Diamond Materials, LLC v. Tutor Perini Corporation

• Court: Superior Court of Delaware
• Decided: April 30, 2021
• Docket: N20C-05-162 MAA
• Status: Published

Opinion

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

DIAMOND MATERIALS, LLC., ) ) Plaintiff, ) C.A. No. N20C-05-162 MAA ) v. ) ) TUTOR PERINI CORPORATION, ) ) Defendant. )

Submitted: January 15, 2021 Decided: April 30, 2021

Upon Defendant Tutor Perini Corporation’s Motion to Dismiss the Complaint or in the Alternative to Stay GRANTED in part.

MEMORANDUM OPINION

Steven F. Mones, Esquire, of MINTZER SAROWITZ ZERIS LEDVA & MEYERS, LLP, Wilmington, Delaware, and Ross D. Ginsberg, Esquire (Argued), of WEINBERG WHEELER HUDGINS, GUNN & DIAL, LLC, Atlanta, GA, Attorneys for Plaintiff.

James S. Green, Jr., Esquire (Argued), of SEITZ, VAN OGTROP & GREEN, P.A., Wilmington, Delaware, Attorney for Defendant.

Adams, J. This opinion resolves a dispute over whether Diamond Materials, LLC

(“Diamond”), a full-service construction site contractor, must arbitrate certain

claims in this action pursuant to two road construction subcontracts it entered into

with Tutor Perini Corporation (“TPC”). Under the subcontracts, Diamond is the

subcontractor and TPC is the contractor. Besides the scope of work, clarifications,

and subcontract amounts, the language in the subcontracts is identical. The

arbitration provision in the subcontracts states that a certain subset of disputes must

be arbitrated, namely any of Diamond’s claims that arise from the acts or omissions

of the Delaware Department of Transportation (“DelDOT”). The provision also

provides that TPC decides whether any of Diamond’s claims falls into this subset of

claims.

Here, Diamond seeks, among other things, money damages and attorneys’

fees from TPC for bad faith breaches of the two subcontracts. TPC alleges that

Diamond’s claims arising out of the subcontracts must be arbitrated per the plain

language of the arbitration provision. TPC has moved to dismiss this action in favor

of arbitration or, in the alternative, for a stay pending arbitration.

Diamond’s motion to dismiss is granted in part. The question of whether

Diamond’s claims are arbitrable must be answered by the Court. Unless a contract

clearly and unmistakably provides otherwise, Delaware law mandates that questions

of substantive arbitrability require judicial resolution. In this opinion, the Court

2 concludes that the subcontracts do not mandate that an arbitrator decide substantive

arbitrability. Further, given the arbitration provision’s plain language that TPC is to

determine whether Diamond’s claims fall within the group of claims that must be

arbitrated, the Court concludes that Diamond has a contractual obligation to arbitrate

its claims. As such, TPC’s motion to dismiss Counts I, II, and IV in favor of

arbitration is granted. Because arbitration of these claims may affect the remaining

claim in the complaint, in the interest of judicial economy, this action will be stayed

pending the results of the arbitration.

I. Factual Background

The facts pertinent to the current dispute can be stated briefly and are drawn

from Diamond’s complaint or are otherwise undisputed in the parties’ submissions.

Diamond is a full-service site contractor based in Newport, Delaware. TPC

is a Massachusetts construction company authorized to do business in the State of

Delaware. Between December 2015 and May 2016, Diamond and TPC entered in

two subcontracts (the “308 Contract” and the “302 Contract,” collectively “the

Subcontracts”) relating to the construction of road interchanges between US Route

301 and State Routes 896 and 1.1

1 Complaint (“Compl.”), at ¶¶ 9-10.

3 The terms of the Subcontracts are identical, with the exception of the scope of

work, clarification, and subcontract amounts. Under the Subcontracts, TPC serves

as the contractor, and Diamond as the subcontractor.2 The Subcontracts incorporate

and are governed by the prime roadwork contract (the “Prime Contract”) between

TPC and DelDOT, under which DelDOT is the owner and TPC is the contractor.3

The Prime Contract contains a prompt payment provision4 (the “Prompt Payment

Provision”).

In the current dispute, Diamond alleges that TPC withheld and delayed

progress payments owed to Diamond under the Subcontracts, in direct contravention

of the Prompt Payment Provision.5 Pursuant to the Provision, TPC was required to

pay Diamond for the work that Diamond completed within 30 days of TPC’s receipt

2 Compl. at Ex.1 at 1; id. at Ex. 2 at 1. 3 Compl. at Ex.1 at 15 (the “terms, conditions, documents, attachments, etc. therein [of the Prime Contract] are included in the Subcontract Agreement”); see also id. at Ex. 2 at 15. 4 The Prompt Payment Provision states: “The prime contractor/consultant receiving payments shall, within 30 days of receipt of any payment, file a statement with the Department on a form to be determined by the Department that all subcontractors furnishing labor or material have been paid the full sum due them at the stage of the contract, except any funds withheld under the terms of the contract as required by Chapter 8, Title 17 of the Delaware Code annotated and as amended. Any delay or postponement of payment from the above referenced time frame may occur only for good cause following written approval of Del DOT. This clause applies to both DBE and non-DBE subcontractors.” Compl. at ¶ 11. 5 Compl. at ¶¶ 29-34, 46-48.

4 of payment from DelDOT. The complaint seeks: 1) money damages for the breach

of the Subcontracts; 2) money damages for the breach of a materials contract

between TPC and Diamond;6 and 3) attorneys’ fees for bad faith breaches of the

Subcontracts.

The central issue raised by this motion is where the underlying dispute

between Diamond and TPC should be heard. The Subcontracts have a few

provisions that bear on this question. The most obviously relevant is Section 2(E),

the arbitration provision, which provides that:

All claims of Subcontractor arising out of acts or omissions of Owner shall be presented to Owner by Contractor on behalf of Subcontractor and finally resolved through the claims procedure7 (arbitration, litigation or otherwise) applicable between Contractor and Owner. For purposes of applying the preceding sentence, Contractor shall decide whether Subcontractor’s claims arise out of the acts or omissions of Owner . . . All other claims and disputes between the

6 TPC does not move to dismiss Count III of the Complaint relating to an alleged breach of a materials contract between TPC and Diamond. See Compl. at ¶¶ 55-66. In its motion, TPC suggests that it has determined that the claims asserted by Diamond as set forth in the Complaint all arise out of the acts or omissions of DelDOT, and thus are subject to arbitration. That said its motion, the parties’ subsequent submissions, and the oral argument all focused on the Subcontracts, and therefore this opinion only addresses whether the Subcontracts compel arbitration of Counts I, II, and IV of the Complaint. 7 Importantly, the parties do not dispute that the applicable claims procedure here is arbitration. The Prime Contract between DelDOT and TPC incorporates the DelDOT supplemental specifications to the August 2001 Standard Specifications (revised November 24, 2014). Defendant’s Motion to Dismiss (“Def.’s Mot.”), at ¶ 3. Section 105.15 of these specifications provides a claims procedure that culminates in an arbitration pursuant to the Construction Industry Arbitration Rules of the American Arbitration Association. See Def.’s Mot. at Ex. B.

5 parties shall be decided by the appropriate court in New Castle County, Delaware.”8

Also relevant is Section 12, which provides that the Subcontracts:

“shall be construed and enforced with and under the laws of the State of Delaware . . . Venue shall lie in the appropriate Court in New Castle County, Delaware. The parties expressly agree to submit to the service of process in and to the jurisdiction of the Courts of the State of Delaware in connection with any dispute, claim or controversy arising under the Subcontract.”9

With these pertinent provisions in mind, the Court turns to resolving the parties’

dispute as to whether Diamond’s claims must be arbitrated.

II. Legal Analysis

The legal standards governing this motion are familiar. TPC moves to dismiss

under Superior Court Civil Rule 12(b)(1) on the ground that the Subcontracts require

Diamond to arbitrate the claims in seeks to litigate in this Court.10 A 12(b)(1) motion

will be granted if the parties “contracted to arbitrate the claims asserted in the

8 Compl. at Ex.1 at Section 2(E); id. at Ex. 2 at Section 2(E) (emphasis added). 9 Compl. at Ex.1 at Section 12; id. at Ex. 2 at Section 12. 10 Diamond has also moved to dismiss under Superior Court Civil Rules 12(b)(3) and 12(b)(6) but does not provide its reasoning for dismissal under these rules. Even though the Supreme Court has observed that an arbitration clause is a special type of forum selection clause, see First Options Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1195), the Court will decide this motion under Rule 12(b)(1) and thus does not need to address TPC’s motion under Rules 12(b)(3) or 12(b)(6).

6 complaint.”11 In other words, the Court lacks subject matter jurisdiction to

adjudicate disputes that the parties have contractually agreed to arbitrate. 12 “A

strong presumption exists in favor of arbitration and, accordingly, contractual

arbitration clauses are generally interpreted broadly by the courts.”13 This

presumption, however, “will not trump basic principles of contract interpretation.”14

The principles of contract interpretation that apply are equally uncontroversial.

When interpreting an arbitration provision, courts “apply ordinary state-law

principles that govern the formation of contracts.”15 By their explicit terms, the

Subcontracts “shall be construed and enforced with and under the laws of the State

of Delaware.”16 Contracts are to be interpreted as written, and the Court gives effect

to their clear and unambiguous terms.17 At the motion to dismiss stage, the Court

11 Li v. Standard Fiber, LLC, 2013 WL 1286202, at *4 (Del. Ch. Mar. 28, 2013); see also W. IP Commc’ns, Inc. v. Xactly Corp., 2014 WL 3032270, at *5 (Del. Super. June 25, 2014). 12 NAMA Hldgs., LLC v. Related World Mkt. Ctr., LLC, 922 A.2d 417, 429 (Del. Ch. 2007) (citing Elf Atochem N. Am., Inc. v. Jaffari, 727 A.2d 286, 295 (Del. 1999)). 13 Id. at 430 (citations omitted). 14 Id. (citation omitted). 15 First Options Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1195). 16 Compl. at Ex.1 at Section 12; id. at Ex. 2 at Section 12. 17 Allied Capital Corp. v. GC-Sun Hldgs., L.P., 910 A.2d 1020, 1030 (Del. Ch. 2006).

7 may address legal issues surrounding the “proper interpretation of language in a

contract ... [w]hen the language of [the] contract is plain and unambiguous.”18 In

the case of contracts that contain arbitration provisions, “the policy in favor of

arbitration requires that doubts regarding whether a claim should be arbitrated, rather

than litigated, be resolved in favor of arbitration.”19

A. The Issue of Arbitrability Should Be Decided by This Court

The parties do not dispute whether the issue of substantive arbitrability should

be decided by the Court or an arbitrator. Nevertheless, the Court must determine

this threshold question.20 Arbitrability “is an issue for judicial determination unless

the parties clearly and unmistakably provide otherwise.”21 Contracting parties

18 Id. Conversely, if a contract can be read in more than one reasonable way, the Court should look to parol evidence, and, ultimately, “give the contract the most reasonable interpretation that best reflects the parties’ apparent intent.” Willie Gary LLC v. James & Jackson LLC, WL 75309, at *5 (Del. Ch. Jan. 10, 2006), aff’d, 906 A.2d 76 (Del. 2006) (citing Judge v. Rago, 570 A.2d 253, 257 (Del.1990)). Here, neither party suggests that parol evidence is necessary to interpret the arbitration provision itself in Subcontracts and the Court will not consider any extrinsic evidence submitted by the parties. 19 Willie Gary LLC v. James & Jackson LLC, 2006 WL 75309, at *5; see also SBC Interactive, Inc. v. Corp. Media Partners, 714 A.2d 758, 761 (Del. 1998). 20 Legend Nat. Gas II Hldgs., LP v. Hargis, 2012 WL 4481303, at *4 (Del. Ch. Sept. 28, 2012). This is a “gateway question[ ] about the scope of an arbitration provision and its applicability to a given dispute.” James & Jackson, LLC v. Willie Gary, LLC, 906 A.2d 76, 78 (Del. 2006). 21 Id. at 79 (citing Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83, 123 (2002)) (internal quotations omitted).

8 reserve the question of arbitrability for arbitrators only where: (1) “the arbitration

clause generally provides for arbitration of all disputes;” and (2) the contract

“incorporates a set of arbitration rules that empower arbitrators to decide

arbitrability.”22

Here, the Court must determine the question of arbitrability because the

arbitration provision at issue, Section 2(E) of the Subcontracts, does not provide for

the arbitration of all disputes. Rather, the only claims to be arbitrated are those that

“ari[se] out of acts or omissions of [] [DelDOT].”23 It is unclear whether the

Subcontracts, through the incorporation of the Prime Contract, include a set of

arbitration rules24 that empower arbitrators to decide arbitrability, but the Court need

not address this issue given that Section 2(E) does not provide for the arbitration of

all disputes. As such, the Court will determine substantive arbitrability in this case.

22 Id. at 80; see also 360 Campaign Consulting, LLC v. Diversity Commc’n, LLC, 2020 WL 1320909, at *3 (Del. Ch. Mar. 20, 2020). 23 Compl. at Ex.1 at Section 2(E); id. at Ex. 2 at Section 2(E). And this the case only if arbitration is the applicable claims procedure, between TPC and DelDOT, as it is here. Section 2(E) states plainly that “[a]ll other claims and disputes between the parties shall be decided by the appropriate Court in New Castle County, Delaware.” Id. 24 The parties do not dispute that Section 105.15 of the DelDOT specifications contains the applicable dispute resolution procedure. Section 105.15 “provides a detailed claim procedure, which, unless a claim is resolved, culminates in an arbitration pursuant to the Construction Industry Arbitration Rules of the American Arbitration Association.” Def.’s Mot., at 2; id. at Ex. B.

9 B. Diamond’s Breach of Contract Claims and Related Attorneys’ Fees Claim Must Be Arbitrated

The central issue of this motion is whether Diamond can pursue its claims in

this Court, or whether they must go to arbitration. To determine whether the claims

are subject to arbitration, the Court must engage in a two-part inquiry, as set forth in

Parfi Holding AB v. Mirror Image Internet, Inc. by the Delaware Supreme Court:

(1) “the court must determine whether the arbitration clause is broad or narrow in

scope;” and (2) “the court must apply the relevant scope of the provision to the

asserted legal claim to determine whether the claim falls within the scope of the

contractual provisions that require arbitration.”25 “If the court is evaluating a narrow

arbitration clause, it will ask if the cause of action pursued in court directly relates

to a right in the contract.”26 If the arbitration clause is broad in scope, however, the

court “will defer to arbitration on any issues that touch on contract rights or contract

performance.”27

25 Parfi Holding AB v. Mirror Image Internet, Inc., 817 A.2d 149, 155 (Del. 2002). 26 Id. 27 Id.

10 Section (2)E is narrow in scope. “An arbitration clause is narrow if arbitration

is limited to specific types of disputes.”28 Section 2(E) compels arbitration (if

arbitration is the appropriate claims procedure) with respect to “claims of [Diamond]

arising out of acts or omissions of [DelDOT].”29 “All other claims and disputes

between the parties” are to be litigated in the appropriate court in New Castle

County, Delaware.”30 Accordingly, the Court must decide if the causes of action

pursued by Diamond directly relate to a right in the Subcontracts.

Diamond’s breach of contract claims and related attorneys’ fee claim

implicate the rights provided for under the Subcontracts. Diamond’s claims plainly

depend on the existence of the Subcontracts, as the claims are centered on payments

due under the Subcontracts.31 In deciding whether the dispute is one that, on its face,

28 Specialty Dx Holdings, LLC v. Lab’y Corp. of Am. Holdings, 2020 WL 5088077, at *6 (Del. Super. Jan. 31, 2020). 29 Compl. at Ex.1 at Section 2(E); id. at Ex. 2 at Section 2(E). 30 Id. 31 Compare with Parfi, 817 A.2d at 156–57 (holding that certain fiduciary duty claims did not arise out of the underlying contractual provisions); Majkowski v. Am. Imaging Mgmt. Servs., LLC, 913 A.2d 572, 584–85 (Del. Ch. 2006) (holding that advancement rights arose from separate agreements which did not contain arbitration provisions). As noted, the parties do not dispute that the Subcontracts incorporate the Prime Contract and its dispute resolution mechanisms.

11 falls within the arbitration provision, the Court cannot consider “any aspect of the

merits of the claim sought to be arbitrated” and will not do so here.32

Diamond’s main argument is that its claims do not “aris[e] out of acts or

omissions of [DelDOT]” and spends the bulk of its opposition providing evidence

to bolster its assertion. But Diamond ignores the plain language of the following

sentence in the arbitration provision: “For the purposes of applying the preceding

sentence, [TPC] shall decide whether [Diamond’s] claims arise out of the acts or

omissions of [DelDOT].”33 The arbitration provision’s plain language requires that

TPC determine whether Diamond’s claims arise out of the acts or omissions of

DelDOT. Diamond would have the Court classify the dispute and determine

whether its claims arise out of the acts or omissions of DelDOT, something clearly

not contemplated by the arbitration provision.

Diamond further argues that allowing TPC “in its unfettered discretion” to

make such a decision would “arbitrarily and unreasonably deprive [it] of the

bargained-for venue provision thereby effectively negating that very position,”34

noting that when “a contract vests discretion in one contracting party, that discretion

32 CAPROC Manager, Inc. v. Policemen’s & Firemen’s Ret. Sys. of City of Pontiac, 2005 WL 937613, at *2 (Del. Ch. Apr. 18, 2005) (quoting SBC Interactive, Inc., 714 A.2d at 761). 33 Compl. at Ex.1 at Section 2(E); id. at Ex. 2 at Section 2(E). 34 Pl.’s Opposition (“Pl.’s Opp.”), at 7.

12 must be exercised reasonably.”35 This similarly misses the mark. Not only are the

cases cited by Diamond inapposite,36 but more fundamentally, Diamond again

ignores the plain language of the arbitration provision.

In essence, Diamond asks the Court to rewrite the language of the provision.

“Absent some ambiguity, Delaware courts will not distort or twist contract language

under the guise of construing it,”37 and the Court declines to do so here. “When the

language of a contract is clear and unequivocal, a party will be bound by its plain

meaning because creating an ambiguity where none exists could, in effect, create

new contract rights, liabilities and duties to which the parties had not assented.”38

While Diamond might not like what the arbitration provision in the Subcontracts

affords to TPC, it cannot ignore it. “Delaware is a freedom of contract state, with a

35 Id. 36 Diamond refers to a series of cases that deal with discretion in the context of the invocation of the implied covenant of good faith and fair dealing, see Pl.’s Opp. at 7, but this is not an issue raised by the parties and the case law is not applicable here. 37 Allied Cap. Corp. v. GC-Sun Holdings, L.P., 910 A.2d 1020, 1030 (Del. Ch. 2006) (citing Lorillard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728, 739 (Del. 2006)) (internal footnotes omitted). 38 Id.

13 policy of enforcing the voluntary agreements of sophisticated parties in

commerce.”39

III. Conclusion

This Court lacks jurisdiction to consider Diamond and TPC’s dispute over

alleged breaches of the Subcontracts and its related attorneys’ fees claim.

Accordingly, TPC’s motion to dismiss this action pending a resolution of Diamond’s

claims pursuant to the arbitration provision of the Subcontracts is GRANTED in

part. Counts I, II, and IV must be adjudicated by an arbitrator. This action is stayed

IT IS SO ORDERED.

39 Pers. Decisions, Inc. v. Bus. Plan. Sys., Inc., 2008 WL 1932404, at *6 (Del. Ch. May 5, 2008), aff’d, 970 A.2d 256 (Del. 2009) (citing Abry Partners V, L.P. v. F & W Acquisition LLC, 891 A.2d 1032, 1061 (Del. Ch. 2006)).