Kvaerner ASA v. Bank of Tokyo-Mitsubishi, Ltd. ( 2000 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
KVAERNER ASA; J.A. JONES,
INCORPORATED,
Plaintiffs-Appellees,
v.
THE BANK OF TOKYO-MITSUBISHI,
LIMITED, NEW YORK BRANCH, as an
agent on behalf of itself,
Defendant-Appellant,
No. 99-1368
and
BARCLAYS BANK PLC, NEW YORK
BRANCH; BAYERISCHE VEREINSBANK,
AG, NEW YORK BRANCH; CREDIT
SUISSE FIRST BOSTON, NEW YORK
BRANCH; DAI-ICHI KANGYO BANK,
LIMITED NEW YORK BRANCH; THE
FUJI BANK, LIMITED,
Defendants.
Appeal from the United States District Court
for the Eastern District of North Carolina, at Raleigh.
Terrence W. Boyle, Chief District Judge.
(CA-98-308-5-BO)
Argued: February 29, 2000
Decided: April 17, 2000
Before WIDENER and LUTTIG, Circuit Judges,
and G. Ross ANDERSON, Jr., United States District Judge
for the District of South Carolina, sitting by designation.
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Affirmed by published opinion. Judge Luttig wrote the opinion, in
which Judge Widener and Judge Anderson joined.
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COUNSEL
ARGUED: Thomas Joseph Hall, CHADBOURNE & PARKE,
L.L.P., New York, New York, for Appellant. Douglas Leo Patin,
SPRIGGS & HOLLINGSWORTH, Washington, D.C., for Appellees.
ON BRIEF: Brian A. Miller, CHADBOURNE & PARKE, L.L.P.,
New York, New York; L. Neal Ellis, Jr., Albert Diaz, HUNTON &
WILLIAMS, Raleigh, North Carolina, for Appellant. Mark J. Blando,
SPRIGGS & HOLLINGSWORTH, Washington, D.C.; Neil E.
McDonnell, DORSEY & WHITNEY, L.L.P., New York, New York;
Gregory J. Murphy, MOORE & VAN ALLEN, Charlotte, North Car-
olina, for Appellees.
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OPINION
LUTTIG, Circuit Judge:
Kvaerner and Jones filed a petition to compel the Bank of Tokyo
to arbitrate disputes related to the performance of a construction con-
tract, which performance Kvaerner and Jones had guaranteed to the
Bank through formal Guaranties. The district court held that under the
Guaranties, read in conjunction with the underlying construction con-
tract, the Bank was required to arbitrate its disputes with Kvaerner
and Jones. For the reasons below, we affirm.
I.
On April 8, 1993, BCH Energy, L.P. ("BCH" or the "Owner")
entered into a Turnkey Design and Construction Agreement
("Construction Agreement" or "Agreement") with general contractor
Metric/Kvaerner Fayetteville, a joint venture, for the purpose of con-
structing a waste-to-energy plant in Fayetteville, North Carolina. The
joint venture was formed by Kvaerner Environmental Technologies,
Inc. ("Kvaerner"), an indirect subsidiary of Kvaerner, and Metric
2
Contractors, Inc. ("Jones"), a subsidiary of Jones. A syndicate of New
York branch banks, with the Bank of Tokyo (the "Bank") acting as
lead agent, financed the project, providing over $70 million in credit
support to the joint venture.
On November 16, 1993, Kvaerner and Jones executed Guaranty
Agreements to "irrevocably and unconditionally guarantee[] the punc-
tual performance of each and every obligation of[the joint venture]
under the [Construction] Agreement." J.A. 18 (Kvaerner Guaranty, at
¶ 2); J.A. 26 (Jones Guaranty, at ¶ 2).1 In the event the joint venture
did not perform its duties under the Construction Agreement, the
Guaranties could be enforced against Kvaerner and Jones. The Bank
of Tokyo signed the Guaranties on behalf of the banks. Kvaerner and
Jones also provided the Guaranties to BCH, the owner of the project.
Construction and acceptance testing on the project were completed
in 1996. BCH and the joint venture had a dispute about the project,
and BCH then took possession of it. In September 1996, BCH sent
the joint venture a notice of default under the Construction Agree-
ment. Pursuant to an arbitration clause in the Construction Agree-
ment, BCH and the joint venture began arbitration proceedings in
October 1996.
In December 1996, BCH shut down the operation of the project,
and the project was unable to make payments on the banks' financing.
On January 14, 1997, the Bank filed an action for breach of the Guar-
anties against Kvaerner and Jones in the Supreme Court of New York
County in New York. The New York Appellate Division dismissed
the action against Jones because it was without personal jurisdiction
over Jones. As to Kvaerner, the court granted Kvaerner's motion to
stay the action pending the outcome of the BCH arbitration. The Bank
subsequently refiled its breach of Guaranty action against Jones in
federal court in New York.
On November 12, 1997, the Bank filed an involuntary Chapter 7
Bankruptcy Proceeding against BCH in the District of Delaware. The
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1 Because the provisions relevant to the present case are identical, we
will refer to both the Kvaerner Guaranty and the Jones Guaranty collec-
tively as the "Guaranties."
3
BCH arbitration with the joint venture was then automatically stayed,
which stay continues to be in effect.
On April 13, 1998, Kvaerner and Jones filed a demand for arbitra-
tion with the American Arbitration Association, seeking to arbitrate
the Bank's claim against them for breach of the Guaranties, which is
the subject of the New York state action against Kvaerner and the
New York federal action against Jones. On April 14, 1998, Kvaerner
and Jones filed a petition to compel the bank to arbitrate in the East-
ern District of North Carolina. The district court granted the petition
to compel arbitration, finding that an agreement to arbitrate existed
between the parties. Accordingly, the Bank has participated in arbitra-
tion proceedings under a reservation of right with respect to this appeal.2
II.
The Construction Agreement, to which the owner BCH and the
joint venture are parties, includes a broad arbitration clause requiring
that disputes "arising out of or relating to" the Agreement be submit-
ted to arbitration in North Carolina.3 The Guaranties, to which BCH,
Kvaerner and Jones, and the Bank are parties, however, do not specif-
ically address the question whether arbitration is required for disputes
among the parties to the Guaranties. The question in this case is
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2 Kvaerner and Jones filed a Motion for Leave Requesting that the
Court Take Judicial Notice of events that have occurred since the filing
of the notice of appeal. These materials primarily relate to the arbitration
proceedings currently under way. Because the facts and legal contentions
are adequately presented in the materials before the court, we deny the
motion.
3 It is undisputed that the Construction Agreement requires that dis-
putes under that Agreement be submitted to arbitration:
Any dispute, controversy or claim arising out of or relating to
this Agreement, or any breach thereof, shall be settled by arbitra-
tion held in Raleigh, NC, in accordance with the Construction
Industry Arbitration Rules of the American Arbitration Associa-
tion, and judgment upon the award rendered by the arbitrator(s)
may be entered in any court having jurisdiction thereof.
J.A. 36 (Construction Agreement, Art. 15, Sec. 15.1).
4
whether the Guaranties executed by Kvaerner and Jones to secure the
loans for the project require the Bank to submit to arbitration.
The district court concluded that the arbitration clause of the Con-
struction Agreement was incorporated into the Guaranties, and that
the Bank was required to submit to arbitration in the present case
because the dispute related to the Construction Agreement.4 We
agree. Although the Guaranties do not specifically reference arbitra-
tion, they do include a provision that gives Kvaerner and Jones the
same "rights and remedies" as are available to the joint venture under
the Construction Agreement:
Each and every default or failure by [the joint venture] in
making payment or otherwise discharging or performing
any of the Guaranteed Obligations shall give rise to a sepa-
rate liability of [the joint venture] to [the Bank] and a sepa-
rate cause of action hereunder and a separate suit may be
brought hereunder as each liability or cause of action arises.
Upon receipt of notice of default, [Kvaerner and Jones]
shall have the same rights and remedies of [the joint ven-
ture] under the [Construction] Agreement , including with-
out limitation the benefit of any remaining cure periods
granted to [the joint venture] pursuant to the[Construction]
Agreement.
J.A. 20 (Kvaerner Guaranty, at ¶ 4) (emphasis added); J.A. 28 (Jones
Guaranty, at ¶ 4) (emphasis added). This provision of the Guaranties
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4 In addition to holding that the underlying dispute was whether the
joint venture had substantially completed the project, the court also
found that the Bank had essentially stepped into the shoes of BCH as a
party to the Construction Agreement. It appears that the district court rea-
soned that because such a dispute related to the Construction Agreement,
and because the Bank could be considered to be a party to the Agreement
after forcing BCH into bankruptcy, the Agreement's arbitration clause
was applicable to the present action. Because we agree with the district
court that the Guaranties incorporate the arbitration provision and the
present dispute relates to the Construction Agreement, we do not also
address the question whether the Bank has now replaced BCH as a party
to the Construction Agreement.
5
operates to incorporate into the Guaranties the rights and remedies
available to the joint venture under the Construction Agreement. One
of the rights available to the joint venture under the Agreement is the
right to arbitrate disputes "arising out of or relating to" the Construc-
tion Agreement. Under paragraph 4 of the Guaranties, Kvaerner and
Jones have the same right -- the right to arbitrate disputes -- as the
joint venture has under the Agreement. Thus, paragraph 4's rights and
remedies clause grants Kvaerner and Jones the right to arbitrate dis-
putes that arise out of or relate to the Construction Agreement. Cf.
Maxum Foundations, Inc. v. Salus Corp., 779 F.2d 974, 978 (4th Cir.
1985) ("It is well settled that, under the Federal Arbitration Act, an
agreement to arbitrate may be validly incorporated into a subcontract
by reference to an arbitration provision in a general contract.").
The disputes between the Bank and Kvaerner and Jones arise out
of and relate to the Construction Agreement. The central dispute for
which Kvaerner and Jones have moved to compel the Bank to arbi-
trate is the Bank's contention that the joint venture never substantially
completed the project under the Construction Agreement. In fact, in
both of the breach of Guaranty actions the Bank has brought against
Kvaerner and Jones in federal court in New York and in New York
state court, the primary subject of the disputes has been the Bank's
contention that the joint venture did not substantially complete the
project. See, e.g., J.A. 74-80 (Bank's Complaint in the Supreme Court
of the State of New York); J.A. 187-92 (Bank's Complaint in the U.S.
District Court for the Southern District of New York). Substantial
completion of the project relates directly to the Construction Agree-
ment, because the project itself, and all of the relevant specifications,
are defined in the Construction Agreement, and not in the Guaranties.
Accordingly, paragraph 4's rights and remedies clause grants Kvaer-
ner and Jones the right to arbitrate the disputes at issue between them
and the Bank.
The Bank argues both that paragraph 4 of the Guaranties does not
incorporate the Construction Agreement's arbitration provision and
that another provision in the Guaranties evinces that the parties did
not intend to submit their disputes to arbitration. First, as to paragraph
4, the Bank argues that because the sentence preceding the "rights and
remedies" sentence permits "a separate suit [to] be brought," and a
"suit" refers to an action in litigation, the parties could not have
6
intended that "rights and remedies" would incorporate a requirement
to arbitrate. However, even if the Bank is correct that a "suit" refers
only to an action brought in court, and not to an action brought in
arbitration, our reading of the second sentence as permitting Kvaerner
and Jones to compel arbitration is entirely compatible with the pre-
ceding "suit" sentence. We read the "suit" sentence as merely articu-
lating that the Bank is not required to bring all actions arising from
default under the Guaranties at one time, but rather that the Bank may
bring an action, or even suit in a court of law, for each default as it
occurs. Nothing in the sentence precludes Kvaerner and Jones from
compelling the Bank to arbitrate before suit can be brought in a court
of law. Read with the "suit" sentence, the"rights and remedies" sen-
tence entitles Kvaerner and Jones to invoke its right to arbitrate dis-
putes each time the Bank alleges a default.
The Bank also argues that the Construction Agreement's require-
ment that all disputes be submitted to arbitration is neither a right nor
a remedy as the terms should be understood in paragraph 4.5 Rather,
the Bank contends that arbitration is merely a "process." There is no
definition of "rights and remedies" in either contract. However, a
"right," as commonly understood in the contract context, includes
claims a party can make as against the other parties by virtue of con-
tract provisions. Thus, the arbitration provision in the Construction
Agreement creates a right in both parties to the Agreement to have
any dispute relating to the Agreement arbitrated. If either BCH or the
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5 The Bank cites an unreported case from the United States District
Court for the Southern District of New York, Minera Alumbrera Ltd. v.
Fluor Daniel, Inc., No. 98 CIV 5673 AGS, 1999 WL 269915 (S.D.N.Y.
May 4, 1999), as a case in which a federal court held that a provision
similar to the one in the present case did not incorporate the arbitration
provision of a related contract. See Appellant's Br. at 23. In addition to
having no precedential value, Minera is distinguishable from the present
case. In Minera, the provision incorporated the "limitations on remedies"
from the second agreement. The "rights and remedies" language in the
present case includes "rights," which is broad enough to incorporate the
arbitration provision from the Construction Agreement. Additionally, the
second agreement in Minera included a provision that defined the exclu-
sive remedies in the contract, thereby defining what"limitations of reme-
dies" meant in the incorporation clause. No such definition of "rights and
remedies" exists in the Construction Agreement in this case.
7
joint venture attempted to circumvent the arbitration provision under
the Agreement, the other party would have an enforceable right to
compel arbitration. That arbitration itself is a"process," as the Bank
argues, does not disaffirm that the arbitration provision creates a right.
The Bank also argues that, apart from paragraph 4, another provi-
sion of the Guaranties indicates that the parties agreed to submit dis-
putes to litigation, not to arbitration. Paragraph 14 in the Guaranties
is a jurisdictional consent provision, which prohibits Kvaerner and
Jones from contesting jurisdiction in an action brought against them
in federal court in the State of New York:
For the purposes of this Guaranty only and for no other pur-
poses, [Kvaerner and Jones] hereby irrevocably submit[] to
the jurisdiction of any Federal court sitting in the State of
New York, United States of America in any action or pro-
ceeding arising out of or relating to this Guaranty, and
[Kvaerner and Jones] hereby irrevocably agree[] that all
claims in respect of such action or proceeding may be heard
and determined in such Federal court. [Kvaerner and Jones]
hereby irrevocably waive[], to the fullest extent it may
effectively do so, the defense of an inconvenient forum to
the maintenance of such action or proceeding. . . . [Kvaerner
and Jones] agree[] that a final judgment in any such action
or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other
manner permitted by law.
J.A. 22-23 (Kvaerner Guaranty, at ¶ 14(a)) (emphasis added); J.A. 31-
32 (Jones Guaranty, at ¶ 14(a)) (emphasis added). The Bank reads this
provision of the Guaranties to require Kvaerner and Jones to submit
to litigation in a federal court in New York, and reasons that this spe-
cific agreement to submit to litigation supersedes any general incor-
poration of rights and remedies from the Construction Agreement.
However, paragraph 14 is merely a consent to jurisdiction clause
through which Kvaerner and Jones waive the right to contest jurisdic-
tion in the event the Bank sues them in federal court in New York.
If there were no dispute related to the Construction Agreement --
there was a question over financing or interest, for example -- the
Bank could sue Kvaerner and Jones in federal court, and they could
8
not then argue that that court had no jurisdiction over the dispute.
However, under paragraph 4, Kvaerner and Jones would still be enti-
tled to invoke their right to arbitrate any disputes related to or arising
out of the underlying Construction Agreement.
For the reasons above, we conclude that the district court did not
err in holding that the Bank was required to arbitrate its disputes with
Kvaerner and Jones.
AFFIRMED
9