Opinion
Case No. 01-2410-JAR, Case No. 03-2664-JAR
April 28, 2004
MEMORANDUM AND ORDER DENYING MOTION TO DISMISS
This matter comes before the Court on defendant B-S Steel of Kansas, Inc.'s (B-S Steel) Motion to Dismiss (Doc. 3) plaintiff Chaparral Steel Midlothian, L.P.'s (Midlothian) Petition for Order Confirming Arbitration Award (Doc. 1) filed in Case No. 03-2664. B-S Steel argues dismissal is warranted pursuant to Fed.R.Civ.P. 12(h)(3) for lack of subject matter jurisdiction and Fed.R.Civ.P. 12(b)(3) for improper venue. For the reasons stated below, B-S Steel's motion is denied.
A. Procedural History
On August 15, 2001, B-S Steel filed suit in Case No. 01-2410, naming as defendants Texas Industries, Inc. and Chaparral Steel Company. B-S Steel filed an amended complaint on December 6, 2001, naming as additional defendants Chaparral Steel Texas, Inc. and Midlothian. By its Order dated September 4, 2002, this Court referred B-S Steel's claims against Midlothian, which were based on transactions occurring before April 3, 2001, to arbitration pursuant to the Conditions of Sale Contract between B-S Steel and Midlothian. This Court found in its Order that the Conditions of Sale Contract signed on February 26, 1997 and effective with invoices after July 1, 1996 was "valid and enforceable."
In a likely attempt to avoid arbitration and following this Court's Order compelling arbitration, B-S Steel voluntarily dismissed Midlothian from Case No. 01-2410 on September 17, 2002. On that same day, B-S Steel informed Midlothian by letter that it was unwilling to proceed to arbitration. Subsequently, Midlothian filed a Demand for Arbitration with the American Arbitration Association seeking an order declaring that Midlothian was not liable to B-S Steel on its claims against Midlothian. On November 6, 2002, B-S Steel filed in the arbitration counterclaims against Midlothian, which were based on the same transactions and representations that the original claims in B-S Steel's Amended Complaint were based upon. A three member panel of arbitrators was appointed, and after a nine day hearing and the designation of over six hundred exhibits, the arbitrators issued a reasoned award.
Midlothian sought to confirm the reasoned award by filing a Motion for Order Confirming Arbitration Award in Case No. 01-2410. In its response, B-S Steel argued that because Midlothian had already been dismissed from the lawsuit, it could not bring a motion to confirm without first filing a new action and paying its filing fees. Perhaps recognizing it was no longer a party, Midlothian voluntarily dismissed its Motion for Order Confirming Arbitration Award and filed a new action. In the new action, Case No. 03-2664, Midlothian sought only a Petition for Order Confirming Arbitration Award, which was nearly a verbatim recitation of its previously filed Motion to Confirm in Case No. 01-2410. B-S Steel then filed the Motion to Dismiss Midlothian's Petition for lack of subject matter and improper venue. Subsequently, Case Nos. 01-2410 and 03-2664 were consolidated and the Motion to Dismiss is now pending before this Court.
B. Lack of Subject Matter Jurisdiction
B-S Steel argues that Midlothian's Petition must be dismissed for lack of subject matter jurisdiction because pursuant to § 9 of the Federal Arbitration Act (FAA) and the forum selection clause entered into by B-S Steel and Midlothian, any motion to confirm the arbitration award must be brought in the Northern District of Texas.
U.S.C. § 9.
Although not mentioned in either party's briefs to the Court, the Tenth Circuit has articulated a standard for determining whether a court has subject matter jurisdiction to confirm an arbitration award. The inquiry is twofold: first, because the FAA does not create any independent federal-question jurisdiction, there must be diversity of citizenship or some other independent basis for federal jurisdiction before a federal court can act under the FAA. Additionally, the parties must have "agreed, explicitly or implicitly, that any eventual arbitration award shall be subject to judicial confirmation."
See P P Indus., Inc. v. Sutter Corp., 179 F.3d 861, 866 (10th Cir. 1999).
Id.
Id. at 866-67.
There is no question that diversity jurisdiction is present. Nor is there any doubt that the parties agreed that any arbitration award would be subject to judicial confirmation. The Conditions of Sale Agreement, which this Court has already determined is valid, provides inter alia:
The Pretrial Order in Case No. 01-2410 provides that "subject matter jurisdiction is invoked under . . . 28 U.S.C. § 1332 . . . and is not disputed."
Any controversy or claim arising out of or related to these Conditions of Sale or any other transactions between Buyer and Seller shall be resolved by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association ("AAA") and judgment upon the award rendered by the arbitrator(s) may be entered in any court having competent jurisdiction thereof.
Because an independent basis for subject matter jurisdiction in the form of diversity of citizenship exists and because B-S Steel and Midlothian agreed that any arbitration award could be confirmed, this Court concludes it has subject matter jurisdiction over the parties.
B-S Steel's contention that this Court's subject matter jurisdiction is somehow implicated by the forum selection clause and § 9 of the FAA defies reason. It is well settled that a motion to dismiss based on a forum selection clause is treated not as a motion to dismiss for lack of subject matter jurisdiction, but rather as a motion to dismiss for improper venue under Fed.R.Civ.P. 12(b)(3). Indeed, this Court in interpreting the `exclusive jurisdiction' clause which B-S Steel refers to, has already determined that the clause is a "forum selection clause" and should be analyzed under the Fed.R.Civ.P. 12(b)(3) standard. Moreover, the FAA provisions which B-S Steel claims mandate dismissal for lack of subject matter jurisdiction, have been described by the Supreme Court as "venue provisions." Consequently, the Court will analyze B-S Steel's remaining jurisdictional arguments under the standards for improper venue.
United Int'l. Holdings, Inc. v. Wharf (Holdings) Ltd., 210 F.3d 1207, 1222 (10th Cir. 2000) ("We disagree with the premise underlying this argument-that forum selection or choice of law issues implicate a court's subject matter jurisdiction. Forum selection issues raise concerns not of subject matter jurisdiction but of improper venue or failure to state a claim on which relief may be granted."); K V Scientific Co., Inc., v. BMW, 314 F.3d 494, 497 (10th Cir. 2002).
See B-S Steel of Kansas, Inc., v. Texas Indus., Inc., 229 F. Supp.2d 1209, 1227 (D. Kan. 2002).
Cortez Byrd Chips, Inc., v. Bill Harbert Constr. Co., 529 U.S. 193, 195, 120 S.Ct. 1331 (2000).
C. Improper Venue
B-S Steel contends that the forum selection clause and § 9 of the FAA make venue in the District of Kansas improper. In response, Midlothian contends that venue is proper because B-S Steel initially chose this forum when it filed suit and has since waived any right to object to lack of proper venue, the forum selection clause does not apply, and § 9 of the FAA states that any court with jurisdiction and venue may confirm arbitration awards.
1. Forum Selection Clause
Quite disingenuously, B-S Steel argues that venue is improper due to the forum selection clause; yet, it was B-S Steel that originally chose this forum when it filed suit in the District of Kansas in Case No. 01-2410. It is well settled that a plaintiffs choice of forum should rarely be disturbed. But, rather than admitting that it originally chose this forum, B-S Steel engages in a game of smoke and mirrors. B-S Steel argues that the issue raised by its motion to dismiss is "this Court's jurisdiction to hear Case No. 03-2664. This action is not a continuation of Case No. 01-2410 . . . it is a brand new action filed by Midlothian. . . . " B-S Steel has not forgotten the reason Midlothian was forced to file a new action to confirm the arbitration award. After this Court compelled arbitration, B-Steel voluntarily dismissed Midlothian from Case No. 01-2410, most likely in an attempt to avoid arbitration and the Court's Order entirely. Moreover, Case No. 03-2664 has been substantively consolidated with Case No. 01-2410 so any argument that the cases should be treated separately is moot.
Scheidt v. Klein, 956 F.2d 963, 965 (10th Cir. 1992); B-S Steel of Kansas, Inc., 229 F. Supp.2d at 1222.
See Memorandum and Order dated April 14, 2004, in Case No. 03-2664 (Doc. 14).
Even more disingenuous, if possible, is B-S Steel's contention that it was "duped into adding Midlothian" and surprised by the forum selection clause, "of which B-S Steel was unaware." This, B-S Steel contends, is how more than two years post-filing, it has yet to waive the defense of improper venue. Far from being "duped," BS-Steel voluntarily filed a motion to amend its complaint to add Midlothian. B-S Steel now claims it was unaware of the Conditions of Sale agreement containing the forum selection clause, however, the agreement was signed by B-S Steel's president. This Court wonders how a party could be tricked into amending its complaint and claim ignorance of a document signed by its president, unless that party failed to conduct adequate discovery before amending its complaint in the first instance. Furthermore, if B-S Steel was indeed deceived into adding Midlothian, it had ample opportunity to voluntarily dismiss Midlothian as soon as it became aware of the forum selection clause and before the Court compelled arbitration. Instead of dismissing Midlothian right away, B-S Steel delayed until after the Court's September 3, 2002 Order, and only following the Court's Order, which was not favorable to B-S Steel, did B-S Steel seek to dismiss Midlothian.
See Fed.R.Civ.P. 11(b) ("By presenting to the court . . . a pleading . . . an attorney or unrepresented party is certifying that to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances . . . (3) the allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery.)
B-S Steel argues that it has not waived venue because after it was duped into adding Midlothian, it "was placed in a responsive position so it was not obligated to argue either jurisdiction or venue." Interestingly though, when Midlothian originally sought dismissal based on improper venue, BS-Steel asserted that venue was proper in Kansas and stated:
Midlothian's improper venue argument is flawed and incorrect. The Conditions of Sale agreement has a narrow forum selection clause for claims to enforce or interpret them or for breach of contract claims. Nothing in Plaintiffs Amended Complaint alleges facts that implicate the Conditions of Sale or could be interpreted as a breach of contract claim against Defendants. This forum selection clause cannot, therefore, serve as the basis for dismissal on venue grounds.
Thus, B-S Steel was in a position to argue venue and argued that venue was proper. Additionally, the Pretrial Order entered on December 22, 2003, which serves as the final and binding pleading in the case, contains no mention of B-S Steel's alleged venue objection. B-S Steel chose this forum when it filed suit in the District of Kansas in August 2001 and cannot now claim that venue is improper.
It is settled that "[t]he pretrial order controls the subsequent course of the action, and the trial court need not consider any matter that is not embodied in it." Gardner v. Safeway Stores, Inc., 99 F.R.D. 258, 260 (D. Kan. 1983).
Midlothian further argues that even if B-S Steel has not waived venue, the forum selection clause does not apply. Because the Court has determined that B-S Steel long ago waived venue by filing this lawsuit and remaining silent, the Court need not address this argument.
2. § 9 of the FAA
B-S Steel argues that venue is improper under § 9 of the FAA because the Conditions of Sale agreement selects the Northern District of Texas as the exclusive forum for interpreting and enforcing the agreement. Midlothian responds that § 9 of the FAA is a permissive, not a mandatory venue provision, such that venue is proper in the District of Kansas
B-S Steel's argument is actually titled a subject matter jurisdiction argument, not an improper venue one. But, as discussed earlier, the portion of § 9 of the FAA at issue is a venue, rather than a jurisdictional provision.
Section 9 of the FAA governs venue for the confirmation of arbitration awards. Pursuant to § 9:
Cortez Byrd Chips, Inc., 529 U.S. at 197.
If the parties in their agreement have agreed that a judgment of the court shall be entered upon the award made pursuant to the arbitration, and shall specify the court, then at any time within one year after the award is made any party to the arbitration may apply to the court so specified for an order confirming the award, and thereupon the court must grant such an order unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11 of this title. If no court is specified in the agreement of the parties, then such application may be made to the United States court in and for the district within which such award was made.
In Cortez Byrd Chips, the Supreme Court interpreted § 9. The court explained that only by giving § 9 a permissive, rather than mandatory effect could it avoid "plac[ing] § 3 and §§ 9-11 of the FAA in needless tension." Section 3 provides that any court in which an action "referable to arbitration under an agreement in writing" is pending "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." The court noted that, "[i]f an arbitration were then held outside the district of that litigation, under a restrictive reading of §§ 9-11 a subsequent proceeding to confirm, modify, or set aside the arbitration award could not be brought in the district of the original litigation (unless that also happened to be the chosen venue in a forum selection agreement)." Such an interpretation clashes with established precedent that a court with the power to stay the action under § 3 has the further power to confirm any ensuing arbitration award. Thus, the court concluded that § 9 is permissive not restrictive, permitting a motion to confirm, vacate, or modify an arbitration award to be brought either where the award was made or in any district proper under the general venue statute.
Cortez Byrd Chips, Inc., 529 U.S. at 201.
9 U.S.C. § 3.
Cortez Byrd Chips, Inc., 529 U.S. at 202; P P Indus., 179 F.3d at 869 (noting that to give § 9 a restrictive interpretation, would render § 3 meaningless. If a court had no power to confirm the award, then it should dismiss the action, not stay the proceedings pursuant to § 3, because the court would have no power to take further action in the case).
Cortez Byrd Chips, Inc., 529 U.S. at 202; Denver Rio Grande W. R.R. Co., Union Pac. R.R. Co., 868 F. Supp. 1244, 1250 (D. Kan. 1994) (quoting Smiga v. Dean Witter Reynolds Inc., 766 F.2d 698, 706 (2d Cir. 1985), cert. denied 475 U.S. 1067, 106 S.Ct. 1381 (1986) ("Once a federal court has subject matter jurisdiction over an action, it may confirm an arbitration award even though it was not the district where the award was granted.")
Cortez Byrd Chips, Inc., 529 U.S. at 204.
B-S Steel argues that the Conditions of Sale agreement dictates that the arbitration award can be confirmed only in the Northern District of Texas. The agreement states, inter alia:
In any proceeding to enforce or interpret these conditions of sale, buyer expressly consents to the exclusive jurisdiction of the state and federal courts of the State of Texas and venue shall be proper in Ellis County.
Additionally, the agreement provides that "judgement upon the [arbitration] award may be entered in any court having jurisdiction thereof." B-S Steel asserts that the permissive aspects of § 9 "only come into play if no court is specified in the arbitration agreement" and that because the parties chose Texas as their forum, only Texas may confirm the award.
B-S Steel's assertion, however, ignores the reasoned analysis of the Supreme Court. Under B-S Steel's view, § 3 and § 9 would be very much in conflict. This Court has already determined that it has jurisdiction to stay the proceedings pursuant to § 3 and refer the case to arbitration; indeed, the Court has already done just that. To suggest now that the Court cannot confirm the award under § 9 mirrors the reasoning considered and rejected in Cortez Byrd Chips. Moreover, it is well-settled that a party who elects to sue in a federal district court that stays his suit under the FAA consents to the filing of a motion to confirm an arbitration award under § 9 in that district. Because the Court has already determined that jurisdiction and venue are proper, § 9 is a permissive, not a mandatory venue provision, and B-S Steel impliedly consented to the filing of the motion to confirm by choosing this venue, B-S Steel's motion to dismiss must be denied.
Id. at 202; T R Enter., Inc. v. Cont'l Grain Co., 613 F.2d 1272, 1279 (5th Cir. 1980) ("[T]he power of the federal court in the Northern District of Alabama was invoked by T R when they initially filed the complaint on these contracts in that jurisdiction. We conclude that, once invoked, the power of that court to enter a judgment on the arbitrator's award which was an outgrowth of the original action was sufficient to satisfy the jurisdictional requirements.") (citing Marine Transit Corp. v. Dreyfus, 284 U.S. 263, 276-77, 52 S.Ct. 166 (1931)); Smart v. Sunshine Potato Flakes, L.L.C., 307 F.3d 684, 685 (8th Cir. 2002) ("The district court initially had diversity jurisdiction over this action. After it entered a stay pending arbitration under 9 U.S.C. § 3, the court had the further power to confirm any ensuing arbitration award.")
IT IS THEREFORE ORDERED BY THE COURT that B-S Steel's Motion to Dismiss (Doc. 3) originally filed in Case No. 03-2664, which has been consolidated with Case No. 01-2410, shall be DENIED.
IT IS SO ORDERED.