SRM Construction Material and Supply v. KCI Construction Company et al

Filing 12

MEMORANDUM AND ORDER IT IS HEREBY ORDERED that Defendants KCI Construction Companys and Liberty Mutual Insurance Companys Motion to Stay Litigation and Compel Arbitration (ECF No. 7) is GRANTED. IT IS FURTHER ORDERED that this matter is STAYED pendin g completion of the arbitration process. The parties shall jointly submit a notice updating the Court on the status of this case no later than ten (10) days following the completion of arbitration. IT IS FURTHER ORDERED that the Clerk of Court shall administratively close this matter until the parties notify the Court of the outcome of the arbitration process. 7 Signed by District Judge Jean C. Hamilton on 9/11/15. (CLA)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION

SRM CONSTRUCTION MATERIAL
AND SUPPLY,
Plaintiff,
v.
KCI CONSTRUCTION COMPANY,
LIBERTY MUTUAL INSURANCE
COMPANY,
Defendants.

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Case No. 4:15-cv-01155-JCH

MEMORANDUM AND ORDER
This matter is before the Court on Defendants KCI Construction Company’s (“KCI”) and
Liberty Mutual Insurance Company’s (“Liberty Mutual”) Motion to Stay Litigation and Compel
Arbitration. (ECF No. 7.) The Motion is fully briefed and ready for disposition.
BACKGROUND
In July 2015, Plaintiff SRM Construction Material and Supply (“SRM”) filed a
Complaint against Defendants KCI and Liberty Mutual in federal court, asserting diversity
jurisdiction. (Compl., ECF No. 1.) In the Complaint, SRM alleged the following facts.
In March 2014, SRM and KCI entered into a written construction contract (the
“Subcontract”), wherein SRM agreed to provide construction services for “The St. Louis County
Courts Project” (the “Project), and KCI agreed to pay SRM for its services. Id. ¶ 6. The
Subcontract was governed by certain provisions of the Project’s General Contract between KCI
and St. Louis County. Id. ¶ 7. Pursuant to the General Contract, KCI would retain a percentage
of all funds to be paid to a subcontractor until the subcontractor completed the work. KCI was
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required to return the subcontractor’s retained funds within 30 days of completion of the work.
Id. ¶ 8. The General Contract also required KCI to acquire a statutory payment or performance
bond for the Project (the “Bond”), which Liberty Mutual provided. Id. ¶¶ 10-11. In December
2014, SRM completed its work on the Project. Id. ¶ 8. Since then, KCI has refused to pay SRM
in accordance with the terms of the Subcontract, and Liberty Mutual has refused to pay SRM
under the Bond. Id. ¶¶ 9, 12.
SRM asserts four separate causes of action: (1) a breach-of-contract claim against KCI
(Count I); (2) a quantum-meruit claim against KCI (Count II); a statutory-bond claim against
KCI and Liberty Mutual (Count III); and a vexatious-refusal-to-pay claim against Liberty Mutual
(Count IV). Id. ¶¶ 18-45. As relevant, SRM’s quantum-meruit claim is based on allegations that
“SRM provided labor and materials for the Project at the specific direction of KCI,” and that
“KCI has refused to make payment” for such labor and materials. Id. ¶¶ 26, 29.
In addition, the Subcontract, a copy of which SRM attached to the Complaint (ECF No.
1.1), contains an arbitration clause, which reads as follows:
4. ARBITRATION: All claims or disputes between KCI and
Subcontractor arising out of the Project or relating in any manner to the
performance or breach of the Subcontract, shall be decided by arbitration which
shall be in accordance with the Construction Industry Arbitration Rules of the
American Arbitration Association currently in effect. The arbitration shall take
place in the locale where the Project is located or in St. Louis, Missouri as
determined by KCI in its sole discretion. The award rendered by the arbitrator(s)
shall be final and binding, and judgment may be entered upon it in accordance
with applicable law in any court having jurisdiction thereof.
Id. at 2.
As mentioned above, Defendants—relying on the arbitration clause contained in the
Subcontract—have moved to stay litigation and compel arbitration. (ECF No. 7.)

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DISCUSSION
I.

Defendants’ Request to Compel Arbitration
The Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq., “reflects a liberal federal policy

favoring arbitration.” Torres v. Simpatico, Inc., 781 F.3d 963, 968 (8th Cir. 2015) (internal
quotation and citation omitted).

“Because arbitration is a matter of contract, whether an

arbitration provision is valid is a matter of state contract law.” Id. at 968 (internal quotation and
citation omitted).

“If a valid and enforceable arbitration agreement exists under state-law

contract principles, any dispute that falls within the scope of that agreement must be submitted to
arbitration.” Id. (citation omitted); see also United Steelworkers of Am., AFL-CIO-CLC v.
Duluth Clinic, Ltd., 413 F.3d 786, 788 (8th Cir. 2005) (when deciding whether to compel
arbitration, court applies two-part test; court first considers whether valid agreement to arbitrate
exists, and then considers scope of agreement). If the arbitration clause is broad, the court
“analyze[s] whether the dispute relates to the subject matter of the agreement.” Duluth Clinic,
413 F.3d 786 at 789. “An order to arbitrate [a] particular grievance should not be denied unless
it may be said with positive assurance that the arbitration clause is not susceptible of an
interpretation that covers the asserted dispute.” Id. at 788.
Defendants argue that the Subcontract’s broad arbitration provision is valid and
enforceable, and encompasses the claims asserted by SRM against KCI. Defendants further
argue that the pending litigation against KCI should be stayed pursuant to the FAA. (ECF No. 8
at 3-4.) In response, SRM argues that its quantum-meruit claim is based on an alternative theory
that SRM performed work “above and beyond” what was required by the Subcontract, and that
the claim therefore falls outside the scope of the arbitration clause. SRM does not challenge the

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validity or enforceability of the arbitration clause, nor does SRM object to arbitration of its
breach-of-contract claim against KCI. (ECF No. 9 at 2-3.)
The Court concludes that there exists between SRM and KCI a valid arbitration
agreement, and neither party disputes that SRM’s breach-of-contract claim falls within its scope.
The Court further concludes that the arbitration agreement encompasses SRM’s quantum-meruit
claim against KCI. The arbitration clause plainly extends to “[a]ll claims or disputes between
KCI and [SRM] arising out of the Project or relating in any manner to the performance or breach
of the Subcontract.” SRM’s quantum-meruit claim is based on allegations that “SRM provided
labor and materials for the Project,” and that “KCI has refused to make payment” for such labor
and materials. Therefore, the claim is clearly one that “aris[es] out of the Project.” See 3M Co.
v. Amtex Sec., Inc., 542 F.3d 1193, 1196, 1199 (8th Cir. 2008) (plaintiff’s unjust-enrichment
claim fell within broad scope of arbitration provision; liberal federal policy favoring arbitration
agreements requires district court to send claim to arbitration when presented with broad
arbitration clause as long as underlying factual allegations “simply touch matters covered by”
arbitration provision); cf. Gore v. Alltel Commc’ns, LLC, 666 F.3d 1027, 1035-36 (7th Cir. 2012)
(“Given our broad reading of ‘arising out of and relating to,’ we are confident that [plaintiff’s
unjust-enrichment claim] also fall[s] within the scope of the arbitration clause.”) (citation
omitted). Thus, the Court will stay the pending litigation against KCI. See 9 U.S.C. § 3 (stay of
proceedings where issue therein referable to arbitration); Green v. SuperShuttle Int’l, Inc., 653
F.3d 766, 769 (8th Cir. 2011).
II.

Defendants’ Request to Stay Pending Litigation Against Liberty Mutual
“[T]he district court has discretion to stay third party litigation [that] involves common

questions of fact that are within the scope of the arbitration agreement.” See AgGrow Oils, LLC

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v. Nat’l Union Fire Ins. Co., 242 F.3d 777, 783 (8th Cir. 2001) (internal quotation and citation
omitted) (alteration in original). “[A] discretionary stay may well be needed to further the strong
federal policy favoring agreements to arbitrate,” even if it results in piecemeal litigation. Id.
“[I]n a complex, multi-party dispute…issues such as the risk of inconsistent rulings, the extent to
which parties will be bound by the arbitrators’ decision, and the prejudice that may result from
delays must be weighed in determining whether to grant a discretionary stay, and in fashioning
the precise contours of any stay.” Id. at 783 (citations omitted).
Defendants argue that, because SRM’s claims against Liberty Mutual depend on the
resolution of the underlying dispute between SRM and KCI, the Court should stay the pending
litigation against Liberty Mutual. (ECF No. 8 at 4-6.) In response, SRM argues that “Liberty
Mutual’s obligation to pay under the bond is a separate and distinct obligation and any liability
on the part of Liberty Mutual is not contingent on finding KCI liable on any claim.”1 (ECF No.
9 at 3-4.)
Upon consideration of the relevant factors, the Court finds a stay of the pending litigation
against Liberty Mutual appropriate. Contrary to SRM’s assertions, SRM’s claims against KCI
and Liberty Mutual clearly involve common questions of law and fact, as Liberty Mutual’s
liability to SRM wholly depends on whether KCI is liable for breach of the Subcontract. See
Pace Const. Co. v. Travelers Cas. & Sur. Co. of Am., 259 F. Supp. 2d 934, 937-38 (E.D. Mo.
2003) (“[I]n Missouri, a surety’s liability for contract damages is co-extensive with the liability
of the principal”; principal must be liable to plaintiff before surety can be liable to plaintiff)

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SRM also argues that the surety contract is an insurance contract, and thus, under Missouri law,
cannot be subject to a binding arbitration clause. (ECF No. 9 at 4-5.) However, Defendants do
not argue that SRM’s claims against Liberty Mutual are subject to the arbitration clause, only
that the pending litigation against Liberty Mutual should be stayed until the underlying dispute
between SRM and KCI is arbitrated.
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(internal quotation and citation omitted). Permitting SRM’s claims against Liberty Mutual to
proceed would require the Court to render rulings on legal and factual matters which an
arbitrator will soon consider. This would inevitably create a risk of inconsistent rulings, and
could also allow SRM to avoid its duty to arbitrate with KCI the underlying issues related to the
Subcontract. See Sunopta, Inc. v. Abengoa Bioenergy New Techs., Inc., 4:08CV78 JCH, 2008
WL 782656, at *5-6 (E.D. Mo. Mar. 20, 2008). Therefore, Defendants’ request to stay the
pending litigation against Liberty Mutual will be granted.
CONCLUSION
Accordingly,
IT IS HEREBY ORDERED that Defendants KCI Construction Company’s and Liberty
Mutual Insurance Company’s Motion to Stay Litigation and Compel Arbitration (ECF No. 7) is
GRANTED.
IT IS FURTHER ORDERED that this matter is STAYED pending completion of the
arbitration process. The parties shall jointly submit a notice updating the Court on the status of
this case no later than ten (10) days following the completion of arbitration.
IT IS FURTHER ORDERED that the Clerk of Court shall administratively close this
matter until the parties notify the Court of the outcome of the arbitration process.

Dated this 11th day of September, 2015.

/s/ Jean C. Hamilton
UNITED STATES DISTRICT JUDGE

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