Prof'l Constr., Inc. v. Historic Walnut Square

224 N.E.3d 352

PROFESSIONAL CONSTRUCTION, INC., and West Bend Mutual Insurance Company, Appellants-Defendants,

v.HISTORIC WALNUT SQUARE, LLC, Appellee-Plaintiff

Court of Appeals Case No. 23A-PL-654

Court of Appeals of Indiana.

Filed December 27, 2023

Appeal from the Marion Superior Court, The Honorable Heather A. Welch, Judge, Trial Court Cause No. 49D01-2206-PL-21757

Attorneys for Appellants: Maggie L. Smith, Joshua N. Kutch, Indianapolis, Indiana

Attorneys for Appellee: David L. Guevara, James R. A. Dawson, Indianapolis, Indiana, Heather M. Hawkins, Cincinnati, Ohio

Altice, Chief Judge.

Case Summary

[1] Professional Construction, Inc. (Contractor) and West Bend Mutual Insurance Company (Surety) (collectively, Appellants) bring this interlocutory appeal of the trial court’s denial of their motion to enforce arbitration agreement and stay litigation in a lawsuit brought by Historic Walnut Square, LLC (Owner). Appellants present the following restated issues for review:

1. Did the trial court properly determine that Contractor waived its contractual right to demand arbitration by filing suit against Owner in Wisconsin?

2. Did the trial court err, by determining that Surety had no right to enforce the arbitration provision in the construction contract?

3. Where is the proper venue for arbitration?

[2] We reverse and remand.

Facts & Procedural History

[3] In 2020, Owner solicited bids for a construction project for the development of a forty-unit, multi-family housing project in Terre Haute and ultimately selected Contractor as general contractor for the project. On August 6, 2020, they executed two standard form American Institute of Architects (AIA) agreements, A101-2017 and A201-2017 (collectively, the Construction Contract). Additionally, Contractor obtained a Payment Bond and a Performance Bond (collectively, the Bonds), also AIA standard form agreements, through Surety in the amount of the Construction Contract.

[4] The Construction Contract provides for binding arbitration, pursuant to § 15.4 of AIA Document A201-2017, of any claim subject to or not resolved by mediation and expressly indicates that the Federal Arbitration Act (the FAA) shall govern., § 15.4.1 provides in relevant part:

[A]ny claim subject to, but not resolved by, mediation shall be subject to arbitration which, unless the parties mutually agree otherwise, shall be administered by the American Arbitration Association in accordance with its Construction Industry Arbitration Rules in effect on the date of the Agreement. The Arbitration shall be conducted in Fond du Lac County, Wisconsin unless expressly prohibited by law, in which case mediation [sic] shall be held in the place where the Project is located, unless another location is mutually agreed upon. A demand for arbitration shall be made in writing, delivered to the other party to the Contract, and filed with the person or entity administering the arbitration.

Appellants’ Appendix Vol. 2 at 111. Further, pursuant to § 15.4.3, the agreement to arbitrate "shall be specifically enforceable under applicable law in any court having jurisdiction thereof." Id.

[5] Certain contractual disputes arose between Contractor and Owner and came to a head in the beginning of 2022. The details of the disputes are not particularly relevant here; our focus is on the parties’ attempts to resolve them. Contractor initially communicated its claim to the architect (Architect) – the project’s initial decision maker under the Construction Contract. Unsatisfied with Architect’s decision and anticipating a breach of the Construction Contract by Owner, Contractor stopped work on the project on February 11, 2022. Owner then declared Contractor in default and made a claim against Surety on the Performance Bond.

[6] On February 14, 2022, Contractor (by email and certified mail) sent a written demand for mediation/arbitration to Owner and Architect. After setting out Contractor’s position in detail, the letter concluded with the following:

Demand for Mediation/ Arbitration

Given the Owner’s position, and the Architect’s decision to affirm the Owner’s position, concerning the substantial completion date, pursuant to §§ 15.3 and 15.4 of the Construction Contract, PCI hereby demands mediation and arbitration of the current dispute between the parties.

Pertinent sections dealing with mediation and arbitration in the Construction Contract, call for mediation to be administered by the American Arbitration Association ("AAA"). We are not opposed to this prescription, however, due to the likely urgency of the matter, PCI would consider using an alternate mediation agency or mediator. Please advise on your position on this as soon as possible. If we do not hear back from you by February 17, 2022, we will assume the Owner’s preference is to have the matter handled by an AAA mediator, and we will file the mediation/ arbitration demand with the AAA.

Appellants’ Appendix Vol 3 at 46 (emphases in original).

[7] Surety quickly followed Contractor’s demand for mediation/arbitration with a letter to Owner requesting a meeting in Wisconsin with decision makers for all parties present, along with Architect. On February 23, Owner responded and proposed "a meeting that does not involve the Contractor or the sideshow of topics, such as liquidated damages, which are unrelated to the immediate goal of performing and completing the Construction Contract." Id. at 22.

[8] On February 27, Surety wrote Owner again and emphasized that there were issues between Owner and Contractor that were "worth mediating" and that resolving these issues was "critical" to Surety’s decision regarding the claim on the Performance Bond. Id. at 25, 26. Surety proposed that all parties meet on March 4 and agree to prompt mediation of any issues not resolved at that meeting.

[9] On March 1, Owner responded that it would not entertain Contractor’s input in the matter between Owner and Surety, explaining in part:

Right now, and while the Owner attempts to recover the Project from the Contractor’s defective, untimely performance, there is nothing to mediate. The Owner is open to negotiations and engaging a third party mediator to resolve any remaining claims, but only after the Owner arid Surety have all of the relevant information, the Surety performs its obligations under the Performance Bond, and the Work is complete. It is only then that the parties may be able to bring this matter to a full, final resolution. Mediation efforts now would be premature and waste precious time.

Id. at 30.

[10] On April 17, 2022, Surety denied Owner’s claims on the Bonds and provided a detailed explanation of its denial. In summary, Surety claimed that Owner had repudiated the Construction Contract prior to Contractor justifiably stopping work and that Owner’s subsequent refusal to mediate or arbitrate the dispute between Contractor and Owner also constituted a breach of the Construction Contract.

[11] Two days after Surety’s denial of Owner’s claims, Contractor filed a four-count complaint against Owner in Waukesha County, Wisconsin¹ (the Wisconsin Action), and named Surety as an involuntary plaintiff. Relevant here, the complaint alleged that Owner had refused Contractor’s written demand for mediation/arbitration of the claims and disputes arising out of the Construction Contract and that "[b]ecause of [Owner’s] contractual breaches and refusal to mediate or arbitrate, [Contractor] has been left with no recourse except litigation to seek resolution of the claims." Appellants’ Appendix Vol. 2 at 176. Among its specific requests for relief, Contractor asked the Wisconsin court for: "Order compelling [Owner] to comply with the Contract’s mediation and arbitration clauses as it relates to all claims arising of the contract." Id. at 179.

[12] Two months after the Wisconsin Action was filed, Owner filed the instant complaint in Marion County, Indiana, on June 29, 2022, against Contractor and Surety (the Indiana Action). Owner asserted breach of contract and other associated claims and argued that Indiana was the proper venue for litigation related to the Construction Contract and the Bonds. Owner’s complaint for damages made no mention of the dispute resolution provisions in the Construction Contract.

[13] On July 1, 2022, in the Wisconsin Action, Owner filed a motion to stay or, in the alternative, dismiss without prejudice. Owner argued that Indiana was the more convenient forum to address the parties’ claims that all "relate to disputes concerning the interpretation and enforcement of the Construction Contract and Bonds, which relate to the Project in Indiana," Id. at 196.

[14] Contractor responded in both pending actions to Owner’s attempt to litigate the contractual disputes in Indiana. First, in the Wisconsin Action, Contractor filed a motion to compel arbitration. Second, in the Indiana Action, it filed jointly with Surety a motion to enforce arbitration agreement and stay litigation pending arbitration. Owner opposed both motions on two bases: 1) Contractor did not satisfy the mandatory conditions precedent to trigger arbitration under the Construction Contract and 2) Contractor waived its right to enforce the arbitration provision by filing the Wisconsin Action.²

[15] The Wisconsin court was the first to hold a hearing and decide the motions pending before it. At the conclusion of the hearing on February 10, 2023, the Wisconsin court ordered Owner and Contractor to arbitration in Wisconsin. This order was based on three conclusions by the court: 1) Contractor did not waive its right to arbitration by filing its complaint, which was "in essence, a suit to enforce the arbitration clause"; 2) matters of procedural arbitrability, such as whether conditions precedent have been satisfied, are for the arbitrator to decide; and 3) the proper venue for the arbitration is Wisconsin.³ Appellants’ Appendix Vol 3 at 112. Owner did not appeal the Wisconsin court’s arbitration ruling, which was...