W & T Travel Services, LLC v. Priority One Services, Inc. , 69 F. Supp. 3d 158 ( 2014 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
W&T TRAVEL SERVICES, LLC,
Plaintiff,
Civil Action No. 13-cv-1617 (BAH)
v.
Judge Beryl A. Howell
PRIORITY ONE SERVICES, INC.,
Defendant.
MEMORANDUM OPINION
The plaintiff, W&T Travel Services, LLC, a Maryland company, which provides
transportation services to the federal government and commercial companies, filed this action
against the defendant, Priority One Services, Inc., a Virginia company, which also provides such
services, to bar a second arbitration of a contract dispute that persists between the parties. See
Compl., ECF No. 1. Pending before the Court is the plaintiff’s Motion For Stay of Arbitration
Proceeding (“Pl.’s MTS”), ECF No. 7, and the defendant’s Motion to Dismiss the Complaint or,
in the alternative, to Stay and Compel Arbitration (“Def.’s MTD/Stay”), ECF No. 10. For the
foregoing reasons, the plaintiff’s motion to stay the arbitration is denied and the defendant’s
motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6) is
granted. 1
I. BACKGROUND
The plaintiff filed this action to enjoin a second arbitration of a contract dispute between
the parties “because such action arises under the same facts, agreement, and transaction as the
1
The plaintiff has also filed a Motion to Expedite Ruling on Plaintiff’s Motion to Stay Arbitration Proceeding, ECF
21, as well as a Motion for Partial Summary Judgment, ECF 23. Since the Court’s ruling on the two other pending
motions results in dismissal of the Complaint, the plaintiff’s remaining motions to expedite and for partial summary
judgment are denied as moot.
1
first arbitration.” Compl. ¶ 1. The facts underlying the contract dispute prompting both
arbitrations are summarized in a prior opinion by this Court. See Priority One Servs., Inc. v. W
& T Travel Servs., LLC, 825 F. Supp. 2d 43, 45 (D.D.C. 2011). In brief, on August 20, 2008, the
National Institutes of Health (“NIH”) awarded the plaintiff a contract (“the Prime Contract”) to
operate shuttle buses for NIH employees and patients. Id. The Prime Contract provided for one
base year of service (2008-2009), and was renewable by NIH for four additional one-year terms
(2009-2010; 2010-2011; 2011-2012; and 2012-2013). See Compl., Ex. 1 ( “Demand for
Arbitration”) ¶ 13, ECF 1-1. Over the five years of the Prime Contract, including the four option
years, the contract was valued at approximately $34 million. Priority One Servs., Inc., 825 F.
Supp. 2d at 45.
One week after award of the Prime Contract, the plaintiff entered a subcontract with the
defendant for the defendant to manage the NIH patient shuttle bus services while the plaintiff
retained responsibility for managing the NIH employee shuttle buses. See Subcontract
Agreement (“Subcontract”), ECF No. 1-1, at 1. Similar to the terms in the Prime Contract, the
Subcontract was for one year but would “automatically extend consistent with [NIH’s] exercise
of [the] four one-year option periods under the Prime Contract.” Id. at 2. In addition, the
Subcontract contained an arbitration clause stating that:
12. All claims, disputes and matters in question arising out of, or relating
to, this Subcontract Agreement or the breach thereof, except for claims for
which the Client is liable (which will be adjudicated in accordance with the
prime contract’s Dispute clause), shall be decided by arbitration in
accordance with the rules of the American Arbitration Association then in
effect unless the parties mutually agree otherwise. This agreement to
arbitrate shall be specifically enforceable under the prevailing arbitration
law. The location of the arbitration proceedings shall be Washington, DC.
Subcontract ¶ 12.
2
In 2009, after NIH exercised the first option year on the Prime Contract, the plaintiff
terminated the Subcontract with the defendant. See Demand for Arbitration ¶¶ 19-23. On
December 15, 2009, the defendant filed a demand for arbitration with the American Arbitration
Association (“AAA”), arguing that the plaintiff’s termination of the Subcontract was a material
breach of the parties’ agreement. See id.¶ 25. Almost ten months later, on October 18, 2010, the
arbitration panel issued its ruling agreeing with the defendant that the plaintiff’s termination of
the defendant “was unjustified” and awarding the defendant damages for the amount of lost
profits for Option Years 1 and 2 in the amount of $1,135,020.00, plus interest, costs and
expenses (“2010 Arbitration Award”). Compl. ¶ 7; Demand for Arbitration, ¶¶ 29, 32; see
Priority One Servs., Inc., 825 F. Supp. 2d at 48. The 2010 Arbitration Award compensated the
defendant for damages incurred for the first two option years of the Subcontract, since, by the
time of the arbitration ruling, NIH had exercised the options for those two years under the Prime
Contract, and that exercise would have automatically extended the Subcontract, absent the
plaintiff’s material breach of the Subcontract. See Demand for Arbitration ¶¶ 31-32. The
arbitration panel did not award the defendant damages for the third and fourth option years
because “the AAA found that [the defendant’s] claims for those damages had not yet fully
accrued because NIH had not yet exercised those option years.” Id. ¶ 33.
The defendant then petitioned for judicial confirmation of the arbitration award, which
the plaintiff opposed. Priority One Servs., Inc., 825 F. Supp. 2d at 48. This Court confirmed the
arbitration panel’s decision to award the defendant damages that flowed from the plaintiff’s
wrongful termination of the parties’ Subcontract, see id. at 57, and that decision was affirmed by
the Circuit, Priority One Servs., Inc. v. W & T Travel Servs., LLC, 502 F. App’x 4, 6 (D.C. Cir.
2013).
3
NIH thereafter exercised option years 3 and 4 in 2011 and 2012, respectively, under the
Prime Contract. See Demand for Arbitration at ¶¶ 36, 38. Towards the end of the Prime
Contract, the plaintiff and the defendant competed for the NIH shuttle bus contract and, in July
2013, the plaintiff was again awarded the prime contract (“2013 Prime Contract”). Id. ¶¶ 41-43.
On October 9, 2013, the defendant brought a second demand for arbitration for lost profits
accruing from option years 3 and 4 under the Prime Contract and Subcontract, as well as lost
profits under the 2013 Prime Contract, since the Subcontract provided for automatic extension of
its term for any option years under the Prime Contract “along with any further extension or re-
competition of the [2008] Prime Contract.” Id. ¶¶ 36-40. Two days later, the plaintiff filed this
action seeking to enjoin the defendant “from proceeding with a second demand for arbitration.”
Compl. ¶ 1.
As set out in the Complaint, the plaintiff seeks to stop the second arbitration, requesting a
declaratory judgment, pursuant to 28 U.S.C. § 2201, that this Court’s confirmation of the 2010
Arbitration Award is “the final determination of the issues related to the Subcontract” and bars
any re-litigation of issues arising under the Subcontract. Compl. ¶ 2. The plaintiff supports this
request with allegations set out in five counts, namely: that no arbitration is authorized because
the Subcontract no longer exists or applies, id. ¶ 22 (“Count I”); that the defendant’s right to
recover damages for option years 3 and 4 was already litigated in the first arbitration and,
therefore, the second arbitration is barred under the doctrines of collateral estoppel, id. ¶¶ 25-26
(“Count II”), and res judicata, id. ¶¶ 29-31 (“Count III”); that the defendant waived the claims
asserted in the second arbitration “by not making any efforts to preserve them,” id. ¶ 33 (“Count
IV”); and, finally, that the second arbitration demand is “frivolous” and “constitutes harassment
4
of [plaintiff],” id. ¶¶ 37-38 (“Count V”), for which the “Plaintiff reserves the right to seek other
monetary damages, depending on the findings of this Court,” id. ¶ 40.
On November 7, 2013, the AAA determined that “in the absence of an agreement by the
parties or a court order staying this matter, [it would] proceed with the administration of the
arbitration.” Joint Status Report, Ex. 1 (AAA Letter, dated November 7, 2013) at 3, ECF No.
18-1. Following solicitation of briefing from the parties on the threshold issue of arbitrability of
the second arbitration demand, the arbitration panel determined, on July 21, 2014, that it has
jurisdiction to arbitrate the merits of the claims raised in the demand “as well as scrutinize the
defenses to those claims, even if the [plaintiff] decides not to participate in the arbitration.” Joint
Status Report, Ex. 1 (AAA Panel “Decision on Jurisdiction”) at ¶¶ 17- 18, ECF No. 20-1.
The Court now turns to the pending motions by the plaintiff to stay the arbitration and by
the defendant to dismiss the Complaint or, alternatively, stay the case and compel arbitration.
II. LEGAL STANDARD
A. Motion to Compel or Stay Arbitration
A motion to compel arbitration, pursuant to the Federal Arbitration Act (“FAA”), 9
U.S.C. § 4, is treated “as if it were a request for summary disposition of the issue of whether or
not there had been a meeting of the minds on the agreement to arbitrate” and, therefore, is
subject to the summary judgment standard of Federal Rule of Civil Procedure 56(c). Aliron Int’l,
Inc. v. Cherokee Nation Indust., Inc., 531 F.3d 863, 865 (D.C. Cir. 2008) (internal quotations and
citations omitted). A motion to stay arbitration presents the mirror image of the same question
“because the argument that ‘no agreement to arbitrate was entered . . . effectively raises the issue
whether there was a meeting of the minds on the agreement to arbitrate.’” Signature Tech.
Solutions v. Incapsulate, LLC, 2014 U.S. Dist. LEXIS 97080, at *3 (D.D.C. July 17, 2014)
5
(quoting Booker v. Robert Half Int’l, 315 F. Supp. 2d 94, 99 (D.D.C. 2004), aff’d, 413 F.3d 77(D.C. Cir. 2005)); Tower Ins. Co. of N.Y. v. Davis/Gilford, 967 F. Supp. 2d 72, 76 (D.D.C. 2013)
(same). Both motions to stay and compel arbitration focus judicial scrutiny on the arbitrability of
the dispute, rather than the dispute itself and, when both motions are made concurrently, they
may be addressed together as cross-motions for summary judgment. See Aliron, 531 F.3d at 865;
Tower Ins., 967 F. Supp. 2d at 77; see also Bensadoun v. Jobe-Riat, 316 F.3d 171, 175 (2d Cir.
2003) (“[T]he summary judgment standard is appropriate in cases where the District Court is
required to determine arbitrability, regardless of whether the relief sought is an order to compel
arbitration or to prevent arbitration.”).
Under Federal Rule of Civil Procedure 56, summary judgment shall be granted “if the
movant shows that there is no genuine dispute as to any material fact and the movant is entitled
to judgment as a matter of law,” upon consideration of “materials in the record” that establish
the absence or presence of a genuine dispute. FED. R. CIV. P. 56(a), (c). While the moving party
bears the burden of showing the absence of dispute material facts, “[t]he evidence is to be
viewed in the light most favorable to the nonmoving party and the court must draw all reasonable
inferences in favor of the nonmoving party.” Talavera v. Shah, 638 F.3d 303, 308 (D.C. Cir.
2011) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986)).
Disputes over the application of the law to undisputed facts are particularly amenable to
resolution on summary judgment since such disputes raise only legal questions properly within
the domain of the Court to determine. See Tower Ins., 967 F. Supp. 2d at 78 (citing Spark v.
Catholic Univ. of Am., 510 F.2d 1277, 1281 (D.C. Cir. 1975)); see also Henry v. S/S Bermuda
Star, 863 F.2d 1225, 1229 n.11 (5th Cir. 1989); Bassis v. Universal Line, S.A., 436 F.2d 64, 68
(2d Cir. 1970). Consequently, “[t]he proper interpretation of an unambiguous contract provision
6
is a question of law, and thus is well-suited to disposition by summary judgment.” Tower Ins.
Co. of N.Y., 967 F. Supp. 2d at 78 (citing United States ex rel. K & R Ltd. P’ship v. Mass. Hous.
Fin. Agency, 456 F. Supp. 2d 46, 55 (D.D.C. 2006), aff’d, 530 F.3d 980 (D.C. Cir. 2008)); see
also Noel v. Baskin, 131 F.2d 231, 233 (D.C. Ct. App. 1942) (“[n]o citation of authority is
necessary to establish the proposition that the construction of written instruments is a question of
law for the court.”); ECHO, Inc. v. Whitson Co., 52 F.3d 702, 705 (7th Cir. 1995) (“Contract
interpretation is particularly suited to disposition by summary judgment.”).
B. Failure to State a Claim under Rule 12(b)(6)
Federal Rule of Civil Procedure 8(a)(2) requires that a complaint contain “a short and
plain statement of the claim showing that the pleader is entitled to relief,” to encourage brevity
and, at the same time, “give the defendant fair notice of what the . . . claim is and the grounds
upon which it rests.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (ellipses in
original; internal quotations and citations omitted); Tellabs, Inc. v. Makor Issues & Rights, Ltd.,
551 U.S. 308, 319 (2007). To survive a motion to dismiss under Federal Rule of Civil Procedure
12(b)(6), the “complaint must contain sufficient factual matter, accepted as true, to state a claim
to relief that is plausible on its face.” Wood v. Moss, 134 S. Ct. 2056, 2067 (2014) (quoting
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). A claim is facially plausible when the plaintiff
pleads factual content that is more than “merely consistent with a defendant’s liability,” but
allows the court to draw the reasonable inference that the defendant is liable for the misconduct
alleged. Id. at 678 (citing Twombly, 550 U.S. at 557); see also Rudder v. Williams, 666 F.3d
790, 794 (D.C. Cir. 2012). Although “detailed factual allegations” are not required to withstand
a Rule 12(b)(6) motion, a complaint must offer “more than labels and conclusions” or “formulaic
recitation of the elements of a cause of action” to provide “grounds” of “entitle[ment] to relief,”
7
Twombly, 550 U.S. at 555 (alteration in original), and “nudge[ ] [the] claims across the line from
conceivable to plausible,” id. at 570. Thus, “a pleading [does not] suffice if it tenders ‘naked
assertion[s]’ devoid of ‘further factual enhancement.’” Iqbal, 556 U.S. at 678 (quoting Twombly,
550 U.S. at 557). In considering a motion to dismiss for failure to plead a claim on which relief
can be granted, the court must consider the complaint in its entirety, accepting all factual
allegations in the complaint as true, even if doubtful in fact. Twombly, 550 U.S. at 555-56; Sissel
v. United States Dep’t of Health and Human Servs., No. 13-5202, 2014 U.S. App. LEXIS 14397,
at *7 (D.C. Cir. 2014) (in considering Rule 12(b)(6) motion, the “court assumes the truth of all
well-pleaded factual allegations in the complaint and construes reasonable inferences from those
allegations in the plaintiff's favor, but is not required to accept the plaintiff’s legal conclusions as
correct”) (internal quotations and citations omitted). In addition, courts may “ordinarily
examine” other sources “when ruling on Rule 12(b)(6) motions to dismiss, in particular,
documents incorporated into the complaint by reference, and matters of which a court may take
judicial notice.” Tellabs, Inc., 551 U.S. 322 (citing 5B Wright & Miller § 1357 (3d ed. 2004 and
Supp. 2007)); see also English v. D.C., 717 F.3d 968, 971 (D.C. Cir. 2013).
III. DISCUSSION
The defendant aptly observes that the plaintiff’s motion to stay and the defendant’s
motion to dismiss or, in the alternative, compel arbitration “both ask the Court to rule on the
identical issue—whether the AAA or the Court has the exclusive power to rule on arbitrability.”
Def.’s Opp’n Pl.’s Mot. Stay (“Def.’s Opp’n”) at 2, ECF No. 1. The plaintiff contends that
arbitrability of the claims set out in the defendant’s demand for arbitration is an issue for judicial
determination, warranting a stay of the arbitration proceedings. See Compl. ¶¶ 21-23; Pl.’s
Mem. Supp. Mot. Stay (“Pl.’s MTS Mem.”) at 7-10. The defendant counters that the
8
Subcontract reflects the parties’ unequivocal agreement that the arbitrator would rule on the
arbitrability of any dispute arising from that Subcontract and, furthermore, that the Complaint
should be dismissed. See Def.’s Mem. Supp. Mot. Dismiss or Stay (“Def.’s MTD/Stay Mem.”)
at 9-13. The Court agrees with the defendant, as explained below.
A. The Competing Motions to Compel or Stay Arbitration
“[A]rbitration is a matter of contract.” Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63,
69 (2010). Thus, the Supreme Court has directed that “the first task of a court asked to compel
arbitration of a dispute is to determine whether the parties agreed to arbitrate that dispute.”
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985); see also
Granite Rock Co. v. Int’l Bhd. of Teamsters, 561 U.S. 287, 297 (2010) (“[A] court may order
arbitration of a particular dispute only where the court is satisfied that the parties agreed to
arbitrate that dispute.”). In making that determination, the court must apply the “‘federal
substantive law of arbitrability, applicable to any arbitration agreement within the coverage of
the [FAA].’” Id. (quoting Moses H. Cone Memorial Hospital v. Mercury Construction Corp.,
460 U.S. 1, 24 (1983)). When, as here, “ordinary contracts are at issue, it is up to the parties to
determine whether a particular matter is primarily for arbitrators or for courts to decide.” BG
Group PLC v. Republic of Arg., 134 S. Ct. 1198, 1206 (2014) (citing Steelworkers v. Warrior &
Gulf Nav. Co., 363 U. S. 574, 582 (1960) (“[A]rbitration is a matter of contract and a party
cannot be required to submit to arbitration any dispute which he has not agreed so to submit.”)).
Generally, “courts presume that the parties intend courts, not arbitrators, to decide what
we have called disputes about ‘arbitrability,’” including “questions such as ‘whether the parties
are bound by a given arbitration clause,’ or ‘whether an arbitration clause in a concededly
binding contract applies to a particular type of controversy.’” Id. (quoting Howsam v. Dean
9
Witter Reynolds, Inc., 537 U. S. 79, 84 (2002)). In this respect, the plaintiff is correct in stating
that “[i]t is a well settled proposition that the question of arbitrability is undeniably an issue for
judicial determination,” Pl.’s MTS Mem. at 3, but this proposition has an important exception
that the plaintiff ignores.
The Supreme Court has recognized that “parties can agree to arbitrate ‘gateway’
questions of ‘arbitrability,’ such as whether the parties have agreed to arbitrate or whether their
agreement covers a particular controversy.” Jackson, 561 U.S. at 68-69. Such “[a]n agreement
to arbitrate a gateway issue is simply an additional, antecedent agreement the party seeking
arbitration asks the federal court to enforce, and the FAA operates on this additional arbitration
agreement just as it does on any other.” Id. at 70. The only caveat is that a heightened standard
applies to the determination that the parties agreed to arbitrate arbitrability, requiring “clear and
unmistakable evidence that they did so.” First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938,
944 (1995) (internal quotations, citations, alterations omitted); see also AT & T Techs., Inc. v.
Commc’n Workers of Am., 475 U.S. 643, 649 (1986) (“[U]nless the parties clearly and
unmistakably provide otherwise, the question of whether the parties agreed to arbitrate is to be
decided by the court, not the arbitrator.” ); 2 Skrynnikov v. Fannie Mae, 943 F. Supp. 2d 172,
175-176 (D.D.C. 2013).
The parties agree that the heightened standard applies here. Def.’s Opp’n at 3; Pl.’s MTS
Mem. at 3. Thus, the defendant, as the party moving to compel arbitration on the arbitrability
issue, shoulders the burden of proving by “clear and unmistakable evidence” that the parties
2
The plaintiff‘s reliance on AT&T Technologies, Inc., 475 U.S. 643, for the proposition that the Court must
determine arbitrability is misplaced. Although the Supreme Court in that case found that the appellate and district
courts erred in authorizing an arbitrator to determine the threshold issue of arbitrability, the basis for this finding was
that the parties had not clearly and unmistakably agreed to arbitrate arbitrability. 475 U.S. at 648. Where clear and
unmistakable evidence is present that the parties agreed to submit arbitrability to an arbitrator, AT&T Technologies,
Inc. confirms that the parties’ agreement should be enforced.
10
agreed to submit arbitrability to the arbitrator. First Options, 514 U.S. at 944. The defendant
has carried this burden.
1. The Subcontract Language Submits Arbitrability to the Arbitrator
The defendant argues that the issue of arbitrability is for the arbitrator because the
Subcontract provides clear and unmistakable evidence that the parties agreed to arbitrate
arbitrability. See Def.’s MTD/Stay Mem. at 9-16. The Court agrees.
The defendant points to two provisions in the Subcontract as showing “by clear and
unmistakable evidence that the parties agreed to have an arbitrator determine arbitrability.”
Def.’s MTD/Stay Mem. at 10. First, the defendant cites the language in the arbitration provision
of the Subcontract that empowers the AAA to resolve “all claims, disputes and matters in
question arising out of, or relating to, this Subcontract.” Id. at 12. This Court has already
concluded that this arbitration clause is “broad.” See Priority One, 825 F. Supp. 2d at 55
(quoting Subcontract ¶ 12). The broad, all-encompassing language in the arbitration clause is
clear evidence that the parties agreed to arbitrate all issues arising under the Subcontract,
including the issue of arbitrability. See Contec Corp. v. Remote Solution, Co., 398 F.3d 205, 211
(2d Cir. 2005) (finding that party to the contract “cannot now disown its agreed-to obligation to
arbitrate all disputes, including the question of arbitrability”); Avue Techn. Corp. v. DCI Grp.,
L.L.C., CIV.A. 06-327 (JDB), 2006 WL 1147662, at *7 (D.D.C. Apr. 28, 2006) (same).
Second, the defendant highlights the Subcontract’s requirement that arbitration shall take
place pursuant to AAA rules as providing additional “clear and unmistakable evidence that the
parties agreed the arbitrator shall decide arbitrability.” Def.’s MTD/Stay Mem. at 10. The
Subcontract states in relevant part that “[a]ll claims, disputes and matters in question arising out
of, or relating to, this Subcontract Agreement or the breach thereof . . . shall be decided by
11
arbitration in accordance with the rules of the [AAA] then in effect unless the parties mutually
agree otherwise.” Subcontract ¶ 12. Under Rule R-7(a) of the AAA’s Commercial Arbitration
Rules, “[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any
objections with respect to the existence, scope, or validity of the arbitration agreement or to the
arbitrability of any claim or counterclaim.” See Def.’s MTD/Stay Mem. at 3 (quoting AAA
Com. Arb. R. (“AAA Rules”), R-7(a), ECF 7-1, Ex. 3.).
While the D.C. Circuit has not addressed the issue, courts both within and outside this
jurisdiction have held that an arbitration clause adopting the rules of the AAA makes the issue of
arbitrability one for the arbitrator, not the court. See, e.g., Haire v. Smith, Currie & Hancock
LLP, 925 F. Supp. 2d 126, 133 (D.D.C. 2013) (finding that “[i]n light of this caselaw . . . there is
clear and unmistakable evidence that the parties intended for an arbitrator to decide questions of
arbitrability, including challenges to the continued validity and existence of the arbitration
provision” where the parties incorporated the rules of the AAA into their arbitration agreement);
Grynberg v. BP P.L.C., 585 F. Supp. 2d 50, 54-55 (D.D.C. 2008) (finding that “[a]mple case law
supports” the position that “incorporation of the AAA Rules by reference constitutes ‘clear and
unmistakable evidence’ that the parties intended to submit the arbitrability determination to the
arbitrator”); Fallo v. High –Tech Inst., 559 F.3d 874, 878 (8th Cir. 2009) (finding “that the
arbitration provision’s incorporation of the AAA Rules . . . constitutes a clear and unmistakable
expression of the parties’ intent to leave the question of arbitrability to an arbitrator”); Contec
Corp., 398 F.3d at 211 (“We therefore conclude that as a signatory to a contract containing an
arbitration clause and incorporating by reference the AAA Rules . . . cannot now disown its
agreed-to obligation to arbitrate all disputes, including the question of arbitrability.”); Terminix
Int’l Co., LP v. Palmer Ranch Ltd., 432 F.3d 1327, 1332-33 (11th Cir. 2005) (“By incorporating
12
the AAA Rules . . . into their agreement, the parties clearly and unmistakably agreed that the
arbitrator should decide whether the arbitration clause is valid.”) (collecting cases).3 The
arbitration panel’s decision to exercise jurisdiction is in accord with this precedent. See Panel
Decision on Jurisdiction, ECF 20-1.
In sum, the Subcontract provides clearly and unmistakably that the parties agreed to
arbitrate any dispute arising from the Subcontract and this includes disputes over arbitrability.
2. The Subcontract’s Arbitration Clause Remains Enforceable
Notwithstanding the breadth of the Subcontract’s arbitration clause, the plaintiff contends
that “[t]his case is not arbitrable,” Pl.’s Opp’n to Def.’s MTD/Stay (“Pl.’s Opp’n”) at 2, ECF No.
12, for two reasons: first, the Subcontract “is no longer in existence and therefore no longer
applicable, id. at 2-3; and second, the first arbitration award “was a final and complete
arbitration” making the second arbitration “powerless to modify or make a new award on the
same issues,” id. at 3. Neither reason posited by the plaintiff defeats the jurisdiction of the
arbitrators to hear the defendant’s claims presented in the second demand for arbitration.
First, the plaintiff asserts that termination of the Subcontract, due to its own material
breach, has the result of terminating the force of the arbitration clause in the agreement. Pl.’s
Opp’n at 17 (arguing that the defendant’s successful showing in the first arbitration that the
plaintiff committed a material breach amounts to a “waiver” or “conce[ssion]” about the
3
The parties rely on federal as well as Maryland state law without directly addressing the choice of law issue
regarding which jurisdiction’s law applies to interpret the parties’ Subcontract. The Subcontract provides that
“Federal law shall govern the interpretation or application” of the contract and “[w]here no Federal law is
applicable, this Agreement shall be governed by the appropriate law of the State of Maryland.” Subcontract ¶ 21.1.
Even if Maryland law were applied, the result would not be different and the issue of arbitrability would go to the
arbitrators. See, e.g., Wash. Homes, Inc. v. Interstate Land Dev. Co., 382 A.2d 555, 560 (Md. 1978) (“It is manifest
that by their agreement and their effectuation of the arbitration, the parties ‘provided for arbitration by the American
Arbitration Association.’ They thereby made the Commercial Arbitration Rules of the Association a part of their
arbitration agreement.”). As the plaintiff concedes, Maryland favors the enforcement of arbitration agreements
where the parties agreed to arbitrate. See Pl.’s MTS Mem. at 10 n.3.
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continued viability of the Subcontract and renders “the Subcontract . . . no longer in existence”).
This assertion is completely at odds with well-established law that arbitration provisions remain
enforceable even after termination of an agreement, no matter the reason for the termination, so
long as the dispute subject to arbitration “involves facts and occurrences that arose before
expiration, where an action taken after expiration infringes a right that accrued or vested under
the agreement, or where, under normal principles of contract interpretation, the disputed
contractual right survives expiration of the remainder of the agreement.” Litton Fin. Printing
Div. v. NLRB, 501 U.S. 190, 206 (1991); see also Nolde Bros., Inc. v. Local No. 358, Bakery &
Confectionery Workers Union, AFL-CIO, 430 U.S. 243, 251 (1977) (finding that “it could not
seriously be contended . . . that the expiration of the contract would terminate the parties’
contractual obligation to resolve such a dispute in an arbitral, rather than a judicial forum.”)
(collecting cases); Haire v. Smith, Currie & Hancock LLP, 925 F. Supp. 2d at 133 (rejecting
argument that “the arbitration agreement no longer applied to [the plaintiffs’] claims once they
terminated” the agreement). Thus, “if a dispute arises under the contract here in question, it is
subject to arbitration even in the postcontract period.” Litton Fin. Printing Div., 501 U.S. at 205.
The Supreme Court has explained that “there are strong reasons to conclude that the
parties did not intend their arbitration duties to terminate automatically with the contract.” Nolde
Bros., 430 U.S. at 253. For example, to hold otherwise “would preclude the entry of a post-
contract arbitration order even when the dispute arose during the life of the contract but
arbitration proceedings had not begun before termination” of the parties’ agreement. Id. at 251.
Indeed, in this case it was after the plaintiff terminated the Subcontract through its material
breach that the defendant brought its first demand for arbitration and received an award that was
affirmed by both this Court and the D.C. Circuit. See Priority One Servs., Inc., 825 F. Supp. 2d
14at 46, aff’d, 502 F. App’x 4, 6 (D.C. Cir. 2013). If agreements to arbitrate ended upon
termination of the agreement, a party could avoid agreed-upon arbitration of a dispute simply by
terminating the agreement or waiting until the agreement ended to assert a claim. See Zucker v.
After Six, Inc., 174 F. App’x 944, 947-948 (6th Cir. 2006) (“If the duty to arbitrate automatically
terminated upon expiration of the contract, a party could avoid his contractual duty to arbitrate
by simply waiting until the day after the contract expired to bring an action regarding a dispute
that arose while the contract was in effect.”); United Steelworkers of Am., AFL-CIO v. Fort Pitt
Steel Casting Div.-Conval-Penn, Inc., 635 F.2d 1071, 1075 (3d Cir. 1980) (“There is little reason
to construe this contract to mean that the parties intended their contractual duty to submit
grievances and claims arising under the contract to terminate immediately on the termination for
the contract; the alternative remedy of a lawsuit is the very remedy the arbitration clause was
designed to avoid.”).
Moreover, the plaintiff points to no provision in the Subcontract that would eliminate the
arbitration requirement on termination of the agreement. On the contrary, the arbitration
provision covers any and all “claims arising out of, or relating to” the Subcontract, without
regard to the status of the agreement or the timing of the claim, providing further clear evidence
that the defendant’s pending claims are subject to arbitration. See Nolde Bros., 430 U.S. at 255(“[T]he parties’ failure to exclude from arbitrability contract disputes arising after termination,
far from manifesting an intent to have arbitration obligations cease with the agreement, affords a
basis for concluding that they intended to arbitrate all grievances arising out of the contractual
relationship.”); Wolff v. Westwood Mgmt., LLC, 558 F.3d 517, 519-521 (D.C. Cir. 2009)
(rejecting party’s argument that arbitration clause in terminated agreement was unenforceable
where the agreement required arbitration of “any dispute” arising out of the agreement and
15
“survived the expiration of the [] Agreement and compels appellants to submit their claims to
arbitration.”).
The second ground on which the plaintiff resists the defendant’s second arbitration
demand is that this arbitration is barred due to “the finality of the prior arbitration award,” Pl.’s
Opp’n at 2, and the operation of the doctrines of collateral estoppel and res judicata, id., at 7-15;
Pl.’s MTS Mem. at 7-19; and waiver, Pl.’s MTS Mem. at 19-21.4 As support for this “finality”
argument, the plaintiff cites language in the 2010 Arbitration Award stating that “[t]his decision
is a final Award as to all claims . . . [a]ll claims not expressly granted herein are hereby, denied.”
Pl.’s Opp’n at 3 (quoting 2010 Arbitration Award) (emphasis omitted). This argument is
misplaced since it leap-frogs over the threshold issue of arbitrability to reach the merits of the
defendant’s claims in the second arbitration. In other words, whether the first arbitration
resolved all claims for all possible damages arising from the plaintiff’s material breach of the
Subcontract, as the plaintiff contends, or just those claims for damages that had accrued at the
time of the 2010 Arbitration Award, as the defendant contends, is a merits issue. The
defendant’s position is that, notwithstanding the cited language in the 2010 Arbitration Award,
the first arbitration panel did not consider any claims for damages arising from option years 3
and 4 or thereafter, because the panel viewed those claims as too speculative to award at the time
4
In support of its waiver argument, the plaintiff cites cases that do not address the threshold issue of arbitrability
before the Court here and are, therefore, inapposite. Moreover, to the extent the cases relied upon by the plaintiff
hold that a party’s litigation conduct may result in an affirmative waiver of the right to demand arbitration, these
cases are distinguishable. See Pl.’s MTS Mem. at 19 (citing, e.g., Cornell & Co. v. Barber & Ross Co., 360 F.2d
512, 513 (D.C. Cir. 1996) (“[A] party waives his right to arbitrate when he actively participates in a lawsuit or takes
other action inconsistent with that right.”)); id. at 20 (citing, e.g., S & H Contractors, Inc. v. A.J. Taft Coal Co., 906
F.2d 1507, 1514 (11th Cir. Ala. 1990) (plaintiff’s “invocation of the litigation process” was “inconsistent[] with its
arbitration right” and amounted to “waive[r of] its right to arbitrate”)); Pl.’s Reply Supp. MTS at 14-15, ECF No. 13
(citing, e.g., Miller Brewing Co. v. Fort Worth Distr. Co., 781 F.2d 494 (5th Cir. 1986) (finding that a plaintiff
waived right to arbitrate dispute by “actively participat[ing] in a lawsuit” that it filed before seeking arbitration
against the defendant)). In this case, the defendant has affirmatively sought arbitration on all of its claims arising
under the Subcontract and is only asserting in the second arbitration proceedings those claims the first arbitration
panel found had not yet accrued. The defendant has certainly not waived its right to arbitrate by actively
participating in the instant litigation, where it presses the position that the Complaint should be dismissed and
arbitration compelled. See Def.’s MTD, ECF 10.
16
of the arbitration. See Demand for Arbitration ¶ 33 (“As for Option Years 3 (September 1, 2011-
August 31, 2012) and 4 (September 1, 2012-August 31, 2013), the AAA found that Priority
One’s claims for those damages had not yet fully accrued because NIH had not yet exercised
those option years.”).5
Regardless of which parties’ view is correct regarding whether only some or all claims
arising under the Subcontract were considered and resolved with finality in the 2010 Arbitration
Award, the plaintiff’s arguments for why the defendant’s second demand for arbitration should
fail are not reasons for finding that the threshold question of arbitrability must be determined by
the Court rather than the arbitrator. The merits of the plaintiff’s argument regarding the scope of
the 2010 Arbitration Award and, specifically, whether this award resolved the defendant’s
damages claims for option years 3 and 4 and thereafter, must be presented to and resolved by the
ongoing second arbitration proceeding.
5
The plaintiff cites several cases is support of its position that a party is barred from asserting a claim after having a
full and fair opportunity for consideration of the claim in a prior arbitration proceeding, but those cases are
inapposite since, again, none addressed the threshold issue of arbitrability that is before the Court here. Moreover,
given the parties’ dispute over the scope of the first arbitration panel’s decision, the cases cited by the plaintiff
appear to be distinguishable. For example, the plaintiff contends “the same scenario exists” in the instant case to bar
the second arbitration as in Hammerman v. Peacock, 654 F. Supp. 71 (D.D.C .1987), where the court granted the
defendants’ summary judgment motion, finding that the federal suit was collaterally estopped by a prior arbitration
decision adverse to the plaintiff. Pl.’s MTS Mem. at 11. Critical to the Peacock court’s holding, however, was that
the plaintiff had a full and fair opportunity to litigate the issues on which the plaintiff’s federal claims depended and
the arbitration had “effectively resolved the identical factual issues underlying [plaintiff]’s federal claims.” 654 F.
Supp. at 73. By contrast here, the defendant claims the first arbitration panel expressly declined to consider or
resolve the claims now at issue in the second arbitration, so “the same scenario” does not appear to exist here. For
the same reason, the plaintiff’s reliance on Greenblatt v. Drexel Burnham Lambert, Inc., 763 F. 2d 1352 (11th Cir.
1985), is misplaced. Pl.’s MTS Mem. at 13. Although the Greenblatt court concluded that certain issues necessary
for a prior arbitration panel decision were “binding” and entitled to collateral estoppel effect in the plaintiff’s
subsequent federal suit, other issues that “were not before the panel” were permitted to go forward in the civil suit.
Id. at 1362. Likewise, Ormsbee Dev. Co. v. Grace, 668 F.2d 1140 (10th Cir. 1983), which the plaintiff cites as
support for the proposition that a first arbitration award operates to bar a second demand for arbitration, see Pl.’s
MTS Mem. at 8-9, is distinguishable. The Grace court concluded that a party’s failure “to advance” certain claims in
an arbitration so that those claims “were not addressed in the course of the first arbitration proceeding,” constituted a
waiver of those claims, making a second demand for arbitration properly stayed. 668 F.2d at 1153. This does not
appear to be the situation in this case, where the defendant did assert certain claims in the first arbitration proceeding
but the arbitration panel decided not to address them. Moreover, as the defendant notes, “[t]o the extent that [the
plaintiff] claims Grace broadly stands for the proposition that the Court can rule on the merits of [the plaintiff’s]
affirmative defenses in determining arbitrability, that reading of Grace is foreclosed by the Supreme Court’s
decision in AT&T (decided four years after Grace), and the D. C. Circuit’s decision in Wolff (decided 27 years after
Grace).” Def.’s Opp’n at 8.
17
Likewise, the plaintiff’s related contentions that the defendant’s claims in the second
arbitration demand are barred by collateral estoppel, res judicata and waiver are not properly
considered here. Those contentions are affirmative defenses directed to the merits of the
defendant’s claims under consideration in the second arbitration proceeding. To consider those
defenses here would run afoul of the Supreme Court’s direction that “in deciding whether the
parties have agreed to submit a particular grievance to arbitration,” courts should decline to
address affirmative defenses because doing so would constitute a “rul[ing] on the potential
merits of the underlying claims.” AT&T Techs., Inc., 475 U.S. at 649; see also Howsam, 537
U.S. at 84-85 (refusing to consider defenses to arbitrability such as “time limits, notice, laches
[or] estoppel”); Wolff, 558 F.3d at 521 (finding “[t]he remainder of appellants’ arguments can be
dismissed in short order” including the appellants’ “unclean hands argument” because when
deciding whether the parties agreed to submit a grievance to arbitration, the court should not rule
on the merits of the claim). 6
Despite the plaintiff’s invitation to address the merits of the defendant’s claims presented
in its demand for arbitration, the only issue before the Court at this time is the threshold question
of “who has the primary power to decide arbitrability.” First Options of Chicago, 514 U.S. at
943. Having decided that question in the defendant’s favor, any evaluation of the merits of the
plaintiff’s affirmative defenses as to why the defendant should not prevail in the second
arbitration are matters that the Court leaves to the arbitrators. See Toledano v. O’Connor, 501 F.
6The plaintiff cites Kelly v. Merrill Lynch, Pierce, Fenner & Smith, 985 F.2d 1067 (11th Cir. 1993), for the
proposition that “it is for the court and not for the arbitrator to determine whether claims are res judicata as a result
of a confirmed arbitration award,” Pl.’s MTS Mem. at 14; id. at 18, but this proposition side-steps the key issue here
of whether the parties’ agreed to let arbitrators decide arbitrability. In any event, as the defendant points out, Kelly
is no longer good law. Def.’s Reply Supp. Mot. Dismiss at 3, ECF No. 14. Indeed, in Klay v. United Healthgroup,
Inc., 376 F.3d 1092 (11th Cir. 2004), the Eleventh Circuit concluded that the Kelly court “erred in considering the
res judicata issue” because the Supreme Court in Howsam stated “that, unless an arbitration agreement otherwise
stipulates, a court is empowered only to determine the ‘substantive’ issue of arbitrability—that is, whether a
particular dispute falls within the scope of an arbitration clause—and the necessary threshold question of whether
that clause is enforceable.” Id. at 1109.
18
Supp. 2d 127, 146 (D.D.C. 2007) (rejecting invitation to take “a quick peek at the merits” in
order to determine if the claims are arbitrable because to do so would exceed this Court’s
authority).
B. The Complaint Fails to State a Claim
As the arbitrator must determine arbitrability of the defendant’s claims asserted in the
second arbitration proceeding, the only matter left for the Court is whether the suit should be
dismissed or stayed pending the outcome of the arbitration. While the D.C. Circuit has not
addressed this issue, other Circuit courts have reached divergent views regarding the
repercussions for a pending civil suit of a finding that arbitration of the underlying dispute is
required. See Braxton v. O’Charley’s Rest. Props, LLC, 5:13-CV-00130-TBR, 2014 WL
585324, at *5 (W.D. Ky. Feb. 14, 2014) (discussing circuit split); see also Richard A. Bales &
Melanie A. Goff, An Analysis of an Order to Compel Arbitration: To Dismiss or Stay?, 115
PENN ST. L. REV. 539, 547 (2011); Angelina M. Petti, Note, Judicial Enforcement of Arbitration
Agreements: The Stay-Dismissal Dichotomy of FAA Section 3, 34 HOFSTRA L. REV. 565, 575
(2005).
The Third, Seventh, and Tenth Circuits have concluded that Section 3 of the FAA
requires that the suit be stayed until the conclusion of the arbitration. See Cont’l Cas. Co. v. Am.
Nat’l Ins. Co., 417 F.3d 727, 732 n. 7 (7th Cir. 2005) (“[T]he proper course of action when a
party seeks to invoke an arbitration clause is to stay the proceedings pending arbitration rather
than to dismiss outright.”); Lloyd v. HOVENSA, LLC, 369 F.3d 263 (3d Cir. 2004); Adair Bus.
Sales, Inc. v. Blue Bird Corp., 25 F.3d 953 (10th Cir. 1994). Section 3 provides that the court
“shall on application of one of the parties stay the trial of the action until such arbitration has
been had in accordance with the terms of the agreement, providing the applicant for the stay is
19
not in default in proceeding with such arbitration.” FAA, 9 U.S.C. § 3. A primary rationale for
these decisions is that dismissing the case may subject the party moving to compel arbitration to
an unnecessary appeal of the dismissal while the arbitration is proceeding. See, e.g., Lloyd v.
HOVENSA, LLC., 369 F.3d at 270 (“The effect of that stay is twofold: it relieves the party
entitled to arbitrate of the burden of continuing to litigate the issue while the arbitration process
is on-going, and it entitles that party to proceed immediately to arbitration without the delay that
would be occasioned by an appeal of the District Court’s order to arbitrate. Under § 16 of the
FAA, 9 U.S.C. § 16, whenever a stay is entered under § 3, the party resisting arbitration is
expressly denied the right to an immediate appeal.”). This rationale is of limited import here,
where the defendant has moved for dismissal of the Complaint and thereby assumed the risk of a
possible appeal. See generally Def’s MTD Mem., ECF 10.
In contrast to the Third, Seventh, and Tenth Circuits, the majority of Circuit courts to
consider this issue have concluded that Section 3 of the FAA does not preclude dismissal of a
lawsuit when all of the claims asserted will be submitted to the arbitrator. See, e.g., Dialysis
Access Ctr., LLC v. RMS Lifeline, Inc., 638 F.3d 367, 372 (1st Cir. 2011) (“Where one side is
entitled to arbitration of a claim brought in court, in this circuit a district court can, in its
discretion, choose to dismiss the law suit, if all claims asserted in the case are found arbitrable.”)
(quotations and citations omitted); Choice Hotels Int’l, Inc. v. BSR Tropicana Resort, Inc., 252
F.3d 707 (4th Cir. 2001) (sanctioning dismissal “when all of the issues presented . . . are
arbirable”); Aviles v. Russell Stover Candies, Inc., 559 F. App’x 413 (5th Cir. 2014) (affirming
dismissal rather than stay under Fifth Circuit precedent); Alford v. Dean Witter Reynolds, Inc.,
975 F.2d 1161, 1164 (5th Cir. 1992) (stating that dismissal, as opposed to a stay pending
arbitration, is proper “when all of the issues raised in the district court must be submitted to
20
arbitration”); Ozormoor v. T–Mobile USA, Inc., 354 Fed. App’x. 972, 975 (6th Cir. 2009)
(“[Plaintiff] challenges the dismissal of his suit, asserting that 9 U.S.C. § 3 requires district
courts to stay suits pending arbitration rather than dismiss them. We have already rejected that
argument.”); Johnmohammadi v. Bloomingdale’s, Inc., 755 F.3d 1072, 1073-74 (9th Cir. 2014)
(“We have held that, notwithstanding the language of § 3, a district court may either stay the
action or dismiss it outright when, as here, the court determines that all of the claims raised in the
action are subject to arbitration,” citing Sparling v. Hoffman Constr. Co., 864 F.2d 635, 638 (9th
Cir. 1988)).
Moreover, while the D.C. Circuit has not explicitly opined on this issue, it has upheld a
finding that Section 3 of the FAA does not preclude dismissal of an action “in the proper
circumstances,” including where “all issues raised in the complaint must be submitted to
arbitration.” Aliron Int’l, Inc. v. Cherokee Nation Indus., Inc., CIV.A. 05-151(GK), 2006 WL
1793295, at * 3 (D.D.C. June 28, 2006) aff’d, 531 F.3d 863 (D.C. Cir. 2008) (internal quotations
omitted); see also Cole v. Burns Int’l Sec. Servs., 1996 U.S. Dist. LEXIS 22541, at *11-12
(D.D.C. Jan. 31, 1996), aff’d, 105 F.3d 1465 (D.C. Cir. 1997).
This Court will follow the majority rule regarding the propriety of dismissing a case
where all of the claims are subject to resolution by the arbitrator. See Haire, 925 F. Supp. 2d at
134 (compelling arbitration and dismissing the case after finding “that the parties intended the
issue of arbitrability to be resolved by the arbitrator” and all other claims likewise belonged to
the arbitrator); Avue, 2006 WL 1147662, at *7 (“[The plaintiff’s] motion to stay arbitration
proceedings will be denied and, since that is the entirety of the relief sought in this action, the
case will be dismissed.”). But see White v. Four Seasons Hotels & Resorts, CV 13-1399 (JEB),
21
2013 WL 6171595, at *7 (D.D.C. Nov. 26, 2013) (finding that FAA’s section 3 and the D.C.
arbitration statute, D.C. Code § 16-4407(f), direct the court to stay rather than dismiss the case).
In the instant matter, the plaintiff seeks a declaratory judgment that the defendant’s
claims are not arbitrable because the Subcontract no long exists and the claims are barred by the
finality of 2010 Arbitration Award as to “all claims.” See Compl. ¶ 23. In light of the
conclusions set out above, however, that the arbitration requirement survives termination of the
Subcontract, which vests authority with the arbitrators, not this Court, to determine arbitrability,
no issues are left for this Court to resolve. In these circumstances, dismissal is appropriate. See,
e.g., Aliron, 2006 WL 1793295, at *3 (“[A]ll of Plaintiff’s claims must be submitted to
arbitration, since the arbitration clause applies to any dispute that may arise between the parties.
Since there is no further action to be taken by this Court, it is appropriate to dismiss this case in
its entirety.”); see also Richard A. Bales & Melanie A. Goff, An Analysis of an Order to Compel
Arbitration: To Dismiss or Stay?, 115 PENN ST. L. REV. at 542 (“If all issues between the parties
fall within the arbitration provision, the court should, in its discretion, dismiss the action and
leave the parties to the decision of the arbitrator, pursuant to the parties’ contractual
agreement.”).7
7
Both parties in this case have moved for sanctions in the form of attorneys’ fees for having to litigate these issues.
The court has the “inherent authority to order sanctions, including attorney’s fees, if a party has ‘acted in bad faith,
vexatiously, wantonly, or for oppressive reasons.’” Priority One Servs., Inc. v. W & T Travel Servs., LLC, 502 F.
App’x at 6 (quoting Chambers v. NASCO, Inc., 501 U.S. 32, 45–46 (1991)). “But in order to do so, the court must
‘make a specific finding,’ by clear and convincing evidence, that a party so acted.” Id. (quoting Roadway Express,
Inc. v. Piper, 447 U.S. 752, 767 (1980)). Statutory authority for an award of attorneys’ fees also exists where a
party “so multiplies the proceedings in any case unreasonably and vexatiously.” 28 U.S.C. § 1927. Although the
plaintiff is barking up the wrong tree for relief in this case, since the arbitration panel must decide whether the
defendant’s claim is arbitrable, the Court is not persuaded that the Complaint was filed in bad faith or to do harm to
the defendant in the process. In short, no clear and convincing evidence has been shown that either party is
proceeding in bad faith or that sanctions are warranted against either party. Thus, both parties’ requests for
sanctions to be imposed on the other party are denied.
22
IV. CONCLUSION
For the foregoing reasons, the plaintiff’s motion to stay arbitration is denied and the
defendant’s motion to dismiss is granted.
An Order consistent with this Memorandum Opinion will be contemporaneously entered.
Date: September 25, 2014
Digitally signed by Hon. Beryl A. Howell
DN: cn=Hon. Beryl A. Howell, o=U.S. District
Court for the District of Columbia,
ou=United States District Court Judge,
email=Howell_Chambers@dcd.uscourts.gov
, c=US
Date: 2014.09.25 15:25:28 -04'00'
__________________________
BERYL A. HOWELL
United States District Judge
23