Weis Builders, Inc. v. Kay S. Brown Living Trust

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
MAR 17 2004
FOR THE TENTH CIRCUIT
PATRICK FISHER
Clerk
WEIS BUILDERS, INC.,
a Minnesota corporation,
Plaintiff-Appellee,
v. No. 02-1554
(D.C. No. 02-WY-965-AJ (OES))
KAY S. BROWN LIVING TRUST, (D. Colo.)
a Colorado Trust; RYAN S. BROWN
TRUST, a Colorado Trust,
Defendants-Appellants,
and
LICHTENFELS, PANSING &
MILLER, P.C., a Colorado
professional corporation,
Defendant.
ORDER AND JUDGMENT *
Before McCONNELL , ANDERSON , and BALDOCK , Circuit Judges.
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
After examining the briefs and appellate record, this panel has determined
unanimously to grant the parties’ request for a decision on the briefs without oral
argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument.
I.
Defendants-appellants Kay Brown Living Trust and Ryan S. Brown Trust
(the “Trusts”) commenced an arbitration proceeding relating to a purported
construction contract with plaintiff-appellee Weis Builders, Inc. (“Weis”). Weis
then filed a complaint in federal district court, based on diversity jurisdiction,
seeking a declaratory judgment that there was no contract between the parties.
Weis contended the Trusts had fraudulently induced Weis’ signature on the
contract by altering material terms in the final draft of the contract and failing to
disclose this alteration to Weis. Weis also requested that the district court stay
the arbitration proceeding pending the court’s determination whether the parties
had entered into a contract.
The Trusts moved to dismiss the complaint, arguing the Rooker-Feldman
doctrine deprived the district court of subject matter jurisdiction. This doctrine,
which takes its name from District of Columbia Court of Appeals v. Feldman ,
460 U.S. 462 (1983) and Rooker v. Fidelity Trust Co. , 263 U.S. 413 (1923),
“generally prohibits lower federal courts from hearing federal claims requiring
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direct review of final state court judgments.” Kiowa Indian Tribe of Okla. v.
Hoover , 150 F.3d 1163, 1165 (10th Cir. 1998). In a published opinion, the
district court denied the Trusts’ Rooker-Feldman motion to dismiss and granted
Weis’ motion to stay arbitration pending its resolution of whether the parties
had entered into a contract. Weis Builders, Inc. v. Kay S. Brown Living Trust,
236 F. Supp. 2d 1197, 1202, 1204 (D. Colo. 2002). The Trusts appeal,
challenging only the ruling that the Rooker-Feldman doctrine did not apply so
as to deprive the district court of subject matter jurisdiction. 1
Weis has filed a motion to dismiss this appeal, arguing that the district
court’s order is interlocutory and, therefore, not immediately appealable. “Under
9 U.S.C. § 16(a)(2) of the Federal Arbitration Act, an interlocutory order granting
an injunction against an arbitration that is subject to the Act is considered ‘final’
at least for the purposes of appeal.” Stifel, Nicolaus & Co. v. Woolsey & Co.,
81 F.3d 1540, 1545 n.1 (10th Cir. 1996). “Congress intended to promote appeals
from orders barring arbitration and limit appeals from orders directing
arbitration.” Adair Bus Sales, Inc. v. Blue Bird Corp., 25 F.3d 953, 955 (10th Cir.
1
The Trusts’ opening brief focuses exclusively on the Rooker-Feldman
question of jurisdiction and does not advance any argument, other than lack of
jurisdiction, why the district court erred in granting the stay of arbitration.
“Issues not raised in the opening brief are deemed abandoned or waived.”
Tran v. Trs. of State Colls. in Colo. , 355 F.3d 1263, 1266 (10th Cir. 2004)
(quotation omitted).
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1994) (quotation omitted). Weis argues that the district court’s order does not fall
within § 16(a) because it simply stays arbitration pending the “prompt resolution”
of the contract dispute. Weis’ Motion to Dismiss Appeal, dated January 6, 2003,
at 8. We disagree. Although the order is “temporary in nature, it is an order that
favors litigation over arbitration and is immediately appealable under § 16(a).”
McLaughlin Gormley King Co. v. Terminix Int’l Co. , 105 F.3d 1192, 1193
(8th Cir. 1997) (quotations omitted); see also KKW Enters., Inc. v. Gloria Jean’s
Gourmet Coffees Franchising Corp. , 184 F.3d 42, 47 (1st Cir. 1999) (“The
district court’s orders stayed a pending arbitration proceeding and are
immediately appealable.”). We conclude, therefore, that we have jurisdiction
to hear this appeal.
II.
Weis, a commercial construction general contractor, entered into
negotiations with the Trusts, real estate developers, to build a hotel in Glendale,
Colorado. The proposed contract consisted of the standard “General Conditions
of the Contract for Construction” contract published by the American Institute of
Architects (AIA), together with a lengthy attachment, referred to as Exhibit A,
which addressed matters specific to the proposed hotel project that were not
covered by, or differed from, the form contract. Included in the standard AIA
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contract was a provision requiring arbitration of claims arising out of or related to
the contract.
Weis contends that while the final draft of the contract was
in the possession of the Trusts, the Trusts unilaterally made material
price-and-performance-related alterations to Exhibit A, signed the contract on
behalf of the Trusts and returned it to Weis for its signature without discussing,
marking or otherwise notifying Weis of the material alterations made to
Exhibit A. Weis signed the contract without discovering these alterations, which
it contends had never been discussed or agreed to. When Weis discovered the
alterations in Exhibit A one month later, sometime at the end of March 2000,
it refused to proceed with the hotel construction project. The Trusts then
developed the hotel property with a different contractor.
Before Weis discovered the contract discrepancies, the Trusts sent a letter
to Weis on March 17, 2000, requesting Weis to pay for and obtain a building
permit from the city of Glendale for the hotel project and to submit a bill to the
Trusts for reimbursement of the fee. Weis sent Glendale a check for $31,369.06.
Because the Trusts did not later reimburse Weis for the building permit fee,
Weis filed a mechanic’s lien against the Trusts’ hotel property.
In September 2000, Weis applied to Glendale for a refund of the building
permit fee. Because both Weis and the Trusts claimed entitlement to the refund,
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Glendale filed an interpleader action (the “Interpleader Action”) in Colorado state
court requesting that court determine to whom it should refund the fee. Weis
filed a cross-claim against the Trusts in the Interpleader Action seeking
reimbursement of the building permit fee. The Trusts filed a motion to stay the
Interpleader Action and to compel arbitration of the dispute. The Trusts recited
what it claimed to be an excerpt of the arbitration provision from the purported
construction contract; however the recited provision differed significantly from
the actual arbitration provision contained in that document. Compare Aplt. App.
Vol. I, at 135, with Aplt. App. Vol. II, at 248. Weis responded that payment of
the building permit fee was not addressed or governed by any provision in the
purported construction contract, but rather was based on the separate March 17,
2000 letter. The state court entered a summary order submitting the dispute to
arbitration.
In May 2001, TBL Excavating, a subcontractor working on the hotel
project, brought a mechanic’s lien foreclosure action in Colorado state court
against the Trusts for nonpayment of labor and materials costs (the “TBL
Action”). TBL Excavating named Weis as a defendant because Weis was a prior
lien claimant of record. Weis filed a cross-claim against the Trusts asserting its
prior lien. The Trusts filed a motion to dismiss Weis’ cross-claim, arguing it was
subject to arbitration. The TBL Action was heard in the same court, before the
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same judge, as the Interpleader Action, and the state court again entered an order,
in August 2002, staying Weis’ cross-claim pending arbitration.
In March 2002, the Trusts filed a demand for arbitration of the purported
construction contract against Weis with the American Arbitration Association,
claiming $1,423,000 in damages due to delay and increased costs caused by Weis’
refusal to proceed with construction of the hotel. The Trusts’ arbitration
complaint did not mention or seek to arbitrate the issues raised in either the
Interpleader Action or the TBL Action. See Aplt. App. Vol. II, at 185-89.
Weis then filed the instant declaratory judgment action in federal court, claiming
there was never a valid construction contract between the parties.
III.
The Trusts contend Weis’ complaint in federal district court seeks to
overturn the state court orders submitting the Interpleader Action and the TBL
Action to arbitration, and, therefore, that the district court lacked jurisdiction over
Weis’ complaint under the Rooker-Feldman doctrine. For substantially the
reasons stated by the district court, we agree that the Rooker-Feldman doctrine
does not apply because these state court orders are separable from and collateral
to the federal complaint, and the federal court is not being asked to sit in
appellate review of either state court ruling. Weis , 236 F. Supp. 2d at 1200-02.
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The Rooker-Feldman doctrine precludes a party who has lost a case in state
court “from seeking what in substance would be appellate review of a state
judgment” in federal district court. Kenmen Eng’g v. City of Union , 314 F.3d
468, 473 (10th Cir. 2002) (quotations omitted). “The Supreme Court has applied
the Rooker-Feldman jurisdictional bar to two categories of claims, those
(1) actually decided by a state court, or (2) ‘inextricably intertwined’ with a state
court judgment.” Pittsburgh County Rural Water Dist. No. 7 v. City of McAlester,
358 F.3d 694, 707 (10th Cir. 2004) (citations omitted). “This prohibition extends
to all state-court decisions -- final or otherwise.” Kenmen , 314 F.3d at 475.
There are, however, significant limitations on the scope of the doctrine.
“If the purpose of a federal action is separable from and collateral to a state court
judgment, then the claim is not ‘inextricably intertwined’ merely because the
action necessitates some consideration of the merits of the state court judgment.”
Kiowa , 150 F.3d at 1170 (quotation omitted). We have cautioned that “Supreme
Court jurisprudence . . . compel[s] a narrow reading of the ‘inextricably
intertwined’ test.” Id. at 1169.
Determining whether a federal claim is “inextricably intertwined” with the
state court judgment may be difficult. “Although it is difficult to formulate
a foolproof test, in general we must ask ‘whether the injury alleged by the federal
plaintiff resulted from the state court judgment itself or is distinct from that
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judgment.’” Kenmen , 314 F.3d at 476 (quoting Garry v. Geils , 82 F.3d 1362,
1365 (7th Cir. 1996)). If “the state court judgment caused , actually and
proximately, the injury for which the federal court plaintiff seeks redress, . . .
Rooker-Feldman deprives the federal court of jurisdiction.” Id. (footnote
omitted). “In conducting this analysis, we must pay close attention to the relief
sought by the federal-court plaintiff; we cannot simply compare the issues
involved in the state-court proceeding to those raised in the federal-court
plaintiff’s complaint.” Id.Applying these principles, we conclude that the federal district court
complaint does not constitute an improper collateral attack on the state court
orders. The issue before the state court in the Interpleader Action is whether
Weis is entitled to a refund of the building permit fee, which obligation arose
from a separate letter request dated after the purported construction contract was
signed. The issue before the court in the TBL Action is whether Weis established
a proper lien against the Trusts’ property with respect to that permit fee. The
court in the TBL Action did not order arbitration in that case until after Weis
had filed its complaint in federal court. See Weis , 236 F. Supp. 2d at 1200(noting that Weis could not be seeking review of the order in the TBL Action
because the federal action was filed before the state court ruled). The state court
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ordered arbitration of the permit fee dispute; it did not, however, order arbitration
of the construction contract dispute.
Weis’ federal court complaint does not mention, or in any way seek redress
from, the state court orders submitting either the Interpleader Action or the TBL
Action to arbitration. Weis has represented in its pleadings that it is willing to
arbitrate the Interpleader Action and the TBL Action, Aplee. Br. at 19; Aplt.
App., Vol. II at 147, and presumably would be judicially estopped from taking
a contrary position in the Interpleader Action or the TBL Action. See Estate of
Burford v. Burford , 935 P.2d 943, 947-48 (Colo. 1997) (describing Colorado’s
judicial estoppel doctrine). Weis is seeking to stay the arbitration proceedings
relating to the purported construction contract, which the Trusts commenced in
March 2002, but the Trusts’ arbitration demand makes no mention of either the
Interpleader Action or the TBL Action.
The Trusts do not dispute Weis’ contention that the purported construction
contract does not include any requirement or provision regarding an obligation by
Weis to pay the building permit fee. Although the Trusts argued to the state court
that the building fee and lien disputes were subject to arbitration under the
purported construction contract, the Trusts did not then, and do not now, point to
any provision of that document that relates to the permit fee dispute, nor can we
find any such provision in that document. Most notably, the excerpt of the
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purported arbitration provision that the Trusts recited to the state court as support
for its arbitration request is clearly not the arbitration provision contained in the
purported construction contract; the language is significantly, even materially,
different.
In the Interpleader Action, the state court simply ordered arbitration of the
dispute without mention of any arbitration agreement; in the TBL Action it stated
the parties had agreed to arbitration, but made no mention of the purported
construction contract. Clearly, “[t]he state court could not have made a
determination regarding the validity of the [construction] contract without some
discovery and factual development,” Weis , 236 F. Supp. 2d at 1201 n.3, yet, the
state court ordered arbitration without permitting any discovery, conducting any
hearing, or articulating on what basis it was ordering arbitration. We cannot,
on the record before us, conclude that the state court based its arbitration orders
on the purported construction contract. In short, the state court did not actually
decide the issue presented by Weis in the federal court action, namely, whether
the purported construction contract was fraudulently induced and therefore void.
Thus, Weis is not seeking review of the matters decided by the state court,
and the Trusts have not demonstrated that the question of whether there is a valid
construction contract between the parties is “inextricably intertwined” with the
merits of the Interpleader Action, the TBL Action, or the state court orders in
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those proceedings submitting those disputes to arbitration. We conclude the
district court correctly ruled that Weis’ claims in the federal action “are separate,
distinct, and collateral to any issues previously litigated between the parties”
in state court, and, therefore, that the Rooker-Feldman doctrine is inapplicable.
Weis , 236 F. Supp. 2d at 1202.
Accordingly, the motion to dismiss is DENIED; the judgment of the district
court is AFFIRMED.
Entered for the Court
Stephen H. Anderson
Circuit Judge
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