FCCI Insurance Company v. Nicholas County Library
Filing
27
MEMORANDUM OPINION & ORDER: DENYING FCCI Insurance Company's 20 MOTION for Temporary Restraining Order or Preliminary Injunction. Signed by Judge Joseph M. Hood on 3/5/19.(KJR)cc: COR
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION at LEXINGTON
FCCI INSURANCE COMPANY,
Plaintiff,
v.
NICHOLAS COUNTY LIBRARY,
Defendant.
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Case No.
5:18-cv-038-JMH
MEMORANDUM OPINION
AND ORDER
***
Plaintiff FCCI Insurance Company has moved for injunctive
relief in the form of a temporary restraining order and preliminary
injunction to prevent arbitration proceedings in this action until
the Court has opportunity to consider the pending motion to dismiss
for lack of jurisdiction or, in the alternative, motion to compel
arbitration.
[DE 20].
Defendant Nicholas County Library opposes
the motion for injunctive relief.
[DE 25].
An expedited hearing
was held on this matter where both parties, through counsel,
presented their arguments on the matter.
After reviewing the
briefing and considering the oral arguments presented by the
parties, FCCI’s motion for a temporary restraining order and
preliminary injunction [DE 20] is DENIED because FCCI has failed
to meet its burden demonstrate that injunctive relief is necessary
to preserve the status quo until the Court rules on the pending
motion to dismiss or to compel arbitration.
1
I.
The
Nicholas
Factual and Procedural Background
County
Library
entered
into
a
construction
contract with Crace & Co., Inc., related to the construction of an
addition to the Nicholas County Library.
FCCI issued payment and
performance bonds for the project, naming Crace as principal and
Nicholas County Library as obligee.
The
construction
contract
between
Crace
and
the
Library
states:
For any claim subject to, but not resolved by,
mediation pursuant to Section 21.3, the method of
binding dispute resolution shall be as follows:
[X] Arbitration pursuant to Section 21.4 of this
Agreement.
[DE 11-2 at 6, Pg ID 56].
Additionally, the contract provides
that “[i]f the parties have selected arbitration as the method for
binding dispute resolution in the Agreement, any claim, subject
to,
but
not
arbitration.”
resolved
by,
mediation
shall
be
subject
to
[Id. at 8, Pg ID 58].
FCCI was not a party to the construction contract between
Crace and the Library.
Still, the FCCI performance bond appears
to incorporate the construction contract, stating:
The Condition Of This Obligation is such that whereas,
the Principal entered into a certain contract with the
Owner, dated the 18th day of October, 2016, a copy of
which is hereto attached and made part hereof for the
construction of: Nicholas Co. Library, New Two Story
Addition, Carlisle, KY.
[DE 1-1 at 1, Pg ID 6].
2
One of the special conditions in the performance bond was
that Crace install rebar to reinforce the walls of the library
addition.
After investigation, FCCI claims that they determined
that this condition was not met.
As a result, FCCI terminated
Crace under the performance bond.
At the same time, Nicholas
County Library made a claim on the FCCI performance bond.
Subsequently, FCCI filed this action seeking a declaratory
judgment on the alleged default and overpayment.
[DE 1].
The
Library moved to dismiss for lack of jurisdiction or, in the
alternative, to compel arbitration.
[DE 11].
Additionally, if
FCCI was not compelled to arbitrate, the Library has asked the
Court to stay this case until Crace and the Library can submit
their dispute to arbitration.
[Id.].
Before the Court could rule on that motion, the parties agreed
to stay the case and mediate the dispute.
[DE 13].
Recently, the
parties notified the Court that they had failed to resolve the
dispute through mediation and asked that the stay be lifted and
that a briefing schedule be implemented for the pending motion to
dismiss or compel arbitration.
[DE 17; DE 18].
FCCI responded to
the motion to dismiss or compel on February 20, 2019.
[DE 19].
A
demand for arbitration from the Library, dated January 25, 2019,
is attached to the FCCI’s response in opposition to the motion to
dismiss.
[DE 19-1].
18],
Defendant
the
Based on the Court’s briefing schedule [DE
may
reply
to
3
the
Plaintiff’s
response
in
opposition no later than Wednesday, March 6, 2019, at which time,
the motion to dismiss will be ripe for review.
Then, FCCI filed a motion for a TRO and Preliminary Injunction
and asked for an expedited hearing on their motion.
21].
[DE 20; DE
The parties provided oral argument at an expedited motion
hearing on March 5, 2019.
As a result, the motion for injunctive
relief is ripe for review.
II.
Analysis
FCCI’s motion for injunctive relief is styled as a motion for
a temporary restraining order and preliminary injunction.
At this
juncture, since FCCI requested an expedited hearing and the motion
is not being made ex parte, the Court construes FCCI’s motion [DE
20] as a motion for a preliminary injunction to preserve the status
quo until the Court has an opportunity to consider and resolve the
pending motion to dismiss or compel arbitration [DE 11].
A.
Preliminary Injunction Standard
When a party seeks a preliminary injunction under Rule 65,
the Court must consider: (1) whether the movant has a strong
likelihood of success on the merits; (2) whether the movant would
suffer irreparable injury without the injunction; (3) whether
issuance of the injunction would cause substantial harm to others;
and (4) whether the public interest would be served by the issuance
of the injunction. See Certified Restoration Dry Cleaning Network,
LLC v. Tenke Corp., 511 F.3d 535, 542 (6th Cir. 2007).
4
These are
“factors to be balanced, not prerequisites that must be met.”
Tenke Corp., 511 F.3d at 542.
For example, where a party makes
“an extremely strong showing of irreparable harm” they are “not
required to make as strong a showing of a likelihood of success on
the merits.”
Stein v. Thomas, 672 F. App’x 565, 569 (6th Cir.
2016).
The moving party “bears the burden of demonstrating his
entitlement to a preliminary injunction.”
Jackson v. Coyne, NO.
3:17-CV-P174-TBR, 2017 WL 3528605, at *1 (W.D. Ky. Aug 16, 2017);
see also Granny Goose Foods, Inc. v. Teamsters, 415 U.S. 423, 441
(1974). A preliminary injunction is “an extraordinary remedy which
should be granted only if the movant carries his or her burden of
proving that the circumstances clearly demand it.”
Overstreet v.
Lexington-Fayette Urban Cty. Gov’t, 305 F.3d 566, 573 (6th Cir.
2002).
“‘[T]he proof required for the plaintiff to obtain a
preliminary injunction is much more stringent than the proof
required to survive a summary judgment motion.’” McNeilly v. Land,
684 F.3d 611, 615 (6th Cir. 2012) (quoting Leary v. Daeschner, 228
F.3d 729, 739 (6th Cir. 2000)).
As an initial matter, both parties, through counsel, have
made
compelling
and
respective positions.
passionate
arguments
supporting
their
The Court appreciates counsels’ cooperation
and zealous advocacy on behalf of their clients.
5
At this juncture, the Library argues that the FCCI performance
bond
incorporated
the
arbitration provisions.
construction
contract,
that
the
Additionally,
FCCI
the
As such, the Library claims that FCCI is
obligated to submit its claims to arbitration.
claims
including
Court
should
contends
that
In response, FCCI
determine
they
are
not
arbitrability.
obligated
to
arbitrate because the claims in this action do not arise under the
construction contract and that the scope of the arbitration clause
is limited to disputes between the Library and Crace since FCCI is
not a “party” to the construction contract.
As a result, FCCI
requests injunctive relief enjoining the Library from compelling
FCCI to arbitrate until the Court may determine whether FCCI is
required to arbitrate.
(1)
Strong Likelihood of Success on the Merits
For the purposes of this motion for injunctive relief, FCCI
primarily argues that it was not a “party” to the construction
contract between the Library and Crace, meaning that they have not
brought a “claim” 1 under the meaning of the construction contract
that would be subject to resolution through arbitration.
1
As such,
At oral argument, counsel for FCCI argued that FCCI was not a
party under the construction contract and that they therefore
cannot submit a claim.
But the parties have only provided the
Court with limited excerpts from the construction contract. After
review of the record, it does not appear that the parties have
submitted the provision of the construction contract that defines
the term claim or party, to the extent such an explicit definition
exists.
6
FCCI asserts that they have demonstrated a strong likelihood of
success on the merits.
Alternatively, the Library argues that FCCI, as surety for
the contractor under the performance bond, incorporated the terms
of the construction contract without exclusion or limitation,
including
the
binding
arbitration
and
dispute
resolution
provisions.
The plain language of the performance bond clearly states
that the contract for the new two-story addition to the Nicholas
County Library is made a part of the performance bond itself.
DE 1-1 at 1, Pg ID 6].
[See
No matter who drafted the performance bond
initially, the parties do not dispute that FCCI was a party to the
performance
bond.
Additionally,
it
is
undisputed
that
the
construction contract that was incorporated into the performance
bond contained a binding arbitration clause.
Here, FCCI contends that it is not a party to the construction
contract
and
that
only
claims
between
the
parties
to
the
construction contract are subject to the arbitration provisions.
Furthermore, FCCI claims that the disputes in this action arise
only under the performance bond and, as a result, are outside the
scope of the construction contract’s arbitration provisions.
This
argument is certainly compelling and will have to be considered
fully by the Court once the motion to dismiss becomes ripe.
7
Still, the standard at this point is whether FCCI has met its
burden to demonstrate a strong likelihood of success on the merits
that would entitle FCCI to injunctive relief to preserve the status
quo.
On that point, FCCI has failed to demonstrate a strong
likelihood of success on the merits that would weigh in favor of
granting a preliminary injunction.
It is undisputed that FCCI
made the provisions of the construction contract between the
Library and Crace part of the performance bond.
Importantly, the
performance bond contains no exclusions that clearly indicate that
FCCI did not intend to also incorporate the arbitration provisions.
Here, there is no indication that FCCI has a strong likelihood of
success on the merits on the issue of arbitration.
Ultimately, FCCI may prevail on its arguments that it is not
subject to the arbitration provisions in the construction contract
but that does not indicate a strong likelihood of success on the
merits.
In this case, the Library has also presented compelling
legal arguments that demonstrate they are just as likely to prevail
on this issue.
This motion for injunctive relief is not an
opportunity for the parties to pre-litigate issues that are not
yet ripe or test out legal theories.
At present, both parties
have made strong legal arguments indicating that they may be
correct about the applicability of the arbitration provisions in
the construction contract.
As a result, the likelihood of success
8
on
the
merits
is
neutral,
which
weights
against
granting
a
preliminary injunction.
(2)
Irreparable Injury
FCCI has cited cases that stand for the proposition that
“courts have found that the harm suffered by a party who is forced
to arbitrate claims that it did not agree to arbitrate is per se
irreparable.”
See
CIG
Asset
Management
v.
Bircoll,
2013
WL
4084763, *2 (E.D. Mich. Aug. 13, 2013) (citing Merrill Lynch Inv.
Managers v Optibase, Ltd., 337 F.3d 125, 129 (2nd Cir. 2003).
But
the key qualifier is that irreparable harm is caused when parties
are
forced
arbitrate.
to
arbitrate
claims
that
they
did
not
agree
to
It follows then, that there is no irreparable injury
where a party is forced to arbitrate claims that it agreed to
arbitrate.
Here, whether FCCI agreed to arbitrate the claims
raised in this case is an open question.
Of course, even if forcing FCCI to arbitrate at this stage is
not per se irreparable, preparation for arbitration proceedings
will certainly impose some costs for FCCI. Still, the arbitrator’s
report of preliminary hearing and scheduling order states that
counsel for FCCI has participated in the initial stages of the
arbitration proceeding.
[DE 25-3].
The next deadline in the
arbitration proceeding is for the filing of dispositive motions on
April 30, 2019. [Id. at 1, Pg ID 169]. Additionally, any discovery
required of FCCI for the arbitration proceeding will be relevant
9
to this action and vice-versa.
Finally, the final arbitration
hearing is not scheduled until August 26, 2019.
170].
[Id. at 2, Pg ID
As a result, there is no clear indication that FCCI will
suffer
irreparable
injury
by
complying
with
the
arbitration
proceeding’s scheduling order between now and the time when the
Court can address the motion to dismiss or compel.
In sum, FCCI has failed to demonstrate that it will suffer
irreparable injury that justifies injunctive relief to preserve
the status quo.
The motion to dismiss or to compel arbitration
will become ripe on March 6, 2019.
As such, the Court will be
able to resolve the underlying issue on whether the performance
bond
incorporated
the
construction
contract’s
arbitration
provisions before FCCI suffers any additional irreparable injury.
Therefore,
this
factor
weighs
against
granting
a
preliminary
injunction.
(3)
Harm to Others
FCCI argues that the only harm that will be suffered here is
a potential delay in the arbitration proceedings between Crace and
the Library. In response, the Library argues that continued delays
in this action will result in harm to the Library and the patrons
of the Nicholas County Library.
that
continued
delays
may
Additionally, the Library argues
result
in
harm
to
the
construction project due to weather and other factors.
10
incomplete
Still, any preliminary injunction in this matter would be
limited to a time period that will allow the Court to consider and
resolve the issues raised in the pending motion to dismiss.
As
the Court has already discussed, the motion to dismiss is almost
ripe and can likely be addressed in a short period of time.
litigation has been ongoing since January 2018.
additional
delay
in
the
arbitration
minimal burden or harm to others.
This
As a result, any
proceedings
would
impose
In sum, this factor weighs in
favor of granting a preliminary injunction.
(4)
Public Interest
FCCI argues that the public interest is best served by not
requiring parties to arbitrate claims that they did not explicitly
agreed to arbitrate. Furthermore, FCCI asserts that they are being
coerced into arbitration.
Fair enough, but there is also a public interest in favor of
upholding contractual agreements.
Here, there is a dispute as to
whether FCCI contractually agreed to arbitrate any claims when
they incorporated the provisions in the construction contract into
the performance bond.
On one hand, if FCCI did not agree to arbitrate their claims,
then they are correct that the public interest is best served by
not
requiring
arbitration.
But
on
the
other
hand,
if
FCCI
contractually agreed to arbitrate their claims by incorporating
the terms of the construction contract, then the public interest
11
is best served by enforcing the contract and requiring arbitration.
As a result, the public interest factor is neutral and does not
weigh in favor of either party.
III.
Conclusion
Again, both parties have raised compelling arguments on about
whether FCCI agreed to arbitrate their claims by incorporating the
terms of the construction contract into the performance bond.
Still, injunctive relief is an extraordinary remedy. The Plaintiff
has the burden to demonstrate entitlement to injunctive relief
based on the four factors outlined above.
may
ultimately
succeed
on
the
merits,
In his case, while FCCI
FCCI
has
failed
to
demonstrate that a preliminary injunction is necessary in this
matter to preserve the status quo to prevent irreparable harm.
Accordingly, having considered the parties’ oral argument and
briefing on the motion for injunctive relief, IT IS ORDERED that
FCCI’s motion for a temporary restraining order or preliminary
injunction [DE 20] is DENIED.
This the 5th day of March, 2019.
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