UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 12-1014
GREAT AMERICAN INSURANCE COMPANY,
Plaintiff - Appellee,
v.
HINKLE CONTRACTING CORPORATION, now known as Hinkle
Contracting Company, LLC,
Defendant - Appellant.
Appeal from the United States District Court for the Southern
District of West Virginia, at Charleston. Joseph R. Goodwin,
Chief District Judge. (2:11-cv-00396)
Argued: October 4, 2012 Decided: November 28, 2012
Before KING, KEENAN, and THACKER, Circuit Judges.
Vacated and remanded by unpublished opinion. Judge Keenan wrote
the opinion, in which Judge King and Judge Thacker joined.
ARGUED: Buckner Hinkle, Jr., STITES & HARBISON, PLLC, Lexington,
Kentucky, for Appellant. Timothy Dale Martin, WARD, HOCKER &
THORNTON, Louisville, Kentucky, for Appellee. ON BRIEF: Steven
M. Henderson, STITES & HARBISON, PLLC, Louisville, Kentucky;
Stephen Lee Thompson, BARTH-THOMPSON, Charleston, West Virginia,
for Appellant. Harold F. Salsbery, FROST BROWN TODD, LLC,
Charleston, West Virginia, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
BARBARA MILANO KEENAN, Circuit Judge:
This appeal concerns the scope of an arbitration clause
contained in a written agreement between a general contractor
and subcontractor (the subcontract), which was incorporated
without limitation in a performance bond issued by a surety
guaranteeing the subcontractor’s obligations. After the
subcontractor defaulted, the surety filed the present
declaratory judgment action against the general contractor
seeking to avoid the surety’s obligations under the performance
bond. The general contractor responded by seeking a dismissal
or stay of the declaratory judgment proceedings pending
arbitration of the parties’ dispute.
The district court determined that the surety’s claims were
not arbitrable, holding that the parties intended to exclude
claims brought by the surety under the terms of the performance
bond. The district court therefore denied the general
contractor’s motion for stay or dismissal of the proceedings
pending arbitration. We reverse the district court’s decision
based on the broad scope of the arbitration clause, which
manifested the parties’ intent that all claims “arising from or
relating to” the subcontract be subject to arbitration.
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I.
In November 2009, the West Virginia Department of
Transportation (WVDOT) hired Hinkle Contracting Corporation, LLC
(Hinkle) as the general contractor for construction of a portion
of a highway in Mingo County. Hinkle entered into a subcontract
with Chapman-Martin Excavation and Grading, Inc. (CME or the
subcontractor) to perform the grading and drain work for the
highway project.
As required by the subcontract, CME obtained both a
performance bond and a payment bond. Great American Insurance
Company (Great American or the surety) issued those bonds,
naming CME as principal and Hinkle as obligee. The performance
bond, the only bond at issue in the present case, stated that
Hinkle and CME had entered into the subcontract, and that the
“subcontract is by reference made a part hereof.” The
performance bond also stated that if CME defaulted on its
obligations under the subcontract, Great American was required
to remedy CME’s default either by providing for completion of
CME’s work or by compensating Hinkle financially for the
reasonable costs of completing that work. Finally, the
performance bond stated that “[a]ny suit under this bond must be
instituted” within two years from the due date of the final
payment under the subcontract.
3
After obtaining the required bonds, CME began its work on
the highway project. In September 2010, Hinkle notified CME
that it was in default for failing to complete certain work.
Hinkle and CME entered into negotiations to cure the default and
ultimately executed a “change order” to the subcontract, which
modified CME’s contractual obligations. The change order
established new deadlines for the completion of various phases
of CME’s work, and included provisions for an award of
liquidated damages to Hinkle in the event that CME defaulted on
its obligations under the change order.
Several months later, Hinkle again declared CME in default,
citing CME’s failure to complete its work as required by the
subcontract and the change order. In March 2011, Hinkle
notified Great American that CME was in default and demanded
payment from Great American under the terms of the performance
bond.
Great American filed a complaint in the district court
against Hinkle seeking a declaratory judgment that Great
American was not liable under the performance bond, primarily
because the change order materially altered “the financial
obligations under the [s]ubcontract in the event of default by
CME.” Great American alleged that the terms in the change order
were not “within the reasonable contemplation of Great American”
when it issued the performance bond.
4
In an amended complaint, Great American raised an
additional claim. In that claim, Great American alleged that
Hinkle breached the terms of its contract with WVDOT, which was
incorporated into the subcontract, by failing to pay CME for
work performed under the subcontract. Great American
accordingly sought an order requiring Hinkle to provide an
accounting of payments received from WVDOT and to deposit with
the district court funds owed to CME.
Hinkle filed a motion to dismiss or stay the proceedings
pending arbitration, pursuant to Hinkle’s notice and demand for
arbitration issued in July 2011. Hinkle asserted that because
the performance bond incorporated the subcontract in its
entirety, including the provisions granting Hinkle an exclusive
right to demand arbitration, Great American was obliged to
submit its claims to arbitration.
The language at issue in the subcontract is contained in
Section 16, which is entitled “Dispute Resolution.” Included in
this section is a provision stating that “[a]ll claims,
disputes, controversies and matters in question (hereinafter
‘Claims’) arising out of, or relating to, this [subcontract] or
the breach thereof . . . shall be resolved by mediation followed
by arbitration or litigation at [Hinkle’s] sole option.”
The district court denied Hinkle’s motion to dismiss or
stay the proceedings pending arbitration. The court concluded
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that although the arbitration clause states that it applies to
all claims arising out of or relating to the subcontract, other
language in the subcontract demonstrates the parties’ intent to
limit the scope of arbitrable disputes. In support of its
conclusion, the court relied on Section 16.2(e), which details
dispute resolution procedures. That provision states, in
relevant part:
If a disputed Claim remains unresolved after
negotiation and mediation, [Hinkle] shall have the
exclusive option either to have the dispute decided by
a court or by arbitration . . . . [Hinkle],
Subcontractor and Subcontractor’s surety agree that
the disputed Claim shall be resolved in the
appropriate forum selected by [Hinkle] at its sole
discretion. If Subcontractor or its surety first
commences a court action with respect to a dispute
which [Hinkle] desires to have determined by an
arbitration proceeding, or if Subcontractor or its
surety first commences an arbitration proceeding which
[Hinkle] desires to have determined by a court,
[Hinkle] shall commence the arbitration proceeding or
court action . . . within thirty (30) calendar days
after receiving service of Subcontractor’s complaint
or arbitration demand. If, at any time . . . [Hinkle]
becomes involved in litigation or arbitration with
another party or parties involving questions of fact
or law common to the dispute between [Hinkle] and
Subcontractor to the extent that (a) in
Subcontractor’s absence, complete relief cannot be
accorded among those already parties, or (b)
disposition of such other action may as a practical
matter, impair or impede [Hinkle’s] or Subcontractor’s
ability to fully prevent its incurring multiple or
otherwise inconsistent obligations, then Subcontractor
and its surety may be joined by [Hinkle] in such other
litigation or arbitration proceedings for complete
resolution of all disputes and controversies arising
under this [subcontract] and that upon such joinder,
any pending action between [Hinkle] and Subcontractor
shall be dismissed. (Emphasis added.)
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The court also cited Section 16.2(f), which addresses the
procedure for appointing arbitrators and states, “Subcontractor
and [Hinkle] shall each appoint one member of the [arbitration]
panel,” and those two members together will appoint a third
member of the arbitration panel. (Emphasis added.)
The district court observed that the language in these
provisions included references to the subcontractor and the
surety in some instances, but in other instances referenced only
the subcontractor. Based on these inconsistencies, the court
determined that claims brought by Great American as surety are
subject to arbitration only when they deal with the rights and
obligations of the subcontractor. Concluding that Great
American’s present claims are not related to CME’s obligations
under the subcontract, but constitute “unique surety claims” or
“surety defenses” arising from obligations under the performance
bond, the court held that Great American’s present claims are
not subject to arbitration. Hinkle timely filed in this Court
an appeal challenging the denial of its motion to dismiss or to
compel arbitration.
II.
Our standard of review in this case is well established.
We review de novo the district court’s holding that Great
American’s claims are not arbitrable under the terms of the
7
subcontract incorporated in the performance bond. See Peabody
Holding Co., LLC v. United Mine Workers of Am., Int’l. Union,
665 F.3d 96, 101 (4th Cir. 2011).
Hinkle argues that because the dispute resolution
provisions of Section 16 (the arbitration clause) broadly
encompassed all claims “arising under or relating to” the
subcontract, the district court erred in concluding that this
language was limited by other terms of that clause. According
to Hinkle, the district court should have examined the scope of
the arbitration clause under the “significant relationship” test
used by this Court in American Recovery Corp. v. Computerized
Thermal Imaging, Inc., 96 F.3d 88, 93 (4th Cir. 1996). Hinkle
contends that Great American’s claims are subject to arbitration
under this test because those claims bear a significant
relationship to the subcontract, irrespective of the
“suretyship” label that Great American seeks to attach to them.
In response, Great American argues that it did not agree to
arbitrate disputes concerning the terms of the performance bond
simply by incorporating the subcontract into the bond. Great
American asserts that its defenses originate solely under the
performance bond and, thus, constitute “unique” surety defenses
that are not subject to arbitration. As further support for its
argument, Great American maintains that the word “[c]laims” is
used in the subcontract solely with reference to disputes
8
between CME and Hinkle, or disputes between CME and WVDOT.
Thus, according to Great American, only claims involving those
entities are subject to arbitration under the terms of the
subcontract. Finally, Great American contends that because the
arbitration clause allows only CME and Hinkle to choose
arbitrators and only describes disputes arising between them,
the parties did not manifest an intent that Great American be
subject to arbitration of its performance bond obligations. We
disagree with Great American’s arguments.
A.
We begin by reviewing the principles guiding a court’s
determination whether a particular dispute is arbitrable. Under
the Federal Arbitration Act (the FAA), 9 U.S.C. §§ 1-16, a court
is required to stay an action or proceeding pending the
arbitration of claims covered by the terms of the parties’
written agreement. Adkins v. Labor Ready, Inc., 303 F.3d 496,
500 (4th Cir. 2002) (citing 9 U.S.C. § 3). Because the FAA in
essence guarantees the enforcement of a private contract, courts
first must consider the contract’s terms in ascertaining the
scope of an arbitration agreement contained therein. E.E.O.C.
v. Waffle House, Inc., 534 U.S. 279, 294 (2002).
A party may compel arbitration under the FAA by
demonstrating: (1) a dispute between the parties; (2) a written
agreement containing an arbitration provision that could be read
9
as covering the dispute; (3) the relationship of the transaction
to interstate or foreign commerce, as evidenced by the
agreement; and (4) the failure, neglect, or refusal of the
defendant to submit the dispute to arbitration. See Adkins, 303
F.3d at 500-01. The issue in the present case relates to the
second requirement, raising the question of contract
interpretation as to whether Great American’s claims are
arbitrable. See Am. Recovery, 96 F.3d at 92.
A party will not be required to arbitrate a dispute that
the party has not agreed to submit to arbitration. United
Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S.
574, 582 (1960). However, under decisions interpreting the FAA,
courts must resolve any doubts concerning the scope of
arbitrable issues in favor of arbitration. Moses H. Cone Mem’l
Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983);
Wachovia Bank Nat’l Ass’n v. Schmidt, 445 F.3d 762, 767 (4th
Cir. 2006) (citation omitted).
An issue will be classified as being outside the scope of
an arbitration provision only when the parties have manifested
such an intent in their written agreement. Peabody, 665 F.3d at
104 (citing First Options of Chi., Inc. v. Kaplan, 514 U.S. 938,
944-45 (1995)). Because sophisticated parties negotiate their
written contracts with an understanding of this policy favoring
arbitration, courts require this degree of clarity before
10
determining that a particular claim is not subject to an
arbitration provision. Id. (citing First Options, 514 U.S. at
945). Thus, when the scope of an arbitration clause remains
“open to question” regarding the inclusion of a particular
issue, a court must declare that the issue is subject to
arbitration. Peoples Sec. Life Ins. Co. v. Monumental Life Ins.
Co., 867 F.2d 809, 812 (4th Cir. 1989).
B.
Informed by these principles, we turn to consider whether
the district court properly concluded that the arbitration
clause excluded Great American’s claims. In relevant part, the
arbitration clause states that all claims “arising out of, or
relating to the subcontract or breach thereof . . . shall be
resolved by mediation followed by arbitration or litigation,” at
Hinkle’s sole option. Courts ordinarily construe such clauses,
which contain the phrase “arising out of or relating to” or
similar language, as having an “expansive reach.” Am. Recovery,
96 F.3d at 93 (citing Prima Paint Corp. v. Flood & Conklin Mfg.
Co., 388 U.S. 395, 398 (1967)).
In partial limitation of this broad language in Section 16,
the arbitration clause contains one express exclusion, which
appears in Section 16.2(g) of the subcontract. This express
exclusion states that “[t]he provisions of this Section 16
[addressing Dispute Resolution] do not preclude litigation for
11
injunctive relief.” (J.A. 94.) No other types of claims are
expressly excluded from arbitration in the arbitration clause.
The district court nonetheless determined that certain
language in Section 16.2(e) relating to dispute resolution
procedures, including three references to the subcontractor
without accompanying references to the surety, demonstrated the
parties’ intent to exclude from arbitration claims unique to the
surety. We disagree that the absence of such references to the
surety manifests a clear intent to exclude Great American’s
present claims from arbitration, particularly when the surety’s
participation in arbitration proceedings is referenced numerous
times throughout Section 16.2(e). See United Steelworkers of
Am., 363 U.S. at 584-85 (in the absence of an express provision
excluding claims, “only the most forceful evidence” of an intent
to exclude can prevail, particularly when the arbitration clause
is broad).
Most notably, the first part of Section 16.2(e) states that
Hinkle, the subcontractor, and the surety “agree” that after
attempting to negotiate a disputed claim, Hinkle “shall have the
exclusive option either to have the dispute decided by a court
or by arbitration.” That section also anticipates that either
the subcontractor or its surety may commence litigation or
arbitration proceedings.
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In addition, contrary to Great American’s contention, the
subcontract does not employ the term “claims” solely with
reference to disputes between CME and Hinkle, or those between
CME and WVDOT. The express language of Section 16 provides that
the term “[c]laims” includes, with exceptions not relevant here,
“[a]ll claims, disputes, controversies and matters in question.”
And, as stated above, the arbitration clause provides that such
claims “arising out of, or relating to, this [subcontract] or
the breach thereof . . . shall be resolved by mediation followed
by arbitration or litigation at Hinkle’s sole option.”
When read in this context, the references relied on by the
district court demonstrate, at best, an uncertainty concerning
the scope of arbitrable claims asserted by the surety. Under
federal policy, this type of ambiguity generally triggers a
presumption that such claims are subject to arbitration under
the parties’ agreement. See Moses H. Cone Mem’l Hosp., 460 U.S.
at 24-25. Thus, we turn to consider whether Great American’s
claims against Hinkle fall within the broad scope of the
arbitration clause, as claims “aris[ing] under or relat[ing] to”
the subcontract.
Great American asserts that its claims bear a general,
rather than a significant, relationship to the subcontract,
because those claims are “surety defenses” arising under the
13
bond. We disagree with this attempt to shield the claims from
the broad reach of the arbitration clause.
In American Recovery, we explained that in contrast to
narrow arbitration clauses, which only encompass claims “arising
under” a contract, broad arbitration clauses like the present
one embrace “every dispute between the parties having a
significant relationship” to the contract, regardless of the
label that a party chooses to assign to a particular claim. 96
F.3d at 93 (citing J.J. Ryan & Sons v. Rhone Poulenc Textile,
S.A., 863 F.2d 315, 321 (4th Cir. 1988)); see also Wachovia, 445
F.3d at 767; Long v. Silver, 248 F.3d 309, 316-17 (4th Cir.
2001). In determining whether such a significant relationship
exists, a court must review the factual allegations underlying
the particular claim and evaluate the connection between those
allegations and the contract containing the arbitration clause.
Am. Recovery, 96 F.3d at 93.
Great American alleged in its primary claim that its
obligations under the performance bond were void, based on
Hinkle’s material alteration of the subcontract by effecting the
change order. In support of this claim of material alteration,
Great American asserted that: (1) the change order included a
liquidated damages provision, contrary to the original
provisions of the subcontract prohibiting such damages; and (2)
the change order included new deadlines for CME’s completion of
14
work that were not contained in the original subcontract. We
conclude that the allegations contained in this claim bear a
significant relationship to the subcontract, because they are
premised on the differences between the terms of the subcontract
and the terms of the change order.
Great American also alleged in its amended complaint that
Hinkle breached the terms of the subcontract, which fully
incorporated Hinkle’s contract with WVDOT, when Hinkle failed to
pay CME for completed work upon Hinkle’s receipt of payment for
that work from WVDOT. Because this claim on its face requires
an examination of Hinkle’s obligations under the subcontract
regarding payment to CME, we conclude that this claim also bears
a significant relationship to the subcontract. Accordingly, we
conclude that Great American’s present claims against Hinkle
bear a significant relationship to the subcontract, regardless
of the particular label that Great American assigns to them.
See Am. Recovery, 96 F.3d at 93 (citing J.J. Ryan & Sons, 863
F.3d at 321). Given this significant relationship between the
claims asserted and the subcontract, we hold that those claims
fall within the scope of the arbitration clause. *
*
We are not persuaded by Great American’s argument that the
performance bond incorporated the subcontract only for the
purpose of defining Great American’s secondary obligations, and
did not bind Great American to the arbitration clause. The
incorporation of the subcontract into the performance bond was
(Continued)
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III.
For these reasons, we hold that the district court erred in
denying Hinkle’s motion seeking dismissal or stay of the
proceedings pending arbitration. We therefore vacate the
district court’s judgment and remand the case for further
proceedings consistent with the principles expressed in this
opinion.
VACATED AND REMANDED
not qualified or limited in any manner, and the performance bond
lacks any language reflecting an intent by the parties to
resolve disputes in a manner inconsistent with the terms of the
subcontract. Additionally, Great American’s reliance on AgGrow
Oils, LLC v. National Fire Ins. Co. of Pittsburgh, PA, 242 F.3d
777 (8th Cir. 2001), is unpersuasive, based on the dissimilar
language in the performance bond in that case regarding
litigation of disputes.
16