The opinion
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
TOTAL ENVIRONMENTAL
CONCEPTS, INC.
Plaintiff,
Case No. 2:20-cv-3992
v. Judge Edmund A. Sargus, Jr.
Magistrate Judge Kimberly A. Jolson
FEDERAL INSURANCE COMPANY.,
Defendant.
OPINION AND ORDER
This matter arises on Defendant Federal Insurance Company’s Motion to Dismiss or Stay
Pursuant to the Federal Arbitration Act. (ECF No. 15). Also disposed of in this order is Plaintiff
Total Environmental Concepts, Inc.’s Motion for Leave to File Sur-Reply. (ECF No. 22). For
the reasons set forth below, the Court DENIES Defendant’s Motion to Dismiss or Stay. (ECF
No. 15). Plaintiff’s Motion for Leave to File Sur-Reply is GRANTED. (ECF No. 22).
I. Procedural Background
Plaintiff Total Environmental Concepts, Inc. (TECI) filed this action in the Southern
District of Ohio against Defendant Federal Insurance Company on August 6, 2020. (ECF No. 1).
Plaintiff alleged Federal Insurance Company (FIC, also referred to as “Surety”) owed it
“amounts unpaid pursuant to TECI’s contract with non-party Brican, Inc.” (Id., at 1). In
compliance with the Miller Act, FIC had acted as surety to Brican. (Id., at 1).
Defendant FIC filed the instant Motion to Dismiss on March 4, 2021. (ECF No. 15).
Plaintiff Responded on March 17, 2021. (ECF No. 18). Defendant Replied shortly after, on
April 1, 2021. (ECF No. 21). Plaintiff then sought leave from the Court to file a Sur-Reply on
April 2, 2021. (ECF No. 22). Included with Plaintiff’s motion was the Sur-reply. (ECF No. 22,
Exhibit 1).
II. Factual Background
In 2017 a Veterans Administration contractor, Brican, entered into a subcontract with
TECI. (ECF No. 1, Exhibit 2, at 1). Brican had contracted with the Veterans Administration to
perform improvements to a project titled the “Columbus Boiler Plant Replacement. (ECF No. 1,
at 1). TECI’s subcontract obliged the company “to provide certain fuel tank installation and
controls work and attendant materials for the Project.” (ECF No. 1, at 3).
Pursuant to the Miller Act, Brican obtained a payment bond from a surety. (ECF No. 1,
Exhibit 1). Bonds of this type are meant “to secure payment to subcontractors for work
performed on the Project” and are required by the Act. (ECF No. 1, at 3) (ECF No. 18, at 3).
The surety in question, Federal Insurance Company, provided the bond, which was titled
“payment Bond, No. 8244-89-27.” (ECF No. 1, at 3) (ECF No. 1, Exhibit 1). However, while
FIC’s bond guaranteed payment to TECI, the two never entered any contract together. (ECF No.
18, at 3).
After entering into its subcontract with Brican, TECI began performing work on the
Project. (ECF No. 1, at 3). However, Brican and TECI eventually came to dispute payment.
(Id., at 3–4). TECI alleged that it was owed money that Brican refused to pay. (Id.). This
dispute escalated, until TECI finally filed suit in the Southern District of Ohio on August 6,
2020. (ECF No. 1). TECI alleged one Miller Act violation stemming from Brican’s refusal of
payment. Because FIC acted as Brican’s surety, TECI sued FIC to recover the payment bond.
(Id., at 4–5). FIC, however, argues that TECI must arbitrate their dispute. (ECF No. 15).
III. Standard
The Federal Arbitration Act (“Act”) provides that “[a] written provision in any . . .
contract evidencing a transaction involving commerce to settle by arbitration a controversy
thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and
enforceable, save upon such grounds as exist at law or in equity for the revocation of any
contract.” 9 U.S.C. § 2. “The preeminent concern of Congress in passing the Act was to enforce
private agreements into which parties had entered, and that concern requires that [courts]
rigorously enforce agreements to arbitrate . . . .” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S.
213, 221, 105 S. Ct. 1238, 84 L. Ed. 2d 158 (1985).
The Act provides federal courts with the authority to stay lawsuits in cases where issues
are referable to arbitration pursuant to written agreements calling for such arbitration, and to
compel arbitration where a party to a dispute has refused to arbitrate the dispute as required by
an enforceable agreement. See 9 U.S.C. §§ 3-4. “Before compelling an unwilling party to
arbitrate, the court must engage in a limited review to determine whether the dispute is
arbitrable; meaning that a valid agreement to arbitrate exists between the parties and that the
specific dispute falls within the substantive scope of that agreement.” Javitch v. First Union Sec.,
Inc., 315 F.3d 619, 624 (6th Cir. 2003).
IV. Analysis
Defendant maintains the Court must “dismiss Plaintiff’s Complaint,” or at the very least
“stay the pending matter subject to the conclusion of mandatory arbitration” “because the matters
addressed in Plaintiff’s Complaint are properly subject to a mandatory arbitration provision.”
(ECF No. 15, at 1). Plaintiff counters that “Surety’s Motion should be denied because there is no
arbitration agreement between TECI and Surety, and the Payment Bond under which Surety is
liable to TECI does not incorporate, reference, or otherwise refer to the arbitration agreement
between TECI and non-party Brican, Inc (“Brican”). (ECF No. 18, at 1). Thus, the question
before the Court is as follows: Are the matters addressed in Plaintiff’s Complaint subject to a
mandatory arbitration agreement? For the reasons described below, the Court finds that they are
not.
a. Arbitration Agreement
Arbitration is a federally favored policy. Schearson/American Express v. McMahon, 482
U.S. 220, 227 (1987). The Federal Arbitration Act (FAA) “provides that a written arbitration
agreement ‘shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or
in equity for the revocation of any contract.’” American General Life and Accident Insurance
Company v. Wood, 429 F. 3d 83, 87 (4th Cir. 2005), citing 9 U.S.C. § 2. However, Federal law
“does not require parties to arbitrate when they have not agreed to do so ….” Volt Information
Sciences, Inc. v. Board of Trustees of Leland Stanford Junior University, 489 U.S. 468, 478
(1989). In this case, it is undisputed that no written arbitration agreement exists between FIC
and TECI. As Plaintiff points out “[t]he only arbitration agreement cited in Surety’s Motion is
that which appears in the Subcontract between non-party Brican and TECI.” (ECF No. 18, at 3).
The portion of this agreement dealing with arbitration is as follows:
….The parties agree that any dispute or claim concerning this Agreement or the
terms or conditions of employment, including whether such dispute is arbitratable,
will be settled by arbitration. The arbitration proceedings shall be conducted under
the Commercial Arbitration Rules of the American Arbitration Association in effect
at the time a demand for arbitration under the rules is made. The decision of the
arbitrators, including determination of any amount of damages suffered, shall be
exclusive, final, and binding on both parties, their heirs, executors, administrators,
successors and assigns…
ECF No. 1, Exhibit 2, at 7).
Despite the lack of an agreement between FIC and TECI, FIC argues it is entitled to enforce
the Brican-TECI arbitration agreement. FIC first contends that “based only on the four corners
of Plaintiff’s Complaint, that all of Plaintiff’s claims are arbitrable.” (ECF No. 15, at 5).
However, this argument fails due to lack of privity. While Plaintiff agreed to arbitrate all claims
against Brican, no agreement to arbitrate between FIC and TECI exists. And federal law “does
not require parties to arbitrate when they have not agreed to do so ….” Volt Information
Sciences, Inc. v. Board of Trustees of Leland Stanford Junior University, 489 U.S. 468, 478
(1989). “[A]rbitration is a matter of contract and a party cannot be required to submit to
arbitration any dispute which he has not agreed so to submit.” Richmond Health Facilities v.
Nichols, 811 F.3d 192, 195 (6th Cir. 2016). “Nor can a party that has agreed to arbitrate with
one party be required to arbitrate with a different party.” 7 Bruner & O’Connor Construction
Law § 21:93; see also Tres Jeanee, Inc. v. Brolin Retail Sys. Midwest, Inc. 2007 U.S. Dist.
LEXIS 52156 (W.D. Ky. July 17, 2007). An argument to arbitrate disputes with Brican is not an
agreement to arbitrate disputes with all parties. As such, Defendant’s first argument fails.
b. Incorporation by Reference
To get around this lack of privity, Defendant pursues a second argument in their Reply.
(ECF No. 21). Defendant appears to argue that the arbitration clause in TECI’s contract with
Brican was incorporated by reference in the Payment Bond.1 Incorporation by reference is one
of “[f]ive theories for binding nonsignatories to arbitration agreements” that “have been
recognized.” Javitch v. First Union Sec., Inc., 315 F.3d 619, 629 (6th Cir. 2003). These include
1 Defendant’s argument is confused. While Defendant contends “[t]he ‘incorporation by reference’ argument is not
available to Plaintiff,” it is not Plaintiff who must rely on the argument. (ECF No. 21, at 2). If there is no
incorporation by reference, then, as a non-signatory, Plaintiff may not enforce the agreement. Exch. Mut. Ins. Co. v.
Haskell Co., 742 F.2d 274 (6th Cir. 1984) citing J & S Construction Co. v. Travelers Indemnity Co., 520 F.2d 809
(1st Cir. 1975).
“(1) incorporation by reference, (2) assumption, (3) agency, (4) veil-piercing/alter ego, and (5)
estoppel.” Id. “Incorporation by reference is proper where the underlying contract makes clear
reference to a separate document, the identity of the separate document may be ascertained, and
incorporation of the document will not result in surprise or hardship.” Int'l Ass'n of Machinists
& Aerospace Workers v. ISP Chems., Inc., 261 F. App'x 841, 848 (6th Cir. 2008).
Here the Payment Bond does not fulfill any of the requirements of Int'l Ass'n of Machinists.
Most importantly, the Bond makes no reference to the Brican-TECI subcontract. (ECF No. 1,
Exhibit 1). While Defendant states “the surety’s contract is a payment bond and references the
Principal Contract and the Purchase Order,” at no point does Defendant cite to any portion of the
agreements that incorporate, reference, or refer to the Subcontract between Brican and TECI.
(ECF No. 21, at 6). Further, Defendant cannot point to any such reference made in any other
agreement, if such an agreement even exists, between TECI and FIC.
Additionally, as the Payment Bond makes no reference to the subcontract between Brican
and TECI, “the identity of the separate document may” not “be ascertained” from it. Int'l Ass'n
of Machinists & Aerospace Workers v. ISP Chems., Inc., 261 F. App'x 841, 848 (6th Cir. 2008).
Thus, the second element of Int'l Ass'n of Machinists is unfulfilled. And finally, allowing FIC to
enforce the arbitration agreement against TECI would certainly result in surprise. TECI signed
their subcontract with Brican, not FIC. In Plaintiff’s own words,“TECI would be surprised if
Surety were permitted to enforce the arbitration agreement in the contract to which it is a total
stranger.” (ECF No. 22, Exhibit 1, at 2). As such, the doctrine of incorporation by reference is
not applicable here.
Defendant points to several pieces of caselaw to justify enforcing the arbitration clause
against TECI. One such decision is J & S Constr. Co. v. Travelers Indem. Co., 520 F.2d 809 (1st
Cir. Mass. August 8, 1975). Defendant uses this case to argue “a contractual obligation to
arbitrate cannot be rendered meaningless by the expedient of bringing suit on statutory payment
bond.” Id., at 810. However, in citing only this portion of the opinion, Defendant ignores the
relevant language located two sentences above. There, the court explains that “suit was based on
subcontractor's contractual and quasi-contractual rights against the principal. The contract was
explicitly incorporated by reference in the surety bond.” Id., at 810. Thus, the Court reached its
decision because the subcontractor’s contract with the principal contractor, the subcontract, was
referenced in the surety bond. Here, as mentioned above, the Payment Bond does not
incorporate, explicitly or implicitly, the subcontract between Brican and TECI.
Defendant also cites to Thomas O'Connor & Co. v. Ins. Co. of N. Am., 697 F.Supp. 563
(D.Mass.1988) and Hoffman v. Fid. & Deposit Co., 734 F.Supp. 192 (D.N.J.1990), using them to
make the same argument. (ECF No. 21, at 3) (Id., at 6). However, just like J & S Constr. Co.,
these cases too are inapposite to the case at bar. In both Thomas O’Connor and Hoffman, the
arbitration agreement was incorporated by reference in the performance bond. “The arbitration
clause is incorporated by reference in both the Subcontract between O'Connor and Distral and
the payment bond binding INA as Distral's surety.” Thomas O'Connor & Co. v. Ins. Co. of N.
Am., 697 F. Supp. 563 (D. Mass. 1988). “The Bond incorporated the Contract by reference.”
Hoffman v. Fid. & Deposit Co., 734 F.Supp. 192 (D.N.J.1990). The payment bond in this case
makes no such reference. (ECF No. 1, Exhibit 1).
Both Defendant and Plaintiff refer to Exchange Mut. Ins. Co. v. Haskell Co., 742 F.2d 274
(6th Cir.1984) in support of their arguments. Defendant states its “ultimate determination is
consistent with the position taken by Defendant herein.” (ECF No. 21, at 4). To Defendant, the
case stands for the following proposition: “Since the surety guaranteed the performance of the
subcontractor and since the subcontractor agreed to perform its work consistent with the
obligation of the general contractor to the owner, the surety must therefore arbitrate the claims
since the owner’s contract requires arbitration. In summary, Haskell has come to stand for the
proposition that a non-signatory surety can be forced to arbitrate if the bond references the
contract.” (ECF No. 21, at 5). However, like all the previously discussed cases, “the
performance bond” in Haskell “specifically referred to and incorporated the subcontract.” Exch.
Mut. Ins. Co. v. Haskell Co., 742 F.2d 274, 276 (6th Cir. 1984).2 That is not the case here.
While arbitration is a federally favored policy, such favor does require arbitration to be
forced upon an unsuspecting party. In the instant matter no “valid agreement to arbitrate exists
between the parties.” Javitch v. First Union Sec., Inc., 315 F.3d 619, 624 (6th Cir. 2003).
Further, there is no agreement between the two parties that incorporates TECI’s arbitration
agreement with Brican. As such, Defendant’s argument fails. Defendant’s Motion to Dismiss or
Stay is DENIED. (ECF No. 15).
V. Conclusion
For the foregoing reasons, the Court DENIES Defendant’s Motion to Dismiss (ECF No 15).
The Court GRANTS Plaintiff’s Motion for Leave to File Sur-Reply pursuant to Local Civil Rule
7.2, for good cause shown. (ECF No. 22). This case is to remain open.
IT IS SO ORDERED.
4/4/2023 s/Edmund A. Sargus, Jr.
DATE EDMUND A. SARGUS, JR.
UNITED STATES DISTRICT JUDGE
2 There is a minor distinction between Haskell and the case at bar. Here, FIC, a surety, is seeking to enforce
arbitration. Whereas in Haskell, “the surety is not the party seeking arbitration.” Exchange Mut. Ins. Co. v. Haskell
Co., 742 F.2d 274 (6th Cir.1984). However, the analysis in either case is the same, as “the same principles apply.”
Id.