PECK ORMSBY CONSTRUCTION COMPANY v. City of Rigby et al

Filing 84

MEMORANDUM AND ORDER re: Motions to Dismiss and to Compel Arbitration- Westerns motion to dismiss Peck Ormsby's bond claim is GRANTED; Western's motion to dismiss Rigbys maintenance bond claim is GRANTED; Parkson's motion to dismiss Ri gby's indemnification claim is GRANTED; Parkson's motion to compel arbitration of Rigbys breach of contract claim is DENIED; and the stay of discovery entered by the court on 8/2/11 is LIFTED. Signed by Judge William B. Shubb. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by jm)

1
2
3
4
5
6
7
8

UNITED STATES DISTRICT COURT

9

FOR THE DISTRICT OF IDAHO

10

----oo0oo----

11
12

NO. CIV. 1:10-545 WBS

PECK ORMSBY CONSTRUCTION
COMPANY, a Utah corporation,

13
MEMORANDUM AND ORDER RE:
MOTIONS TO DISMISS AND TO
COMPEL ARBITRATION

Plaintiff,
14
v.
15

18

CITY OF RIGBY, an Idaho
municipal corporation; PARKSON
CORPORATION, a Delaware
corporation; and WESTERN
SURETY COMPANY, a South Dakota
corporation,

19

Defendants.

16
17

/
20
21

AND RELATED COUNTERCLAIMS AND
CROSS-CLAIMS.
/

22
23
24

----oo0oo---Plaintiff Peck Ormsby Construction Company (“Peck

25

Ormsby”) brought this action against defendants City of Rigby

26

(“Rigby”), Parkson Corporation (“Parkson”), and Western Surety

27

Company (“Western”) arising from a construction project in Rigby

28

for which Peck Ormsby is the general contractor and Parkson is a
1

1

subcontractor.

After the court granted Parkson’s and Western’s

2

motions to dismiss with leave to amend, Peck Ormsby filed an

3

amended complaint and then a Second Amended Complaint (“SAC”),

4

alleging a claim for breach of contract against Rigby and a bond

5

claim against Western.

6

a counterclaim for breach of contract against Peck Ormsby and

7

cross-claims against Parkson for breach of contract and

8

indemnification and a bond claim against Western.

9

55.)

(Docket Nos. 44, 54, 64.)

Rigby brought

(Docket No.

Currently before the court are Parkson’s and Western’s

10

motions to dismiss the claims against them and Parkson’s motion

11

to compel arbitration of Rigby’s breach of contract claim.

12

I.

Factual and Procedural Background

13

In January of 2008, Rigby and Peck Ormsby entered into

14

an agreement (“Prime Contract”) whereby Peck Ormsby agreed to

15

construct a wastewater treatment plant in Rigby.

16

One of the components of the plant, a cloth filtration system,

17

would be made by a subcontractor, who was required under the

18

Prime Contract to provide a written guarantee to Rigby that the

19

filtration system would meet particular specifications.

20

Am. Answer, Crosscl. & Countercl. ¶ 15 (Docket No. 55).)

21

April 29, 2008, Peck Ormsby and Parkson entered into an agreement

22

(“Purchase Order”) whereby Parkson would supply the filtration

23

system.

24

Contract, Parkson provided Rigby a “Performance Guarantee” for

25

its equipment in July of 2008.

26

Countercl. ¶ 19.)

27
28

(SAC ¶ 9, 13.)

(SAC ¶¶ 7, 11.)

(Rigby’s
On

Pursuant to the requirement in the Prime

(Rigby’s Am. Answer, Crosscl. &

On August 15, 2008, Keller Associates (“Keller”), the
engineer for the project, reviewed and approved Parkson’s
2

1

submittals for the filtration system.

(SAC ¶ 14.)

The

2

filtration system was installed and operational by August 18,

3

2009.

(Id. ¶ 15.)

4

On September 9, 2009, Peck Ormsby received a letter

5

from Keller stating that the filtration system did not meet the

6

specified performance criteria.

7

the letter to Parkson.

(Id. ¶ 16.)

Peck Ormsby sent

(Id. ¶ 17.)

On April 16, 2010, pursuant to a Change Order to the

8
9

Prime Contract extending the time of final completion for the

10

project, Parkson as principal and Western as surety executed a

11

Maintenance Bond to guarantee the filtration system against

12

defects in material or workmanship, naming Peck Ormsby and Rigby

13

as dual obligees.

14

(Id. ¶¶ 19-20.)

On July 20, 2010, Peck Ormsby received a “rejection

15

letter” from Rigby and Keller formally rejecting the filtration

16

system “based on five (5) reasons indicating that the Equipment

17

is defective.”

18

letter, but has not repaired the alleged defects.

19

23.)1

(Id. ¶ 21.)

Parkson acknowledged receipt of the
(Id. ¶¶ 22-

20
21
22
23
24
25
26
27
28

1

The parties have requested that the court consider
certain documents in deciding the motions to dismiss. As a
general rule, “a district court may not consider any material
beyond the pleadings in ruling on a Rule 12(b)(6) motion.” Hal
Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1555
n.19 (9th Cir. 1989). However, the court may consider documents
on which the complaint necessarily relies if their authenticity
is not disputed. See Lee v. City of Los Angeles, 250 F.3d 668,
688 (9th Cir. 2001). On that ground and because the parties have
so agreed, the court will consider documents related to the Peck
Ormsby-Parkson agreement (Purchase Order Acknowledgment;
Parkson’s Quotation, including Standard Conditions of Sale,
Quotation Addendum, and General Arrangement Drawing; and Addenda
to Purchase Order cover letter and Supplier Purchase Order), and
Western’s Maintenance Bond. (Rothenberg Decl. Exs. A-C (Docket
3

1
2

II.

Discussion
A.

3

Motions to Dismiss
On a motion to dismiss, the court must accept the

4

allegations in the complaint as true and draw all reasonable

5

inferences in favor of the plaintiff.

6

U.S. 232, 236 (1974), overruled on other grounds by Davis v.

7

Scherer, 468 U.S. 183 (1984); Cruz v. Beto, 405 U.S. 319, 322

8

(1972).

9

contain sufficient factual matter, accepted as true, to ‘state a

Scheuer v. Rhodes, 416

“To survive a motion to dismiss, a complaint must

10

claim to relief that is plausible on its face.’”

11

Iqbal, --- U.S. ----, ----, 129 S. Ct. 1937, 1949 (2009) (quoting

12

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

13

“plausibility standard,” however, “asks for more than a sheer

14

possibility that a defendant has acted unlawfully,” and “[w]here

15

a complaint pleads facts that are ‘merely consistent with’ a

16

defendant’s liability, it ‘stops short of the line between

17

possibility and plausibility of entitlement to relief.’”

18

129 S. Ct. at 1949 (quoting Twombly, 550 U.S. at 556-57).

19
20

1.

Ashcroft v.

This

Iqbal,

Western’s Motions to Dismiss Rigby’s Maintenance
Bond Cross-Claim and Peck Ormsby’s Bond Claim

21
22
23
24
25
26
27
28

No. 13); Micheli Decl. Ex. A (Docket No. 16).)
In deciding the motion to compel arbitration, the court
“may consider the pleadings, documents of uncontested validity,
and affidavits submitted by either party.” Macias v. Excel Bldg.
Servs. LLC, 767 F. Supp. 2d 1002, 1007 (N.D. Cal. 2011) (quoting
Ostroff v. Alterra Healthcare Corp., 433 F. Supp. 2d 538, 540
(E.D. Pa. 2006)). The parties request that the court consider
the documents comprising the Prime Contract between Rigby and
Peck Ormsby, the Purchase Order between Peck Ormsby and Parkson,
and the Performance Guarantee. (Mastin Decl. Ex. A (Docket No.
60); Ritchie Aff. Exs. A-F (Docket No. 72).) Accordingly, the
court will consider these documents in deciding the motion to
compel arbitration.
4

1

The bond pursuant to which Peck Ormsby and Rigby bring

2

their claims against Western states that Parkson “is required to

3

guarantee the work installed under [the Purchase Order] against

4

defects in materials or workmanship, which may develop during the

5

period of one year ending April 20, 2010.”

6

(Docket No. 16-3).)

7

recovery pursuant to the bond on the ground that Parkson failed

8

to repair the filtration system after being informed in the

9

September 9, 2009, letter and the July 20, 2010, rejection letter

(Mitcheli Decl. Ex. A

Peck Ormsby and Rigby sue Western for

10

that the filtration system did not meet the performance

11

standards.
Both Peck Ormsby and Rigby fail to plead liability with

12
13

the requisite specificity.

14

the letters sent to Parkson informed it of “defects in materials

15

or workmanship”; indeed, it appears from the allegations that the

16

filtration system had no actual defects but simply failed to meet

17

the performance standards set out in the Purchase Order and Prime

18

Contract.2

19

performance standards.

20

construed to apply to performance issues, the parties have not

21

provided any allegations regarding the type of defect that

22

occurred.

23

possibility to plausibility of entitlement to relief.

Western’s maintenance bond does not incorporate those
Even if the term “defect” could be

The bond claims simply do not cross the line from

Because Western cannot be held liable unless Parkson

24
25

There is no indication that either of

failed to meet its obligations under the bond, see Asociacion de

26
27
28

2

The court notes that it is unlikely Western would have
acted as surety to a bond in April of 2010 if Parkson had already
been informed of a defect in September of 2009.
5

1

Azucareros de Guatemala v. U.S. Nat’l Bank of Or., 423 F.2d 638,

2

641 (9th Cir. 1970), the court will dismiss Peck Ormsby’s and

3

Rigby’s bond claims against Western.

4

previously been given leave to amend in order to plead these

5

claims with the requisite specificity, but have failed to do so;

6

accordingly, the court will not give leave to amend a second

7

time.

8

2.

Peck Ormsby and Rigby have

Parkson’s Motion to Dismiss Rigby’s
Indemnification Claim

9

Rigby seeks indemnification from Parkson for any

10
11

damages Peck Orsmby recovers on its breach of contract claim

12

against Rigby.

13

must allege (1) an indemnity relationship, (2) actual liability

14

of the indemnitee to a third party, and (3) a reasonable

15

settlement amount.

16

284 (1988).

17

relationship, it has not alleged that it has been found liable to

18

Peck Ormsby or that a settlement has been reached.

19

time, Rigby cannot bring a claim for indemnification against

20

Parkson.

21

To state a claim for indemnification, a plaintiff

Chenery v. Agri-Lines Corp., 115 Idaho 281,

Even if Rigby has properly alleged an indemnity

Until that

Rigby argues that it is required to assert the claim

22

now, even though it admits no settlement has taken place.

23

However, Rigby’s claim against Parkson is permissive, not

24

compulsory.

25

666 F.2d 361, 363 (9th Cir. 1982).

26

claim for indemnity against Parkson if and when judgment is

27

entered against Rigby, the court will dismiss this claim.

28

B.

See Fed. R. Civ. P. 13(a), (g); Peterson v. Watt,
Because Rigby may bring a

Parkson’s Motion to Compel Arbitration of Rigby’s
6

1

Breach of Contract Claim

2

The Prime Contract between Rigby and Peck Ormsby

3

provides that the subcontractor installing the filtration system

4

would be required to “provide a written guarantee that the

5

installed filter system will produce an effluent that meets the

6

suspended solids requirements of this specification, based on the

7

specified wastewater quality entering the filtration process.”

8

(Ritchie Aff. ¶ 5, Ex. D (Docket No. 70-5).)

9

between Peck Ormsby and Parkson states that Parkson “does hereby

10

agree to be bound by the terms of the prime contract agreement,

11

construction regulations, general conditions, plans and

12

specifications, and any and all other contract documents in so

13

far as they are applicable to this purchase order.”

14

Ex. E.)

15

[Rigby], a guarantee in writing for [Parkson’s] work.”

The Purchase Order

(Id. ¶ 6,

Parkson also agreed “to execute to [Peck Ormsby] and/or

16

(Id.)

Pursuant to these obligations, Parkson provided the

17

Performance Guarantee to Rigby in July of 2008, stating that

18

Parkson would provide a filtration system that would meet

19

specific performance and design specification standards for

20

effluent.

21

contains an arbitration clause and Florida choice of law

22

provision.

23

Guarantee for breach of contract, and Parkson moves to compel

24

arbitration of the claim.

(Id. ¶ 7, Ex. F.)

(Id.)

The Performance Guarantee also

Rigby now sues Parkson under the Performance

25

The Federal Arbitration Act (“FAA”) provides that a

26

party may seek an order to compel arbitration from a district

27

court where another party fails, neglects, or refuses to

28

arbitrate.

9 U.S.C. § 4.

The Act “leaves no place for the
7

1

exercise of discretion by a district court, but instead mandates

2

that district courts shall direct the parties to proceed to

3

arbitration on issues as to which an arbitration agreement has

4

been signed.”

5

218 (1985).

6

to determining (1) whether a valid agreement to arbitrate exists

7

and, if it does, (2) whether the agreement encompasses the

8

dispute at issue.”

9

207 F.3d 1126, 1130 (9th Cir. 2000).

Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213,

“The court’s role under the Act is therefore limited

Chiron Corp. v. Ortho Diagnostic Sys., Inc.,
Upon a showing that a party

10

has failed to comply with a valid arbitration agreement, the

11

district court must issue an order compelling arbitration.

12

v. Wedbush, Noble, Cooke, Inc., 841 F.2d 282, 285 (9th Cir.

13

1988), overruled on other grounds by Ticknor v. Choice Hotels

14

Int’l, Inc., 265 F.3d 931 (9th Cir. 2001).

Cohen

15

Although the FAA sets forth a policy favoring

16

arbitration, “a party cannot be required to submit to arbitration

17

in any dispute which he has not agreed so to submit.”

18

Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S.

19

574, 582 (1960); see also Three Valleys Mun. Water Dist. v. E.F.

20

Hutton & Co., 925 F.2d 1136, 1139 (9th Cir. 1991).

21

a party has submitted to arbitration is first and foremost a

22

matter of contractual interpretation that must hinge on the

23

intent of the parties.

24

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473

25

U.S. 614, 626 (1985).

26

United

Thus, whether

United Steelworkers, 363 U.S. at 582;

Rigby does not dispute Peck Ormsby’s contention that

27

the arbitration clause, if valid, encompasses the breach of

28

contract claim; Rigby only argues that the arbitration clause in
8

1

the Performance Guarantee did not constitute a valid agreement.
The commonly accepted meaning of “guarantee” is “[t]he

2
3

assurance that a contract or legal act will be duly carried out.”

4

Black’s Law Dictionary 772 (9th ed. 2009).

5

“performance” is defined to mean “[t]he successful completion of

6

a contractual duty.”

7

the term ‘performance guarantee’ is an assurance or promise that

8

a contractual obligation will be fulfilled.”

9

Props, LLC, Civil Nos. 1:10cv98, 1:10cv198, 2011 WL 1131057, at

Id. at 1252.

The term

Thus, “the plain meaning of

In re Versant

10

*7 (W.D.N.C. Mar. 25, 2011).

11

the Purchase Order, which incorporated portions of the Prime

12

Contract, to give Rigby a Performance Guarantee.

13

the Performance Guarantee, Parkson was promising to fulfill a

14

preexisting obligation.3

15

Parkson was allegedly required by

By giving Rigby

Under Idaho contract law, a party cannot unilaterally

16

amend an agreement to add an arbitration clause unless the

17

original contract expressly provided that party with the right to

18

make such a modification.

19

Idaho 1, 3 (2008).

20

clause in the Performance Guarantee it was contractually

21

obligated to give Rigby without the right to do so.

22

Rigby never agreed to arbitrate disputes with Parkson, the court

23

will deny Parkson’s motion to compel arbitration.

24

IT IS THEREFORE ORDERED that:

25

(1) Western’s motion to dismiss Peck Ormsby’s bond

MBNA Am. Bank, N.A. v. Fouche, 146

Parkson unilaterally placed an arbitration

Because

26
3

27
28

In deciding this motion, the court makes no judgment
regarding the merits of the underlying breach of contract claim.
See United Computer Sys., Inc. v. AT & T Corp., 298 F.3d 756, 766
(9th Cir. 2002).
9

1

claim be, and the same hereby is, GRANTED;

2
3

(2) Western’s motion to dismiss Rigby’s maintenance
bond claim be, and the same hereby is, GRANTED;

4
5

(3) Parkson’s motion to dismiss Rigby’s indemnification
claim be, and the same hereby is, GRANTED;

6
7

(4) Parkson’s motion to compel arbitration of Rigby’s
breach of contract claim be, and the same hereby is, DENIED; and
(5) The stay of discovery entered by the court on

8
9
10

August 22, 2011, is hereby LIFTED.
DATED:

August 31, 2011

11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
10