Shelter Prods., Inc. v. Omni Constr. Co., WD78598

• Court: Missouri Court of Appeals
• Writing for the Court: Karen King Mitchell, Judge
• Parties: SHELTER PRODUCTS, INC., Respondent, v. OMNI CONSTRUCTION COMPANY, INC., Appellant.
• Docket Number: WD78598
• Decision Date: 19 January 2016

SHELTER PRODUCTS, INC., Respondent,
v.
OMNI CONSTRUCTION COMPANY, INC., Appellant.

WD78598

MISSOURI COURT OF APPEALS WESTERN DISTRICT

January 19, 2016

Appeal from the Circuit Court of Cole County, Missouri
The Honorable Patricia S. Joyce, Judge

Before Division Three: Joseph M. Ellis, Presiding Judge, and Karen King Mitchell and Gary D. Witt, Judges

Omni Construction Company, Inc., appeals from the circuit court's denial of Omni's motion to stay litigation until the conclusion of its related pending arbitration. Because there is at least one issue that is referable to arbitration, we reverse in part, affirm in part, and remand.

Background

Omni entered into a contract with Jefferson City Retirement, LLC, d/b/a Primrose Retirement Community (Primrose), to serve as the general contractor for the construction of a retirement home in Jefferson City, Missouri. Omni entered into a subcontract with Shelter

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Products, Inc., which was to provide lumber, millwork, sheathing, and related materials for the project.

A dispute arose between Omni and Primrose, as well as among various subcontractors, regarding the contract. Omni filed a mechanic's lien on Primrose's property in the amount of $1,626,419. Shelter, believing that it was owed $48,249 from Omni for work that Shelter performed, filed its own mechanic's lien on the property in that amount. Two other subcontractors also filed mechanic's liens.¹

Shelter filed an action in the Circuit Court of Cole County, seeking to enforce its mechanic's lien, in which it named all of the entities that had filed mechanic's liens, including Omni, and sought a determination of the priority of the various liens. Shelter filed an amended petition, which also sought damages against Omni and Primrose, stating claims for breach of contract, suit on account, and quantum meruit against Omni, as well as a claim of quantum meruit against Primrose. Also named in the amended petition was Fidelity Deposit Company of Maryland (Fidelity), which Shelter alleged had issued a payment bond for the benefit of Omni's subcontractors, upon which Shelter claims that Fidelity vexatiously refused to pay despite Shelter making a proper demand.

Omni answered Shelter's claims and filed a cross-claim against all mechanic's lien holders and Primrose. Omni alleged that it had performed all work up to the specifications of the contract, and that Primrose had failed to provide full payment. Omni sought damages against Primrose in the amount of $1,626,419, enforcement of its mechanic's lien, and a determination of its priority. Omni also filed a counterclaim against Shelter, seeking reimbursement of $8,160, which it alleged that Shelter had been overpaid for the work it had performed. Because Omni's contract with Primrose was subject to an agreement to arbitrate any issues arising under the

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contract,² Omni commenced arbitration proceedings in South Dakota, in accordance with the agreement. Primrose filed a counterclaim in the arbitration.

Omni filed a motion to stay the proceedings in Cole County pending conclusion of the arbitration proceeding. Shelter objected, and the trial court denied the motion. This appeal followed.

Standard of Review

"'A court must stay litigation if it determines that the parties agreed to arbitrate.'" Metro Demolition & Excavating Co. v. H.B.D. Contracting, Inc., 37 S.W.3d 843, 846 (Mo. App. E.D. 2001) (quoting Fru-Con Const. Co. v. Sw. Redevelopment Corp. II, 908 S.W.2d 741, 744 (Mo. App. E.D. 1995)). Accordingly, in determining whether a stay of the litigation pending arbitration is mandatory, "the standard of review is essentially de novo." Getz Recycling, Inc. v. Watts, 71 S.W.3d 224, 228 (Mo. App. W.D. 2002). Moreover, "[c]ourts favor and encourage arbitration proceedings . . . [and a]n arbitration clause is to be construed so as to favor arbitrability." Id. (internal quotations omitted).

Analysis

In its two points, Omni argues that the trial court erred in refusing to stay, in its entirety, litigation pending the arbitration of its claims against Primrose because federal and state law both mandate a stay where some of the issues presented in the litigation are referable to the arbitration.

I. The FAA mandates a partial stay of the litigation.

In its first point on appeal, Omni argues that the Federal Arbitration Act mandates a stay of the Cole County litigation. "The Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq. (2006),

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governs the applicability and enforceability of arbitration agreements in all contracts involving interstate commerce." State ex rel. Hewitt v. Kerr, 461 S.W.3d 798, 805 (Mo. banc 2015). The parties agree that this litigation involves interstate commerce,³ and that the FAA therefore applies.⁴ The FAA mandates that, in a case in which "any issue [is] 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 (2012). While interlocutory orders are normally not subject to appeal, the FAA states that "[a]n appeal may be taken from an order refusing a stay of any action under section 3 of this title." 9 U.S.C. § 16(a)(1)(A). Accordingly, "despite the fact that such orders are not final judgments," the denial of a mandatory stay is appealable under the FAA. Lawrence v. Beverly Manor, 273 S.W.3d 525, 527 n.2 (Mo. banc 2009).

The FAA "requires a [trial] court to issue a stay if an issue in the case is 'referable' to arbitration." Tank Holdings, Inc. v. Bell, No. 4:12-CV-713 JAR, 2013 WL 4502458, *13 (E.D. Mo. Aug. 22, 2013) (quoting Reid v. Doe Run Res. Corp., 701 F.3d 840, 845 (8th Cir. 2012)). While 9 U.S.C. § 3 mandates a stay "of the action," the FAA has not been interpreted as requiring a stay of the entire lawsuit if only certain, but not all, issues in the lawsuit are referable to arbitration. Rather, a case may "involve[e both] arbitrable and nonarbitrable issues," in which case "a court must determine whether to stay the suit pending arbitration of the arbitrable issue or to allow the suit and the arbitration to move forward simultaneously." WMS Gaming, Inc. v.

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IGT, 31 F. Supp. 3d 974, 977 (N.D. Ill. 2014); see also Fru-Con, 908 S.W.2d at 744 ("[I]f the court concludes that some but not all claims are arbitrable, [it must then determine] whether to stay the balance of the proceeding pending arbitration."). Therefore, because a stay is mandatory for issues referable to arbitration, we must determine "whether the specific dispute falls within the scope of the arbitration agreement." Netco, Inc. v. Dunn, 194 S.W.3d 353, 357 (Mo. banc 2006). "Ambiguities as to the scope of the arbitration are resolved in favor of arbitration." Fru-Con, 908 S.W.2d at 744.

The arbitration agreement between Omni and Primrose covers "[a]ny [c]laim arising out of or related to the[ir c]ontract, except claims relating to aesthetic effect and" enumerated categories of disputes for which arbitration is specifically waived. Omni's cross-claim against Primrose alleges both that Omni performed its work according to the specifications of the contract and that Primrose failed to provide full payment under the provisions of the contract, and seeks a judgment in the amount of the alleged underpayment.

Even if we were not required to read the agreement in favor of arbitration, it cannot be seriously disputed that Omni's claim that Primrose breached the contract "aris[es] out of or relate[s] to the [c]ontract" between Omni and Primrose. And Shelter makes no such argument. Shelter also makes no argument that Omni's cross-claim against Primrose for damages involves either "aesthetic effect" or issues upon which arbitration was otherwise waived. Rather, Shelter simply argues that its own claims against Omni are not referable to arbitration. Therefore, Shelter argues, the FAA mandates no stay of the litigation whatsoever. We will address Shelter's argument about its claims against Omni infra; but Shelter is simply incorrect in its argument that the FAA requires that either all or none of the litigation be stayed. To the contrary, "[a]rbitrability is to be determined on an issue-by-issue basis, without regard to the way

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that the issues are grouped into claims." Fru-Con, 908 S.W.2d at 744. When an issue is referable to arbitration, the FAA mandates a stay of that issue in the litigation, regardless of whether there are other claims, or litigants, to which the mandatory stay do not apply. See id. at 746 (Where some issues are subject to mandatory stay, the issue of whether the remaining issue "should be stayed pending arbitration is a matter for the discretion of the trial court on remand."); Netco, 194 S.W.3d at 363 (Where some, but not all, issues, between some, but not all, parties are subject to a mandatory stay pending arbitration, the litigation is stayed as to the specific claims subject to mandatory stay, while the issue of whether the trial court should stay the litigation of all the remaining claims pending arbitration lies within the trial court's discretion.).

Omni and Primrose are subject to an arbitration agreement for all disputes arising under their contract, and they are presently arbitrating claims that are directly related to the contract. The FAA requires that these claims be stayed pending arbitration. Therefore, the trial court erred in denying a stay as it relates to Omni's cross-claim seeking judgment against Primrose for breach of the contract.

But Omni makes a similar mistake to Shelter, assuming that, because its claim for breach of contract against Primrose is "referable to arbitration[,] . . . the entire underlying action should be stayed." (Emphasis added.) As we have discussed, this is incorrect. Rather, the court must determine whether each individual claim is subject to a mandatory stay, and the determination to stay any remaining issues, not subject to a mandatory stay, is up to the trial...