Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-06-03957/USCOURTS-ca8-06-03957-0/pdf.json

Parties Involved:
Liberty Mutual Insurance Company
Appellee
Mandaree Public School District #36
Appellant

Document Text:

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 06-3957

___________

Liberty Mutual Insurance Company, *

*

Plaintiff - Appellee, *

* Appeal from the United States

v. * District Court for the

* District of North Dakota.

Mandaree Public School District #36, *

*

Defendant - Appellant. *

___________

Submitted: June 13, 2007

Filed: October 10, 2007

___________

Before LOKEN, Chief Judge, ARNOLD and COLLOTON, Circuit Judges.

___________

LOKEN, Chief Judge.

Mandaree Public School District and Tooz Construction, Inc., entered into a

contract to remodel and expand a public school. The standard AIA contract provided

that disputes between Mandaree as owner and Tooz as contractor would be resolved

by arbitration in accordance with the Rules of the American Arbitration Association

(AAA). Liberty Mutual Insurance Company issued a performance bond to secure

Tooz’s performance. The bond incorporated the construction contract by reference

and provided that “[a]ny proceeding, legal or equitable, under this Bond may be

instituted in any court of competent jurisdiction [where] the work is located . . .within

two years after the Surety . . . fails to perform its obligations under this Bond.”

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The HONORABLE DANIEL L. HOVLAND, Chief Judge of the United States

District Court for the District of North Dakota.

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When a dispute arose between Tooz and Mandaree, Tooz initiated arbitration.

Mandaree counterclaimed and then attempted to assert a claim against Liberty Mutual

under the bond. Liberty Mutual refused to join the arbitration, and the arbitrator

denied Mandaree’s request to amend. Liberty Mutual later advised the AAA it would

consent “to becoming part of the arbitration,” but further actions by Mandaree

prompted Liberty Mutual to send the AAA a letter withdrawing its consent. That

same day, Liberty Mutual filed this lawsuit seeking a declaratory judgment that

Mandaree's unilateral actions discharged Liberty Mutual’s obligations under the bond.

An AAA Claims Manager advised, “we are not adding [Liberty Mutual] as a party”

because it withdrew its consent to participate. Mandaree moved to stay the lawsuit

and to compel Liberty Mutual “to arbitrate all of its claims against Mandaree by

joining in the pending arbitration.” The district court1

 denied the motion, and

Mandaree appeals. The Federal Arbitration Act authorizes appellate review of an

interlocutory order refusing to compel arbitration. 9 U.S.C. § 16(a)(1). We affirm.

I. Did Liberty Mutual Agree To Arbitrate?

The Federal Arbitration Act overruled historic judicial hostility to arbitration

and placed agreements to arbitrate “upon the same footing as other contracts.” AlliedBruce Terminix Cos. v. Dobson, 513 U.S. 265, 271 (1995) (quotation omitted).

However, “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.” AT & T Techs., Inc.

v. Communications Workers of Am., 475 U.S. 643, 648 (1986) (quotation omitted);

see First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995). The district

court denied Mandaree's motion to compel arbitration on the ground that Liberty

Mutual neither agreed nor consented to arbitrate its claims against Mandaree under the

bond. 

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A. Did the Performance Bond Contain an Agreement To Arbitrate?

Mandaree argues that, since the bond incorporated a construction contract that

obligated Mandaree and Tooz to arbitrate their disputes under the contract, the bond

contained an agreement by Liberty Mutual to arbitrate its disputes with Mandaree

under the bond. “We apply ordinary state law contract principles to decide whether

parties have agreed to arbitrate a particular matter, giving healthy regard for the

federal policy favoring arbitration.” AgGrow Oils, L.L.C. v. Nat’l Union Fire Ins. Co.

of Pittsburgh, 242 F.3d 777, 780 (8th Cir. 2001) (quotations omitted). In this regard,

it is relevant that the bond contained a provision contemplating that disputes will be

resolved in court, and the construction contract expressly provided that it “shall not

be construed to create a contractual relationship of any kind . . . between any persons

or entities other than [Mandaree and Tooz].” 

Applying North Dakota law, we considered this same issue and resolved it

contrary to Mandaree’s position in AgGrow Oils, 242 F.3d at 780-82, a case involving

the same bond language and a construction contract with nearly identical arbitration

provisions. We held that the incorporation provision did not reflect “a mutual intent

to compel arbitration of all disputes between the surety and the obligee under the

bond.” 242 F.3d. at 782. Though it was the surety attempting to compel arbitration

in AgGrow, we noted that a contrary rule would also permit a bond obligee to compel

an unwilling surety to arbitrate defenses unique to the bond, “such as whether the

obligee had impaired the surety’s position or released the principal obligor.” Id. That

is precisely what Mandaree seeks to compel in this case. Concluding that AgGrow

Oils is controlling, the district court held “that the incorporation clause in the

performance bond at issue in this dispute does not mandate the surety to arbitrate.”

We agree. Mandaree's attempt on appeal to distinguish AgGrow Oils is unpersuasive,

and its frontal attack on the merits of that decision must be addressed to the court en

banc. 

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B. Did Liberty Mutual Otherwise Agree To Arbitrate This Dispute?

In the alternative, Mandaree argues that Liberty Mutual agreed to arbitrate an

existing controversy when it advised the AAA that it consented “to becoming part of

the arbitration” between Tooz and Mandaree. Acknowledging that the Federal

Arbitration Act applies to “an agreement in writing to submit to arbitration an existing

controversy,” 9 U.S.C. § 2, Liberty Mutual responds that its letter to the AAA

consenting to join the arbitration was not an offer to Mandaree, and that Liberty

Mutual withdrew or revoked its consent before it was accepted by the AAA. In its

reply brief, Mandaree argues that its initial offer to arbitrate remained open after

Liberty Mutual responded that it would not join the arbitration “at this time and under

these circumstances,” and therefore Liberty Mutual's subsequent letter to the AAA

consenting to join the arbitration was an acceptance that formed an agreement to

arbitrate that was, under the Federal Arbitration Act, “irrevocable, and enforceable.”

9 U.S.C. § 2. For two distinct reasons, we reject the contention that Liberty Mutual

entered into a separate agreement to arbitrate “all of its claims against Mandaree.” 

First, the argument when fully developed in Mandaree's reply brief assumes that

its initial communication to Liberty Mutual was an offer to arbitrate all disputes under

the bond. In fact, it was something quite different. When Tooz initiated the

arbitration in November 2005, Mandaree filed an answer and counterclaim the

following month. On May 17, 2006, Mandaree's attorney submitted a letter request

to the AAA Case Manager “to amend its counterclaim and/or to join Liberty Mutual

as a party to this arbitration” so as to “assert all of its claims presently made against

Tooz . . . against Liberty Mutual.” Mandaree requested a “status conference” with the

arbitrator to discuss “amending [the] counterclaim” and other pre-hearing issues.

Then, on May 19, Mandaree's attorney sent the so-called offer letter to Liberty

Mutual. After declaring Tooz in default under the construction contract and

demanding that Liberty Mutual meet its obligations under the bond, this letter stated:

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An arbitration hearing is presently scheduled for June 12-14 . . . .

Mandaree is in the process of amending its claims in the arbitration to

assert claims against Liberty Mutual, as surety for Tooz. The AAA Case

Manager for this matter is J.D. Allen and we request that Liberty Mutual

contact Mr. Allen for more information about the arbitration. . . . Please

call me to discuss this matter so that we can move forward with the

arbitration.

This was not a letter requesting Liberty Mutual's agreement to arbitrate, like the letter

at issue in Asia Pac. Indus. Corp. v. Rainforest Café, Inc., 380 F.3d 383, 386 (8th Cir.

2004). Rather, without seeking Liberty Mutual's consent, Mandaree asked the

arbitrator to add Liberty Mutual as a party and then “requested” that Liberty Mutual

gather “more information about the arbitration . . . so that we can move forward with

the arbitration.” This was a procedural demand by the adversary in an on-going

dispute, not an offer to agree on a forum for dispute resolution. 

Four days later, Liberty Mutual responded that it would not agree to join the

arbitration. The parties held a telephone conference with the arbitrator the next day.

On May 30, the arbitrator issued an order denying Mandaree's request to amend its

counterclaim because Liberty Mutual did not consent to becoming an additional party

to the on-going arbitration. Thus, Mandaree's arbitration request (which in a judicial

forum would be called a motion) that Liberty Mutual be compelled to arbitrate was

denied. That quasi-judicial denial left no contractual “offer” to arbitrate pending.

Therefore, Liberty Mutual's subsequent notice to the AAA that it consented to join the

arbitration was not an acceptance of a Mandaree offer that formed an agreement to

arbitrate. Rather, it was a voluntary act in the arbitration proceeding that Liberty

Mutual could revoke (at least if the AAA approved) without violating the provision

in 9 U.S.C. § 2 that agreements to arbitrate are “irrevocable.”

Second, even if Mandaree’s May 19 letter is construed as a contractual offer to

arbitrate, rather than a litigation notice that Liberty Mutual was being compelled to

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We disagree with the suggestion in Sadler that this is a question of the district

court's subject matter jurisdiction. 466 F.3d at 625. In our view, the Supreme Court's

unanimous opinion in First Options made it clear that a federal court has jurisdiction

to determine whether a question of arbitrability must be decided by the court or by the

arbitrator. Here, for example, Mandaree itself invoked the court's Federal Arbitration

Act jurisdiction by filing a motion to compel arbitration. 

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join the arbitration, it was not an offer commensurate with the scope of Mandaree's

motion to compel here at issue -- that Liberty Mutual agree to arbitrate “all of its

claims against Mandaree.” Rather, it was a specific offer that Liberty Mutual agree

to join an on-going arbitration for the limited purpose of allowing Mandaree to assert

against Liberty Mutual all of its pending claims against Tooz. The claims that Liberty

Mutual now asserts in this lawsuit are based on its unique defenses under the bond,

which did not even exist until many weeks later, when Mandaree unilaterally hired a

replacement contractor to finish the project. Even construing Liberty Mutual's letter

of June 27 to the AAA Case Manager as an acceptance of Mandaree's unrevoked May

19 offer, Liberty Mutual's consent was not an agreement to arbitrate more than what

was proposed in Mandaree’s offer -- arbitration of Mandaree's pending claims against

Tooz. Therefore, Mandaree's motion to compel arbitration of Liberty Mutual's very

different claims in this lawsuit was properly denied.

II. A Belated Jurisdiction Argument

Mandaree argues for the first time on appeal that the district court lacked

jurisdiction to deny the motion to compel arbitration because the alleged agreement

to arbitrate left the issue of arbitrability for the arbitrator to decide. See Sadler v.

Green Tree Servicing, LLC, 466 F.3d 623 (8th Cir. 2006) (enforcing an express

provision that the arbitrator would decide arbitrability). In addition to being

untimely,2

 this contention is without merit. “Courts should not assume that the parties

had agreed to arbitrate arbitrability unless there is clear and unmistakable evidence

that they did so.” First Options, 514 U.S. at 944 (quotation omitted). Here, there is

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no such evidence because the offer and acceptance allegedly creating an agreement

that Liberty Mutual would join the Tooz/Mandaree arbitration did not address who

would determine whether the parties had in fact agreed to arbitration. We reject as

inconsistent with AgGrow Oils Mandaree's additional contention that Liberty Mutual's

agreement on this issue is irrelevant because Tooz and Mandaree agreed to arbitrate

arbitrability in the construction contract.

The judgment of the district court is affirmed. 

______________________________ 

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