P1 Group, Inc. v. TEPA EC, LLC et al
Filing
16
MEMORANDUM AND ORDER granting 12 Motion to Compel arbitration and stay the complaint, but deny without prejudice the request for attorneys' fees on the basis of the subcontract between P1 Group and TEPA. Fees will not be awarded on the grounds of bad faith. Signed by District Judge Richard D. Rogers on 10/3/2012. (meh)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
P1 GROUP, INC., a Kansas
Corporation,
Plaintiff,
vs.
Case No. 12-2412-RDR
TEPA EC, LLC and
TRAVELERS CASUALTY AND
SURETY COMPANY OF
AMERICA,
Defendants.
MEMORANDUM AND ORDER
The complaint in this case alleges that plaintiff P1 Group,
Inc. performed work pursuant to a subcontract with defendant TEPA
for a construction project for the United States at Ft. Riley,
Kansas.
Defendant TEPA, as principal, and defendant Travelers,
as surety, are alleged to have provided a payment bond for the
project as required by the Miller Act, 40 U.S.C. § 3131(b)(2).
The complaint asserts that P1 Group provided work, materials, and
services in the sum of $1,473,541.00, but has been paid only
1,233,972.00, leaving a balance of $239,569.00 due and owing.
P1
Group alleges breach of contract against TEPA and a violation of
the Miller Act against TEPA and Travelers.
This case is before the court upon the motion of defendants
TEPA and Travelers to compel arbitration and stay the complaint.
It
is
agreed
that
the
subcontract
contains
an
arbitration
provision which states in part:
Arbitration:
In the event SUBCONTRACTOR and
CONTRACTOR fail to resolve any disputes that may arise
out of, relate, in any way, to this Agreement, or
breach thereof, whether in contract, tort or statutory,
SUBCONTRACTOR agrees that the matter in question shall
be decided by arbitration. SUBCONTRACTOR hereby waives
any rights that SUBCONTRACTOR may have to file a lien
against
the
Project.
SUBCONTRACTOR
agrees
that
arbitration is the first and primary remedy for
resolution of all disputes and that the right to pursue
litigation is hereby waived. All decisions and awards
rendered by the arbitrator shall be final, and judgment
may be entered upon the award in accordance with
applicable law in any court having jurisdiction
thereof.
1) If at any time controversy shall arise
between the CONTRACTOR and the SUBCONTRACTOR
with respect to any matter or item involved
in the subcontract, and which the parties
hereto do not promptly adjust and determine,
or to which the OWNER of their authorized
representative
cannot
decide
to
the
satisfaction of both parties hereto, then the
written orders of the CONTRACTOR shall be
followed and upon completion of the work and
before
final
payment
is
made,
said
controversy shall be decided in the sole
discretion
of
CONTRACTOR
either
by
arbitration or by a lawsuit filed in El Paso
County District Court, Colorado. . . .
3) If a dispute resolved by arbitration or
lawsuit results in a decision in favor of
CONTRACTOR, SUBCONTRACTOR shall pay all of
CONTRACTOR’S attorneys’ fees and costs,
whether incurred prior to or subsequent to
the filing of the Demand for Arbitration or
lawsuit.
4) Any arbitration shall be conducted through
the Judicial Arbiter Group (JAG), or if JAG
2
is no longer in existence, the arbitration
will be conducted by an impartial arbitrator
selected by CONTRACTOR. Exclusive venue for
any arbitration or litigation proceeding
shall, in the sole discretion of the
CONTRACTOR, be in Colorado Springs, Colorado,
or in the location of the Project.
5) This subcontract, although drawn by the
CONTRACTOR, shall, in the event of any
dispute over its meaning or application, be
interpreted fairly and reasonabl[y] and
neither more strongly for nor against either
party.
It
is
also
undisputed
that
defendant
TEPA
has
demanded
arbitration which plaintiff has refused.
TEPA
and
Travelers
argue
that
the
court
should
compel
arbitration and stay further proceedings upon the complaint under
9 U.S.C. §§ 2 and 4 which provide that arbitration clauses in
contracts are valid and enforceable “save upon such grounds as
exist at law or in equity for the revocation of any contract” and
that the court may compel arbitration under a valid agreement to
arbitrate.
P1 Group opposes the motion to compel arbitration on
the grounds that there is no valid and enforceable agreement to
arbitrate between P1 Group and Travelers or between P1 Group and
TEPA.
It is agreed that there is no arbitration agreement between
P1 Group and Travelers, but defendants argue that this case
should be stayed as to any claims between those parties while
arbitration proceeds between P1 Group and TEPA.
3
This was the
approach followed by Judge Crow of this District in U.S. ex. rel.
Humbarger
v.
Law
2/20/2002).
Company,
Inc.,
2002
WL
436772
(D.Kan.
If there is an enforceable arbitration agreement
between P1 Group and TEPA, the court believes the same procedure
should be applied here.
So,
whether
the
arbitration clause in the subcontract should be enforced.
The
parties
the
main
agree
that
question
the
which
subcontract
remains
should
is
be
construed
in
accordance with Colorado law as dictated in the subcontract.
P1Group contends that this court should find there is no
agreement to arbitrate between P1 Group and TEPA based on the
reasoning in three cases.
One of those cases is Gourley v.
Yellow Transportation, LLC, 178 F.Supp.2d 1196 (D.Colo. 2001).
In
Gourley,
the
court
held
that
an
arbitration
provision
contained in an employee handbook was not enforceable because the
employee handbook repeatedly stated that it was not a contract
and was not binding upon the employer vis-à-vis an employee.
Therefore, the court denied a motion to stay a wrongful discharge
claim and compel arbitration.
Plaintiff also cites Dumais v.
American Golf Corp., 299 F.3d 1216, 1219 (10th Cir. 2002).
Dumais,
the
court
held
that
an
arbitration
provision
in
In
an
employment handbook could not be enforced because it allowed the
employer
free
rein
to
unilaterally
4
modify
the
terms
of
the
agreement at any time.
Finally, plaintiff relies upon Grosvenor
v. Qwest Corp., 854 F.Supp.2d 1021 (D.Colo. 2012).
In Grosvenor,
the court held that the arbitration provisions in an internet
subscriber agreement were illusory and not enforceable because
the provider reserved the right to modify any of the agreement’s
provisions,
including
the
discretion.
arbitration
sections,
at
its
sole
Id. at 1034.
The arbitration agreement between P1 Group and TEPA may be
distinguished from the arbitration provisions in the cases cited
by P1Group because the agreement is part of a real contract, not
a
handbook
which
purports
not
to
be
a
contract,
and
the
provisions do not permit one party to make changes unilaterally.
Although P1 Group asserts that the arbitration provisions are
one-sided in favor of TEPA, nothing is cited to support a claim
that
the
arbitration
provisions
are
invalid,
illusory
unenforceable, or that P1 Group did not agree to them.
extent
that
P1
Group
may
be
asserting
that
the
or
To the
arbitration
provisions are unconscionable, the court does not agree.
Under
Colorado law, to show the contract defense of unconscionability,
a party must demonstrate some evidence of overreaching resulting
from
an
inequality
of
bargaining
power
or
an
absence
of
meaningful choice (procedural unconscionability), together with
contract terms which are unreasonably favorable to the party with
5
the
advantageous
ability).
bargaining
position
(substantive
unconscion-
Vernon v. Qwest Communications International, Inc.,
2012 WL 768125 *19 (D.Colo. 3/8/2012) (quoting Davis v. M.L.G.
Corp., 712 P.2d 985, 991 (Colo. 1986)).
P1 Group has failed to
advance
either
a
persuasive
showing
as
to
procedural
or
substantive unconscionability in this matter.
In sum, TEPA and Travelers have provided undisputed evidence
of an arbitration agreement.
P1 Group has not provided evidence
or stated a claim to suggest that the arbitration agreement is
unenforceable.
Consistent with the Vernon case,
the court shall
grant the motion to compel arbitration, and consistent with the
Humbarger decision, the court shall stay further proceedings as
to the claims in the complaint pending arbitration.
TEPA and Travelers have asked that the court award them
their attorneys’ fees associated with litigating the motion to
compel.
counsel
They note that prior to filing the motion to compel,
for
arbitration
TEPA
and
asked
to
a
counsel
stay
of
for
the
P1
Group
complaint
to
consent
to
and
shared
the
Humbarger decision with counsel for P1 Group.
TEPA and Travelers contend that an award of attorneys’ fees
is justified on the basis of the contractual provision which
permits TEPA as the “CONTRACTOR” to recover fees and costs if it
prevails in a dispute resolved in favor of TEPA as a result of
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arbitration or a lawsuit.
TEPA and Travelers also argue for a
fee award on the grounds that P1 Group has not presented a good
faith argument in opposition to the motion to compel arbitration
and for stay of proceedings upon the complaint.
As of this time, the court will not award fees pursuant to
the contract because there are other issues in dispute between
the
parties
which
lawsuit.
It
attorneys’
fees
have
should
not
be
issues
been
more
at
resolved
efficient
one
time.
by
to
The
arbitration
decide
question
all
or
the
may
be
revisited upon a later motion.
The
court
may
impose
an
award
of
attorneys’
fees
as
a
sanction when a party “shows bad faith by delaying or disrupting
the litigation” and to make “the prevailing party whole for
expenses caused by his opponent’s obstinacy.”
Hutton v. Finney,
437 U.S. 678, 689 n.14 (1978).
The Tenth Circuit “sets a high
bar
Mountain
for
bad
faith
awards.”
West
Mines,
Inc.
v.
Cleveland-Cliffs Iron Co., 470 F.3d 947, 954 (10th Cir. 2006).
The Tenth Circuit has “repeatedly recognized that the [bad faith]
exception
is
a
narrow
exceptional cases.”
(10th Cir. 2003).
one
and
may
be
resorted
to
only
in
FDIC v. Schuchmann, 319 F.3d 1247, 1250
The Tenth Circuit insists “‘that a trial judge
make a finding of bad intent or improper motive.’”
Mountain West
Mines, 470 F.3d at 954 (quoting Sterling Energy, Ltd. v. Friendly
7
Nat’l Bank, 744 F.2d 1433, 1437 (10th Cir. 1984)).
Bad faith may
be found “only when the claim brought is entirely without color
and has been asserted wantonly, for purposes of harassment or
delay, or for other improper reasons.”
Sterling Energy, 744 F.2d
at 1435 (interior quotation omitted).
In some cases, a claim may
be so frivolous as to reflect bad faith.
“Such a finding is
particularly appropriate when [a party] has alleged a claim that
is patently frivolous and that, like fraud, is also opprobrious
by nature and designed to cause embarrassment and humiliation.”
Sterling Energy, 744 F.2d at 1437.
But, “bad faith requires more
than a mere showing of a weak or legally inadequate case, and the
exception is not invoked by findings of negligence, frivolity, or
improvidence.”
Autorama Corp. v. Stewart, 802 F.2d 1284, 1288
(10th Cir. 1986).
The court is not satisfied that the stringent requirements
for an award of fees under the bad faith rule have been satisfied
in this instance.
Therefore, the court shall not award fees on
that basis.
In conclusion, the court shall grant the motion to compel
arbitration and stay the complaint, but deny without prejudice
the request for attorneys’ fees on the basis of the subcontract
between P1 Group and TEPA.
Fees will not be awarded on the
grounds of bad faith.
8
IT IS SO ORDERED.
Dated this 3rd day of October, 2012 at Topeka, Kansas.
s/Richard D. Rogers
United States District Judge
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