United States Court of Appeals For the First Circuit
No. 92-1904
COMMERCIAL UNION INSURANCE COMPANY,
Plaintiff, Appellant,
v.
GILBANE BUILDING COMPANY,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Judge Edward F. Harrington, U.S. District Judge]
Before
Torruella, Circuit Judge,
Bownes, Senior Circuit Judge,
and Stahl, Circuit Judge.
Michael P. Duffy, with whom Bert J. Capone, John J. O'Connor, and
Peabody & Arnold, were on brief for appellant.
Peter B. Krupp, with whom Thomas R. Murtagh, Joseph P. Crawford-
Kelly, and Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., were
on brief for appellee.
May 11, 1993
STAHL, Circuit Judge. In this appeal, plaintiff-
appellant Commercial Union Insurance Company ("CU")
challenges the district court's summary denial of its motion
to stay defendant-appellee Gilbane Building Company's
("Gilbane") counterclaim pending arbitration. Finding error
in the district court's decision, we reverse.
I.
Factual Background
During the latter half of the 1980's, Gilbane, a
general contractor, entered into thirteen subcontracts with
Thames Valley Steel Corporation ("TVS"), a structural steel
subcontractor, under which TVS agreed to perform structural
steel work for Gilbane on thirteen separate construction
projects in Massachusetts and Rhode Island. On each project,
CU acted as surety for TVS, issuing various performance,
labor, and material bonds guarantying TVS's proper completion
of its obligations. As such, each of the thirteen
construction projects was governed by at least three
contracts: (1) the prime contract between Gilbane and the
individual owner; (2) the subcontract between Gilbane and
TVS; and (3) CU's performance bond.
In 1990, TVS ceased doing business and, as a
result, defaulted on its obligations under each of the
thirteen subcontracts. Disputes then arose between CU and
Gilbane concerning CU's obligations as the guarantor of TVS'
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performance on these projects. On August 16, 1991, CU
commenced this diversity action against Gilbane alleging that
Gilbane wrongfully withheld contract balances owed CU in
connection with the completion of the first twelve
construction projects. In its answer, Gilbane denied CU's
allegations and also brought a two-count counterclaim. In
Count I of its counterclaim, Gilbane alleged that, in
relation to the thirteenth construction project, TVS breached
the terms of its subcontract by failing to perform in a good
and workmanlike manner, and that CU breached the terms of its
performance bond by failing to correct TVS' work. In Count
II, Gilbane charged that CU committed unfair and deceptive
trade practices in violation of Mass. Gen. Laws Ann. ch. 93A,
2 and 11 (West 1984 and Supp. 1992) (hereinafter referred
to simply as "ch. 93A"), and unfair claim settlement
practices in violation of Mass. Gen. Laws Ann. ch. 176D,
3(9) (West 1987 and Supp. 1992), by failing "to effectuate a
prompt, fair and equitable settlement of Gilbane's claims . .
. ."
In response to Gilbane's counterclaim, CU filed a
reply denying any liability in connection with the thirteenth
project and amended its complaint to add a count alleging
that Gilbane committed unfair and deceptive trade practices
in violation of ch. 93A by withholding an undisputed amount
"solely in order to gain leverage with respect to a dispute
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arising in connection with a different project." At that
time, CU also filed a third-party complaint against L.
Antonelli Iron Works and The Thompson and Lichter Company,
Inc., both of whom had entered into subcontracts with TVS to
perform certain services in connection with the thirteenth
construction project. In that complaint, CU alleged that the
third-party defendants were liable to CU for any amounts
Gilbane might recover against CU on Count I of its
counterclaim.
On November 6, 1991, CU filed the instant motion to
stay Gilbane's counterclaim pending arbitration, arguing that
the counterclaim was subject to an express arbitration
agreement.1 Gilbane opposed the motion to stay, contending
that the counterclaim was not subject to an arbitration
agreement, and in the alternative, that CU had waived its
right to arbitrate by filing the instant lawsuit. On May 18,
1992, the district court entered a margin order denying CU's
motion to stay. CU appeals from that decision.
II.
1. We think it important to emphasize that Count I of the counterclaim concerns only the thirteenth construction project. The other twelve projects, which are the basis for the complaint by CU against Gilbane, are not implicated in the counterclaim. The counterclaim, therefore, can be viewed as separate and distinct from the complaint brought by CU against Gilbane. Neither party has suggested that the dispute as to the twelve other construction projects, which form the basis for CU's complaint, be submitted to arbitration.
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Discussion
Although not raised by the parties, we first
explain the basis of our appellate jurisdiction. Section 3
of the Federal Arbitration Act ("FAA") contains a procedure
by which parties to an arbitration agreement may file a
motion to stay the trial of arbitrable claims pending
arbitration. See 9 U.S.C.A. 3 (West 1970). Pursuant to
that section of the statute, a district court must grant the
stay "upon being satisfied that the issue involved . . . is
referable to arbitration under such an agreement . . . ."
The FAA further provides that "[a]n appeal may be taken from
. . . an order . . . refusing a stay under section 3 of this
title . . . ." 9 U.S.C.A. 16(a)(1)(A) (West Supp. 1992).
As CU is appealing from a denial of a motion to stay under
section 3 of the FAA, we therefore have appellate
jurisdiction.
A. Arbitrability
The arbitrability of this dispute turns on the
interpretation of contractual terms, a question of law which
we can determine in the first instance. See, e.g., Fashion
House, Inc. v. K Mart Corp., 892 F.2d 1076, 1083 (1st Cir.
1989).
1. Relevant Contract Language
Gilbane's counterclaim is based upon CU's alleged
breach of its performance bond on the thirteenth project
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("the Performance Bond"). Thus, the arbitrability of this
counterclaim depends upon whether there is language in that
contract subjecting disputes between Gilbane and CU to
arbitration.
Although the Performance Bond has no language
dealing with arbitration, it does contain a clause
incorporating the subcontract between Gilbane and TVS ("the
Subcontract"), which, in turn, has a clause incorporating the
prime contract between Gilbane and the owner of the
thirteenth project ("the Prime Contract"). It is the Prime
Contract that contains the arbitration clause. That clause
reads as follows:
All claims, disputes and other matters in question arising out of, or relating to this Agreement or the breach thereof, . . . shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association then obtaining unless the parties mutually agree otherwise. This agreement to arbitrate shall be specifically enforceable under the prevailing arbitration law by a three-member panel.
The Subcontract, which was drafted by Gilbane,
contains a clause incorporating certain provisions of the
Prime Contract:
[Gilbane] shall be bound to [TVS] by the terms of this agre[e]ment, to the extent that the provisions of the contract documents between the owner and [Gilbane] apply to the work of [TVS] as defined in this agreement[.] [Gilbane] shall assume toward [TVS] all the
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obligations and responsibilities that the owner, by those documents, assumes toward [Gilbane]. [Gilbane] shall have the benefit of all rights, remedies, and redress against [TVS] which the owner, by those documents, has against [Gilbane]. . . .2
Finally, the Performance Bond has a clause
incorporating the Subcontract by reference: "Whereas, [TVS]
has by written agreement . . . entered into a [S]ubcontract
with [Gilbane] . . . which [S]ubcontract is by reference made
a part hereof . . . ."
2. Relevant Law
In deciding whether a chain of incorporation
rendering Gilbane's counterclaim arbitrable exists within
these three contracts, we are mindful of the strong federal
policy favoring arbitration agreements, a policy which
requires us to resolve "any doubts" concerning arbitrability
in favor of arbitration. See Moses H. Cone Memorial Hosp. v.
Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983). See also J
& S Constr. Co., Inc. v. Travelers Indem. Co., 520 F.2d 809,
810 (1st Cir. 1975) (construing incorporation language in a
subcontract broadly in light of "the policy favoring
arbitration"). This policy applies "whether the problem at
hand is the construction of the contract language itself or
2. The subcontract defines "contract documents" to include "the agreement between the owner and [Gilbane], the conditions of the agreement between the owner and [Gilbane], general conditions, supplementary, special and other conditions . . . ."
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an allegation of waiver, delay, or a like defense to
arbitrability." Moses H. Cone, 460 U.S. at 25.
In a remarkably similar case, the Sixth Circuit
held that a chain of incorporation running through a prime
contract, a subcontract, and a performance bond rendered
disputes under the performance bond subject to the prime
contract's arbitration clause. Exchange Mut. Ins. Co. v.
Haskell Co., 742 F.2d 274, 275-76 (6th Cir. 1984). Like the
Performance Bond at issue here, the bond in that case did not
itself contain an arbitration clause. Rather, the bond in
Haskell incorporated the subcontract by reference, (employing
incorporation language almost identical to that involved
here), which, in turn, incorporated the prime contract by
reference. Id. The incorporation clause in that subcontract
read as follows: "Subcontractor hereby assumes the same
obligations and responsibilities with respect to his
performance under this Subcontract, that Contractor assumes
towards Owner with respect to his performance on the [prime]
[c]ontract." Id. at 275. The prime contract in Haskell
contained an arbitration provision almost identical to that
in the Prime Contract at issue here. Id.
Without reference to the federal policy requiring
it to construe any doubts in favor of arbitrability, the
Sixth Circuit nevertheless reasoned that the incorporation
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language in the performance bond and subcontract was broad
enough to include the prime contract's arbitration agreement:
Here, the performance bond specifically referred to and incorporated the subcontract. The subcontract provides that the same obligations and responsibilities apply in the subcontract as apply in the [prime] contract. And, finally, the [prime] contract provides that there is a duty to arbitrate. Thus, the performance bond incorporates by reference the subcontract, the subcontract incorporates by reference the [prime] contract[,] and hence[,] the duty to arbitrate.
Id. at 276 (relying on J & S Constr., 520 F.2d at 810).
If anything, the language in the Subcontract
incorporating the terms of the Prime Contract is even broader
than that in the Haskell subcontract. The Subcontract
provides that, to the extent the Prime Contract (with all its
attendant conditions) applies to the work of TVS, Gilbane
"shall assume toward [TVS] all the obligations and
responsibilities" that the owner assumed toward Gilbane under
the Prime Contract. (Emphasis added). The Subcontract
further states that "[Gilbane] shall have the benefit of all
rights, remedies, and redress against [TVS] which the owner,
by [the contract documents], has against [Gilbane]." The
parties do not dispute that one of the obligations which
Gilbane assumed toward the owner under the Prime Contract was
to submit all disputes arising out of the contract to
arbitration. Nor do they dispute that the bundle of "rights,
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remedies, and redress" given the owner under the Prime
Contract included the right to submit all claims relating to
that contract to arbitration. Accordingly, we find that the
Subcontract bound Gilbane to arbitrate disputes relating to
the work of TVS.3 Because the Performance Bond explicitly
incorporated by reference the terms of the Subcontract, we
further find that Gilbane and CU similarly bound themselves
to submit disputes arising under the Performance Bond to
3. In support of its contention that the language in the Subcontract should be read narrowly, Gilbane points to the clause in that contract expressly granting Gilbane "the benefits of all rights, remedies, and redress against [TVS] which the owner, by [the Prime Contract], has against [Gilbane]." Because the Subcontract does not contain a parallel clause expressly granting TVS "the benefit of all rights, remedies, and redress" under the Prime Contract, Gilbane contends that the parties did not intend for TVS to have the same right to subject disputes under this contract to arbitration. We do not agree. First, this argument ignores the immediately preceding clause which states that Gilbane "shall assume toward [TVS] all the obligations and responsibilities that the owner, by [the Prime Contract], has against [Gilbane]." As explained above, we interpret this clause to impose upon Gilbane the duty to arbitrate "all disputes relating to [the Prime Contract]," an obligation assumed by the owner under the Prime Contract. Second, adopting Gilbane's cramped reading of this language would run counter to the clearly enunciated federal policy of interpreting "any doubts" in contractual language in favor of arbitration. Moses H. Cone, 460 U.S. at
24-25. Finally, because Gilbane drafted the subcontract, we construe any ambiguities in that contract against it. See,
e.g., LFC Lessors, Inc. v. Pacific Sewer Maintenance Corp.,
739 F.2d 4, 7 (1st Cir. 1984).
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arbitration. To the extent that the district court held
otherwise, we reverse.4
B. Waiver
Gilbane alternatively contends that, even if the
counterclaim is arbitrable, CU waived its right to arbitrate
that claim based upon its pretrial participation in this
lawsuit. This contention we find meritless.
In deciding this issue, we first discuss the
appropriate standard of review. As the district court
decided the arbitrability question by margin order, we have
no predicate factual findings to review. In fact, it is
possible that the district court did not reach the question
of waiver but decided against CU solely on the basis of its
4. To support its position that the district court's refusal to grant the stay was correct, Gilbane relies upon a series of cases which, it asserts, stand for the proposition that prime contract provisions unrelated to the work of the subcontractor are not incorporated by reference into a subcontract. See Washington Metro. Area Transit Auth. v.
Norair Eng'g Corp., 553 F.2d 233, 235-36 (D.C. Cir. 1977);
John W. Johnson, Inc. v. Basic Constr. Co., Inc., 429 F.2d
764, 774-75 (D.C. Cir. 1970); United States v. Fryd Constr.
Corp., 423 F.2d 980, 983-84 (5th Cir.), cert. denied, 400
U.S. 820 (1970); United States Steel Corp. v. Turner Constr.
Co., 560 F. Supp. 871, 873-74 (S.D.N.Y. 1983). None of these
cases, however, involved the incorporation of an arbitration clause. Indeed, in one of the cases relied upon by Gilbane, the court explicitly distinguished cases involving arbitration clauses as invoking the "congressional policies favoring arbitration . . . ." See Washington Metro., 553
F.2d at 236. In light of Haskell, a case on all fours with
this one, we find Gilbane's reliance upon this line of cases unpersuasive.
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interpretation of the contractual language. In any event,
the facts concerning CU's pretrial participation in the
lawsuit are undisputed. As a result, the question of waiver
is one of law, and we review it de novo. See Page v.
Moseley, Hallgarten, Estabrook & Weeden, Inc., 806 F.2d 291,
294 n.2 (1st Cir. 1986), overruled on other grounds sub nom.
Shearson/American Express, Inc. v. McMahon, 482 U.S. 220
(1987).
In deference to the policies favoring arbitration,
"courts have stated that `waiver is not to be lightly
inferred, and mere delay in seeking arbitration without some
resultant prejudice to a party cannot carry the day.'" See
id. at 293 (quoting Rush v. Oppenheimer & Co., 779 F.2d 885,
887 (2d Cir. 1985)). See also Sevinor v. Merrill Lynch,
Pierce, Fenner & Smith, Inc., 807 F.2d 16, 19 (1st Cir. 1986)
("In order for plaintiffs to prevail on their claim of
waiver, they must show prejudice."); J & S Constr., 520 F.2d
at 809-10 (upholding district court's finding of no waiver
where there had been "no showing of prejudice").
Although Gilbane made no claim below that it would
be prejudiced by a stay of its counterclaim, it asserts on
appeal that it would suffer prejudice on two bases: (1) that
it could not properly "defend" Count I (the contract claim
for amounts allegedly owed CU on twelve of the thirteen
construction projects) and Count II (CU's ch. 93A claim)
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without its counterclaim; and (2) that it would be forced
into duplicative litigation. We discuss these contentions in
turn.
Gilbane first argues that it would suffer prejudice
from having to defend against Count I of CU's complaint
without its counterclaim. Accepting this contention would
require, in essence, a finding that the thirteen construction
projects are factually inseparable. This is simply not the
case. Suppose, for instance, that the counterclaim proceeds
to arbitration and is decided in Gilbane's favor. Assume
further that the underlying lawsuit results in an award to
CU. Under that scenario, the arbitration award could act as
a stipulated setoff from the amount awarded CU in district
court.5 We are unable to imagine a scenario in which
Gilbane would suffer prejudice from having to defend Count I
of CU's complaint in the underlying lawsuit without its
counterclaim. Nor has Gilbane outlined such a scenario.6
5. We note that Gilbane's attorney conceded as much during oral argument.
6. Gilbane also argues that, because it pleaded the substance of its counterclaim as an affirmative defense in its answer to the complaint, it should be permitted to litigate the substance of that claim in the underlying action. Whether we characterize the substance of Gilbane's claim as a "counterclaim" or a "setoff defense," however, makes no difference for the purposes of determining whether Gilbane will theoretically be prejudiced by severing it from
the underlying lawsuit. Second, and more important, Gilbane is, in our opinion, relying upon creative pleading to make an end run around an arbitration agreement. We have previously rejected a party's reliance upon procedural gamesmanship to
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We therefore find unpersuasive its belated contention that
one might exist.
Gilbane also asserts that it would suffer prejudice
by having to defend against Count II of CU's complaint
without its counterclaim. Again, Gilbane has failed to
provide an example of how it might be prejudiced. It appears
to be arguing, instead, that it would be judicially
inefficient to litigate CU's ch. 93A claim in one forum and
Gilbane's ch. 93A claim in another.7 While Gilbane may be
correct, we fail to see how any resulting judicial
inefficiency would prejudice Gilbane.8 Cf. Page, 806 F.2d
avoid the dictates of an arbitration agreement. Cf. Hilti,
Inc. v. Oldach, 392 F.2d 368, 373 n.2 (1st Cir. 1968) ("If
arbitration defenses could be foreclosed [by creative use of the joinder rules], the utility of such agreements would be seriously compromised."). We do so again today.
7. At one point in its brief, Gilbane states that it would "be at risk of inconsistent verdicts . . . ." Gilbane has not, however, offered either an explanation of this perfunctory assertion or an example of a scenario in which it could occur. As such, we do not address it further. See
United States v. St. Cyr, 977 F.2d 698, 701 (1st Cir. 1992)
(reiterating well settled rule in this circuit that arguments adverted to on appeal in "a perfunctory manner, unaccompanied by some developed argumentation," are deemed waived) (quoting Ryan v. Royal Ins. Co. of America, 916 F.2d 731, 734 (1st
Cir. 1990)).
8. In any event, considerations of judicial efficiency are not a sufficient basis on which to affirm the district court's denial of the motion to stay. See, e.g., Seguros
Banvenez, S.A. v. S/S Oliver Drescher, 761 F.2d 855, 862 (2d
Cir. 1985) (holding that a court "may not refuse to grant a stay [of a claim pending arbitration] based on considerations of judicial economy"); Surman v. Merrill Lynch, Pierce,
Fenner & Smith, 733 F.2d 59, 63 (8th Cir. 1984) (similar);
Dickinson v. Heinold Sec., Inc., 661 F.2d 638, 644-45 (7th
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at 294-95 (finding no prejudice despite plaintiffs' claim
that compelled arbitration would force them to "restart the
entire [pretrial preparation] process before a new tribunal"
almost two years after complaint was filed).
Gilbane also argues that it would suffer prejudice
by having to litigate the same facts in two separate
proceedings, and having "to incur increased costs as a result
of having to proceed in two arenas." This argument rests on
the faulty premise that litigation of the counterclaim and
CU's underlying claims would require the adjudication of
"identical factual and legal issues." See supra pp. 11-12.
Moreover, any added costs that Gilbane would incur to
arbitrate its counterclaim were bargained for by Gilbane. As
such, Gilbane's final attempt to persuade us that it will
suffer undue prejudice falls well short of the mark.
III.
Conclusion
In sum, we find that Gilbane's counterclaim was
subject to an express agreement to arbitrate, and that CU did
not waive its right to arbitrate that claim. Accordingly, we
reverse the district court's denial of CU's motion to stay
Gilbane's counterclaim pending arbitration and remand for
proceedings consistent with this opinion.
Reversed and remanded. No costs. Reversed and remanded. No costs.
Cir. 1981) (similar).
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