Bronco Construction, Inc. v. Schotten Fenster LLC et al
Filing
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MEMORANDUM OF DECISION AND ORDER granting 15 Motion to Stay; this case is STAYED as to all parties pending arbitration. Signed by District Judge Martin Reidinger on 12/23/2014. (thh)
THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
ASHEVILLE DIVISION
CIVIL CASE NO. 1:14-cv-00250-MR-DLH
BRONCO CONSTRUCTION, INC.
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Plaintiff,
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vs.
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SCHOTTEN FENSTER, LLC,
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VINNY CURRAN, HOLLIS
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ARCHITECTURAL PRODUCTS, LLC )
AND FRAZIER HOLLIS,
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Defendants.
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________________________________ )
MEMORANDUM OF
DECISION AND ORDER
THIS MATTER is before the Court on the Defendants Schotten
Fenster, LLC’s and Vinny Curran’s (“Defendants’”) Motion to Stay
Proceedings and Compel Arbitration Pursuant to 9 USCS § 3. [Doc. 15].
Bronco Construction, Inc. (“Plaintiff”) has filed a Response to such motion,
[Doc. 18], and the Defendants have replied [Doc. 20].
I.
FACTUAL AND PROCEDURAL BACKGROUND
The Plaintiff initiated this action in Henderson County Superior Court
on August 15, 2014, asserting claims of fraud, unfair and deceptive trade
practices, and breach of contract against the Defendants. [Doc. 1-1]. The
Defendants Frazier Hollis and Hollis Architectural Products, LLC removed
this case to this Court on September 19, 2014. [Doc. 1].
This case arises from an agreement between the parties for the
provision of “high-end, custom windows and doors for a large residential
construction project at Lake Toxaway.” [Doc. 18 at 1]. The Plaintiff is a
construction company which builds custom homes in Western North
Carolina and Florida. [Doc. 1-1]. Vinny Curran resides in Colorado and is
the president of Schotten Fenster, LLC, which has its principal place of
business in Colorado. [Doc. 17 at 2]. The Plaintiff entered into a contract
with Defendant Schotten Fenster, LLC [Doc. 1-1 at 13-15] which contained
the following provision:
Disputes. In the event of any disputes between Buyer
and Seller, or their assignees, such dispute shall be
decided by binding arbitration by the American
Arbitration Association in accordance with its
Construction Industry Arbitration Rules in effect as of
the commencement of the arbitration.
(a) The arbitration hearing shall be held in the City and
County of Denver, Colorado . . .
(c) In the event of any litigation between the parties,
including an action to enforce the arbitration award,
venue shall be in the County in which the arbitration
hearing was conducted and the parties waive their
rights to object to venue in any such court,
regardless of the convenience or inconvenience
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thereof to any party. The parties hereby consent to
personal jurisdiction in Colorado . . .
[Doc. 1-1]. The Plaintiff paid two payments to the Defendant Schotten
Fenster, LLC, totaling $371,609.00. [Doc. 1-1 at 5, Doc. 17 at 7]. By
August 2014, Schotten Fenster, LLC had not delivered the windows and
doors for the project. [Doc. 1-1 at 7, Doc. 17 at 10].
On November 7, 2014, the Defendants Schotten Fenster, LLC and
Vinny Curran filed their Motion to Stay Proceedings and Compel Arbitration
Pursuant to 9 USCS § 3 [Doc. 15], and the Plaintiff responded in opposition
to such motion on November 23, 2014 [Doc. 18]. The Defendants Schotten
Fenster, LLC and Vinny Curran have replied. [Doc. 20].
This matter is now ripe for disposition.
II.
DISCUSSION
According to the Federal Arbitration Act (“FAA”), § 2:
A written provision in any maritime transaction or a
contract evidencing a transaction involving
commerce to settle by arbitration a controversy
thereafter arising out of such contract or transaction,
or the refusal to perform the whole or any part
thereof, or an agreement in writing to submit to
arbitration an existing controversy arising out of
such a contract, transaction, or refusal, shall be
valid, irrevocable, and enforceable, save upon such
grounds as exist at law or in equity for the
revocation of any contract.
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9 U.S.C.A. § 2. The Fourth Circuit has held that “a litigant can compel
arbitration under the FAA if he can demonstrate “(1) the existence of a
dispute between the parties, (2) a written agreement that includes an
arbitration provision which purports to cover the dispute, (3) the relationship
of the transaction, which is evidenced by the agreement, to interstate or
foreign commerce, and (4) the failure, neglect or refusal of the defendant to
arbitrate the dispute.” Whiteside v. Teltech Corp., 940 F.2d 99, 102 (4th Cir.
1991).
Where there is a valid arbitration agreement with case issues within
its scope, “[a] district court . . . has no choice but to grant a motion to
compel arbitration.” Adkins v. Labor Ready, Inc., 303 F.3d 496, 500 (4th
Cir. 2002). There is a strong public policy in favor of arbitration in North
Carolina and on the federal level. See Johnston County v. R.N. Rouse &
Co., 331 N.C. 88, 91, 414 S.E.2d 30, 32 (1992); see also Vaden v.
Discover Bank, 556 U.S. 49, 129 S.Ct. 1262, 1265 (2009).
The FAA
preempts North Carolina’s law regarding arbitration where interstate
commerce is involved. Boynton v. ESC Medical System, Inc., 152 N.C.
App. 103, 107 (2002). A challenge to “the enforceability of an arbitration
clause under Section 2 of the FAA must rely on grounds that ‘relate
specifically to the arbitration clause and not just to the contract as a
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whole.’” Muriithi v. Shuttle Exp., Inc., 712 F.3d 173, 183 (4th Cir. 2013)
(citing Snowden v. CheckPoint Check Cashing, 290 F.3d 631, 636 (4th Cir.
2002) (citation omitted)).
According to the Federal Arbitration Act, § 3:
If any suit or proceeding be brought in any of the
courts of the United States upon any issue referable
to arbitration under an agreement in writing for such
arbitration, the court in which such suit is pending,
upon being satisfied that the issue involved in such
suit or proceeding is referable to arbitration under
such an agreement, shall on application of one of
the parties stay the trial of the action until such
arbitration has been had in accordance with the
terms of the agreement, providing the applicant for
the stay is not in default in proceeding with such
arbitration.
9 U.S.C.A. § 3.
“A litigant may waive its right to invoke the Federal Arbitration Act by
so substantially utilizing the litigation machinery that to subsequently permit
arbitration would prejudice the party opposing the stay.” Maxum Founds.,
Inc. v. Salus Corp., 779 F.2d 974, 981 (4th Cir. 1985) (citations omitted).
“Default” is “akin to waiver, but not identical.” Rota-McLarty v. Santander
Consumer USA, Inc., 700 F.3d 690, 702 (4th Cir. 2012).
Further, “the
circumstances giving rise to a statutory default are limited and, in light of
the federal policy favoring arbitration, are not to be lightly inferred.” Id. at
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702 (quoting Maxum Founds., Inc., 779 F.2d at 981). Thus, “the party
opposing arbitration bears a heavy burden to prove default.” Rota-McLarty
at 702 (quoting Am. Recovery Corp. v. Computerized Thermal Imaging,
Inc., 96 F.3d 88, 95 (4th Cir. 1996)). See Maxum Founds., Inc., 779 F.2d at
982 (holding that the mere filing of an answer and a third-party complaint,
along with three months of discovery, would not permit a court to find that
the right to arbitrate had been waived); see also In re TP, Inc., 479 B.R.
373, 387 (Bankr. E.D.N.C. 2012) (reconsideration denied, 486 B.R. 698
(Bankr. E.D.N.C. 2013)) (holding that the right to arbitrate had not been
waived where the opposing party had initiated a separate state court
action, argued to dismiss and moved for summary judgment, and obtained
attachment and garnishment orders in the state court action).
Further, the “party objecting to arbitration must be actually
prejudiced.” Maxum Founds., Inc., 779 F.2d at 982 (citing In re Mercury
Construction Co., 656 F.2d at 939 (4th Cir. 1981)). The “amount of ‘delay
and the extent of the moving party’s trial-oriented activity are material
factors in assessing a plea of prejudice.’” Wheeling Hosp., Inc. v. Health
Plan of the Upper Ohio Valley, Inc., 683 F.3d 577, 587 (4th Cir. 2012)
(quoting MicroStrategy Inc. v. Lauricia, 268 F.3d 244, 252-53 (4th Cir.
2001)). The Court must consider the actions which would be required of
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the non-movant to defend the movant’s case activity.
See Forrester v.
Penn Lyon Homes, Inc., 553 F.3d 340, 343 (4th Cir. 2009) (holding that
prejudice was present where the non-movants had to “expend significant
time and money,” had to reveal their trial strategy, and allowed the movant
to defeat several of the non-movant’s claims on summary judgment); see
also Fraser v. Merrill Lynch Pierce, Fenner & Smith, Inc., 817 F.2d 250 (4th
Cir. 1987) (finding prejudice where three motions to dismiss and a motion
for summary judgment had been filed).
State law “traditional principles” “allow a contract to be enforced by or
against nonparties to the contract through ‘assumption, piercing the
corporate veil, alter ego, incorporation by reference, third-party beneficiary
theories, waiver and estoppel.’” Arthur Andersen LLP v. Carlisle, 556 U.S.
624, 631 (2009) (citing 21 R. Lord, Williston on Contracts § 57:19, p. 183
(4th ed. 2001). Thus, nonsignatories may demand arbitration under the
FAA. Id.; see also American Bankers Insurance Group v. Long, 453 F.3d
623, 626-30 (4th Cir. 2006); see also International Paper v. Schwabedissen
Maschinen & Anlagen GMBH, 206 F.3d 411, 416-18 (4th Cir. 2000) (holding
that equitable estoppel prevented a nonsignatory plaintiff from avoiding
arbitration).
Particularly when “each of a signatory’s claims against a
nonsignatory makes reference to or presumes the existence of the written
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agreement, the signatory’s claims arise out of and relate directly to the
written agreement, and arbitration is appropriate.”
American Bankers
Insurance Group, 453 F.3d at 627 (quoting Brantley v. Republic Mortgage
Ins. Co., 424 F.3d 392, 395-96 (4th Cir. 2005) (internal citations omitted)).
Here, the contract between the parties required them to arbitrate “any
disputes” that arose between them. [Doc. 1-1]. The transaction was one of
interstate commerce, in which a North Carolina corporation entered into a
commercial transaction with a Colorado corporation. Id. The Plaintiff’s
claims against Defendant Vinny Curran presume the existence of the
written agreement and make the claims against him based on his position
as president of Schotten Fenster, LLC.
The Plaintiff brought this action without first demanding arbitration in
accord with the contract. [Doc. 15 at 2]. The Defendants filed their Motion
to Stay Proceedings and Compel Arbitration Pursuant to 9 USCS § 3 [Doc.
15] on November 7, 2014. On November 10, 2014, Defendant Schotten
Fenster, LLC admitted that the Plaintiff had made payments to it under the
contract [Doc. 17 at 7], and that Schotten Fenster, LLC had materially
breached the contract [Doc. 17 at 13].
Defendant Schotten Fenster, LLC’s admissions, however, do not
resolve all of the disputes between the parties.
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Claims for fraud and
deceptive trade practices remain. While the Plaintiff has generally alleged
fraud regarding the contract itself, it has not specifically alleged fraud
regarding the arbitration provision. [Doc. 7 at 14-15]. Thus, there is no
issue before this Court regarding the viability of the arbitration provision
itself. The Plaintiff takes issue with the legal principle that an arbitration
provision can be invalidated only by fraud as to that provision as opposed
to fraud in the inducement with regard to the contract as a whole. See
Rent-a-Center, W., Inc. v. Jackson, 561 U.S. 63, 70-71 (2010).
Plaintiff, however, cites no authority to the contrary.
The
The Plaintiff has
presented nothing to support a contention that the arbitration provision has
been procured by fraud.
Therefore, the arbitration provision must be
honored.
The admission of breach of contract by Schotten Fenster, LLC does
not, of itself, constitute a waiver of the arbitration provision of the contract.1
The claims of fraud, unfair trade practices, negligent misrepresentation,
and civil conspiracy by the Defendants remain unresolved and must still be
arbitrated.
In addition, the Defendants’ claim that the Plaintiff failed to
1
The Court is not deciding whether the breach of contract issue has been fully resolved
between the parties. There may be issues regarding material breach by the Plaintiff or other
defenses. These also may be issues as to the amount of damages. Such issues will be for the
arbitrator in this case.
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mitigate its damages is related to the contract between the parties and
must be arbitrated.
Furthermore, the Defendants did not “substantially utilize the litigation
machinery” in this case. Maxum Founds., Inc., 779 F.2d at 981. This case
has not progressed to a point in time or status that would prejudice the
Plaintiff. See Wheeling Hosp., Inc., 683 F.3d at 587. In fact, the admission
of the Defendant here has benefited the Plaintiff because the admission will
streamline and simplify the presentation of the Plaintiff’s case.
See
Forrester v. Penn Lyon Homes, Inc., 553 F.3d 340, 343 (4th Cir. 2009).
For these reasons the Court will grant a stay of this case as to all
parties until “arbitration has been had in accordance with the terms of the
agreement.” 9 U.S.C.A. § 3.
ORDER
IT IS, THEREFORE, ORDERED that the Motion of Defendants
Schotten Fenster, LLC and Vinny Curran to Stay Proceedings and Compel
Arbitration Pursuant to 9 U.S.C.A. § 3 [Doc. 15] is GRANTED and this case
is STAYED as to all parties pending arbitration.
IT IS SO ORDERED.
Signed: December 23, 2014
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