Hanover Insurance v. Atlantis Drywall & Framing LLC ( 2015 )

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[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 13-14482
________________________
D.C. Docket No. 7:13-cv-00506-LSC
THE HANOVER INSURANCE COMPANY,
Plaintiff - Appellee,
versus
ATLANTIS DRYWALL & FRAMING LLC,
BAY MEADOWS CONSULTING LLC,
LAURENCE LAMPHERE,
CHRISTIN M. LAMPHERE, et al.,
Defendants,
MARILOURDES DEYO,
Defendant - Appellant.
________________________
Appeal from the United States District Court
for the Northern District of Alabama
________________________
(May 26, 2015)
ON PETITION FOR REHEARING
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Before MARCUS, ROSENBAUM and GINSBURG, * Circuit Judges.
PER CURIAM:
This is an interlocutory appeal from an order denying a motion to compel
arbitration. For the following reasons, we affirm the district court’s order.
I.
In the summer of 2010, the University of Alabama approved a project to
construct a new student-housing complex on the University’s main campus in
Tuscaloosa, Alabama. The University retained Brice Building Company, LLC
(“Brice”), as the general contractor. On March 8, 2011, Brice retained Atlantis
Drywall and Framing, LLC (“Atlantis”), through a subcontract agreement
(“Subcontract”) to install drywall. The Subcontract contained the following
arbitration provision:
Paragraph CC. The parties acknowledge and agree that
this Subcontract and the subject matter hereof is
substantially connected with and involved with interstate
commerce. In the event of a dispute(s), claim(s) or other
matter(s) in question of any kind whatsoever between the
parties (i) arising out of or related or collateral to the
provisions and/or subject matter of this Subcontract or
the breach thereof, or independent from the Subcontract
or (ii) relating to any transaction or occurrence of any
kind between the parties to this Subcontract or their
officers, directors, agents and/or employees, it is agreed
that the parties to this Subcontract will attempt to resolve
such dispute(s), claim(s), or other matter(s) in question
*
Honorable Douglas H. Ginsburg, United States Circuit Judge for the District of
Columbia, sitting by designation.
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amicably by informal discussions and negotiations within
a seven (7)-day period. Notwithstanding any conflicting
or contrary provisions contained within the General
Contract nor any provisions in this Subcontract that
incorporates herein the terms and conditions of the
General Contract by reference, all dispute(s), claim(s)
and other matter(s) in question which cannot be settled
by negotiation among the parties within such time shall at
the election of, the Contractor (but not otherwise), be
submitted by the parties to arbitration under the
Construction Industry Arbitration Rules of the American
Arbitration Association except as such rules may be
modified or restricted by any provision of this
Subcontract. The parties intend that the scope of this
arbitration clause shall be construed as broadly as
possible so as to include, but not be limited to, the
enforceability of this arbitration provision, the
arbitrability of a particular claim or dispute, as well as
any claims of misrepresentation, concealment of material
facts, or fraud among the parties whether occurring
before or after the execution of this agreement.
Notice of demand by Contractor for arbitration shall be
filed in writing with the other party or parties to this
Subcontract and with the American Arbitration
Association and shall be made within a reasonable time
after the dispute, claim or other matter in question has
arisen but in no event shall be made after the date when
institution of legal or equitable proceedings based on
such dispute, claim or other matter in question would be
barred by the applicable statute of limitations. . . . The
Subcontractor agrees that any arbitration instituted under
this paragraph shall, at Contractor’s election, be
consolidated with any other arbitration proceeding
involving a common question of fact or law between the
Contractor, the Owner, the Architect/Engineer or any of
their agents, consultants or other representatives, and/or
any other subcontractor(s) of any tier performing work in
connection with the Project.
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Because this was a public-works project, both Brice and Atlantis were
statutorily obligated to obtain performance and payment bonds. See Ala. Code §
39-1-1. Atlantis sought to obtain these bonds from The Hanover Insurance
Company (“Hanover”). As Hanover was not willing to assume the sole risk that
any failure or default by Atlantis might result in a loss to it, Hanover required
indemnification by Atlantis and its principals: Bay Meadows Consulting, LLC,
(“Bay Meadows”), Marilourdes Deyo (“Deyo”), Laurence Lamphere and Christin
Lamphere (the “Lampheres”) (Atlantis’s principals are collectively referred to as
“Indemnitors”). On May 19, 2011, Hanover and the Indemnitors executed such an
agreement (“Indemnity Agreement”). The Indemnity Agreement did not contain
an arbitration provision. In relevant part, the Indemnity Agreement provided,
The Hanover Insurance Company . . . has executed, or
may in its discretion hereafter execute certain surety
contracts, undertakings, and/or other instruments of
guarantee of indemnity . . . .
Pursuant to this provision, on June 30, 2011, Hanover executed the
statutorily required performance and payment bonds (the “Bonds”), which
provided that Hanover would perform Atlantis’s responsibilities under the
Subcontract if Atlantis defaulted on its obligations. The Bonds specifically and
expressly incorporated the Subcontract, stating in relevant part,
WHEREAS, Principal [Atlantis] has by written
agreement dated 3/8/11 entered into a subcontract with
Obligee [Brice] for UA North Bluff Residential
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Community (XXX-XX-XXXX), Drywall, Metal, Framing,
Acoustical Ceilings . . . which subcontract is by reference
made a part hereof, and is hereinafter referred to as the
subcontract.
To summarize, Atlantis was a party to all three agreements (the Subcontract,
the Indemnity Agreement, and the Bonds). Hanover was a party to the Indemnity
Agreement and the Bonds, and Brice was a party to the Subcontract and the Bonds.
But the Indemnitors were parties to the Indemnity Agreement only.
Atlantis later defaulted on the Subcontract. Accordingly, Hanover made
payments under the Bonds and then sought indemnification pursuant to the
Indemnity Agreement. Atlantis and the Indemnitors failed to comply with
Hanover’s request, so Hanover filed a complaint against Atlantis and the
Indemnitors 1 in the United States District Court of the Northern District of
Alabama seeking indemnification, exoneration and quia timet, specific
performance, and damages for breach of contract. Atlantis, the Lampheres, Bay
Meadows, and Deyo each moved to compel arbitration under the Federal
Arbitration Act and to stay judicial proceedings, and in the alternative, to dismiss,
principally arguing that the Indemnity Agreement incorporated the Subcontract,
and therefore its arbitration clause.
1
The complaint also originally named Jeffrey D. Deyo as a defendant. Hanover and
Jeffrey Deyo jointly stipulated that all claims against him should be dismissed without prejudice,
and the court accepted the stipulation on January 10, 2014.
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The district court denied the Lampheres’ motion on September 4, 2013, and
two weeks later, on September 18, 2013, denied both Bay Meadows’s and Deyo’s
motions. On September 26, 2013, the Indemnitors timely filed a notice of
interlocutory appeal pursuant to 9 U.S.C. § 16(a).2
On August 29, 2014, a panel of this Court vacated the district court’s order
and remanded the case with instructions to order arbitration. Hanover then
petitioned for rehearing. With leave, the Surety & Fidelity Association of America
filed an amicus curiae brief in support of Hanover’s petition. On October 29,
2014, the Court vacated its previous panel opinion and granted rehearing.
Thereafter, Hanover settled with Bay Meadows and the Lampheres. Deyo, the
lone remaining defendant-appellant, filed a motion on February 9, 2015, requesting
that she be excused from oral argument. The Court granted Deyo’s motion,
removed the case from the oral-argument calendar, and accepted submission on the
papers.
After carefully considering the record and the submission of the parties’
briefs, we now affirm the district court’s order denying Deyo’s motion to compel
arbitration.
2
On October 7, 2013, the district court granted Atlantis’s motion to compel arbitration
against Hanover. The Arbitration Panel issued its award on June 9, 2014.
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II.
“[This Court] review[s] de novo the district court’s denial of a motion to
compel arbitration.” Lawson v. Life of the S. Ins. Co., 648 F.3d 1166, 1170 (11th
Cir. 2011). The Federal Arbitration Act codifies the “liberal federal policy
favoring arbitration agreements.” CompuCredit Corp. v. Greenwood, ___ U.S.
___, 132 S. Ct. 665, 669 (2012) (quoting Moses H. Cone Mem’l Hosp. v. Mercury
Constr. Corp., 460 U.S. 1, 24, 103 S. Ct. 927, 941 (1983)). Notwithstanding this
liberal policy, “a party cannot be required to submit to arbitration any dispute
which he has not agreed so to submit.” United Steelworkers of Am. v. Warrior &
Gulf Nav. Co., 363 U.S. 574, 582, 80 S. Ct. 1347, 1353 (1960). Even though
enforcement of this principle might result in “piecemeal litigation,” the court must
“rigorously enforce” the agreement of the parties. See Nobles v. Rural Cmty. Ins.
Servs., 122 F. Supp. 2d 1290, 1295 (M.D. Ala. 2000) (citing Dean Witter
Reynolds, Inc. v. Byrd, 470 U.S. 213, 218-21, 105 S. Ct. 1238, 1241-42 (1985)).
Whether an arbitration agreement exists is settled by state-law principles of
contract law. See Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior
Univ., 489 U.S. 468, 475, 109 S. Ct. 1248, 1254 (1989).3
Under Alabama law,
3
Because the district court’s jurisdiction was invoked based on diversity of citizenship,
see 28 U.S.C. § 1332, the federal district court applies the substantive law of the state in which it
sits, which in this case was Alabama. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817(1938).
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[t]he party seeking to compel arbitration has the burden
of proving the existence of a contract calling for
arbitration and proving that that contract evidences a
transaction affecting interstate commerce. After a
motion to compel arbitration has been made and
supported, the burden is on the non-movant to present
evidence that the supposed arbitration agreement is not
valid or does not apply to the dispute in question.
Fleetwood Enters., Inc. v. Bruno, 784 So. 2d 277, 280 (Ala. 2000) (internal
alteration, citations and quotation marks omitted). Here, Deyo has pointed to the
Subcontract, which calls for arbitration, and Hanover acknowledges that the
Subcontract contains an arbitration provision. Additionally, both parties agree that
the Subcontract evidences a transaction affecting interstate commerce.
Consequently, the burden shifts to Hanover to show that the arbitration provision
within the Subcontract is not valid or does not apply to the dispute in question. See
Green Tree-Al LLC v. White, 55 So. 3d 1186, 1189-90 (Ala. 2010).
In evaluating whether Hanover has satisfied this burden, we note that neither
Hanover nor Deyo were parties to the Subcontract containing the arbitration
provision. But that fact alone is insufficient to show that the arbitration provision
does not apply to Hanover’s claims arising out of Deyo’s alleged breach of the
Indemnity Agreement since the ability to compel arbitration is “not necessarily
premised on the fact that both participants in the [proposed] arbitration proceedings
are signatories to a contract calling for arbitration.” Green Tree, 55 So. 3d at 1190.
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Indeed, the Alabama Supreme Court has held that, in certain situations, “one may
compel arbitration under a contract to which it is not a party, or . . . one who is not
a signatory to a contract calling for arbitration must nevertheless arbitrate his or her
claims.” Id.Specifically, a nonparty to an arbitration agreement may compel or be
compelled to arbitration under Alabama law in four situations. First, arbitration
may be compelled if the nonparty is a party to a contract that incorporates by
reference the contract containing the arbitration provision. McDougle v. Silvernell,
738 So. 2d 806, 808 (Ala. 1999) (explaining that a party may incorporate by
reference another document containing an arbitration provision); see Ex parte Dan
Tucker Auto Sales, Inc., 718 So. 2d 33, 36 (Ala. 1998) (“Parties to a contract are
bound by pertinent references therein to outside facts and documents. Other
writings . . . which are referred to in a written contract may be regarded as
incorporated by the reference as a part of the contract and[,] therefore, may
properly be considered in the construction of the contract.”) (alteration in original,
citations and quotation marks omitted). A document incorporates by reference
another document through explicit language, see Dan Tucker, 718 So. 2d at 36, or
by “expressly refer[ring] to and sufficiently describ[ing]” the document to be
incorporated. Fid. & Deposit Co. of Md. v. Jefferson Cnty. Comm’n, 756 F. Supp.
2d 1329, 1337 (N.D. Ala. 2010) (citation omitted).
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Second, a non-signatory to a contract containing an arbitration provision can
be compelled to arbitrate if another document that the party executed should be
read together with the document containing the arbitration provision because
together the documents memorialize the terms of a “single transaction.” See, e.g.,
Dan Wachtel Ford, Lincoln, Mercury, Inc. v. Modas, 891 So. 2d 287, 290-91 (Ala.
2004); Ingalls Iron Works Co. v. Ingalls, 53 So. 2d 847, 849 (Ala. 1951)
(“[D]ifferent writings, executed at the same time and relating to the same subject-
matter, will be construed as one instrument.” (internal citation and quotation
marks omitted)). In this regard, “two or more instruments executed
contemporaneously by the same parties in reference to the same subject matter
constitute one contract.” Pac. Enters. Oil Co. (USA) v. Howell Petroleum Corp.,
614 So. 2d 409, 414 (Ala. 1993) (quoting Haddox v. First Ala. Bank of
Montgomery, N.A., 449 So. 2d 1226, 1229 (Ala. 1984)). But party privity is not a
requirement for various writings to be construed as one instrument under
Alabama’s single-transaction theory. Haddox, 449 So. 2d at 1229 (allowing the
integration of several documents, all signed by different parties, to be construed as
one contract to establish the terms of the contract).
Third, Alabama will enforce an arbitration provision in a contract to which
the party moving for arbitration is not a signatory if the party is a third-party
beneficiary of the contract containing the arbitration provision. See Jenkins v.
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Atelier Homes, Inc., 62 So. 3d 504, 512 (Ala. 2010). “A party claiming to be a
third-party beneficiary must establish that the contracting parties intended, upon
execution of the contract, to bestow a direct, as opposed to an incidental, benefit
upon the third party.” Id. (citations and quotation marks omitted).
Fourth, arbitration may be compelled where the doctrine of “intertwining” is
satisfied. As the Alabama Supreme Court has explained, “intertwining” applies
“where arbitrable and nonarbitrable claims are so closely related that the party to a
controversy subject to arbitration is equitably estopped to deny the arbitrability of
the related claim.” Jenkins, 62 So. 3d at 512 (quoting Fountain v. Ingram, 926 So.
2d 333, 335 (Ala. 2005)). Key to the doctrine of “intertwining,” however, is the
requirement that “the signatory to the arbitration agreement is or will be engaged in
an arbitration proceeding with the plaintiff.” Id. (quoting S. Energy Homes, Inc. v.
Kennedy, 774 So. 2d 540, 545 (Ala. 2000)). Where no arbitration is pending or
imminent, “intertwining” cannot apply. See id. at 513 (“‘[I]ntertwining’ requires at
least two threads to weave together—one cannot intertwine a single thread.”).
Turning to the pending case, here, it matters not whether the Indemnity
Agreement expressly incorporated the Subcontract and Bonds or whether the
Indemnity Agreement, Subcontract, and Bonds constituted a single transaction.
Under the unique facts of this case, the answer to each of those inquiries makes no
difference to the determination of whether Deyo may compel arbitration. Even if
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the Indemnity Agreement expressly incorporated the Subcontract and Bonds or the
Subcontract, Bonds, and Indemnity Agreement were all part of a “single
transaction,” and therefore Hanover and Deyo could be viewed as parties to the
Subcontract containing the arbitration provision, the arbitration provision itself
does not permit Deyo to compel arbitration under the circumstances here. In
relevant part, the provision states,
[A]ll dispute(s), claim(s) and other matter(s) in question
which cannot be settled by negotiation among the parties
within such time shall at the election of, the Contractor
(but not otherwise), be submitted by the parties to
arbitration under the Construction Industry Arbitration
Rules of the American Arbitration Association except as
such rules may be modified or restricted by any provision
of this Subcontract.
Under the plain language of the arbitration provision, only Brice can compel
arbitration. And Brice has not done so here.
While Brice did compel arbitration of a prior dispute related to the
Subcontract, see Hanover Ins. Co. v. Brice, 7:13-cv-00547-LSC (N.D. Ala. May
31, 2013), that arbitration ended in 2014. And nothing within the Subcontract’s
arbitration provision indicates that once Brice has elected to arbitrate a particular
dispute, it must arbitrate all subsequent, unrelated disputes. In fact, the
Subcontract suggests the opposite: “The Subcontractor agrees that any arbitration
instituted under this paragraph shall, at Contractor’s election, be consolidated with
any other arbitration proceeding involving a common question of fact or law
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between the Contractor, the Owner, the Architect/Engineer or any of their agents,
consultants or other representatives, and/or any other subcontractor(s) of any tier
performing work in connection with the Project.” (Emphasis added). Therefore, it
is irrelevant that Brice previously compelled Hanover to arbitrate in a separate
action. If Brice—the only party authorized to compel arbitration—need not
arbitrate all subsequent disputes under the contract, 4 no other party, including
Deyo, has the authority under the Subcontract to compel arbitration. In short, even
if the Subcontract and Bonds are incorporated into the Indemnity Agreement, or
the three documents are read together as a part of a single transaction, the
arbitration provision does not authorize Deyo to compel arbitration under the
circumstances of this case.
Deyo similarly cannot rely upon the third-party-beneficiary theory in this
Court since she has never contended that she may enforce the arbitration clause
under that doctrine.5 Accordingly, under Alabama law, this argument does not
present a viable basis for compelling arbitration. Jenkins, 62 So. 3d at 512 (stating
that because the parties attempting to compel arbitration had not contended that
4
Assuming the viability of either or both the express-incorporation theory or the single-
transaction theory, if Brice became entangled in the litigation pending between Hanover and the
Indemnitors, Brice would have the ability to compel arbitration. That, however, is not the
current case.
5
Deyo has stated, “Alabama courts have long recognized that ‘arbitration agreements
may be enforced against a nonsignatory third party under either a third-party-beneficiary theory
or an intertwined-claims theory.’” Deyo’s entire argument, however, pertains only to the
intertwined-claims theory, which is addressed infra.
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they could enforce the arbitration provision under the third-party-beneficiary
theory, the theory provided no basis for allowing them to compel arbitration).
Nor does the intertwining theory provide a basis for compelling arbitration.
As previously mentioned, none of the parties to the various contracts at issue
here—Brice, Atlantis, Hanover, and the Indemnitors—are currently engaged in
arbitration related to a dispute arising from the Subcontract or Bonds, nor does it
appear that any other arbitration proceeding will arise in the near future.
Accordingly, no arbitration proceeding exists with which to “intertwine”
Hanover’s claim. Jenkins, 62 So. 3d at 512-13.
For the foregoing reasons, the district court’s order denying Deyo’s motion
to compel arbitration is AFFIRMED.
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