United States District Court, E.D. Kentucky, Central Division, Lexington
MEMORANDUM OPINION AND ORDER
M. HOOD, SENIOR U.S. DISTRICT JUDGE
Nicholas County Library (“the Library”) has moved
to dismiss this action and to compel arbitration. [DE 11].
The Library argues that Plaintiff FCCI Insurance
Company's claims are subject to arbitration provisions
that were incorporated by reference into the performance bond
to which FCCI was a party. [Id.]. Alternatively,
Plaintiff FCCI has responded in opposition to the motion to
dismiss. [DE 25]. Additionally, FCCI has moved for leave to
supplement its response. [DE 28]. The Library has replied to
the response [DE 29] and filed a response in opposition to
FCCI's motion for leave to file a supplemental brief [DE
reasons that follow, FCCI's motion for leave to file a
supplemental brief [DE 28] is GRANTED.
Nicholas County Library's motion to dismiss and compel
arbitration [DE 11] is construed as a motion for summary
judgment and is GRANTED. The complete
incorporation of the construction contract into the
performance bond requires FCCI to submit its claims to the
arbitrator for threshold determinations about jurisdiction.
As a result, FCCI's claims in this action are
DISMISSED WITHOUT PREJUDICE.
Factual & Procedural Background
Nicholas County Library entered into a construction contract
with Crace & Co., Inc., related to the construction of a
two-story addition to the Nicholas County Library. FCCI
issued payment and performance bonds for the project, naming
Crace as principal and Nicholas County Library as obligee.
construction contract between Crace and the Library states,
For any claim subject to, but not resolved by, mediation
pursuant to Section 21.3, the method of binding dispute
resolution shall be as follows:
[X] Arbitration pursuant to Section 21.4 of this Agreement.
[DE 11-2 at 6, Pg ID 56]. Additionally, the contract provided
that “[i]f the parties have selected arbitration as the
method for binding dispute resolution in the Agreement, any
claim, subject to, but not resolved by, mediation shall be
subject to arbitration.” [Id. at 8, Pg ID 58].
the construction contract states,
If the parties have selected arbitration as the method for
binding dispute resolution in the Agreement, any claim,
subject to, but not resolved by, mediation shall be subject
to arbitration which, unless the parties mutually agree
otherwise, shall be administered by the American Arbitration
Association, in accordance with the Construction Industry
Arbitration Rules in effect on the date of this Agreement.
[Id. at 8, Pg ID 58].
construction contract defines a “claim” as
. . . a demand or assertion by one of the parties seeking, as
a matter of right, payment of money, or other relief with
respect to the terms of the Contract. The term
“Claim” also includes other disputes and matters
in question between the Owner and Contractor arising out of
or relating to the Contract.
11-2 at 12, Pg ID 62]. Additionally, the construction
contract further states, “The Contract Documents shall
not be construed to create a contractual relationship of any
kind between any persons or entities other than the Owner and
the Contractor.” [DE 28-1 at 12, Pg ID 200].
was not a party to the construction contract between Crace
and the Library. Still, the FCCI performance bond states,
The Condition Of This Obligation is such that whereas, the
Principal entered into a certain contract with the Owner,
dated the 18th day of October, 2016, a copy of which is
hereto attached and made part hereof for the construction of:
Nicholas Co. Library, New Two Story Addition, Carlisle, KY.
[DE 1-1 at 1, Pg ID 6].
the special conditions in the performance bond was that Crace
install rebar to reinforce the walls of the library addition.
After investigation, FCCI claims that this condition was not
met. As a result, FCCI terminated Crace under the performance
bond. At the same time, Nicholas County Library made a claim
on the performance bond.
FCCI filed this action seeking a declaratory judgment on the
alleged default and overpayment. [DE 1]. The Library moved to
dismiss for lack of jurisdiction and to compel arbitration.
[DE 11]. Additionally, if FCCI was not compelled to
arbitrate, the Library has asked the Court to stay this case
until Crace and the Library can submit their dispute to
the Court could rule on that motion, the parties agreed to
stay the case and mediate the dispute. [DE 13]. Recently, the
parties notified the Court that they had failed to resolve
the dispute through mediation and asked that the stay be
lifted and that a briefing schedule be implemented for the
pending motion to dismiss or compel arbitration. [DE 17; DE
18]. FCCI responded to the motion to dismiss or compel on
February 20, 2019. [DE 19]. A demand for arbitration from the
Library, dated January 25, 2019, is attached to the
FCCI's response in opposition to the motion to dismiss.
FCCI filed a motion for a temporary restraining order and
preliminary injunction and asked for an expedited hearing on
their motion. [DE 20; DE 21]. The parties provided oral
argument at an expedited motion hearing on March 5, 2019. [DE
26]. Subsequently, the Court denied FCCI's motion for
injunctive relief. [DE 27].
FCCI filed a motion for leave to file a supplement to their
response in opposition, including an exhibit of the full
construction contract. [DE 28]. The Library replied to
FCCI's response [DE 29] and filed a response in
opposition to FCCI's motion for leave to file a
supplement [DE 30]. As a result, the motion to dismiss and
motion for leave are ripe for review.
Standard of Review and Applicable Law
Federal Rules of Civil Procedure do not line up perfectly
with the provisions contained in the United States
Arbitration Act, 9 U.S.C. § 1 et seq., more
commonly referred to as the Federal Arbitration Act
(“FAA”). Rule 12 of the Federal Rules of Civil
Procedure does not list “motion to compel
arbitration” as a potential responsive pleading. As a
result, federal courts have split on the proper procedural
vehicle to be used for dismissal based on a motion to compel
courts are split on whether a motion to dismiss based on an
arbitration provision should be brought based on lack of
subject matter jurisdiction under Federal Rule of Civil
Procedure 12(b)(1), whether the motion to dismiss to compel
arbitration should be brought for failure to state a claim
upon which relief may be granted under Rule 12(b)(6), or
whether a motion to dismiss to compel arbitration should be
brought based on lack of proper venue under Rule 12(b)(3).
Federal courts ...