Case Information
*1 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA W&T TRAVEL SERVICES, LLC,
Plaintiff,
Civil Action No. 13-cv-1617 (BAH) v.
Judge Beryl A. Howell PRIORITY ONE SERVICES, INC.,
Defendant. MEMORANDUM OPINION
The plaintiff, W&T Travel Services, LLC, a Maryland company, which provides transportation services to the federal government and commercial companies, filed this action against the defendant, Priority One Services, Inc., a Virginia company, which also provides such services, to bar a second arbitration of a contract dispute that persists between the parties. See Compl., ECF No. 1. Pending before the Court is the plaintiff’s Motion For Stay of Arbitration Proceeding (“Pl.’s MTS”), ECF No. 7, and the defendant’s Motion to Dismiss the Complaint or, in the alternative, to Stay and Compel Arbitration (“Def.’s MTD/Stay”), ECF No. 10. For the foregoing reasons, the plaintiff’s motion to stay the arbitration is denied and the defendant’s motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6) is granted. [1]
I. BACKGROUND
The plaintiff filed this action to enjoin a second arbitratiоn of a contract dispute between
the parties “because such action arises under the same facts, agreement, and transaction as the
*2
first arbitration.” Compl. ¶ 1. The facts underlying the contract dispute prompting both
arbitrations are summarized in a prior opinion by this Court.
See Priority One Servs., Inc. v. W
& T Travel Servs., LLC
,
One week after award of the Prime Contract, the plaintiff entered a subcontract with the defendant for the defendant to manage the NIH patient shuttle bus services while the plaintiff retained responsibility for managing the NIH employee shuttle buses. See Subcontract Agreement (“Subcontract”), ECF No. 1-1, at 1. Similar to the terms in the Prime Contract, the Subcontract was for one year but would “automatically extend consistent with [NIH’s] exercise of [the] four one-year option periods under the Prime Contract.” Id . at 2. In addition, the Subcontract contained an arbitration clause stating that:
12. All claims, disputes and matters in question arising out of, or relating to, this Subcontract Agreement or the breach thereof, except for claims for which the Client is liable (which will be adjudicated in accordance with the prime contract’s Dispute clause), shall be decided by arbitration in accordance with the rules of the American Arbitration Association then in effect unless the parties mutually agree otherwise. This agreement to arbitrate shall be specifically enforceable under the prevailing arbitration law. The location of the arbitration proceedings shall be Washington, DC.
Subcontract ¶ 12.
In 2009, after NIH exercised the first option year on the Prime Contract, the plaintiff
terminated the Subcontract with the defendant.
See
Demand for Arbitration ¶¶ 19-23. On
December 15, 2009, the defendant filed a demand for arbitration with the American Arbitration
Association (“AAA”), arguing that the plaintiff’s termination of the Subcontract was a material
breach of the parties’ agreement.
See id.¶
25. Almost ten months later, on October 18, 2010, the
arbitration panel issued its ruling agreeing with the defendant that the plaintiff’s termination of
the defendant “was unjustified” and awarding the defendant damages for the amount of lost
profits for Option Years 1 and 2 in the аmount of $1,135,020.00, plus interest, costs and
expenses (“2010 Arbitration Award”). Compl. ¶ 7; Demand for Arbitration, ¶¶ 29, 32;
see
Priority One Servs., Inc.
,
The defendant then petitioned for judicial confirmation of the arbitration award, which
the plaintiff opposed.
Priority One Servs., Inc.
,
NIH thereafter exercised option years 3 and 4 in 2011 and 2012, respectively, under the Prime Contract. See Demand for Arbitration at ¶¶ 36, 38. Towards the end of the Prime Contract, the plaintiff and the defendant competed for the NIH shuttle bus contract and, in July 2013, the plaintiff was again awarded the prime contract (“2013 Prime Contract”). Id . ¶¶ 41-43. On October 9, 2013, the defendant brought a second demand for arbitration for lost profits accruing from option years 3 and 4 under the Prime Contract and Subcontract, as well as lost profits under the 2013 Prime Contract, since the Subcontract provided for automatic extension of its term for any option years undеr the Prime Contract “along with any further extension or re- competition of the [2008] Prime Contract.” Id. ¶¶ 36-40. Two days later, the plaintiff filed this action seeking to enjoin the defendant “from proceeding with a second demand for arbitration.” Compl. ¶ 1.
As set out in the Complaint, the plaintiff seeks to stop the second arbitration, requesting a declaratory judgment, pursuant to 28 U.S.C. § 2201, that this Court’s confirmation of the 2010 Arbitration Award is “the final determination of the issues related to the Subcontract” and bars any re-litigation of issues arising under the Subcontract. Compl. ¶ 2. The plaintiff supports this request with allegations set out in five counts, namely: that no arbitration is authorized because the Subcontract no longer exists or applies, id. ¶ 22 (“Count I”); that the defendant’s right to recover damages for option years 3 and 4 was already litigated in the first arbitration and, therefore, the second arbitration is barred under the doctrines of collateral estoppel, id. ¶¶ 25-26 (“Count II”), and res judicata, id . ¶¶ 29-31 (“Count III”); that the defendant waived the claims asserted in the second arbitration “by not making any efforts to preserve them,” id . ¶ 33 (“Count IV”); and, finally, that the second arbitration demand is “frivolous” and “constitutes harassment *5 of [plaintiff],” id . ¶¶ 37-38 (“Count V”), for which the “Plaintiff reserves the right to seek other monetary damages, depending on the findings of this Court,” id. ¶ 40.
On November 7, 2013, the AAA determined that “in the absence of an agreement by the parties or a court order staying this matter, [it would] proceed with the administration of the arbitration.” Joint Status Report, Ex. 1 (AAA Letter, dated November 7, 2013) at 3, ECF No. 18-1. Following solicitation of briefing from the parties on the threshold issue of arbitrability of the second arbitration demand, the arbitration panel determined, on July 21, 2014, that it has jurisdiction to arbitrate the mеrits of the claims raised in the demand “as well as scrutinize the defenses to those claims, even if the [plaintiff] decides not to participate in the arbitration.” Joint Status Report, Ex. 1 (AAA Panel “Decision on Jurisdiction”) at ¶¶ 17- 18, ECF No. 20-1.
The Court now turns to the pending motions by the plaintiff to stay the arbitration and by the defendant to dismiss the Complaint or, alternatively, stay the case and compel arbitration.
II. LEGAL STANDARD
A. Motion to Compel or Stay Arbitration
A motion to compel arbitration, pursuant to the Federal Arbitration Act (“FAA”), 9
U.S.C. § 4, is treated “as if it were a request for summary disposition of the issue of whether or
not there had been a meeting of the minds on the agreement to arbitrate” and, therefore, is
subject to the summary judgment standard of Federal Rule of Civil Procedure 56(c).
Aliron Int’l,
Inc. v. Cherokee Nation Indust., Inc.
,
Under Federal Rule of Civil Procedure 56, summary judgment shall be granted “if the
movant shows that there is no genuine dispute as to any material fact and the movant is entitled
to judgment as a matter of law,” upon consideration of “materials in the record” that establish
the absence or presence of a genuine dispute. F ED . R. C IV . P. 56(a), (c). While the moving party
bears the burden of showing the absence of dispute material facts, “[t]he evidence is to be
viewed in the light most favorable to the nonmoving party and the court must draw all reasonable
inferences in favor of the nonmoving party.”
Talavera v. Shah
,
Disputes over the application of the law to undisputed facts are particularly amenable to
resolution on summary judgment since such disputes raise only legal questions properly within
the domain of the Court to determine.
See Tower Ins.
,
B. Failure to State a Claim under Rule 12(b)(6)
Federal Rule of Civil Procedure 8(a)(2) requires that a complaint contain “a short and
plain statement of the claim showing that the pleader is entitled to relief,” to encourage brevity
and, at the same time, “give the defendant fair notice of what the . . . claim is and the grounds
upon which it rests.”
Bell Atlantic Corp. v. Twombly
,
III. DISCUSSION
The defendant aptly observes that the plaintiff’s motion to stay and the defendant’s motion to dismiss or, in the alternative, compel arbitration “both ask the Court to rule on the identical issue—whether the AAA or the Court hаs the exclusive power to rule on arbitrability.” Def.’s Opp’n Pl.’s Mot. Stay (“Def.’s Opp’n”) at 2, ECF No. 1. The plaintiff contends that arbitrability of the claims set out in the defendant’s demand for arbitration is an issue for judicial determination, warranting a stay of the arbitration proceedings. See Compl. ¶¶ 21-23; Pl.’s Mem. Supp. Mot. Stay (“Pl.’s MTS Mem.”) at 7-10. The defendant counters that the *9 Subcontract reflects the parties’ unequivocal agreement that the arbitrator would rule on the arbitrability of any dispute arising from that Subcontract and, furthermore, that the Complaint should be dismissed. See Def.’s Mem. Supp. Mot. Dismiss or Stay (“Def.’s MTD/Stay Mem.”) at 9-13. The Court agrees with the defendant, as explained below.
A. The Competing Motions to Compel or Stay Arbitration
“[A]rbitration is a matter of contract.”
Rent-A-Center, W., Inc. v. Jackson
,
Generally, “courts presume that the parties intend courts, not arbitrators, to decide what
we have called disputes about ‘arbitrability,’” including “questions such as ‘whether the parties
are bound by a given arbitration clause,’ or ‘whether an arbitration clause in a concededly
binding contract applies to a particular type of controversy.’”
Id
. (quoting
Howsam
v.
Dean
*10
Witter Reynolds, Inc.
,
The Supreme Court has recognized that “parties can agree to arbitrate ‘gateway’
questions of ‘arbitrability,’ such as whether the parties have agreed to arbitrate or whether their
agreement covers a particular controversy.”
Jackson
,
The parties agree that the heightened standard applies here. Def.’s Opp’n at 3; Pl.’s MTS
Mem. at 3. Thus, the defendant, as the party moving to compel arbitration on the arbitrability
issue, shoulders the burden of proving by “clear and unmistakable evidence” that the parties
*11
agreed to submit arbitrability to the arbitrator.
First Options
,
1. The Subcontract Language Submits Arbitrability to the Arbitrator The defendаnt argues that the issue of arbitrability is for the arbitrator because the Subcontract provides clear and unmistakable evidence that the parties agreed to arbitrate arbitrability. See Def.’s MTD/Stay Mem. at 9-16. The Court agrees.
The defendant points to two provisions in the Subcontract as showing “by clear and
unmistakable evidence that the parties agreed to have an arbitrator determine arbitrability.”
Def.’s MTD/Stay Mem. at 10. First, the defendant cites the language in the arbitration provision
of the Subcontract that empowers the AAA to resolve “all claims, disputes and matters in
question arising out of, or relating to, this Subcontract.”
Id.
at 12. This Court has already
concluded that this arbitration clause is “broad.”
See Priority One
,
Second, the defendant highlights the Subcontract’s requirement that arbitration shall take place pursuant to AAA rules as providing additional “clear and unmistakable evidence that the parties agreed the arbitrator shall decide arbitrability.” Def.’s MTD/Stay Mem. at 10. The Subcontract states in relevant part that “[a]ll claims, disputes and matters in question arising out of, or relating to, this Subcontract Agreement or the breach thereof . . . shall be decided by *12 arbitration in accordance with the rules of the [AAA] then in effect unless the parties mutually agree otherwise.” Subcontract ¶ 12. Under Rule R-7(a) of the AAA’s Commercial Arbitration Rules, “[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim.” See Def.’s MTD/Stay Mem. at 3 (quoting AAA Com. Arb. R. (“AAA Rules”), R-7(a), ECF 7-1, Ex. 3.).
While the D.C. Circuit has not addressed the issue, courts both within and outside this
jurisdiction have held that an arbitration clause adopting the rules of the AAA makes the issue of
arbitrability one for the arbitrator, not the court.
See, e.g.
,
Haire v. Smith, Currie & Hancock
LLP
,
In sum, the Subcontract provides clearly and unmistakably that the parties agreed to arbitrate any dispute arising from the Subcontract and this includes disputes over arbitrability.
2. The Subcontract’s Arbitration Clause Remains Enforceable Notwithstanding the breadth of the Subcontract’s arbitration clause, the plaintiff contends that “[t]his case is not arbitrable,” Pl.’s Opp’n to Def.’s MTD/Stay (“Pl.’s Opp’n”) at 2, ECF No. 12, for two reasons: first, the Subcontract “is no longer in existence and therefore no longer applicable, id . at 2-3; and second, the first arbitration award “was a final and complete arbitration” making the second arbitration “powerless to modify or make a new award on the same issues,” id . at 3. Neither reason posited by the plaintiff defeats the jurisdiction of the arbitrators to hear the defendant’s claims presented in the second demand for arbitration.
First, the plaintiff asserts that termination of the Subcontract, due to its own material
breach, has the result of terminating the force of the arbitration clause in the agreement. Pl.’s
Opp’n at 17 (arguing that the defendant’s successful showing in the first arbitration that the
plaintiff committed a material breach amounts to a “waiver” or “conce[ssion]” about the
*14
continued viability of the Subcontract and renders “the Subcontract . . . no longer in existence”).
This assertion is completely at odds with well-established law that arbitration provisions remain
enforceable even after termination of an agreement, no matter the reason for the termination, so
long as the dispute subject to arbitration “involves facts and occurrences that arose before
expiration, where an action taken after expiration infringes a right that aсcrued or vested under
the agreement, or where, under normal principles of contract interpretation, the disputed
contractual right survives expiration of the remainder of the agreement.”
Litton Fin. Printing
Div. v. NLRB
,
The Supreme Court has explained that “there are strong reasons to conclude that the
parties did not intend their arbitration duties to terminate automatically with the contract.”
Nolde Bros.
,
Moreover, the plaintiff points to no provision in the Subcontract that would eliminate the
arbitration requirement on termination of the agreement. On the contrary, the arbitration
provision covers any and all “claims arising out of, or relating to” the Subcontract, without
regard to the status of the agreement or the timing of the claim, providing further clear evidence
that the defendant’s pending claims are subject to arbitration.
See Nolde Bros
.,
The second ground on which the plaintiff resists the defendant’s second arbitration demand is that this arbitration is barred due to “the finality of the prior arbitration award,” Pl.’s Opp’n at 2, and the operation of the doctrines of collateral estoppel and res judicata, id. , at 7-15; Pl.’s MTS Mem. at 7-19; and waiver, Pl.’s MTS Mem. at 19-21. [4] As support for this “finality” argument, the plaintiff cites language in the 2010 Arbitration Award stating that “[t]his decision is a final Award as to all claims . . . [a]ll claims not expressly granted herein are hereby, denied.” Pl.’s Opp’n at 3 (quoting 2010 Arbitration Award) (emphasis omitted). This argument is misplaced since it leap-frogs over the threshold issue of arbitrability to reach the merits of the defendant’s claims in the second arbitration. In other words, whether the first arbitration resolved all claims for all possible damages arising from the plaintiff’s material breаch of the Subcontract, as the plaintiff contends, or just those claims for damages that had accrued at the time of the 2010 Arbitration Award, as the defendant contends, is a merits issue. The defendant’s position is that, notwithstanding the cited language in the 2010 Arbitration Award, the first arbitration panel did not consider any claims for damages arising from option years 3 and 4 or thereafter, because the panel viewed those claims as too speculative to award at the time *17 of the arbitration. See Demand for Arbitration ¶ 33 (“As for Option Years 3 (September 1, 2011- August 31, 2012) and 4 (September 1, 2012-August 31, 2013), the AAA found that Priority One’s claims for those damages had not yet fully accrued because NIH had not yet exercised those option years.”). [5]
Regardless of which parties’ view is correct regarding whether only some or all claims arising under the Subcontract were considered and resolved with finality in the 2010 Arbitration Award, the plaintiff’s arguments for why the defendant’s second demand for arbitration should fail are not reasons for finding that the threshold question of arbitrability must be determined by the Court rather than the arbitrator. The merits of the plaintiff’s argument regarding the scope of the 2010 Arbitration Award and, specifically, whether this award resolved the defendant’s damages claims for option years 3 and 4 and thereafter, must be presented to and resolved by the ongoing second arbitration proceeding.
Likewise, the plaintiff’s related contentions that the defendant’s claims in the second
arbitration demand are barred by collateral estoppel, res judicata and waiver are not properly
considered here. Those contentions are affirmative defenses directed to the merits of the
dеfendant’s claims under consideration in the second arbitration proceeding. To consider those
defenses here would run afoul of the Supreme Court’s direction that “in deciding whether the
parties have agreed to submit a particular grievance to arbitration,” courts should decline to
address affirmative defenses because doing so would constitute a “rul[ing] on the potential
merits of the underlying claims.”
AT&T Techs., Inc.
,
Despite the plaintiff’s invitation to address thе merits of the defendant’s claims presented in its demand for arbitration, the only issue before the Court at this time is the threshold question of “who has the primary power to decide arbitrability.” First Options of Chicago , 514 U.S. at 943. Having decided that question in the defendant’s favor, any evaluation of the merits of the plaintiff’s affirmative defenses as to why the defendant should not prevail in the second arbitration are matters that the Court leaves to the arbitrators. See Toledano v. O’Connor , 501 F. *19 Supp. 2d 127, 146 (D.D.C. 2007) (rejecting invitation to take “a quick peek at the merits” in order to determine if the claims are arbitrable because to do so would exceed this Court’s authority).
B. The Complaint Fails to State a Claim
As the arbitrator must determine arbitrability of the defendant’s claims asserted in the second arbitration proceeding, the only matter left for the Court is whether the suit should be dismissed or stayed pending the outcome of the arbitration. While the D.C. Circuit has not addressed this issue, other Circuit courts have reached divergent views regarding the repercussions for a pending civil suit of a finding that arbitration of the underlying dispute is required. See Braxton v. O’Charley’s Rest. Props , LLC, 5:13-CV-00130-TBR, 2014 WL 585324, at *5 (W.D. Ky. Feb. 14, 2014) (discussing circuit split); see also Richard A. Bales & Melanie A. Goff, An Analysis of an Order to Compel Arbitration: To Dismiss or Stay? , 115 P ENN S T . L. R EV . 539, 547 (2011); Angelina M. Petti, Note, Judicial Enforcement of Arbitration Agreements: The Stay-Dismissal Dichotomy of FAA Section 3 , 34 H OFSTRA L. R EV . 565, 575 (2005).
The Third, Seventh, and Tenth Circuits have concluded that Section 3 of the FAA
requires that the suit be stayed until the conclusion of the arbitration.
See Cont’l Cas. Co. v. Am.
Nat’l Ins. Co.
,
In contrast to the Third, Seventh, and Tenth Circuits, the majority of Circuit courts to
consider this issue have concluded that Section 3 of the FAA does not preclude dismissal of a
lawsuit when all of the claims asserted will be submitted to the arbitrator.
See, e.g.
,
Dialysis
Access Ctr., LLC v. RMS Lifeline, Inc.
,
Moreover, while the D.C. Circuit has not explicitly opined on this issue, it has upheld a
finding that Section 3 of the FAA does not preclude dismissal of an action “in the proper
circumstances,” including where “all issues raised in the complaint must be submitted to
arbitration.”
Aliron Int’l, Inc. v. Cherokee Nation Indus., Inc.
, CIV.A. 05-151(GK), 2006 WL
1793295, at * 3 (D.D.C. June 28, 2006)
aff’d
,
This Court will follow the majority rule regarding the propriety of dismissing a case
where all of the claims are subject to resolution by the arbitrator.
See Haire
, 925 F. Supp. 2d at
134 (compelling arbitration аnd dismissing the case after finding “that the parties intended the
issue of arbitrability to be resolved by the arbitrator” and all other claims likewise belonged to
the arbitrator);
Avue
,
In the instant matter, the plaintiff seeks a declaratory judgment that the defendant’s
claims are not arbitrable because the Subcontract no long exists and the claims are barred by the
finality of 2010 Arbitration Award as to “
all
claims.”
See
Compl. ¶ 23. In light of the
conclusions set out above, however, that the arbitration requirement survives termination of the
Subcontract, which vests authority with the arbitrators, not this Court, to determine arbitrability,
no issues are left for this Court to resolve. In these circumstances, dismissal is appropriate.
See,
e.g.
,
Aliron
,
IV. CONCLUSION
For the foregoing reasons, the plaintiff’s motion to stay arbitration is denied and the defendant’s motion to dismiss is granted.
An Order consistent with this Memorandum Opinion will be contemporaneously entered. Date: September 25, 2014
__________________________ BERYL A. HOWELL United States District Judge
Notes
[1] The plaintiff has also filed a Motion to Expedite Ruling on Plaintiff’s Motion to Stay Arbitration Proceeding, ECF 21, as well as a Motion for Partial Summary Judgment, ECF 23. Since the Court’s ruling on the two other pending motions results in dismissal of the Complaint, the plaintiff’s remaining motions to expedite and for partial summary judgment are denied as moot.
[2] The plaintiff‘s reliance on
AT&T Technologies, Inc.
,
[3] The parties rely on federal as well as Maryland state law without directly addressing the choice of law issue
regarding which jurisdiction’s law applies to interpret the parties’ Subcontract. The Subcontract provides that
“Federal law shall govern the interpretation or application” of the contract and “[w]here no Federal law is
applicable, this Agreement shall be governed by the appropriate law of the State of Maryland.” Subcontract ¶ 21.1.
Even if Maryland law were applied, the result would not be different and the issue of arbitrability would go to the
arbitrators.
See, e.g.
,
Wash. Homes, Inc. v. Interstate Land Dev. Co.
,
[4] In support of its waiver argument, the plaintiff cites cases that do not address the threshold issue of arbitrability
before the Court here and are, therefore, inapposite. Moreover, to the extent the cases relied upon by the plaintiff
hold that a party’s litigation conduct may result in an affirmative waiver of the right to demand arbitration, these
cases are distinguishable.
See
Pl.’s MTS Mem. at 19 (citing,
e.g.
,
Cornell & Co. v. Barber & Ross Co.
, 360 F.2d
512, 513 (D.C. Cir. 1996) (“[A] party waives his right to arbitrate when he actively participates in a lawsuit or takes
other action inconsistent with that right.”));
id
. at 20 (citing,
e.g
.,
S & H Contractors, Inc. v. A.J. Taft Coal Co
., 906
F.2d 1507, 1514 (11th Cir. Ala. 1990) (plaintiff’s “invocation of the litigation process” was “inconsistent[] with its
arbitration right” and amounted to “waive[r of] its right to arbitrate”)); Pl.’s Reply Supp. MTS at 14-15, ECF No. 13
(citing,
e.g.
,
Miller Brewing Co. v. Fort Worth Distr. Co.
,
[5] The plaintiff cites several cases is support of its position that a party is barred from asserting a claim after having a
full and fair opportunity for consideration of the claim in a prior arbitration proceeding, but those cases are
inapposite since, again, nоne addressed the threshold issue of arbitrability that is before the Court here. Moreover,
given the parties’ dispute over the scope of the first arbitration panel’s decision, the cases cited by the plaintiff
appear to be distinguishable. For example, the plaintiff contends “the same scenario exists” in the instant case to bar
the second arbitration as in
Hammerman v. Peacock
,
[6] The plaintiff cites
Kelly v. Merrill Lynch, Pierce, Fenner & Smith
,
[7] Both parties in this case have moved for sanctions in the form of attorneys’ fees for having to litigate these issues.
The court has the “inherent authority to order sanctions, including attorney’s fees, if a party has ‘acted in bad faith,
vexatiously, wantonly, or for oppressive reasons.’”
Priority One Servs., Inc. v. W & T Travel Servs.
, LLC, 502 F.
App’x at 6 (quoting
Chambers v. NASCO, Inc.
,