United States District Court, D. Maryland, Southern Division
UNITED STATES OF AMERICA f/u/b NATIONAL FIRE PROTECTION, LLC Plaintiff,
SELECTIVE INSURANCE COMPANY and DCM ARCHITECTURE AND ENGINEERING, LLC, Defendants.
J. HAZEL, UNITED STATES DISTRICT JUDGE
action is brought by the United States of America for the Use
and Benefit of National Fire Protection, LLC
(“NFP”) against Defendants Selective Insurance
Company of America (“Selective”) and DCM
Architecture and Engineering, LLC (“DCM') regarding
DCM's alleged breach of a subcontract with NFP. DCM has
initiated a proceeding with the American Arbitration
Association pursuant to the same project and contract,
bringing its own claims related to the alleged breach.
filed a Motion to Dismiss, ECF No. 24, asserting that the
subcontract contains an enforceable arbitration clause that
deprives the Court of jurisdiction. Plaintiff has filed a
motion for summary judgment, ECF No. 18, asking the Court to
find the arbitration clause unenforceable as a matter of law.
Plaintiff has also filed a motion for preliminary injunction,
ECF No. 20, asking the Court to stay the arbitration
proceedings. No. hearing is necessary. See Loc. R. 105.6 (D.
Md. 2016). For the following reasons, Defendants' Motion
to Dismiss, ECF No. 24, is denied. Plaintiff's Motion for
Summary Judgment, ECF No. 18, is granted, and Plaintiff's
Motion for Preliminary Injunction, ECF No. 20, is denied as
the general contractor on a project in Woodlawn, Maryland,
pursuant to a prime contract with the United States General
Services Administration. ECF No. 15 ¶ 15. DCM and NFP
contracted for NFP to perform fire sprinkler work for the
project in exchange for $92, 580. Id. ¶ 10. NFP
completed the project on August 29, 2017, but DCM did not pay
the agreed-upon amount. Id. ¶¶ 11, 14. The
contract between the parties states that the “[DCM], at
its sole discretion, may demand arbitration” and
“[a]ny claim arising out of or related to the contract
shall, at [DCM's] sole discretion, be subject to
arbitration.” ECF No. 18-2 at 10, 17.The contract also
provides that its terms shall by governed by the state law
where the project is located. ECF No. 18-2 at 17.
November 13, 2017, DCM filed an arbitration demand pursuant
to these clauses against NFP for $149, 000. ECF No. 15
¶¶ 19-20. On January 23, 2018, NFP filed its first
Complaint in federal district court. ECF No. 1.
STANDARD OF REVIEW
move to dismiss for lack of subject-matter jurisdiction
pursuant to Fed R. Civ. P. 12(b)(1), arguing that the
arbitration clause strips this Court of jurisdiction to
consider Plaintiff's claims. See ECF No. 24-1 at
3. In a challenge to the factual basis for subject-matter
jurisdiction such as this one, it is the plaintiff's
burden to prove that subject-matter jurisdiction exists.
See Richmond, Fredericksburg & Potomac R.R. Co. v.
United States, 945 F.2d 765, 768 (4th Cir. 1991). The
Court is to “regard the pleadings' allegations as
mere evidence on the issue, ” and applies “the
standard applicable to a motion for summary judgment, under
which the nonmoving party must set forth specific facts
beyond the pleadings to show that a genuine issue of material
fact exists.” Id.
on the other hand, seek summary judgment on Count II of the
Complaint, asking for a declaratory judgment that the
arbitration clauses in the contract are unenforceable as a
matter of law. Summary judgment is appropriate when the
pleadings and evidence demonstrate that “there is no
genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” Fed.R.Civ.P.
the Federal Arbitration Act (“FAA”), a written
agreement to arbitrate in a “contract evidencing a
transaction involving commerce” is “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 FAA establishes a
“federal policy favoring arbitration, ” and the
Court must “resolve any doubts concerning the scope of
arbitrable issues in favor of arbitration.” Noohi
v. Toll Bros., Inc., 708 F.3d 599, 605 (4th Cir. 2013)
(cleaned up). This policy requires courts to “place
arbitration agreements on an equal footing with other
contracts, and enforce them according to their terms.”
Id. at 606 (quoting AT&T Mobility LLC v.
Concepcion, 563 U.S. 333, 339 (2011)).
agreements may still be “invalidated by
‘generally applicable contract defenses, such as fraud,
duress, or unconscionability,' but not by defenses that
apply only to arbitration or that derive their meaning from
the fact that an agreement to arbitrate is at issue.”
Concepcion, 563 U.S. at 339 (quoting
Doctor's Assocs., Inc. v. Casarotto, 517 U.S.
681, 687 (1996)). “Generally, the rights and
obligations under the parties' contract are governed by
state law.” Volt Info. Scis., Inc. v. Bd. of
Trs., 489 U.S. 468, 474 (1989). The parties do not
dispute that Maryland law governs the contract here.
See ECF No. 18-2 at 17. Therefore, the Court must
determine whether, under Maryland law and the FAA, the
arbitration provisions at issue are enforceable.
case is governed squarely by the Court of Appeals
(“COA”) of Maryland's decision in Cheek
v. United Healthcare, 378 Md. 139 (Md. 2003), which was
applied by the Fourth Circuit in Noohi. In
Cheek, the Maryland COA considered whether an
arbitration agreement between an employer and employee in
which the employer reserved the right to “alter, amend,
modify, or revoke the Policy at its sole and absolute
discretion” was void for lack of consideration.
Cheek, 378 Md. at 142. The employer contended the
agreement was enforceable because it promised to
“provide [the employee] employment for . . . [his]
promise to abide by the terms of the arbitration agreement,
” but the court disagreed. Id. at 145.
Explaining that “[a] promise becomes consideration for
another promise only when it constitutes a binding
obligation, ” the Maryland COA held instead that the
agreement was an “illusory promise:” one that did
“not actually bind or obligate the [employer] to
anything.” Id. at 148. Because Maryland
considers an “arbitration clause of a larger contract
to be severable” from the remainder of the contract, it
requires consideration for the arbitration agreement itself.
Id. at 153. The COA held that “[i]n an
enforceable arbitration agreement . . . each party has
promised to arbitrate disputes arising from an underlying
contract, and each promise provides consideration for the
other.” Id. (internal quotations omitted). But
where only one party has the “sole and absolute
discretion” to arbitrate, there has been no mutual
exchange of promises to arbitrate, and the agreement is void
for lack of consideration. Id.
Noohi, the Fourth Circuit applied Cheek to
an arbitration agreement between a class of home buyers and a
real estate development company. 708 F.3d at 601. After
finding that Cheek requires that
“consideration for an arbitration provision must be in
the provision itself, ” id. at 609, the Fourth
Circuit considered whether Cheek was
“inconsistent with the Supreme Court's holding in
Concepcion because it singles out arbitration
provisions by imposing on them a requirement inapplicable to
other contract provisions, ” and thus was preempted by
the FAA, id. at 605. Recognizing that the
“Supreme Court has long held that ‘[courts] may
not . . . invalidate arbitration agreements under state laws
applicable only to arbitration provisions,
'” the court nonetheless concluded that
Cheek “treat[s] an arbitration provision like
any stand-alone contract, requiring consideration.”
Id. at 612 ...