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Seibert v. Precision Contracting Solutions, LP

United States District Court, District of Columbia

February 26, 2019

MICHAEL SEIBERT, Plaintiff,
v.
PRECISION CONTRACTING SOLUTIONS, LP, et al., Defendants.

          MEMORANDUM OPINION

          ROSEMARY M. COLLYER UNITED STATES DISTRICT JUDGE

         Michael Seibert seeks a stay of arbitration demanded by Precision Contracting Solutions, LP and its sole owner and partner, Derrick Sieber, arising out of a construction contract dispute. Defendants both oppose the stay and move to dismiss for lack of subject-matter jurisdiction. Defendant Precision Contracting Solutions, LP also moves to dismiss for lack of personal jurisdiction due to insufficient service. Under the Federal Arbitration Act, the Court's authority is distinctly limited. Here, however, Mr. Seibert alleges that the arbitration clause in the construction contract contains illegal and unconscionable terms that render it unenforceable. In such a case, the saving clause of the Federal Arbitration Act “allows courts to refuse to enforce arbitration agreements.” Epic Sys. Corp. v. Lewis, 138 S.Ct. 1612, 1622 (2018). Because the Court finds that service was made and the arbitration clause is unconscionable and unenforceable, it will enter a stay of the arbitration and any award and will deny Defendants' motions to dismiss.

         I. FACTS

         Michael Seibert and Precision Contracting Solutions, LP (PCS), signed a contract on December 8, 2017, by which PCS agreed to make certain upgrades to Mr. Seibert's residential property in Washington, D.C. Compl. [Dkt. 1] ¶ 6; see also Ex. 1, Compl., Precision Construction Contract (Contract) [Dkt. 1-1]. Mr. Seibert paid for most of the work but refused to make the last payment because the work was allegedly shoddy, incomplete, and performed without the necessary permits. See Compl. ¶¶ 11-15. PCS initiated arbitration to collect the unpaid balance of the Contract under the following clause:

Binding Arbitration: The parties to this contract agree that any and all disputes that cannot be settled in good faith by the parties shall be resolved through binding arbitration that is initiated under the Construction Industry Arbitration Rules of the American Arbitration Association (“AAA”) within 30 days of such dispute. No. legal action may be initiated before the AAA or in any other arbitral or judicial forum against any director, officer, employee or agent of, or anyone else associated with, one of the principals to this contract in connection with any dispute related to this contract. The party's [sic] sole recourse under this contract shall be against each other before the AAA. If the parties do not file a claim with the AAA within the 30-day period stated herein, then all claims are barred from being brought by the parties in any and all legal forums. It is further agreed that the cost of binding arbitration shall be shared equally by PCS and the Client. It shall be clearly understood that any disputes that may arise are confidential with no public comment permitted in any form by either party relating to the dispute. The results of any Arbitration proceeding shall also be confidential with no public comment by either party permitted in any form relating to any award. The parties agree that any breach of this provision shall constitute a willful breach of contract.

         Contract at 3. The Contract was signed by Derrick S. Sieber, “Owner, Precision Contracting Solutions, ” and Mr. Seibert. See Id. at 4.

         Mr. Seibert sued PCS, Derrick Sieber, and Stephen Sieber[1] on April 10, 2018, seeking a declaratory judgment that the arbitration clause is unenforceable and raising claims of fraud in the inducement, reformation, breach of contract, and unlawful trade practices. See Compl. ¶¶ 17-43. Mr. Seibert moved to stay the arbitration initiated by PCS on the same day. Mot. to Stay Arbitration [Dkt. 2]; Mem. of P. & A. in Supp. of Mot. to Stay Arbitration (Stay Mem.) [Dkt. 2-1]. Defendants oppose. Opp'n of Defs. to Pl.'s Mot. to Stay [Dkt. 34].

         Multiple procedural motions have been filed. The Clerk of Court entered default against PCS after Mr. Seibert filed a motion alleging that PCS had been served and failed timely to answer or otherwise respond. See Mot. for Entry of Default as to PCS [Dkt. 8]; Clerk's Entry of Default as to PCS [Dkt. 9]. PCS moves to vacate the Clerk's entry of default and argues it had not been properly served. Mot. to Vacate Clerk's Entry of Default [Dkt. 11].[2] That motion is fully briefed.

         Additionally, both Defendants separately moved to dismiss for lack of subject-matter jurisdiction. Mot. of Def. Derrick S. Sieber to Dismiss or Stay this Proceeding for Lack of Subject-Matter Jurisdiction (D. Sieber MTD) [Dkt. 14]; Mot. of Def. PCS to Dismiss this Proceeding for Lack of Subject-Matter Jurisdiction (PCS MTD) [Dkt. 24].[3] Both motions are ripe for review.

         II. LEGAL STANDARDS

         A. Federal Arbitration Act

         The Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq., states the direction of Congress that “federal courts [are] to enforce arbitration agreements according to their terms . . . .” Epic Sys., 138 S.Ct. at 1619. Section 2 of the FAA makes arbitration agreements “valid, irrevocable, and enforceable.” 9 U.S.C. § 2. Section 2 also provides a “saving clause [that] allows courts to refuse to enforce arbitration agreements ‘upon such grounds as exist at law or in equity for the revocation of any contract.'” Epic Sys., 138 S.Ct. at 1622 (quoting 9 U.S.C. § 2). The saving clause “permits agreements to arbitrate to be invalidated by generally applicable contract defenses, such as fraud, duress, or unconscionability.” Id. (quoting AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011)).

         The saving clause of Section 2 of the FAA has been given a limited reading by the Supreme Court.

[I]f the claim is fraud in the inducement of the arbitration clause itself-an issue which goes to the ‘making' of the agreement to arbitrate-the federal court may proceed to adjudicate it. But the statutory language does not permit the federal court to consider claims of fraud in the inducement of the contract generally. . . . We hold, therefore, that in passing upon [an FAA] § 3 application for a stay [of litigation] while the parties arbitrate, a federal court may consider only issues relating to the making and performance of the agreement to arbitrate.

         Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-04 (1967); see also Kindred Nursing Ctrs. Ltd. P'ship v. Clark, 137 S.Ct. 1421, 1426 (2017) (“A court may invalidate an arbitration agreement based on ‘generally applicable contract defenses' like fraud or unconscionability, but not on legal rules that ‘apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue.'”) (quoting Concepcion, 563 U.S. at 339).

         Because they direct the Court's analysis, the relevant sections of the FAA are quoted in full below:

§ 2: A written provision in . . . a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.
§ 3: 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 . . . .
§ 4: A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition . . . for an order directing that such arbitration proceed in the manner provided for in such agreement. . . . The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration . . . . If the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof. If no jury trial be demanded by the party alleged to be in default, . . . the court shall hear and determine such issue.
§ 9: . . . If no court is specified in the agreement of the parties [to confirm an award], then such application may be made to the United States court in and for the district within which such award was made. . . .
§ 16
(a) An appeal may be taken from - (1) An order -
(A) refusing a stay of any action under section 3 of this title,
(B) denying a petition under section 4 of this title to order arbitration to proceed,
(C) denying an application under section 206 of this title to compel arbitration,
(D) confirming or denying confirmation of an award or partial ...

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