Starr Elec. Co., Inc. v. Basic Const. Co.

• Decision Date: 04 June 1982
• Docket Number: No. C-81-623-WS.,C-81-623-WS.
• Citation: 586 F. Supp. 964
• Court: U.S. District Court — Middle District of North Carolina
• Parties: STARR ELECTRIC COMPANY, INC., Petitioner, v. BASIC CONSTRUCTION COMPANY, Respondent.

586 F. Supp. 964

STARR ELECTRIC COMPANY, INC., Petitioner, v. BASIC CONSTRUCTION COMPANY, Respondent.

No. C-81-623-WS.

United States District Court, M.D. North Carolina, Winston-Salem Division.

January 15, 1982.

On Petition to Compel Arbitration March 4, 1982.

On Motion for Injunction and Stay Pending Appeal June 4, 1982.

C. Allen Foster, Donald G. Sparrow and Richard D. Conner, Greensboro, N.C., for petitioner.

John B. Taylor and Robert J. Greene, Jr., Charlotte, N.C., and Thomas H. Asselin and Thomas Richelo, Atlanta, Ga., for respondent.

GORDON, Chief Judge.

This petition is brought pursuant to 9 U.S.C. § 1 et seq., Arbitration. Petitioner ("Starr") is a North Carolina corporation. Respondent ("Basic") is a Virginia corporation with its principal place of business in Virginia. Jurisdiction is based on the diversity of the parties and an amount in controversy of over $10,000.00 has been alleged.

The facts in this matter are as follows. On May 8, 1978, Basic contracted with a third party to construct a building in Winston-Salem, North Carolina. Article 7.9.1 of the General Conditions of the contract contained an arbitration clause requiring that all claims or disputes arising out of the contract be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association.

On June 21, 1978, Basic subcontracted the electric work on the building to Starr. The subcontract contained a typed appendix that incorporated the General Conditions of the contract between Basic and the third party, including the broad arbitration clause. The typed appendix incorporates by reference the contract between Basic and the third party on four occasions.

Disputes subsequently arose between Basic and Starr. Starr sought to have the disputes arbitrated by filing a Demand for Arbitration with the American Arbitration Association on May 27, 1981. (Petitioner's Exhibit A). Basic refused to submit to arbitration, denying the existence of any agreement to arbitrate and raising several defenses to the actual claim itself that are of a substantive nature.

On October 6, 1981, Starr petitioned this Court pursuant to 9 U.S.C. § 4 for an order compelling Basic to submit to arbitration. On October 9, 1981, Basic was served with the petition and summons. On October 28, 1981, Basic answered the petition. On November 2, 1981, Starr moved that there be immediate consideration of their Motion to Compel Arbitration pursuant to Local Rule 21. On November 6, 1981, Basic demanded a jury trial as to all issues so triable. Starr then moved to have the request for jury trial struck.

For the reasons stated below it is concluded that Starr's motion to compel arbitration should be DENIED at this juncture and that Starr's motion to strike Basic's demand for a jury trial should be GRANTED.

In order to determine whether Starr is entitled to relief under 9 U.S.C. § 4, the Court must decide first whether the subcontract between Starr and Basic evidences a transaction in "commerce" within the meaning of 9 U.S.C. § 1. The criteria for such a contract are set forth in C.P. Robinson Construction Company v. National Corp. for Housing Partnerships, 375 F.Supp. 446, 451 (M.D.N.C.1974). These criteria include, in general, trade between citizens of the several states and in particular, "purchases of large quantities of building materials and fixtures from out-of-state suppliers." Id. at 451. Starr has produced an affidavit listing over forty purchase orders for building supplies from out-of-state suppliers that were used on the building in Winston-Salem. (Affidavit of Richard Kennedy filed November 2, 1981.) Clearly the subcontract between Starr and Basic comes under the coverage of Title 9.

Having made this threshold determination, an examination of the agreement between Basic and Starr is in order to decide whether there was an agreement to submit the dispute in question to arbitration. The Court's examination is to be limited solely to the question of whether such an agreement is present. Lowry & Co. v. S.S. Lemoyne D'Iberville, 253 F.Supp. 396 (S.D.N.Y.1966). The Court is not to look to the actual merits of the claim to be arbitrated. Galt v. Libbey-Owens-Ford Glass Co., 376 F.2d 711 (7th Cir. 1967).

If the making of the agreement to arbitrate is in issue, then the Court cannot grant an order to compel arbitration but rather must proceed to trial on that issue. 9 U.S.C. § 4. If there exists a question of fact as to the presence of an agreement to arbitrate, the issue may not be determined on the affidavits but by trial. 9 U.S.C. § 4. Interocean Shipping Co. v. National Shipping & Trading Corp., 462 F.2d 673 (2nd Cir.1972).

Basic has denied from the start the existence of the agreement to arbitrate and tenders as proof an affidavit in which an account is given of the removal of an arbitration clause from the standard form contract that Basic uses with its subcontractors in favor of a clause requiring that Virginia law apply to the resolution of differences arising from the subcontract. (Affidavit of George G. Buckingham filed November 25, 1981.) This is sufficient to raise a question of fact as to the presence of an agreement to arbitrate. Accordingly, Starr's motion to compel arbitration is DENIED.

Turning now to Starr's motion to strike Basic's demand for a jury trial, it must be pointed out that Basic did not request a jury trial on or before the return date of the petition filed by Starr as required by 9 U.S.C. § 4. Basic would argue that their demand for a jury trial was timely under Fed.R.Civ.P. 38 in that they requested a jury within ten days after the service of the last pleading directed to the issue of the presence of an agreement to arbitrate. If this argument were accepted, then Basic's request for a jury trial would be timely as being within ten days of the filing of Basic's Answer on October 28.

The Court cannot accept Basic's argument that Fed.R.Civ.P. 38 applies here. 9 U.S.C. § 4 has specific provisions for the demand and waiver of jury trial under Title 9. The demand and waiver provisions of Fed.R.Civ.P. 38 are inapplicable under Fed. R.Civ.P. 81(a)(3). See Vol. 5, Moore's Federal Practice, para. 38-122, 2nd ed. 1980. Basic did not request a jury trial in a timely manner and has accordingly waived a jury trial in this matter. Hamilton Life Insurance Company of New York v. Republic National Life Insurance Co., 408 F.2d 606, 609 (2nd Cir.1969).

Basic has requested in the alternative that the Court grant a jury trial pursuant to Fed.R.Civ.P. 39(b). This is within the discretion of the Court. The Court is of the opinion, however, that such a request defeats the purpose of Title 9 in that it delays further any determination of the question of arbitrability and requires a full-blown jury for a simple matter of contract interpretation.

Accordingly, Basic's request for a jury trial under Fed.R.Civ.P. 39 is DENIED.

The case will be set for hearing on the threshold issue of whether there is an agreement to arbitrate.

ON PETITION TO COMPEL ARBITRATION

This action arises under 9 U.S.C. § 4. Petitioner ("Starr") is a North Carolina corporation. Respondent ("Basic") is a Virginia corporation with its principal place of business in Virginia. Jurisdiction is based on the diversity of the parties and an amount in excess of $10,000.00 has been alleged. Starr seeks an order compelling Basic to submit certain disputes arising out of a contract between the parties to arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association.

The issue before this Court is whether there is an agreement between the parties to submit the matters set forth in Starr's Demand for Arbitration filed on May 27, 1981.¹

Briefly stated, it is the contention of the Petitioner Starr that the parties have entered into a contract that very clearly requires that all disputes arising out of that contract be resolved by resort to arbitration. On the other hand, Basic denies any agreement to arbitrate, and in the alternative contends that if an agreement to arbitrate is found by this Court, it must be a further finding of this Court that the disputes in question are outside the scope of any agreement to arbitrate. The facts in this matter are as follows.

By general contract dated May 8, 1978, Basic contracted with R.J. Reynolds Industries, Inc. ("Owner") to construct a building in Winston-Salem, North Carolina. Section 5.3.1 of the General Conditions of the contract (Pl's Exhibit # 2) contains a "flow through" clause requiring that Basic bind each subcontractor to the same terms in its contract with Basic that Basic is bound to in its contract with the Owner. Also the subcontractor is to be afforded the same remedies against Basic that Basic has against the Owner.²

One of the remedies that Basic is afforded against the Owner by the General Conditions of the contract is the right to require that all claims arising out of the contract be submitted to arbitration. This right is set forth in section 7.9.1 of the General Conditions, a standard "all claims" arbitration clause.³

The third clause of the General Conditions that should be noted is the governing law provision. Section 7.1.1 of the General Conditions states that "the Contract shall be governed by the law of the place where the Project is located." Recalling that the building is located in Winston-Salem, this Court would apply North Carolina law to a dispute arising between Basic and the Owner.

On June 21, 1978, Basic subcontracted some of the electric work to be performed on the building to Starr, the petitioner in this suit. The subcontract consisted of two parts, a form subcontract and a seven page typewritten appendix to that form subcontract. (Pl's Exhibit # 1). Section 21 of the form subcontract contains a governing law provision stating that "This agreement and all disputes arising out of its performance,...