Ohio Power Company v. Dearborn Mid-West Conveyor Company, Inc.

Filing 35

MEMORANDUM OPINION AND ORDER GRANTING, WITHOUT PREJUDICE, DEFENDANTS MOTIONTO DISMISS 7 FOR LACK OF SUBJECT MATTER JURISDICTION,DENYING AS MOOT DEFENDANTS MOTION 21 FORLEAVE TO FILE THIRD-PARTY COMPLAINTAND DENYING AS MOOT DEFENDANTSMOTION 22 TO MODIFY SCHEDULING ORDER. Clerk is DIRECTED to enter judgment Signed by Senior Judge Frederick P. Stamp, Jr on 6/29/12. (mji)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
OHIO POWER COMPANY,
Plaintiff,
v.

Civil Action No. 5:11CV164
(STAMP)

DEARBORN MID-WEST CONVEYOR
COMPANY, INC.,
Defendant.
MEMORANDUM OPINION AND ORDER
GRANTING, WITHOUT PREJUDICE, DEFENDANT’S MOTION
TO DISMISS FOR LACK OF SUBJECT MATTER JURISDICTION,
DENYING AS MOOT DEFENDANT’S MOTION FOR
LEAVE TO FILE THIRD-PARTY COMPLAINT
AND DENYING AS MOOT DEFENDANT’S
MOTION TO MODIFY SCHEDULING ORDER
I.

Procedural History

The plaintiff, Ohio Power Company (“OPC”) commenced this civil
action by filing a complaint in the Circuit Court of Marshall
County, West Virginia.

This case arises out of an explosion that

occurred on October 14, 2009 within OPC’s sulfur reclaim tunnel -a structure designed and constructed by the defendant, Dearborn
Mid-West Conveyor Company, Inc. (“Dearborn”).

The complaint sets

forth claims of negligence, strict liability, breach of contract,
breach of warranty, and indemnification and seeks damages for all
costs

to

repair

and

redesign

the

coal

tunnel,

business

interruption, attorney’s fees, and other expenses caused by the
damage to the sulfur coal reclaim tunnel.

Shortly after the defendant removed the case to this Court,
Dearborn filed a motion to dismiss for lack of subject matter
jurisdiction. In support of its motion to dismiss, Dearborn argues
that, pursuant to the provisions of the contract between OPC and
Dearborn, mediation is a condition precedent to litigation, and
because the plaintiff failed to request or invoke mediation before
filing this lawsuit, this case must be dismissed for lack of
subject matter jurisdiction.

In response, OPC argues that there

exists no applicable contractual provision requiring OPC to submit
its claims to mediation.

OPC also argues that the defendant,

through

waived

its

enforcement

conduct,
of

the

has

mediation

any

right

provision.

to

now

seek

the

Alternatively,

OPC

requests that if the Court finds that the disputed provision is a
prerequisite

to

litigation,

then

the

Court

should

stay

all

proceedings pending the mediation process.
In reply, Dearborn reiterates its argument that the plain
language of the contract mandates that OPC’s claims should have
been mediated.

Also, Dearborn argues that there is no factual

predicate to justify waiver or estoppel of its right to mediation.1
The motion to dismiss is currently pending before this Court, and

1

The defendant later filed an amended reply to correct certain
typographical errors.
2

for the reasons set forth below, this Court finds that the motion
to dismiss must be granted, but without prejudice.2
II.

Facts

OPC is the owner and operator of the Mitchell Power Plant
located in Marshall County, West Virginia.

Compl. ¶ 1.

In 2004,

as part of a construction project referred to as the Wet Flue Gas
Desulferization Retrofit Project (“WFGD”), OPC contracted with
Dearborn to design and construct a coal blending system.3
¶¶ 3-4.

Compl.

By contract dated October 7, 2005, Dearborn was to

“furnish all engineering, design, materials, supervision, labor and
equipment as may be required to provide a complete and operational
coal blending system for WFGD.”

Compl. ¶ 5.

Pursuant to the

contract, Dearborn constructed the coal blending conveyor system at
OPC’s Mitchell facility, which was completed and operational around
September 2006.

Compl. ¶ 6.

occurred

the

within

sulfur

constructed by Dearborn.

On October 14, 2009, an explosion
coal

reclaim

Compl. ¶ 7.

tunnel

designed

and

The explosion allegedly

resulted in considerable damage to the coal reclaim tunnel, and the
cost of repairs allegedly exceeds $3,000,000.00.

Compl. ¶ 7.

2

This Court notes that according to the report of the mediator
filed on May 23, 2012, a settlement conference was held in this
action on May 21, 2012.
3

American Electric Power
contract as agent for OPC.

Service
3

Corporation

signed

the

Dearborn was placed on notice of the explosion and of OPC’s
potential claims, and prior to filing the complaint, counsel for
the parties discussed the claims.

Pl.’s Resp. 2.

The repairs to

the sulfur coal reclaim tunnel took significant time to complete,
meaning that OPC was unable to understand the full nature of the
design defects and the amount of the damage until much later.

Id.

During this time, OPC was in contact with the defendant to advise
it of the status of the repairs and the timing of its pursuit of
its claim.

Id.

Ultimately, on October 5, 2011, counsel for the

plaintiff contacted the defendant to advise of his intent to file
the present action and to invite the defendant to engage in
settlement discussions.

Pl.’s Resp. 3.

Settlement discussions

were not held, and prior to the filing of the complaint, the
defendant did not raise the issue of the mandatory mediation
process set forth in Article 43.0 of the contract.
III.

Id.

Applicable Law

A party may move to dismiss an action for lack of subject
matter jurisdiction under Rule 12(b)(1) of the Federal Rules of
Civil Procedure.

A motion pursuant to Rule 12(b)(1) should be

granted “only if the material jurisdictional facts are not in
dispute and the moving party is entitled to prevail as a matter of
law.”

Evans v. B.F. Perkins Co., 166 F.3d 642, 647 (4th Cir. 1999)

(internal quotations and citations omitted). The burden of proving
that subject matter jurisdiction exists rests with the plaintiff.

4

Id.

When considering a Rule 12(b)(1) motion, the court should

“regard the pleadings as mere evidence on the issue, and may
consider evidence outside the pleadings without converting the
proceeding to one for summary judgment.”

Id.; see also Adams v.

Bain, 697 F.2d 1213, 1219 (4th Cir. 1982) (“A trial court may then
go beyond the allegations of the complaint and in an evidentiary
hearing determine if there are facts to support the jurisdictional
allegations.”).
A lack of subject matter jurisdiction may be asserted at any
time by any interested party either in the form of the answer or in
the form of a suggestion to the court prior to final judgment.

5B

Charles Alan Wright & Arthur R. Miller, Federal Practice and
Procedure § 1350 (3d ed. 1998).

Because the court’s very power to

hear the case is at issue in a Rule 12(b)(1) motion, the trial
court is free to weigh evidence outside of the pleadings to
determine the existence of its jurisdiction.
States,

50

F.3d

299,

304

(4th

Cir.

Williams v. United

1995).

No

presumptive

truthfulness attaches to plaintiff’s allegations, and the existence
of disputed material facts will not preclude the trial court from
evaluating

for

itself

the

merits

of

jurisdictional

claims.

Materson v. Stokes, 166 F.R.D. 368, 371 (E.D. Va. 1996).

If the

court

matter

determines

jurisdiction,

it

at
must

any

time

dismiss

that
the

12(h)(3).

5

it

lacks

action.

subject

Fed.

R.

Civ.

P.

IV.

Discussion

In support of its motion to dismiss for lack of subject matter
jurisdiction, the defendant asserts three main claims: (1) failure
to mediate a dispute pursuant to a contract that makes mediation a
condition precedent to litigation warrants dismissal; (2) Ohio
contract law applies and requires that the mediation provision be
enforced; and (3) the plaintiff’s claims arise out of or relate to
the contract.

In its response, OPC does not dispute that the

American Electric Power General Terms and Conditions for Generation
Projects

are

enforceable.

a

part

of

the

contract

or

that

its

terms

are

However, OPC contends that the section of the

contract concerning disputes, Article 43.0, has no application to
the present action because it only applies to resolve disputes
which arise during the applicable construction project and cannot
be applied to disputes that arise following the completion of the
contract.

Therefore, according to the plaintiff, there exists no

applicable contractual provision requiring OPC to submit its claims
to mediation.
copy

of

the

OPC also argues that despite being provided with a
complaint

and

receiving

a

request

to

engage

in

settlement discussions, the defendant refused to attempt to resolve
the claims, and thus is now estopped from seeking enforcement of
Article 43.0.

6

A.

Applicability of Article 43.0
Article 43.0 of the American Electric Power General Terms and

Conditions for Generation Projects states, in pertinent part:
43.1 The parties shall settle any dispute arising out of
or relating to this Contract through the step negotiation
and non-binding mediation set forth herein prior to the
initiation of any litigation. Good faith participation
in these procedures shall be a condition precedent to any
litigation. All negotiations pursuant to this Section
shall be confidential and shall be treated as compromise
and settlement negotiations for purposes of the Federal
Rules of Evidence and State Rules of Evidence.
Def.’s Mot. to Dismiss Ex. A, Art. 43.1.

The contract also

provides that “Except for Article 20.0 [regarding indemnification],
the rights and obligations of the parties arising out of the
Contract shall be governed in all respects by the laws of the State
of Ohio.”

Def.’s Mot. to Dismiss Ex. A, Art. 42.1.

This Court finds that the language of the contract is clear -because OPC failed to seek resolution of its disputes under the
mandatory mediation provision prior to filing suit, dismissal of
this action is warranted.4

The plaintiff’s argument regarding the

limited application of Article 43.0 is without merit. Article 43.1

4

In its response to the motion to dismiss, OPC argues that the
contract is not ambiguous and that Article 43.0 has no application
to the present action. The plaintiff goes on to argue that to the
extent this Court deems an ambiguity to exist, this Court should
consider the affidavit of Edward J. Jayjack to aid in the
interpretation of the contract. In its reply, Dearborn argues that
the affidavit should be stricken because it is immaterial. This
Court agrees that Jayjack’s affidavit is irrelevant because the
contract is unambiguous. However, it is not necessary to strike
the affidavit from evidence, as this Court is permitted to consider
evidence outside the pleadings on a Rule 12(b)(1) motion.
7

provides that “any dispute arising out of or relating to this
Contract” must be mediated or settled through step negotiation.
This language does not suggest, as the plaintiff argues, that
Article 43.0 applies only to disputes that arise while the work is
being performed.
Article

43.0

Had OPC desired to limit the disputes to which

applies

to

only

those

that

arise

during

the

construction project, it could have included language to that
effect in the contract when it was drafted. The meaning of Article
43.0 can be determined from the four corners of the agreement, and
the mere fact that it may be difficult to construe does not make
the contract ambiguous.

See Drews Distrib., Inc. v. Leisure Time

Tech., Inc., 175 F.3d 1014 (4th Cir. 1999) (quoting McCann v. Glynn
Lumber Co., 34 S.E.2d 839, 845 (Ga. 1945)).
In

support

of

its

interpretation

of

Article

43.0,

plaintiff cites Articles 43.3 and 43.5 of the contract.

the

Article

43.3 sets forth the protocol to initiate the process to resolve a
dispute

relating

to

the

contract,

and

Article

43.5

states,

“[c]ontractor agrees to proceed with its Work, including disputed
portions, during the pendency of these procedures.”

The plaintiff

argues that once the construction has been completed and final
payment tendered, the protocol of Article 43.3 is no longer
relevant because there is no one at the “project team level” to
address any dispute, nor is there a Managing Director of Project &
Field Services.

However, this Court finds that the existence, or

8

lack thereof, of a “project team” or “Managing Director of Project
& Field Services” would not prevent the parties from shifting
responsibilities to other executives in order to negotiate a
dispute.

In fact, the mediation provisions clearly set forth a

series of negotiation steps, and barring resolution at one level,
the parties are directed to seek resolution by proceeding to the
next step in the process.

Def.’s Mot. to Dismiss Ex. A, Art. 43.3.

With regard to Article 43.5, this Court finds that the fact that
the mediation procedure contemplates that work continue while
disputes are mediated prior to the completion of the contract does
not mean that the mediation procedure applies only to claims
arising during the pendency of the contract.
The plaintiff also cites two other provisions as further
support, by way of comparison, for its argument that Article 43.0
is inapplicable in the instant case.

Pointing to Article 30.0, in

which the defendant warrants the materials and workmanship for a
period of one year following completion and acceptance of the work,
the plaintiff highlights the portion which states: “Warranty claims
hereunder

are

subject

to

the

contract

disputes

procedures.

However, the parties shall proceed with the remedies under this
Article during pendency of such procedures.”

Def.’s Mot. to

Dismiss Ex. A, Art. 30.7. According to the plaintiff, Article 30.0
relates

only

to

the

situation

of

permitting

performed without delays due to litigation.

9

the

work

to

be

In contrast, Article

20.0, which relates to indemnification obligations, contains no
reference

to

the

dispute

procedures

--

instead,

it

directly

addresses the indemnity obligations of the parties in light of
claims that may arise out of the contract.

In the view of the

plaintiff, the absence of any reference to the “disputes” article
in Article 20.0 is noteworthy because it indicates that Article
43.0

does

not

apply

to

the

present

action,

which

concerns

litigation between the parties for liability, claims and costs
which arise from the contract.
This Court finds no merit to the plaintiff’s argument that
Article 43.0 is inapplicable to this dispute.

Article 30.7, cited

by the plaintiff in what appears to be an attempt to distinguish
between claims arising while the work is being performed versus
claims

arising

subsequent

to

the

completion

of

the

project,

specifically states that “[w]arranty claims hereunder are subject
to the contract disputes procedures.” There is no reason to assume
that this language applies only to disputes that arise during the
pendency of the project.

Rather, the plain and unambiguous

language of the contract makes clear that the claims in this action
are subject to the mediation requirement of Article 43.0.
The plaintiff’s reliance on the lack of any reference to the
mediation provisions in the contract’s indemnification section,
Article 20.0, is also misplaced.

A claim by OPC against a

contractor for indemnification against third-party claims is an

10

attempt by OPC to pass responsibility of the third-party claim
along to the contractor.

The substance of the third-party claim

could not be mediated as between OPC and the contractor, thus, it
is illogical to suggest that mediation would apply in the context
of a third-party indemnity claim.

It follows that the lack of a

mandatory mediation provision in the identification article does
not suggest that the mandatory mediation dispute procedure is
inapplicable to other disputes that arise from the contract.
B.

Choice of Law
As the defendant correctly notes, the contract provides that,

“[e]xcept for Article 20.0 [relating to indemnification issues],
the rights and obligations of the parties arising out of the
Contract shall be governed in all respects by the laws of the State
of Ohio.”

Def.’s Mot. to Dismiss Ex. A, Art. 42.1.

Applying the

choice of law rules of West Virginia, the defendant concludes that
Ohio

law

governs

the

application

of

the

mandatory

mediation

provision, as the parties chose Ohio law to govern the contract.
According to the defendant, Ohio law clearly favors the enforcement
of the mediation provision and requires that the case be dismissed
for failure to follow the same.
In

its

response,

the

plaintiff

does

not

address

the

defendant’s argument that Ohio contract law applies and requires
that the mediation provision be enforced.

Instead, the plaintiff

claims that resolution of the choice of law issues is not necessary

11

to properly address the present motion.

The plaintiff does

acknowledge, however, that the express language and terms utilized
in the contract will be given their effect so as to reveal the
parties’ intention.

In this case, it was clearly the intention of

the parties that Ohio law govern all rights and obligations of the
parties arising out of the contract, except for indemnification
issues.

Because

the

plaintiff

does

not

argue

against

the

application of Ohio law, and because this Court agrees that Ohio
courts favor alternative dispute resolution provisions, this Court
finds that Ohio law favors the enforcement of the mediation
provision in this case.

See Acme Arsena Co., Inc. v. J. Holden

Constr. Co., Ltd., No. 91450, 2008 WL 5182912, at *2 (Ohio App.
Dec. 11, 2008) (recognizing that alternative dispute resolutions
are a favored practice of both Ohio and federal courts that there
is a strong presumption in favor of avenues other than lengthy
litigation to settle disputes between parties).
C.

Claims Relating to the Contract
Lastly, the defendant argues in support of its motion to

dismiss that the plaintiff’s claims arise out of or relate to the
contract.

Specifically, the defendant asserts that OPC’s claims

arise from the scope of work to be performed by Dearborn on the
project as defined by the contract.

In the complaint, OPC asserts

that Dearborn’s negligence arises out of and relates to having
tortuously breached its legal duty to properly engineer, design,

12

construct, install and manage portions of the work. In the view of
the defendant, these alleged legal duties are created by the fact
that there is a contract which establishes the relationship and
obligations between the parties.

The defendant concludes by

arguing that because all of the plaintiff’s claims are premised on
the alleged breach of express or implied terms of the contract,
these

claims

should

have

undergone

mandatory

mediation

as

a

condition precedent to filing this civil action.
In its response, the plaintiff counters that its indemnity
claim arises from an event occurring more than one year after
completion of the contract and does not fall within Article 30.0.
Therefore, according to the plaintiff, Article 43.0 does not apply
to the warranty and indemnity claims set forth in Counts III and IV
of the complaint.

Pl.’s Resp. n.11.

The plaintiff argues that

Article 20.0, which relates to indemnification obligations and
contains no reference to Article 43.0 or the dispute procedures, is
the article under which the claims in this case fall.
This Court disagrees with the plaintiff’s position.

All of

the claims in this civil action arise out of and relate to the
contract.

If there was a legal duty on the part of Dearborn to

properly engineer, design, construct, install and manage portions
of the work, as OPC alleges, this duty arises solely from the fact
that OPC and Dearborn are in privity of contract.

The plaintiff

acknowledges that Article 20.0 “is commonly invoked when OPC is

13

joined in a lawsuit by an employee of the contractor for injuries
occurring on its premises.

OPC would then pursue a cross-claim

against the contractor for indemnification in accordance with this
provision.”

Pl.’s Resp. n.13.

The lawsuit that the plaintiff

describes in its response is not the lawsuit that is before this
Court.

All four counts of the plaintiff’s complaint assert claims

that are “directly attributable to the defendant’s performance
under the contract at issue,” and thus, should have gone to
mandatory negotiation and mediation.
D.

Compl. ¶ 25.

Waiver and/or Estoppel
In its response to the motion to dismiss, the plaintiff argues

that if this Court determines that Article 43.0 is applicable to
the present litigation, the defendant, through its conduct, has
waived any right to now seek the enforcement of the mediation
provision. In support of this argument, OPC describes its attempts
to notify the defendant of its claims and engage in settlement
discussions prior to litigation.

Specifically, the plaintiff

states

complaint,

that

defendant

prior

with

a

to

filing

courtesy

settlement discussions.

the

copy

and

it

requested

provided
to

engage

the
in

The plaintiff states that its request was

rejected, and that the defendant advised it to file the complaint,
without ever referencing the mediation provision.
In its reply, the defendant refutes the plaintiff’s assertion
that it encouraged the plaintiff to file and serve the complaint.

14

Further, the defendant contends that it did not reject settlement
negotiations.

Applying Ohio law, the defendant argues that it

neither waived, nor is estopped from, asserting its right to
mediation.

This Court agrees.

The Court of Appeals of Ohio has

held:
Waiver of the right to arbitrate is not to be lightly
inferred. Because of the strong public policy in favor
of arbitration, the heavy burden of proving waiver of the
right to arbitration is on the party asserting a waiver.
A party asserting waiver has to prove two elements: that
the party waiving the right knew of the existing right of
arbitration, and that it acted inconsistently with that
right.
An arbitration provision in a contract may be waived
either by express words or by necessary implication.
Thus, a plaintiff’s filing of a complaint may be a waiver
of that party’s right to arbitrate. Similarly, other
acts inconsistent with the right to proceed with
arbitration,
including
actively
participating
in
litigation, may effect a waiver.
Griffith v. Linton, 721 N.E.2d 146, 750-51 (Ohio App. 1998)
(internal citations omitted).

In this case, there is no evidence

of either waiver or estoppel on the part of the defendant.
Fourth

Circuit

has

found

that

a

party

waives

its

The

right

to

arbitration “only when the party seeking to enforce an arbitration
clause ‘so substantially utiliz[ed] the litigation machinery that
to

subsequently

permit

arbitration

would

prejudice

the

party

opposing [enforcement of the provision].’” Tattoo Art, Inc. v. Tat
Int’l, LLC, 711 F. Supp. 2d 645, 652-53 (E.D. Va. 2010) (quoting
Patten Grading & Paving v. Skanska USA Building, Inc., 380 F.3d
200, 204 (4th Cir. 2004)).

In Tattoo Art, Inc., the court applied
15

this test to a mediation provision similar to the provision at
issue here and determined that the plaintiff had failed to carry
its burden of proving waiver. This Court similarly finds that none
of the defendant’s actions represent an intentional relinquishment
of its rights under the contract.

Id. at 652.

Moreover, the mere

fact that Dearborn may have had notice of a potential claim by OPC
does not create a duty on the part of Dearborn to resolve OPC’s
claim. OPC, as the claimant in this action, had the responsibility
of abiding by the dispute procedures set forth in the contract. It
was not the defendant’s duty to remind the plaintiff of, or
encourage the plaintiff to act in accordance with, the provisions
in its own contract.
E.

Request to Stay Proceedings
The plaintiff concludes its response in opposition to the

motion

to

dismiss

by

requesting

that

proceedings pending the mediation process.

this

Court

stay

the

The plaintiff argues

that a stay is the appropriate course of action because it will
enable OPC to avoid suffering significant prejudice. Specifically,
OPC refers to the defendant’s alleged intention to assert the
statute

of

limitations

plaintiff’s claims.

as

a

bar

upon

the

refiling

of

the

The plaintiff also contends that the Federal

Arbitration Act (“FAA”) is applicable to this case and requires a
mandatory stay of proceedings. However, as the defendant correctly
states in its reply, mediation is not within the scope of the FAA,

16

and

thus,

a

stay

is

not

mandatory.

See

Advanced

Bodycare

Solutions, LLC v. Thione Int’l, Inc., 524 F.3d 1235, 1240 (11th
Cir. 2008) (“In short, because the mediation process does not
purport to adjudicate or resolve a case in any way, it is not
‘arbitration’ within the meaning of the FAA.

Accordingly, FAA

remedies, including mandatory stays and motions to compel, are not
appropriately invoked to compel mediation.”); see also Perdue
Farms, Inc. v. Design Build Contracting Corp., 263 F. App’x 380,
384 (4th Cir. 2008) (holding that the FAA does not compel a court
to stay litigation where the contract itself does not call for
arbitration);

Tattoo

Art,

Inc.,

711

F.

Supp.

2d

at

650

n.2

(collecting cases and noting that some courts have found that
mediation is a type of alternative dispute resolution falling with
the FAA while the Eleventh Circuit has not).

This case presents

the question of whether the parties agreed to make mandatory
mediation a condition precedent to litigation.
that they did.
prejudice.

This Court finds

Therefore, this action must be dismissed without

See Tattoo Art, Inc., 711 F. Supp. 2d at 652 (finding

that failure to satisfy the condition precedent necessary to
trigger the right to initiate litigation requires dismissal without
prejudice).
V.

Conclusion

For the reasons set forth above, this Court finds that the
defendant’s

motion

to

dismiss

17

for

lack

of

subject

matter

jurisdiction (ECF No. 7) must be GRANTED, but without prejudice.
Further, the defendant’s motion for leave to file a third-party
complaint (ECF No. 21) is DENIED AS MOOT, and the defendant’s
motion to modify the scheduling order (ECF No. 22) is DENIED AS
MOOT.

It is further ORDERED that this civil action be DISMISSED

and STRICKEN from the active docket of this Court.
IT IS SO ORDERED.
The Clerk is DIRECTED to transmit a copy of this memorandum
opinion and order to counsel of record herein. Pursuant to Federal
Rule of Civil Procedure 58, the Clerk is DIRECTED to enter judgment
on this matter.
DATED:

June 29, 2012

/s/ Frederick P. Stamp, Jr.
FREDERICK P. STAMP, JR.
UNITED STATES DISTRICT JUDGE

18