FILED
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
September 19, 2011
FOR THE TENTH CIRCUIT
Elisabeth A. Shumaker
Clerk of Court
ROBERT LAMKIN, an individual;
RAY BIDENOST, an individual,
Plaintiffs-Appellees,
v. No. 11-4022
(D.C. No. 2:10-CV-00852-BSJ)
MORINDA PROPERTIES WEIGHT (D. Utah)
PARCEL, LLC, a Utah limited
liability company,
Defendant-Appellant.
ORDER AND JUDGMENT *
Before KELLY, GORSUCH, and MATHESON, Circuit Judges.
Defendant Morinda Properties Weight Parcel LLC (Morinda) appeals from
a district court order denying its motion to dismiss or to stay and refer this action
to arbitration under Section 4 of the Federal Arbitration Act (FAA), 9 U.S.C. § 4.
We have jurisdiction under 9 U.S.C. § 16(a)(1), and review the district court’s
*
After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination of
this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is
therefore ordered submitted without oral argument. This order and judgment is
not binding precedent, except under the doctrines of law of the case, res judicata,
and collateral estoppel. It may be cited, however, for its persuasive value
consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
ruling de novo, Ansari v. Qwest Commc’ns Corp., 414 F.3d 1214, 1218 (10th Cir.
2005). For reasons explained below, we reverse and remand with directions to
refer the parties’ dispute to arbitration. We also hold that Morinda is entitled to
attorney fees and costs incurred in enforcing its right to arbitrate, and direct the
district court to determine the appropriate amount on remand.
FACTUAL AND PROCEDURAL BACKGROUND
Plaintiffs contracted to purchase two condominiums to be built by Morinda,
and paid $256,400 in earnest money to reserve the properties. The two purchase
contracts included a dispute resolution clause providing for a two-step process of
formal mediation and (if necessary) binding arbitration:
15. DISPUTE RESOLUTION. The parties agree that any dispute
arising prior to or after Closing, related to this Contract, whether
based on a theory of tort, contract or warranty, shall first be
submitted to mediation . . . . If mediation fails, the parties agree that
all disputes arising out of or related to this Contract or the Property,
whether based on a theory of tort, contract or warranty shall then be
submitted to mandatory binding arbitration which shall be conducted
by the American Arbitration Association. Nothing in this Section 15
shall prohibit any party from seeking . . . a judicial decree
compelling arbitration or judicial enforcement of an arbitration
award.
App. at 60-61, 72-73 (emphasis added). The contracts required Morinda to
substantially complete construction within twenty-six months, id. at 62, 74, but
the deadline could be extended for certain contingencies, id. at 59-60, 71-72. If
Morinda defaulted, plaintiffs’ “sole and exclusive remedies” were rescission of
the contract and return of their earnest money. Id. at 61, 73.
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Eventually, delay in construction and disagreement over grounds for an
extension of the deadline brought the parties into mediation, pursuant to the
dispute resolution provision. When mediation failed to resolve the matter,
plaintiffs did not commence arbitration proceedings but instead filed this diversity
suit for breach of contract. Morinda moved in the alternative to dismiss the
action or to stay it and compel arbitration. In response, plaintiffs argued that
Morinda had waived its right to insist on arbitration when, through an email
exchange, it initially agreed to accept service of plaintiffs’ complaint.
When the matter came on for hearing, the district court expressed doubt
about plaintiffs’ waiver argument but interjected a different theory for rejecting
arbitration: the provision specifying rescission and recovery of earnest money as
buyers’ exclusive remedy for seller’s default nullified the arbitration provision.
The court stated this point in two ways. First, it characterized arbitration as a
“remedy” that, as such, was displaced by the exclusive-remedy provision when, as
here, a buyer sued the seller for default. Second, it reasoned that the presence of
what was, in essence, a liquidated-damages clause meant that there was nothing to
arbitrate when a seller was in default. As to the existence of the default, the court
proposed to resolve that issue itself.
Morinda vigorously objected to this reasoning at the hearing and in a later
supplemental memorandum of law. It argued that arbitration is not a contractual
remedy in the sense used in the exclusive-remedy provision but, rather, an agreed
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upon process–substituting for litigation–to effectuate such remedies. Thus, to
obviate arbitration by litigating the crux of a contract dispute (the seller’s alleged
default), as the court proposed to do, would replace arbitration with the very
litigation it was meant to supplant. Plaintiffs submitted a short supplemental
memorandum in response, seeking to bolster the court’s analysis by citing several
Utah cases referring to arbitration as a “remedy,” though none did so to equate
and subordinate an arbitration clause to an ordinary contractual-remedy provision
and thereby allow litigation of an otherwise arbitrable dispute.
The district court issued a brief order denying Morinda’s motion to compel
arbitration. But in this order the court articulated yet another novel rationale for
denying arbitration, based on its determination that no “dispute” existed to which
the arbitration provision could attach. In essence, it held that to create a dispute
sufficient to trigger arbitration, Morinda had to file a responsive pleading denying
the allegation of breach/default in plaintiffs’ complaint:
The real estate purchase contracts between Plaintiffs and
Defendant require arbitration of “all disputes arising out of or related
to this Contract or Property, whether based on a theory of tort,
contract or warranty . . . .” Thus, whether an issue is referable to
arbitration hinges upon whether there is a dispute. Plaintiffs allege
contractual default by the Defendant. Defendant does not admit,
deny, or otherwise address this allegation in its pleadings. Absent a
response on the question of contractual default, no dispute has yet
been raised, and absent a dispute there can be no issue to refer[] to
arbitration.
App. at 237-38 (citations to record omitted).
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ANALYSIS OF ARBITRABILITY
Morinda challenges and plaintiffs defend both the reasoning articulated by
the district court at the hearing (regarding the effect of the exclusive-remedy
provision on the arbitration clause) and the rationale stated in the district court’s
order (regarding the need for a responsive pleading to create a dispute and thereby
trigger the arbitration clause). We therefore address both points here. Morinda
also contends that plaintiffs’ argument for waiver of arbitration fails. Because the
operative facts are undisputed, we address that issue as well.
A. Lack of a Responsive Pleading and the Presence of a “Dispute”
Neither the district court nor plaintiffs cited any authority holding that an
arbitrable dispute does not exist unless and until the defendant files a responsive
pleading in litigation. On the contrary, “[a] defendant in a pending lawsuit may
file a petition or motion to compel arbitration in lieu of an answer to the
complaint,” Jay A. Grenig, Alternative Dispute Resolution § 23:3 at 574 (3d ed.
2005)—as procedural summaries in arbitration cases uncontroversially reflect,
see, e.g., Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 83 (2000); Davis v.
S. Energy Homes, Inc., 305 F.3d 1268, 1270 (11th Cir. 2002). 1 And, as Morinda
points out, requiring a party to file an answer denying material allegations in the
1
Indeed, cases involving motions to compel arbitration typically just note
the filing of the motion in response to the complaint, without even mentioning the
presence or absence of any responsive pleading.
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complaint and asserting potential affirmative defenses–in short, formally and
substantively engaging in the merits of the litigation–in order to enforce its right
not to litigate is a non-sequitur.
Even leaving aside these general objections, plaintiffs’ position is undercut
by a more particularized consideration specific to the facts of this case. As noted
above, the operative provision here contemplates a two-step dispute resolution
process: a “dispute” is first presented for formal mediation and, if that fails, then
the “dispute” is submitted to binding arbitration. App. at 60-61, 72-73. Pursuant
to the terms of this provision, when the parties disagreed over whether Morinda
had breached the contract, they brought the matter to formal mediation. Given
that a “dispute” triggers both steps of the process, it is pure sophistry to maintain
that there was no dispute to arbitrate, within the meaning of the operative
provision, when mediation failed.
B. Exclusive-Remedy Provision
Plaintiffs also attempt to defend the denial of arbitration on the basis of the
district court’s initial rationale—that the buyers’ exclusive remedy of rescission
and refund supplanted the “remedy” of arbitration in the event of a default by the
seller on its contractual obligations. Once again, we have not been cited any
authority, nor can we discern any persuasive reason, for holding that a provision
requiring arbitration of breach-of-contract claims is nullified by the concomitant
provision of an exclusive remedy in the event a breach is found. We agree with
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Morinda that in such cases arbitration still has an obvious and crucial role to
play–resolving the parties’ dispute over whether a breach occurred–that is not in
any way affected by the provision for a specified form of relief for the breach.
Plaintiffs’ contrary position rests on two confusions. First, as reflected in
the point just made, it glosses over the fact that liability and damages are distinct
legal determinations. Even if an exclusive-remedy provision obviates the issue of
appropriate relief, the antecedent determination of breach must be made. And it
is no answer to this to say that the court can make that determination, thus leaving
nothing to be arbitrated, when it is for the arbitrator, not the court, to resolve all
issues, liability and damages alike, in disputes covered by the arbitration clause.
Second, as touched on earlier, plaintiffs’ citation to cases referring to arbitration
as a “remedy” glosses over two different senses of that term. Arbitration may be
termed a “remedy” in that it provides a remedial mechanism to rectify a breach,
but it is not a “remedy” in that it remedies the breach itself (as rescission and
refund do). One of the cases cited by plaintiffs characterizing arbitration as a
remedy, Docutel Olivetti Corp. v. Dick Brady Sys., Inc., 731 P.2d 475
(Utah 1986), clarifies that it is a remedy in the former sense: “[A]rbitration is a
remedy . . . providing a method more expeditious and less expensive for the
resolution of disputes.” Id. at 479 (quoting Lindon City v. Eng’rs Constr. Co.,
636 P.2d 1070, 1073 (Utah 1981) (further quotation omitted)).
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In sum, we cannot agree that a provision specifying an exclusive remedy in
the event of breach either nullifies an arbitration provision in the same contract or
somehow permits a court, rather than the arbitrator, to determine whether a breach
has occurred and thereby resolve the only matter open to dispute. The only
remaining basis on which to affirm the district court’s ruling is plaintiffs’ original
argument that Morinda waived the otherwise applicable arbitration provision by
agreeing to accept service of the complaint.
C. Waiver of Arbitration
When, as here, the historical facts are not in dispute and waiver thus
becomes a legal question for de novo review, see Hill v. Ricoh Americas Corp.,
603 F.3d 766, 771 (10th Cir. 2010), we may decide the issue even though the
district court did not resolve it in the first instance. We consider it particularly
appropriate to do so here, because the proper disposition is straightforward under
controlling precedent, and Morinda clearly put the issue into contention on this
appeal in its opening brief, see Aplt. Opening Br. at 16-22.
Plaintiffs’ argument that Morinda waived arbitration when it initially
agreed through counsel to accept service of the complaint is tied to a series of
emails between counsel. On June 29, 2010, shortly after mediation of the contract
dispute broke down, Morinda’s counsel sent an email to plaintiffs’ counsel
stating, “Following up on our conversation yesterday, we will accept service of
your complaint in the Lamkin matter.” App. at 83. The complaint had not been
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filed by August 6, 2010, when plaintiffs’ counsel inquired about arbitration: “Is
your client wed to arbitrating this dispute, as opposed to litigating it? In other
words, if we file a complaint, will your client move to dismiss to do arbitration?”
Id. at 85. The timing of this inquiry is telling—it shows plaintiffs remained fully
aware of Morinda’s claimed right to arbitrate notwithstanding its agreement to
accept service of a complaint. Before Morinda responded, plaintiffs filed suit and
sent the complaint to Morinda attached to the following email to effect informal
service: “Following up on your June 29, 2010 e-mail (which is attached),
attached please find the Complaint, Summons, and proposed Acceptance of
Service [for the instant lawsuit]. Please sign, date, and return the Acceptance of
Service to me for filing with the Court.” Id. at 88. Morinda did not accept
service, as counsel explained by email sent August 27, 2010:
Our last email from you on this matter was an inquiry as to whether
Morinda would waive the arbitration agreement contained in the
[purchase contracts]. We did raise the issue with Morinda, and
Morinda was in the process of evaluating the request.
In any event, now that you have filed an action in federal court, we
are not sure how Morinda will want to proceed, as we have not been
able to discuss the filing with Morinda. Given the default dispute
mechanism resolution is arbitration, we are not at liberty to accept
service of a summons and complaint in a federal court action absent
client approval.
Id. at 90. The complaint was formally served shortly thereafter.
The above emails do not evince any confirmed intention by Morinda to
waive arbitration, nor do they reflect any understanding by plaintiffs that Morinda
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had done so. On the contrary, the parties’ emails of August 6 and August 27
clearly illustrate their joint appreciation of the un-waived status of the arbitration
issue at the time this suit was commenced. And, of course, Morinda moved to
enforce its right to arbitration promptly thereafter. Plaintiffs’ argument for
waiver cannot, therefore, be based on the narrow principle, familiar from the
criminal-law context, of an “intentional relinquishment or abandonment of a
known right.” Hill, 603 F.3d at 773 (internal quotation omitted).
That does not end the inquiry, as waiver in these circumstances includes the
broader idea that, regardless of intention, a party’s conduct may be such that it
should be “prevented on the basis of some equitable principle from asserting a
right to arbitration.” Id. at 772 (internal quotation omitted). But the burden on
plaintiffs of demonstrating such a waiver is a heavy one in light of the strong
federal policy favoring arbitration. Id. at 775. The inquiry is informed by a set
of factors, see id. at 772-76 (listing and explaining factors), that together clearly
weigh against waiver here: Morinda’s actions were not inconsistent with its right
to arbitrate; the litigation machinery had yet to be substantially invoked when
plaintiffs were already on notice that Morinda had balked at renouncing its right
to arbitrate; Morinda promptly sought to enforce its right to arbitrate upon
commencement of suit; Morinda did not interject counterclaims in the litigation;
important steps in litigation, such as discovery proceedings, had not taken place;
and any prejudice to plaintiffs was primarily self-inflicted, as their unnecessary
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commencement of the case was a function of their own failure to get confirmation
of Morinda’s final intentions as to arbitration before filing suit (any independent
prejudice from Morinda’s short delay in communicating those intentions was, by
comparison, de minimus). We have no difficulty at all in concluding that
Morinda did not waive its right to arbitrate.
D. Attorney Fees and Costs
The contracts at issue provide that “in the event of . . . litigation to enforce
the arbitration provisions of this Contract, the prevailing party shall be awarded
its costs and reasonable attorney fees.” Aplt. App. at 61, 73. Invoking this
mandatory provision, Morinda seeks an award of fees and costs in connection
with its efforts to compel arbitration. In light of our disposition on the merits, we
agree that Morinda is entitled to an award in an amount to be determined by the
district court on remand. Determination of the award is independent of, and
hence should not interfere with, the prompt referral of the parties’ underlying
dispute to arbitration.
The judgment of the district court is REVERSED, and the cause is
REMANDED with directions for the referral of the dispute to arbitration and for
an award of costs and attorney fees to Morinda pursuant to the contract.
Entered for the Court
Paul J. Kelly, Jr.
Circuit Judge
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