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CIP Construction Co. v. Western Surety Co.

United States District Court, M.D. North Carolina

July 20, 2018

CIP CONSTRUCTION COMPANY, Plaintiff,
v.
WESTERN SURETY COMPANY, Defendant.

          MEMORANDUM OPINION AND ORDER

          Thomas D. Schroeder United States District Judge.

         This is a construction dispute involving the claim of a general contractor, CIP Construction Company (“CIPC”), against its subcontractor's surety, Western Surety Company (“Western”). Western now moves to dismiss or, alternatively, to stay judicial proceedings and seeks to compel CIPC to pursue its claims in arbitration. (Doc. 5.) Western also moves to disregard CIPC's surreply brief. (Doc. 15.) The motions have been fully briefed and are ready for decision. (Docs. 7, 11, 13, 14, 17 and 18.)

         For the reasons set forth below, the court will consider the surreply, deny the motion to dismiss or stay insofar as it is made pursuant to Federal Rule of Civil Procedure 12(b)(1) and the Federal Arbitration Act (“FAA”), 9 U.S.C. § 3, but exercise its discretion to stay these judicial proceedings pending the outcome of the ongoing arbitration between CIPC and its subcontractor.

         I. BACKGROUND

         CIPC is the general contractor and owner of Bellemeade Village, a construction project in Greensboro, North Carolina (the “project”). (Doc. 1 ¶¶ 5, 6.) CIPC contracted with United Forming, Inc. (“UFI”), a subcontractor, to complete the reinforced concrete for the project (the “subcontract”). (Id. ¶ 8; Doc. 1-2.) Additionally, Western issued a performance bond to CIPC on which Western is the surety, UFI is the principal, and CIPC is the obligee (the “performance bond”). (Doc. 1 ¶ 5; Doc. 1-1.)

         Western's performance bond incorporates the subcontract “by reference.” (Doc. 1-1 ¶ 1.) The subcontract contains an arbitration provision, which states in relevant part:

Arbitration. In the event of a dispute between the parties with respect to the terms of this Agreement or the parties' performance under this Agreement (a “Dispute”), the parties will submit the Dispute to arbitration pursuant to the provisions of the North Carolina Revised Uniform Arbitration Act . . . .

(Doc. 1-2 ¶ 34.) The subcontract defines the “parties” as CIPC and UFI. (Id. ¶ 1.) The performance bond contains a judicial resolution provision, which states in relevant part:

Any proceeding, legal or equitable, under this Bond may be instituted in any court of competent jurisdiction in the location in which the work or part of the work is located and shall be instituted within two years after a declaration of Contractor Default . . . .

(Doc. 1-1 ¶ 11.)

         The present dispute arose between CIPC and UFI under the subcontract, and UFI served CIPC with a written arbitration demand. (Doc. 5-3; Doc. 7 at 4.) CIPC gave Western written notice that UFI had refused to perform under the subcontract and was in default. (Doc. 1 ¶¶ 29, 31.) CIPC demanded that Western fulfill its duties under the performance bond and honor UFI's obligations under the subcontract. (Id. ¶ 31; Doc. 1-6.) Western responded that it was ready to meet its obligations under the performance bond once UFI's liability had been determined in arbitration. (Doc. 1 ¶ 35, Doc. 7 at 4.)

         CIPC filed the present action on February 1, 2018. Western now moves to dismiss, or alternatively to stay, the action and compel arbitration, contending that the subcontract's arbitration provision governs this dispute. (Doc. 5.) Pursuant to the parties' agreement filed in connection with Western's motion to dismiss, CIPC and UFI began an evidentiary hearing before an arbitrator concerning their dispute on June 18, 2018, and they anticipate an award by July 23, 2018. (Doc. 5-4 at 4.)

         II. ANALYSIS

         Western argues that CIPC's dispute against it arising under the performance bond must be arbitrated and that the court should therefore dismiss or, alternatively, stay this lawsuit pursuant to the FAA or via the court's discretionary power, pending the resolution of CIPC's arbitration with Western. Western further contends that its obligation under the performance bond is dependent on UFI's liability, which will be determined in the ongoing arbitration. (Doc. 7 at 4, 8; Doc. 13 at 2, 9.) In response, CIPC contends that the arbitration clause in the subcontract is not incorporated into the performance bond and that its claim against Western may proceed.

         A. Motion to Compel Arbitration

         1. Subject Matter Jurisdiction

         Western moves to dismiss, or alternatively stay, the proceedings and compel arbitration, pursuant to Federal Rule of Civil Procedure Rule 12(b)(1), the North Carolina Revised Arbitration Act, N.C. Gen. Stat. §§ 1-569.1, et seq., and the FAA, 9 U.S.C. § 3. Western's argument is based on the contention that the court lacks subject matter jurisdiction to entertain the action because all issues before the court are subject to arbitration.

         A court must consider its subject matter jurisdiction as a “threshold matter” prior to addressing the merits of the case. Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 94-95 (1998); Holloway v. Pagan River Dockside Seafood, Inc., 669 F.3d 448, 452 (4th Cir. 2012). A plaintiff bears the burden of proving subject matter jurisdiction. Evans v. B.F. Perkins Co., a Div. of Standex Int'l Corp., 166 F.3d 642, 647 (4th Cir. 1999). When subject matter jurisdiction is challenged pursuant to Federal Rule of Civil Procedure 12(b)(1), “the district court is to regard the pleadings as mere evidence on the issue, and may consider evidence outside the pleadings without converting the proceeding to one for summary judgment.” Id. (quoting Richmond, Fredericksburg & Potomac R. Co. v. United States, 945 F.2d 765, 768 (4th Cir. 1991) (internal citations omitted)). The court should only grant the Rule 12(b)(1) motion “if the material jurisdictional facts are not in dispute and the moving party is entitled to prevail as a matter of law.” Id. (quoting Richmond, Fredericksburg & Potomac R. Co., 945 F.2d at 768).

         In challenging this court's subject matter jurisdiction, Western relies on the Fourth Circuit's decision in Choice Hotels Int'l, Inc. v. BSR Tropicana Resort, Inc., for the proposition that the dismissal of a complaint for lack of subject matter jurisdiction is proper when all the issues before the court are arbitrable. (Doc. 7 at 8 (citing Choice Hotels Int'l, Inc. v. BSR Tropicana Resort, Inc.,252 F.3d 707, 709-10 (4th Cir. 2001)). Western similarly argues that the text of § 4 of the FAA supports its interpretation that the court lacks subject matter jurisdiction over the dispute. (Id.); see 9 U.S.C. § 4 (providing that an aggrieved party may petition a “district ...


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