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Actus Lend Lease LLC v. Integrated Building Resources Development LLC

August 14, 2007

ACTUS LEND LEASE LLC, PLAINTIFF,
v.
INTEGRATED BUILDING RESOURCES DEVELOPMENT LLC, DEFENDANT.



The opinion of the court was delivered by: Thomas J. McAVOY, Senior United States District Judge

DECISION & ORDER

I. INTRODUCTION

Plaintiff ACTUS LEND LEASE LLC ("Actus"), the prime contractor on a construction project to build new on-post housing for military personnel and their families at Fort Drum, New York (the "Crescent Woods Project"), commenced this diversity action contending that Defendant INTEGRATED BUILDING RESOURCES DEVELOPMENT LLC ("IBR") breached a Subcontract Agreement ("Subcontract") to perform specific work in the Crescent Woods Project. See Compl. dkt. # 1. IBR filed a motion to dismiss the action, contending that Actus agreed to arbitrate the matter. Actus has opposed the motion.

II. BACKGROUND

Actus is the prime contractor on the Crescent Woods Project. Haas Decl. ¶ 2. On September 8, 2005, Actus entered into the Subcontract with IBR for IBR to perform a specific scope of work that included the installation of plumbing and HVAC in the housing units. Haas Decl. ¶ 3.

The Subcontract provides for certain procedures, including binding arbitration, for disputes that arise from the Subcontract (discussed more fully below). In IBR's moving papers, which consist only of a Notice of Motion and an affirmation from Plaintiff's counsel with exhibits, IBR contends that "[t]he parties elected to go forward with arbitration in this matter, pursuant to the provisions of the contract." Feder Aff. ¶ 7. There is no discussion of the underlying dispute. Actus contends:

During the course of the project, Actus experienced numerous problems with IBR's contractual performance including its failure to properly complete the scope of its plumbing and HVAC work, failure to furnish sufficient manpower, tools, equipment and materials required to maintain the construction schedule, and its installation of defective work. Haas Decl. ¶ 4; Compl. ¶¶ 13-21. On September 29, 2006, after issuing numerous Notices to Cure, which were either not corrected or to which no response was received, Actus exercised its contractual right to terminate IBR's Subcontact. Haas Decl. ¶ 4. As a result of IBR's termination and the deficiencies in IBR's existing work, Actus suffered damages including the cover costs of hiring two follow-on subcontractors to complete IBR's scope of work. Compl. ¶¶ 27-30. As a result of IBR's default and termination, Actus has incurred nearly $1.5 million in recoverable contract damages. Compl. ¶¶ 34-36. Actus filed this diversity action on May 1, 2007 to recover these contractual damages incurred as a result of IBR's breach of its obligations under the Subcontract.

Actus Mem. L. p. 3.

The Subcontract provides that when a dispute arises "in connection with the Subcontract or the subject matter thereof," the aggrieved party "shall deliver immediate written notice adequately identifying and providing details of the dispute (a 'Claim Notice')." Subcontract § 4.2.1. Following delivery of a Claim Notice, the parties "must endeavor in good faith to resolve the dispute within ten (10) days." Subcontract § 4.2.1.2. If the dispute can not be resolved, "either party may elect, by written notice (a 'Dispute Notice'), to submit the matter to binding arbitration as set forth [in § 4.2.1.3 of the Subcontract]." Id.

The Subcontract provides at § 4.2.1.3 that a dispute between the Contractor and Subcontractor "which involves the correlative rights and duties of [the] Owner" shall be "subject to and decided by binding arbitration." Subcontract § 4.2.13. However, the Subcontract also provides at § 4.2.1.3 that a dispute between the Contractor and Subcontractor that does not involve "the correlative rights and duties of [the] Owner" may be submitted to "a court of competent jurisdiction located in the State in which the Project is located." Id.

IBR contends that during a telephone call that took place on January 19, 2007 with its attorney, Steven Feder, Actus' in-house counsel, Christine Haas, verbally agreed to arbitrate the instant dispute. Feder Aff. ¶¶ 8-9, Haas Decl. ¶ 8. Actus contends that Haas was mislead by Feder as to the terms of the Subcontract in that Feder advised that the Subcontract required arbitration and set Napa, California as the venue for arbitration. See Haas Aff. ¶¶ 8-11. Believing that the Subcontract required arbitration in Napa, California, Haas agreed to change venue to Syracuse, New York and sent an e-mail to this effect. Id. Haas contends, however, that while she did agree to change venue, she did not agree to arbitrate the matter. Id. When Haas later reviewed the Subcontract, purportedly for the first time, she learned that the Subcontract did not require arbitration for the instant dispute and did not have a venue selection clause. Id. Actus then elected to proceed in this Court. Id.

In opposition to the pending motion, Actus asserts that: (1) the issues in dispute are not subject to mandatory arbitration under the terms of the Subcontract, see Haas Aff. ¶¶ 20-21; (2) Actus never agreed to arbitrate the matter, id. ¶ 16; and (3) neither party served a written demand for arbitration ("Dispute Notice") as required by the terms of the Subcontract. Id. ¶ 23. In reply, IBR asserts that the subject matter of the underlying dispute is covered by the mandatory arbitration provisions of the Subcontract at § 4.2.1.3 because it involves correlative rights and duties of the Owner. See Feder Reply Decl. ¶¶ 6-10. IBR does not address whether a written Dispute Notice was submitted in accordance with Subcontract § 4.2.1.2, nor does counsel dispute that he advised Haas that the matter was governed by mandatory arbitration that would, unless agreed otherwise, be arbitrated in Napa, California. See id.

III. DISCUSSION

The matter appears to be governed by the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq. ("FAA"), as argued by Actus.*fn1 See Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)( The FAA creates a "body of federal substantive law of arbitrability" applicable to arbitration agreements affecting interstate commerce.). The FAA "requires the federal courts to enforce arbitration agreements, reflecting Congress' recognition that arbitration is to be encouraged as a means of reducing the costs and delays associated with litigation," Vera v. Saks & Co., 335 F.3d 109, 116 (2d Cir. 2003); see Moses H. Cone Mem'l Hosp., 460 U.S. at 24 (The terms of the FAA provision evidences "a liberal federal policy favoring ...


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