Erkiletian v. Ins Co of PA

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
PARK CENTER III LIMITED 
PARTNERSHIP,
Plaintiff-Appellant,
ERKILETIAN CONSTRUCTION
CORPORATION,
Defendant-Appellant,
v.
THE INSURANCE COMPANY OF THE
STATE OF PENNSYLVANIA,
 No. 01-1605
Plaintiff-Appellee,
and
NATIONAL SURETY SPECIALISTS,
INCORPORATED; JOHN J. HILDRETH;
ROBERT HILDRETH; FLOYD REYNOLDS;
ROBERT CONDON,
Counter-Defendants.

Appeal from the United States District Court
for the Eastern District of Virginia, at Alexandria.
Albert V. Bryan, Jr., Senior District Judge.
(CA-00-285-A)
Argued: January 23, 2002
Decided: February 3, 2004
Before WIDENER, WILLIAMS, and MOTZ Circuit Judges.
Reversed by unpublished per curiam opinion.
2 ERKILETIAN CONSTRUCTION v. THE INSURANCE COMPANY
COUNSEL
ARGUED: Gaspare Joseph Bono, LONG, ALDRIDGE & NOR-
MAN, L.L.P., Washington, D.C., for Appellants. John Edwin Hilser,
HARRY R. BLACKBURN & ASSOCIATES, Philadelphia, Pennsyl-
vania, for Appellee. ON BRIEF: Dennis A. Davison, Brian E. Finch,
LONG, ALDRIDGE & NORMAN, L.L.P., Washington, D.C., for
Appellants. Harry R. Blackburn, HARRY R. BLACKBURN &
ASSOCIATES, Philadelphia, Pennsylvania, for Appellee.
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
OPINION
PER CURIAM:
Erkiletian Construction Corporation (ECC) appeals from the dis-
trict court’s ruling on cross-motions for clarification and ECC’s sub-
sequent motion for reconsideration. The Insurance Company of
Pennsylvania (ICOP) argues that we lack jurisdiction to hear ECC’s
appeal because of the presence of an ongoing arbitration between the
parties. We find that we have jurisdiction to hear ECC’s appeal, and
we reverse the ruling of the district court.
I.
Park Center III Limited Partnership (PCIII) hired ECC as a general
contractor to construct four condominium buildings in Alexandria,
Virginia (the PCIII project). ECC entered into several subcontracts
with Hildreth Consulting Engineers (HCE) for work at the PCIII proj-
ect. ICOP, through its general agent National Surety Specialists, Inc.,
issued payment and performance bonds for these subcontracts. ECC
was listed on the bonds as obligee and HCE as principal. These bonds
each contained an arbitration clause incorporated from the subcon-
ERKILETIAN CONSTRUCTION v. THE INSURANCE COMPANY 3
tracts. HCE eventually abandoned the PCIII project, and PCIII
replaced ECC with another general contractor.
ECC demanded payment from ICOP under the performance bonds,
claiming that HCE had breached the subcontracts. ICOP refused to
pay and filed suit seeking a declaration that the performance bonds
were invalid. ECC filed an answer and a four-count counterclaim
alleging that: (I) ICOP failed to perform under the surety bonds; (II)
ICOP’s refusal to perform under the surety bonds was in bad faith;
(III) ICOP converted ECC’s property; and (IV) ICOP violated the
Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C.A.
§ 1962(c)(West 2000). ICOP filed a motion to dismiss the counter-
claims. The district court dismissed count II of ECC’s counter-
complaint, stating that "Virginia law precludes using allegations of
bad faith to transform a breach of contract claim into a tort claim."
(J.A. at 91.) The district court allowed ECC to proceed with the
remainder of its counterclaims.
ECC then filed a demand for arbitration against HCE and ICOP
before the American Arbitration Association. A panel of arbitrators
determined that it had jurisdiction to resolve any disputes that arose
"in connection with ECC’s . . . claim that ICOP is liable as surety
under the bonds for the alleged breach of the subcontracts by HCE."
(J.A. at 81.) ECC then amended its counterclaim and joined PCIII as
a counter-plaintiff. At that point, the district court stayed Count I of
the amended counterclaim, which alleged that ICOP had failed to per-
form under the surety bonds, pending resolution of the arbitration.
The district court then dismissed count IV of ECC’s counterclaim and
held a bench trial on ICOP’s claims. At the conclusion of the bench
trial, the district court ruled against ICOP on all of its claims. ECC
then agreed to withdraw the remainder of its counterclaims (Counts
I and III) and to resolve its claims against ICOP in the ongoing arbi-
tration. Accordingly, the district court dismissed both the previously
stayed Count I and Count III, both without prejudice. Because Counts
II and IV had previously been dismissed and because all of ICOP’s
claims had been resolved in the bench trial, this dismissal fully
resolved the case in the district court.
Meanwhile, in the arbitral proceedings, ECC asserted that the dis-
trict court had merely dismissed ECC’s tort cause of action for bad
4 ERKILETIAN CONSTRUCTION v. THE INSURANCE COMPANY
faith when it dismissed count II of its counterclaim, but that ECC was
free to assert a contractual bad faith claim, which would entitle it to
full consequential damages. The panel of arbitrators decided that it
did not have jurisdiction to hear ECC’s claim for "bad faith refusal
to perform under the surety bonds" as a result of the district court’s
earlier rulings, but stated that it would "defer to the express declara-
tion of a court . . . that the ‘bad faith’ claim [wa]s arbitrable," appar-
ently encouraging ECC to return to the district court. (J.A. at 210-13.)
ECC then filed a motion in the district court asking the court to "clar-
ify" that its earlier rulings did not preclude ECC from either arbitrat-
ing or litigating a claim for consequential damages resulting from a
bad faith breach of contract. ICOP filed a cross-motion asking the
court to "clarify" that ECC was, in fact, precluded.
The district court responded to the parties’ motions in an order
dated March 30, 2001. The order stated that the panel of arbitrators
did not have jurisdiction to hear a contractual bad faith claim and that
ECC and PCIII could not raise such a claim after the resolution of the
arbitration. The court reasoned that "[t]he claim was not raised as a
component of the counterclaim, and issues that were not subject to the
stay should have been brought before the court at the proper time."
(J.A. at 225.) ECC moved the district court to reconsider, but in an
order dated April 13, 2001, the court reiterated its view that ECC
could not assert a contractual bad faith claim, either in court or in
arbitration. (J.A. at 226-27.) ECC now appeals the district court’s
orders of March 30 and April 13, 2001.
II.
At the outset, we must determine whether we have jurisdiction to
hear ECC’s appeal. Courts of Appeals have jurisdiction to hear "ap-
peals from all final decisions of the district courts of the United
States." 28 U.S.C. § 1291 (West 1993). "[A] decision is ordinarily
considered final and appealable under § 1291 only if it ‘ends the liti-
gation on the merits and leaves nothing for the court to do but execute
the judgment.’" Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 711
(1996); Cf. Fed. R. Civ. P. 54(b) (allowing district courts to certify an
order disposing of fewer than all the claims among all the parties as
final). When a party moves a district court for relief from a final deci-
sion under Federal Rule of Civil Procedure 60(b), the resulting order
ERKILETIAN CONSTRUCTION v. THE INSURANCE COMPANY 5
is also a "final decision." See Eberhardt v. Integrated Design &
Const., Inc., 167 F.3d 861, 870-871 (4th Cir. 1999) (reviewing a Rule
60(b) order); Fed. R. Civ. P. 60(b).
In this case, the district court’s order of November 14, 2000,
resolved all of the claims among all of the parties before the court,
and left nothing for the court to do. This order was thus a "final deci-
sion" of the district court. See Quackenbush, 517 U.S. at 711. The
parties then filed cross-motions to "clarify" certain of the district
court’s rulings. Because these motions were filed more than 10 days
after the entry of judgment in the case, we treat them as Rule 60(b)
motions for relief from a final judgment, see CNF Constructors, Inc.
v. Donohoe Const. Co., 57 F.3d 395, 400 (4th Cir. 1995). Accord-
ingly, although we do not have jurisdiction to review the November
14 order because a notice of appeal was not timely filed, the district
court’s orders of March 30 and April 13, 2001, are themselves final
decisions resolving the parties’ Rule 60(b) motions. Because a notice
of appeal was timely filed, we have jurisdiction to review these two
orders.
ICOP asserts that the presence of an ongoing arbitration among the
parties negates the finality of the district court’s order. According to
ICOP, we should wait for the arbitration to conclude and allow any
legal issues to be resolved in an action to confirm the arbitral award.
See Humphrey v. Prudential Securities Inc., 4 F.3d 313, 317-318 (4th
Cir. 1993) (holding that a decision to stay proceedings and compel
arbitration is not a final judgment even when all other claims in which
the arbitrable dispute was "embedded" are resolved). ICOP’s reliance
on our decision in Humphrey is misplaced. In Humphrey, the district
court never entered a final order, but rather stayed the case pending
the resolution of the arbitration.1 See id. It was certain that the parties
would return to the district court for the entry of final judgment after
the arbitration, and all of the issues in the case could be resolved in
one appeal from that final judgment. In this case, although the district
court initially stayed Count I, it later revisited that decision. After the
1
This is the usual and preferred method of handling a case that
involves both arbitrable and non-arbitrable issues, or a petition to compel
arbitration. We note that some of the issues raised in this appeal could
have been avoided had the district court followed this procedure.
6 ERKILETIAN CONSTRUCTION v. THE INSURANCE COMPANY
bench trial, it dismissed both Count I and Count III without prejudice.
Nothing obliges the parties to return to the district court. If one of the
parties brings an action to confirm an arbitral award, it will be in a
separate, independent action, which must be filed in the district in
which the arbitration was held. See 9 U.S.C.A. § 9 (West 1999). The
issues raised in this appeal will not be reviewable in that action. Orca
Yachts, L.L.C. v. Mollicam, Inc., 287 F.3d 316, 318-19 (4th Cir. 2002)
(holding that a party is precluded from relitigating an issue raised and
litigated in a previous action between the same parties). In sum, noth-
ing in Humphrey casts doubt upon the finality of the district court’s
order in this case.
III.
Having determined that we have jurisdiction to hear ECC’s appeal,
we now turn to the merits. "District court decisions granting or deny-
ing Rule 60(b) relief are reviewed for abuse of discretion, although
‘the exercise of discretion cannot be permitted to stand if we find it
rests upon’ an error of law." U.S. v. Winestock, 340 F.3d 200, 204
(4th Cir. 2003) (quoting Agostini v. Felton, 521 U.S. 203, 238
(1997)).
We believe that the district court abused its discretion when it held
in its orders of March 30 and April 13, 2001 that ECC was barred
from pursuing a contractual bad faith claim. The district court con-
cluded that ECC had pleaded only a standard breach of contract claim
and not a claim for bad faith breach of contract. It reasoned that any
"bad faith" type claim was barred by ECC’s failure to raise the claim
in its counter-complaint.
The district court misconstrued ECC’s counter-complaint. Para-
graph 60 of the amended counter-complaint alleges that ICOP "failed
to deal in good faith with ECC," and specifies the facts underlying the
assertion. (J.A. at 117.) Paragraph 60 was explicitly incorporated into
Count I of the counter-complaint, which requested consequential
damages in paragraphs 78 and 79. Taken together, these paragraphs
give fair notice to ICOP of the nature of ECC’s contractual bad faith
claim and the grounds upon which it rests. See Conley v. Gibson, 355
U.S. 41, 47 (1957) (holding that a complaint is sufficient if it gives
"fair notice of what the plaintiff’s claim is and the grounds upon
ERKILETIAN CONSTRUCTION v. THE INSURANCE COMPANY 7
which it rests"); A&E Supply Co. v. Nationwide Mut. Fire Ins. Co.,
798 F.2d 669, 677 (4th Cir. 1986) (holding under Virginia law that
a bad faith breach of contract justifies an award of full consequential
damages). Accordingly, ECC sufficiently pleaded a cause of action
for consequential damages caused by a bad faith breach of contract.
Because the district court dismissed Count I of ECC’s counter-
complaint without prejudice, ECC is free to reassert that claim. "The
primary meaning of ‘dismissal without prejudice,’ . . . is dismissal
without barring the plaintiff from returning later, to the same court,
with the same underlying claim." Semtek Int’l, Inc. v. Lockheed Mar-
tin Corp., 531 U.S. 497, 505 (2001). If ECC chooses to refile this
claim, the district court would be free to stay the action pending the
outcome of the arbitral proceedings, if appropriate. 9 U.S.C.A. § 3(West 1999).
The district court also abused its discretion by opining on the
arbitrability of ECC’s contractual bad faith claim. The only ruling that
the district court had made concerning the arbitrability of the parties’
dispute came in response to a motion by ECC to compel ICOP to
arbitrate ICOP’s claim. Because neither ECC nor ICOP petitioned the
district court to compel arbitration of ECC’s counterclaims, see 9
U.S.C.A. § 4 (West 1999), the district court had not ruled on their
arbitrability in its order of November 14, 2001, or any of its previous
orders. Thus, there was no "final judgment, order or proceeding"
regarding the arbitrability of ECC’s counterclaims from which the
district court could relieve either party under Rule 60(b). See Fed. R.
Civ. P. 60(b) (allowing the district court to "relieve a party or a
party’s legal representative from a final judgment, order or proceed-
ing"). The district court thus abused its discretion by addressing an
issue raised for the first time in a Rule 60(b) motion that did not relate
to the validity of one of its prior orders.
IV.
For the foregoing reasons, we reverse the judgment of the district
court.2
2
Our reversal in this case leaves the parties in the following posture:
(1) the district court’s original dismissal without prejudice of Count I of
8 ERKILETIAN CONSTRUCTION v. THE INSURANCE COMPANY
REVERSED
the counterclaim still stands; (2) the case is closed in the district court;
and (3) ECC is free to refile a claim for bad faith breach of contract in
a district court of competent jurisdiction or file a petition to compel arbi-
tration of its contractual bad faith claim, see 9 U.S.C.A. § 4 (West 1999).
If ECC chooses to refile its claim, the district court can stay the claim
pending the outcome of the arbitral proceedings, if appropriate. We
express no opinion on the merits of a petition to compel arbitration or on
the merits of ECC’s contractual bad faith claim.