Opinion
No. 02-3211 SECTION "L"(4)
February 7, 2003
ORDER REASONS
Before the Court are the following motions: (1) Motion for Summary Judgment of defendant Broadmoor, L.L.C. ("Broadmoor") on the grounds that this litigation is barred by res judicata and/or estoppel; (2) Cross-Motions for Summary Judgment of Plaintiff Federal Insurance Company ("Federal") and Broadmoor to determine whether Federal is a party to any arbitration agreement and (3) Motion of Federal to Stay Arbitration. For the following reasons, the Court finds that Federal did agree to arbitrate the underlying contract at issue in this case, but reserved its rights to litigate any personal defenses it may have on the surety bond. Thus, Broadmoor's Motion For Summary Judgment is GRANTED IN PART AND DENIED IN PART. Further, the Cross-Motions for Summary Judgment are GRANTED IN PART AND DENIED IN PART. Finally, the Court concludes that Broadmoor and Federal must first arbitrate the underlying contractual issues before litigating the surety defenses in this court; accordingly, Federal's Motion to Stay Arbitration is DENIED AS MOOT.
This matter was initially filed as a motion to dismiss under Rule 12(b)(6) [Record Doc. No. 4]; however, the Court found that the motion relied on matters outside the pleadings. In accordance with Rule 12, the Court converted the matter to a motion for summary judgment under Rule 56 and ordered additional briefing under the proper standard. Broadmoor's Supplemental Motion for Summary Judgment was docketed as Record Entry Number 17.
Record Document Nos. 20 and 25.
Record Document No. 16.
I. FACTS
This matter arises out of the construction of the Jazzland Theme Park in New Orleans East. Jazzland, Inc. ("Jazzland") entered into a series of contracts with defendant Broadmoor in July, 1998 for the design and construction of the park. Jazzland's performance of the contracts was guaranteed by Ogden Corporation ("Ogden"), now known as Covanta Energy Corporation ("Covanta"). Ogden also signed the construction agreements. Each of the contracts contained a section compelling Broadmoor and Jazzland to submit claims arising under the contract to arbitration and set out the procedures governing the arbitration.
During the construction process, disputes arose between Broadmoor and Jazzland, causing Broadmoor to file a lien against Jazzland with the Orleans Parish Recorder of Mortgages in the amount of $11,072,469, which was subsequently reduced to $8,342,520. Broadmoor then sued Jazzland and Ogden in Civil District Court for Orleans Parish for nonpayment to enforce the lien and guarantee of Ogden.
Thereafter, Jazzland sought to sell the theme park to third parties, who required clear title to proceed with the sale. Ogden contracted with Federal to issue a surety bond to secure the lien; the bond was filed on September 11, 2000, and the Recorder of Mortgages canceled the lien. Broadmoor then amended its suit to name Federal as a defendant so Broadmoor could proceed against the bond.
Jazzland, Ogden, and Federal then filed exceptions of prematurity and improper venue citing the arbitration clause of the construction contracts. The state court granted the exception of prematurity, denied the exception of improper venue dismissed Broadmoor's petition, and required Broadmoor to assert its claims in arbitration. While an appeal of this ruling was pending, the parties entered discussions to amend the arbitration clauses of the construction contracts.
The final agreement was signed by representatives of Broadmoor, Jazzland, Covanta, Boh Company, L.L.C. (Broadmoor's guarantors on the construction contracts), Covanta, and Federal. The contract provides that "FOR VALUABLE CONSIDERATION, Broadmoor and Jazzland agree to modify Articles 21.2 of the Contracts as set forth below and Boh, Covanta, and Federal agree to those modifications." The consideration recited in the contract was Broadmoor's dismissal of its appeal of the trial court's ruling to the Fourth Circuit Court of Appeal. The modifications that followed concerned changes to the procedural aspects of the arbitration, such as what rules would apply and where the arbitration would take place. After execution of theses modifications, Broadmoor dismissed its appeal of the state court's ruling and filed a demand for arbitration against Jazzland, Covanta, and Federal.
Federal then moved the arbitration panel to dismiss it from the arbitration on the grounds that It was not a party to the arbitration agreement. Federal acknowledged that it would be bound to pay any damages awarded by the arbitration panel, but contended that it should not be required to arbitrate any personal defenses it might have had on the surety bond. On April 26, 2002, the arbitration panel denied Federal's motion, without articulating its reasons for doing so; the panel also stayed the arbitration as to Jazzland and Covanta, as both had filed for bankruptcy. Broadmoor thereafter obtained from the bankruptcy court handling Jazzland's case an order granting relief from the stay to allow it to proceed against Federal. Broadmoor then dismissed Covanta from the arbitration and now proceeds against Federal alone in arbitration.
In turn, Federal filed this declaratory judgment action against Broadmoor seeking a ruling that it is not required to proceed in the arbitration. Broadmoor moves this court for summary judgment seeking to dismiss Federal's claims on the grounds that Federal is precluded from asserting now that it never agreed to arbitrate the case. Specifically, Broadmoor argues that Federal's actions before the state court and the arbitration panel preclude it from asserting these claims in federal court and re-litigating these issues for a third time. Federal responded to this motion and filed motions for summary judgment and to stay arbitration. Federal's motion for summary judgment seeks a determination that it is not required to arbitrate with Broadmoor, or, alternatively, that Federal did not agree to arbitrate its surety defenses with Broadmoor. Broadmoor filed a cross-motion for summary judgment contending that Federal had agreed to arbitrate its claims when it signed the amended agreement. The motion to stay argues that any proceedings before the arbitration panel would be without effect until a determination of the matter before this Court is concluded. The ultimate issue to resolve is whether Federal is bound by the arbitration clause of the original contracts between Jazzland and Broadmoor and, if so, whether such arbitration encompasses its personal defenses against, Jazzland, Ogden! Covanta, or Broadmoor. After reviewing the briefs of the parties and counsel's oral arguments, the Court now considers these motions in turn beginning with Broadmoor's Motion for Summary Judgment.
II. ANALYSIS
A. Standard for Summary Judgment
A district court can grant a motion for summary judgment only when the "`pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.'" Celotex Corp. v. Caret, 477 U.S. 317, 322 (1986) (quoting Fed.R.Civ.P. 56(c)). When considering a motion for summary judgment, the district court "will review the facts drawing all inferences most favorable to the party opposing the motion." Reid v. State Farm Mut. Auto. Ins. Co., 734 F.2d 577, 578 (5th Cir. 1986). The court must find "[a] factual dispute . . . [to be] `genuine' if the evidence is such that a reasonable jury could return a verdict for the nonmoving party . . . [and a] fact . . . [to be] `material' if it might affect the outcome of the suit under the governing substantive law." Beck v. Somerset Techs., Inc., 882 F.2d 993, 996.(5th Cir. 1989) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)).
"If the moving party meets the initial burden of showing that there is no genuine issue of material fact, the burden shifts to the non-moving party to produce evidence or designate specific facts showing the existence of a genuine issue for trial." Engstrom v. First Nat'l Bank of Eagle Lake, 47 F.3d 1459, 1462 (5th Cir. 1995) (citing Celotex, 477 U.S. at 322-24, and Fed.R.Civ.P. 56(e)). The mere argued existence of a factual dispute will not defeat an otherwise properly supported motion. See Anderson, 477 U.S. at 248. "If the evidence is merely colorable, or is not significantly probative," summary judgment is appropriate. Id. at 249-50 (citations omitted).
B. Broadmoor's Motion for Summary Judgment
Broadmoor contends that Federal is now seeking to litigate this issue for a third time, having the claims previously dismissed from Civil District Court after asserting the strength of the arbitration clause, and then having its motion to dismiss denied by the arbitration panel. Thus, it argues that the principles of estoppel or res judicata bar this lawsuit. Federal opposes the motion, asserting that it never agreed to arbitrate any dispute, especially concerning its personal defenses on the bond, with Broadmoor. Federal contends that it merely joined with Jazzland and Covanta in supporting its motion to dismiss the state court proceeding because Broadmoor is required to go against the principal (Jazzland) on the bond before it can collect on the bond; Federal asserts it merely stood in Jazzland's shoes when urging the exceptions. Further, Federal asserts that the arbitration panel did not have jurisdiction over the issue of arbitrability or Federal, and it cannot be precluded from urging this case by the arbitration panel's ruling on Federal's motion to dismiss.
Before the Court can determine the validity of Broadmoor's estoppel and res judicata arguments, it must first examine the history of the state court proceedings and determine what issues were actually litigated. In so doing, the Court first discusses the arguments of the parties in the state court and must determine whether Federal may properly compel arbitration of the underlying dispute but reserve its rights to litigate its personal suretyship defenses. Once the Court has determined these matters, the Court can then address Broadmoor's estoppel argument, which requires the Court to examine the extent to which it may compel a non-signatory to an arbitration agreement to appear before the arbitration panel. The Court then concludes consideration of the motion by discussing the res judicata effect, if any, of the rulings of the state court and arbitration panel.
1. The arguments of Federal, Jazzland, Ogden, and Broadmoor before the state court.
Jazzland, Ogden, and Federal, represented by the same counsel, filed an exception in Civil District Court asserting that Broadmoor's lawsuit was premature because it was a party to a binding and enforceable arbitration agreement. Broadmoor, among other grounds asserted, specifically opposed the motion on the grounds that neither Ogden nor Federal were parties to the arbitration agreement. The state court defendants then filed a reply memorandum in support of their exception of prematurity. That memorandum contained a section entitled "Ogden and Federal are entitled to enforce the arbitration provisions as Jazzland's sureties" in which Ogden and Federal cited to the law of suretyship as the basis for their standing to invoke the arbitration provisions of the contract. Specifically, Federal and Ogden claimed that they had a right to assert their principal's defenses to the contract underlying the surety bond. Finally, Ogden and Federal requested alternative relief from the state court in the form of a stay in the lawsuit until the arbitration between Jazzland and Broadmoor could be resolved.
Furthermore, in its opposition to Broadmoor's motion for summary judgment in this case, Federal admits that it argued before the state court that it "was entitled to enforcement of the arbitration provision in the Contracts between Broadmoor and Jazzland, not that Federal was bound to arbitrate." Therefore, Broadmoor claims that Federal consented to the arbitration of the underlying contract and argues it should not be able to undue this argument now in federal court.
It is well recognized, however, as Federal has pointed out, that a surety has unique, personal defenses on the surety bond, and that Federal did not intend to submit these issues to arbitration. See Town of Melville v. Safeco Ins. Co., 589 So.2d 625, 627 (La.App. 3d Cir. 1991), rev'd on other grounds, 593 So.2d 376 (La. 1992), appeal on remand, 651 So.2d 404 (La.App. 3d Cir. 1995) (holding that surety was bound by arbitration amount against principal but was still permitted to assert personal defenses in judicial proceeding). Thus, Federal's claims in this Court are not inconsistent positions, preventing Federal from proceeding in this forum.
During oral argument, counsel for Broadmoor argued that the cases discussing sureties being compelled to arbitrate involved instances where the surety had directly secured the underlying agreement. Counsel argued that, in this case, Federal is not supporting the underlying construction contracts but the lien. However, the Court finds that this is a distinction without a difference. Federal, itself, argued the application of suretyship law to the state court in previous proceedings. It asserted its rights to stand in the shoes of its principals and argued for judicial enforcement of the arbitration agreement on the construction contracts. It cannot undo those arguments or the result they produced. However, the issue of suretyship defenses is a different issue. Clearly, Broadmoor never argued that to the state court. It could not have done so and still claimed to be standing in the shoes of its principals, as any personal defenses would place Federal at odds with Jazzland and! or Covanta. Accordingly, the Court concludes that Federal did not agree to submit these issues to the arbitration panel.
Furthermore, several facts show that Federal did not intend to submit its personal defenses to arbitration. First, as noted above, Federal argued to the state court that it had standing because it was "stepping into the shoes" of its principals, Ogden/Covanta and Jazzland. Second, the state trial court in its reasons for granting the exception of prematurity stated that the lawsuit arose out of the three construction contracts and that the claims sued on arose out of those construction contracts. It cannot be disputed that Federal was not a party to those contracts as they were written at the time of the court's decision. Third, Federal's actions concerning the modifications to the arbitration agreement show that they did not intend to submit all claims to arbitration. Federal's counsel wrote Broadmoor's counsel on April 16, 2001 and expressed the opinion that the primary purpose of the agreement was to change the arbitration's procedures and not to affect the "substantive rights of the parties." The initial draft of the agreement called for all parties, including Federal, to submit to arbitration. Following a series of letters between counsel (which will be discussed more fully below on the cross-motions for summary judgment), the agreement in its final form only modified the procedures of the arbitration. Obviously, Broadmoor's counsel submitted to this understanding as it signed off on the contracts. It is important to note that these discussions occurred before the demand for arbitration was even filed. Therefore, Broadmoor cannot argue that Federal is reversing course at that point in the process, by attempting to escape arbitration. These acts show that Federal may have intended to resolve some issues in arbitration, but it certainly did not agree to arbitrate its personal defenses. If Federal had intended to arbitrate its personal defenses, it would have had no reason to demand the changes it requested from Broadmoor's counsel. Federal's rights though as surety to Jazzland were discussed above, and are subject to arbitration.
Broadmoor's final argument is that its petition against Jazzland and Federal asserted statutory claims against Federal arising out of the Private Works Act that encompass the personal surety defenses. Specifically, Broadmoor emphasizes that the state court found Broadmoor's statutory claims against Jazzland and Federal to be arbitrable and that this was spelled out in the agreement. However, a closer look at the briefs filed with the state court shows that Broadmoor argued that it had statutory claims against Federal only in its capacity as guarantor of Jazzland.
First, Broadmoor argued in its opposition to Jazzland/Federal's exception of prematurity that its statutory claims were against Jazzland on the construction contracts and Federal as its guarantor. Second, Jazzland/Federal's reply brief to this arguments cites to cases in which the issue before the court was whether an arbitration agreement encompassed statutory claims against the opposing party but do not allude to any personal defenses. These arguments show that Federal never contemplated the issue of its surety defenses at the time of the exceptions. At the time these arguments were made, it was "standing in the shoes" of its principal and asserting the principal's statutory rights, which it could not do if it were asserting statutory defenses to the bond. Only Federal could assert its statutory defenses on the bond against Broadmoor and/or Jazzland in court or agree to submit those claims to arbitration; moreover, it is clear that they did not agree to do the latter so they are entitled to now litigate its statutory defenses on the bond.
See Defendants' Memorandum in Response to Plaintiff's Opposition to Defendants' Exceptions of Prematurity and Improper Venue attached as Exhibit C, Broadmoor's Supplemental Motion for Summary Judgment. Jazzland/Federal cited Freeman v. Minolta Business Systems, Inc., 699 So.2d 1182 (La.App. 2d Cir. 1997) and Weid v. TRCM, LLC, 698 So.2d 685 (La.App. 2d Cir. 1997). Freeman determined that an employee's arbitration agreement covered her sexual harassment claims against her employer. Weid held that the enforceability of a non-compete clause in light of the Louisiana statute governing such contracts was arbitrable under the arbitration provision in the employment contract.
Having determined that Federal stood in Jazzland's shoes before the state court and only argued for arbitration of the underlying contract between Jazzland and Broadmoor, the Court turns now to Broadmoor's estoppel and res judicata arguments.
2. Whether Federal is barred by estoppel or res judicata from asserting its claims before this Court.
For this Court to compel Federal's participation in arbitration requires a finding that a nonsignatory to an arbitration agreement can be compelled to participate in arbitration. The case law on this issue establishes only a few, narrowly defined instances where this is possible. The leading case on the issue is the Second Circuit's decision in Thomson-CSF, S.A. v. American Arbitration Ass'n, 64 F.3d 773 (2d Cir. 1995). The court noted that the theories under which a non-signatory to an arbitration agreement could be bound to arbitrate disputes arose out of ordinary contract and agency law, and found five specific instances where this could occur: (1) incorporation by reference; (2) assumption; (3) agency; (4) veil-piercing/alter ego; and (5) estoppel. Id. at 776.
In this case, it is undisputed that Federal's surety bond does not incorporate the construction contract or the arbitration clause. Neither is it alleged that Federal was an agent or alter ego of its principal in this case. Regarding estoppel, the Thomson-CSF court held that a non-signatory could be bound to arbitrate where it directly benefits from the contract containing the arbitration agreement. Thompon-CSF, 64 F.3d at 779. Although Broadmoor argues the estoppel theory espoused in Thomson-CSF, it fails to point out the direct benefits Federal enjoyed as a result of the construction contract. Thus, this basis for binding Federal should fail as well.
The Second Circuit also noted that a second form of estoppel in which "a signatory was bound to arbitrate with a nonsignatory at the nonsignatory's insistence because of `the close relationship between the entities involved, as well as the relationship of the alleged wrongs to the nonsignatory's obligations and duties in the contract and [the fact that] the claims were intimately founded in and intertwined with the underlying contract obligations'" Thomson-CSF, 64 F.3d at 779 (quoting MeBro Planning Dev. Co. v. Triangle Elec. Constr. Co., 741 F.2d 342, 344 (7th Cir. 1984)). This is not at issue in this case because, as the Second Circuit points out, they serve to estop the signatory from denying the existence of an arbitration clause where the facts set out above are met.
As for assumption, the Second Circuit stated that "[i]n the absence of a signature, a party may be bound by an arbitration clause if its subsequent conduct indicates that it is assuming the obligation to arbitrate." Id. at 777. Courts have held that conduct will imply a willingness to arbitrate where it manifests a "clear intent" to do so. See Gvozdenovic v. United Air Lines, Inc., 933 F.2d 1100, 1105 (2d Cir. 1991). In Gvozdenovic, the appellants were flight attendants who had voluntarily and actively participated in the arbitration process with their employers; the court rejected a later attempt to undo arbitration finding that their conduct indicated an intent to arbitrate. Id. at 1103. Similarly in In re Transrol Navegacao, S.A., 782 F. Supp. 848 (S.D.N.Y. 1991), the court upheld an arbitration award where a party had initially agreed to arbitrate, later attempts to escape arbitration, then argued to a foreign jurisdiction that arbitration was an appropriate forum and finally decided not to participate in the arbitration proceedings. The court held that the party's conduct showed an intent to arbitrate, and could not be later undone. Id. at 851. These cases show that when a party argues that it has a right to arbitrate an issue it may not later argue that it is not bound to arbitrate such an agreement.
Certainly, Federal never intended to submit the issue of its personal defenses to arbitration. However, Federal joined in Jazzland's exception and argued that it had standing to compel arbitration of the disputes arising out of the construction contracts. The trial court accepted the arguments of all the parties and found that the claims arising out of the construction agreement were arbitrable. Federal should not be able to come into this Court and change its position circumventing the state court's ruling. Federal stood in the shoes of Jazzland in the state court, and should do so in this case before the arbitration panel.
Broadmoor also argues that Federal submitted the issue of arbitrability of all issues including its personal defenses, to the panel and lost that decision; therefore, Federal should be estopped from arguing the issue before this Court. The issue of the proper party to determine arbitrability was determined by the Supreme Court in First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 115 S.Ct. 1920 (1995). The Court noted that a party usually has a right to have a court determine such issues, but it may submit the issue to the arbitration panel for determination. Id. at 942. The Court stated that state contract law would usually determine such issues but further cautioned that "Courts should not assume the parties agreed to arbitrate arbitrability unless there is `clear and unmistakable' evidence that they did so." Id.
In First Options, an issue arose as to whether the Kaplans, individually, had agreed to arbitration in a dispute involving their corporation. The Kaplans first filed written objections with the arbitration panel as to the panel's jurisdiction over them personally. The arbitrators ruled they had authority and proceeded to rule on the claims; the Kaplans then sought review of this order before the district court. The Court held that the Kaplans had not clearly agreed to submit the issue of arbitrability to the panel. The Court stated that "merely arguing the arbitrability issue to an arbitrator does not indicate a willingness to arbitrate that issue, i.e., a willingness to be effectively bound by the arbitrator's decision on that point." Id. at 946. In fact, the Court noted that the Kaplans' objections to the arbitrator's authority over them indicated that they were no submitting that issue to the panel. Id. Thus, the Court found that there was not clear evidence of an intent to submit this question to the arbitration panel. Id.
To bind Federal to arbitration on this contract, the Court would need to find a clear intent on their part to be so bound. It is clear from the pleadings filed with the arbitration panel and the state court, that Federal did not wish to submit issues pertaining to its personal defenses to the arbitration panel. As for its defense of Jazzland's claims, this issue has been resolved above, it is clear from the Supreme Court's holding in First Options, that merely arguing to the arbitration panel that it had no jurisdiction over Federal's claims cannot have a preclusive effect on Federal's arguments before this Court.
Finally, Broadmoor argues that the state court order should be res judicata as to Federal because the court has already determined Federal's responsibility under the arbitration agreement. Federal responds that res judicata is not appropriate in this case for several reasons. First, it correctly points out that the state court did not directly address the issue of whether Federal could be compelled to arbitrate its personal defenses; nor was such an argument even presented to the trial court. Accordingly, a res judicata argument fails as this issue was never actually litigated.
In conclusion, Federal's actions before the state court indicate its consent to arbitrate the Underlying contract against Broadmoor, but Federal did not consent to arbitrate its surety defenses on the bond. Accordingly, Broadmoor's Motion for Summary Judgment should be GRANTED IN PART AND DENIED IN PART.
C. Cross-Motions for Summary Judgment
Federal and Broadmoor have also filed motions for summary judgment on the issue of whether Federal is a party to the amended arbitration agreement. Both parties look to the language of the agreement and contend that it is unambiguous. Federal points to the following language:
" FOR VALUABLE CONSIDERATION, Broadmoor and Jazzland agree to modify Articles 21.2(a) of the Contracts as set forth below and BOH, Covanta and Federal agree to those modifications."
Federal argues that this creates a distinction in the arrangement of the parties, with Broadmoor and Jazzland on one side, and Covanta and Federal on the other. In essence, they argue that Broadmoor and Jazzland were bound by the agreement while the other parties were merely signing off on or agreeing to the changes. Federal's alternative argument if the language of the contract is ambiguous will be discussed below.
Broadmoor looks to the language prefacing the agreement setting forth the factual basis for the agreement to support its contention that Federal is a party to the amended arbitration agreement. It points to the following paragraphs:
THIS AGREEMENT is entered into as of the __ day of April, 2001, by and between the following parties: BROADMOOR, LLC [Broadmoor], BOH COMPANY, LLC, [Bob], JAZZLAND, INC. [Jazzland], COVANTA ENERGY CORPORATION, AND FEDERAL INSURANCE COMPANY [Federal].
WHEREAS Broadmoor has filed a lawsuit against Jazzland and Federal to enforce its statutory claims and privileges for the value of the work and services performed arising out of or relating to the Contracts and against Ogden for certain payment guarantees in the contracts, with such lawsuit entitled "Broadmoor vs. Jazzland, Inc., and Ogden Corporation" bearing No. 200013358 on the docket of the Civil District Court for the Parish of Orleans;
WHEREAS, Jazzland, Covanta, and Federal filed certain exceptions to the lawsuit contending that arbitration was the appropriate forum for those claims and disputes.
Broadmoor argues that this language indicates that Federal accepted this agreement because the state court proceedings had determined that Federal was bound to arbitrate the entire dispute. Specifically, Broadmoor emphasizes its view that the state court found Broadmoor's statutory claims against Jazzland and Federal to be arbitrable and that this was set forth in the agreement. However as demonstrated above, the state court never made such a finding nor did Federal ever argue that it was trying to enforce a statutory remedy against it alone. Broadmoor, then, cannot argue that this provision assists its claims.
Thus, the unambiguous language of this contract shows that Federal is not a party to the amended arbitration agreement at least as far as its statutory defenses are concerned. While it may have joined in the state court proceedings to assert Jazzland's rights as a surety and compel arbitration, Federal never agreed to submit the question of its surety defenses to arbitration. Nor did it later agree to do so, according to the plain language of the agreement. Accordingly, the cross-motions for summary judgment of Federal and Jazzland should be GRANTED IN PART AND DENIED IN PART.
Federal argues that even if the Court finds the language of the amended agreement ambiguous, it should still prevail after looking at extrinsic evidence in this case. Federal points to a series of correspondence between its counsel in the state court proceeding and before the arbitration panel as well as the initial drafts of the agreement. First, the initial draft of the agreement noted that "FOR VALUABLE CONSIDERATION, the parties agree as follows:" The first paragraph is the arbitration clause, not the procedural rules of the arbitration that exists in the final draft. Obviously, the initial draft contemplated a broad-ranging arbitration provision for all parties, including Federal.
This correspondence is attached as exhibits to Federal's Motion for Summary Judgment.
On April 16, 2001, Federal's counsel wrote Broadmoor's counsel that "The primary purpose of the Agreement is to replace the ICC procedure called for by Articles 21.2 of the Contracts with the AAA's Construction Industry Arbitration Rules without affecting the substantive rights of the parties." Federal's counsel also attached an amended draft of the agreement, which is substantially similar to the agreement in its final form. In response to the letter and proposed changes, Broadmoor's counsel responded that "by simply addressing the changed Article 21.2 of the contracts, [the agreement] will not be binding upon Ogden and Federal [Y]our draft of the agreement must include an acknowledgment and agreement by Ogden and Federal that they are consenting to arbitration of these claims and will be bound by the result of the arbitration panel." Federal's counsel responded that the agreement as he saw it accurately reflected the arrangements between the parties, notably that "until the underlying dispute is resolved, none of the other parties has any obligation." Broadmoor's counsel acquiesced to this point of view when he wrote back and agreed to Federal's counsel's modifications with a few minor changes. The foregoing shows that Federal obviously did not want to be part of the arbitration proceeding, at least as far as its surety defenses are concerned. The issue of Federal's arbitration on the underlying contract has already been decided in Broadmoor's motion for summary judgment. In conclusion, whether the language of the contract is ambiguous has no distinction on the Court's ruling. Federal did not agree to become a party to the arbitration agreement, as far as its personal defenses are concerned. Accordingly, the cross-motions for summary judgment should be GRANTED IN PART AND DENIED IN PART.
D. Federal's Motion to Stay Arbitration
As the Court has determined the issues for arbitration, this motion should be DENIED AS MOOT. Broadmoor and Federal must first arbitrate Federal's liability as Jazzland's surety . . . Federal, itself, has argued that Broadmoor must recolve this issue before it turns to the personal defenses of the contract. Then, if Federal is found liable, it can litigate its surety defenses. As such, there is no reason to stay arbitration at this point.
III. CONCLUSION
In conclusion, the Court finds that Federal agreed to arbitrate the underlying obligation of Jazzland on the construction contracts in Federal's role as surety. Federal did not agree at that time, nor when signing the amended arbitration agreement, to submit any of its personal defenses to arbitration. Finally, Broadmoor must first arbitrate its claims against Federal before turning to the issue of personal defenses; thus, there is no reason for a stay of arbitration.
Accordingly, the Court disposes of these motions as follows:
IT IS ORDERED that the motion for summary judgment of defendant Broadmoor be GRANTED IN PART AND DENIED IN PART;
IT IS FURTHER ORDERED that the cross-motions for summary judgment of the parties be GRANTED IN PART AND DENIED IN PART; and,
IT IS FURTHER ORDERED that Federal's Motion to Stay Arbitration be DENIED AS MOOT.