GOE Lima, LLC et al v. Ohio Farmers Insurance Company et al

UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF OHIO
WESTERN DIVISION
In Re:
GOE Lima, LLC,
Debtor.
GOE Lima, LLC,
Plaintiff,
v.
Ohio Farmers Insurance Company
Defendant.
) 	Case No.: 08-35508
)
) 	Chapter 11
)
) 	Adv. Pro. No. 09-3204
)
) 	Hon. Mary Ann Whipple
)
)
)
)
)
)
)
)
MEMORANDUM OF DECISION AND ORDER REGARDING
MOTION FOR RELIEF FROM ABEYANCE ORDER
On October 13, 2009, based on a stipulation of the parties, the court entered an order holding this
adversary proceeding in abeyance pending completion of arbitration proceedings between Plaintiff GOE
Lima, LLC, (“GOE”) and Third-Party Defendant Smith-Boughan, Inc. (“Smith-Boughan”), on claims
asserted in Adversary Proceeding No. 09-3020. GOE is the debtor is the underlying Chapter 11 case. This
the record of the United States Bankruptcy Court for the Northern District of Ohio.
of this court the document set forth below. This document has been entered electronically in
The court incorporates by reference in this paragraph and adopts as the findings and orders
Dated: March 19 2012
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proceeding now is before the court on a motion filed by Defendant Ohio Farmers Insurance Company
(“OFIC”) for relief from the October 13, 2009, order to permit OFIC to file, and this court to decide, a
motion for summary judgment (“Motion”), [Doc. # 27], 	and 	the opposition filed by PEA Lit, LLC
(“PEA”), [Doc. # 32].1 The court held a hearing on the motion at which attorneys for PEA and OFIC
attended in person. An attorney for the Liquidating Trustee under Plaintiff’s confirmed Chapter 11 plan
attended by telephone. Having considered the parties’ briefs and the arguments of counsel, for the reasons
that follow, OFIC’s Motion will be granted.
BACKGROUND
In 2006, GOE entered into a contract with Smith-Boughan for Smith-Boughan to provide certain
services in connection with construction of an ethanol facility on GOE’s property in Lima, Ohio
(“Construction Contract”). The Construction Contract includes the following provisions:
§ 4.6.3.1 If a claim is not resolved through mediation, the sole remedy of any party to the
mediation process shall be to make a written demand for binding arbitration. . . . 	Such
arbitration shall be conducted by a panel of three arbitrators . . . in accordance with the
Construction Industry Arbitration Rules of the American Arbitration Association then in
effect unless the parties agree otherwise. . . . Notice of demand for arbitration shall be filed
in writing with the other party to this Agreement and with the American Arbitration
Association. . . .
§ 4.6.3.2 The parties agree that all parties necessary to resolve a claim shall be parties to the
same dispute resolution proceeding. Appropriate provisions shall be included in all other
contracts relating to the Work to provide for the consolidation of such dispute resolution
proceedings.
[Doc. 1, Complaint, ¶ 2 & Ex. B, pp. 28-29].
OFIC, as surety, and Smith-Boughan, as Contractor/principal, executed a Performance Bond for the
benefit of GOE, designated therein as Owner. [Id., ¶ 3 & Ex. C]. The first paragraph of the Performance
Bond incorporates by reference the underlying Construction Contract as follows:
The Contractor and the Surety, jointly and severally bind themselves, their heirs, executors,
administrators, successors and assigns to the Owner for the performance of the Construction
Contract, which is incorporated herein by reference.
[Id., ¶ 1]. The Performance Bond sets forth certain steps that GOE must take before OFIC’s obligations
1 Although PEA was not a party entitled to participate in this adversary proceeding at the time its opposition was filed,
the court has since granted its motion to intervene as of right.
2
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under the Bond arise.2 [Id., ¶ 3].
Various disputes arose between GOE and Smith-Boughan, and GOE terminated the Construction
Contract on September 28, 2007. On October 14, 2008, GOE filed a voluntary petition for relief under
Chapter 11 of the Bankruptcy Code. 	On January 30, 2009, Smith-Boughan commenced an adversary
proceeding against GOE alleging, among other things, that GOE breached and wrongfully terminated the
Construction Contract. [Adv. Pro. No. 09-3020, Doc. 1]. 3 In its answer, GOE asserts a counterclaim for
breach of contract. [Id., Doc. # 22]. 	On September 1, 2009, that proceeding was stayed pending the
completion of arbitration proceedings between GOE and Smith-Boughan. [Id., Doc. ## 39, 54 & 60].
On August 28, 2009, GOE commenced this adversary proceeding against OFIC, seeking judgment
for damages allegedly caused by Smith-Boughan’s breaches of the Construction Contract and for which
OFIC is allegedly jointly and severally liable under the Performance Bond. OFIC filed a timely answer and
third party complaint against Smith-Boughan for indemnification. [Doc. # 10]. 	In it answer, OFIC
specifically denied GOE’s assertion that it has fulfilled conditions precedent to OFIC’s obligations under
the Performance Bond. [Id. at ¶ 15]. 	In its answer, OFIC avers that “all of the matters relating to
performance under the contract between [GOE] and Smith-Boughan are to be determined in an arbitration
which this Court has ordered to proceed and that, as a consequence, this action should be stayed until the
ordered arbitration has been conducted.” [Id. at ¶ 21]. On October 12, 2009, the parties filed a Stipulation,
agreeing that this proceeding should be stayed pending completion of arbitration proceedings between GOE
and Smith-Boughan or further order of this court, [Doc. # 12], and the court entered an order to that effect
on October 13, 2009.
2 The Performance Bond provides that
If there is no Owner Default, the surety’s obligation under this Bond shall arise after:
3.1 The Owner has notified the Contractor and the Surety . . . that the Owner is considering
declaring a Contractor Default and has requested and attempted to arrange a conference with
the Contractor and the Surety . . . .
3.2 The Owner has declared a Contractor Default and formally terminated the Contractor’s
right to complete the contract. . . .
3.3 The Owner has agreed to pay the Balance of the Contract Price to the Surety in
accordance with the terms of the Construction Contract or to a contractor selected to perform
the Construction Contract in accordance with the terms of the contract with the Owner.
[Doc. 1, Complaint, ¶ 3 & Ex. C].
3 The court takes judicial notice of the contents of its case docket. Fed. R. Bankr. P. 9017; Fed. R. Evid. 201(b)(2); In
re Calder, 907 F.2d 953, 955 n.2 (10th Cir. 1990); St. Louis Baptist Temple, Inc. v. Fed. Deposit Ins. Corp., 605 F.2d 1169, 1171-
72 (6 th Cir. 1979) (stating that judicial notice is particularly applicable to the court’s own records of litigation closely related to
the case before it.
3
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At status conferences in April and August 2010 in both this case and Adv. Pro. No. 09-3020, the
court was informed that neither GOE nor Smith-Boughan had taken any steps to initiate the arbitration
contemplated in the court’s orders. 	On September 16, 2010, GOE’s First Amended Joint Plan of
Liquidation (“Plan”) became effective, [See Case No. 08-35508, Doc. # 739], and all of GOE’s remaining
assets, including its claims against Smith-Boughan and OFIC, were transferred to the Liquidating Trust.
Pursuant to a Settlement Agreement approved by the court between GOE, the Committee of Unsecured
Creditors, PEA and others, on the effective date of the Plan, all of GOE and the Liquidating Trust’s “rights,
title and interest” in the claims against Smith-Boughan and OFIC were “deemed to have [been] assigned
to the Assignee,” identified as PEA in the Agreement.4 [Id., Doc. # 612 and attached Ex. 2, p. 5, ¶ 5].
At a status conference held on October 28, 2010, PEA informed the court that it had filed a demand
for arbitration with the American Arbitration Association (“AAA”) on October 22, 2010, naming Smith-
Boughan, OFIC, and two other entities as parties to the arbitration. However, the American Arbitration
Association has since determined that PEA did not meet “the minimum filing requirements” with respect
to OFIC and removed OFIC from the proceeding. [See Doc. # 49, Ex. 1].
LAW AND ANALYSIS
In its Motion, OFIC asks for limited relief from the court’s October 13, 2009, order staying this
proceeding in order that it may file and the court may decide a motion for summary judgment, the basis for
which is GOE’s alleged failure to comply with the conditions precedent to OFIC’s obligations as set forth
in the Performance Bond. OFIC argues that GOE has waived its right to arbitration of claims against OFIC
by filing this adversary proceeding. 5 PEA responds that OFIC’s Motion should be denied, relying on the
agreement entered into by GOE, OFIC, and Smith-Boughan that is evidenced by the stipulation filed on
October 12, 2009, the court’s October 13, 2009, order staying this proceeding, and on the Construction
Contract arbitration provision and the Performance Bond, which incorporates the provisions of the
Construction Contract. PEA also argues that 9 U.S.C. § 3 requires that the entire proceeding be stayed if
4 The Liquidating Trustee, who is not a party in this action, retains a residual interest in the proceeds of the claims by
virtue of the agreement to share the net proceeds realized from the Construction Claims (as defined in the Settlement Agreement).
[See Case No. 08-35508, Doc. # 612 and attached Ex. 2, p. 8, ¶ 8(C)].
5 OFIC also argues that it is not a party to any arbitration agreement with PEA since GOE's assignment of its rights under
the Bond to PEA was ineffective. According to OFIC, such assignment violated the clear terms of the Bond. It raised the same
issue in its opposition to PEA’s motion to intervene in this proceeding, arguing that PEA has no legal interest in this proceeding.
However, the court granted PEA’s motion, finding that the assignment of GOE’s claim against OFIC was a valid assignment.
4
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any issue within the proceeding is subject to arbitration.
The court first notes that the relief requested in OFIC’s Motion is relief from the court’s October 13,
2009, order. 	As stated above, that order stayed this proceeding pending the completion of arbitration
proceedings between GOE and Smith-Boughan in Adv. Pro. No. 09-3020. 	It did not require OFIC to
arbitrate the claim in this case. 	While OFIC voluntarily agreed to a stay of this proceeding pending
arbitration of claims between GOE and Smith-Boughan, there has been no application for a stay pending
arbitration of the claims asserted in this proceeding, and no order to that effect has been entered. Thus, the
court ordered the stay not under the mandatory stay provision of the Federal Arbitration Act, 9 U.S.C. § 3,
or its counterpart under Ohio law, Ohio Revised Code § 2701.02(B), but, rather, in the exercise of the
court’s inherent power to control its docket. See Landis v. North American Co., 299 U.S. 248, 254-55
(1936) (“[T]he power to stay proceedings is incidental to the power inherent in every court to control the
disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for
litigants.”).
The court also notes that OFIC is not a party in the arbitration proceeding. The Supreme Court has
made it clear that the decision to stay litigation among nonarbitrating parties pending the outcome of
arbitration is a decision that is left to the district court as a matter of its discretion.” Moses H. Cone Mem’l
Hosp. v. Mercury Const. Corp., 460 U.S. 1, 21 n.23 (1983). 	In exercising its discretion, an important
consideration “is whether [the] arbitrable claims predominate or whether the outcome of the nonarbitrable
claims will depend upon the arbitrator’s decision.” 	Rose v. Volvo Constr. Equip. N. Am., Inc., No.
1:05CV168, 2007 WL 846123, *13, 2007 U.S. Dist. LEXIS 19546, *40 (N.D. Ohio Mar. 20, 2007) (quoting
Klay v. Pacificare Health Sys., Inc., 389 F.3d 1191, 1204 (11th Cir.2004).
While the same operative facts form the basis of GOE’s claim in this proceeding as in the breach
of contract claims asserted in Adv. Pro. No. 09-3020, additional facts relating to GOE’s fulfillment of the
conditions precedent to OFIC’s liability under the Bond that must be determined in this proceeding are not
relevant to the adversary proceeding between Smith-Boughan and GOE. OFIC does not seek to lift the stay
as to the breach of contract issues. It asks the court to lift the stay only as to the issues relating to the
conditions precedent to its liability under the Performance Bond. To the extent that it prevails on these
issues, this proceeding will be concluded. 	And because these issues are not relevant to the breach of
contract claims alleged by Smith-Boughan and GOE in Adv. Pro. No. 09-3020, allowing OFIC to proceed
to litigate the issues relating to the conditions precedent will not interfere with, or be duplicative of efforts
5
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regarding, the arbitration of claims in Adv. Pro. No. 09-3020. 	Courts have declined to stay litigation
where, as in this case, it is entirely feasible for the nonarbitrating party to proceed with litigation while
arbitration is pending. See Axa Equitable Life Ins. Co. v. Infinity Fin’l Group, LLC, 608 F. Supp. 2d 1330,
13332 (S.D. Fla. 2009).
Moreover, although the court entered an order requiring arbitration in Adv. Pro. No. 09-3020 over
two years ago, arbitration proceedings have not yet proceeded to a point that substantive issues are being
addressed with respect to the breach of contract claim against Smith-Boughan. For this reason, and because
the outcome of litigation regarding the conditions precedent to OFIC’s liability under the Bond does not
depend on the arbitrator’s decision regarding the breach of contract claim, it would also be inefficient to
continue to stay this proceeding with respect to issues relating to the conditions precedent.
For these reasons, and because there has been no request to compel arbitration of the claim asserted
against OFIC in this proceeding, the court will grant OFIC’s Motion and, in the exercise of its inherent
power to control its docket, will permit OFIC to file a motion for summary judgment regarding the
performance by GOE of conditions precedent to its liability under the Performance Bond.
Although the parties raise other arguments regarding the arbitrability of claims in this proceeding,
because there has been no motion to compel arbitration and in light of the court’s decision, it does not
address those arguments.
THEREFORE, for the foregoing reasons, good cause appearing,
IT IS ORDERED that OFIC’s Motion [Doc. # 27] be, and hereby is, GRANTED; and
IT IS FURTHER ORDERED that this court’s October 13, 2009, order that this proceeding be held
in abeyance pending completion of arbitration proceedings between Smith-Boughan, Inc. and GOE Lima,
LLC, in Adv. Pro. No. 09-3020 is modified so as to permit OFIC to file, and the court to decide, a motion
for summary judgment on issues relating to conditions precedent to OFIC’s liability under the Performance
Bond; and
IT IS FINALLY ORDERED that OFIC shall file its motion for summary judgment on or before
May 4, 2012.
6
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