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Developers Surety And Indemnity Co. v. Carothers Construction, Inc.

United States District Court, D. Kansas

August 24, 2017

DEVELOPERS SURETY AND INDEMNITY COMPANY, Plaintiff,
v.
CAROTHERS CONSTRUCTION, INC., Defendant.

          MEMORANDUM AND ORDER

          John W. Lungstrum United States District Judge.

         Carothers Construction, Inc. (“Carothers”) entered into a subcontract with Seven Hills Construction, LLC (“Seven Hills”) under which Seven Hills was to perform certain work at a project in Kansas. In connection with that project, Developers Surety and Indemnity Company (“DSI”) issued performance and payment bonds, as surety, on behalf of Seven Hills in favor of Carothers. Seven Hills defaulted on the subcontract. Carothers subsequently initiated an arbitration proceeding in Mississippi against DSI, in which Carothers has asserted claims against DSI with respect to bonds issued for the Kansas project and for projects in Georgia, South Carolina, and Connecticut.

         DSI brought the present action in state court against Carothers, who removed the case to this Court. By its complaint, DSI seeks a declaratory judgment to the effect that it is not required to submit to arbitration in Mississippi on Carothers's claims, and it also seeks a stay of the arbitration and a permanent injunction against the arbitration of the claims.

         This matter presently comes before the Court on DSI's motion to remand the case to state court (Doc. # 8) and Carothers's motion to dismiss or to transfer (Doc. # 4). For the reasons set forth below, the Court denies both motions.

         I. Motion to Remand

         In removing this case to federal court, Carothers invoked the Court's diversity jurisdiction. DSI moves for remand on the basis that the case does not satisfy the requirement that the matter in controversy exceed $75, 000. See 28 U.S.C. § 1332(a).

         DSI argues that Carothers failed to submit evidence with its notice of removal to satisfy the jurisdictional amount. The Supreme Court has not required such evidence, however. In Dart Cherokee Basin Operating Co., LLC v. Owens, 135 S.Ct. 547 (2014), the Court held that “a defendant's notice of removal need include only a plausible allegation that the amount in controversy exceeds the jurisdictional threshold.” See Id. at 554. That allegation “should be accepted when not contested by the plaintiff or questioned by the court.” See Id. at 553. If the plaintiff does contest the allegation, then “both sides submit proof and the court decides, by a preponderance of the evidence, whether the amount-in-controversy requirement has been satisfied, ” in accordance with the specific terms of the removal statute. See Id. at 553-54; see also 28 U.S.C. § 1446(c)(2)(B) (removal is proper “if the district court finds, by the preponderance of the evidence, that the amount in controversy exceeds the amount specified in section 1332(a)”) (quoted in Dart).

         In this case, DSI does not seek monetary relief; instead, it seeks a declaratory judgment and injunction relating to the arbitration initiated by Carothers. In cases involving claims for declaratory or injunctive relief, the Tenth Circuit follows the “either viewpoint rule, ” which allows the removing party to rely on either the value to the plaintiff or the cost to the defendant of the relief sought. See Lovell v. State Farm Mutual Auto. Ins. Co., 466 F.3d 893, 897 (10th Cir. 2006). DSI suggests in its brief that the outcome of its suit to determine the appropriate forum for Carothers's claims on the bonds has no pecuniary effect because Carothers will have a forum for those claims either way. The Tenth Circuit has implicitly rejected such an argument, however, as it has held that in a case seeking to compel arbitration, the court should look to the possible award in the arbitration to determine the amount in controversy. See Woodmen of World Life Ins. Society v. Manganaro, 342 F.3d 1213, 1217 (10th Cir. 2003). The Tenth Circuit has not explicitly extended that holding to suits seeking to enjoin arbitration, but in Woodmen it relied on and chose to follow the holding of the Fifth Circuit in Webb v. Investacorp, Inc., 89 F.3d 252 (5th Cir. 1996). See Woodmen, 342 F.3d at 1217 (citing Webb). In Webb, the Fifth Circuit concluded that there is no reason that the same rule should not apply both to suits seeking to compel arbitration and to suits seeking to enjoin arbitration. See Webb, 89 F.3d at 256-57. DSI has not argued that the Woodmen rule should be not be applied in this case. Accordingly, the Court believes that the Tenth Circuit would apply that rule here, and thus it will do so. Thus, DSI's motion turns on the amount sought by Carothers in the Mississippi arbitration.

         In its notice of removal, Carothers alleged that the amount in controversy here exceeds $75, 000. The Court concludes that that allegation was plausible in light of DSI's complaint, to which DSI attached Carothers's arbitration demand. In that demand, Carothers stated that it asserted claims on bonds issued by DSI for four projects, including the Kansas project; that its total claims exceeded $4, 000, 000; and that DSI had already determined that it would sustain an additional loss of $380, 342 on the Kansas bonds. DSI argues-and points to evidence that purports to show-that Carothers has never made a formal claim to it on the bonds for the Kansas project. The relevant issue, however, is the amount sought by Carothers in the arbitration.[1] In the arbitration demand, Carothers has plainly asserted a claim for monetary relief from DSI relating to the Kansas project, as it claims that Seven Hills defaulted and that DSI has paid only part of the amount due to Carothers as damages.

         DSI also attempts to take issue with the amount of Carothers's claim in the arbitration demand as it relates to the Kansas project. First, a close reading of DSI's complaint in this case reveals that its request for relief is not limited to the arbitration claims relating to the Kansas project, as DSI seeks relief generally relating to the arbitration as a whole; and Carothers explicitly seeks in excess of $4, 000, 000 in the arbitration generally. In its briefs in support of remand and in opposition to dismissal, DSI appears to suggest that only the arbitration of claims relating to the Kansas project are at stake in this action, although it has not explicitly limited its claims in that way. Even if only the arbitration claims relating to the Kansas project are considered, however, the arbitration demand still reveals a claim in excess of $75, 000. As Carothers points out, the specific damage amounts claimed with respect to the other three projects total approximately $3, 800, 000, leaving the plausible interpretation that Carothers seeks over $200, 000 for the Kansas project. Moreover, the arbitration demand, in setting out the Kansas claim, refers to DSI's admission that it still owes $380, 342 on that claim. DSI argues that the Court should not consider any such admission. The Court must weigh the evidence, however, and Carothers has provided evidence of such an admission. Moreover, the issue is the amount of Carothers's claim in arbitration (whether or not it ultimately succeeds on that claim), and the evidence is that Carothers has claimed an amount in excess of $75, 000. That is especially true in light of Carothers's demand in the arbitration for attorney fees and punitive damages. See Woodmen, 342 F.3d at 1217-18 (claims for attorney fees and treble damages may be considered for purposes of meeting the jurisdictional amount).

         Thus, the Court concludes that Carothers plausibly alleged in its notice of removal that the jurisdictional threshold is satisfied here, based on the evidence of the arbitration demand. DSI has not submitted any contrary evidence, either that Carothers does not in fact claim that much or that Carothers cannot recover that much. Thus, the Court also finds by a preponderance of the evidence that the amount-in-controversy requirement is satisfied in this case. It therefore denies DSI's motion to remand the case to state court.

         II. Motion to Dismiss or to Transfer

         DSI's claims in this case are based solely on its argument that it is not required to submit to the arbitration initiated by Carothers. Carothers takes the opposite view, arguing that a written arbitration provision should be enforced against DSI. Based on that argument, Carothers moves either for dismissal of DSI's claims or, in the alternative, for transfer of the case to the United States District Court for the Southern District of Mississippi to allow DSI to be compelled to submit to the arbitration initiated in that state. See 9 U.S.C. § 4 (under Federal Arbitration Act, district court may compel arbitration only within its own district); accord Ansari v. Qwest Communications Corp., 414 F.3d 1214, 1219-20 (10th Cir. 2005).

         The Federal Arbitration Act (FAA) provides that an arbitration provision in a written commercial contract “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” See 9 U.S.C. § 2. The FAA creates a presumption in favor of arbitration, as the Supreme Court has held that the statute “establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor or arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.” See Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983) (footnote omitted). In enforcing this federal policy favoring arbitration, courts apply state-law principles concerning the validity, revocability, and enforceability of contracts, as long as those state-law principles are generally applicable to all contracts and not applicable only to arbitration agreements. See Perry v. Thomas, 482 U.S. 483, 492 n.9 (1987). The Supreme Court has further stressed, however, that the parties must have agreed to arbitrate the dispute in the first place:

The FAA directs courts to place arbitration agreements on equal footing with other contracts, but it does not require parties to arbitrate when they have not agreed to do so. Because the FAA is at bottom a policy guaranteeing the enforcement of private contractual arrangements, we look first to whether the parties agreed to arbitrate a dispute, not to general policy goals, to determine the scope of the agreement. While ambiguities in the language of the agreement should be resolved in favor of arbitration, we do not override the clear intent of the parties, or reach a result inconsistent with the plain text of the contract, simply because the policy favoring arbitration is implicated.

See EEOC v. Waffle House, Inc., 534 U.S. 279, 293-94 (2002) (citations and internal quotations omitted). Thus, the Court must determine here whether DSI agreed to arbitrate ...


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