Court Opinion

ID: 3159182
Source: CourtListenerOpinion
Date Created: 2015-12-02 01:00:52.143395+00
Date Added: 2024-06-11T11:47:08.017317
License: Public Domain

Case: 15-60083      Document: 00513290279         Page: 1    Date Filed: 12/01/2015

           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT
                                                                           United States Court of Appeals
                                                                                    Fifth Circuit

                                      No. 15-60083                                FILED
                                                                           December 1, 2015
                                                                             Lyle W. Cayce
NEW ORLEANS GLASS COMPANY, INCORPORATED,                                          Clerk

              Plaintiff - Appellee

v.

ROY ANDERSON CORPORATION,

              Defendant - Appellant

                   Appeal from the United States District Court
                     for the Southern District of Mississippi
                             USDC No. 1:14-CV-177

Before DAVIS, PRADO, and SOUTHWICK, Circuit Judges.
W. EUGENE DAVIS, Circuit Judge:*
       Defendant-Appellant Roy Anderson Corp. (“RAC”) appeals from the
district court’s denial of its motion to compel arbitration. Because we conclude
that the subcontract at issue requires arbitration under these circumstances,
we reverse and remand.

       * 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 R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH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.
     Case: 15-60083    Document: 00513290279       Page: 2   Date Filed: 12/01/2015

                                    No. 15-60083
I.    BACKGROUND

      This dispute arises out of the construction of the Sea Breeze
Condominiums and Resort (“Project”) in Biloxi, Mississippi. The Project was
owned and developed by Sea Breeze I, LLC (“Developer”), and owners of
individual units belonged to the Sea Breeze Condominiums and Resort
Owners’ Association (“Owners’ Association”). The Developer engaged RAC as
its general contractor. RAC in turn engaged a number of subcontractors,
including Plaintiff-Appellee New Orleans Glass Co. (“NOG”). RAC and NOG
executed a subcontract dated January 27, 2005 (“RAC-NOG Subcontract”),
which is central to this dispute.
      Following completion of work in 2007, the Developer and Owners’
Association were unhappy with the quality of the construction and/or design of
the Project, and both initiated arbitration proceedings (later consolidated)
against RAC and the architect. The Developer’s demand sought “damages, as
well as undetermined amounts for repairs to the pool, windows, curtain walls,
and transfer slab,” while the Owners’ Association demand asserted similar
claims, referring to issues with the “pool and pool deck area, windows, curtain
walls, the slab and foundation and various other parts of the building . . . .”
      Based on its investigation, RAC determined that the arbitration
demands concerned certain of its subcontractors’ work, and it filed a Third-
Party Demand for Arbitration on March 7, 2014, against many of its
subcontractors, including NOG, followed by a Second Amended Third-Party
Demand for Arbitration on April 18, 2014. In its arbitration demand, RAC
invoked the broad defense and indemnity clause of Section 19.1 of each of its
subcontracts, which provides:
      To the fullest extent permitted by law, the Subcontractor
      covenants to defend, indemnify, save harmless, protect, and
      exonerate both the Contractor (its agents, employees,
      representatives, and sureties) and the Owner, separately and
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                                 No. 15-60083
      severally, from any and all liability, claim, losses, suits, actions,
      demands, arbitrations, administrative proceedings, awards,
      judgments, expenses, attorneys’ fees, and costs pertaining to
      economic loss or damages, labor disputes, safety requirements,
      performance or nonperformance of obligations, certifications,
      property rights of third parties, personal injury, bodily injury,
      sickness, disease, death, or damage to or destruction of property
      (including loss of use thereof) which are caused in whole or in part,
      which arise from or occur in connection with work undertaken or
      to be performed by the Subcontractor, its subcontractors, or the
      agents or employees of any of them or which arise from or occur in
      connection with any other act or omission relating to the
      Subcontractor, its subcontractors, or the agents or employees of
      any of them, or to this Subcontract or to the Subcontract Work.
      The foregoing covenants and indemnity obligations shall apply to
      the fullest extent permitted by law. The Subcontractor’s indemnity
      obligation and liability to the Contractor shall extend to the
      maximum extent allowed by applicable law.

      In addition, RAC asserted that in all of its subcontracts, each
subcontractor agreed to arbitrate disputes between it and RAC. In a footnote,
it explained that the RAC-NOG Subcontract “contains different dispute
resolution language, but nevertheless binds [NOG] to appear in this
arbitration proceeding.” Specifically, RAC invoked Section 27.3 of the RAC-
NOG Subcontract, which provides:
     If the Contractor has a claim or dispute involving the same general
     subject matter, either in whole or in part, with any third party if
     elected by the Contractor, the Subcontractor shall assert its claims
     and defenses in and shall be bound by the same forum and in the
     same proceeding which has jurisdiction over the claims or disputes
     between the Contractor and such third party.

      Instead of joining the consolidated arbitration proceeding, NOG filed a
Complaint for Declaratory Relief in the United States District Court for the
Southern District of Mississippi. In its complaint, it summarized the same
facts set out above but disputed that Section 27.3 applies here, claiming that
Section 27.3 “applies in circumstances where RAC and NOG each have similar
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                                 No. 15-60083
claims against third parties, and it does not apply to claims between RAC and
NOG.” In NOG’s reading, Section 27.3 is irrelevant to claims solely between
RAC and NOG, which it asserts are governed by Sections 27.4 and 27.5
(discussed below), which require RAC and NOG to litigate claims between
them unless they specifically agree to arbitrate them. NOG prayed for a
declaratory judgment declaring that:
      A.    RAC and NOG did not agree to arbitrate their claims or
      disputes arising under the RAC-NOG Subcontract;

      B.    Any claims or disputes arising under the RAC-NOG
      Subcontract must be litigated in a court of competent jurisdiction
      located either in Harrison County, Mississippi, if a state court
      action, or in the Southern District of Mississippi, if a federal court
      action;

      C.   This Court is a court of competent jurisdiction for the
      purpose of litigating claims or disputes arising under the RAC-
      NOG Subcontract, including RAC’s claim for contractual
      indemnity; . . .

      Thus, the primary purpose of NOG’s declaratory judgment is to avoid
arbitration. NOG has also prayed for a declaratory judgment declaring that
RAC’s contractual indemnity claim is premature because RAC asserted it prior
to any judgment against RAC. This appeal will determine which forum may
address that question.
      Soon after NOG filed its declaratory judgment action, RAC filed a Motion
to Compel Arbitration and to Dismiss in the district court, re-asserting its
argument that under Section 27.3 of the RAC-NOG Subcontract, NOG is
required to arbitrate its dispute with NAC in the existing arbitration.
      The district court denied RAC’s motion. In a Memorandum Opinion and
Order, the district court rejected RAC’s interpretation of the RAC-NOG
Subcontract and adopted NOG’s. Specifically, the district court interpreted
Section 27.3 to apply “when the subcontractor has a claim or dispute with a
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                                      No. 15-60083
third party,” while “Section 27.4 controls when the subcontractor has a claim
or dispute with the contractor.” 1 Because it found no contractual basis for
requiring NOG to arbitrate its dispute with RAC, it denied RAC’s motion. It
also stayed the proceedings in the district court pending the outcome of RAC’s
ongoing consolidated arbitration. RAC appealed.

II.    STANDARD OF REVIEW AND APPLICABLE LAW

       “This Court reviews de novo the grant or denial of a motion to compel
arbitration.” 2 As the district court noted, this case falls under the Federal
Arbitration Act (“FAA”), 9 U.S.C. §§ 1 et seq., which applies to written
arbitration agreements involving interstate commerce, like the RAC-NOG
Subcontract in this case. 3
       In adjudicating a motion to compel arbitration under the Federal
       Arbitration Act, courts generally conduct a two-step inquiry. The
       first step is to determine whether the parties agreed to arbitrate
       the dispute in question. This determination involves two
       considerations: (1) whether there is a valid agreement to arbitrate
       between the parties; and (2) whether the dispute in question falls
       within the scope of that arbitration agreement. When deciding
       whether the parties agreed to arbitrate the dispute in question,
       “courts generally . . . should apply ordinary state-law principles
       that govern the formation of contracts.” In applying state law,
       however, “due regard must be given to the federal policy favoring
       arbitration, and ambiguities as to the scope of the arbitration
       clause itself must be resolved in favor of arbitration.” The second
       step is to determine “whether legal constraints external to the
       parties’ agreement foreclosed the arbitration of those claims.” 4

       1 District Court Memorandum Opinion and Order Denying Defendant’s Motion to
Compel Arbitration and to Dismiss, No. 1:14CV177, slip op. at 6 (S.D. Miss. Jan. 22, 2015)
(hereinafter “District Court Order”).
       2 Fleetwood Enterprises, Inc. v. Gaskamp, 280 F.3d 1069, 1073 (5th Cir. 2002), opinion

supplemented on denial of reh'g, 303 F.3d 570 (5th Cir. 2002) (citing Webb v. Investacorp, 89
F.3d 252, 257 (5th Cir. 1996)).
       3 District Court Order, slip op. at 3.
       4 Webb, 89 F.3d at 257-58 (citations omitted).

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                                       No. 15-60083
       The parties agree that we must                     apply Mississippi’s contract
interpretation rules. In construing contracts under Mississippi law, the court
must focus “upon the objective fact—the language of the contract. We are
concerned with what the contracting parties have said to each other, not some
secret thought of one not communicated to the other.” 5 More fully, Mississippi
relies on a “three-tiered approach to a contract interpretation,” focusing on the
actual words of the contract “to the exclusion of parol or extrinsic evidence.” 6
First, we must look to the “four corners” of the contract, “read[ing] the contract
as a whole, so as to give effect to all of its clauses.” 7
       Our concern is not nearly so much with what the parties may have
       intended, but with what they said, since the words employed are
       by far the best resource for ascertaining the intent and assigning
       meaning with fairness and accuracy. Thus, the courts are not at
       liberty to infer intent contrary to that emanating from the text at
       issue. On the other hand, if the contract is unclear or ambiguous,
       the court should attempt to harmonize the provisions in accord
       with the parties' apparent intent. Only if the contract is unclear or
       ambiguous can a court go beyond the text to determine the parties’
       true intent. [T]he mere fact that the parties disagree about the
       meaning of a contract does not make the contract ambiguous as a
       matter of law. 8

       Second, if the court cannot discern the parties’ intent from the text alone,
the court should move on to the “discretionary ‘canons’ of contract
construction,” such as the principle that a contract subject to more than one
fair reading will be construed so as to most benefit the non-drafting party. 9 The

       5 Facilities, Inc. v. Rogers-Usry Chevrolet, Inc., 908 So. 2d 107, 110-11 (Miss. 2005)
(quoting Turner v. Terry, 799 So. 2d 25, 32 (Miss. 2001)).
       6 Royer Homes of Miss., Inc. v. Chandeleur Homes, Inc., 857 So. 2d 748, 752 (Miss.

2003).
       7 Id.
       8 Id. at 752-53 (citations and internal quotation marks omitted, alteration in original).
       9 Id. at 753.

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                                        No. 15-60083
district court noted that the canons also include the principle that “specific
language controls over general, inconsistent language.” 10
        Third and finally,
        if the contract continues to evade clarity as to the parties’ intent,
        the court should consider extrinsic or parol evidence. It is only
        when the review of a contract reaches this point that prior
        negotiation, agreements and conversations might be considered in
        determining the parties’ intentions in the construction of the
        contract. 11

        As suggested above, if the subcontract requires arbitration under
Mississippi law, then the arbitration provision is enforceable under the FAA.

III.    DOES THE SUBCONTRACT BETWEEN RAC AND NOG REQUIRE NOG TO
        ARBITRATE THE CLAIMS PRESENTED HERE?

        All parties agree that Section 27.4 generally provides that RAC and NOG
“agree to litigate any claims between them.” The only question is whether
Section 27.3 applies under these circumstances to require NOG to join the
arbitration to assert any claims or defenses against RAC arising out of the
same general subject matter as RAC’s existing arbitration against the
Developer and Owners’ Association.
        NOG argues, and the district court concluded, that Section 27.3 applies
only to NOG’s claims against a third party, not RAC. NOG asserted in its
complaint that “Section 27.3 of the RAC-NOG Subcontract . . . applies in
circumstances where RAC and NOG each have similar claims against third
parties, and it does not apply to claims between RAC and NOG.” Similarly, the
district court concluded that “Section 27.3 applies when the subcontractor has

        10District Court Order, slip op. at 5 (citing Harris v. Harris, 988 So. 2d 376, 379 (Miss.
2008); Pursue Energy Corp. v. Perkins, 558 So. 2d 349, 352-53 (Miss. 1990)).
       11 Royer, 857 So. 2d at 753 (internal citation omitted).

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                                 No. 15-60083
a claim or dispute with a third party.” That reading ignores the plain language
of Section 27.3, which is not limited to NOG’s claims against a third party.
      Section 27.1 of the RAC-NOG Subcontract provides that “all claims,
disputes, and other matters in controversy or question between the Contractor
and the Subcontractor arising out of or relating to this Subcontract shall be
decided in accordance with this Section.”
      Section 27.2 provides:
      If the Contractor has a claim or dispute involving the same general
      subject matter, either in whole or in part, with the Owner, if so
      elected by the Contractor, the Subcontractor shall pursue its claim
      or resolve its dispute by timely submission of its claim through the
      Contractor to the Owner, and Subcontractor’s recovery and any
      other relief shall be limited to the amounts actually recovered or
      other relief actually obtained by the Contractor through the Owner
      on account of the Subcontractor’s claims or disputes.

By its plain terms, Section 27.2 applies only to claims the Subcontractor has
against the Owner. It allows RAC to pursue those claims on behalf of NOG.
      Section 27.3 provides:
      If the Contractor has a claim or dispute involving the same general
      subject matter, either in whole or in part, with any third party if
      elected by the Contractor, the Subcontractor shall assert its claims
      and defenses in and shall be bound by the same forum and in the
      same proceeding which has jurisdiction over the claims or disputes
      between the Contractor and such third party.

      Unlike Section 27.2, there is no language in Section 27.3 limiting its
application to NOG’s claims against a particular party. Thus, the district court
erred in reading Section 27.3 to apply only to NOG’s claims against a third
party. Instead, a plain reading shows that it applies to NOG’s “claims and
defenses” “involving the same general subject matter” as RAC’s claim or
dispute with any third party, and amounts to an agreement to arbitrate or

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                                       No. 15-60083
litigate its claims, depending on the forum of the existing dispute between RAC
and a third party.
       Under the plain language of Section 27.3, the present circumstances
trigger its application. First, RAC does have a dispute with third parties, the
Developer and Owners’ Association. Second, the general subject matter of that
dispute is alleged construction and design defects, apparently including some
of NOG’s work. NOG’s “claim or defense” in this declaratory judgment action
concerns the interpretation of Section 19.1 of the RAC-NOG Subcontract, a
defense and indemnity obligation, which certainly concerns the “same general
subject matter” as RAC’s dispute with the third parties. Third, RAC elected to
invoke Section 27.3 by asserting a third-party demand against NOG in the
arbitration. Consequently, under a straightforward reading of Section 27.3,
NOG agreed to arbitrate its claims under these circumstances unless somehow
precluded by another contractual provision.
       NOG attempts to sidestep Section 27.3 by arguing that Sections 27.4 and
27.5 mean that all claims “solely” between NOG and RAC must be litigated
unless the parties agree to arbitrate. There are a few problems with NOG’s
interpretation. First, Mississippi law requires that we interpret the contract
so as to give full effect to every provision. NOG’s reading fails to give effect to
the plain language of Section 27.3 because that reading impermissibly restricts
its application to NOG’s claims against a third party.
       Second, while there may be some apparent tension between Sections 27.3
and 27.4, that tension is easily resolved by applying Mississippi’s canon of
statutory construction under which “specific language controls over general,
inconsistent language.” 12 Section 27.4 is a general provision applying to claims

       12 District Court Order, slip op. at 5 (citing Harris, 988 So. 2d at 379; Pursue Energy
Corp., 558 So. 2d at 352-53). Although the district court mentioned this canon, it did not need
to apply it because it read Section 27.3 as applying only to NOG’s claims against third parties.
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                                          No. 15-60083
between NOG and RAC, while Section 27.3 applies to all claims NOG might
have (whether against RAC or a third party) under specific circumstances. The
clear purpose of Section 27.3 is to allow for consolidated dispute resolution
when there is already a proceeding between RAC and a third party.
      Third, NOG argues that RAC’s agreements with its other subcontractors
contain much clearer provisions requiring arbitration, and RAC could have
used those provisions here if it wanted that result. There is no merit to that
argument. For one thing, RAC could have reached the same result in any
number of ways. For another, we may only examine extrinsic evidence such as
the other subcontracts if the RAC-NOG Subcontract “continues to evade clarity
as to the parties’ intent,” 13 but there is no such difficulty here because it clearly
and unambiguously establishes an agreement to arbitrate under these
circumstances.
      Under the RAC-NOG Subcontract, Section 27.4 generally requires RAC
and NOG to litigate claims between themselves, unless they specifically agree
to arbitrate. However, Section 27.3 requires NOG to join RAC’s existing
arbitration or litigation with a third party if the dispute involves the same
general subject matter as NOG’s claim or dispute and if RAC elects to invoke
the provision. Those conditions were satisfied here, and under the plain terms
of Section 27.3, NOG is required to arbitrate. That plain language reading
leads to more efficient dispute resolution through consolidation, and the result
is clearly not coincidental. Because the arbitration clause is clear and
unambiguous under Mississippi law, it is enforceable under the FAA.

      13   Facilities, Inc., 908 So. 2d at 111.
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                                 No. 15-60083
IV.     CONCLUSION

        Because the RAC-NOG Subcontract requires NOG to assert its claims
and defenses in the existing arbitration between RAC and the Developer and
Owners’ Association under these circumstances, we REVERSE the district
court’s January 22, 2015 order denying RAC’s motion to compel arbitration and
REMAND for entry of an order compelling arbitration.

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