Great Northern Insurance Company v. CORNERSTONE CUSTOM HOME BUILDERS LLC et al

Filing 20

ORDER granting 14 Motion to Compel Arbitration and STAYS Plaintiff's claims against Defendant Cornerstone pending arbitration. Great Northern and Cornerstone are ORDERED to file a joint status report no l ater than October 20, 2016. Parties are hereby ORDERED to submit briefs no later than August 5, 2016 addressing whether claims against Defendant Syrupcity should also be stayed while claims against Cornerstone are arbitrated. Ordered by US DISTRICT JUDGE W LOUIS SANDS on 07/20/2016. (mdm)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF GEORGIA
ALBANY DIVISION
GREAT NORTHERN INSURANCE
COMPANY,

:
:
:
Plaintiff,
:
:
v.
:
:
CORNERSTONE CUSTOM HOME
:
BUILDERS, LLC et al.,
:
:
Defendants,
:
________________________________ :

CASE NO.: 1:16-CV-71 (WLS)

ORDER
Before the Court is a Motion to Compel Arbitration filed by Defendant Cornerstone
Custom Home Builders, LLC (hereinafter “Cornerstone”) on June 10, 2016. (Doc. 14.)
Plaintiff Great Northern Insurance Company (hereinafter “Great Northern”) responded on
July 1, 2016 (Doc. 16), and Cornerstone filed a reply on July 14, 2016 (Doc. 18). The Court
finds that the Motion to Compel Arbitration is now ripe for review.
PROCEDURAL BACKGROUND
Plaintiff Great Northern initiated the above-styled action by Complaint on April 19,
2016. (Doc. 1.) Defendant Syrupcity Concrete Construction, LLC answered the Complaint
on May 4, 2016. (Doc. 6.) Cornerstone filed its answer on May 10, 2016. (Doc. 8.) Great
Northern’s claim against Defendant Mark Johnson was dismissed by joint stipulation on
June 13, 2016. (Doc. 15.) The Court has not yet held a discovery and scheduling conference
or entered a discovery and scheduling order, but a scheduling and discovery conference has
been set for September 13, 2016. (Doc. 19.)
DISCUSSION
I.

Motion to Compel Arbitration
Plaintiff Great Northern argues that arbitration cannot be compelled only because

Defendant Cornerstone has waived its right to enforce arbitration by acting inconsistently

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with its right to compel arbitration. (See Doc. 16.) As Cornerstone notes, Great Northern has
not argued that the arbitration clause is “unconscionable, overly broad, or otherwise
unforceable,” that there was a lack of assent on the part of Great Northern’s insured to the
arbitration clause, that Great Northern is not bound by the arbitration clause, or “that the
claims asserted in its Complaint are outside the scope of the arbitration clause.” (Doc. 18 at
4; see Doc. 16.)
“Arbitration is a matter of contract; therefore, a party cannot be forced to submit to
arbitration if he has not agreed to do so.” Order Homes, LLC v. Iverson, 685 S.E.2d 304, 310
(Ga. Ct. App. 2009). The Court notes, even though Great Northern did not, that Great
Northern was not a party to the contract it seeks to enforce. (Doc. 14-2 at 5.) However, in
Order Homes, LLC, the Georgia Court of Appeals held that “nonsignatories to an agreement
may have a right to compel arbitration under the doctrine of equitable estoppel” when the
claims arise from the contract containing the arbitration clause and “when the signatory to
the contract containing the arbitration clause raises allegations of substantially
interdependent and concerted misconduct by both the nonsignatory and one or more of the
signatories to the contract.” Id. Here, the roles are reversed. Great Northern seeks to enforce
a contract it was not a party to, and Cornerstone, which was a party to the contract, seeks to
enforce the arbitration clause. Nevertheless, the Court finds that equitable estoppel likewise
apples. Great Northern cannot seek to enforce some provisions of the contract while
avoiding others, namely the mandatory arbitration clause. LaSonde v. CitiFinancial Mort. Co.,
S.E.2d 224 (Ga. Ct. App. 2005) (plaintiff who did not sign promissory note containing
arbitration provision was equitably estopped from avoiding arbitration of her claims for
breach of that promissory note); A.L. Williams & Assoc., Inc. v. McMahon, 697 F.Supp. 488,
494 (N.D. Ga. 1988) (“[A] party cannot have it both ways; it cannot rely on the contract
when it works to its advantage and then repute it when it works to its disadvantage.”).
The Court therefore considers only the issue of whether Cornerstone has waived its
right to enforce arbitration, finding the arbitration clause in the contract Great Northern
seeks to enforce binding upon Great Northern. A party waives its right to enforce an
arbitration clause when, under the totality of the circumstances, it can be found to have

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“acted inconsistently with the arbitration right and, in so acting, has in some way prejudiced
the other party.” S&H Contractors, Inc. v. A.J. Taft Coal Co., 906 F.2d 1507, 1514 (11th Cir.
1990) (citation, alteration, and internal quotation marks omitted). Waiver results from a
party's “substant[ial] participat[ion] in litigation to a point inconsistent with an intent to
arbitrate,” which results in prejudice to the other party. Morewitz v. West England Ship Owners
Mut. Protection and Indem. Assoc., 62 F.3d 1356, 1366 (11th Cir. 1995). Whether a waiver has
occurred is a determination to be made on a case-by-case basis. Burton-Dixie Corp. v. Timothy
McCarthy Constr., Co., 436 F.2d 405, 408 (5th Cir. 1971).1 However, some factors to consider
include: (1) whether a party “substantially invokes the litigation machinery prior to
demanding arbitration”; (2) “the length of delay in demanding arbitration”; (3) the other
party’s litigation-related expenses incurred prior to the arbitration demand; and (4) whether
“the use of pre-trial discovery procedures by a party seeking arbitration may sufficiently
prejudice the legal position of an opposing party.” S&H Contractors, 906 F.2d at 1514; Garcia
v. Wachovia Corp., 699 F.3d 1273, 1278 (11th Cir. 2012). Ultimately, “the party who argues
waiver ‘bears a heavy burden of proof.’” Krinsk v. SunTrust Banks, Inc., 654 F.3d 1194, 1200 n.
17 (quoting Stone v. E.F. Hutton & Co., 898 F.2d 1542, 1543 (11th Cir. 1990)).
Here, Great Northern argues that Cornerstone acted inconsistently with its
arbitration right by “spurning [Great Northern’s] offer to handle the matter without
involving the Court.” (Doc. 16 at 5.) Great Northern attached to its response brief a January
13, 2016 letter sent from Great Northern’s counsel to a claims adjuster for Cornerstone’s
insurer, Buildings Insurance Group. (Doc. 16-1.) The letter reads, “Great Northern would
be happy to engage in a pre-suit mediation to get the matter resolved, but suit will have to be
filed within a few months to preserve the statute of limitations, so there is no time for
significant delay.” (Id. at 2.) The Parties did not resolve the matter via mediation, and Great
Northern filed its Complaint in this case on April 19 2016, just before the expiration of the
statute of limitations. (Doc. 16 at 3.) Cornerstone answered the Complaint on May 10, 2016,
“specifically reserving its rights to arbitration under the applicable contract” and moved to
compel arbitration on June 10, 2016. (Docs. 7 at 1, 2; 14.)
The Eleventh Circuit has adopted as binding precedent all decisions issued by the former Fifth Circuit prior
to October 1, 1981. Bonner v. City of Prichard, 661 F. 2d 1206, 1209 (11th Cir. 1981) (en banc).
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Great Northern effectively argues that by failing to assert its arbitration right prior to
the initiation of this lawsuit, Cornerstone waived its right to arbitration. The Court notes that
Great Northern did not explicitly offer to submit to arbitration but rather offered to engage
in mediation, which is distinguishable from arbitration. (Doc. 16-1 at 2.) Great Northern
points to no case law in support of the position that Cornerstone bore a duty to assert its
intent to arbitrate before a lawsuit was filed. Furthermore, the Court finds that Cornerstone
did not delay in asserting it rights after this case was initiated. Cornerstone asserted its
arbitration rights in its first responsive pleading and filed a motion to compel before a
discovery and scheduling conference was even scheduled. (Docs. 7, 14.) No discovery has
been conducted; thus, no discovery-related expenses have been incurred, and Great
Northern has presumably not yet disclosed any information which could compromise its
legal position in arbitration. In stark contrast, the defendant bank in In re Checking Account
Overdraft Litigation, cited by Great Northern, was found to have waived its right to compel
arbitration after it “took [the plaintiff] two trips around the pretrial-motion-and-appeal
carousel.” 754 F.3d 1290, 1296 (11th Cir. 2014). Likewise, defendant Wells Fargo was found
to have waived its arbitration right in Garcia v. Wachovia Corp. when it ignored two invitations
from the court to file a motion to compel arbitration but moved to compel arbitration a year
later after conducting extensive discovery. 699 F.3d at 1279.
Great Northern also argues that the expenses it has borne related to this litigation
amount to prejudice. (Doc. 16 at 5, 6.) Great Northern provides no evidence or argument
supporting a finding that the expense it incurred in preparing and filing this lawsuit amounts
to prejudice. If it were the case that the filing fee and attorney’s fees for drafting a complaint
alone amount to prejudice, then no party could ever prevail on a motion to compel
arbitration. See Brown v. ITT Consumer Fin. Group, 211 F.3d 1217, 1223 (11th Cir. 2000)
(finding that where “[t]he demand for arbitration was made promptly after the lawsuit was
filed,” the opposing party “did not incur the delay or expense associated with litigation that
might otherwise demonstrate prejudice”).
The Court further notes that Great Northern has not contested Cornerstone’s
assertion that the arbitration clause reaches both Great Northern’s contract claim and

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negligence claim. (See Doc. 16; Doc. 14-1 at 5.) Having received no counterargument, the
Court adopts Cornerstone’s interpretation of the arbitration clause as reaching the
negligence claim as well as the contract claim. Dunn Constr. Co. v. Sugar Beach Condo. Ass’n,
Inc., 760 F.Supp. 1479, 1485 (S.D. Ala. 1991) (“[T]ort claims may be subject to arbitration,
provided that those claims are deemed to fall within the scope of the language of the
involved arbitration clause.”); Wise v. Tidal Constr. Co., 583 S.E.2d 466, 468-69 (Ga. Ct .App.
2003) (“A party may not avoid a contractual arbitration clause merely by casting its
complaint in tort.”) (quotations and citations omitted).
The Court finds that Great Northern has not met its burden of establishing that
Cornerstone has waived its arbitration right. Cornerstone has not substantially participated in
this litigation, unduly delayed in asserting its arbitration right, or caused Cornerstone to incur
prejudicial expenses. For those reasons, the Court GRANTS Cornerstone’s Motion to
Compel Arbitration (Doc. 14) as to Great Northern’s claims against Cornerstone.
II.

Motion to Dismiss or, in the Alternative, to Stay
Cornerstone moves the Court to dismiss or stay Great Northern’s claims against

Cornerstone in the event arbitration is compelled. (Doc. 14-1 at 9-12.) The Court finds that
dismissal is inappropriate under federal law. 9 U.S.C. § 3 (“If any suit or proceeding be
brought . . . upon any issue referable to arbitration . . . the court . . . shall on application of
one of the parties stay the trial of the action until such arbitration has been had . . . .”).
Furthermore, the Eleventh Circuit favors a stay over dismissal in cases like this one. Bender v.
A.G. Edwards & Sons, Inc., 971 F.2d 698 (11th Cir. 1992) (finding that the district court
“erred in dismissing the claims rather than staying them” and holding that “[u]pon finding
that a claim is subject to an arbitration agreement, the court should order that the action be
stayed pending arbitration”); see also United Steel, Paper and Forestry, Rubber, Mfg., Energy, Allied
Indus. and Serv. Workers Int’l Union AFL-CIO-CLC v. Wise Alloys, LLC, 807 F.3d 1258, 1270 n.
5 (11th Cir. 2015) (noting that it was not “clear that the district court in Green Tree had the
authority to enter a dismissal of the plaintiff's substantive claims” upon granting a motion to
compel arbitration) (citing Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 84-89 (2000)).

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The Court finds that a stay is appropriate in this matter and hereby STAYS Great
Northern’s claims against Cornerstone pending arbitration. Great Northern and Cornerstone
are ORDERED to file a joint status report no later than Thursday, October 20, 2016 to
inform the Court of the status of the arbitration proceedings.
III.

Negligence Claim against Defendant Syrupcity Concrete Construction
The Court notes that Counts One and Two allege claims against Defendant

Cornerstone that have now been stayed by the Court pending arbitration. (Doc. 1 at 4-5.)
Count Three, however, alleges a negligence claim against Defendant Syrupcity Concrete
Construction. (Id. at 5.) The Court hereby ORDERS the Parties to submit briefs no later
than Friday, August 5, 2016 addressing whether the claim against Syrupcity should also be
stayed while the claims against Cornerstone are arbitrated. No response briefs will be
permitted.
CONCLUSION
For the reasons stated herein, the Court GRANTS Defendant Cornerstone’s Motion
to Compel Arbitration (Doc. 14) and STAYS Plaintiff Great Northern’s claims against
Defendant Cornerstone pending arbitration. Great Northern and Cornerstone are
ORDERED to file a joint status report no later than Thursday, October 20, 2016 to
inform the Court of the status of the arbitration proceedings. The Parties are ORDERED
to submit briefs no later than Friday, August 5, 2016 addressing whether the claim against
Defendant Syrupcity should also be stayed while the claims against Cornerstone are
arbitrated. No response briefs will be permitted.
SO ORDERED, this 20th day of July, 2016.
/s/ W. Louis Sands______________________
W. LOUIS SANDS, SR. JUDGE
UNITED STATES DISTRICT COURT

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