Developers Surety and Indemnity Company v. Carothers Construction, Inc.
MEMORANDUM AND ORDER denying 8 Motion to Remand the Case to State Court and denying in its entirety defendant's 4 Motion to Dismiss or to transfer. Signed by District Judge John W. Lungstrum on 08/24/2017. (ses)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
DEVELOPERS SURETY AND
CAROTHERS CONSTRUCTION, INC.,
Case No. 17-2292-JWL
MEMORANDUM AND ORDER
Carothers Construction, Inc. (“Carothers”) entered into a subcontract with Seven
Hills Construction, LLC (“Seven Hills”) under which Seven Hills was to perform certain
work at a project in Kansas. In connection with that project, Developers Surety and
Indemnity Company (“DSI”) issued performance and payment bonds, as surety, on
behalf of Seven Hills in favor of Carothers. Seven Hills defaulted on the subcontract.
Carothers subsequently initiated an arbitration proceeding in Mississippi against DSI,
in which Carothers has asserted claims against DSI with respect to bonds issued for the
Kansas project and for projects in Georgia, South Carolina, and Connecticut.
DSI brought the present action in state court against Carothers, who removed the
case to this Court. By its complaint, DSI seeks a declaratory judgment to the effect that
it is not required to submit to arbitration in Mississippi on Carothers’s claims, and it also
seeks a stay of the arbitration and a permanent injunction against the arbitration of the
This matter presently comes before the Court on DSI’s motion to remand the case
to state court (Doc. # 8) and Carothers’s motion to dismiss or to transfer (Doc. # 4). For
the reasons set forth below, the Court denies both motions.
Motion to Remand
In removing this case to federal court, Carothers invoked the Court’s diversity
jurisdiction. DSI moves for remand on the basis that the case does not satisfy the
requirement that the matter in controversy exceed $75,000. See 28 U.S.C. § 1332(a).
DSI argues that Carothers failed to submit evidence with its notice of removal to
satisfy the jurisdictional amount. The Supreme Court has not required such evidence,
however. In Dart Cherokee Basin Operating Co., LLC v. Owens, 135 S. Ct. 547 (2014),
the Court held that “a defendant’s notice of removal need include only a plausible
allegation that the amount in controversy exceeds the jurisdictional threshold.” See id.
at 554. That allegation “should be accepted when not contested by the plaintiff or
questioned by the court.” See id. at 553. If the plaintiff does contest the allegation, then
“both sides submit proof and the court decides, by a preponderance of the evidence,
whether the amount-in-controversy requirement has been satisfied,” in accordance with
the specific terms of the removal statute. See id. at 553-54; see also 28 U.S.C. §
1446(c)(2)(B) (removal is proper “if the district court finds, by the preponderance of the
evidence, that the amount in controversy exceeds the amount specified in section
1332(a)”) (quoted in Dart).
In this case, DSI does not seek monetary relief; instead, it seeks a declaratory
judgment and injunction relating to the arbitration initiated by Carothers. In cases
involving claims for declaratory or injunctive relief, the Tenth Circuit follows the “either
viewpoint rule,” which allows the removing party to rely on either the value to the
plaintiff or the cost to the defendant of the relief sought. See Lovell v. State Farm
Mutual Auto. Ins. Co., 466 F.3d 893, 897 (10th Cir. 2006). DSI suggests in its brief that
the outcome of its suit to determine the appropriate forum for Carothers’s claims on the
bonds has no pecuniary effect because Carothers will have a forum for those claims
either way. The Tenth Circuit has implicitly rejected such an argument, however, as it
has held that in a case seeking to compel arbitration, the court should look to the possible
award in the arbitration to determine the amount in controversy. See Woodmen of World
Life Ins. Society v. Manganaro, 342 F.3d 1213, 1217 (10th Cir. 2003). The Tenth Circuit
has not explicitly extended that holding to suits seeking to enjoin arbitration, but in
Woodmen it relied on and chose to follow the holding of the Fifth Circuit in Webb v.
Investacorp, Inc., 89 F.3d 252 (5th Cir. 1996). See Woodmen, 342 F.3d at 1217 (citing
Webb). In Webb, the Fifth Circuit concluded that there is no reason that the same rule
should not apply both to suits seeking to compel arbitration and to suits seeking to enjoin
arbitration. See Webb, 89 F.3d at 256-57. DSI has not argued that the Woodmen rule
should be not be applied in this case. Accordingly, the Court believes that the Tenth
Circuit would apply that rule here, and thus it will do so. Thus, DSI’s motion turns on
the amount sought by Carothers in the Mississippi arbitration.
In its notice of removal, Carothers alleged that the amount in controversy here
exceeds $75,000. The Court concludes that that allegation was plausible in light of
DSI’s complaint, to which DSI attached Carothers’s arbitration demand. In that demand,
Carothers stated that it asserted claims on bonds issued by DSI for four projects,
including the Kansas project; that its total claims exceeded $4,000,000; and that DSI had
already determined that it would sustain an additional loss of $380,342 on the Kansas
bonds. DSI argues—and points to evidence that purports to show—that Carothers has
never made a formal claim to it on the bonds for the Kansas project. The relevant issue,
however, is the amount sought by Carothers in the arbitration.1 In the arbitration
demand, Carothers has plainly asserted a claim for monetary relief from DSI relating to
the Kansas project, as it claims that Seven Hills defaulted and that DSI has paid only part
of the amount due to Carothers as damages.
DSI also attempts to take issue with the amount of Carothers’s claim in the
arbitration demand as it relates to the Kansas project. First, a close reading of DSI’s
complaint in this case reveals that its request for relief is not limited to the arbitration
claims relating to the Kansas project, as DSI seeks relief generally relating to the
arbitration as a whole; and Carothers explicitly seeks in excess of $4,000,000 in the
arbitration generally. In its briefs in support of remand and in opposition to dismissal,
DSI has not explained why the arbitration demand itself would not constitute a
claim on the bonds.
DSI appears to suggest that only the arbitration of claims relating to the Kansas project
are at stake in this action, although it has not explicitly limited its claims in that way.
Even if only the arbitration claims relating to the Kansas project are considered,
however, the arbitration demand still reveals a claim in excess of $75,000. As Carothers
points out, the specific damage amounts claimed with respect to the other three projects
total approximately $3,800,000, leaving the plausible interpretation that Carothers seeks
over $200,000 for the Kansas project. Moreover, the arbitration demand, in setting out
the Kansas claim, refers to DSI’s admission that it still owes $380,342 on that claim.
DSI argues that the Court should not consider any such admission. The Court must
weigh the evidence, however, and Carothers has provided evidence of such an
admission. Moreover, the issue is the amount of Carothers’s claim in arbitration
(whether or not it ultimately succeeds on that claim), and the evidence is that Carothers
has claimed an amount in excess of $75,000. That is especially true in light of
Carothers’s demand in the arbitration for attorney fees and punitive damages. See
Woodmen, 342 F.3d at 1217-18 (claims for attorney fees and treble damages may be
considered for purposes of meeting the jurisdictional amount).
Thus, the Court concludes that Carothers plausibly alleged in its notice of removal
that the jurisdictional threshold is satisfied here, based on the evidence of the arbitration
demand. DSI has not submitted any contrary evidence, either that Carothers does not in
fact claim that much or that Carothers cannot recover that much. Thus, the Court also
finds by a preponderance of the evidence that the amount-in-controversy requirement is
satisfied in this case. It therefore denies DSI’s motion to remand the case to state court.
Motion to Dismiss or to Transfer
DSI’s claims in this case are based solely on its argument that it is not required
to submit to the arbitration initiated by Carothers. Carothers takes the opposite view,
arguing that a written arbitration provision should be enforced against DSI. Based on
that argument, Carothers moves either for dismissal of DSI’s claims or, in the alternative,
for transfer of the case to the United States District Court for the Southern District of
Mississippi to allow DSI to be compelled to submit to the arbitration initiated in that
state. See 9 U.S.C. § 4 (under Federal Arbitration Act, district court may compel
arbitration only within its own district); accord Ansari v. Qwest Communications Corp.,
414 F.3d 1214, 1219-20 (10th Cir. 2005).
The Federal Arbitration Act (FAA) provides that an arbitration provision in a
written commercial contract “shall be valid, irrevocable, and enforceable, save upon such
grounds as exist at law or in equity for the revocation of any contract.” See 9 U.S.C. §
2. The FAA creates a presumption in favor of arbitration, as the Supreme Court has held
that the statute “establishes that, as a matter of federal law, any doubts concerning the
scope of arbitrable issues should be resolved in favor or arbitration, whether the problem
at hand is the construction of the contract language itself or an allegation of waiver,
delay, or a like defense to arbitrability.” See Moses H. Cone Mem. Hosp. v. Mercury
Constr. Corp., 460 U.S. 1, 24-25 (1983) (footnote omitted). In enforcing this federal
policy favoring arbitration, courts apply state-law principles concerning the validity,
revocability, and enforceability of contracts, as long as those state-law principles are
generally applicable to all contracts and not applicable only to arbitration agreements.
See Perry v. Thomas, 482 U.S. 483, 492 n.9 (1987). The Supreme Court has further
stressed, however, that the parties must have agreed to arbitrate the dispute in the first
The FAA directs courts to place arbitration agreements on equal footing
with other contracts, but it does not require parties to arbitrate when they
have not agreed to do so. Because the FAA is at bottom a policy
guaranteeing the enforcement of private contractual arrangements, we look
first to whether the parties agreed to arbitrate a dispute, not to general
policy goals, to determine the scope of the agreement. While ambiguities
in the language of the agreement should be resolved in favor of arbitration,
we do not override the clear intent of the parties, or reach a result
inconsistent with the plain text of the contract, simply because the policy
favoring arbitration is implicated.
See EEOC v. Waffle House, Inc., 534 U.S. 279, 293-94 (2002) (citations and internal
quotations omitted). Thus, the Court must determine here whether DSI agreed to
arbitrate Carothers’s claims on the bonds.2
Section 19 of the subcontract between Carothers and Seven Hills for the Kansas
The theshold question of whether the parties have agreed to arbitrate is for the
court, not the arbitrator, unless the parties have clearly and unmistakable provided
otherwise. See AT&T Tech., Inc. v. Communications Workers of Am., 475 U.S. 643, 649
(1986). The arbitration provision at issue here does not refer to the arbitration of that
threshold question, and Carothers has not argued that the question of arbitrability should
be decided by the arbitrator in this case.
project3 provides as follows:
Except as otherwise specifically provided therein, all claims,
disputes, and other matters in controversy between the Contractor [defined
as Carothers] and the Subcontractor [defined as Seven Hills] arising out
of or relating to this Subcontract shall be decided by binding arbitration in
accordance with the current and application Construction Industry Rules
of the American Arbitration Association, unless the parties both agree to
different rules and procedures. The sole exception to binding arbitration
between the Contractor and Subcontractor is as follows: If the Contractor
in good faith believes that any claim, dispute, or matter in controversy
with the Subcontractor also involves rights or liabilities of the Owner,
Architect, or other third party, then, at the Contractor’s sole election, the
Subcontractor agrees to resolve such issues in the same forum or
proceeding, including arbitration, court, or administrative authority, which
has jurisdiction over some or all claims, disputes, and matters in
controversy involving the Owner, Architect, or other third party so as to
promote economy and avoid inconsistent results.
The Contractor and Subcontractor intend and agree that the
foregoing dispute resolution provisions and rights of election given to the
Contractor are not independent of nor severable from the remainder of the
Subcontract and that such provisions and election rights are supported by
the consideration and mutuality of the Subcontract as a whole. The locale
for any arbitration or litigation involving the Subcontractor and the
Contractor shall be Jackson, Mississippi, unless the Contractor agrees to
designate another locale to facilitate joinder of parties, to consolidate
claims, or for any other reason.
Should the Contractor through litigation, arbitration, or other means
seek to recover on any surety bond given by the Subcontractor under this
Subcontract, the Subcontractor and its surety, jointly and severally, agree
to pay Contractor all costs, expenses, and attorneys’ fees incurred in the
investigation, preparation, and trial or hearing of such matters and
otherwise reasonably related therein.
Although, as noted above, DSI’s claims could be interpreted as seeking to halt
the arbitration of all four disputes, Carothers has confined its argument to the Kansas
subcontract and bonds, and the Court will thus do the same.
If the Contractor and the Subcontractor litigate or arbitrate a
monetary claim, not otherwise prohibited by this Subcontract, the party
found liable in such proceedings will pay the other party’s reasonable and
necessary attorneys’ fees. . . .
The bonds executed by DSI and Seven Hills relating to the Kansas project do not contain
arbitration provisions, but each bond provides that the subcontract between Seven Hills
and Carothers “is incorporated by reference herein in its entirety and made an integral
part” of the bond. Carothers argues that DSI agreed to arbitrate when it agreed in the
bonds to the incorporation by reference of the subcontract and its arbitration provision.
The Court concludes, however, that DSI did not consent in these bonds to the
arbitration of Carothers’s claims on the bonds. Even assuming that DSI agreed to the
incorporation into the bonds of the subcontract’s arbitration provision, that provision
applies explicitly and clearly only to disputes “between the Contractor and the
Subcontractor”—that is, between Carothers and Seven Hills. Thus, by its terms, the
arbitration provision does not apply to Carothers’s claims on the bonds, which is a
dispute between Carothers and DSI.4
A number of other provisions in the subcontract and bonds support this plain
reading of the arbitration provision. For instance, the arbitration provision’s reference
to “the Subcontractor” is not reasonably interpreted to refer also to any surety. The
By contrast, the same section of the subcontract provides that the subcontractor
and the surety agree to pay fees if recovery is sought on a bond. If the bonds
incorporated that particular provision (an issue the Court does not decide), then DSI
thereby agreed to be bound by that obligation to pay fees. The purportedly incorporated
arbitration provision, however, does not impose any obligation on a surety.
subcontract defines Seven Hills as “the Subcontractor” for purposes of the subcontract.
Section 19 of the subcontract, which contains the arbitration provision, later refers
specifically to claims on a surety bond and the liability of “the Subcontractor and the
surety” for attorney fees and costs, and that reference to the two parties separately
indicates that the parties did not intend all references to the former party to include the
latter. In addition, the bonds refer to “actions” for payment on the bonds, without any
reference to arbitration proceedings, while the subcontract explicitly recognizes the
possibility of “litigation” and “trial” of claims on any bond given by Seven Hills. Those
references to court proceedings are not necessarily dispositive here, as the arbitration
provision contains an exception that allows Carothers at its election to join claims
against Seven Hills with claims against a “third party.” Nevertheless, such language
supports interpretion of the subcontract not to include other parties within a reference to
Finally, although the bonds incorporate by reference the subcontract (and its
provision requiring arbitration of disputes specifically between Carothers and Seven
Hills), DSI did not agree in those bonds to assume any or all obligations of Seven Hills
under the subcontract. Rather, DSI agreed to undertake certain obligations in the event
Despite Section 19’s provision naming Jackson, Mississippi as the location of
any arbitration between the contractor and subcontractor, Carothers states in its brief that
the subcontract does not designate a place of arbitration. To the extent that Carothers
means that no place is designated for an arbitration involving DSI, such argument
underscores that references to “the Subcontractor” in Section 19 were not intended to
include a surety.
of default by Seven Hills.
Thus, because the arbitration provision, by its unambiguous terms, does not reach
this dispute, the federal policy in favor of arbitration does not apply, and the FAA does
not require that DSI submit to arbitration of the claims on these bonds.
Carothers does not rely on the specific language of the arbitration provision, but
rather asks the Court to follow the many other courts that have ruled that a surety or
other party did consent to arbitration by agreeing to the incorporation of another contract
containing an arbitration provision. For instance, Carothers cites Developers Surety and
Indemnity Co. v. Resurrection Baptist Church, 759 F. Supp. 2d 665 (D. Md. 2010), in
which the court chose to follow what it considered the majority rule, which it described
The First, Second, Fifth, Sixth and Eleventh Circuits and several
district courts have held that a surety must arbitrate disputes related to a
performance bond where the performance bond specifically incorporated
by reference a contract containing an arbitration clause. The Eighth
Circuit is the only federal circuit to diverge from this view.
See id. at 669-70 (citations omitted). Resurrection Baptist is easily distinguished from
the present case, however. In that case, the incorporated contract required the arbitration
of “[a]ny claim arising out of or related to the Contract.” See id. at 669. Thus, the case
does not provide any basis or argument for a similar result if the arbitration provision is
limited explicitly to disputes between other parties. Moreover, as Maryland’s highest
court recently explained, the cases commonly cited for that so-called majority rule are
similarly distinguishable and thus unhelpful, as they involved situations in which the
arbitration provision was not expressly limited to disputes between particular parties.
See Schneider Elec. Buildings Critical Sys., Inc. v. Western Surety Co., 2017 WL
3205291, at *6 n.5 (Md. July 28, 2017) (citing cases). Accordingly, the Court’s decision
in this case does not go against any applicable majority rule or the weight of authority.
Carothers also cites Hoffman v. Fidelity and Deposit Co. of Maryland, 734 F.
Supp. 192 (D.N.J. 1990), in which the court required the surety to arbitrate based on the
incorporation of an arbitration provision like the one at issue in the present case. See id.
The court concluded that the Third Circuit would follow the other circuits in requiring
arbitration. See id. at 195. As explained above, however, those cases from the other
circuits did not involve language requiring the arbitration only of disputes between
particular other parties. The Hoffman court rejected the surety’s argument that the
arbitration clause applied only to the parties to the incorporated contract, reasoning that
many of the cases involved “similar” language. See id. at 194. In the cases cited by that
court, however, the arbitration provisions were not explicitly applicable only to disputes
between the parties to the contract, as in the present case and in Hoffman. See id. Thus,
Hoffman is not persuasive, and the Court declines to follow its reasoning.
A state-court case cited by Carothers, Godwin v. Stanley Smith & Sons, 386
S.E.2d 464 (S.C. Ct. App. 1989), is similarly distinguishable. In Godwin, the arbitration
clause applied to disputes specifically between the two parties to the contract. See id.
at 465. In the contract between the parties to the lawsuit, however, which incorporated
by reference the first contract, the plaintiff explicitly agreed that it was “bound” by the
terms of the other contract and that it assumed all obligations of the party subject to the
arbitration clause. See id. The Godwin court chose to follow the reasoning of another
court that relied on that language of assumption of obligations. See id. at 466 (citing
J.S.&H. Constr. Co. v. Richmond County Hosp. Auth., 473 F.2d 212, 213 (5th Cir.
1973)). As noted above, DSI did not agree to assume Seven Hills’s obligations under
the subcontract with Carothers.
Finally, Carothers points the Court to the recent decision by the federal district
court in the related action between these parties (involving the same arbitration initiated
by Carothers relating to four different projects) that DSI brought in South Carolina (and
which Carothers removed to federal court). In that action, Carothers filed a similar
motion to dismiss or to transfer, and the court granted the motion and ordered the case
transferred to the Southern District of Mississippi to allow Carothers to seek an order
compelling arbitration. See Developers Surety and Indemnity Co. v. Carothers Constr.,
Inc., 2017 WL 3054646 (D.S.C. July 18, 2017). Looking to South Carolina law, the
court chose to follow the ruling of the South Carolina Court of Appeals in Godwin, while
rejecting DSI’s attempt to distinguish Godwin on the basis of the assumption-ofobligations language in the incorporating document in that case. See id. at *3. In so
doing, the federal court relied on the general principle of South Carolina law that the
liability of a surety is measured precisely by the liability of the principal. See id. The
court thus concluded:
When the Court construes the bonds and the subcontract together as a
whole, it is clear the parties intended to submit disputes to binding
arbitration. If DSI did not want to be bound by that term of the
subcontract, then DSI should not have guaranteed the performance of the
subcontract by issuing bonds incorporating that term.
The Court respectfully disagrees with the reasoning of the federal court in South
Carolina. Godwin is distinguishable on a material point, as explained above. Even if
Godwin was intended to apply in the absence of assumption-of-obligations language,
however, this Court would not be required to apply such a rule of South Carolina law,
as Kansas law would apply here (by virtue of choice-of-law provisions), and Kansas
courts have not adopted such a rule. Even though a surety’s liability may be coextensive
with that of the principal as a general rule, DSI’s liability in this case is defined by the
terms of the bonds, and although the bonds incorporate the terms of the subcontract, DSI
did not assume any or all obligations of Seven Hills under that subcontract.6 A term of
the incorporated subcontract requires arbitration of disputes with Seven Hills, but it does
not require arbitration of other disputes. Based on the plain language of the arbitration
provision and the other language in the subcontract and the bonds (which other language
the South Carolina court declined to address), as discussed above, the Court cannot agree
with the South Carolina court’s statement that the parties clearly intended to submit
disputes to binding arbitration.
Carothers has not identified any Kansas case holding that a party, by agreeing to
the incorporation of a contract by reference, assumes all obligations of one party to that
Instead, the Court finds persuasive the reasoning of those courts that have ruled
against arbitration despite the incorporation by reference of an arbitration provision,
based on the particular contractual language limiting the parties to which the provision
applies. See Liberty Mutual Ins. Co. v. Mandaree Public Sch. Dist. #36, 503 F.3d 709,
711 (8th Cir. 2007) (citing AgGrow Oils, L.L.C. v. National Union Fire Ins. Co. of
Pittsburgh, 242 F.3d 777 (8th Cir. 2001)); Western Surety Co. v. U.S. Eng’g Co., 211 F.
Supp. 3d 302, 308-11 (D.D.C. 2016); Island Ins. Co. v. NORESCO, LLC, 2012 WL
6629588, at *6-7 (D. Haw. Dec. 19, 2012); Schneider, 2017 WL 3205291, at *4-6. The
Court concludes as a matter of law that DSI did not consent to arbitration of any claims
on the bonds by Carothers.
Carothers argues in the alternative that, even if DSI did not consent to arbitration
in writing, the arbitration provision should nonetheless be enforced against DSI under
a theory of equitable estoppel, as discussed by this Court in In re Universal Service Fund
Telephone Billing Practices Litigation, 300 F. Supp. 2d 1107 (D. Kan. 2003)
(Lungstrum, J.). In that case, the Court noted two equitable estoppel theories under
which federal circuit courts have compelled arbitration. See id. at 1138-39. One such
theory, the “intertwined claims” theory, applies “when the party ordered to arbitrate has
agreed to arbitrate disputes arising out of a contract and is suing in reliance upon that
contract.” See id. at 1139 (quoting Westmoreland v. Sadoux, 299 F.3d 462, 465 (5th Cir.
2002)). “It is premised on the notion that a party cannot ‘have it both ways’: it cannot
seek to hold the non-signatory liable pursuant to duties imposed by the agreement, which
contains an arbitration provision, but, on the other hand, deny arbitration’s applicability
because the defendant is a non-signatory.” See id. (internal quotations omitted) (quoting
Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524, 528 (5th Cir. 2000)). In this
case, however, the party seeking to avoid arbitration (DSI) is not the signatory to the
arbitration provision, and thus this theory of equitable estoppel does not apply here.
The other theory previously discussed by this Court is the “direct benefits” theory
of equitable estoppel, which “allows a non-signatory to be held to an arbitration clause
when the non-signatory knowingly exploits the contract and then, during litigation,
attempts to repudiate the arbitration clause in the contract.” See id. (citing cases). “This
theory is intended to prevent a non-signatory from embracing a contract, then turning its
back on other portions of the contract that it finds distasteful, such as an arbitration
clause.” See id.; see also, e.g., International Paper Co. v. Schwabedissen Maschinen &
Anlagen GMBH, 206 F.3d 411, 417-18 (4th Cir. 2000) (“A nonsignatory is estopped
from refusing to comply with an arbitration clause when it receives a direct benefit from
a contract containing an arbitration clause.”). The Court rejects this theory as well, as
Carothers has not shown that DSI has attempted to obtain a direct benefit under the
subcontract between Carothers and Seven Hills. On this point, Carothers cites only two
2016 letters from DSI’s counsel to Carothers’s counsel. Carothers argues that in those
letters DSI asserted rights under the subcontract by asserting rights to unpaid balances,
rejecting change orders, and asserting defenses with respect to allegedly improper
actions by Carothers. In the letters, however, Carothers merely set forth its position
concerning its rights and obligations under the bonds, including with respect to the
proper amount owed, the legitimacy of a particular change order, and Carothers’s alleged
failure to mitigate any damages. The letters address potential claims by Carothers
against DSI on the bonds (not on the subcontract), and DSI’s discussion of its position
takes place in that context. Thus, DSI has not attempted to obtain a direct benefit under
the subcontract (as opposed to a benefit under the bonds). Moreover, DSI’s boilerplate
language in one letter that both it and Carothers reserve their respective rights under the
subcontract and the bonds does not indicate that DSI has attempted to obtain some
specific benefit under the subcontract.7
In summary, the Court concludes that DSI did not consent to arbitration of
Carothers’s claims on the Kansas bonds and that DSI should not be estopped from
opposing enforcement of the arbitration provision of the subcontract. The Court
therefore denies Carothers’s motion to dismiss the action and Carothers’s alternative
motion to transfer the action to the Southern District of Mississippi.
Alternative Motion to Transfer
Carothers argues that if the Court does not enforce the arbitration provision
In its reply brief, Carothers argues that in Resurrection Baptist Church, DSI was
ruled estopped on similar facts. In that case, however, the court noted that DSI had
asserted affirmative claims for breach of the incorporated contract. See 759 F. Supp. 2d
at 673. Carothers has not shown in the present case that DSI has asserted any rights
arising only under the subcontract.
against DSI, it should transfer the case to the United States District Court for the Middle
District of Georgia, in which one of the original four state-court suits brought by DSI is
pending (and the location of the project involving the largest dispute). Carothers argues
that “it is in the best interest of the parties and the court system to have all the disputes
heard in a single lawsuit rather than four.” Carothers seeks transfer pursuant to 28
U.S.C. § 1404(a), which allows a district court to transfer an action to another district in
which it might have been brought “[f]or the convenience of parties and witnesses, in the
interests of justice.” See id.
The Court denies this alternative motion. First, the South Carolina case has
already been transferred to the Southern District of Mississippi (to allow for an order
compelling arbitration), and thus the four cases will not be litigated together. Second,
although Carothers argues that the same people are the key witnesses for all four
projects, its supporting affidavit states only that the same DSI personnel were involved
in the four projects. Moreover, the identity of the witnesses involved in the underlying
projects is not relevant, as the present action involves only the arbitrability of the claims
on the bonds, and not the claims themselves. Carothers has not identified any witnesses
relevant to that specific issue of arbitrability. Finally, since the Court has now rejected
Carothers’s position that the arbitration provision should be enforced against DSI, it is
not clear what issues remain for litigation in this action; thus, DSI has not shown that
transfer of the action at this stage would further interests of convenience or justice.
IT IS THEREFORE ORDERED BY THE COURT THAT plaintiff’s motion to
remand the case to state court (Doc. # 8) is hereby denied.
IT IS FURTHER ORDERED BY THE COURT THAT defendant’s motion to
dismiss or to transfer (Doc. # 4) is hereby denied in its entirety.
IT IS SO ORDERED.
Dated this 24th day of August, 2017, in Kansas City, Kansas.
s/ John W. Lungstrum
John W. Lungstrum
United States District Judge
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