Welty Bldg. Co. v. Indy Fedreau Co.

Decision Date04 April 2013
Docket NumberNo. 49A02–1206–PL–493.,49A02–1206–PL–493.
Citation985 N.E.2d 792
PartiesWELTY BUILDING COMPANY, LTD. and, Ohio Farmers Insurance Company, Appellants–Defendants, v. INDY FEDREAU COMPANY, LLC, et al., Appellees–Plaintiffs.
CourtIndiana Appellate Court

OPINION TEXT STARTS HERE

V. Samuel Laurin, III, Bryan H. Babb, Kevin M. Quinn, Bose McKinney & Evans, LLP, Indianapolis, IN, Marc A. Sanchez, Phillip J. Truax, Frantz Ward, LLP, Cleveland, OH, Attorneys for Appellants.

Karl L. Mulvaney, Gerard L. Gregerson, Aaron E. Rose, Bingham Greenebaum Doll, LLP, Indianapolis, IN, Attorneys for Appellee, Barth Electric Co., Inc.

Tasha R. Roberts, Wong Fleming, P.C., Indianapolis, IN, Attorney for Appellee, Roth Bros., Inc.

Geoffrey M. Grodner, Jared S. Sunday, Mallor Grodner, LLP, Bloomington, IN, Attorneys for Appellee, E.P.I. of Cleveland, Inc.

Gene R. Leeuw, John M. Mead, Leeuw Oberlies & Campbell, P.C., Indianapolis, IN, Attorneys for Appellee, Elbrecht Investments, LLC d/b/a Elbrecht Concrete.

OPINION

BARNES, Judge.

Case Summary

Welty Building Company Ltd. (Welty) and Ohio Farmers Insurance Company (OFIC) appeal the trial court's denial of their motions to stay proceedings and to compel arbitration. We reverse and remand.

Issue

The sole restated issue before us is whether the trial court properly concluded that Welty was not entitled to demand that its disputes with its subcontractors be submitted to arbitration.

Facts

Welty, which is based in Ohio, was the general contractor on a project to construct a new FBI headquarters in Indianapolis. The owner of the building was Indy Fedreau Company, LLC (Fedreau), which also is based in Ohio and would lease the building to the FBI. OFIC provided a contract performance bond on Welty's behalf for the project. Welty hired the following twenty-one subcontractors to work on the project: Architectural Granite & Marble, Inc. (“AGM”), Barth Electric Co, Inc. (“Barth”), Becker Landscape Contractors, Inc. (“Becker”), Brown Sprinkler Corporation (“Brown”), C.E. Reeve Roofing (C.E. Reeve), Certified Floorcovering Services, Inc. (“Certified”), Circle B Construction Systems, LLC (“Circle B”), Door & Hardware Installation of Indiana, Inc. (“Door & Hardware”), Elbrecht Investments, LLC (“Elbrecht”), E.P.I. of Cleveland, Inc. (“E.P.I.”), FA Wilhelm Construction Co., Inc. (FA Wilhelm), Gate Precast Company and Gate Precast Erection (collectively “Gate”), JACCO & Associates, Inc. (“JACCO”), Koch Corporation (“Koch”), Leach & Russell Mechanical Contractors, Inc. (“Leach & Russell”), Long Fence Company, Inc. (“Long Fence”), Porta–King Building Systems (“Porta–King”), Roth Bros., Inc. (“Roth”), Schindler Elevator Corporation (“Schindler”), and Sexson Mechanical Corporation (“Sexson”).

Each of Welty's subcontracts contained the following provisions regarding mediation and arbitration in Article 37 of the subcontract:

Any claim arising out of or related to this Subcontract, except claims as otherwise provided in Article 24 and except those waived in this Subcontract, shall be subject to mediation as a condition precedent to arbitration or the institution of legal or equitable proceedings by either party.

* * * * * *

The Subcontractor agrees that the Contractor may, in its sole discretion, elect arbitration with respect to any dispute or claim arising out of or relating to this Subcontract or the breach or performance hereof, and if arbitration is so elected by the Contractor, then the arbitration shall be conducted and decided by a private arbitrator....

Appellant's App. pp. 307–08.

Fedreau became dissatisfied with Welty's performance on the project. On November 16, 2011, Fedreau filed suit against Welty, as well as against OFIC on its bond, alleging breach of contract, breach of bond, fraud, and bad faith. Among other claims, the complaint alleged that Welty ran up the cost of the project by requesting various subcontractors to perform unnecessary work in excess of the original scope of the project without prior approval from Fedreau. Fedreau also asserted that Welty was not timely paying its subcontractors, despite full payment for approved work from Fedreau to Welty, which ultimately resulted in numerous mechanic's liens being recorded by subcontractors against the property. Fedreau demanded that Welty obtain removal of the liens “by discharging them through payment or by substituting a bond for the lien(s),” but Welty did not do so. Id. at 82. The complaint sought damages from Welty and/or OFIC in the amount of $6,401,015.18.

The complaint also noted that on March 28, 2011, Elbrecht had sued Fedreau to foreclose its mechanic's lien; that complaint also named Welty as a co-defendant for breach of contract and Gate as a co-defendant because of its own mechanic's lien filing that was on record at the time.1On April 25, 2011, Welty filed a motion in that case “To Stay All Court Proceedings Pending Mediation and Arbitration.” Elbrecht App. p. 53. The trial court granted this motion. Elbrecht and Welty participated in mediation, unsuccessfully, on February 15, 2012. Elbrecht immediately requested that Welty nominate an arbitrator, and Welty responded by letter on February 21, 2012: “Welty has not elected whether Elbrecht['s] payment claim will proceed through arbitration.” Appellant's App. p. 347. Gate also participated in mediation with Welty on February 15, 2012, which likewise was unsuccessful.

Welty also engaged in informal settlement negotiations with Leach & Russell regarding payment of its invoices, and in particular whether Welty was required to pay Leach & Russell without Fedreau having first paid to Welty all of Welty's submitted invoices. A letter from Welty to Leach & Russell dated January 6, 2011, stated in part:

Welty maintains that the parties should review and seek agreement on the subcontract accounting and additional/extra scope issues before resorting to formal dispute resolution, which again, is unlikely to be a productive exercise so long as Indy Fedreau refuses to pay for the work Welty and Leach & Russell performed.

That said, if Leach & Russell continues to insist upon mediation, Welty can agree to Richard Kraege as a mediator. But Welty encourages Leach & Russell to first consider a meeting to review the issues and accounting before compelling the parties to incur significant costs to engage in mediation under the circumstances above.

Id. at 514. On January 12, 2012, Leach & Russell agreed to the informal meeting “prior to engaging in mediation.” Id. at 515.

On January 26, 2012, Welty filed an amended counterclaim in the Fedreau case for breach of contract, declaratory judgment, and promissory estoppel. Welty also sought foreclosure of its own mechanic's lien against the FBI property, in the amount of $6,573,358.58. As part of its mechanic's lien foreclosure count, which was count II of the counterclaim, Welty joined as defendants all of the above-named subcontractors 2 “to answer as to any interest [they] may have in the Property,” with respect to mechanic's lien notices that they had filed. Id. at 166–70. The mechanic's lien foreclosure count also stated, “Welty specifically reserves all rights to mandatory mediation and binding arbitration with the Counterclaim Defendants under Article 37 of the subcontracts.” Id. at 170. It further stated that the subcontractors “have been named for the sole purpose of permitting [them] to assert their interest in the Property, and without waiving Welty's contractual right to mediation and arbitration....” Id.

The declaratory judgment count of Welty's counterclaim, which was count III, stated, “There exists a controversy regarding Welty's damages and entitlement under the Contract.” Id. at 171. This count sought a declaration “that, among other things ... Welty is not obligated to satisfy the mechanic's liens of its subcontractors without full payment by Indy Fedreau....” Id. at 171–72. This count also stated:

Welty is also entitled to a declaration ... that its mechanic's lien claim against the property at issue is a valid and subsisting lien against the Property in the amount of $6,573,358.58, ... and that the lien be foreclosed, that the property be sold as if on execution, that Plaintiff and all co-Defendants who have some interest in the property be required to set forth their various claims or be forever barred, that the liens be marshaled and their priority established according to law, and that the proceeds be applied in payment of Welty's claims and the lien and interest of the other parties.

Id. at 172.

On February 28, 2012, Gate filed a motion “to stay these proceedings pending binding arbitration.” Id. at 180. The motion stated that Welty had elected to arbitrate any dispute with Gate, by virtue of its motion to stay the March 2011 lawsuit pending arbitration. The motion further acknowledged that “Welty's joining of the Gate Defendants to [the Indy Fedreau–Welty lawsuit and counterclaims] is proper to preserve their claims and priority” but that staying the action was necessary because of Welty's prior election to arbitrate. Id. at 181. It does not appear the trial court ever ruled on this motion.

A number of subcontractors subsequently filed counterclaims against Welty as part of their answers: Barth, Brown, Certified, Circle B, Door & Hardware, Elbrecht, E.P.I., FA Wilhelm, Gate, Koch, and Sexson. The first of these answers/counterclaims was filed on February 14, 2012, and the latest was filed on March 28, 2012.

On April 4, 2012, Welty and OFIC filed their own Motion to Stay Welty's Subcontractors' Claims Against Them Pending Mediation and Arbitration.” App. p. 269. Other subcontractors filed answers to Welty's counterclaims after this date. The motion only sought a stay of the subcontractors' counterclaims for payments due and owing against Welty and OFIC. It expressly did not seek a stay of litigation between Fedreau and Welty, and it also did not seek to stay mechanic's lien foreclosure cross-claims that the subcontractors had filed against...

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