.

EME moved for summary judgment, asserting that Whiting-Turner has a duty to "turn over" the undisputed amount of money that it owes EME. Specifically, EME claimed that it is owed a percentage of the settlement proceeds that UCDP paid to Whiting-Turner. Whiting-Turner's initial cumulative claim against UCDP was for approximately $21 million, which included EME's claim of approximately $6.2 million. EME stated that this $6.2 million represented 29% of Whiting-Turner's cumulative claim. Therefore, EME claimed that it should receive 29% of the $9,600,000 Whiting-Turner received as a settlement, which is approximately $2,815,400. Whiting-Turner responded that during the course of the UCDP litigation, it learned that EME's cost claim was substantially overstated and unsupported by EME's own job cost records, and therefore, it had paid EME in full. Also in response to EME's claim, Whiting-Turner filed a motion to compel arbitration. The bankruptcy court held a hearing on both motions.

The bankruptcy court denied EME's motion for summary judgment and found that this case is not a "turnover" action because it involves a disputed and unliquidated claim. The bankruptcy court also found that this case presents a constructive trust situation, because Whiting-Turner collected money in settlement for itself and for EME, and if Whiting-Turner does not distribute the proportion of the settlement owed to EME, Whiting-Turner will be unjustly enriched. However, the bankruptcy court acknowledged that the amount of money that Whiting-Turner owes to EME is a "hotly disputed" factual issue. Having determined that a constructive trust existed, the bankruptcy court determined that it had jurisdiction over the res of the constructive trust, and that the determination of the amount of res in the constructive trust was a "core" bankruptcy proceeding. Therefore, the bankruptcy court found that arbitration under these circumstances was not appropriate and denied Whiting-Turner's motion to compel arbitration. The district court affirmed, and Whiting-Turner appealed.

STANDARD OF REVIEW

We independently examine the factual and legal determinations of the bankruptcy court under the same standards as the district court. Barrett Dodge Chrysler Plymouth Inc. v. Cranshaw (In re Issac Leaseco, Inc.), 389 F.3d 1205, 1209 (11th Cir. 2004). We review legal determinations de novo. Securities Groups v. Barnett (In re Monetary Group), 2 F.3d 1098, 1103 (11th Cir. 1993). We review the factual findings of the bankruptcy court for clear error. Id.

DISCUSSION

A. Legal Standard for the Enforcement of a Valid Arbitration Agreement

The parties do not dispute that they entered into a valid arbitration agreement to resolve any and all claims or issues between them. The Federal Arbitration Act ("FAA") provides, in pertinent part, that arbitration agreements "shall be valid, irrevocable, and enforceable, save upon grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. The FAA establishes a federal policy favoring arbitration. See Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 226, 107 S.Ct. 2332, 2337, 96 L.Ed.2d 185 (1987). However, "[l]ike any statutory directive the Arbitration Act's mandate may be overridden by a contrary congressional command." Id. "Thus, unless Congress has clearly expressed an intention to preclude arbitration of the statutory claim, a party is bound by its agreement to arbitrate." Davis v. Southern Energy Homes, Inc., 305 F.3d 1268, 1273 (11th Cir. 2002). The party opposing arbitration has the burden of proving "that Congress intended to preclude a waiver of a judicial remedies for [the particular claim] at issue." McMahon, 482 U.S. at 227, 107 S.Ct. at 2337.

In McMahon, the United States Supreme Court promulgated a three factor test in order to determine Congress' intent: "(1) the text of the statute; (2) its legislative history; and (3) whether `an inherent conflict between arbitration and the underlying purposes [of the statute]' exists." Davis, 305 F.3d at 1273 (alteration in original) (quoting McMahon, 482 U.S. at 227, 107 S.Ct. at 2338). In applying the McMahon factors, "`questions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration.'" Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26, 111 S.Ct. 1647, 1652, 114 L.Ed.2d 26 (1991). Applying the McMahon factors to the Bankruptcy Code, we find no evidence within the text or in the legislative history that Congress intended to create an exception to the FAA in the Bankruptcy Code. See Mintze v. Am. Gen. Fin. Servs., Inc. (In re Mintze), 434 F.3d 222, 231 (3d Cir. 2006) (finding no evidence of such an intent in the statutory text or legislative history of the bankruptcy code). Therefore, we look to the third factor of the McMahon test and examine whether an inherent conflict exists between arbitration and the underlying purposes of the Bankruptcy Code.

B. Analysis

The bankruptcy court found that the determination of the res of the constructive trust was a core proceeding over which the bankruptcy court had exclusive jurisdiction. The bankruptcy court relied on the United States Supreme Court's decision in Tennessee Student Assistance Corp. v. Hood, 541 U.S. 440, 124 S.Ct. 1905, 158 L.Ed.2d 764 (2004), for the proposition that "[a] bankruptcy court's in rem jurisdiction permits it to `determin[e] all claims that anyone, whether named in the action or not, has to the property or thing in question.'" Id. at 448, 124 S.Ct. at 1911 (second alteration in original). However, whether or not the bankruptcy court has jurisdiction, even exclusive jurisdiction, over a matter is a separate question from whether enforcing a valid arbitration agreement would pose an inherent conflict with the underlying purposes of the Bankruptcy Code. See McMahon, 482 U.S. at 227-28, 107 S.Ct. at 2338-39 (finding that the plaintiffs' claim that the defendant violated § 10(b) of the Securities Exchange...