Court Opinion

ID: 48764
Source: CourtListenerOpinion
Date Created: 2010-04-25 23:48:02+00
Date Added: 2024-06-11T17:18:27.916878
License: Public Domain

United States Court of Appeals
                                                                                             Fifth Circuit
                                                                                          F I L E D
                      IN THE UNITED STATES COURT OF APPEALS
                                                                                           March 20, 2007
                               FOR THE FIFTH CIRCUIT
                                                                                      Charles R. Fulbruge III
                                                                                              Clerk

                                           No. 05-20987

ENCOMPASS POWER SERVICES, INC., formerly known as
EDG Power Group, Inc.,

                                                                                     Plaintiff-Appellee,

                                               versus

ENGINEERING & CONSTRUCTION COMPANY, INC.,
doing business as ECCO,

                                                                               Defendant-Appellant,

                                               versus

VALERO REFINING COMPANY - CALIFORNIA,

                                                                                Defendant-Appellee.

                         On Appeal from the United States District Court
                               for the Southern District of Texas
                                         4:05-CV-2759

Before DAVIS and STEWART, Circuit Judges, and CRONE, District Judge.*

PER CURIAM:**

       *
        District Judge for the Eastern District of Texas, sitting by designation.
       **
         Pursuant to 5th Cir. R. 47.5, the Court has determined that this opinion should not be
published and is not precedent except under the limited circumstances set forth in 5th Cir. R. 47.5.4.

                                                  1
       Valero Refining Company-California (“Valero”), Encompass Power Services, Inc., f/k/a EDG

Power Group, Inc. (“EDG”), a general contractor, and Engineering & Construction Company, Inc.

(“ECCO”), an electrical subcontractor, filed a series of lawsuits against one another. In June 2003,

Valero commenced an arbitration proceeding against EDG, seeking damages for construction delays,

power outages, and a refinery fire. EDG successfully joined ECCO as a third-party defendant to the

arbitration, but ECCO refused to participate in the proceedings. EDG filed suit against ECCO to

compel arbitration. The district court, upon reconsideration, granted EDG’s motion to compel. We

affirm the district court’s judgment.

                      I. FACTUAL AND PROCEDURAL BACKGROUND

       The three parties involved in this case, Valero, EDG, and ECCO, are related via two

construction contracts. In April 2001, Valero contracted with EDG to design, engineer, and

construct a co-generation facility (the “Work Agreement”). The Work Agreement included an

arbitration clause, which required that any disputes arising between Valero and EDG must be

resolved through arbitration under Texas law in Houston, Texas. EDG retained ECCO as a

subcontractor for the co-generation project. EDG and ECCO signed a standard form agreement (the

“subcontract”). The two relevant provisions read as follows:

       11.4 MULTIPARTY PROCEEDING The parties agree that to the extent permitted
       by the Subcontract Documents all parties necessary to resolve a claim shall be parties
       to the same dispute resolution proceeding. To the extent disputes between the
       Contractor and Subcontractor involve in whole or in part disputes between the
       Contractor and the Owner, disputes between the Subcontractor and the Contractor
       shall be decided by the same tribunal in the same forum as disputes between the
       Contractor and the Owner.

       11.5 DISPUTES BETWEEN CONTRACTOR AND SUBCONTRACTOR In the
       event that the provisions for resolution of disputes between the Contractor and the

                                                 2
       Owner contained in Subcontract Documents do not permit consolidation or joinder
       with disputes of third parties, such as the Subcontractor, resolution of disputes
       between the Subcontractor and the Contractor involving in whole or in part disputes
       between the Contractor and the Owner shall be stayed pending conclusion of any
       dispute resolution proceeding between the Contractor and the Owner. At the
       conclusion of those proceedings, disputes between the Subcontractor and the
       Contractor shall be submitted again to mediation pursuant to Paragraph 11.1. Any
       disputes not resolved by mediation shall be decided in the manner selected in the
       agreement between the Owner and the Contractor.

       In June 2002, the relationship between Valero and EDG deteriorated after a series of

construction delays, facility power outages, and a refinery fire at the hydrogen plant. As a result,

Valero refused to pay EDG the balance on their Work Agreement. Valero, EDG, and several

subcontractors filed legal complaints against one another. Eventually, EDG filed for bankruptcy in

the Southern District of Texas, and Valero pursued EDG in the bankruptcy proceedings. Valero and

EDG reached a settlement agreement to allow Valero access to EDG’s insurance policies. The

parties agreed to lift the automatic bankruptcy stay, thus permitting Valero to file claims against EDG

on the condition that Valero would not seek actual collection. The settlement limited Valero’s

recovery to the amount of EDG’s insurance coverage. EDG also assigned its claims against

subcontractors to Valero. The assignment reads in pertinent part that

       [a]ny and all of EDG’s and/or Encompass’s claims, actions or causes of action, and
       to the extent necessary, any and all rights or benefits of defense, it may have against
       or with respect to any and all third parties (including, without limitation, claims it may
       have against any and all of the EDG Subcontractors) arising out of the services
       rendered and/or the materials delivered in connection with and/or related to the Work
       Agreement and/or the Project.

       In June 2003, Valero commenced arbitration proceedings against EDG in Houston, Texas.

EDG persuaded the panel to join ECCO in the arbitration. On June 29, 2005, EDG filed suit against

                                                   3
ECCO in Texas state court, seeking an order to compel arbitration. ECCO removed the case to

federal court. Initially, the district court denied EDG’s motion to compel arbitration because in the

settlement agreement, Valero and EDG “fully and finally rejected” the Work Agreement. Since the

Work Agreement forms the basis for compelling ECCO into a multi-party arbitration, the district

court denied EDG’s motion to compel arbitration. Upon reconsideration, however, the district court

recognized “reject” as a term of art used in bankruptcy proceedings to indicate that the contract is

breached, not invalidated or terminated. Accordingly, the district court granted EDG’s motion to

compel arbitration and denied Valero’s motion as moot. The issue raised in this appeal is whether

the district court properly granted EDG’s motion to compel arbitration.

                                  II. STANDARD OF REVIEW

       This court reviews de novo an order compelling arbitration. Paper, Allied-Indus. Chem., &

Energy Workers Int’l Union Local No. 4-2001 v. ExxonMobil Refining & Supply Co., 449 F.3d 616,

619 (5th Cir. 2006). The court may only consider the arbitrability of issues and must disregard the

underlying claims of the dispute. Id.

                                        III. DISCUSSION

       Under the Federal Arbitration Act (the “FAA”), “a party aggrieved by the alleged failure,

neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any

United States district court . . . for an order directing that such arbitration proceed in the manner

provided for in such agreement.” 9 U.S.C. § 4. When a party agrees to arbitrate in a particular state,

via explicit or implicit consent, the district courts of the agreed upon state may exercise personal

jurisdiction over the parties for the limited purpose of compelling arbitration. PaineWebber, Inc. v.

The Chase Manhattan Private Bank (Switzerland), 260 F.3d 453, 461 (5th Cir. 2001). To determine

                                                  4
whether the parties agreed to arbitrate a dispute, the district court considers: (1) whether there is a

valid agreement to arbitrate between the parties; and (2) whether the dispute in question falls within

the scope of the arbitration agreement. Webb v. Investacorp, Inc., 89 F.3d 252, 258 (5th Cir. 1996).

When a contract contains an arbitration clause, there is a presumption of arbitrability in the sense that

“an order to arbitrate the particular grievance should not be denied unless it may be said with positive

assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted

dispute.” AT&T Tech., Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 650 (1986) (quoting

Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582-83 (1960)).

        ECCO argues that EDG’s assignment to Valero eliminates its ability to seek arbitration. EDG

counters that whether EDG assigned the underlying contractual claims is irrelevant because the

district court must only consider the arbitration clause of the subcontract. EDG also contends that

it never assigned claims for contribution and indemnity, which constitute a “real dispute” wherein

EDG seeks to hold ECCO liable for the refinery damage. Valero adds that EDG represents the

interests of its insurers, potentially liable for $40 million in damages.

        Although the assignment relinquishes EDG’s substantive claims against ECCO, it does not

prevent EDG from compelling ECCO’s participation in the arbitration. The court looks only to the

arbitration agreement still in effect between ECCO and EDG to determine whether ECCO may be

compelled into the ongoing arbitration. Once a court determines that parties must 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.” John Wiley & Sons, Inc. v. Livingston, 376 U.S.
543, 557 (1964) (reserving for the arbitrator to determine whether a merger affected an employer’s

obligation to arbitrate under a collective bargaining agreement). Therefore, despite the assignment,

                                                   5
ECCO’s refusal to arbitrate pursuant to the subcontract and Work Agreement makes EDG an

aggrieved party under the arbitration statute.

       The subcontract entered into by EDG and ECCO states that when a dispute arises relating to

a dispute between EDG and Valero, then the related dispute shall be “decided by the same tribunal

and in the same forum as disputes between the Contractor [EDG] and Owner [Valero].” Valero filed

claims against EDG for damages caused by the construction delays, power outages, and fire at the

refinery. This ongoing arbitration commenced over two years ago. In turn, EDG now seeks

indemnity and contribution from ECCO in the event that Valero prevails on its claims. Since the

subcontract incorporates the Work Agreement’s arbitration clause, EDG and ECCO must arbitrate

the indemnity and contribution claims via a multi-party proceeding in Houston, Texas. See Bridas

SAPIC v. Gov’t of Turkmenistan, 345 F.3d 347, 356 (5th Cir. 2003) (“[I]ncorporation by reference

is generally effective to accomplish its intended purpose where . . . the provision to which reference

is made has a reasonably clear and ascertainable meaning.”); J.S.&H. Constr. Co. v. Richmond

County Hosp. Auth., 473 F.2d 212, 215 (5th Cir. 1973) (holding that an arbitration clause

incorporated by reference was a “valid and enforceable part of the subcontract”). Accordingly, the

district court properly concluded that EDG’s claims against ECCO fall within the scope of the Work

Agreement’s arbitration clause and that ECCO consented to arbitrate such related disputes in

Houston, Texas. The arbitration panel must decide whether the assignment prevents EDG from

bringing its claims for contribution and indemnity.

                                        IV. CONCLUSION

       Based on the foregoing reasons, we affirm the district court’s order granting EDG’s motion

to compel arbitration.

                                                  6
7