Opinion
No. C 03-00130 SI
February 18, 2003
On February 4, 2003 the Court heard argument on plaintiff's and defendants' respective motions. Having carefully considered the arguments of the parties and the papers submitted, this Court DENIES plaintiff's motion for a preliminary injunction or temporary restraining order; DENIES plaintiff's motion for a continuance; GRANTS both parties' requests that the Court take judicial notice of certain documents; DENIES defendants' motion to dismiss based on lack of jurisdiction; GRANTS defendants' motion to compel arbitration; and DENIES plaintiff's motion to strike the Hauser Declaration.
BACKGROUND
1. Factual background
On August 6, 1999 Valenzuela Engineering, Inc. (VEI) contracted with defendants, owners of 60 Rausch, LLC; 73 Sumner, LLC; and 52 Rausch, LLC ("Owners"), for three construction projects. Each of the three contracts between the Owners and VEI provided: "Any claim arising out of or relating to the Contract, except Claims [relating to narrow subject matter not at issue here] are subject to arbitration."
The contract between VEI and the Owners required that the construction contract be bonded. After signing the contracts on August 6, 1999, VEI sought a company to provide surety bonds on the contracts. VEI and plaintiff AHTNA Government Services, Inc. (AGS) subsequently entered into negotiations for AGS to provide surety bonding to VEI in exchange for a share of the expected profits on the project. AHTNA, Inc., AGS's parent company, had formed AGS for the purpose of securing 8A government contracts for AHTNA, Inc. based on the majority ownership of both entities by native Alaskans. Neither party disputes that neither AHTNA, Inc. nor AGS was a signatory to the construction contracts with the Owners. The Court's discussion will focus on the relationship between AGS and VEI, as that relationship is the subject in dispute. The relationship between VEI and AGS was originally limited to an offer from VEI to give AGS a share of profits from construction in exchange for surety bonding. Later, however, AGS suggested that in exchange for bonding VEI should consider assigning the construction contracts to a joint venture between AGS and VEI. Decl. of Christopher Smith, President of AHTNA, Inc. An agreement between AGS and VEI, executed on August 27, 1999, states that AGS and VEI formed a joint venture for the purpose of "the proposal, negotiation, and performance of that contract [the VEI contracts with the Owners]." Memo in Opp. to Mot. for TRO at 2:3-19. This agreement also stated that VEI would assign the construction contracts with the Owners to the Joint Venture. The agreement specified that the Joint Venture would be substituted for VEI on the construction contracts; however, the parties were subsequently unable to secure the replacement of the Joint Venture for VEI's name on the contract.
On September 5, 1999 a First Amended Joint Venture agreement was executed. It provided that no assignment of the contracts would occur; instead, VEI would be the contractor and the Joint Venture would be the subcontractor. Both agreements stated that AGS would retain 51% of the profits from the construction contracts and that VEI would remain the signatory on all contracts with the Owners. The provision in the original joint venture agreement that the purpose of the agreement was for the "proposal, negotiation and performance" of the construction contracts, remained intact.
In October 1999, when a dispute arose between VEI and the Owners over the contract, VEI filed for arbitration. In September 2000, VEI was terminated by the Owners from two of the projects, 60 Rausch and 62 Rausch. Memo in Opp. at 4:20-21. VEI was retained on 73 Sumner, but eventually stopped work on this project as well, and was terminated in November 2000. Id. at 4:23-25.
2. Procedural background
While it pursued arbitration, VEI also brought suit against the Owners in San Francisco Superior Court on March 16, 2001, regarding disputes arising over the termination of the contracts. VEI's Superior Court action was stayed pending the outcome of arbitration. The Owners filed a cross-demand for arbitration against VEI and, in April 2002, amended the demand to include AGS and AHTNA, Inc., AGS's parent corporation. AGS and AHTNA, Inc. contended that, as non-signatories to the construction contracts, they were not bound by the construction contract's arbitration clause.
The arbitration panel reviewed this question and determined that it did have jurisdiction to decide questions about its jurisdiction and arbitrate claims against AGS, but that it did not have jurisdiction over AHTNA.
The arbitration panel determined that AGS was compelled to arbitrate this dispute under three legal theories. First, it could be inferred that AGS assumed the contracts. Second, having chosen to benefit from the contracts, AGS is now estopped from denying them. Third, since the Owners acquiesced to the arrangement whereby a Joint Venture would exist without substituting the Joint Venture's name on the Construction Contracts, AGS is a third party beneficiary of that acquiescence.
An action seeking a preliminary injunction and temporary restraining order against arbitration was subsequently filed by AGS in United States District Court for the District of Alaska. This issue was fully briefed in Alaska before the Honorable James K. Singleton, but he subsequently transferred the action to this Court and denied all of the other motions as moot, without prejudice to refiling in this Court.
LEGAL STANDARDS
1. Motion to dismiss
Federal Rule of Civil Procedure 12(b)(1) allows a party to challenge a federal court's jurisdiction over the subject matter of the complaint. As the party invoking the jurisdiction of the federal court, the plaintiff bears the burden of establishing that the court has the requisite subject matter jurisdiction to grant the relief requested. See Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S. 375, 376-78 (1994) (citation omitted). A complaint will be dismissed if, looking at the complaint as a whole, it appears to lack federal jurisdiction. Thornhill Publishing Co., Inc. v. General Tel. Elecs. Corp., 594 F.2d 730, 733 (9th Cir. 1979). When the complaint is challenged for lack of subject matter jurisdiction on its face, all material allegations in the complaint will be taken as true and construed in the light most favorable to the plaintiffs. NL Indus. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986).
"It is a fundamental principle that federal courts are courts of limited jurisdiction. The limits upon federal jurisdiction, whether imposed by the Constitution or by Congress, must be neither disregarded nor evaded." Owen Equipment Erection Co. v. Kroger, 437 U.S. 365, 374 (1978). A federal court is presumed to lack jurisdiction in a particular case unless the contrary affirmatively appears. General Atomic Co. v. United Nuclear Corp., 655 F.2d 968, 969 (9th Cir. 1981). Accordingly, the burden rests on the party asserting federal subject matter jurisdiction to prove its existence.
In deciding a Rule 12(b)(1) motion which mounts a factual attack on jurisdiction, "no presumption of truthfulness attaches to plaintiffs' allegations, and the existence of disputed material facts will not preclude the trial court from evaluating for itself the merits of jurisdictional claims. Moreover, the plaintiffs will have the burden of proof that jurisdiction does in fact exist." Mortensen v. First Fed. Savings Loan Ass'n, 549 F.2d 884, 891 (3d Cir. 1977).
Jurisdictional disputes must be resolved prior to courts' adjudication of questions on the merits of a dispute. To determine whether diversity jurisdiction exists pursuant to 28 U.S.C. § 1332, the court examines whether the plaintiffs and defendants are citizens of different states. Under § 1332(c)(1), a corporation is a citizen of any state in which it is incorporated and of the state where it has its principal place of business. Breitman v. May Co., 37 F.3d 562, 564 (9th Cir. 1994). In a motion to dismiss based on lack of jurisdiction, the party against whom the motion is made has the burden to establish that jurisdiction exists.Tosco v. Communities for a Better Environment, 236 F.3d 495, 499 (9th Cir. 2001).
Two tests have developed to determine in which state a corporation has its principal place of business: the "place of operations" test, which examines where the company has a "substantial predominance" of corporate operations, and the "nerve center" test, which examines where the administrative and executive functions of the corporation are performed.Breitman, 37 F.3d at 564. Courts generally apply the place of operations test, except in circumstances in which a corporation does business in many states, none of which contain a "substantial predominance" of business activities. In that event, courts apply the nerve center test.Tosco, 236 F.3d at 500.
2. Jurisdiction to review arbitrability of disputes
Although the FAA evinces a policy favoring arbitration, only parties that voluntarily submit to arbitration may be compelled to arbitration. Except in limited circumstances, courts have jurisdiction to review a dispute about whether parties may be compelled to arbitrate their disputes. 9 U.S.C. § 4; AT T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 649 (1986). See also Three Calleys Mun. Water Dist. v. E.F. Hutton Co., Inc., 925 F.2d 1136, 1140-1141 (9th Cir. 1991) (when the existence of an arbitration agreement is disputed, only a court can resolve the dispute). Only in cases in which the existence of an arbitration agreement is beyond dispute and the request for review is mere subterfuge to obtain judicial review of the merits of the case, may the court decline review.
3. Preliminary injunctions and temporary restraining orders
The standard generally applied to a motion for preliminary injunctions is: (1) likelihood of irreparable harm to the movant if no injunction is issued; (2) likelihood of success on merits; (3) likelihood of harm to enjoined party; and (4) whether the public interest is served. Nordin v. Nutri/System, Inc., 897 F.2d 339, 345-46 (8th Cir. 1990). The court has the authority to grant a preliminary injunction in the exercise of its equitable powers. Fed.R.Civ.P. 65. As the court is acting in equity, the decision to enter a preliminary injunction is largely left to its discretion. See Big Country Foods, Inc. v. Board of Educ. of Anchorage School Dist., 868 F.2d 1085, 1087 (9th Cir. 1989). Traditionally, this rule has been interpreted to require the trial court to consider the likelihood that plaintiffs will prevail on the merits and the possible harm to the parties from granting or denying the injunctive relief. See Arcamuzi v. Continental Air Lines, Inc., 819 F.2d 935, 937 (9th Cir. 1987); Sierra On-Line, Inc. v. Phoenix Software, Inc., 739 F.2d 1415, 1421 (9th Cir. 1984).
At the extremes, the party seeking injunctive relief must show either (1) a combination of probable success on the merits and the possibility of irreparable harm, or (2) that serious questions are raised and the balance of hardships tips sharply in the moving party's favor. Miss World (UK) Ltd. v. Mrs. America Pageants, Inc., 856 F.2d 1445, 1448 (9th Cir. 1988); Rodeo Collection, Ltd. v. West Seventh, 812 F.2d 1215, 1217 (9th Cir. 1987). "These are not two distinct tests, but rather the opposite ends of a single `continuum in which the required showing of harm varies inversely with the required showing of meritoriousness.'" Miss World, 856 F.2d at 1448 (quoting Rodeo Collection, 812 F.2d at 1217). However, in any situation, the court must find that there is some threat of an immediate irreparable injury, even if that injury is not of great magnitude. Big Country, 868 F.2d at 1088 (citing cases); Oakland Tribune, Inc. v. Chronicle Publishing Co., Inc., 762 F.2d 1374, 1376 (9th Cir. 1985) (citing cases).
Where the issue is whether a party should be compelled to arbitrate, some courts have held that the harm to the moving party is per se irreparable if the arbitration proceeds prior to resolution of the issue. Paine Webber, Inc. v. Hartmann, 921 F.2d 507, 514-15 (3d Cir. 1990). Because the right to a preliminary determination of whether a party should be compelled to arbitrate is abrogated if a preliminary injunction is not granted, harm may be deemed to exist as a matter of law if the issue of arbitrability is not resolved prior to arbitration. Paine Webber Inc., 921 F.2d at 515 ("[W]e think it obvious that harm to a party would be per se irreparable if a court were to abdicate its responsibility to determine the scope of an arbitrator's jurisdiction and, instead, were to compel the party, who has not agreed to do so, to submit to an arbitrator's own determinations of its authority."). See also McLaughlin Gormley King Co. v. Terminix Int'l Co., 105 F.3d 1192, 1194 (8th Cir. 1997) ("[P]rior cases uniformly hold that the party urging arbitration may be enjoined from pursuing what would now be a futile arbitration [in the event that the dispute is found by the court not to be arbitrable] even if the threatened irreparable injury to the other party is only the cost of defending the arbitration and having the court set aside any unfavorable award."). However, when courts have the opportunity to fully review the merits of the claim of arbitrability or lack thereof, no per se irreparable harm results from the denial of a preliminary injunction.
DISCUSSION
Defendants argue that this court does not have jurisdiction over the lawsuit because AGS is a non-diverse party; that a determination of whether AGS is subject to arbitration is the province of the arbitration panel, not this Court; and that AGS has not demonstrated the likelihood of success on the merits and irreparable harm required for a preliminary injunction to issue.
1. Diversity of the parties
As a preliminary matter, this Court must resolve defendants' motion to dismiss plaintiff's complaint for lack of diversity jurisdiction. Defendants argue that AGS has a substantial predominance of business in California, and thus that AGS is a corporate citizen of California. If AGS were in fact a corporate citizen of California, diversity jurisdiction would be destroyed because defendants are corporate citizens of California.
Defendants claim that despite AGS's incorporation in Alaska, under the substantial predominance of business test, AGS is a corporate citizen of California. Defendant cites Tosco v. Committees for Better Environment, 236 F.3d 495, 500 (9th Cir. 2001) and Industrial Technologies, Inc. v. Aero Alloy, 912 F.2d 1090, 1092 (9th Cir. 1990) as support for this proposition. Defendants argue that AGS has higher revenues and assets in California than in other states, that defendant has four offices in California and only one in Alaska, and that AGS's President/CEO resides in California. Defendant argues that these factors make AGS a corporate citizen of California.
Plaintiff responds that whether the court has jurisdiction should be based on a "total activity" test, which encompasses both the "nerve center" test and "corporate activity test." Where a corporation's activities are not predominantly located in one state, a "nerve center" test is applied, Breitman v. May Company of California, 37 F.3d 562, 564 (9th Cir. 1994). Plaintiff argues that its business activities are diffuse and not predominantly located in one state. Plaintiff argues that while certain business activities are focused in California, other important business activities are not. For example, AGS has far more employees in Missouri. Its contract approval, personnel policy, board decisions and asset acquisition departments are all located in Alaska. Taxes are filed in Alaska. All of these factors are considered by courts when determining where corporate citizenship is located. Unger v. Del E. Webb Corp., 233 F. Supp. 713, 715 (N.D.Cal. 1964); Tosco, 235 F.3d at 500.
While the bulk of defendants' argument focuses on their claim that AGS has a substantial predominance of business in California, defendants also argue: "From a nerve center perspective, AGS has 4 offices in San Francisco, Los Angeles, Fresno, and Sacramento, versus only one office in Alaska. AGS' President/CEO Chris Smith resides in California and is both President/CEO of AGS and President of the California division. AGS advertises the majority of its professional staff as working predominantly in California." Memorandum of Points and Authorities in Opp. to Mot. for Temporary Restraining Order and for Injunction at 9:1-8.
AGS submits that its 2002 corporate revenues and assets were far more evenly dispersed across the states in which it does business than defendants acknowledge. AGS claims that the snapshot of revenues taken by defendants in their motion to dismiss does not reflect the relevant time period and should therefore not be a basis for finding that the parties are nondiverse. Plaintiff claims that the proper focus of a jurisdictional analysis is on the corporate citizenship of plaintiff in July, 2002, when the case was filed.
Based on the information provided by AGS about its corporate activities, employee distribution, location of property and sources of revenue, this Court is convinced that AGS's business is not predominantly located in one state and thus that the "nerve center" test should be used in lieu of the "substantial predominance" test. See Ho v. IKON Office Solutions, 143 F. Supp.2d 1163, 1164-65 (N.D. Cal. 2001) (nerve center test was developed by the courts to account for circumstances in which a corporation's activities are spread thoroughly and relatively evenly and there is no principled basis for identifying one state as the principal place of business based on predominance of activity). AGS submits that board meetings, shareholder annual reports, taxes, insurance, banking and bonding all occur in Alaska and thus that Alaska is the principal place of AGS's business. Under the nerve center test, this Court is convinced that AGS is a corporate citizen of Alaska, not California, and thus the parties are diverse for purposes of maintaining diversity jurisdiction.
2. Jurisdiction to decide the issue of arbitrability
Plaintiff argues that whether parties agreed to arbitrate is a question for the court, not the arbitrator. AT T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643 (1986). Defendants argue that the arbitration panel has jurisdiction to decide whether arbitration may be compelled. Defendants cite the Construction Industry Arbitration Rules (R-9) which are incorporated by reference into every arbitration agreement in the construction industry. That rule states: "Arbitrators shall have the power to rule on any objections to the existence of the arbitration agreement." That arbitrators may rule on the existence of an arbitration agreement, however, is a separate question from whether the courts have the ultimate authority to decide the issue and whether a party that believes it is not properly subject to arbitration may obtain judicial review of the arbitrability of the dispute prior to the arbitration itself.
In AT T Technologies, Inc. v. Communications Workers of America, the Supreme Court reiterated the general rule that questions about whether a party should be compelled to arbitrate are to be resolved by the courts. The Court articulated an exception to this rule where there is a standard arbitration clause, the contract states unambiguously that the parties agree to arbitrate, and one of the parties is using judicial review of the arbitrability of the claim as a mere ruse to entangle the court in an analysis of the merits of the issue. Id. at 648-649. That exception does not apply her, since plaintiff is a non-signatory to the construction contract. Instead, the general rule applies: "Unless the parties clearly and unmistakably provide otherwise, the question of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator." Id. at 649.
Parties may only be compelled to arbitrate when they have agreed in advance to do so. Paine-webber, Inc., v. Hartmann, 921 F.2d 507, 510-511 (3d Cir. 1991). Judicial review to determine the existence of advance agreement, or lack thereof, is appropriate prior to arbitration, when arbitrability is disputed. The Federal Arbitration Act, 9 U.S.C. § 4, grants federal courts the authority to compel and enjoin arbitration.E.E.O.C. v. Frank's Nursery Crafts, 177 F.3d 448, 459 (6th Cir. 1999). Accordingly, this Court has jurisdiction to review whether plaintiff may be compelled to arbitrate and, based on its finding, either compel plaintiff to arbitrate or enjoin arbitration.
3. When nonparties to an arbitration agreement can be compelled to arbitrate
While the FAA evinces a federal policy in favor of arbitration, "arbitration 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."United Steelworkers v. Warrior Gulf Navigation Co., 363 U.S. 574 (1960). There are however, certain circumstances in which nonparties to the contract may be bound.
Numerous cases have described circumstances in which nonparties may be bound. "[C]ourts will occasionally enforce a contract against a stranger to that contract where privity of contract existed between the nonparty and one who was a party to the contract[.]" E.E.O.C. v. Frank's Nursery, 177 F.3d 448, 460 (6th Cir. 1999). "A nonsignatory may compel arbitration against a party to an arbitration agreement when that party has entered into a separate contractual relationship with the nonsignatory which incorporates the existing arbitration clause." Thomson-CSF, S.A. v. American Arbitration Ass'n, 64 F.3d 773, 777 (2d Cir. 1995). A nonsignatory may be bound under "ordinary principles of contract and agency." McAllister Bros., Inc. v. A S Transp. Co., 621 F.2d 519, 524 (1980).
Defendants argue that although AGS never became a signatory to the construction contracts containing the arbitration clauses, its failure to sign was a mere formality and that it should still be bound. Defendants argue that AGS is clearly a joint venturer in the construction contract with VEI, as evidenced by the sharing of profits and losses and common control. Memo in Opp. to Mot. for Temporary Restraining Order and Injunction at 18. Defendants claim that as a joint venturer, AGS is bound by the acts of VEI, including VEI's agreement to submit disputes with the Owners to arbitration. "Irrespective of whether AGS signed the Contracts, its joint venture partner did, on behalf of the joint venture, thus binding AGS." Id. at 18:21-23.
a. Joint Venture Agreement
Before this Court can proceed to the question of whether the Joint Venture Agreement binds the plaintiff to arbitration, the Court must determine whether a valid joint venture agreement was in effect. If so, the Court must also determine its scope. Defendants submit that "AGS was a partner in the performance of the construction contracts." Defs'. Memo. in Opp. to TRO and Injunction Mot. at 12:25. According to defendants, AGS's vice-president Stan Miller was appointed to be the CEO of the Hauser project; Miller provided weekly on-site supervision; AGS and VEI had a joint bank account; and AGS co-signed every check to every subcontractor.
Defendants concede that the construction contracts predate the joint venture, but state that the joint venture is still bound by these contracts' terms because when AGS entered into the joint venture its entry had the effect of ratifying and accepting the prior contracts entered into by VEI with the owners. The original Joint Venture Agreement stated: "VE hereby assigns and transfers to the Joint Venture its contract or contracts for the Hauser Project. VE warrants it has or will obtain all necessary consents to the assignment and transfer." Memo in Support of Prelim. Injun. at 3:14-17. Defendants argue that a formal written agreement encompassing all the terms of joint venture is not legally required, and that plaintiff's conduct alone is a sufficient basis from which to infer that a joint venture existed with respect to VEI's acts prior to entry into the Joint Venture.
The original joint venture also stated that "Because the negotiations for the contract have been primarily performed by VE, the project owner and its financial institution, an authorized representative of VE will sign the contract, all modifications to the contract which require the signature of the contractor and all certifications of claims where certifications are required. Prior to signing any contract document which imposes contractual liability or obligation on AHTNA, either directly or as a partner to the joint venture, a copy of the contract document shall be delivered to AHTNA, and AHTNA shall first approve and authorize its execution prior to signing by VE." Memo at 3:21-4:3.
The Joint Venture agreement provided: "Once the contract and the underlying financing are secured, the parties shall make satisfactory arrangement for the addition of AHTNA to the contract documents and the assignment of the prime contract from VE to the Joint Venture." However, VEI was not able to secure the Lender's consent to make these changes. In light of the inability to obtain the written assignment, as required by the construction contract, on September 21, 1999 VEI and AGS executed a "First Amendment to Joint Venture Agreement."
According to plaintiff, AGS merely provided bonding for VEI in exchange for 51% of the profits. Plaintiff's Brief in Opp. to Mot. to Dismiss at 7:14-16. Plaintiff argues that the original relationship between AGS and VEI was simply that AGS bonded VEI's work on the construction contract. Subsequently, the parties decided to become joint venturers together on the construction contracts. However, AGS argues that the two parties were ultimately unable to execute such an agreement, and so AGS reverted to the capacity which it had originally contemplated — not as an assignee of the contract, but merely as a supplier of bonding to VEI in exchange for 51% of the profits.
The parties disagree about the effect of the Amendment. According to plaintiff, "In response to this unforeseen obstacle (the Lender refused to name AHTNA on the bonds or on the contract documents) the Joint Venture partners abandoned the proposal to assume the Construction Contracts." Mem. in Support of Mot. at 4:16-20. Defendants claim that there is no evidence that the joint venture was dissolved and that, to the contrary, the joint venture was not called into question until the arbitration dispute arose.
Plaintiff maintains that when the parties learned that they would be unable to substitute the joint venture for VEI and add AHTNA's name to the construction contracts, "the agreement to obtain an assignment and joint venture was rescinded." Decl. of Christopher Smith at 5:13-17. However, in a memo from Richard Harris of AGS to VEI on August 25, 1999, the date on which the first Joint Venture Agreement was executed, Harris explained that he had been advised that the documents could not be changed "before actual closing of the loan" but that "this does not impact on the viability of the joint venture or any provisions of the agreement." Exh. 8 to the Decl. of Christopher Smith. By all accounts at the time that the Bank refused to add AHTNA to the contract, this change in circumstances was acknowledged as a technicality, as evidenced by the Harris memo.
The amendment that AGS claims constituted a rescission states, "the parties have subsequently determined that the Hauser Project work should be performed by the Joint Venture as a sub-contractor to VE and not as an assignee of VE." This amendment does not compromise the validity of the joint venture. Further the language creating the joint venture was not rescinded. In light of the parties' stated intent to enter into a join agreement, and the failure to rescind the agreement to act jointly, this Court finds that the parties maintained a joint venture post-amendment.
Although the paragraph assigning the contract to the joint venture was rescinded, and replaced with a paragraph stating that the joint venture is now the subcontractor to VEI, the difference is immaterial. AGS remained part of the joint venture and agreed that the joint venture would be a subcontractor on the construction contracts with VEI. The Amendment notes, "All of the remaining terms and provisions of the Joint Venture Agreement shall remain in effect."
When the contract started to go sour, AGS made numerous and repeated requests to Mr. J. Valenzuela, President of VEI, to apprise AGS of the contract status and the status of negotiations with the Owners. AGS upbraided VEI for failing to consult AGS prior to communicating with the Owners. In a September 12, 2000 letter, Mr. Rick Shirelty from AGS stated, "your firm [Valenzuela] has been the first point of contact for Hauser architects and it is your responsibility to keep the principals of the Joint Venture informed of all developments that may cause financial exposure to the JV."
AGS's conduct belies its argument that the Joint Venture was rescinded. There is overwhelming evidence that although AGS was not added to the construction agreements, its conduct indicated an intent to be bound by those agreements. Reviewing the August 27, 1999 agreement itself there is clear language indicating that the parties entered into the joint venture agreement to "propose, negotiate and perform the contract" with the Owners. See Exh. 4 to the Decl. of Christopher Smith, president of AHTNA. Contrary to plaintiff's allegations, the amendment to the Joint Venture Agreement did not have the effect of rescinding that Agreement.
b. Whether plaintiff, as a joint venturer, is bound by the arbitration clause in VEI's contract with the Owners
Having found that the Joint Venture Agreement remained in effect, the Court now examines whether the existence or performance of the agreement is a sufficient basis for binding the plaintiff to the arbitration clause in the contract between VEI and the Owners. Plaintiff argues that Britton v. Co-op Banking, 4 F.3d 742 (9th Cir. 1993) stands for the proposition that written assignment is necessary to bind a nonsignatory to an arbitration clause. However, Britton does not support this proposition.Britton stated the general proposition that only parties to agreements to arbitrate may be compelled to arbitrate, and then stated the exceptions. "[B]ecause Liebling was not a party to the agreement, he must fit into one of the three categories that follow in order to invoke the right to arbitrate." 4 F.3d 742, 745. "Courts have held that nonsignatories of arbitration agreements may be bound by the agreement under ordinary contract and agency principles." Id. at 745. Circumstances that theBritton court identified in which non-parties could be bound include circumstances in which the nonparty is: a third party beneficiary to the contract containing the arbitration agreement; a successor-in-interest; or one of a class of agents whom the arbitration clause was intended to benefit. Id. at 745-746.
Applying the Britton court's analysis, the Court finds that AGS is not a third-party beneficiary and may not be compelled to arbitrate on that basis. Britton defined third-party beneficiaries as those persons whom the evidence reveals were intended to benefit from the terms of the contract containing the arbitration clause at the time that the contract was made. Because the contract was formed between the Owners and VEI prior to the Joint Venture between AGS and VEI, AGS cannot have third-party beneficiary status with respect to the contract. The contract between the Owners and VEI did not envision or intend AGS as a third-party beneficiary.
Similarly, AGS is not a successor-in-interest. Successor-in-interest is defined in Britton very narrowly to apply only to "assignees" when the assignee can prove that the assignor meant to assign it the rights and obligations under the contract. In this case the amended joint venture agreement specifically disclaimed assignment of the rights and interests under the contract. The First Amendment to Joint Venture Agreement stated:
Under the terms of the Joint Venture Agreement, VE is required to assign the Hauser Project Contract to the joint venture. C. The parties have subsequently determined that the Hauser Project work should be performed by the Joint Venture as a sub-contractor to VE and not as an assignee of VE.
See Exh. 6 to Plaintiff's Request for Judicial Notice, "First Amendment to Joint Venture Agreement."
Therefore, AGS does not satisfy the requirements of the successor-in-interest theory as it was articulated in Britton. However, because VEI and AGS agreed in the First Amended Joint Venture Agreement that the Joint Venture would act as a subcontractor rather than assignee to VEI, but still would still serve the purpose of performing the construction contracts, it could be said that a "de facto" assignment existed, even after the First Amendment to Joint Venture Agreement created a subcontractor relationship. This was no ordinary subcontract; it was, in effect, a contract to perform all of the contract's terms. The parties agreed to subcontract under the following terms, articulated in paragraph 4 of the amended agreement:
VE agrees that it will subcontract to the joint venture its contracts for the Hauser projects. The subcontract shall occur immediately following the qualification of AHTNA and the joint venture as licensed contractors as required by the California Business and Professions Code. VE warrants that it has or will obtain all necessary consents for entering to the subcontract. VE agrees to indemnify and hold harmless AHTNA from any costs, claims, liability or damages incurred by reason of the failure or inability of VE to perform its obligation to enter into the subcontract as required by this paragraph.
The parties dispute whether the licenses on which the subcontract's commencement was made contingent were ever obtained. At oral argument, the parties' lawyers made conflicting statements of fact on this issue. Regardless, there is abundant evidence that the parties held themselves out as joint venturers and conducted business according to the terms of the First Amendment to Joint Venture Agreement and the earlier Joint Venture Agreement to the extent that the first agreement was left intact following amendment.
The theory articulated in Britton that is most applicable here is agency theory. This theory asks whether the person against whom the arbitration contract is asserted is an agent of the signatory to the contract. To answer this question the Britton court asked whether any of the alleged wrongdoing of the party seeking to avoid arbitration "related to or arose out of the contract containing the arbitration clause." Id. at 748. The answer to that question with respect to AGS is unquestionably, yes. AGS had an agreement with VEI to perform the construction contracts. Their joint venture constituted an agency relationship. Any allegations that the contracts were not fully performed or that the joint venture was not compensated for its work, are necessarily allegations that arise out of and because of the contract. If AGS had not agreed to perform on the contract, it would not be bound by its provisions, but its agreement to perform the contract's provisions constitutes an intent to be bound by the contract's terms. Thus, under the Britton test, AGS, by assuming contractual liability, also submitted to the contract's terms, one of which was arbitration.
The part of the joint venture agreement requiring "performance of that certain contract . . . for 73 Sumner, LLC, 60 Rausch LLC, and 62 Rausch LLC" was not disclaimed by the First Amendment to the Joint Venture Agreement. The arbitration clause was one of the specific terms of the contract that the joint venture agreement was formed to perform. Accordingly, by entering into the joint venture agreement, regardless of whether it did so as an assignment or subcontractor, AGS agreed to be bound by the terms of the contract between VEI and the Owners.
Non-parties cannot, however, be compelled to arbitrate where the provisions of the contract plainly limit its rights and obligations to the parties to the contract. Wilson v. Waverlee Homes, Inc., 954 F. Supp. 1 1530 1534 (M.D.Ala. 1997). The construction contract at issue, however, provides expressly for the joinder of "other persons substantially involved in common question of fact or law" [who are] "required if complete relief is to be accorded in arbitration."
In Thomson-CSF, S.A. v. American Arbitration Association, 64 F.3d 773, 776 (2d Cir. 1995) the court set forth several theories under which nonsignatories to contracts may be bound. "This Court has recognized . . . five theories for binding nonsignatories to arbitration agreements: 1) incorporation by reference; 2) assumption; 3) agency; 4) veil-piercing/alter ego; and 5) estoppel.").
In cases in which parties have been bound to arbitrate under an estoppel theory, nonsignatories to contracts with arbitration clauses have successfully compelled arbitration by signatories under an estoppel theory because of the "close relationship between the entities involved, as well as the relationship of the alleged wrongs to the nonsignatory's obligations and duties in the contract . . . and [the fact that] the claims were `intimately found in and intertwined with the underlying contractual obligations.'" Sunkist Soft Drinks, Inc. v. Sunkist Growers, Inc., 10 F.3d 753, 757 (11th Cir. 1993), cert. denied, 115 S.Ct. 190 (1994) (quoting McBro Planning Dev. Co. v. Triangle Elec. Constr. Co., 741 F.2d 342, 344 (7th Cir. 1984)). Here the facts are different, in that a signatory wants to compel arbitration by a nonsignatory; therefore, there is not a strong argument that an estoppel theory applies. In Thomson-CSF, the court declined to apply an estoppel theory on the grounds that the signatory was seeking to compel arbitration by the nonsignatory, stating that on those grounds "these estoppel cases [are] inapposite and insufficient justification for binding" the nonsignatory to the arbitration agreement. 64 F.3d at 779.
Ordinary contract and agency principles are sufficient bases for compelling a nonsignatory to an arbitration agreement to arbitrate its claims. Having acted and held itself out as a joint venturer in the construction contract, agreed to perform the terms of that contract, and received the benefits of that contract, AGS is bound by the acts of its partner VEI. Therefore this Court must DENY plaintiff's motion for a preliminary injunction or temporary restraining order; and GRANT defendants' motion to compel arbitration. This Court is convinced that AGS continued to perform the terms of the Joint Venture. The exhibits to the Hauser declaration provide significant evidence that AGS continued to act as the Joint Venturer. The Hauser exhibits include a March 2, 2000 California Preliminary Notice identifying "Valenzuela Engineering, Inc./Ahtna Government Services" as the general contractor (Exh. 1); several "Unconditional Waiver and Release Upon Progress Payment" forms to VEI/AGS (Exhs. 2-4); a memo from the Regional Manager of VEI to the bank containing a schedule for the "San Francisco Lofts by VE/AGS"; and numerous other documents that identify VEI and AGS as partners in the construction of the Lofts. Under traditional contract and agency principles, AGS, by its actions, bound itself to perform the contract's terms, and did perform the contract's terms. Therefore, although it is a nonsignatory to the contract, the Court finds that it is bound to arbitrate its dispute.
4. Plaintiff's motion for a continuance of defendants' motion to compel
Plaintiff has made a motion for a continuance of defendants' motion to compel. The Court finds that the arguments and evidence presented by the parties in connection with the preliminary injunction and temporary restraining order have substantial overlap with defendants' motion to compel. Because the Court has determined that it has an adequate basis to arrive at a decision on the motion to compel at this time, plaintiff's motion for a continuance is DENIED.
5. Requests for judicial notice
Plaintiff and defendants request that this Court take judicial notice of certain documents and memoranda relating the construction contracts between VEI and the Owners, and the Joint Venture Agreement between VEI and AGS, including the contracts and agreements themselves. Finding no opposition to the request for judicial notice from defendants, the Court hereby takes judicial notice of said documents pursuant to its authority under Fed.R.Evid. 201.
CONCLUSION
For the foregoing reasons, plaintiff's motion for a preliminary injunction or temporary restraining order is DENIED [docket #3 (Ex Parte Application for Expedited Ruling on Motion for Preliminary Injunction or Temporary Restraining Order); docket #5 (Memo in Support of Motion for TRO and Preliminary Injunction)]; plaintiff's motion for a continuance of the hearing date on defendant's motion to compel is DENIED [docket #22 (Objection to Motion to Compel Arbitration)]; plaintiff's and defendants' requests for judicial notice are GRANTED [docket #3 (plaintiff's request); docket #13 (defendants' request)]; defendants' motion to dismiss based on lack of jurisdiction is DENIED [docket #11]; defendants' motion to compel arbitration is GRANTED [docket #11]; and plaintiff's motion to strike the Hauser declaration is DENIED [docket #25].
IT IS SO ORDERED.