Opinion
No. 1:03-cv-349
February 5, 2004
MEMORANDUM
I. Introduction
Currently pending before the Court are:
(1) The motion of defendant Connecticut General Life Insurance Company ("CGEIC") pursuant to 9 U.S.C. § 2 and Fed.R.Civ.P. 12(b)(6) to dismiss and to enforce alternative dispute resolution [Court File No. 3];
(2) The objections of defendant CGLIC to the order of the magistrate judge, entered on December 1, 2003, [Court File No. 18], which required CGLIC to answer discovery prior to the Court's ruling on CGLIC's motion to dismiss and enforce alternative dispute resolution [Court File No. 19].
These motions are now ripe for review.
II. Background
On June 13, 2000, plaintiff, Prudential MC Asset Holding Company, EEC ("Prudential") and CGLIC entered into an agreement for the lease of rental space. On September 15, 2003, Prudential filed its complaint in the Circuit Court of Hamilton County, Tennessee, against CGLIC due to the a forementioned's failure to pay $63,0162.82 in rent and $422.72 in interest as it became due under the lease agreement. On September 15, 2003, CGLIC was served with the state court complaint and certain discovery requests from Prudential.
Thereafter, on October 7, 2003, CGLIC removed the matter to this court pursuant to 28 U.S.C. § 1441. CGLIC asserted that this Court had jurisdiction over this action under 28 U.S.C. § 1332. Specifically, CGLIC asserted: (1) there is complete diversity of citizeaship between the parties because Prudential is a limited liability company organized under the laws of Delaware, and CGLIC is a corporation organized under the laws of Connecticut; and (2) the amount in controversy exceeds $75,000, exclusive of interests and costs. [Court File No. 1].
Along with its removal petition, CGLIC filed its motion to dismiss and enforce alternative dispute resolution [Court File No. 3], contending that the parties' controversy was an issue solely reserved for alternative dispute resolution. Shortly thereafter, CGLIC filed its motion to stay discovery [Court File No. 10]. It its motion, CGLIC sought to stay discovery pending resolution of its motion to dismiss and enforce alternative dispute resolution, asserting that it should not be required to respond to Prudential's requests for discovery, or, alternatively, seeking additional time to respond to the discovery requests.
Magistrate Judge William B. Mitchell Carter entered an order on CGLIC's discovery motion on December 1, 2003. [Court File No. 18]. He ordered CGLIC to respond to that portion of Prudential's requests for discovery which relate to CGLIC's motion to dismiss and enforce alternative dispute resolution. Id. at 5. III. The Court's subject matter jurisdiction
Pursuant to Fed.R.Civ.P. 12(h)(3), "[w]henever it appears by suggestion of the parties or otherwise that the court lacks jurisdiction of the subject matter, the court shall dismiss the action."
It its notice of removal under 28 U.S.C. § 1441, CGLIC asserted that this Court's subject matter jurisdiction was based upon diversity of citizenship under 28 U.S.C. § 1332. Title 28 U.S.C. § 1332 states in pertinent part:
a. The district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between —
(1) citizens of different states; . . .
Title 28 U.S.C. § 1332(a).
In its complaint which was filed in the Circuit Court of Hamilton County, Tennessee, Prudential asserted that CGLIC "is indebted to Prudential MC Asset Holding Company, LLC for $63,016.82 principal, $ 422.72 interest and reasonable attorney's fees in an amount to be proven at trial." [Court File No. 1, Complaint, ¶ 5].
When an action is removed from state to federal court pursuant to 28 U.S.C. § 1441, "[t]he removing party bears the burden of establishing the district court's jurisdiction by a preponderance of the evidence." In re High Fructose Corn Syrup Antitrust Litigation, 936 F. Supp. 530, 531 (C.D. Ill. 1996) (citing Shaw v. Dow Brands, Inc., 994 F.2d 364, 366 (7th Cir. 1993)). Title 28 U.S.C. § 1332(a)(1) requires that the amount in controversy be $75,000.
Moreover, "interest is specifically excluded under the words of the statute and the established rule is that it is not to be included as part of the jurisdictional amount." Velez v. Crown Life Ins. Co., 599 F.2d 471, 473 (1st Cir. 1979). Generally, "attorney's fees are excludable in determining the matter in controversy because, normally, the successful party does not collect his attorney's fees in addition to or as part of the judgment." Id. at 474 (citing 1 Moore's Federal Practice 0.99(2)). However, there are two exceptions to the rule that attorney's fees are excludable in determining the amount in controversy for purposes of 28 U.S.C. § 1332. They are "where the fees are provided for by contract, and, two, where a statute mandates or allows payment of such fees." Id.
In this instance the lease, i.e., the contract, between Prudential and CGLIC provides in relevant part:
If any lawsuit, reference, mediation, or arbitration is commenced which arises out of or relates to this Lease, the prevailing party shall be entitled to recover from each other party, such sums as the court, referee, mediator or arbitrator may adjudge to be reasonable attorneys' fees in the action, reference, mediation or arbitration, including the allocated costs for the services of in-house counsel, in addition to costs and expenses otherwise allowed by law.
[Court File No. 1, Exhibit A, Lease, Section 44, Attorneys' Fees].
In this action, excluding interest, Prudential seeks $63,016.82 and reasonable attorney's fees in an amount to be proven. Because the contract — the lease — between the parties provides for the recovery of attorney's fees by the prevailing party, including the costs for the services of in-house counsel, the Court finds that the amount in controversy in this action exceeds $75,000 and, therefore, this Court has subject matter jurisdiction over this action.
IV. CGLIC's Motion to Dismiss and Enforce Alternative Dispute Resolution [Court File No. 3].
CGLIC moves pursuant to Fed.R.Civ.P. 12(b)(6) and 9 U.S.C. § 2 to dismiss this action and enforce alternative dispute resolution. CGLIC asserts this action should be dismissed because the lease at issue here "contains clear unambiguous alternative dispute resolution ("ADR") provisions requiring negotiation, mediation, and/or arbitration of disputes arising out of or relating to the Lease." [Court File No. 5, 11]. Prudential opposes CGLIC's motion to dismiss and enforce alternative dispute resolution on the ground that under the clear terms of the lease, alternative dispute resolution is not available when the dispute involves the non-payment of rent. [Court File No. 12].
The complaint filed by Prudential in state court alleges that on June 13, 2000, CGLIC and Eastgate Mall, LLC entered into a lease agreement for property located at Eastgate Town Center, 5600 Brainerd Road, Chattanooga, Tennessee. [Court File No. 2, Exhibit. 2, ¶ 2]. Prudential alleges that in April 2002, it acquired the rights, title and interest in the lease from Eastgate Mall, LLC. Id. at ¶ 3. Prudential further alleged that CGLIC breached the lease by failing to pay rent as it became due; and, as a result, is indebted to Prudential for $63,016.82 principal, $422.72 interest, and attorney's fees. Id. at ¶¶ 4 5.
Attached to CGLIC's motion to dismiss and enforce alternative dispute resolution [Court File No. 3] is the affidavit of Douglas E. Eaves. [Court File No. 4]. In his affidavit, Mr. Eaves states that he is the Regional Director of Facilities for CIGNA, and in that role was responsible for advising the landlord about maintenance issues for the leased premises which are the subject of this action. Id. at ¶ 2. In his affidavit, Mr. Eaves states that beginning about August 2002, CGLIC began experiencing workplace environmental problems, and related health issues, in the leased premises, which included molds, mildew, odors, water intrusion, plumbing backups and sewer pump failures. Id. at 3. Mr. Eaves stated that these environmental problems continued unabated until Spring 2003, and impaired CGLIC's business operations because its employees reported nausea, breathing problems and other health complaints stemming from the environmental problems. Id. at ¶ 4. Mr. Eaves states that between October and December 2002, some CGLIC employees were hospitalized and others had to go home. Id. at ¶ 5. In particular, he reports that on October 11, 2002, the environmental problems resulted in CGLIC sending home 150 out of the 400 employees who worked at the leased premises. Id. at ¶ 6.
Throughout his affidavit, Mr. Eaves details Prudential's allegedly failed attempts to address the environmental problems in the leased premises. Id. at ¶¶ 7, 8, 12, 13, 15, 16. He states that as the result of Prudential's efforts to remedy the environmental problems, on January 14, 2003, CGLIC had to move its employees out of the affected work area and disassemble their work spaces. Id. at 11.
Moreover, despite Prudential's attempts to rectify the alleged environmental problems in the leased premises, Mr. Eaves states that CGLIC continued to experience such problems in the leased premises. Id. at ¶¶ 14, 15, 17, and 18. Finally, Mr. Eaves states that:
Taking its employees' health concerns seriously, and due to the extensive history of substantial and material interferences with its business operations caused by Prudential's inability to remedy the Environmental Problems, CGLIC informed Prudential that it intended to terminate the Lease.Id. at 19.
The lease at issue provides in pertinent part:
SECTION 15. Repairs and Maintenance
. . . Landlord herewith covenants, at its sole cost and expense, to keep the Building and common areas in good order and repair. As and when required, Landlord shall repair and/or replace the structural portions of the Building, the roof and roof membrane, foundations, appurtenances, heating, ventilating and air conditioning equipment (if a "Major Repair" not covered by the service agreement referenced above), electrical systems, plumbing systems, lighting, elevator, storm drainage and other mechanical systems serving the Building and the Premises, parking area and exterior walls and windows of the exterior walls of the Building. Such repairs and replacements shall include (but not be limited to) any repairs replacements needed to comply with the requirements of any governmental agency, whether national, state or local.
All work performed by Landlord shall provide for containment of any toxic material which may be encountered and shall be in strict conformance with OSHA and EPA standards and local building codes and regulations. Landlord shall not use toxic paint or other materials which may emit fumes or odors harmful to Tenant's employees.
. . .
If Landlord fails to perform its obligations under this Section 16 in a timely manner and such failure materially and adversely affects Tenant's use of the Premises, then Tenant may perform such obligations and Landlord shall reimburse Tenant for all actual thirdparty out-of-pocket costs incurred by Tenant in connection with performing such obligations within thirty (30) days after Tenant delivers to Landlord written demand therefor, accompanied by invoices substantiating Tenant's claim. If Landlord fails to reimburse Tenant such amount within such thirty (30) day period, Tenant may offset such costs against its obligations to pay Base Rent.
SECTION 16. Tenant's Remedies
Subject to the provisions of Section 20 hereof, Landlord represents and warrants that the Building and the Premises are fit for their intended purposes, which include general office use, and that there are no zoning restrictions, building use regulations or contractual prohibitions which would have any adverse impact on Tenant's enjoyment of the Premises for its Permitted Use. If there is any intervening event which materially interferes with Tenant's ability to make use of the Premises for the conduct of its business for at least three (3) continuous business days, such as failure of utilities or other essential services for which Landlord is responsible hereunder, order of governmental authority, building defect, mechanical malfunction or otherwise, Tenant shall be relieved of its obligation to pay Rent under this Lease until such interruption is rectified. Landlord shall be permitted a reasonable grace period, not to exceed ten (10) days, to effect a correction of any such problem(s). Landlord shall have an additional ten (10) days grace period if the problem is beyond its control. In the event of the occurrence of any such intervening event, and Landlord's subsequent failure/inability to timely correct the problem(s), Tenant shall have the right, upon written notice to Landlord, to exercise any of the following options (i) withhold Base Rent and Additional Rent (which shall be thereby abated); or (ii) purchase services from an alternative source, make necessary construction alterations or other appropriate form of self-help, with the right to deduct the entire cost thereof from Base Rent and Additional Rent due or to become due under the Lease; or (iii) terminate the Lease if neither of the above options appear viable to Tenant, and Landlord has failed to cure the problem within one hundred twenty (120) days following the onset of any such event.
[Court File No. 1 Exhibit A, Lease, pp. 11-12]. The agreement further provides:
SECTION 47. Mitigation of Damages
Irrespective of any remedies expressly provided for in this Lease, or otherwise available at law or in equity, each party covenants to exercise good faith and use reasonable efforts to mitigate damages which may occur as a result of the other party's default.Id. at 25. Finally, the dispute resolution section of the lease provides:
SECTION 50. Dispute Resolution
a. Negotiation. The parties will attempt in good faith to resolve any controversy, dispute, claim or questions arising out of or in relation to this Eease, including without limitation, its interpretation, performance or non-performance by either party, termination, or any breach thereof, but specifically excluding any controversy, dispute, claim or question based upon non-payment of Base Rent and/or Additional Rent (hereinafter, collectively "Controversy") promptly by negotiation between designated representatives of the parties who have authority to settle the Controversy and do not have direct responsibility for administration of the Lease.
. . .
b. Mediation. If the Controversy has not been resolved by negotiation within forty-five (45) days of the disputing party's notice, or the party receiving the notice will not meet within thirty (30) days, either party may, upon written notice by one party to the other, initiate mediation of the Controversy in accordance with the Commercial Mediation Rules of the American Arbitration Association, to the extent that such provisions are not inconsistent with the provisions of this Section. The parties will jointly appoint a mutually acceptable mediator, seeking assistance in this regard from the American Arbitration Association if they are unable to agree upon such appointment within twenty (20) days of the notice of mediation. The parties agree to participate in good faith in the mediation and negotiations thereto for a period of thirty (30) days after the appointment of the mediator. The parties shall share equally the cost of the mediation.
c. Binding Arbitration. If the Controversy has not been resolved by mediation within thirty (30) days of the appointment of the mediator, of [sic] if a mediator is not appointed within thirty (30) days of the notice of mediation, upon written notice, either party may elect to submit the Controversy to binding arbitration conducted in Chattanooga, Tennessee. The parties to this Lease, by entering into it, are expressly waiving their rights to have any Controversy decided in a court of law and/or equity before a judge or jury, and instead are accepting the use of binding arbitration. Such arbitration shall be governed by the provisions of the Commercial Arbitration Rules of the American Arbitration Association, to the extent that such provisions are not inconsistent with the provisions of this Section . . .
This Dispute Resolution process shall be the sole and exclusive means for resolving any Controversy provided however, that either party may seek a preliminary injunction, attachments or other provisional judicial relief if such action is necessary to avoid irreparable damage or to preserve the status quo . . .Id. at 27-29.
In a diversity case, the district court must apply the law of the forum.,/. C. Bradford Co. v. York, No. 3:89-0913, 1990 WL 127010 at *2 (M.D. Tenn. July 20, 1990) (citing Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938)). In 1983, the Tennessee legislature enacted the Uniform Arbitration Act and, as a result, "an agreement to arbitrate became binding on the parties in Tennessee, contrary to the common law rule and the interpretations given to . . . prior [Tennessee] statutes." Brown v. KareMor Intern., Inc., 1999 WL 221799, at *2 (Tenn.Ct.App. Apr. 19, 1999).
The Uniform Arbitration Act, Tenn. Code Ann. § 29-5-302 states in pertinent part:
(a) A written agreement to submit any existing controversy to arbitration or a provision in a written contract to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable save upon such grounds as exist at law or in equity for the revocation of any contract . . .
(b) The making of an agreement described in this section providing for arbitration in this state confers jurisdiction on the court to enforce the agreement under this part and to enter judgment on an award thereunder.
Tenn. Code Ann. § 29-5-302. The law is well-settled in Tennessee that pursuant to the Tennessee Uniform Arbitration Act, arbitration agreements are favored and "should be given as broad a construction as the language of the agreement will warrant." Benton v. Vanderbilt University, 2003 WL 1627029, at *3 (Tenn.Ct.App. Mar. 31, 2003) (citing Buraczynski v. Eyring, 919 S.W.2d 314, 317 (Tenn. 1996); Wachtel v. Shoney's, Inc., 830 S.W.2d 905, 908 (Tenn.Ct.App. 1991)). Moreover, the Tennessee Uniform Arbitration Act "is substantially the same as that contained in the Federal Arbitration Act" ("FAA"), 9 U.S.C. § 2. Howell v. NHC Healthcare-Fort Sanders, Inc., 109 S.W.3d 731, 733 (Tenn.Ct.App. 2003).
9 U.S.C. § 2, the FAA provides:
A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.
Title 9 U.S.C. § 2.
The FAA's purpose is "to ensure the enforceability, according to their terms, of private agreements to arbitrate." Mastrobuono v. Shear son Lehman Hutton, Inc., 514 U.S. 52, 57, 115 S.Ct. 1212(1995). However:
Arbitration under the [FAA] is a matter of consent, not coercion, and parties are generally free to structure their arbitration agreements as they see fit. Just as they may limit by contract the issues which they will arbitrate, so too may they specify by contract the rules under which that arbitration will be conducted.Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 479, 109 S.Ct. 1246, 1248 (1989) (internal citations omitted)). The pro arbitration policy of the FAA "does not operate without regard to the wishes of the contracting parties." Mastrobuono, 514 U.S. at 57.
Further, "[c]ourts should generally apply `ordinary state-law principles' in deciding whether the parties agreed to submit certain issues to arbitration." First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920 (1995) (citing Mastrobuono, 514 U.S. at 62-63). The cardinal rule of contract interpretation in Tennessee is "to ascertain the intention of the parties and to give effect to that intention, consistent with legal principles." Brown v. Balaton Power, Inc., 2003 WL 23099678, at *5) (quoting Bob Pearsall Motors, Inc. v. Regal Chrysler-Plymouth, Inc., 521 S.W.2d 578, 580 (Term. 1975)). The intention of the parties is determined "by fair construction of the terms and provisions of the contract, by the subject matter to which it has reference, by the circumstances of the particular transaction giving rise to the question, and by the construction placed on the agreement by the parties in carrying out its terms." Brown, 2003 WL 23099678, at *5 (quoting Penske Truck Leasing Co. v. Huddleston, 795 S.W.2d 669, 671 (Tenn. 1990)).
Lastly, the party who opposes arbitration must establish a genuine issue of material fact with regard to the validity of the arbitration agreement. Wilks v. Pep Boys, 241 F. Supp.2d 860, 862-63 (M.D. Tenn. 2003) (citing Great Earth Companies, Inc. v. Simons, 288 F.3d 878, 899 (6th Cir. 2002). In view of the "strong federal policy in favor of arbitration `. . . any ambiguities in the contract or doubts as to the parties' intentions should be resolved in favor of arbitration.'" Wilks, 241 F. Supp.2d at 863 (quoting Stout v. J.D. Byrider, 268 F.3d 709, 714 (6th Cir. 2000), cert. denied, 531 U.S. 1148, 121 S.Ct. 1088(2001)).
As is set forth in detail above, Section 50 of the lease outlines the ADR provisions agreed to by the parties. The ADR process set forth in the least has three phases: negotiation, mediation, and/or binding arbitration. The negotiation portion of Section 50 provides in pertinent part that the
parties will attempt in good faith to resolve any controversy, dispute, claim or question arising out of or in relation to this Lease, including without limitation, its interpretation, performance or non-performance by either party, termination, or any breach therefor, but specifically excluding any controversy, dispute, claim or question based upon non-payment of Base Rent and/or Additional Rent . . .
[Court File No. 1, Exhibit A, Lease, p. 26](emphasis added). The mediation portion of the lease states that if a controversy has not been "resolved by negotiation within forty-five (45) days . . . either party may, upon written notice . . . initiate mediation of the Controversy in accordance with the Commercial Mediation Rules of the American Arbitration Association . . ." Id. at 26-27. Finally, the binding arbitration provision of the lease states that "[i]f the Controversy has not been resolved by mediation . . ., either party may elect to submit the Controversy to binding arbitration conducted in Chattanooga, Tennessee. The parties to this Lease, by entering into it, are expressly waiving their rights to have any Controversy decided in a court of law and/or equity before a judge or jury, and are instead accepting the use of binding arbitration." Id. at 27 (emphasis added).
On March 18, 2003, CIGNA sent a letter to Prudential which states in pertinent part:
. . . CGLIC has been experiencing a problem with water infiltration and accompanying mold growth since September, 2002. Water has been coming into CGLIC's space through the floor. In spite of the efforts of your engineers and plumbers, the source of the infiltration has not been discovered or corrected. Last weekend, the growth of the mold in CGLIC's space became so severe, that CGLIC had no choice but to shut down the area and move employees to other locations, at an expense, to date of approximately $20,000. It was imperative to the health and safety of CGLIC's employees that they be relocated from the infested areas.
Needless to say, this material interruption of CGLIC's ability to conduct its business in the Premises has had an adverse impact far beyond the $20,000 outlay to date, and CGLIC intends to hold Prudential fully responsible. In the meantime, since Prudential has failed to cure the water intrusion problem since its onset approximately six months ago, CGLIC is hereby availing itself of its right to terminate the Lease pursuant to Section 16 thereof, effective April 1, 2003.
Please understand that this decision was not reached lightly, but only after due consideration for the health of CGLIC's employees and CGLIC's ability to service its customers from the Premises. More than the allotted one hundred twenty (120) days have elapsed and no effective cure has been made.
[Court File No. 3, Exhibit B].
Thereafter, on July 16, 2003, Prudential's counsel/representative responded to CGLIC by letter. The letter states concludes: "our client has acted and continues to act, in good faith in attempting to resolve any existing dispute. Pursuant to Section 50 of the Lease notice is given that the Landlord's designated representative is Ms. Kathy Friton." [Court File No. 13, Exhibit A]. This letter was mailed via certified mail with a return receipt requested, and the receipt shows that was received by CGLIC's counsel on July 21, 2003.
On September 26, 2003, CGLIC's counsel wrote to Prudential stating:
Pursuant to Section 50 of the Lease Agreement between Connecticut General Life Insurance Company ("CGLIC") and Prudential MC Asset Holding Company, LLC ("Prudential"), CGLIC is giving notice of its good faith attempt to resolve this dispute that has arisen regarding termination of the Lease Agreement. CGLIC identifies Brent A. Genovese, Assistant Director, Budget Expense CIGNA Healthcare Finance, as its designated representative with authority to settle and resolve the dispute.
It is CGLIC's position that CGLIC rightfully terminated the Lease Agreement . . .
CGLIC invites Prudential to send its designated representative to a meeting to be held in Chattanooga, Tennessee, at a mutually acceptable time, date, and location . . .
[Court File No. 3, Exhibit C].
Thereafter, on October 3, 2003, Prudential wrote to CGLIC's counsel stating that "it disputes your client's position that it rightfully terminated the Lease Agreement . . ." [Court File No. 3, Exhibit D]. The letter continues:
my letter of July 16, 2003, noted our good faith attempt to resolve the dispute and listed my client's designated representative pursuant to Section 50 of the Lease. As you know, we did not receive a response to our good faith attempt and thus your client waived any right to resolve this pursuant to paragraph 50. Additionally, at this time, this matter is outside the scope of Section 50 of the Lease in that the lawsuit is based on non-payment of rent . . .Id.
Having reviewed the record in detail, including the pleadings and correspondence of the parties in detail, the Court concludes that pursuant to the agreement of the parties in Section 50 of the lease, this matter is subject to binding arbitration. Based upon the pleadings and correspondence between the parties and/or counsel for the parties, it is obvious the crux of the dispute between CGLIC and Prudential is whether or not CGLIC property interpreted and terminated the lease under section 16.
Although Prudential characterizes this action as involving rent, the dispute between the parties does not involve a challenge to the amount of base rent or additional rent due under the lease. Rather, if CGLIC property interpreted and terminated the lease under section 16 of that document, no further base rent or additional rent will be due and owing under the lease agreement. If, however, if CGLIC improperly interpreted the lease and improper terminated the lease pursuant to the provisions of section 16, the amount of past due rent — base rent and/or additional rent — is in effect "liquidated" damages for CGLIC's improper termination — i.e., breach of the lease. This can clearly be seen from the complaint Prudential filed in the Circuit Court of Hamilton County, Tennessee. In that complaint, Prudential sought $63,0162.82 in rent and $422.72 in interest on the unpaid rent. [Court File No. 1].
Further, based upon the correspondence between the parties, it appears that Prudential first offered to settle the controversy between the parties pursuant to the three-step ADR process set forth in Section 50 of the lease. However, when CGLIC accepted and stated its willingness to engage in a good faith ADR settlement of the dispute between the parties, Prudential then indicated that CGLIC's response to its offer to use the ADR process was (1) untimely and (2) the three-step process in section 50 of the lease no longer applied because a lawsuit had been filed which involved unpaid rent.
Prudential's position is inconsistent. Here, when CGLIC gave Prudential notice of its intention to terminate the lease based upon CGLIC's interpretation of section 16 of the lease, Prudential sought to settle the dispute pursuant to the provisions of section 5 0 of the lease and even named a representative for such negotiations. However, once CGLIC gave notice of its intent use the provisions of Section 50 of the lease to settle the dispute between the parties, Prudential took the position that section 50 was no longer applicable because the dispute involved unpaid rent.
Nevertheless, when CGLIC provided Prudential with notice that it believed it had sufficient grounds to terminate the lease under the provisions of section 16, and that it did so intend to terminate the lease, it should have been obvious to Prudential that CGLIC intended to stop paying rent under the lease at that point it time. Yet, at that very point in time, Prudential still offered to settle the dispute under the ADR provisions of section 50. However, approximately three months later, Prudential then took the position that because there was rent actually unpaid, the provisions of section 50 no longer applied. However, if section 50 actually applied when Prudential was given unequivocal notice that CGLIC intended to terminate the lease under section 16, it still would apply when CGLIC put its decision to terminate the lease into effect and stopped making rent payments pursuant to the lease.
Furthermore, Prudential's position that CGLIC "waived" its right to ADR, including binding arbitration, under the provisions of section 50 is without merit. Subsection a of Section 50 of the lease states:
The disputing party shall give the other party a written notice of the Controversy. Within twenty (20) days after receipt of the above notice, the receiving party shall submit to the other a written response. The notice and response shall include (i) a statement of each party's position and a summary of the evidence and arguments supporting its position, and (ii) the name and title of each party's designated representative . . .
[Court File No. 1, Exhibit A, Lease, p. 26].
In this case, the disputing party, CGLIC, gave Prudential notice of the controversy, i.e., its intent to terminate the lease pursuant to section 16, on March 18, 2003. Despite the 20-day provision of subsection a of section 50 of the lease, Prudential did not respond to CGLIC's notice of the controversy until July 16, 2003. Thus, if any party to this action has the right to assert that the other waived its right to ADR, including arbitration, under section 50 of the lease, it would be CGLIC and not Prudential.
Further, although Prudential now complains about the timeliness of CGLIC's response to its notice of the controversy between the parties; and although it asserts that unpaid rent bars the application of the ADR provisions of section 50 of the lease, during the period of time that Prudential failed to timely respond to CGLIC's notice, unpaid rent began to accrue. Prudential cannot have it both ways. It cannot delay its response to CGLIC under section 50 of the lease so that rent becomes past due, and then when CGLIC seeks ADR under section 50 of the lease claim that because there is, or may be, past-due rent owing under the lease, section 50 does not apply.
Despite Prudential's delay in responding to CGLIC's notice of controversy, CGLIC responded, in its letter of September 26, 2003, by designating a representative as required by section 50 a and by "inviting Prudential to send its designated representative to a meeting to be held in Chattanooga, Tennessee, at a mutually acceptable time, date, and location . . ." [Court File No. 3, Exhibit C]. In J.C. Bradford Co. v. York, 1990 WL 127101 (M.D. Tenn. 1990), the plaintiffs employer, York, executed a promissory note in favor of the plaintiff, Bradford. The noted provided that:
the rights and liabilities of the parties hereto determined, in accordance with the laws of the State of Tennessee. As part of the consideration for [plaintiffs] acceptance of this note, the undersigned agrees that any conflict, directly or indirectly related to the execution, delivery or performance under this note, shall be resolved at [plaintiff's] discretion before either an arbitration panel of the New York Stock Exchange pursuant to its Code of Arbitration in effect from time to time, or in any state or federal court located within the County of Davidson, State of Tennessee.Id., at *1. Subsequently, the plaintiff filed an action in the Chancery Court of Davidson County, Tennessee, which was removed to federal district court under 28 U.S.C. § 1332. Thereafter, the plaint iff filed a motion to compel arbitration. The district court denied the plaintiff's motion to compel arbitration, finding that under the terms of the note, the plaintiff had waived his right to arbitrate because the note gave the plaintiff the option of selecting either litigation or arbitration and the plaintiff had waived arbitration when he election to file his court action. Id., at *3-*4.
Section 50 of the lease contains no such provision. Moreover, it is Prudential, not CGLIC which initiated this legal action. Accordingly, the Court finds that Prudential's assertion that CGEIC waived arbitration of this matter is without merit.
Thus, given the nature of the dispute between the parties, the fact that it concerns the issue as to whether or not CGLIC properly interpreted section 16 of the lease and properly terminated the lease pursuant to section 16, the Court finds that the dispute/controversy between the parties falls within the category of disputes the parties have agreed to submit to binding arbitration.
In subsection c of section 50 of the lease, the parties have "waiv[ed] the rights to have any Controversy decided in a court of law and/or equity before a judge or jury, and instead . . . accept[ed] the use of binding arbitration." [Court File No. 1, Exhibit A]. Further, although sub section a of section 50, "excludes any controversy, dispute, claim or question based upon non-payment of Base Rent and/or Additional Rent," id., the issue present between the parties is not based upon the non-payment of rent. Rather, it is based upon CGLIC's assertion that under section 16 of the lease, Prudential's failure to correct the mold, mildew and other environmental problems in the leased premises within a 120 day period, gave CGLIC grounds to terminate the lease under section 16. CGLIC's non-payment of base rent and/or additional rent under the lease is only peripheral to this dispute, and it follows naturally from CGLIC's belief that it has correctly interpreted the lease and correctly terminated the lease pursuant to that interpretation.
Title 9 U.S.C. § 3 provides that:
If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement . . .9 U.S.C. § 3. However, when all of the issues in an action are subject to arbitration, dismissal of the action is permissible. Alford v. Dean Witter Reynolds, Inc., 975 F.2d 1161, 1164 (5th Cir. 1992). See also Reynolds v. Halliburton Co., 217 F. Supp.2d 756, 758 (E.D. Tex. 2002)("When all issues raised in an action are arbitrable and must be arbitrated, retaining jurisdiction and staying an action will serve no purpose.").
Here, all the issues raised by the action between CGLIC and Prudential are subject to arbitration. Accordingly, the motion of defendant CGLIC to dismiss this action and to enforce the arbitration agreement between the parties [Court File No. 3] will be GRANTED. V. CGLIC's Objections to the Magistrate Judge's Order [Court File No. 19].
CGLIC objects to the discovery order entered by Magistrate Judge William B. Mitchell Carter on December 1, 2003 [Court File No. 18]. In the December 1, 2003 discovery order, the magistrate judge ordered: (1) CGLIC would not be required to respond to Prudential's Request for Admission of Facts and Genuineness of Documents until thirty days after such time as the Court denied the defendant's motion to dismiss; (2) CGLIC would be required to respond only to those portions of Prudential's First Interrogatories and Requests for Production of Documents which relate to CGLIC's motion to dismiss and enforce ADR; and (3) the parties should meet to discuss settlement of this action within 30 days after the date of the discovery order [Court File No. 18].
Having reviewed CGLIC's objections to the magistrate judge's December 1, 2003 discovery order [Court File No. 19] and Prudential's response to CGLIC's objections [Court File No. 20], and in view of this Court's action with regard to CGLIC's motion to dismiss and enforce ADR, CGLIC's objections to the magistrate judge's discovery order of December 1, 2003 [Court File No. 19] will be OVERRULED.
A separate order and judgment will enter.
ORDER AND JUDGMENT
In accordance with the accompanying memorandum opinion, it is ORDERED that:
(1) The motion of defendant Connecticut General Lift Insurance Company ("CGLIC") to dismiss this action and to enforce the binding arbitration agreement of the parties [Court File No. 3] is GRANTED;
(2) As promptly as possible, but in any event no later than thirty (30) days after the entry of this order, CGLIC and Prudential MC Asset Holding Company, EEC, ("Prudential") shall commence the process of binding arbitration as it is set forth in subsection c of Section 50 of the lease between the parties;
(3) The objections of defendant CGLIC [Court File No. 19] to the order of the magistrate judge, entered on December 1, 2003, [Court File No. 18] are OVERRULED; and,
(4) This action is DISMISSED. Costs are assessed against Prudential. The clerk shall close the file.
This is a FINAL JUDGMENT.