Opinion
Civil Action No. 01-964 Section "R"
December 31, 2001
ORDER AND REASONS
Before the Court are defendant's motion to stay the proceedings pending arbitration and third-party defendant's motion to dismiss, or in the alternative, stay pending arbitration the third-party demand. For the reasons stated below, the Court grants the motions.
I. Background
This matter arises out of a construction project. Odell Associates, Inc. entered into a contract with the Ochsner Clinic Foundation (formerly known as Alton Ochsner Medical Foundation) to provide Ochsner with architectural and engineering services in connection with the design and construction of the Critical Services Expansion Project at Ochsner's Jefferson Highway campus. The contract provided that Odell would furnish management services during the construction of the project and that Odell would indemnify Ochsner and hold Ochsner harmless for all claims, damages, losses, and expenses resulting from Odell's negligent acts, errors, or omissions. Ochsner entered into a construction contract with Brice Building Company, Inc. under which Brice agreed to provide all the necessary labor, services, and material to construct the project. The Ochsner-Brice contract incorporated "General Conditions of Contracts for Construction," which contain the following arbitration provision:
4.5.1 Controversies and Claims Subject to Arbitration. Any controversy or Claim arising out of or related to the Contract, or the breach thereof, shall be settled by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator or arbitrators may be entered in any court having jurisdiction thereof, except controversies or Claims relating to the aesthetic effect and except those waived as provided for in subparagraph 4.3.5. . .
4.5.7 Judgment on Final Award. The award rendered by the arbitrator or arbitrators shall be final, and judgment may be entered upon it in accordance with applicable law in any court having jurisdiction thereof. Brice Motion, Ex. A.
During the course of the construction, Brice submitted to Odell a number of proposals for changes in the scope of the work and for payment of delay costs. Some of these requests remain unresolved and are the subject of an arbitration between Ochsner and Brice.
Disputes also arose between Odell and Ochsner over payments. Ultimately, the contract between Odell and Ochsner was terminated. In October 2000, Odell and Ochsner participated in a non-binding mediation, as required by their contract. After Odell and Ochsner failed to come to an agreement, Brice joined in the discussions. A second mediation was held in January 2001. Again, the mediation was unsuccessful. On April 10, 2001, Odell sued Ochsner in this Court. On May 30, 2001, Brice filed a Demand for Arbitration, naming Ochsner as a defendant. Ochsner filed a third-party demand seeking to bring Brice into the litigation and has sought to bring Odell into the arbitration with Brice. Brice now moves the Court to dismiss, or in the alternative, to stay, the third-party demand pending the outcome of the arbitration. Ochsner seeks a stay of the proceedings in this case pending the outcome of the arbitration proceeding with Brice.
II. Discussion
A. Stay of Proceedings between Odell and Ochsner
Section 3 of the Arbitration Act provides:
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. § 3. The Fifth Circuit has made clear that "the mandatory stay provision of the [Arbitration] Act does not apply to those who are not contractually bound by the arbitration agreement." Talbott Big Foot, Inc. v. Boudreaux, 887 F.2d 611, 614 (5th Cir. 1989). See Coastal (Bermuda) Ltd. v. E.W. Saybolt Co., 761 F.2d 198, 204 n. 6 (5th Cir. 1985) (Arbitration Act does not authorize a stay unless the case presents issues referable to arbitration under an agreement between the parties). Accord Sierra Rutile Ltd. v. Katz, 937 F.2d 743, 750 (2d Cir. 1991) (relying on Nederlandse Erts-Tankersmaatschappij, N.V. V. Isbrandtsen Co., 339 F.2d 440, 441 (2d Cir. 1964) (stay cannot be justified under Arbitration Act because defendants were not parties to arbitration agreement)). But see Contracting Northwest, Inc. v. City of Fredericksburg, 713 F.2d 382, 387 (8th Cir. 1983) (Arbitration Act is "broad enough to permit the stay of litigation between nonarbitrating parties as long as that lawsuit is based on issues referable to arbitration under an arbitration agreement governed by the Arbitration Act").
Even without statutory authority, however, this Court may stay the litigation pursuant to its inherent power to control its docket. As the United States Supreme Court explained, "[i]n some cases, of course, it may be advisable to stay litigation among the non-arbitrating parties pending the outcome of the arbitration. That decision is one left to the district court as a matter of its discretion to control its docket." Moses H. Cone Memorial Hosp. v. Mercury Const. Corp., 460 U.S. 1, 21 n. 23, 103 S.Ct. 927, 939 n. 23 (1983). Other courts have found it appropriate to stay the litigation between non-contracting parties when "questions of fact common to all actions pending in the present matter are likely to be settled during the . . . arbitration." American Home Assurance Co. v. Vecco Concrete Const. Co., 629 F.2d 961, 964 (4th Cir. 1980). Under these circumstances, considerations of judicial economy and avoidance of confusion and possible inconsistent results may militate in favor of staying the entire action. Id. See also Nederlandse, 339 F.2d at 441 (explaining that stay may be appropriate "where the pending proceeding is an arbitration in which issues involved in the case may be determined").
The Fifth Circuit recognizes the district court's discretionary power to stay litigation pending arbitration proceedings ( see Talbott Big Foot, 887 F.2d at 614), but warns that this authority "must not be abused." Coastal (Bermuda) Ltd., 761 F.2d at 204 n. 6. The Fifth Circuit set the following guidelines for a discretionary stay:
Generally, the moving party bears a heavy burden to show why a stay should be granted absent statutory authorization, and a court should tailor its stay so as not to prejudice other litigants unduly. Where a discretionary stay is proposed, something close to genuine necessity should be the mother of its invocation. Id.
Here, Ochsner has carried its heavy burden. Odell does not assert that it will be prejudiced by a stay, and it does not oppose the motion to stay the proceedings. Further, Brice asserts claims against Ochsner in the arbitration based on the alleged acts or omissions of Odell. Ochsner claims a right to indemnification from Odell for these same acts or omissions in the district court proceeding. Questions of fact common to all parties pending in the present matter are likely to be settled during the arbitration. McCauslin v. Crinnell Corporation, 1998 WL 13595, 3 (E.D. La. 1998). Accordingly, the decisions rendered by the arbitrator could have a preclusive effect on Odell because Odell was "vouched in" to the arbitration and chose not to defend itself against Brice's claims ( see Ochsner's Mot. to Stay, Ex. A). See Universal American Barge Corp. v. J-Chem, Inc., 946 F.2d 1131, 1136-37 (5th Cir. 1991) (district court may apply collateral estoppel to arbitrator's findings against nonparty given notice and opportunity to defend in arbitration proceeding). Further, inconsistent results could obtain if both proceedings were to go forward at the same time. Therefore, the Court finds that a stay of the proceeding between Odell and Ochsner promotes judicial economy and is appropriate in this case.
"Vouching in" is a process whereby a civil defendant notifies a nonparty that a suit is pending against the defendant and that if liability is found, the defendant will look to the vouchee for indemnity and hold him to the findings in that suit. Universal American Barge Corp. v. J-Chem, Inc., 946 F.2d 1131, 1136, n. 2 (5th Cir. 1991) (citing Humble Oil Refining Co. v. Philadelphia Ship Maintenance Co., 44 F.2d 727, 735, n. 14 (3d Cir. 1971)). Collateral estoppel will not apply in cases of "vouching in" when there is a conflict of interest between the indemnitee and the indemnitor such that the injured party's claim against the indemnitee could be sustained on different grounds, one that is within the scope of the indemnitor's obligation to indemnify and another that is not. See id. at 1140 ( quotes omitted). The Court finds that there are no conflicts of interest in this case because Brice's claims against Ochsner come within the scope of Ochsner's claims for indemnification against Odell. See id. at 1141 (conflict of interest found where injured party pleaded independent negligence of indemnitor as theory of recovery in arbitration).
B. Motion to Dismiss by Brice
Brice asks the Court to dismiss the third-party demand filed against it by Ochsner, or, in the alternative, to stay the demand pending the resolution of the arbitration proceeding. In Fedmet Corporation v. M/V BUYALYK, 194 F.3d 674, 678 (5th Cir. 1999), Fifth Circuit stated:
Although the express terms of § 3 provide that `a stay is mandatory upon a showing that the opposing party has commenced a suit upon any issue referable to arbitration under an agreement in writing for such arbitration . . .' Alford v. Dean Witter Reynolds, Inc., 975 F.2d 1161, 1164 (5th Cir. 1992), we have interpreted this language to mean only that the district court cannot deny a stay when one is properly requested. Id. "This rule, however, was not intended to limit dismissal of a case in the proper circumstances.' Id. If all of the issues raised before the district court are arbitrable, dismissal of the case is not inappropriate. 194 F.3d at 678.
Here, there is no dispute that the issues in controversy between Ochsner and Brice are arbitrable. The arbitration between Ochsner and Brice has been underway since May 30, 2001. Additionally, all of the issues raised in Ochsner's third-party demand are involved in the arbitration. Therefore, the Court dismisses the third-party demand filed by Ochsner against Brice.
II. Conclusion
For the foregoing reasons, the Court GRANTS Ochsner's motion to stay the proceedings with Odell pending the outcome of the arbitration, and the Court GRANTS Brice's motion to dismiss with prejudice.