United States District Court, W.D. Kentucky, Bowling Green Division
JR. FOOD STORES, INC. PLAINTIFF
HARTLAND CONSTRUCTION GROUP, LLC; and PEOPLES BANK DEFENDANTS
MEMORANDUM OPINION AND ORDER
N. Stivers, United States District Court Chief Judge
matter is before the Court on Plaintiff's Motion to
Compel Mediation and Arbitration and Motion to Stay
Proceedings in the Interim (DN 15). This motion is ripe for
adjudication. For the reasons that follow, the motion is
Statement of Facts
early 2018, Plaintiff Jr. Food Stores, Inc.
(“JFS”) entered into a contract with Defendant
Hartland Construction Group, LLC (“Hartland”) for
Hartland to build an IGA Crossroads Market in Lexington,
Kentucky. (Mot. Compel Mediation & Arbitration & Stay
Proceedings 1, DN 15 [hereinafter Mot. Arbitration]). This
contract incorporated by reference American Institute of
Architects (“AIA”) Standard Form A101-2017, an
Additions and Deletions Report, and AIA Form A201-2017
(collectively, the “Contract”). (Mot. Arbitration
1; Contract Ex. A, DN 1-2). To secure performance of the
Contract, Hartland obtained an irrevocable letter of credit
from Defendant Peoples Bank (“Peoples”), which
named JFS as the beneficiary. (Mot. Arbitration 1;
Irrevocable Letter Credit Ex. B, DN 1-2).
alleges that Hartland defaulted under, and is in breach of,
the Contract. (Compl. ¶ 7, DN 1-1). JFS further alleges
that Hartland has failed to cure its default and Peoples has
denied any draw on the irrevocable letter of credit. (Compl.
¶ 11). Articles § 6.2 of AIA Standard Form A101 and
§ 15.4 of AIA Form A201, both governing dispute
resolution, identify first mediation and then arbitration as
the methods of dispute resolution. (Contract §§
6.2, 15.4). JFS has made the requisite demands to both
Hartland and Peoples for mediation and arbitration. (Demand
Letters Ex. 1, DN 15-1).
filed its initial complaint against Hartland and Peoples
(collectively, the “Defendants”) in Warren
Circuit Court on May 16, 2019 in a case styled Jr. Food
Stores, Inc. v. Hartland Construction Group, LLC, et
al., Warren Circuit Court, No. 19-CI-00681. (Compl.). On
June 19, 2019, Peoples removed the matter to this Court
pursuant to 28 U.S.C. § 1446 asserting diversity of
citizenship under 28 U.S.C. § 1332 and 28 U.S.C. §
1441. (Notice Removal 2-3, DN 1). On November 13, 2019, JFS
filed the present motion to compel mediation and arbitration
and to stay proceedings in the interim. (Mot. Arbitration).
Defendants have not responded or otherwise opposed this
Federal Arbitration Act (FAA), 9 U.S.C. § 1, et
seq., provides that a written arbitration provision
governing disputes under a contract “shall be valid,
irrevocable, and enforceable, save upon such grounds as exist
at law or in equity for the revocation of any
contract.” 9 U.S.C. § 2. The FAA grants district
courts the power to compel arbitration as provided for in an
underlying agreement, so long as the court is
“satisfied that the making of the agreement for
arbitration or the failure to comply therewith is not in
issue . . .” 9 U.S.C. § 4. “Thus, when asked
by a party to compel arbitration under a contract, a federal
court must determine whether the parties have agreed to
arbitrate the dispute at issue.” Great Earth
Companies, Inc. v. Simons, 288 F.3d 878, 889 (6th Cir.
2002) (internal quotations omitted) (quoting Stout v.
J.D. Byrider, 228 F.3d 709, 714 (6th Cir. 2000)). The
party opposing arbitration has the burden to “show a
genuine issue of material fact as to the validity of the
agreement to arbitrate.” Id. (citation
omitted). As such, a motion to compel arbitration is
considered under the motion for summary judgment standard.
Weddle Enters., Inc. v. Treviicos-Soletanche, J.V.,
No. 1:14CV-00061-JHM, 2014 WL 5242904, at *2 (W.D. Ky. Oct.
undisputed that JFS and Hartland entered into the Contract,
which includes an arbitration provision. (Mot. Arbitration 1;
Contract §§ 6.2, 15.4). Specifically, the Contract
provides: “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 . . .” (Contract
§ 15.4.1). Hartland has not opposed JFS's motion to
compel arbitration nor has it shown a genuine issue of
material fact as to the validity of the Contract generally or
the arbitration provision specifically. As such, Hartland is
compelled to mediate and arbitrate this dispute as outlined
in the Contract.
also argues that Peoples should be compelled to arbitrate
this dispute as well, even though Peoples was not a direct
party to the construction Contract.. (Mot. Arbitration 2-3).
Peoples has not responded to this motion.
“[N]onsignatories may be bound to an arbitration
agreement under ordinary contract and agency
principles.” Javitch v. First Union Sec.,
Inc., 315 F.3d 619, 629 (6th Cir. 2003) (citing
Arnold v. Arnold Corp., 920 F.2d 1269, 1281 (6th
Cir. 1990)). “Five theories for binding nonsignatories
to arbitration agreements have been recognized: (1)
incorporation by reference, (2) assumption, (3) agency, (4)
veil-piercing/alter ego, and (5) estoppel.”
Id. (citing Thomson-CSF v. Am. Arbitration
Ass'n, 64 F.3d 773, 776 (2d Cir.1995)).
point, JFS cites in support Choctaw Generation Ltd.
P'ship v. Am. Home Assur. Co., 271 F.3d 403 (2d Cir.
2001), which dealt with nearly identical circumstances. In
Choctaw, as in the present case, the district court
was asked to compel arbitration between the plaintiff and its
contractor's surety, even though the relevant arbitration
provision was only between the plaintiff and the contractor.
Id. at 403. The Court concluded that the dispute
between the plaintiff and the surety “could hardly be
more closely bound to the dispute now in arbitration
between” the plaintiff and the contractor, such that
the plaintiff was compelled to arbitrate its dispute with the
surety as well. Id. at 406.
Choctaw, the disputes between JFS and Hartland and
between JFS and Peoples are intertwined with the underlying
Contract. The irrevocable letter of credit itself also makes
extensive reference to the Contract. (Irrevocable Letter
Credit Ex. B at 1-3). The arbitrator's rulings on
JFS's claims of breach and damages against Hartland will
be largely determinative, if not conclusive, of the right of
JFS to draw on the letter of credit issued by Peoples. Other
courts have reached the same conclusion when determining
whether a non-signatory issuer of a performance bond can be
compelled to arbitrate under the construction contract.
See Exch. Mut. Ins. Co. v. Haskell Co., 742 F.2d
274, 276 (6th Cir. 1984) (“Although Exchange Mutual was
not a signatory to the primary construction contract, the
performance bond incorporated by reference the terms of the
underlying subcontract. The subcontract, in turn,
incorporated by reference the terms of the primary
construction contract which imposed an obligation to submit
all unresolved disputes to arbitration.”); FCCI
Ins. Co. v. Nicholas Cty. Library, No. 5:18-CV-038-JMH,
2019 WL 1234319, at *8 (E.D. Ky. Mar. 15, 2019) (“In
sum, while FCCI was not a ...