Southern Elec. Health Fund v. Kelley

• Decision Date: 30 September 2003
• Docket Number: No. 3:01-0216.,No. 3:00-0448.,No. 3:02-0129.,No. 3:02-0152.,3:00-0448.,3:02-0152.,3:02-0129.,3:01-0216.
• Citation: 308 F.Supp.2d 847
• Parties: SOUTHERN ELECTRICAL HEALTH FUND, et al., Plaintiffs, v. Donna KELLEY and Joe Kelley, each d/b/a K.T.E. Electric, Defendants, v. John W. Cates Construction Co., Inc., Third Party Defendant/Cross-Claim Plaintiff.
• Court: U.S. District Court — Middle District of Tennessee

308 F.Supp.2d 847

SOUTHERN ELECTRICAL HEALTH FUND, et al., Plaintiffs, v. Donna KELLEY and Joe Kelley, each d/b/a K.T.E. Electric, Defendants, v. John W. Cates Construction Co., Inc., Third Party Defendant/Cross-Claim Plaintiff.

No. 3:00-0448.

No. 3:02-0152.

No. 3:02-0129.

No. 3:01-0216.

United States District Court, M.D. Tennessee, Nashville Division.

September 30, 2003.

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Robert Jan Jennings, Branstetter, Kilgore, Stranch & Jennings, Nashville, TN, Patrick J. O'Hara, Cavanagh & O'Hara, Springfield, IL, for Southern Electrical Health Fund, Carolinas Electrical Workers Retirement Fund, National Electrical Benefit Fund, Carolinas Electrical Workers Joint Apprenticeship & Training Fund, Atlantic Coast Chapter-NECA, Local 553 International Brotherhood of Electrical Workers, National Labor Management Co-operation Committee, Coalition for Political Education, Board 63 Collection Account Trust, pltfs.

MEMORANDUM

ECHOLS, District Judge.

These four consolidated actions involving Plaintiffs' claims under the Miller Act and the Employee Retirement Income Security Act of 1974 ("ERISA"), as well as breach of contract cross-claims between Defendants and Third-Party Defendants, came before the Court for a bench trial from June 3 to June 6, 2003. This Memorandum Opinion constitutes the Court's findings of fact and conclusions of law as required by Fed.R.Civ.P.52(a).

I. JURISDICTION

The Court has jurisdiction over Plaintiffs' claims under 28 U.S.C. §§ 1331 (federal question jurisdiction) and 1332 (diversity jurisdiction); 29 U.S.C. §§ 185 (suits by and against labor organizations) and 1132 (ERISA civil enforcement); and 40 U.S.C. § 3131 (Miller Act).¹

However, the Court is without jurisdiction over the Kelleys d/b/a KTE's and Cates, Inc.'s cross-claims. As KTE has pointed out in its post-trial proposed findings and conclusions, the subcontracts between Cates, Inc. and KTE contain a mandatory arbitration clause. According to KTE, under the Federal Arbitration Act ("FAA"), the existence of the arbitration clause deprives the Court of jurisdiction to hear the cross claims, and the Court must either dismiss the cross claims or stay them pending arbitration.² Neither KTE nor Cates, Inc. raised this issue before trial, and Cates, Inc. still has not addressed it.

The FAA "provides that written agreements to arbitrate controversies arising out of an existing contract `shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.'" Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985) (citing 9 U.S.C. § 2). "By its terms, the Act leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed." Id. (citing 9 U.S.C. §§ 3, 4). Thus, "agreements to arbitrate must be enforced, absent a ground for revocation of the contractual agreement." Id.; see Liskey v. Oppenheimer & Co., 717 F.2d 314 (6th Cir.1983) (holding that the FAA divests courts of any discretion regarding arbitration in cases containing both arbitrable and non-arbitrable claims, and instead requires that the courts compel arbitration of arbitrable claims, when asked to do so); see also Dickinson v. Heinold Securities, Inc., 661 F.2d 638, 646 (7th Cir.1981) (holding in accord, and concluding that the Act, both through its plain meaning and the strong federal policy it reflects, requires courts to enforce the bargain of the parties to arbitrate, and "not substitute [its] own views of economy and efficiency" for those of Congress).

"[P]assage of the Act was motivated, first and foremost, by a congressional desire to enforce agreements into which parties had entered." Byrd, 470 U.S. at 220, 105 S.Ct. 1238. As a result, "[t]he mere presence in a suit of non-arbitrating parties or non-arbitrable claims ... will not defeat enforcement under the Act ... regarding those claims which are arbitrable." Tennessee Imports, Inc. v. Filippi, 745 F.Supp. 1314, 1330 (M.D.Tenn.1990) (citing Byrd, 470 U.S. at 221, 105 S.Ct. 1238); see Byrd, 470 U.S. at 216-17, 105 S.Ct. 1238 (framing the issues as "whether to compel arbitration of pendent state-law claims when the federal court will in any event assert jurisdiction over a federal-law claim," and holding that "the Arbitration Act requires district courts to compel arbitration of pendent arbitrable claims when one of the parties files a motion to compel, even where the result would be the possibly inefficient maintenance of separate proceedings in different forums").

Guided by this precedent, and by Cates, Inc.'s failure to object to arbitration,³ the Court finds that it is without jurisdiction to decide the cross-claims for breach of contract between KTE and Cates, Inc. Those cross-claims which arise out of the contracts between the two construction companies, and their dismissal from this case will not affect the Court's ability to decide Plaintiffs' claims against Third-Party Defendants Cates, Inc. and Heritage. Cf. Filippi, 745 F.Supp. at 1330-31 (staying non-arbitrable claims against the defendant pending arbitration, because the non-arbitral claims were "closely related to, and in part dependent upon," the arbitrable claims). Moreover, it is those claims which dominated the trial of this action, as well as pre-trial motions.

Therefore, because the Court is without jurisdiction over KTE's and Cates, Inc.'s cross-claims, the cross-claims will be dismissed. See id. at 1330 (stating that "dismissal is often an appropriate method of referring the parties to arbitration" and choosing to dismiss arbitrable claims instead of staying them pending arbitration).

II. PROCEDURAL HISTORY

The Court extensively related the convoluted procedural history of these consolidated actions in its Memorandum Opinion denying cross motions for summary judgment. (See Docket Entry No. 150⁴). All of the claims arise from construction projects at Fort Campbell Army Base ("Ft. Campbell") and Pope Air Force Base ("Pope AFB"), located in North Carolina. At both sites, KTE performed work as an electrical subcontractor for Cates, Inc., which was the prime contractor for both projects. The actions, which were consolidated on April 18, 2002 (Docket Entry No. 49), essentially seek from Cates, Inc., Mr. Cates, and Heritage, pursuant to the Miller Act, payment of contributions owed by Cates, Inc.'s subcontractor, KTE, to health or pension funds regulated by ERISA, along with membership dues or other payments required under collective bargaining agreements to which KTE was a party. Plaintiffs also seek reimbursement from Mr. Cates as an alleged fiduciary under ERISA.

The lead case in this consolidated action, No. 3:00-0448, was filed on May 9, 2000, by the Southern Electrical Health Fund, Carolina Electrical Workers Retirement Fund, National Electrical Benefit Fund, Carolinas Electrical Workers Joint Apprenticeship & Training Fund, Atlantic Coast Chapter-NECA, International Brotherhood of Electrical Workers ("IBEW") Local 553, National Labor Management Cooperation Committee, Coalition for Political Education, and Board 63 Collection Account Trust ("Board 63"). Theaction was filed against Donna and Joe Kelley, d/b/a KTE, and seeks relief under ERISA, 29 U.S.C. § 1001 et seq., alleging failure to submit payroll reports and pay contributions or remit membership dues or other payments, all of which were part of their employees' wages but were not paid to Plaintiff Funds. The Kelleys and KTE filed a third-party complaint against Cates, Inc., which in turn filed a counterclaim against the Kelleys and KTE. (Docket Entry Nos. 19 and 25). Thereafter, Plaintiffs added KTE as a defendant. (Docket Entry No. 40).

In No. 3:00-0448, Plaintiffs obtained a temporary injunction on August 25, 2000, requiring the Kelleys and KTE to submit payroll reports and contributions to the health and pension funds, membership dues, and other payments required by the collective bargaining agreement. (Docket Entry No. 12). Plaintiffs then filed a motion to show cause why the Kelleys d/b/a KTE should not be held in contempt for failure to comply. The motion was granted by Order entered March 23, 2001. (Docket Entry No. 15). Mr. Cates, the chief executive of Cates, Inc., was also ordered to appear and show cause why he should not be held in contempt. (Docket Entry No. 22). The show-cause hearing to determine whether Mr. Cates violated the injunction was continued several times, (Docket Entry Nos. 24, 27, 30), and eventually was scheduled to be conducted at the same time as the trial of these actions. (Docket Entry No. 49). At the hearing on November 5, 2001, a representation was made that Mr. Cates, acting through Cates, Inc., had already paid Plaintiffs in No. 3:00-0448. (See Docket Entry No. 34, at 12). Eventually Plaintiffs' claims against the Kelleys and KTE, including those involving contempt, were settled, and judgment was entered by consent against KTE and in favor of Plaintiffs in the total amount of $230,207.58. (Docket Entry No. 110). The only remaining issue in No. 3:00-0448 is whether Mr. Cates and/or Cates, Inc. should be held in contempt for violation of the injunction.

No. 3:01-0216 was filed on March 6, 2001, by the Southern Electrical Retirement Fund and the National Electrical Contractors Association-IBEW Health and Welfare Fund, against the Kelleys d/b/a KTE, Cates, Inc., and Heritage, pursuant to the Miller Act, 40 U.S.C. § 3131 et seq., in connection with construction projects at Ft. Campbell. The action was consolidated with No. 3:00-0448 on April 11, 2002, with No. 3:00-0448 being designated the lead case. (No. 3:01-0216 Docket Entry No. 24) The settlement with Plaintiffs resolved claims against the Kelleys and KTE in No. 3:01-0216...