Westlake Invs., L.L.C. v. MLP Mgmt. L.L.C., 4:09-cv-00095-JAJ-RAW

CourtUnited States District Courts. 8th Circuit. United States State District Court of Southern District of Iowa
Decision Date03 March 2010
Docket NumberNo. 4:09-cv-00095-JAJ-RAW,4:09-cv-00095-JAJ-RAW
PartiesWESTLAKE INVESTMENTS, L.L.C., Plaintiff, v. MLP MANAGEMENT L.L.C., et. al., Defendants. MLP MANAGEMENT L.L.C., et. al., Third-Party Plaintiffs, v. ALL STATE GUTTER, INC., et. al., Third-Party Defendants.

WESTLAKE INVESTMENTS, L.L.C., Plaintiff,
v.
MLP MANAGEMENT L.L.C., et.
al., Defendants.
MLP MANAGEMENT L.L.C., et.
al., Third-Party Plaintiffs,
v.
ALL STATE GUTTER, INC., et.
al., Third-Party Defendants.

No. 4:09-cv-00095-JAJ-RAW

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF IOWA CENTRAL DIVISION

Dated: March 3, 2010


ORDER

This matter comes before the Court pursuant to Third-Party Defendant Houston Stafford Electrical Contractors, LP n/k/a/ IES Residential Inc.'s (hereinafter "Houston Stafford") April 22, 2009 Motion to Stay and Compel Arbitration. [Dkt. No. 37.] Plaintiff Westlake Investments, L.L.C. (hereinafter "Westlake") joined in resistance to all motions to stay, compel arbitration, and remand on May 1, 2009. [Dkt. No. 47.] Third-Party Plaintiff Pioneer Construction, Inc. (hereinafter "Pioneer") resisted the motion on May 11, 2009. [Dkt. No. 49.] On June 16, 2009, Houston Stafford filed a Reply to Pioneer's Resistance. [Dkt. No. 74.] The Court entered an order on Dec. 16, 2009 requesting the parties to submit the proper "Exh. B-2 Sub-Supplementary Conditions" Agreement between Houston Stafford and Pioneer [Dkt. No. 141], and the parties filed a joint submission of the requested document on Dec. 23, 2009. [Dkt. No. 149.] For the reasons described below, the Court denies Houston Stafford's Motion to Stay and Compel Arbitration.

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I. BACKGROUND

Plaintiff Westlake's lawsuit against the defendants arises out of the sale of an apartment complex known as the "Westlake Apartments." Defendant Third-Party Plaintiff Pioneer contracted with Third-Party Defendant Houston Stafford, a Texas limited liability company, to furnish and install a complete electrical system at Westlake Apartments. Pioneer, as contractor, and Houston Stafford, as subcontractor, entered into the agreement April 23, 2002 (hereinafter "Agreement"). On or about May 6, 2002, the parties also agreed to the "Exhibit B-2 Sub-Supplementary Conditions" (hereinafter "Supplementary Conditions"). [Dkt. No. 149 at 1.]

On February 18, 2008, Westlake filed a petition in Dallas County Iowa District Court, and then in a second amended petition, named Pioneer as a defendant. Pioneer filed an amended cross-petition on January 6, 2009, alleging claims against Houston Stafford for indemnification, contribution, and breach of contract based on the terms of the Agreement. On March 4, 2009, the case was timely removed to this Court on the basis of diversity jurisdiction.

II. SUMMARY OF ARGUMENTS

Houston Stafford filed this motion to compel and stay arbitration because it argues that the terms of the Agreement unambiguously state that any claim arising out of their contractual relationship "shall be subject to arbitration." [Dkt. No. 37-2 at 5.] Houston Stafford points to Section 6.2 of the Agreement, the section on arbitration, for support of its motion. Houston Stafford argues that this provision makes Pioneer contractually bound to arbitrate the dispute. According to the express terms of Section 6.2.1, the parties must attempt mediation pursuant to Section 6.1.1 as a condition precedent to arbitration or before initiating legal proceedings. [Dkt. No. 74 at 3-4.]

Pioneer resists Houston Stafford's interpretation, and instead argues that the mediation and arbitration section of the Agreement is superceded by an arbitration provision in the

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Supplementary Conditions. Pioneer asserts without opposition that the Supplementary Conditions are incorporated into the Agreement by Section 16.1.4, a provision that cross-references other documents as being included in the Agreement, such as the Supplementary Conditions. The Supplementary Conditions then alter the arbitration terms of the Agreement with the inclusion of "Item 32 - Mediation & Arbitration" (hereinafter "Item 32"). Item 32 states that, notwithstanding any provision in the agreement to the contrary, Pioneer must specifically agree in writing before being required to submit a dispute to arbitration or mediation. Id. Thus, Pioneer argues that it was not required to submit to arbitration or mediation "any dispute between it and Houston Stafford unless Pioneer [] specifically agreed in writing to arbitrate that particular dispute." Id. (emphasis in original).

Houston Stafford disagrees with Pioneer's interpretation of the effect of Item 32, and instead asserts that the court should construe Item 32 as encompassing "situations other than what is specifically defined" and subject to arbitration in Section 6.2. [Dkt. No. 74 at 5.] It contends that Item 32 is significantly broader than Section 6.2 and applies to "any dispute" that falls outside the much narrower "any claim arising out of" the Agreement language of Section 6.2. Id. Alternatively, Houston Stafford asserts that when read together, Section 6.2 and Item 32 create ambiguity. Id. at 6-7. When there are two possible interpretations, one in favor and one against arbitration, Houston Stafford proposes that because public policy favors arbitration, pursuant to the Federal Arbitration Act, the court must rule in favor of arbitration. Id. at 6.

III. DISCUSSION

A. Federal Arbitration Act

This Court first examines the effect of the Federal Arbitration Act ("FAA") on the Agreement. Arbitration agreements are governed by the FAA. 9 U.S.C. §§ 1-16. The FAA is the result of a "congressional declaration of a liberal federal policy favoring arbitration agreements," mandating that courts should be deferential to the arbitration process and its

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results. Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). See also Van Horn v. Van Horn, 393 F. Supp. 2d 730, 742 (8th Cir. 2005); Hoffman v. Cargill, 236 F.3d 458, 461 (8th Cir. 1991). Section 2 of the FAA states that a written provision to arbitrate in any "contract evidencing a transaction involving commerce . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. Claims may be arbitrated so long as there is a substantive question presented and the dispute is within the scope of a valid arbitration agreement. Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 90 (2000).

According to the Supreme Court, the FAA "establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself" or some other defense to arbitration. Moses H. Cone, 460 U.S. at 24-25. When a court is interpreting ambiguous provisions in an agreement covered by the FAA, "due regard must be given to the federal policy favoring arbitration, and ambiguities as to the scope of the arbitration clause itself resolved in favor of arbitration." Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 62 (1995) (quoting Volt, 489 U.S. at 476). Because there is a "liberal reading of [the scope of] arbitration agreements," many issues that might be considered relevant to arbitrability are instead arbitrable themselves. Moses H. Cone, 460 U.S. at 24 n.27 (citing Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967)). A court, not an arbitrator, must serve as the "gatekeeper" and decide whether the parties agreed to arbitrate. AT&T Tech., Inc. v. Comm. Workers of America, 475 U.S. 643, 649 (1986).

The FAA "provides two parallel devices" for enforcing an arbitration agreement: a stay in any case raising a dispute referable to arbitration, 9 U.S.C. § 31 , and an affirmative

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order to engage in arbitration, § 42 . Moses H. Cone, 460 U.S. at 23. These orders require "an expeditious and summary hearing, with only restricted inquiry into factual issues." Id. A court should grant an order compelling arbitration "unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." Medcam, Inc. v. MCNC, 414 F.3d 972, 975 (8th Cir. 2005). Whether an arbitration agreement is within the scope of the FAA is a separate inquiry from the merits of the underlying claim. Id. (citing Kansas City S. Transp. Co. v. Teamsters Local 41, 126 F.3d 1059, 1067 (8th Cir. 1997)). See also 3M Co. v. Amtex Sec., Inc., 542 F.3d 1193, 1198-99 (8th Cir. 2008) ("the district court does not reach the potential merits of any claim but construes the clause liberally, resolving any doubts in favor of arbitration . . . ."). A party may not be compelled to arbitrate unless it has agreed, by contract, to do so. McLaughlin Gormley King Co. v. Terminix Int'l Co. L.P., 105 F.3d 1192, 1193-94 (8th Cir. 1997). Yet an arbitration clause should be upheld if the clause seemingly covers the dispute. Volt, 489 U.S. at 479.

According to Eighth Circuit case law, when a party moves to compel arbitration, the district court is limited to determining: "(1) whether there is a valid agreement between the parties, and (2) whether the claim falls within the arbitration agreement." Faust v. Command Ctr., Inc., 484 F. Supp.2d 953, 954 (S.D. Iowa 2007) (citing Larry's United Super, Inc. v. Werries, 253 F.3d 1083, 1085 (8th Cir. 2001)). See also Lipton-U. City, L.L.C. v. Shurgard

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Storage Ctrs., Inc., 454 F.3d 934, 937 (8th Cir. 2006); Pro Tech Indus., Inc. v. URS Corp., 377 F.3d 868, 871 (8th Cir. 2004); Lyster v. Ryan's Family Steak Houses, Inc., 239 F.3d 943, 945 (8th Cir. 2001); Gannon v....

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