SBRMCOA, LLC v. Bayside Resort, Inc.
58 V.I. 707
| 3rd Cir. | 2013Background
- Sapphire Beach Resort and Marina Condominium Association sues Bayside Resort, TSG Technologies, and Beachside over water provision and related agreements.
- Bayside assigned its water-supply rights to TSG; Water Supply Agreement allows TSG to raise water rates to 0.05 per gallon and makes water facilities mostly Bayside's.
- Condominium Association consented to the assignment under pressure, and arbitration clause is included in the Water Supply Agreement.
- District Court dismisses and compels arbitration, ruling Counts 2 and 4 arbitrable and Count 5 contemplated; ultra vires arguments referred to arbitration.
- Appeal challenges whether the Board’s authority to sign the Water Supply Agreement was proper and whether the coercion claim is arbitrable; case remanded for further fact development.
- Court vacates arbitration order on ultra vires grounds and confirms arbitrability of coercion claim; remand for Board-authority discovery.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Who decides formation vs. validity challenges | Condominium Association maintains formation issue is non-arbitrable. | Arbitration clause covers contract validity, including coercion. | Ultra vires formation issue non-arbitrable; remanded for merits. |
| Authority of the Board to sign Water Supply Agreement | Board lacked authority to bind COA; requires judicial determination. | Board authority sufficient to enter agreement. | Remand to determine Board authority; discovery warranted. |
| Arbitrability of coercion claim | Coercion renders contract voidable and arbitrable. | Arbitration should be limited by Prima Paint framework. | Coercion claim arbitrable; valid arbitration of challenge to contract validity. |
| Effect of discovery decision and summary judgment conversion | District Court improperly converted to summary judgment. | No reversible error or prejudice. | Remand to allow proper discovery and clarify scope; error if conversion occurred. |
Key Cases Cited
- Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 () (claims to contract validity reserved for arbitrator)
- Granite Rock Co. v. International Bhd. of Teamsters, 130 S. Ct. 2847 (2010) (distinction between contract formation and validity for arbitrability)
- Buckeye Check Cashing v. Cardegna, 546 U.S. 440 (2006) (formation vs. validity in arbitrability; legality challenges arbitrable)
- Sandvik AB v. Advent Int’l Corp., 220 F.3d 99 (3d Cir. 2000) (signatory authority/ultra vires challenges non-arbitrable formation issue)
- AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011) (upholds arbitration clauses in contracts of adhesion)
- Simula, Inc. v. Autoliv, Inc., 175 F.3d 716 (9th Cir. 1999) (fraud/duress in inducement are questions for arbitrator)
- Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Haydu, 637 F.2d 391 (5th Cir. 1981) (economic duress in bargaining is arbitrable)
- Ford Motor Co. v. Summit Motor Prods., Inc., 930 F.2d 277 (3d Cir. 1991) (notice requirement when converting motions; 12(d) concerns)