Opinion ID: 1218802
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Heading: Did Liberty Mutual Agree To Arbitrate?

Text: The Federal Arbitration Act overruled historic judicial hostility to arbitration and placed agreements to arbitrate upon the same footing as other contracts. Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 271, 115 S.Ct. 834, 130 L.Ed.2d 753 (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, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986) (quotation omitted); see First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943, 115 S.Ct. 1920, 131 L.Ed.2d 985 (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.
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.
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: 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 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.