Irving Materials Inc. v. Angelo Iafrate Construction Company et al

Filing 45

MEMORANDUM OPINION & ORDER denying 38 Motion to Compel. Signed by Senior Judge Thomas B. Russell on 9/25/2015. cc: Counsel(KJA)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
PADUCAH DIVISION
CIVIL ACTION NO. 5:15-CV-00009-TBR

IRVING MATERIALS, INC.

Plaintiff

v.
ANGELO IAFRATE CONSTRUCTION COMPANY, et al.

Defendants

MEMORANDUM OPINION AND ORDER
This matter comes before the Court upon the Motion to Compel Arbitration of Defendants
Angelo Iafrate Construction Company and The Continental Insurance Company (collectively, “Iafrate”).
(Docket No. 38.) Plaintiff Irving Materials, Inc. (“IMI”) has responded, (Docket No. 42), and Defendants
have replied. (Docket No. 43.) Fully briefed, this matter is ripe for adjudication. For the reasons
enumerated below, the Court will DENY Defendants’ Motion.
Factual Background
Plaintiff IMI is a concrete materials supplier. (Docket No. 1 at 3.) Defendant Iafrate is a paving
and concrete construction subcontractor. (Docket No. 1 at 3.) This dispute arises from IMI’s sale of
concrete to Iafrate for the paving required in the construction of the MH-47 Aviation Maintenance Hangar
(“the Hangar”) in Fort Campbell, Kentucky. (Docket No. 1 at 3.) The United States Army Corps of
Engineers entered into a contract with general contractor Hensel Phelps Construction Company (“Hensel
Phelps”) for construction of the Hangar. (Docket No. 1 at 3.) Hensel Phelps subcontracted with Webb
Engineering, Inc. for the provision of the supplies, materials, and labor needed for the paving work
involved in the construction of the Hangar. (Docket No. 1 at 3.) Webb Engineering then executed a “subsubcontract agreement” with Iafrate under which Iafrate was to perform the paving work for the Hangar.

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(Docket No. 1 at 3.) Iafrate purchased materials from IMI. (Docket No. 1 at 3.) As part of the sale, IMI
and Iafrate entered into a credit agreement. (Docket No. 1 at 3.)
Under the Credit Application, Iafrate was authorized to receive concrete materials from IMI on
credit upon its request. (Docket No. 1 at 3.) In May 2013, Iafrate completed a Purchase Order with IMI
for $1,099,654.60. (Docket No. 1 at 3.) The Purchase Order between the parties contains an integration
clause within which the parties expressly incorporate the Credit Application. (Docket No. 1 at 3.)
IMI alleges that the concrete materials delivered to Iafrate “conformed to the terms” of the
Purchase Order and “satisfied all conditions precedent” to the receipt of payment. (Docket No. 1 at 4.)
Believing that it satisfied its obligations under the Purchase Order, IMI sent Iafrate an invoice for the
concrete materials it delivered. (Docket No. 1 at 4.) IMI alleges that Iafrate has not paid for $425,841.82
plus additional charges that continue to accrue such as interest. (Docket No. 1 at 4.)
Iafrate alleges that IMI had difficultly mixing the concrete materials to conform to the “flexural
strength standards.” (Docket No. 38-1 at 2.) According to Iafrate, “[t]he mix design process lasted . . .
from June of 2013 through February of 2014.” (Docket No. 38-1 at 2.) During this time, Iafrate states that
it communicated to IMI that IMI would be responsible for any additional costs that resulted from IMI’s
efforts to conform its concrete materials to the required strength standard. (Docket No. 38-1 at 2.) The
Army Corps of Engineers provided conditional approval of IMI’s concrete mixture in February 2014, but
on May 15, 2014, Hensel Phelps reported problems with the already poured concrete, as it was not
conforming to certain strength standards. (Docket No. 38-1 at 2-3.) Iafrate alleges that to solve the
problem, IMI’s engineer suggested that the parties use a different testing method. (Docket No. 38-1 at 3.)
According to Iafrate, while the parties sought approval from the Army Corps of Engineers for the
alternative testing method, Iafrate suspended paving and sent another notice to IMI that any costs incurred
as a result of the difficulties would be assessed to IMI (Docket No. 38-1 at 3.) The Army Corps of
Engineers did eventually accept the alternative testing method, but Iafrate argues that it incurred

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additional costs due to the nonconformity of IMI’s concrete materials. (Docket No. 38-1 at 3.) Iafrate
deducted the additional costs it incurred from the amount owed to IMI. (Docket No. 38-1 at 3-4.)
As a result of Iafrate’s assessment of additional costs incurred to IMI, IMI filed suit in this Court
on January 13, 2014. (Docket No. 43 at 2.) IMI’s complaint asserts four claims against Iafrate
Construction including Breach of Agreement, Unjust Enrichment, Bond Claim, and Conversion/Punitive
Damages. (Docket No. 1 at 4-7.) The parties later agreed on a payment of $273,278.00 which moots
IMI’s claim for conversion (Docket No. 38-1 at 4.)
The contract between IMI and Iafrate contains two arbitration clauses, one of which is in the
Purchase Order and the other one is in the Credit Application. (Docket Nos. 38-2 at 4; 38-3 at 2.) The
arbitration provision under the Credit Application states:
Any controversy, claim or dispute between the parties, directly or indirectly,
which in any manner relates to the performance of this agreement or the
material provided by IMI and/or or any and all claims concerning the
material provided by IMI shall be settled solely by arbitration and in
accordance with the applicable rules of arbitration found in Indiana Rules of
Alternate Dispute Resolution. The only issue not subject to the requirement of
arbitration shall be IMI’s right to collect for any monies owed and expenses
incurred in the collection thereof through the legal process. The parties,
therefore, agree that any controversy, claim or dispute between the parties, other
than the collection of monies owed for the payment of the material, shall be
resolved and the parties shall be bound by the decision of a three-person arbitration
panel. IMI and the contractor/applicant shall each select one impartial attorney to
act as an arbitrator. The two arbitrators shall then select a third attorney to form the
panel. Each party shall pay for the expense of the arbitrator he selected. The parties
shall divide evenly the expense of the third arbitrator. The arbitration shall be
conducted in accordance with the rules and provisions of the Indiana Rules of
Alternate Dispute Resolution. The judgment upon the award rendered by the
arbitrators will be enforceable by any court of competent jurisdiction. All parties
hereto specifically agree that any and all arbitration proceeding arising hereunder
shall be held in the county of sale unless the parties agree to another location.
(Docket No. 38-3 at 2.) Alternatively, the arbitration provision in the Purchase Order states:
Seller [IMI] agrees that the Buyer [Iafrate] shall have the exclusive right to
decide whether disputes, controversies, or claims arising out of or relating to
this Purchase Order shall be settled in accordance with the rules of the
American Arbitration Association or through litigation in a court of
competent jurisdiction. Buyer shall take into consideration whether the claim
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affects third parties, such as other suppliers, owners, contractors and the financial
aspects in deciding whether to arbitrate with the Seller or require the Seller to
litigate the claim. Should the Buyer agree to arbitrate the claim or controversy, the
award may be entered in any court having jurisdiction thereof and qualify as
Statutory Arbitrating under the laws and court rules of any court having
jurisdiction over the parties. In the event of any controversy, Seller shall continue
completion of the Purchase Order if requested by Buyer with final settlement of
the controversy to be made in the forum chosen by the Buyer. In any event, notice
of Request to Arbitrate by Seller must be made within twenty (20) days of the
claim or controversy and be made in writing, and in such a way as to completely
appraise the Buyer of the total claim of the Seller. Buyer shall advise the Seller of
his choice to arbitrate or not, within forty-five (45) days of receipt of such notice.
(Docket No. 38-2 at 4.) Iafrate’s Motion seeks to compel arbitration under both of these provisions.
(Docket No. 38-1 at 4-9.) IMI alleges that Iafrate has waived any right to arbitration as it sent a letter to
IMI on January 13, 2014 stating that it had chosen litigation in Michigan Circuit Court. (Docket No. 43 at
2.)
Legal Standard
Congress enacted the United States Arbitration Act of 1925, more commonly referred to as the
Federal Arbitration Act (FAA), 9 U.S.C. §§ 1–16, in response to the common law hostility toward
arbitration and the refusal of many courts to enforce arbitration agreements. The United States Supreme
Court has since interpreted the FAA as codifying “a national policy favoring arbitration when the parties
contract for that mode of dispute resolution.” Preston v. Ferrer, 552 U.S. 346, 349 (2008). The Supreme
Court has further stated that the FAA’s underlying purpose is to put arbitration agreements “upon the same
footing as other contracts.” EEOC v. Waffle House, Inc., 534 U.S. 279, 289 (2002) (quoting Gilmer v.
Interstate/Johnson Lane Corp., 500 U.S. 20, 24 (1991)). The FAA establishes a procedural framework
applicable in both federal and state courts and also mandates that substantive federal arbitration law be
applied in both. See Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265 (1995); Southland Corp. v.
Keating, 465 U.S. 1, 16 (1984).
Section 2 of the FAA, which governs the enforceability of arbitration agreements, provides that a
written agreement to arbitrate disputes arising out a contract involving interstate commerce “shall be
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valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation
of any contract. 9 U.S.C. § 2. Whereas § 2 of the FAA mandates enforcement, § 3 permits a party
seeking to enforce an arbitration agreement to request that litigation be stayed until the terms of the
arbitration agreement have been fulfilled. 9 U.S.C. §§ 2–3. Section 4 goes on to provide the mechanism
by which a party may petition a court to compel arbitration:
A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate
under a written agreement for arbitration may petition any United States district
court . . . for an order directing that such arbitration proceed in the manner
provided for in such agreement. . . . The court shall hear the parties, and upon
being satisfied that the making of the agreement for arbitration or the failure to
comply therewith is not in issue, the court shall make an order directing the
parties to proceed to arbitration in accordance with the terms of the agreement. . .
. If the making of the arbitration agreement or the failure, neglect, or refusal to
perform the same be in issue, the court shall proceed summarily to the trial
thereof.
Id. § 4. Thus, before compelling arbitration, the Court “must engage in a limited review to determine
whether the dispute is arbitrable.” Masco Corp. v. Zurich Am. Ins. Co., 382 F.3d 624, 627 (6th Cir. 2004)
(quoting Javitch v. First Union Sec., Inc., 315 F.3d 619, 624 (6th Cir. 2003)). Such review, the Sixth
Circuit advises, requires the Court to determine first whether “a valid agreement to arbitrate exists
between the parties,” and second whether “the specific dispute falls within the substantive scope of the
agreement.” Id. (quoting Javitch, 315 F.3d at 624) When determining whether or not a valid agreement to
arbitrate exists, it is important to note that “[c]ontractual arbitration provisions are treated like other
contractual provisions and such agreements are enforced, unless the parties waive their right.” Gordon v.
Dadante, 294 F. App’x 235, 238 (6th Cir. 2008).
Discussion
Iafrate argues that both the arbitration clause in the Credit Application and the arbitration clause
in the Purchase Order apply to this dispute and require this Court to stay the cause of action until the
conclusion of arbitration. (Docket No. 38 at 1.) While IMI does not directly question the applicability of
one or both arbitration clauses to this action, IMI contends that Iafrate expressly waived its right to
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arbitration under the Purchase Order’s arbitration clause. (Docket No. 42 at 3-4.) Accordingly, this Court
must determine the applicability of either or both arbitration clauses to this action and whether or not
Iafrate waived its right to arbitration under either clause.
There is no dispute in this case that the parties intended to make a contract. The interpretation of a
contract is a matter of law. Detroit Radiant Prods. Co. v. BSH Home Appliances Corp., 473 F.3d 623, 627
(6th Cir. 2007). Here, the parties stipulate through the Credit Application that their “agreement shall be
governed and construed in accordance with the laws of the state from where the material is sold.” (Docket
No. 38-3 at 2.) IMI sold the concrete materials to Iafrate in Kentucky as is evidenced by the application of
Kentucky sales tax in the Purchase Order and by the fact that the goods were shipped to Fort Campbell,
Kentucky. (Docket No. 38-2 at 1.) Thus, the parties’ agreement is governed by Kentucky law.
Within the Purchase Order which expressly integrates the Credit Application, the parties stipulate that
it is the “sole and entire agreement” between them. (Docket No. 38-2 at 3.) In its Motion to Compel
Arbitration, Iafrate argues that the arbitration provision in the Credit Application and the arbitration
provision in the Purchase Order apply to this dispute and require the Court to compel arbitration. (Docket
No. 38-1 at 4-9.) However, the arbitration provisions are inherently incompatible. Under the arbitration
provision in the Credit Application, “any controversy, claim or dispute between the parties” relating to
performance of the agreement or the materials provided by IMI is to be settled “solely by arbitration.”
(Docket No. 38-3 at 2.) However, any dispute over IMI’s right to collect payment for “any monies owed
and expenses incurred in the collection thereof” is subject to resolution through “the legal process” not
arbitration. Id. The Credit Application also requires the arbitration proceedings “be conducted in
accordance with the rules and provisions of the Indiana Rules of Alternate Dispute Resolution.” Id.
Conversely, the arbitration provision in the Purchase Order provides that Iafrate, the buyer, has “the
exclusive right to decide whether disputes, controversies or claims arising out of or relating to [the]
Purchase Order” are settled through arbitration “in accordance with the rules of the American Arbitration
Association or through litigation in a court of competent jurisdiction.” (Docket No. 38-2 at 4.)

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These arbitration provisions cannot both be applicable to this action because they are mutually
exclusive. While one provision places the choice of whether or not to arbitrate in the exclusive control of
one party to the agreement, Iafrate, the other provision determines whether or not a dispute is resolved by
arbitration based upon the subject matter in question. Furthermore, the provisions require that the
arbitration proceedings comply with two different sets of rules, either the Indiana Rules of Alternate
Dispute Resolution under the Credit Application or the rules of the American Arbitration Association
under the Purchase Order. As the arbitration provisions at issue are irreconcilable and cannot be applied
simultaneously, the Court must determine which provision properly controls in this action.
“Because arbitration agreements are fundamentally contracts,” the Court must “review the
enforceability of an arbitration agreement according to the applicable state law of contract formation.”
Seawright v. Am. Gen. Fin. Servs., Inc., 507 F.3d 967, 972 (6th Cir. 2007) (citing First Options of Chi.,
Inc. v. Kaplan, 514 U.S. 938, 943-44 (1995)). Thus, the Court will determine the enforceability of the
arbitration provisions in question under Kentucky’s common law concerning ambiguities in contractual
provisions.
According to the Supreme Court of Kentucky, “the construction and interpretation of a contract,
including questions regarding ambiguity, are questions of law to be decided by the court.” Frear v. P.T.A.
Indus., Inc., 103 S.W.3d 99, 105 (Ky. 2003) (citation omitted). A fundamental principle of contract
interpretation is that “[t]he primary object in construing a contract . . . is to effectuate the intentions of the
parties.” Cantrell Supply, Inc. v. Liberty Mut. Ins. Co., 94 S.W.3d 381, 384 (Ky. Ct. App. 2002) (first
citing Withers v. Commonwealth, Dep’t of Transp., 656 S.W.2d 747, 749 (Ky. Ct. App. 1983); then citing
Wilcox v. Wilcox, 406 S.W.2d 152, 153 (Ky. 1966)). Kentucky law commands that “a contract is to be
interpreted as a whole and the entire instrument considered to determine the meaning of each part.” Int'l
Union of Operating Engineers v. J. A. Jones Const. Co., 240 S.W.2d 49, 54 (Ky. 1951) (citing Siler v.
White Star Coal Co., 226 S.W. 102, 104 (Ky. 1920)). When a written contract is unambiguous, it “will be
enforced strictly according to its terms.”

Frear, 103 S.W.3d at 106 (quoting O'Bryan v. Massey–

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Ferguson, Inc., 413 S.W.2d 891, 893 (Ky. 1966)). However, when a contract contains ambiguous
language, “the Court will give ‘great weight’ to the parties’ actions, subsequent conduct, or other
declarations indicating their mutual intent and understanding.” Journey Acquisition-II, L.P. v. EQT Prod.
Co., 39 F. Supp. 3d 877, 887 (E.D. Ky. 2014) (citations omitted). According to the Kentucky Supreme
Court, a contract is ambiguous if it is “capable of more than one different, reasonable interpretation.”
Cent. Bank & Trust Co. v. Kincaid, 617 S.W.2d 32, 33 (Ky. 1981); see also Cantrell Supply, 94 S.W.3d at
385 (“A contract is ambiguous if a reasonable person would find it susceptible to different or inconsistent
interpretations.”). A contract may contain either a patent or latent ambiguity. Journey Acquisition-II, 39 F.
Supp. 3d at 890. “A latent ambiguity is one which does not appear upon the face of the words used, and it
is not known to exist until the words are brought in contact with the collateral facts.” Id. (quoting State
Farm Mut. Auto. Ins. Co. v. Slusher, 325 S.W.3d 318, 322 (Ky. 2010)). Alternatively, a patent ambiguity
is “an uncertainty which appears on the face of the instrument.” Roberts v. Roberts' Ex'r, 186 S.W.2d 801,
803 (Ky. 1945) (emphasis added). Here, there is a patent ambiguity as the two arbitration provisions in
question are mutually exclusive and conflicting on their face.
Generally, when interpreting a contract, “conflicting clauses should be construed to harmonize
with each other if the harmonization can consistently and reasonably be done.” City of Owensboro v.
Kentucky Utilities Co., No. CIV.A. 4:04-CV-87-M, 2005 WL 1719949, at *4 (W.D. Ky. July 22, 2005)
(first citing 17A Am.Jur.2d Contracts § 384; then citing International Union, 240 S.W.2d at 56).
However, “[i]f two clauses are so ‘repugnant’ to one another that there is no way that they can be
harmonized, then one must fail.” Id. When faced with the question of how to reconcile a patent ambiguity
in a contract due to conflicting clauses, courts generally apply one of the following three approaches: they
“either give preference to the earlier clause when it conflicts with the later clause, the more important or
dominant of two conflicting clauses, or the more specific of two clauses that conflict with one another.”
11 Williston on Contracts § 32:15 (4th ed.). Kentucky follows the second approach. See International
Union, 240 S.W.2d at 56; Black Star Coal Corp. v. Napier, 199 S.W.2d 449, 451 (Ky. 1947). Kentucky’s

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Highest Court has established that “[w]here repugnancy is found between clauses, the one which
essentially requires something to be done to effect the general purpose of the contract is entitled to greater
consideration than the other.” Id. (citations omitted). Further, “[t]he whole agreement should, if possible,
be construed so as to conform to an evident consistent purpose.” Id. (stating that its decision was in
accord with Black Star Coal Corp. v. Napier, 199 S.W.2d 449 (Ky. 1947)).
The patent ambiguity in this case concerns conflicting arbitration provisions that are essentially
“boiler plate” language. These provisions are not critical to the general purpose of the contract—the sale
of concrete materials for the paving of the Hangar—and, consequently, determining which provision
furthers the contract’s general purpose is difficult. In fact, though Kentucky has a number of general
principles that courts use in their interpretation of contracts, even these enduring tools of contractual
interpretation do not greatly aid this Court in its determination of which arbitration provision should
apply. The Court will briefly address these principles. The first principle is that when a contract contains
an ambiguity, the ambiguous language generally is to be construed against the drafter. Cheshire v. Wright,
237 S.W.2d 52, 54 (Ky. 1951); Edwards v. Carlisle, 179 S.W.3d 257, 261 (Ky. Ct. App. 2004) (stating
that ambiguities in a contract should be construed against the drafter in the context of insurance contracts
and lease agreements). In this case, this principle is not particularly helpful as Iafrate drafted the
arbitration provision in the Purchase Order (Docket No. 38-2 at 4), and IMI drafted the arbitration
provision in the Credit Application. (Docket No. 38-3 at 2.) Another principle of contract interpretation
commands that “[w]hen inconsistencies appear on the face of the document, handwritten or typewritten
additions or alterations intentionally added by the parties will prevail over preprinted terms, and
handwriting prevails over typewriting.” Clair v. Hillenmeyer, 232 S.W.3d 544, 549 n.11 (Ky. Ct. App.
2007). “However, it is only where the written or typed words and the printed words are so contradictory
that an ambiguity arises that one must yield to the other.” Id. (citing 17A C.J.S. Contracts § 325). Here,
the provisions in conflict are both typewritten and preprinted, and therefore, this principle does not apply.
While this principle of construction does not directly apply, it is significant that the Purchase Order

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contains several handwritten notations by the parties, including the handwritten and initialed inclusion of
the Credit Application in the integration clause. (Docket No. 38-2 at 3-4.) The parties handwritten and
initialed changes to the form language in the Purchase Order suggest that the parties read the preprinted
form language and made the changes that the parties found to be necessary. Another principle of
interpretation is that the “definite and precise will prevail over the indefinite.” International Union, 240
S.W.2d at 56. The arbitration provisions at issue are both precise and clear but nevertheless in direct
conflict. Lastly, “an interpretation of the contract that gives a reasonable, lawful, and effective meaning to
all the terms is preferred to an interpretation which leaves a part unreasonable, unlawful, or of no effect.”
Journey Acquisition-II, 39 F. Supp. 3d at 887 (citations omitted) (internal quotation marks omitted). As
the arbitration provisions are mutually exclusive, this Court’s interpretation will cause one of them to
have “no effect.” Id. While this is not ideal, the two provisions cannot be reconciled.
Though the general principles of contract interpretation do not elucidate which arbitration clause
should prevail, the fundamental principle of contract interpretation which is to effectuate the intentions of
the parties is helpful to this Court. When effectuating the parties’ intent, “the court must take into account
the circumstances under which the agreement was executed, attempt to discern the effect that the parties
intended, and reconcile inconsistent terms where possible.” Tricon Global Rest. v. Johnson, No. 2005-SC0451-WC, 2006 WL 1652576, at *4 (Ky. June 15, 2006) (first citing Black Star Coal Corp. v. Napier,
199 S.W.2d 449 (Ky. 1947); then citing Lockwood's Trustee v. Lockwood, 62 S.W.2d 1053 (Ky. 1933)).
The Credit Application drafted by IMI appears to be much more of a preliminary document as Iafrate
filled in blank spaces with basic information and was the sole signatory. (Docket No. 38-3 at 1.)
Additionally, while the parties did strike through the “Unconditional Personal Guaranty” provision, they
did not otherwise alter the form language on the Credit Application. (See Docket No. 38-3 at 1-2.)
Alternatively, both Iafrate and IMI signed the Purchase Order and made several handwritten and initialed
changes to the form language. (Docket No. 38-2 at 2-4.) The Purchase Order contains specific terms
regarding the required materials and the place of shipment. (Docket No. 38-2 at 1.) The Purchase Order

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also has a “Notes” section that provides specific requirements for the performance of the contract. Id. The
requirements in the “Notes” section are particular to this transaction and not preprinted form language.
See id. The Purchase Order contains terms that were expressly bargained for as is evidenced by the
handwritten additions to the preprinted form language and the non-form, transaction specific language in
the “Notes” section. (See Docket No. 38-2 at 1-4.) Most importantly, neither party disputes the
applicability of the arbitration provision in the Purchase Order. (See Docket Nos. 38-1; 42; 43.) Iafrate
argues in its Motion to Compel Arbitration that both arbitration provisions apply, overlooking the
inherent conflict between the provisions, and IMI appears to accept the validity of the arbitration
provision in the Purchase Order as it argues in its Response to Iafrate’s Motion that Iafrate has explicitly
waived its right to arbitrate under the provision. (Docket Nos. 38-1 at 4-8; 42 at 1-2.) Through an analysis
of the documents comprising the contract between IMI and Iafrate and the parties own characterization of
their agreement through the course of this litigation, this Court finds that the arbitration provision in the
Purchase Order controls as this appears to be the intention of the parties.
Having determined that the arbitration provision in the Purchase Order will apply in this action,
the Court now looks to whether or not Iafrate may compel arbitration under the provision. The Purchase
Order’s arbitration provision states the following:
Seller agrees that the Buyer shall have the exclusive right to decide whether
disputes, controversies, or claims arising out of or relating to this Purchase Order
shall be settled in accordance with the rules of the American Arbitration
Association or through litigation in a court of competent jurisdiction.
(Docket No. 38-2 at 4) (emphasis added). IMI argues that Iafrate waived its right to arbitration when it
sent a letter to IMI on January 13, 2015 stating:
[T]he purchase order between Angelo Iafrate Construction Company and IMI
permits Angelo Iafrate to choose the forum of any formal dispute resolution
proceedings between them. It hereby chooses litigation in the Macomb County,
Michigan Circuit Court. Angelo Iafrate Construction Company’s payment bond
surety, CNA, hereby makes the same choice.
(Docket No. 42-1 at 1.)
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Though “[t]here is a strong presumption in favor of arbitration, and . . . waiver of the right to
arbitration is not to be lightly inferred,” O.J. Distrib., Inc. v. Hornell Brewing Co., 340 F.3d 345, 355 (6th
Cir. 2003) (quoting Cotton v. Slone, 4 F.3d 176, 179 (2d. Cir. 1993)), a party may waive the right to
arbitration either explicitly or implicitly by its actions. Gordon v. Dadante, 294 F. App’x. 235, 238 (6th
Cir. 2008). A party implicitly waives the right to arbitration “by failing to assert it or by participating in
litigation to such an extent that its actions are ‘completely inconsistent with any reliance’ on this right and
cause the opposing party to suffer prejudice.” Id. (citing Gen. Star Nat’l Ins. Co. v. Administratia
Asigurarilor de Stat, 289 F.3d 434, 438 (6th Cir. 2002)). Even though a waiver of a party’s right to
arbitration is not to be “lightly inferred,” there is no question in this case that Iafrate explicitly waived its
right to arbitrate in its letter to IMI in which it unequivocally elected to litigate in Macomb County,
Michigan Circuit Court.1 (Docket No. 42-1 at 1.) Iafrate had the exclusive right to choose either
arbitration or litigation in a court of competent jurisdiction, and it chose to litigate. See id. Iafrate’s
election to litigate operated as an explicit waiver of its right to proceed by arbitration. The Sixth Circuit
has recognized that when a party has a choice between arbitration and litigation, “the two methods [are]
inconsistent enough to require an election between them.” Am. Locomotive Co. v. Gyro Process Co., 185
F.2d 316, 320 (6th Cir. 1950). Furthermore, the court stated that “a waiver, partaking of the principle of
an election, like an election needs no consideration, and cannot be retracted.” Id. Though the party
seeking arbitration in American Locomotive Co. waived its right to arbitration implicitly, the court’s
analysis is still pertinent here. See id. at 317-20. The Sixth Circuit found that the party’s “actions
constituted an election” to litigate the case in Federal District Court and therefore “operated as a waiver of
its right to proceed by arbitration.” Id. at 320-21. Here, Iafrate’s letter to IMI electing to litigate in
Michigan Circuit Court serves as an explicit waiver of its right to arbitration.2

1

Iafrate cites multiple cases in its Reply to IMI’s Response to its Motion to Compel Arbitration that concern the
implicit waiver of a party’s right to arbitration. (Docket No.43 at 3-4.) Those cases are distinguishable from this
action because Iafrate explicitly waived its right to arbitration when it elected to litigate the matter.
2
Iafrate argues in its Motion to Compel Arbitration that Continental Insurance Company, as payment bond surety,
can “avail themselves of the arbitration agreement” as a non-signatory to the contract. (Docket No. 38-1 at 9.)

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In its Reply to IMI’s Response, Iafrate suggests that its choice to litigate is qualified by its stated
preference to litigate in Macomb County, Michigan Circuit Court. (Docket No. 43 at 2.) But, the
arbitration provision does not give Iafrate the right to choose the forum of the litigation. The clause gives
Iafrate the right to choose between arbitration or litigation not the location of the litigation. The
agreement states that “[b]uyer shall have the exclusive right to decide whether disputes, controversies, or
claims arising out of or relating to this Purchase Order shall be settled in accordance with the rules of the
American Arbitration Association or through litigation in a court of competent jurisdiction.” (Docket No.
38-2 at 4 (emphasis added).) There is no forum selection clause contained within the arbitration provision
or anywhere else in the agreement between the parties. (See Docket Nos. 38-2; 38-3.) Even if it was
somewhat unknowingly, IMI complied with Iafrate’s election to litigate when IMI filed this action on
January 13, 2015 which was the same day that Iafrate sent IMI the letter choosing to litigate. (Docket
Nos. 42-1 at 1; 43-1 at 3.) Iafrate’s choice to litigate does not limit or control IMI’s right to choose the
forum. Though it is “some 600 miles away” from where Iafrate expressed its desire to litigate, this Court
is a “court of competent jurisdiction.” (Docket Nos. 38-2 at 4; 43 at 2.) This Court has subject matter
jurisdiction through diversity of citizenship as the Plaintiff IMI is an Indiana Corporation with its
principal place of business in Indiana and Defendant Iafrate is a Michigan Corporation with its principal
place of business in Michigan, and Defendant Continental Insurance Company is incorporated in
Pennsylvania and its statutory home office is in Pennsylvania. There is complete diversity among the
parties and the amount in controversy exceeds $75,000 in accordance with 28 U.S.C. § 1332(a).
Therefore, because the Court is finds that Iafrate has explicitly waived its right to arbitration,
Iafrate’s Motion to Compel Arbitration is denied.

Iafrate waived its right to arbitration, and Iafrate’s waiver of arbitration binds Continental Insurance Company as
well. The Sixth Circuit has previously stated that “as a derivative claimant, a third party’s right to enforce a contract
cannot rise higher than the rights of the contracting party through whom he claims . . . because the beneficiary
cannot accept the benefits and avoid the burdens or limitations of a contract.” Joint Admin. Comm. of Plumbing &
Pipefitting Indus. in Detroit Area v. Washington Grp. Int'l, Inc., 568 F.3d 626, 631 (6th Cir. 2009) (citations
omitted) (internal quotation marks omitted).

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CONCLUSION AND ORDER
For the reasons enumerated above, Defendants’ Motion to Compel Arbitration, (Docket No. 38),
is DENIED.

September 25, 2015

cc: counsel of record

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