Jewish Fed Grt New v. Fidlty & Dpst Co MD

• Court: Court of Appeals for the Fifth Circuit
• Decided: August 31, 2001
• Docket: 01-30371
• Status: Unpublished

Opinion

UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

No. 01-30371

THE JEWISH FEDERATION OF GREATER NEW ORLEANS; WOLDENBERG VILLAGE, INC.,

Plaintiffs-Counter Defendants-Appellees,

versus

FIDELITY & DEPOSIT COMPANY OF MARYLAND,

Defendant-Counter Claimant-Appellant.

Appeal from the United States District Court for the Eastern District of Louisiana (053L-2: 00-CV-2368-S)

August 29, 2001

Before KING, Chief Judge, BARKSDALE, Circuit Judge, and NOWLIN, District Judge.1

PER CURIAM:2

Primarily at issue is whether Appellant, the surety on a

construction contract, is required to arbitrate a time-bar defense

under its performance bond, pursuant to the bond’s incorporation of

the arbitration provision in the construction contract. AFFIRMED.

1 Chief Judge of the Western District of Texas, sitting by designation. 2 Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5TH CIR. R. 47.5.4. I.

In December 1991, the Jewish Federation of Greater New Orleans

(Federation) entered into a contract with Goliath Construction

Company, Inc., for the construction of Woldenberg Village, an

assisted living facility in New Orleans, Louisiana. That contract

contains the following arbitration provision:

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.

Fidelity and Deposit Company of Maryland (Fidelity) issued a

performance bond in connection with the project. The bond

incorporates the construction contract by reference.

In April 2000, Appellees, Federation and Woldenberg Village,

Inc., the corporation that purchased the project from Federation,

filed a demand for arbitration with the American Arbitration

Association, naming, inter alia, Fidelity, and claiming a breach of

the construction contract. Three months later, Appellees filed a

petition in state court seeking declaratory and injunctive relief

compelling Fidelity to arbitrate their claims. The action was

removed to federal court, and Fidelity counterclaimed for

declaratory and injunctive relief. Both sides moved for summary

judgment; Appellees’ motion was granted. Jewish Fed’n of Greater

New Orleans v. Fidelity & Deposit Co. of Md., No. 00-2368 (E.D. La.

6 Mar. 2001) (unpublished).

2 II.

We review a summary judgment de novo, applying the same

standard applied by the district court. E.g., Dufrene v. Browning-

Ferris, Inc., 207 F.3d 264, 267 (5th Cir.), cert. denied, 531 U.S.

825 (2000). The judgment is proper if the summary judgment record,

viewed in the light most favorable to the non-movant, establishes:

there is no genuine issue of material fact; and the movant is

entitled to a judgment as a matter of law. FED. R. CIV. P. 56(c);

Dufrene, 207 F.3d at 267.

Fidelity contends the district court erred in compelling it to

arbitrate its defense that the performance bond has lapsed.

“Unless the parties clearly and unmistakably provide otherwise, the

question of whether the parties agreed to arbitrate is to be

decided by the court, not the arbitrator.” AT&T Techs., Inc. v.

Communications Workers of Am., 475 U.S. 643, 649 (1986). If a

contract contains an arbitration clause, there is a presumption of

arbitrability such that “[d]oubts should be resolved in favor of

coverage”. Id. at 650. This presumption is “particularly

applicable where the clause is ... broad”. Id.

As Fidelity conceded at oral argument, because its bond

incorporates by reference the construction contract’s arbitration

provision, that provision is binding on Fidelity. See J.S. & H.

Constr. Co. v. Richmond County Hosp. Auth., 473 F.2d 212, 216 (5th

Cir. 1973) (subcontractor bound by prime contract arbitration

3 provision incorporated by reference in subcontract). As noted, the

arbitration provision provides in part: “Any controversy or Claim

arising out of or related to the Contract, or the breach thereof,

shall be settled by arbitration”.

Both the Supreme Court and this court have concluded that

similar arbitration clauses were broad and capable of expansive

reach. Pennzoil Exploration & Prod. Co. v. Ramco Energy Ltd., 139

F.3d 1061, 1067 (5th Cir. 1998) (citing Prima Paint Corp. v. Flood

& Conklin Mfg. Co., 388 U.S. 395 (1967)). Because the arbitration

provision is not limited to “Any controversy or Claim arising out

of ... the Contract”, but also applies to “Any controversy or Claim

... related to the [construction] Contract”, it is not necessary

that the dispute arise out of the construction contract to be

arbitrable, but only that the dispute “touch matters covered by

[the contract]”. Id. at 1068 (internal quotation marks omitted).

Mindful of the presumption of arbitrability, we conclude that

Appellant’s defense is a “controversy ... related to the Contract”,

and is, therefore, arbitrable under its “extremely broad”

arbitration provision. See id.

“Once it is determined ... that the parties are obligated to

submit the subject matter of a dispute to arbitration, ‘procedural’

questions which grow out of the dispute and bear on its final

disposition should be left to the arbitrator.” Del E. Webb Constr.

v. Richardson Hosp. Auth., 823 F.2d 145, 149 (5th Cir. 1987)

4 (quoting John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 557

(1964)). Limitations defenses, such as Fidelity’s, are procedural

issues that must be resolved by the arbitrator. Smith Barney

Shearson, Inc. v. Boone, 47 F.3d 750, 754 (5th Cir. 1995). See

also Glass v. Kidder Peabody & Co., 114 F.3d 446, 456 (4th Cir.

1997) (time-bar defenses subject to arbitration); Shearson Lehman

Hutton, Inc. v. Wagoner, 944 F.2d 114, 121 (2d Cir. 1991) (same).

For the same reason, we will not address Fidelity’s challenge to

the composition of the arbitration panel. See Boone, 47 F.3d at

753 (procedural issues relate to how parties agreed arbitration is

to be conducted).

III.

For the foregoing reasons, the judgment compelling arbitration

is

AFFIRMED.

5 KING, Chief Judge, dissenting:

While I agree with my colleagues that Fidelity is bound to

arbitrate any claims demanding construction of the underlying

contract incorporated by reference into the performance bond, I

would not extend this arbitration requirement to Fidelity’s

personal defenses arising from the provisions of the bond itself.

There are two apparently contrary lines of cases addressing

the question whether a performance bond’s incorporation by

reference of an underlying construction contract containing an

arbitration provision requires a surety who was not a party to the

construction contract to arbitrate its personal defenses arising

out of the bond. The majority adopts the reasoning espoused by the

courts in Hoffman v. Fidelity & Deposit Co., 734 F. Supp. 192

(D.N.J. 1990), and Boys Club of San Fernando Valley, Inc. v.

Fidelity & Deposit Co., 8 Cal Rptr. 2d. 587 (Cal. Ct. App. 1992)

finding that an owner’s claims against a surety regarding

provisions of a performance bond are arbitrable when the

performance bond incorporates by reference an arbitration provision

in the construction contract. With all due respect to my

colleagues on the panel, I believe that the better-reasoned line of

cases is represented by Gloucester City Board of Education v.

American Arbitration Association, 755 A.2d 1256 (N.J. Super. Ct.

App. Div. 2000), and Fidelity & Deposit Co. v. Parsons & Whittemore

Contractors Corp., 397 N.E.2d 380 (N.Y. 1979). These cases hold

6 that incorporation of an arbitration provision from an underlying

construction contract does not bind the surety company to arbitrate

with the contracting parties regarding disputes originating in the

provisions of the bond, but instead ensures that the surety company

participates in (or, at a minimum, is bound by the results of) an

arbitration between the contracting parties based on the underlying

contract. See Gloucester, 755 A.2d at 1262-63; Parsons, 397 N.E.2d

at 382.

The Gloucester/Parsons interpretation is consistent with this

court’s precedent in J. S. & H Construction Co. v. Richmond County

Hospital Authority, 473 F.2d 212 (5th Cir. 1973), cited by the

majority. J. S. & H. dealt primarily with the parties’ obligations

with respect to the underlying subcontract, holding that the

parties were required to arbitrate the action on the subcontract.

See id. at 216. However, with reference to the surety’s claims on

the bond itself, this court found only that “any action on the bond

cannot precede a determination of the contract debt [by

arbitration],” not that such an action on the bond would be subject

to arbitration. Id. at 217. This analysis is consistent with the

Parsons court’s reasoning that a surety would be bound by the

findings of an arbitration on the underlying contract, but not

necessarily bound to arbitrate personal defenses based on the

performance bond.

Moreover, contrary to the majority’s assertion, a dispute

regarding the enforceability of the terms of a performance bond

7 does not necessarily constitute a controversy or claim arising out

of or related to the underlying contract. This court’s analysis in

Pennzoil Exploration & Production Co. v. Ramco Energy, Ltd., 139

F.3d 1061 (5th Cir. 1998) does not dictate otherwise. Pennzoil

notes that language in an arbitration provision encompassing

controversies or claims “arising out of or in connection with or

relating to” an agreement (which is materially similar to the

arbitration provision at issue in the instant case) should be

construed broadly, to include claims beyond those that literally

arise under the contract. See id. at 1067. However, the

underlying contract in the instant case defines a “claim” as a

“demand or assertion by one of the parties seeking, as a matter of

right, adjustment or interpretation of Contract terms, payment of

money, extension of time or other relief with respect to the terms

of the Contract” or “other disputes and matters in question between

the Owner and Contractor arising out of or relating to the

contract.” As the performance bond is not included within the

definition of the “contract,”3 Fidelity’s claim does not require

construction of the contract and does not fall within the

contractual definition of a “claim.” Similarly, the dispute

between Fidelity and the Appellees based on the language of the

3 The underlying construction contract defines “the contract documents” to include “this Agreement, Conditions of the Contract . . . Drawings, Specifications, Addenda issued prior to the execution of this Agreement, other documents listed in this Agreement, and Modifications issued after the execution of this Agreement; these form the Contract . . . .”

8 bond cannot constitute a controversy “arising out of” or “related

to” the contract if the definition of the “contract” does not

encompass the provisions of the bond. Thus, the plain language of

the contract would not have put Fidelity on notice that, in

incorporating the contract into the performance bond, it was

agreeing to arbitrate disputes grounded in the language of the bond

itself.

Because I do not believe that incorporation of the underlying

construction contract’s arbitration provision into the performance

bond requires Fidelity to submit its personal defenses based on the

language of the bond agreement to arbitration, I respectfully

dissent.