MAX O. COGBURN, JR., United States Magistrate Judge.
THIS MATTER is before the court upon defendant's Motion to Stay and to Compel Arbitration and plaintiff's Motion to Remand this matter to state court. Having considered the respective briefs of the parties, conducted a hearing, and reviewed supplemental materials sent to the court after the hearing, the undersigned enters the following findings, conclusions, and recommendation.
FINDINGS AND CONCLUSIONS
I. Background
This matter was originally filed by plaintiff in the North Carolina General Court of Justice, Buncombe County, Superior Court Division. The action was timely removed to federal court based on diversity jurisdiction.
Defendant was a prime contractor on a building project at Appalachian State University. Plaintiff, a subcontractor hired by defendant, contends that it is owed money under that contract. Plaintiff seeks to remand this matter to state court; defendant seeks to compel arbitration.
II. Motion to Remand
As its first basis for remand, plaintiff contends that this court would lack jurisdiction over the State of North Carolina under the eleventh amendment to the United States Constitution. Plaintiff argues that because defendant's prime contract was with the State of North Carolina, this matter should be returned to the state courts, where more complete relief may be obtained. Review of the respective briefs reveals that plaintiff's only claim is against defendant and that even if this matter were remanded, plaintiff could no more hale North Carolina into a state court than into a federal court, inasmuch as the state has not waived its sovereign immunity from suit in construction contracts. Instead, North Carolina has determined that an administrative remedy is only available to prime contractors that have a dispute with the state. N.C. Gen. Stat. § 143-135.3. The prime contractor is allowed to present to the administrative panel any "pass through" claims of the subcontractors. N.C. Gen. Stat. § 143-134.2. Such relief, however, was not available in this case because the prime contract predated the amendment of the administrative procedure. Plaintiff's only remedy is the one herein asserted against defendant. The undersigned finds that the presence or absence of the State of North Carolina is irrelevant and will recommend that the Motion to Remand on this ground be denied.
Plaintiff's second basis for remand is the forum selection clause contained in the subcontract.
A forum selection clause is generally binding and will be enforced unless enforcement is "`unreasonable' under the circumstances."
See The Bremen v. Zapata Off-Shore Co.,
407 U.S. 1, 10,
92 S.Ct. 1907,
32 L.Ed.2d 513(1972). A choice of forum provision may be found unreasonable if (1) its formation was induced by fraud or overreaching; (2) the complaining party "will for all practical purposes be deprived of his day in court" because of the grave inconvenience or unfairness of the selected forum; (3) the fundamental unfairness of the chosen law may deprive the plaintiff of a remedy; or (4) its enforcement would contravene a strong public policy of the forum state.
See Carnival Cruise Lines, Inc. v. Shute,
499 U.S. 585, 595,
111 S.Ct. 1522,
113 L.Ed.2d 622(1991).
National Enterprises. Inc. v. South Carolina Ins. Co., 165 F.3d 19 (table),
1998 WL 756893, at 2 (4th Cir. 1998). No party has disputed the validity of the agreement, only its interpretation. The agreement provides:
The Subcontractor consents to the jurisdiction of the courts of the State of North Carolina and that the Subcontractor consents to suit in the courts of Watauga County, North Carolina for any actions brought by Blaine arising out of or relating to the Subcontract Agreement.
Reading the plain language of the agreement, plaintiff consented to be sued rather than to sue in state court in Watauga County; likewise, defendant implicitly agreed to sue, but not necessarily to be sued in Watauga County. The situation herein presented appears to be beyond the scope of the forum selection agreement, in that plaintiff is suing and defendant is being sued. Traditional rules concerning appropriate forums apply. Finding that defendant has properly invoked this court's diversity jurisdiction and that the forum in this particular action is not governed by the agreement, the undersigned will recommend that plaintiff's Motion to Remand on this second ground also be denied.
III. Motion to Stay and Compel Arbitration
It is not disputed by either party that the contract contains an arbitration agreement. In the context of an arms-length transaction, this court does not hesitate to enforce a bargained-for arbitration agreement. Indeed, prompt court enforcement of arbitration agreements is the linchpin of 9, United States Code, Section 2. While federal law governs the effect of a "contractually agreed-upon arbitration provision," state law prevails on general principles concerning contract formation. Supak Sons Mfg. Co., Inc. v. Pervel Indus. Inc., 593 F.2d 135 (4th Cir. 1979). In the 20 years since Supak, both the United States Supreme Court and the Court of Appeals for the Fourth Circuit have indicated a strong preference for arbitration:
Whether a party has agreed to arbitrate an issue is a matter of contract interpretation: "[A] party cannot be required to submit to arbitration any dispute which it has not agreed so to submit." Nevertheless, the Supreme Court has announced its "Healthy regard for the federal policy favoring arbitration" and has explained that the Federal Arbitration Act . . . "establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability."
American Recovery Corp. v. Computerized Thermal Imaging, Inc., 96 F.3d 88, 92 (4th Cir. 1996) (quoting
United Steelworkers of America v. Warrior Gulf Navigation Co., 363 U.S. 574, 582(1960); and
Moses H. Cone Memorial Hosp. v. Mercury Constr. Co., 460 U.S. 1, 24-25(1983)). While interpretation of the contract is governed by state law, federal law requires that ambiguities or doubts in a contract be construed in favor of arbitration.
McKee v. Home Buyers Warranty Corp. II, 45 F.3d 981, 984 (5th Cir. 1995).
The agreement to arbitrate is found in paragraph 14.1 of the contract, attached as Exhibit A to defendant's supporting brief. The agreement provides, in pertinent part, that "[a]ll claims, disputes and matters in question . . . except for . . . the claims described in Paragraph 14.2, shall be decided by arbitration." Paragraph 14.2 provides, in relevant part, as follows:
The agreement to arbitrate shall not apply to any claim . . . (b) asserted by the Subcontractor against the Contractor if the Contractor asserts said claim, either in whole or in part against the Owner. . . .
Plaintiff argues that the exception applies because defendant asserted the plaintiff's claim in state administrative proceedings. In reply, defendant argues that it has not filed "any litigation or otherwise `asserted' a claim against the Owner . . . before any state or federal court or administrative tribunal." Defendant's Reply, at 1. Instead, defendant contends that it has engaged only in informal negotiations with the owner, which has led to a close out of the prime contract. Review of the exception which plaintiff is asserting under the contract, 14.2(b), reveals no condition that the claim be asserted against the owner in a state or federal court or in an administrative proceeding. The only mention of such forums in the exceptions is found in paragraph 14.2(a), which is disjunctive from paragraph 14.2(b) through the use of the word "or."
The question becomes whether the assertion of a subcontractor's claim in "informal negotiations" invokes the provisions of paragraph 14.2(b). The operative language of the exception is "asserts said claim, either in whole or in part against the Owner." At the hearing, defendant stated that it attempted to negotiate plaintiff's claim with the state, to little or no avail. The common meaning of the key word assert is "to state or declare positively and often forcefully or aggressively."Merriam Webster's Collegiate Dictionary, 10th Ed. With no statutory right to assert plaintiff's claim against the state, and with no motive to do so other than to avoid this action, it is hard to contemplate that such claim was "declare[d] positively and often forcefully or aggressively."Id. At most, a doubt has been raised as to whether a claim was "asserted" due to a slight ambiguity in paragraph 14.2(b) of the contract. Because federal law requires that ambiguities or doubts in a contract be construed in favor of arbitration, McKee v. Home Buyers Warranty Corp. II, supra, the undersigned must recommend that defendant's Motion to Stay and Compel Arbitration be allowed
RECOMMENDATION
IT IS, THEREFORE, RESPECTFULLY RECOMMENDED that
(1) plaintiff's Motion to Remand be DENIED; and
(2) defendant's Motion to Stay and Compel Arbitration be
ALLOWED as follows:
(a) this matter be
STAYED for 120 days so that arbitration may be commenced and completed;
(b) this matter be REMANDED to arbitration; and
(c) counsel for the defendant file with the court a monthly notice concerning the progress of arbitration.
The parties are hereby advised that, pursuant to 28, United States Code, Section 636(b)(1)(C), written objections to the findings of fact, conclusions of law, and recommendation contained herein must be filed within ten (10) days of service of same. Failure to file objections to this Memorandum and Recommendation with the district court will preclude the parties from raising such objections on appeal. Thomas v. Arn, 474 U.S. 140(1985), reh'g denied, 474 U.S. 1111 (1986); United States v. Schronce, 727 F.2d 91 (4th Cir.), cert. denied, 467 U.S. 1208(1984).
This Memorandum and Recommendation is entered in response to plaintiff's Motion to Remand (#5) and defendant's Motion to Stay and Compel Arbitration (#3).