Steadfast Insurance Company v. Palmetto Civil Group LLC

Filing 23

ORDER granting 17 Motion to Compel Arbitration; granting 19 Motion to Compel Arbitration and Motion to Stay. Signed by Honorable Patrick Michael Duffy on December 1, 2017.(jmcg, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
CHARLESTON DIVISION
Steadfast Insurance Company,
Plaintiff,
v.
Palmetto Civil Group, LLC,
Defendant/Third-Party Plaintiff,
v.
Austin-Hitt Joint Venture, a joint venture
Composed of Austin Commercial, Inc., a
Subsidiary of Austin Industries, Inc., and
Hitt Contracting, Inc.,
Third-Party Defendant.

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C.A. No.: 2:17-cv-1119-PMD
ORDER

This matter is before the Court on Third-Party Defendant Austin-Hitt Joint Venture’s
motion to dismiss or stay the third-party complaint and compel arbitration (ECF No. 17). Also
before the Court is Defendant and Third-Party Plaintiff Palmetto Civil Group, LLC’s motion to
dismiss or stay and compel arbitration (ECF No. 19). For the reasons set forth herein, the Court
stays this action and compels arbitration of the entire case.
BACKGROUND AND PROCEDURAL HISTORY
This action arises out of a construction project at the Charleston International Airport. The
Charleston County Aviation Authority hired Austin-Hitt as the general contractor to redevelop and
improve the airport’s terminals. Austin-Hitt then subcontracted with Palmetto to perform civil site
work at the project. That subcontract was terminated, and Austin-Hitt’s insurer, Plaintiff Steadfast
Insurance Company, paid Austin-Hitt’s insurance claim arising out of the subcontract’s

termination. Steadfast then filed the instant action against Palmetto to recoup its losses from
paying the claim to Austin-Hitt. Palmetto answered and later asserted a third-party claim against
Austin-Hitt.
Austin-Hitt filed its motion on August 28, 2017, and Steadfast and Palmetto both responded
on September 11. Palmetto filed its own motion on September 11. Steadfast responded to that
motion on September 25, and Palmetto replied the next day. Accordingly, these matters are now
ripe for consideration.
LEGAL STANDARD
Once a litigant moves to compel arbitration under the Federal Arbitration Act (“FAA”), 9
U.S.C. §§ 1 et seq., the district court determines whether a matter should be resolved through
arbitration depending on (1) whether a valid arbitration agreements exists and, if so, (2) whether
the dispute falls within the scope of the arbitration agreement. AT&T Tech., Inc. v. Commc’ns
Workers of Am., 475 U.S. 643, 651 (1986); see Hooters of Am. v. Phillips, 173 F.3d 933, 938 (4th
Cir. 1999). The Supreme Court has consistently encouraged a “healthy regard for the federal
policy favoring arbitration.” Levin v. Alms & Assocs., 634 F.3d 260, 266 (4th Cir. 2011) (internal
quotation marks and citation omitted). “The heavy presumption of arbitrability requires that when
the scope of the arbitration clause is open to question, a court must decide the question in favor of
arbitration.” Id. (citation omitted).
DISCUSSION
Both Austin-Hitt and Palmetto seek to compel arbitration of various portions of this case.
Austin-Hitt seeks arbitration of Palmetto’s third-party complaint against it, while Palmetto seeks
arbitration of the entire case. The parties do not contest the validity of the arbitration clause at
issue, only its applicability. Steadfast states that it has no objection to arbitration of the third-party

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claim between Palmetto and Austin-Hitt, but does object to arbitration of its direct claim against
Palmetto. Steadfast also objects to the Court dismissing the case if it compels arbitration. Because
the primary dispute is whether Steadfast must arbitrate its claim against Palmetto, the Court
addresses that question first.
Palmetto argues that because Steadfast is Austin-Hitt’s subrogee, Steadfast stands in
Austin-Hitt’s shoes and is bound by the arbitration agreement contained in Palmetto and AustinHitt’s contract. The Court agrees. Steadfast’s claims against Palmetto arise out of Palmetto’s
alleged breach of its contract with Austin-Hitt. Thus, because Austin-Hitt and Palmetto are bound
to arbitrate disputes arising out of their contract, Steadfast must also arbitrate any such disputes
because it has no greater rights than Austin-Hitt. In Tetra Tech EC/Tesoro Joint Venture v. Sam
Temples Masonry, Inc., this Court addressed a similar situation. No. 3:10-cv-1597-CMC, 2011
WL 1326371 (D.S.C. Apr. 6, 2011). There, Judge Currie also addressed an insurer’s claim that
was based on a contract between a subcontractor and a general contractor. Id. at *1. Judge Currie
found that because the insurer would necessarily stand in the general contractor’s shoes in pursuing
the claim “as subrogee or otherwise,” the insurer was also bound by the arbitration provision in
the contract between the general contractor and the subcontractor to the extent the insurer sought
“to assert any claim under the contract.” Id.
Steadfast also appears to argue that Palmetto has waived its right to compel arbitration by
proceeding in this case without moving to compel arbitration until now, and by failing to include
arbitration in its answer as an affirmative defense. “[T]he FAA authorizes a party to an arbitration
agreement to demand a stay of proceedings in order to pursue arbitration, ‘provided the applicant
for the stay is not in default’ of that right.” Patten Grading & Paving, Inc. v. Skanska USA Bldg.,
Inc., 380 F.3d 200, 204 (4th Cir. 2004) (quoting 9 U.S.C. § 3). “Such default or waiver arises

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when the party seeking arbitration ‘so substantially utilized the litigation machinery that to
subsequently permit arbitration would prejudice the party opposing the stay.’” Id. (quoting Maxum
Founds., Inc. v. Salus Corp., 779 F.2d 974, 981 (4th Cir. 1985)). However, in light of the federal
policy favoring arbitration, the Fourth Circuit has held that it “‘will not lightly infer the
circumstances constituting waiver.’” Id. (quoting Am. Recovery Corp. v. Computerized Thermal
Imaging, Inc., 96 F.3d 88, 95 (4th Cir. 1996)). Thus, “[t]he party opposing arbitration on the basis
of waiver . . . bears a heavy burden.” Id. (citation and internal quotations omitted). This Court
has noted that “‘the dispositive question is whether the party objecting to arbitration has suffered
actual prejudice.’” Mozingo v. S. Fin. Grp., Inc., 520 F. Supp. 2d 725, 731 (D.S.C. 2007) (quoting
MicroStrategy, Inc. v. Lauricia, 268 F.3d 244, 249 (2001)). “‘Prejudice . . . refers to the inherent
unfairness—in terms of delay, expense, or damage to a party’s legal position—that occurs when
the party’s opponent forces it to litigate an issue and later seeks to arbitrate the same issue.’” Id.
(quoting Am. Reliable Ins. Co. v. Stillwell, 212 F. Supp. 2d 621, 628 (N.D. W. Va. 2002)). Here,
Palmetto cannot reasonably be said to have substantially utilized the litigation machinery as this
case is relatively new and no significant motions have been filed or decided. More importantly,
Steadfast has failed to demonstrate actual prejudice. Accordingly, the Court rejects Steadfast’s
apparent argument that Palmetto has waived its right to compel arbitration.
Steadfast also appears to argue that Rule 14 of the Federal Rules of Civil Procedure
precludes Palmetto from compelling arbitration. 1 The Court disagrees. As discussed above,
Steadfast’s claim against Palmetto would be subject to arbitration regardless of whether AustinHitt was a participant in the litigation because Steadfast is Austin-Hitt’s subrogee. Thus, the Court

1. To the extent Steadfast is instead arguing that the Court should dismiss Palmetto’s third-party complaint on the
basis of Rule 14, the Court could only address that argument if it determined that this action is not subject to arbitration.
Having determined that this action should go to arbitration, the Court need not address that argument.

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disagrees that Rule 14 provides any basis for Steadfast to avoid arbitration of its claims against
Palmetto.
Having concluded that all of the claims in this action are subject to arbitration, the Court
must determine whether to stay or dismiss this action while the parties proceed to arbitration. All
parties have agreed to a stay in the event the Court compels arbitration, but not all parties have
agreed to a dismissal. Having concluded that these claims should be arbitrated, the Court stays
this action in accordance with the direction in 9 U.S.C. § 3 that cases sent to arbitration should be
stayed.
CONCLUSION
For the foregoing reasons, it is ORDERED that both motions to compel arbitration are
GRANTED. Accordingly, this action is STAYED.
AND IT IS SO ORDERED.

December 1, 2017
Charleston, South Carolina

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