Court Opinion

ID: 25254
Source: CourtListenerOpinion
Date Created: 2010-04-25 08:33:28+00
Date Added: 2024-06-11T12:37:04.655766
License: Public Domain

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that this opinion should not be published and is not precedent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 A.K. Marsh. 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.

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