United States District Court, D. South Carolina, Charleston Division
ORDER AND OPINION
Richard Mark Gergel United States District Court Judge
matter is before the Court on Defendant Carothers
Construction, Inc.'s motion to dismiss or in the
alternative to transfer. For the reasons set forth below, the
Court grants in part the motion and transfers this action to
the Southern District of Mississippi.
16, 2015, Liberty Enterprises Specialty Contractor
("Liberty") and Carothers entered into a
subcontract for work to be performed at Marine Corps Air
Station Beaufort (the "Project"). (Dkt. No. 1-1
¶¶ 3-4.) Plaintiff Developers Surety and Indemnity
Company ("DSI") is not a signatory to that
subcontract, but it executed a performance bond and a payment
bond for that subcontract on behalf of Liberty and in favor
of Carothers for work on the Project. (Id. ¶
7.) South Carolina law governs the bonds. (Id.
¶ 8). Carothers claims Liberty defaulted and abandoned
the Project, and asserts claims of approximately $130, 000
against the bonds issued on behalf of Liberty. (Id.
at Ex. C ¶¶ 20, 29.)
April 17, 2017, Carothers filed a demand for arbitration with
the American Arbitration Association. (Id. ¶
12.) That demand combines over $4, 000, 000 in claims against
DSI regarding four unrelated projects in four states:
Georgia, Connecticut, Kansas, and the South Carolina work at
issue in this matter. (Id. ¶ 13.) According to
Carothers, the bonds incorporate by reference the
subcontract's mandatory arbitration clause. (See
Dkt. No. 1-2 at 15-16.) Carothers seeks arbitration in
Jackson, Mississippi, which is the forum the arbitration
clause specifies. (See id.)
April 28, 2017, DSI filed the present action in the Beaufort
County Court of Common Pleas, seeking declaratory judgment
that it is not subject to a binding arbitration agreement
with Carothers and injunctive relief. (Id. ¶
15.) On May 31, 2017, Carothers removed to this Court. On
June 7, 2017, Carothers moved to dismiss or in the
alternative to transfer, arguing that DSI's claims are
subject to arbitration and that DSI is estopped from denying
it is bound by the subcontract's arbitration provision.
Carothers seeks dismissal or, in the alternative, transfer to
the Southern District of Mississippi (where Carothers could
seek an order compelling arbitration), or, in the further
alternative, transfer to the Middle District of Georgia.
Motion to Compel Arbitration
Federal Arbitration Act ("FAA") reflects a liberal
policy toward arbitration. The Act provides that a written
agreement to arbitrate in any contract involving interstate
commerce or a maritime transaction "shall be valid,
irrevocable and enforceable" unless there exists grounds
for revocation in law or equity. 9 U.S.C. § 2; Moses
H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460
U.S. 1, 24 (1983). A litigant can compel arbitration under
the FAA if the litigant can demonstrate: '"(1) the
existence of a dispute between the parties; (2) a written
agreement that includes an arbitration provision which
purports to cover the dispute; (3) the relationship of the
transaction, which is evidenced by the agreement, to
interstate or foreign commerce; and (4) the failure, neglect
or refusal of the [party] to arbitrate the
dispute.'" Am. Gen. Life & Accident Ins. Co.
v. Wood, 429 F.3d 83, 87 (4th Cir. 2005) (quoting
Adkins v. Labor Ready, Inc., 303 F.3d 496, 500-01
(4th Cir. 2002)). District courts have "no choice but to
grant a motion to compel arbitration where a valid
arbitration agreement exists and the issues in a case fall
within its purview." Adkins, 303 F.3d at 500.
However, "[t]he majority view holds that, where the
parties have agreed to arbitrate in a particular forum, only
a district court in that forum has the authority to compel
arbitration under § 4 of the FAA." Am.
Int'l Specialty Lines Ins. Co. v. A. T. Massey Coal
Co., 628 F.Supp.2d 674, 683 (E.D. Va. 2009). Where a
valid arbitration agreement covering the issues in a case
exists but the agreement specifies an arbitral venue outside
the district, transfer is the appropriate remedy, because
"if the forum selection clause is mandatory, then, the
interest of justice would weigh toward transfer."
Id. at 685 (internal quotation marks omitted).
Motion to Dismiss or to Stay Proceedings
requires a court to stay "any suit or proceeding"
pending arbitration of "any issue referable to
arbitration under an agreement in writing for such
arbitration, and "[t]his stay-of-litigation provision is
mandatory." Adkins, 303 F.3d at 500; see
also 9 U.S.C. § 3; Hooters, 173 F.3d at
937. The Fourth Circuit has also held that if all of the
claims asserted in a complaint are subject to arbitration,
dismissal of the complaint is "an appropriate
remedy." Choice Hotels Int'l, Inc. v. BSR
Tropicana Resort, Inc., 252 F.3d 707, 709-10 (4th Cir.
2001). The Fourth Circuit has noted the inconsistency between
its opinions on this issue. Aggarao v. MOL Ship Mgmt.
Co., 675 F.3d 355, 376 n.18 (4th Cir. 2012) ("There
may be some tension between our decision in
Hooters-indicating that a stay is required when the
arbitration agreement 'covers the matter in
dispute'-and Choice Hotels-sanctioning dismissal
'when all of the issues presented ... are
arbitrable.'"). It has also noted that the circuits
are divided on this question, which it has not resolved for
this Circuit. Id. A motion to dismiss in favor of
arbitration may be made under Rule 12(b)(1) or Rule 12(b)(6)
of the Federal Rules of Civil Procedure. See Lomax v.
Weinstock, Friedman & Friedman, P.A, No. CIV.
CCB-13-1442, 2014 WL 176779, at *2 (D. Md. Jan. 15, 2014)
(collecting cases), affd sub nom. Lomax v. Weinstock,
Friedman & Friedman, P.A., 583 F.App'x 100 (4th
seeks dismissal under Rule 12(b)(6) of the Federal Rules of
Civil Procedure for failure to state a claim upon which
relief can be granted. Carothers argues DSI has not stated a
claim for relief because DSI is bound to arbitrate the claims
it presents to this Court for adjudication. (Dkt. No. 4-1 at
6.) DSI, however, seeks only "determination of whether a
valid, enforceable agreement to arbitrate exists" and an
order "Declaring that DSI is not required to arbitrate
any of Defendant's claims against it, " and an
injunction against compelled arbitration. (Dkt. No. 1-1
¶¶ 16, 22.) The validity of an arbitration clause
is not subject to mandatory arbitration when the clause
itself is challenged. See Buckeye Check Cashing, Inc. v.
Cardegna, 546 U.S. 440, 445-46 (2006) ("[U]nless
the challenge is to the arbitration clause itself, the issue
of the contract's validity is considered by the
arbitrator in the first instance."). DSI has properly
pleaded a claim for declaratory judgment adjudicating whether
Carothers's claims against it as surety for Liberty are
subject to binding arbitration.
Court therefore declines to dismiss this matter for failure
to state a claim and proceeds to consider the first
alternative relief Carothers seeks, transfer to the Southern
District of Mississippi for the purpose of compelling
arbitration. Whether DSI agreed to binding arbitration is a
legal question of contract interpretation. Johnson v.
Circuit City Stores, Inc.,148 F.3d 373, 377 (4th Cir.
1998). The relevant contracts are attached to and integral to