Morse Electric, Inc. v. Stearns Conrad and Schmidt Consulting Engineers, Inc.

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IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF OKLAHOMA
MORSE ELECTRIC, INC., 	)
)
Plaintiff, 	)
)
v. 	) 	Case No. 22-CV-91-JWB-GLJ
)
STEARNS, CONRAD AND 	)
SCHMIDT CONSULTING 	)
ENGINEERS, INC., 	)
Defendant. 	)
REPORT AND RECOMMENDATION
Before the Court is Plaintiff’s Motion to Stay and to Compel Arbitration [Docket
No. 51]. This action arises out of a contract dispute between Plaintiff Morse Electric, Inc.
(“MEI”) and Defendant Stearns, Conrad and Schmidt Consulting Engineers, Inc. (“SCS”).
On August 24, 2023, the Court referred this case to the undersigned Magistrate Judge for
all further proceedings in accordance with jurisdiction pursuant to 28 U.S.C. § 636 [Docket
No. 44].1 Plaintiff now seeks an order compelling this action to arbitration. For the reasons
stated below, the undersigned Magistrate Judge recommends that Plaintiff’s Motion to Stay
and to Compel Arbitration be DENIED.
1 District courts have reached different conclusions regarding whether motions to compel
arbitration are dispositive for purposes of 28 U.S.C. § 636. Compare Wilken Partners, L.P.
Champps Operating Corp., 2011 WL 1257480, at *1 (D. Kan. Apr. 4, 2011) (“District courts that
have considered the nature of an order to stay proceedings pending arbitration and to compel
arbitration have concluded that these are non-dispositive orders”), with Coxcom, Inc. v. Egghead
Telecom, Inc., 2009 WL 4016629, at *1 (N.D. Okla. 2009 (“Courts generally regard a motion to
compel arbitration either as a case dispositive matter or a matter not within the statutory authority
of a U.S. Magistrate Judge to resolve by Order.”). Accordingly, out of an abundance of caution,
the undersigned Magistrate Judge issues a Report and Recommendation on Plaintiff’s Motion to
Stay and to Compel Arbitration.
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BACKGROUND
On September 9, 2020, SCS executed an agreement with Pine Bend RNG, LLC for
construction of the Pine Bend Renewable Natural Gas Production Facility in Inver Grove
Heights, Minnesota (“Pine Bend Site”). Docket No. 14-1, p. 16-52. Subsequently, on June
2, 2021, MEI and SCS entered into a subcontracting agreement in which MEI agreed to
perform electrical construction services at the Pine Bend Site under a construction service
order. Docket No. 17-1. The cover sheet of the service order identifies several documents
which are to be included as part of the service order. Docket No. 17-1, pp. 2-3. Pertinent
here are “Service Order No. 06-SO00430” (“Service Order”) and “Attachment J – Morse
Electric, Inc. (MEI) Proposal 020-255 REVb – May 27, 2021. Includes Rate Sheets”
(“MEI’s Proposal”). Id. The Service Order is signed by Brian Morse of MEI and provides
in Article 15 that “[i]n the event of a dispute between SCS and [MEI], the matter shall be
resolved through litigation.” Docket No. 23-2, p. 5. Conversely, MEI’s Proposal indicates
that “MEI reserves the right for any dispute . . . to be heard before [the] American
Arbitration Association (AAA).” Nonetheless, Article 16 of the Service Order provides, in
pertinent part:
This 	Service 	Order 	represents 	the 	entire 	contract 	between
Subcontractor Seller and SCS. . . . This Service Order and the documents
incorporated in or attached hereto constitute the entire agreement between
the parties regarding [t]he subject matter hereof and supersedes all other
agreements, proposal, discussions, and correspondence, whether oral or
written 	and 	regardless 	when 	made, 	including 	without 	limitation
Subcontractor’s acknowledgements or invoices, all of which were provided
for 	informational 	purposes 	only. 	Any 	reference 	to 	Subcontractor’s
quotation, 	bid 	document, 	or 	proposal 	are 	for 	information 	or
clarification purposes only and do not constitute acceptance of any term,
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condition, or instruction contained in such quotation, bid document or
invoice. Docket No. 23-2, p. 6 (emphasis added).
MEI now moves to stay and compel this matter to arbitration pursuant to the
arbitration clause contained in the “Commercial Clarifications” section of MEI’s Proposal.
Docket No. 51, p. 2. However, Defendant SCS contends that compelling this matter to
arbitration is improper because MEI’s Proposal was for clarification and informational
purposes only and, as such, the parties did not agree to arbitration. Docket No. 58, pp. 1-2.
The undersigned Magistrate Judge agrees—the parties did not agree to arbitration.
ANALYSIS
“The Supreme Court has ‘long recognized and enforced a liberal federal policy
favoring arbitration agreements.’” Nat’l Am. Ins. Co. v. SCOR Reinsurance Co., 362 F.3d
1288, 1290 (10th Cir. 2002) (quoting Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79,
83 (2002)). However, whether the parties have a valid arbitration agreement is a gateway
matter which is “presumptively for courts to decide.” Oxford Health Plans LLC v. Sutter,
569 U.S. 564, 569, 133 S. Ct. 2064, 2068 n. 2 (2013) (quoting Green Tree Fin. Corp. v.
Bazzle, 539 U.S. 444, 452 (2003)). “[A]rbitration is a matter of contract and a party cannot
be required to submit to arbitration any dispute which he has not agreed so to submit.
Howsam, 537 U.S. at 83 (citing Steelworkers v. Warrior & Gulf Nav. Co., 363 U.S. 574,
582 (1960)). As such, “[b]efore granting a stay of litigation pending arbitration, a district
court must determine that an agreement to arbitrate exists. Avedon Eng’g, Inc. v. Seatex,
126 F.3d 1279, 1287 (10th Cir. 1997). “[W]hen factual disputes may determine whether
the parties agreed to arbitrate, the way to resolve them . . . is by proceeding summarily to
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trial.” Howard v. Ferrellgas Partners, L.P., 748 F.3d 975, 978 (10th Cir. 2014). However,
“[w]hen it’s apparent from a quick look at the case that no material disputes of fact exist it
may be permissible and efficient for a district court to decide the arbitration question as a
matter of law through motions practice and viewing the facts in the light most favorable to
the party opposing arbitration.” Id. at 977.
MEI, as the party seeking to compel arbitration, bears the burden of demonstrating
the existence of a valid arbitration agreement. BOSC, Inc. v. Bd. of Cnty. Comm’rs of Cnty.
of Bernalillo, 853 F.3d 1165, 1177 (10th Cir. 2017). In determining whether a party has
agreed to arbitrate a dispute, the court applies “ordinary state-law principles that govern
the formation of contracts.” Jacks v. CMH Homes, Inc., 856 F.3d 1301, 1304 (10th Cir.
2017) (citing Walker v. BuildDirect.com Techs., Inc., 733 F.3d 1001, 1004 (10th Cir.
2013)). Article 16 of the Service Order provides that the contract “shall be interpreted under
and governed by the laws of the State in which the work is performed,” i.e., Minnesota.
Docket No. 17-1, p. 22; Docket No. 23-2, p. 6.
“The interpretation of a contract is a question of law if no ambiguity exists, but if
ambiguous, it is a question of fact and extrinsic evidence may be considered.” City of
Virginia v. Northland Office of Props. Ltd. P’ship, 465 N.W.2d 424, 427 (Minn. App.
1991). “A contract is ambiguous if its language is reasonably susceptible of more than one
meaning.” Murray v. Puls, 690 N.W.2d 337, 343 (Minn. App. 2004) (citing Blattner v.
Forster, 322 N.W.2d 319, 321 (Minn. 1982)). “In interpreting a contract, the language is
to be given its plain and ordinary meaning. . . We read contract terms in such a way as to
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give meaning to all of its provisions.” Brookfield Trade Ctr., Inc. v. Cnty. of Ramsey, 584
N.W.2d 390, 394 (Minn. 1998) (internal citation omitted).
SCS contends that MEI’s Proposal, and the arbitration provision contained therein,
are not binding terms because Article 16 of the Service Order establishes that “[a]ny
reference to Subcontractor’s quotation, bid document, or proposal are for information or
clarification purposes only and do not constitute acceptance of any term, condition, or
instruction contained in such quotation, bid document or invoice.” Docket No. 58, p. 6;
Docket No. 23-2, p. 6. MEI does not argue that this language is ambiguous, and it does not
appear to ambiguous on its face. See Docket Nos. 51 & 60. Therefore, the interpretation of
this language is a question of law, and the provision is to be given its plain and ordinary
meaning. Brookfield Trade Ctr., Inc., 584 N.W.2d at 394.
MEI contends that “MEI’s proposal contained a multitude of relevant terms the
Defendant will darn sure seek to enforce in the future including the contract price; payment
terms; the building plans and documents; warranty; indemnity; and on and on.” Docket
No. 60, p. 2 (emphasis in original). Due to this, MEI contends that interpretating MEI’s
Proposal as for information and clarification purposes results in “cherry pick[ing]” which
contract terms to enforce, and that “Plaintiff [would] not be bound by the other terms in
the Service Order” if the Service Order were disavowed as being for information and
clarification purposes only. Docket No. 60, p. 2. However, Article 16 of the Service Order
indicates that MEI’s quotation, bid document, and proposal are for information and
clarification purposes—not that the entire Service Order is for information and clarification
purposes. Docket No. 17-1, p. 7; Docket No. 23-2, p. 6. Additionally, although MEI’s
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Proposal does contain information pertaining to the contract price, payment, and warranty
terms, the Service Order and the other attachments thereto also contain terms governing
the contract price, payment, warranty, indemnity, etc. Compare Docket No. 17-4, p. 158 –
85, with Docket No. 17-1, pp. No. 1, 4-6. Accordingly, as set forth in Article 16 of the
Service Order, the terms included in MEI’s Proposal, including the arbitration clause, are
not agreed upon terms and are only to be used for informational and clarification purposes.
Docket No. 17-1, p. 7. Thus, Article 15 of the Service Order, which requires this matter be
resolved through litigation, is the controlling provision.
Furthermore, due to the conflicting provision in the Service Order, the arbitration
provision in MEI’s Proposal cannot inform or clarify the parties’ intent regarding
arbitration. Although not discussed by the parties, “[a] meeting of the minds is a necessary
element of a contract in Minnesota.” Murray, 690 N.W.2d at 355. Thus, an arbitration
agreement 	is 	unenforceable, 	unless 	there 	was 	a 	meeting 	of 	minds 	concerning 	the
agreement’s essential elements. Id. Here, MEI does not dispute that the Service Order and
MEI’s Proposal contain competing arbitration provisions, and MEI does not attempt to
harmonize these contradictory provisions. See Docket Nos. 51 & 60. These dichotomous
arbitration provisions demonstrate that the parties did not have a meeting of the minds
regarding 	arbitration 	and, 	as 	such, 	the 	arbitration 	provision 	is 	unenforceable. 	See
Waymouth Farms, Inc. v. Olam Americas, Inc., 2009 WL 1853186, at *2 (Minn. App. June
30, 2009) (affirming the denial of a motion to compel arbitration because “[t]he sales-
confirmation sheets use the mandatory word ‘shall’ whereas the parties’ contracts use the
permissive word ‘may.’ . . . [T]he contradictory language further indicates that there was
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not a meeting of the minds regarding mandatory arbitration.”) See also Bellman v.
i3Carbon, LLC, 563 Fed. Appx. 608, 614 (10th Cir. 2014) (“[I]t is undisputed that the
Investment Binder contained conflicting provisions regarding arbitration. While the
Operating Agreement provided for arbitration, the Subscription Agreement did not. In our
view, the documents in the Investment Binder do not demonstrate a meeting of the minds
regarding arbitration.”) (applying Colorado law).
CONCLUSION
MEI has failed to meet its burden demonstrating the existence of a binding
arbitration agreement. For the reasons stated herein, the undersigned Magistrate Judge
hereby RECOMMENDS that Plaintiff’s Motion to Stay and to Compel Arbitration [Docket
No. 51] be DENIED. Any objections to this Report and Recommendation must be filed
within fourteen days, or by January 4, 2024. See 28 U.S.C. § 636(b)(1); Fed. R. Civ. P.
72(b). Any objection and response shall each be limited to 10 pages and a reply is permitted
only with leave of court upon a showing of good cause.
IT IS SO ORDERED THIS 21st day of December 2023.
GERALD L. JACKSON
UNITED STATES MAGISTRATE JUDGE
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