Opinion
CIVIL ACTION NO. 3:00-CV-2755-G.
September 14, 2001.
MEMORANDUM ORDER
The defendants Watkins Engineers Constructors, Inc. ("Watkins") and National Surety Corporation ("National") each bring a motion to compel arbitration of the claims asserted by the plaintiff Triad Electric Controls ("Triad") against Watkins and to stay all proceedings in this case pending such arbitration. For the reasons stated below, both motions are granted.
I. BACKGROUND
Watkins, a general contractor, entered into a design-build construction contract (the "prime contract") with defendant Holnam Texas Limited Partnership ("Holnam") to construct a cement production line at a cement plant owned by Holnam in Midlothian, Texas (the "project"). Defendant Watkins' Amended Brief in Support of Motion to Compel Arbitration and Stay Proceedings ("Watkins' Motion to Compel") at 1-2; Defendant National's Supplemental Brief in Support of Motion to Compel and Stay Proceedings ("National's Motion to Compel") at 3; Plaintiff's Second Amended Complaint ("Complaint") at 1. Watkins subcontracted with Triad on or about April 5, 1998 for the performance and installation of various electrical and instrumentations work at the project (the "subcontract"). Watkins' Motion to Compel at 2-3; National's Motion to Compel at 3; Complaint at 2-4; Triad's Brief in Opposition to Watkins' Motion to Compel ("Triad's Response") at 2.
The subcontract contains a dispute resolution clause in Section 17, entitled "Dispute Resolution," that provides:
All claims, disputes and matters in question arising out of or relating to this Agreement or the breach thereof, . . . shall be decided by the claims procedure, including the arbitration clause, specified in the Prime Contract between the Contractor and the Owner.
Subcontract, Article 17.1; Watkins' Motion to Compel, Exhibit A, Appendix in Support of Defendant Watkins' Motion to Compel Arbitration and Stay Proceedings ("Appendix") at 13; National's Motion to Compel at 3. This clause incorporates into the subcontract, by reference, the dispute resolution procedure provided for in the prime contract between Watkins and Holnam:
If and to the extent that OWNER [Holnam] and DESIGN/BUILDER [Watkins] have agreed on the method and procedure for resolving disputes between them that may arise under this Agreement [the prime contract], such dispute resolution method and procedure, if any, shall be as set forth in exhibit GC-A, "Dispute Resolution Agreement," to be attached hereto and made a part hereof.
Standard General Conditions of the Contract Between Owner and Design/Builder, Article 15; Watkins' Motion to Compel, Exhibit B, Appendix at 19; National's Motion to Compel at 3-4.
Exhibit GC-A of the prime contract sets forth the following method of dispute resolution:
C. All claims, disputes and other matters in question between OWNER and DESIGN/BUILDER arising out of or relating to the Contract Documents or the breach thereof . . . will be decided by binding arbitration. . . .
Exhibit GC-A to the General Conditions, Article 15.01; Watkins' Motion to Compel, Exhibit C, Appendix at 20; National's Motion to Compel at 4. Thus, arbitration is the agreed upon method for resolving subcontract disputes between Triad and Watkins.
A dispute has arisen between Watkins and Triad as to whether Triad is entitled to further payment for work performed on the project. Watkins' Motion to Compel at 4; National's Motion to Compel at 4; Complaint at 4-6. As a result, Triad filed a mechanic's and materialman's lien against Holnam's property to assure payment through foreclosure in the event Triad is not paid by Watkins. National's Motion to Compel at 4; Complaint at 6. Subsequently, Watkins, as principal, and National, as surety, entered into an agreement whereby National would provide a bond (the "bond") to indemnify against Triad's lien, and Watkins would, in turn, indemnify National. Watkins' Motion to Compel at 5; National's Motion to Compel at 4; Complaint at 7. National then issued the bond in favor of Triad and Watkins caused it to be recorded in the property records of Ellis County, Texas. National's Motion to Compel at 4.
On or about May 4, 2001, Triad filed this complaint against the defendants Watkins, Holnam, and National, alleging breach of the subcontract by Watkins, misapplication of funds under the subcontract by Watkins, a claim for exemplary damages, a mechanic's and materialman's lien on Holnam's property, and a claim for payment on the bond issued by National. Complaint at 7-12; National's Motion to Compel at 4-5.
II. ANALYSIS
Both federal and Texas law strongly favor arbitration. See Moses H. Cone Memorial Hospital v. Mercury Construction Corporation, 460 U.S. 1, 24-25 (1983); Cantella Company, Inc. v. Goodwin, 924 S.W.2d 943, 944 (Tex. 1996). Indeed, the Supreme Court has emphasized that the Federal Arbitration Act ("FAA") "declared a national policy favoring arbitration" and was enacted "to overrule the judiciary's longstanding refusal to enforce agreements to arbitrate." Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior University, 489 U.S. 468, 474 (1989) (quoting Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 219-20 (1985)). Consequently, the FAA, by its terms, "leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed." Dean Witter, 470 U.S. at 218. Therefore, if this court finds that Triad agreed to arbitrate the type of claims it asserts in this case, arbitration must be ordered.
9 U.S.C. § 1 et seq.
Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 56 (1995) (quoting Southland Corporation v. Keating, 465 U.S. 1. 10 (1984)).
Whether a contract's arbitration clause requires arbitration of a given dispute is a matter of contract interpretation, which is to be performed by the court. See ATT Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 649 (1986). And the court's interpretive function must be carried out with appropriate deference to the strong federal policy that favors arbitration over litigation. See Southland Corporation v. Keating, 465 U.S. 1, 10-11 (1984). In fact, when addressing questions of arbitrability, all doubts concerning the scope of the arbitration clause in a contract should resolved in favor of arbitration. See United Steelworkers of America v. Warrior Gulf Navigation Company, 363 U.S. 574, 583 (1960).
The defendants Watkins and National maintain that the court should compel arbitration of all of Triad's claims against Watkins and, until such arbitration is completed, stay all proceedings in this case. Triad, after filing this claim in the face of a valid arbitration agreement, concedes that all of its contract and tort causes of action are governed by the parties' agreement to arbitrate so that these causes of action must be referred to arbitration and their further progress in this case stayed in the meantime. Triad's Response at 4. Triad contends, however, that its statutory lien claims against Holnam and its bond claims against National and Watkins are not subject to arbitration and should not be stayed. Id. Each of these contentions will be examined separately.
A. Triad's Contract and Tort Causes of Action
As stated earlier, Triad concedes that all of its contract and tort causes of action are governed by the parties' agreement to arbitrate and that these causes of action must therefore be referred to arbitration and stayed while arbitration proceeds. Id. The court is in agreement that these causes of action fall well within the scope of the subcontract. Therefore, when all doubts — if any exist here — are resolved in favor of arbitration, Triad's contract and tort claims fall squarely within the scope of the parties' agreement to arbitrate.
B. Triad's Lien Claims Against Holnam
Triad maintains that its statutory lien claims against Holnam and its bond claims against National and Watkins are not subject to arbitration and should not be stayed. Triad's Response at 4. To support this contention, Triad points to certain provisions of the subcontract relating to dispute resolution, including Subsection 17.2(5), which provides:
(5) No Limitation of Rights or Remedies: This Section shall not be deemed a limitation of any rights or remedies which Subcontractor [Triad] may have under any federal or state mechanic's lien laws or under any applicable labor and material payment bonds unless such rights or remedies are expressly waived.
Triad's Response at 5; Appendix at 13-14. Additionally, Triad urges that Section 9.2 of the subcontract applies, providing, in part:
Subcontractor [Triad] shall not be construed to have foregone its lien rights in the event of a dispute over payments due for services rendered and materials furnished to the Project.
Triad's Response at 5; Appendix at 6-7. Triad maintains that it has not agreed to arbitrate its lien claims against Holnam and that Watkins' motion to compel arbitration, by requesting this court to stay these proceedings against Holnam, is an attempt to "limit" Triad's rights under the Texas' lien laws. Id. Watkins responds that it is not attempting to "limit" Triad's lien claims in any manner, because the lien claims simply cannot be decided until the underlying dispute is resolved. Watkins' Reply in Support of its Amended Motion to Compel Arbitration and Stay Proceedings ("Watkins' Reply") at 4. Under Texas law, "a lien is inseparable from the debt giving rise to it." Goldberg v. R.J. Longo Construction Co., 54 F.3d 243, 246 (5th Cir. 1995) (citing Palmer v. Palmer, 831 S.W.2d 479, 482 (Tex.App. — Texarkana 1992, no writ). Although Holnam is not a party to the arbitration agreement between Triad and Watkins, the action by Triad against Holnam is dependent upon resolution of the dispute on the Triad/Watkins subcontract, since the enforceability of the lien cannot be determined until it is first determined what amount, if any, is due and owing to Triad. Watkins Reply at 6. If the arbitration determines that Watkins owes no additional amounts to Triad, there would be no unpaid debt for the lien to secure. The Fifth Circuit has held that "proceedings against parties and non-parties to the arbitration agreement are stayed pending the outcome of arbitration, when the action against the non-party is dependent upon interpretation of the underlying contract." See Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524, 526 (5th Cir.), cert. denied, 531 U.S. 1013 (2000); see also Subway Equipment Leasing Corporation v. Forte, 169 F.3d 324, 329 (5th Cir. 1999). The facts of this case fall squarely within this mandate, as the lien claim of Triad against Holnam is inseparable from the underlying monetary dispute with Watkins. Thus, the court grants the defendants' motions to stay proceedings regarding Triad's lien claim.
C. Triad's Bond Claims Against National and Watkins
Triad contends that the bond issued by National in favor of Triad contains mandatory language that claims against Watkins/National can be proved in a court of law, confirms the parties' original intent not to arbitrate such claims, or alternatively, is a written modification of the arbitration provision in the subcontract which supersedes or expressly waives Watkins' right to assert a demand for arbitration. Triad's Response at 8-9. Watkins responds that the language in the subcontract and on the bond merely preserves Triad's right to bring an action on the bond in a court of law, but that the language in no way precludes the arbitration panel from hearing the bond claims and making a determination. Watkins' Reply at 7. As for Triad's assertion that the bond serves as a modification of the subcontract, the subcontract explicitly states that "[n]o changes, amendments, or modifications to the terms of this Agreement shall be valid unless reduced to writing and signed by both parties." Watkins' Reply at 8; Appendix at 2 (emphasis added). Because Triad was not a signatory to the bond, no modification occurred, even if one was intended. Watkins' Reply at 8. Ultimately, the bond serves as assurance that Triad will be paid if any of its claims are found to be valid. Watkins' Reply at 6. If Triad is awarded no recovery in arbitration, National's bond will not be implicated in any manner. If Triad does recover, the bond will assure payment of the judgment. In short, Triad's claim on the bond is inseparable from the underlying dispute between Triad and Watkins. Therefore, the claim against Watkins as principal on the bond is subject to arbitration, as it is within the reach of the subcontract's agreement to arbitrate and is interwoven with Triad's other claims.
The claims against National as surety on the bond stand on a different footing. Since National is not a party to the prime contract or the subcontract, the claim against it is not arbitrable. See, e.g., United Steelworkers, 363 U.S. at 582 ("arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit."); Zimmenrani v. International Companies Consulting, Inc., 107 F.3d 344, 346 (5th Cir. 1997) (FAA does not require arbitration "for parties who have not contractually bound themselves to arbitrate their disputes."). Nevertheless, for the same reasons discussed in connection with Triad's lien claims, all claims against National as surety on the bond must be stayed pending arbitration.
D. Watkins' Claim For Attorneys' Fees
Watkins seeks an award of attorneys' fees under TEX. CIV. PRAC. REM. CODE § 38.001 for its efforts in bringing this motion in the face of a valid arbitration clause in the subcontract. Watkins' Motion to Compel at 15; Watkins' Reply at 9. Without further explanation, the court can only assume that Watkins is seeking these attorneys' fees for breach of the arbitration agreement. Because this claim is based on a dispute covered by the subcontract, the arbitration agreement applies, and this issue is subject to arbitration as well.
III. CONCLUSION
Because Triad entered into an agreement to arbitrate claims of the type it asserts against Watkins in this case, this court must order arbitration. Accordingly, Watkins' and National's motions to compel arbitration of claims against Watkins and stay all proceedings in this case are GRANTED. Within thirty days of the date of this memorandum order, counsel for Watkins shall serve upon Triad, the court, and the American Arbitration Association a demand for the arbitration of Triad's claims. Within thirty days of serving the demand for arbitration, counsel for Watkins shall notify the court, in writing, of the schedule for the arbitration proceeding. All proceedings in this case are STAYED pending further order of this court.