United States District Court, D. South Carolina, Charleston Division
PATRICK MICHAEL DUFFY UNITED STATES DISTRICT JUDGE
matter is before the Court on Third-Party Defendant
Austin-Hitt Joint Venture's motion to dismiss or stay the
third-party complaint and compel arbitration (ECF No. 17).
Also before the Court is Defendant and Third-Party Plaintiff
Palmetto Civil Group, LLC's motion to dismiss or stay and
compel arbitration (ECF No. 19). For the reasons set forth
herein, the Court stays this action and compels arbitration
of the entire case.
AND PROCEDURAL HISTORY
action arises out of a construction project at the Charleston
International Airport. The Charleston County Aviation
Authority hired Austin-Hitt as the general contractor to
redevelop and improve the airport's terminals.
Austin-Hitt then subcontracted with Palmetto to perform civil
site work at the project. That subcontract was terminated,
and Austin-Hitt's insurer, Plaintiff Steadfast Insurance
Company, paid Austin-Hitt's insurance claim arising out
of the subcontract's termination. Steadfast then filed
the instant action against Palmetto to recoup its losses from
paying the claim to Austin-Hitt. Palmetto answered and later
asserted a third-party claim against Austin-Hitt.
filed its motion on August 28, 2017, and Steadfast and
Palmetto both responded on September 11. Palmetto filed its
own motion on September 11. Steadfast responded to that
motion on September 25, and Palmetto replied the next day.
Accordingly, these matters are now ripe for consideration.
litigant moves to compel arbitration under the Federal
Arbitration Act (“FAA”), 9 U.S.C. §§ 1
et seq., the district court determines whether a
matter should be resolved through arbitration depending on
(1) whether a valid arbitration agreements exists and, if so,
(2) whether the dispute falls within the scope of the
arbitration agreement. AT&T Tech., Inc. v.
Commc'ns Workers of Am., 475 U.S. 643, 651 (1986);
see Hooters of Am. v. Phillips, 173 F.3d 933, 938
(4th Cir. 1999). The Supreme Court has consistently
encouraged a “healthy regard for the federal policy
favoring arbitration.” Levin v. Alms &
Assocs., 634 F.3d 260, 266 (4th Cir. 2011) (internal
quotation marks and citation omitted). “The heavy
presumption of arbitrability requires that when the scope of
the arbitration clause is open to question, a court must
decide the question in favor of arbitration.”
Id. (citation omitted).
Austin-Hitt and Palmetto seek to compel arbitration of
various portions of this case. Austin-Hitt seeks arbitration
of Palmetto's third-party complaint against it, while
Palmetto seeks arbitration of the entire case. The parties do
not contest the validity of the arbitration clause at issue,
only its applicability. Steadfast states that it has no
objection to arbitration of the third-party claim between
Palmetto and Austin-Hitt, but does object to arbitration of
its direct claim against Palmetto. Steadfast also objects to
the Court dismissing the case if it compels arbitration.
Because the primary dispute is whether Steadfast must
arbitrate its claim against Palmetto, the Court addresses
that question first.
argues that because Steadfast is Austin-Hitt's subrogee,
Steadfast stands in Austin-Hitt's shoes and is bound by
the arbitration agreement contained in Palmetto and
Austin-Hitt's contract. The Court agrees. Steadfast's
claims against Palmetto arise out of Palmetto's alleged
breach of its contract with Austin-Hitt. Thus, because
Austin-Hitt and Palmetto are bound to arbitrate disputes
arising out of their contract, Steadfast must also arbitrate
any such disputes because it has no greater rights than
Austin-Hitt. In Tetra Tech EC/Tesoro Joint Venture v. Sam
Temples Masonry, Inc., this Court addressed a similar
situation. No. 3:10-cv-1597-CMC, 2011 WL 1326371 (D.S.C. Apr.
6, 2011). There, Judge Currie also addressed an insurer's
claim that was based on a contract between a subcontractor
and a general contractor. Id. at *1. Judge Currie
found that because the insurer would necessarily stand in the
general contractor's shoes in pursuing the claim
“as subrogee or otherwise, ” the insurer was also
bound by the arbitration provision in the contract between
the general contractor and the subcontractor to the extent
the insurer sought “to assert any claim under the
also appears to argue that Palmetto has waived its right to
compel arbitration by proceeding in this case without moving
to compel arbitration until now, and by failing to include
arbitration in its answer as an affirmative defense.
“[T]he FAA authorizes a party to an arbitration
agreement to demand a stay of proceedings in order to pursue
arbitration, ‘provided the applicant for the stay is
not in default' of that right.” Patten Grading
& Paving, Inc. v. Skanska USA Bldg., Inc., 380 F.3d
200, 204 (4th Cir. 2004) (quoting 9 U.S.C. § 3).
“Such default or waiver arises when the party seeking
arbitration ‘so substantially utilized the litigation
machinery that to subsequently permit arbitration would
prejudice the party opposing the stay.'”
Id. (quoting Maxum Founds., Inc. v. Salus
Corp., 779 F.2d 974, 981 (4th Cir. 1985)). However, in
light of the federal policy favoring arbitration, the Fourth
Circuit has held that it “‘will not lightly infer
the circumstances constituting waiver.'”
Id. (quoting Am. Recovery Corp. v. Computerized
Thermal Imaging, Inc., 96 F.3d 88, 95 (4th Cir. 1996)).
Thus, “[t]he party opposing arbitration on the basis of
waiver . . . bears a heavy burden.” Id.
(citation and internal quotations omitted). This Court has
noted that “‘the dispositive question is whether
the party objecting to arbitration has suffered actual
prejudice.'” Mozingo v. S. Fin. Grp.,
Inc., 520 F.Supp.2d 725, 731 (D.S.C. 2007) (quoting
MicroStrategy, Inc. v. Lauricia, 268 F.3d 244, 249
(2001)). “‘Prejudice . . . refers to the inherent
unfairness-in terms of delay, expense, or damage to a
party's legal position-that occurs when the party's
opponent forces it to litigate an issue and later seeks to
arbitrate the same issue.'” Id. (quoting
Am. Reliable Ins. Co. v. Stillwell, 212 F.Supp.2d
621, 628 (N.D. W.Va. 2002)). Here, Palmetto cannot reasonably
be said to have substantially utilized the litigation
machinery as this case is relatively new and no significant
motions have been filed or decided. More importantly,
Steadfast has failed to demonstrate actual prejudice.
Accordingly, the Court rejects Steadfast's apparent
argument that Palmetto has waived its right to compel
also appears to argue that Rule 14 of the Federal Rules of
Civil Procedure precludes Palmetto from compelling
arbitration. The Court disagrees. As discussed above,
Steadfast's claim against Palmetto would be subject to
arbitration regardless of whether Austin-Hitt was a
participant in the litigation because Steadfast is
Austin-Hitt's subrogee. Thus, the Court disagrees that
Rule 14 provides any basis for Steadfast to avoid arbitration
of its claims against Palmetto.
concluded that all of the claims in this action are subject
to arbitration, the Court must determine whether to stay or
dismiss this action while the parties proceed to arbitration.
All parties have agreed to a stay in the event the Court
compels arbitration, but not all parties have agreed to a
dismissal. Having concluded that these claims should be
arbitrated, the Court stays this ...