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IBI Group, Michigan, LLC v. Outokumpu Stainless USA, LLC

Supreme Court of Alabama

May 8, 2015

IBI Group, Michigan, LLC, f/k/a Giffels, LLC
Outokumpu Stainless USA, LLC, f/k/a ThyssenKrupp Stainless USA, LLC, and ThyssenKrupp Steel USA, LLC, f/k/a ThyssenKrupp Steel and Stainless USA, LLC

          Appeal from Mobile Circuit Court. (CV-13-902002).

         For Appellant: Joseph H. Driver, Vincent A. Noletto, Jr., and Heather M. Houston of Carr Allison, Birmingham.

         For Appellees: David G. Wanhatalo, John Martin Lassiter, and E. Travis Ramey of Burr & Forman LLP, Birmingham; and Ricardo A. Woods and Kasee Sparks Heisterhagan of Burr & Forman, LLP, Mobile.

         STUART, Justice. Bolin, Parker, Main, Wise, and Bryan, JJ., concur. Murdock and Shaw, JJ., concur in the result. Moore, C.J., dissents.


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          STUART, Justice.

         IBI Group, Michigan, LLC, f/k/a Giffels, LLC (" Giffels" ), appeals the order of the Mobile Circuit Court ordering it to arbitrate its claims against Outokumpu Stainless USA, LLC, f/k/a ThyssenKrupp Stainless USA, LLC (" OTK" ), and ThyssenKrupp Steel USA, LLC, f/k/a ThyssenKrupp Steel and Stainless USA, LLC (" TK Steel" ) (OTK and TK Steel are hereinafter referred to collectively as " the steel companies" ), pursuant to an arbitration provision in the contracts at the center of this dispute. We affirm.


         On September 5, 2007, Giffels and TK Steel entered into a contract pursuant to which Giffels agreed to provide architectural and engineering services to TK Steel in association with the construction of the cold rolling mill at a steel-processing facility in Calvert. Approximately 10 months later, on June 27, 2008, Giffels entered into another contract with OTK's predecessor to provide similar services in association with the construction of a melt shop at the same facility. Both contracts contained identical provisions regarding the resolution of any disputes that might arise from the contracts, which stated: " Any dispute arising out of or related to the contract[s] shall be subject to mediation, arbitration or the institution of legal or equitable proceedings at the sole discretion of [the steel companies]." The contracts contained further provisions outlining certain guidelines that would apply to mediation, arbitration, and legal proceedings, including the following

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provision: " Unless otherwise agreed by the parties, during the arbitration proceedings discovery shall be available and shall be conducted in accordance with the rules of discovery set forth in the U.S. Federal Rules of Civil Procedure in effect at such time."

         Thereafter, disputes arose between Giffels and the steel companies regarding the work performed by Giffels under both contracts, and, on March 14, 2012, the steel companies sued Giffels in the United States District Court for the Southern District of Alabama (" the federal district court" ) alleging two counts of breach of contract and seeking compensatory damages in excess of $7.5 million. On March 29, 2012, and June 13, 2012, the steel companies filed amended complaints asserting additional claims. Giffels subsequently filed its answer to the steel companies' complaint and asserted its own counterclaims alleging that the steel companies owed it money for work performed under the two contracts. Giffels also moved to strike the steel companies' jury demand on the basis of a provision in the contracts expressly waiving the right to a jury trial in any litigation stemming from the contracts. Thereafter, the steel companies filed an answer to Giffels's counterclaims and withdrew their jury demand.

         On August 24, 2012, the steel companies and Giffels held the discovery-planning conference required by Rule 26(f), Fed.R.Civ.P. On September 10, 2012, the federal district court conducted a scheduling conference, and the parties then commenced discovery, with each party serving discovery requests upon the other. Giffels asserts that it incurred over $80,000 in expenses just in preparing the initial disclosures required by Rule 26(a)(1), Fed. R. Civ. P.

         On June 4, 2013, the federal district court, sua sponte, entered an order questioning whether federal jurisdiction was proper in this case. The steel companies responded by filing an amended complaint in which they further described their basis for claiming that federal jurisdiction was appropriate under 28 U.S.C. § 1332 based on the parties' alleged complete diversity of citizenship; Giffels subsequently filed an amended answer in which it asserted that both its sole member and the sole member of OTK's predecessor were incorporated in Delaware, which fact, if true, would defeat diversity jurisdiction.[1] See, e.g., Rolling Greens MHP, L.P. v. Comcast SCH Holdings L.L.C., 374 F.3d 1020, 1022 (11th Cir. 2004) (" [A] limited liability company is a citizen of any state of which a member of the company is a citizen." ). The steel companies moved to strike Giffels's amended answer, arguing that Giffels's claim that its sole member was incorporated in Delaware was contradicted by publicly available records maintained by the Michigan Secretary of State; however, after Giffels filed a response again indicating that, notwithstanding any other records the steel companies might have, its sole member was a Delaware corporation, the federal district court ordered Giffels to file documentation of its jurisdictional claim. Giffels filed the requested proof on July 29, 2013.

         On July 31, 2013, the steel companies moved the federal district court to stay the litigation, noting that it had initiated arbitration proceedings with the American Arbitration Association that same day pursuant to the provisions in the contracts

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stating tat disputes regarding those contracts were subject to arbitration at the sole discretion of the steel companies. However, that same day, Giffels filed a complaint in the Mobile Circuit Court (" the trial court" ) asserting as state-law claims the same counterclaims it had asserted in the federal district court. On August 5, 2013, the steel companies filed an answer and counterclaims in the state-court action while simultaneously moving the state court to stay the state-court proceedings and compel arbitration. On August 7, 2013, the federal district court formally dismissed the federal action for lack of subject-matter jurisdiction without ruling on the steel companies' request to stay the federal-court action pending the completion of arbitration proceedings.

         Thereafter, Giffels notified the trial court that it opposed the steel companies' attempt to compel arbitration, arguing that the contracts afforded the steel companies no right to select arbitration once they had made an initial choice to attempt to resolve their claims via litigation or, in the alternative, that the steel companies had substantially invoked the litigation process to the prejudice of Giffels, thus waiving any right they may have had to arbitration under the contracts. The parties subsequently filed multiple additional briefs with the trial court regarding those issues, and, on September 20, 2013, the trial court conducted a hearing on the issues. The parties continued to file briefs on the issues following the hearing, and it was not until July 7, 2014, that the trial court entered an order granting the steel companies' motion to compel arbitration and ordering the parties to complete arbitration by May 1, 2015. The parties then jointly moved the trial court to alter, amend, or vacate its order only to the extent it set a deadline for the completion of arbitration inasmuch as they were continuing to negotiate regarding ongoing operational difficulties at the Calvert facility and it was possible those negotiations might eventually lead to the resolution of some of the claims asserted in this action.[2] On August 12, 2014, the trial court revised its order as the parties requested, and, on September 16, 2014, Giffels filed its notice of appeal to this Court.


         The trial court's order granting the steel companies' motion to stay the state-court litigation pending the completion of arbitration effectively compelled Giffels to resolve its claims against the steel companies, and the steel companies' counterclaims against it, in arbitration as opposed to state court. The standard of review we apply to an order granting a motion to compel arbitration is well settled:

" We conduct a de novo review of a trial court's order compelling arbitration. Smith v. Mark Dodge, Inc., 934 So.2d 375, 378 (Ala. 2006).
" 'The party seeking to compel arbitration must first prove both that a contract calling for arbitration exists and that the contract evidences a transaction involving interstate commerce.... Once this showing has been made, the burden then shifts to the nonmovant to show that the contract is either invalid or inapplicable to the circumstances presented.'
" Smith, 934 So.2d at 378."

Ritter v. Grady Auto. Grp., Inc., 973 So.2d 1058, 1060-61 (Ala. 2007). All parties

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agree that the governing contracts involve interstate commerce; the only issue before this Court is whether the arbitration provisions in those contracts allowing the steel companies to decide, at their " sole discretion," whether a dispute arising out of or related to those contracts would be subject to mediation, arbitration, or litigation were rendered " 'inapplicable to the circumstances presented,'" Ritter, 973 So.2d at 1061, once the steel companies initially elected to resolve the dispute in litigation and subsequently, Giffels alleges, substantially invoked the litigation process, thereby prejudicing Giffels.


         Giffels's first argument is that, although its contracts with the steel companies allowed the steel companies to unilaterally decide whether any dispute between them and Giffels would be resolved via arbitration or litigation, once the steel companies made that decision, the decision was irrevocable. We note that Giffels is not arguing that any time a party initiates litigation that party is barred from thereafter exercising a contractual right to arbitrate, as this Court has previously indicated otherwise. See, e.g., Conseco Fin. Corp.-Alabama v. Salter, 846 So.2d 1077, 1081 (Ala. 2002) (" Conseco initiated this action; however, the mere filing of a pleading does not constitute a waiver of the right to compel arbitration." ). Rather, Giffels is arguing that the specific terms of the arbitration provisions in this case prevent the steel companies from selecting arbitration after initially selecting litigation as a means of resolving a dispute. Giffels articulates this argument as follows in its brief:

" [The steel companies] initiat[ed] a legal proceeding in federal district court, thereby exercising [their] right and selecting litigation as the chosen vehicle for dispute resolution. Nothing in the contract allowed [the steel companies] to later alter [their] selection. Once [the steel companies] selected litigation, the express language of the contract provided that litigation would be the method of dispute resolution for the case. [The steel companies] thereby waived any right to compel arbitration by exercising [their] contractual discretion to initiate litigation."

Giffels's brief, p. 16. The steel companies argue that the language of the arbitration provisions does not limit their right to select how disputes will be resolved and that, in fact, the clear language of the provisions indicates that they might utilize more than one of the three listed methods to resolve any dispute.

          In resolving a dispute regarding the meaning of an arbitration provision, " this Court applies the ordinary state-law principles governing contracts." Title Max of Birmingham, Inc. v. Edwards, 973 So.2d 1050, 1054 (Ala. 2007). Accordingly, we must interpret the terms of the provisions according to their clear and plain meaning. Id. The arbitration provisions at issue in this case provide that " [a]ny dispute arising out of or related to the contract[s] shall be subject to mediation, arbitration or the institution of legal or equitable proceedings at the sole discretion of [the steel companies]." Giffels argues that the use of the disjunctive " or" in the provisions indicates that the steel companies' choice is mutually exclusive, that is, the steel companies can choose either arbitration or litigation and once they choose one the other is no longer an option. The steel companies, however, argue that " or" is not always used as a disjunctive, but is sometimes used as a conjunctive as well, and that Giffels is effectively reading the word " either" into the arbitration provisions when that word does not appear in those provisions. In Smith v. Hutson, 262 Ala. 352, 78 So.2d 923 (1955),

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this Court addressed the meaning of the word " or," ...

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