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BPI Energy, Inc. v. IEC

May 21, 2008


The opinion of the court was delivered by: Herndon, District Judge



Now before the Court is Defendants' Motion to Stay Pending Arbitration (Doc. 76). Although this case has proceeded through various stages of litigation, Defendants claim that it was not until Plaintiff filed its Third Amended Complaint (Doc. 81), which added a new cause of action for breach of the "Osage Letter Agreement" (Doc. 81, Ex. M), that provided Defendants with grounds for seeking a stay. Defendants assert that the Osage Letter Agreement contains a mandatory arbitration provision, which they now seek to enforce. Plaintiff opposes a stay pending arbitration, arguing that Defendants have waived their right to arbitrate in this suit (Doc. 89). Replying, Defendants contend Plaintiff's waiver argument (Doc. 93). For reasons discussed herein, unrelated to Plaintiff's waiver theory, the Court finds it cannot grant a stay.


A. The Federal Arbitration Act

Defendants move for a stay pursuant to the Federal Arbitration Act ("FAA"), which requires district courts to enforce written arbitration provisions when elected by one of the parties. 9 U.S.C. §§ 1-16. Section 3 of the FAA provides:

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, providing the applicant for the stay is not in default in proceeding with such arbitration.

9 U.S.C. § 3.

Section 4 of the statute provides, in pertinent part: A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under Title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement.

9 U.S.C. § 4.

The Federal Rules of Civil Procedure govern proceedings under the FAA only to the extent not provided for in the FAA itself.See FED.R.CIV. P. 81(a)(3). Section 6 of the FAA provides: "Any application to the court hereunder shall be made and heard in the manner provided by law for the making and hearing of motions, except as otherwise herein expressly provided." 9 U.S.C. § 6. Accordingly, a court must review parties' motion papers under the relevant portions of the FAA, applying the Federal Rules of Civil Procedure as a supplement where the FAA is silent. See Health Servs. Mgmt. Corp. v. Hughes, 975 F.2d 1253, 1258 (7th Cir. 1992) ("Thus, the language of Section 6 preempts the applicability of the Federal Rules[.]").

Under the FAA, arbitration may be compelled if the following three elements are shown: (1) a written agreement to arbitrate; (2) a dispute within the scope of the arbitration agreement; (3) and a refusal to arbitrate. SeeZurich Am. Ins. Co. v. Watts Indus., Inc., 466 F.3d 577, 580 (7th Cir. 2006); Kiefer Specialty Flooring, Inc. v. Tarkett, Inc., 174 F.3d 907, 909-10 (7th Cir. 1999); Olson v. Jenkens & Gilchrist, 461 F. Supp. 2d 710, 726 (N.D. Ill. 2006). The purpose of the FAA is to "reverse the longstanding judicial hostility to arbitration agreements that had existed at English common law and had been adopted by American courts, and to place arbitration agreements upon the same footing as other contracts." Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24 (1991). See also Volkswagen of Am., Inc. v. Sud's Of Peoria, Inc., 474 F.3d 966, 970 (7th Cir. 2007) (quoting Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 225 (1987)) ("The FAA was enacted in 1925 against the backdrop of 'centuries of judicial hostility to arbitration agreements.'"). Before a court can stay proceedings in favor of arbitration, it must decide whether the proceeding is "referable to arbitration" within the meaning of Section 3 of the FAA, and in making this determination the court "must consider only the issues relating to arbitrability." Hawkins v. Aid Ass'n for Lutherans, 338 F.3d 801, 807 (7th Cir. 2003) (citing We Care Hair Dev., Inc. v. Engen, 180 F.3d 838, 844 (7th Cir. 1999)). Put differently, the court merely determines whether the underlying substantive disputes are, under the law, properly resolved in arbitration; if so, whether the various underlying claims and defenses are meritorious or not is not the subject of the court's analysis. See id.(citing, inter alia, Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-04 (1967)).

Whether parties have agreed to arbitrate is a question normally answered by a court rather than by an arbitrator, and the issue is controlled by state-law principles governing contract formation. See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995); Reliance Ins. Co. v. Raybestos Prods. Co., 382 F.3d 676, 678-79 (7th Cir. 2004); Hill's Pet Nutrition, Inc. v. Fru-Con Constr. Corp., 101 F.3d 63, 65-66 (7th Cir. 1996). Nevertheless, in determining arbitrability a court should be mindful that the FAA "is a congressional declaration of a liberal federal policy favoring arbitration agreements" and "that questions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration"; thus, "as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration[.]" Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983). See also Miller v. Flume, 139 F.3d 1130, 1136 (7th Cir. 1998) ("[O]nce it is clear that the parties have a contract that provides for arbitration of some issues between them, any doubts concerning the scope of the arbitration clause are ...

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