26 Street Hospitality, LLP v. Real Builders, Inc.
2016 ND 95
| N.D. | 2016Background
- 26th Street Hospitality, LLP (the Partnership) was formed to build and operate a hotel; Joeleon Holdings was a partner and Joel Feist a managing partner who also owned Real Builders, Inc., the contractor.
- Partnership sued Feist, Joeleon, and Real Builders alleging Feist secretly executed a construction contract with Real Builders beyond his authority under the Partnership Agreement and sought declaratory and tort/damage relief.
- Defendants moved to compel arbitration under the Partnership Agreement’s broad arbitration clause (which incorporated AAA rules); the district court ordered arbitration and stayed non-arbitrable matters.
- The arbitrator concluded Feist had authority to bind the Partnership, awarded net damages to the defendants, and awarded contractual interest; arbitration resolved all claims between the Partnership and Feist defendants.
- District court lifted the stay, confirmed the award, entered judgment, and awarded 18% post-judgment interest (1.5% monthly under the construction contract). Partnership appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether court had to decide validity of construction contract before compelling arbitration | Partnership: FAA/state law required court to determine contract validity because of alleged fraud | Defendants: FAA governs and Partnership did not challenge the arbitration clause itself; arbitration agreement is enforceable | Court: FAA applies; because challenge targeted the construction contract generally (not the arbitration clause itself), arbitrability was for arbitrator (court did not err) |
| Scope of arbitrable claims (do construction/equitable/fraud claims fall within Partnership Agreement arbitration clause?) | Partnership: those claims are outside scope and not intended to be arbitrated | Defendants: clause is broad and covers any claim "arising out of or relating to" the Agreement; doubts resolved for arbitration | Court: clause is broad, incorporates AAA rules; arbitrator decides arbitrability; claims were subject to arbitration |
| Whether nonsignatory Real Builders can be compelled to arbitrate under the Partnership Agreement | Partnership: Real Builders is not party/partner, so cannot be bound | Defendants: equitable estoppel/related doctrines allow nonsignatory to invoke arbitration when misconduct is concerted and claims interdependent | Court: applied equitable estoppel principles; claims against Real Builders and Feist were intertwined and alleged concerted misconduct, so arbitration could be compelled against Real Builders |
| Proper post-judgment interest rate | Partnership: N.D.C.C. § 28-20-34 yields statutory 6.5% because Partnership Agreement (not construction contract) led to arbitration | Defendants: award included contractual interest under construction contract (1.5% monthly → 18% annually) and judgment flowed from arbitration award based on that contract | Court: arbitrator awarded contractual interest under construction contract; district court properly awarded 18% post-judgment interest |
Key Cases Cited
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (U.S. 2006) (distinguishes challenges to arbitration clause itself from challenges to whole contract)
- Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (U.S. 2010) (party must specifically challenge arbitration clause to avoid enforcement)
- Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (U.S. 1967) (arbitration clause is severable from rest of contract for many validity challenges)
- Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (U.S. 2002) (questions of procedural arbitrability are for arbitrator absent clear agreement otherwise)
- First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (U.S. 1995) (clear and unmistakable evidence required to assign arbitrability to arbitrator)
- Arthur Andersen LLP v. Carlisle, 556 U.S. 624 (U.S. 2009) (state contract-law doctrines can bind nonsignatories to arbitration if applicable)
- Schwarz v. Gierke, 788 N.W.2d 302 (N.D. 2010) (state precedent favoring broad arbitration clauses and third-party invocation)
- David v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 440 N.W.2d 269 (N.D. 1989) (distinguishes fraud-in-the-inducement of arbitration clause from fraud in entire contract)
- MS Dealer Serv. Corp. v. Franklin, 177 F.3d 942 (11th Cir. 1999) (equitable estoppel permits nonsignatory to compel arbitration when claims rely on or are intertwined with contract containing arbitration clause)