     Case: 14-51269      Document: 00513053425         Page: 1    Date Filed: 05/22/2015




           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT
                                                                          United States Court of Appeals

                                    No. 14-51269
                                                                                   Fifth Circuit

                                                                                 FILED
                                  Summary Calendar                           May 22, 2015
                                                                            Lyle W. Cayce
TRC ENVIRONMENTAL CORPORATION,                                                   Clerk


              Plaintiff - Appellee

v.

LVI FACILITY SERVICES, INCORPORATED,

              Defendant - Appellant


                   Appeal from the United States District Court
                        for the Western District of Texas
                             USDC No. 1:14-CV-187


Before DAVIS, CLEMENT, and COSTA, Circuit Judges.
PER CURIAM:*
       Before us is the question of whether the subcontract between the parties
requires arbitration for breach of contract claims. The answer to this question
depends upon the interpretation of the term “contract documents” in the
subcontract. After carefully considering this question, for the reasons set out
below, we AFFIRM the district court.




       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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                       FACTS AND PROCEEDINGS
      TRC Environmental Corporation (“TRC”) was awarded a contract (the
“Project Agreement”) by the City of Austin, Texas, to decommission a power
plant. TRC hired LVI Facilities Services, Inc. (“LVI”) as a subcontractor on the
project to complete various tasks, including asbestos removal. TRC filed a
complaint against LVI in the United States District Court for the Western
District of Texas, alleging that LVI had breached the subcontract. TRC sought
three million dollars in damages as well as a declaratory judgment that TRC
is not liable for LVI’s additional expenses. In response, LVI filed motions to
dismiss under Fed. R. Civ. P. 12(b)(6), to compel arbitration, and to stay
litigation pending arbitration.
      LVI’s motion to compel arbitration is based on the arbitration provision
in the subcontract. Article XXI of the subcontract, “Dispute Resolution and
Attorney Fees,” states, in relevant part:
      XXI.1 All disputes arising under the Contract Documents will be
      resolved in accordance with the terms of the Project Agreement.

      XXI.2 Where disputes arise between the Parties and not under the
      Contract Documents:

            (a) The Parties agree to make a good faith effort to mutually
            resolve any dispute as quickly as practicable.

            (b) Except to the extent it may invalidate or prejudice any
            insurance coverage of either Party, (1) disputes between the
            Parties arising out of or related to this Subcontract shall be
            decided by alternate dispute resolution procedures as
            mutually agreed, and (2) in the absence of such agreement,
            disputes shall be decided by arbitration before a single
            disinterested arbitrator in accordance with the existing
            Construction Industry Rules of the American Arbitration
            Association.



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Contract Documents are defined by the Subcontract as including “this
Subcontract and its Schedule, Exhibits, and Addenda and Amendments.”
Article 16 of the Project Agreement, “Dispute Resolution,” contains Paragraph
16.3, “Resolution of Disputes between Contractor and Subcontractor or
Supplier,” which states:
       If a dispute exists concerning a claim between a CONTRACTOR
       and a Subcontractor or Supplier, the CONTRACTOR agrees to
       participate with such Subcontractor and/or Supplier in a process
       substantially paralleling the steps set out in paragraphs 16.1 and
       16.2 1 above, including the delivery of written notices, submission
       of supporting data, negotiation with previously uninvolved
       personnel, and, if such alternative dispute resolution process is
       unsuccessful, mediation between the parties to the claim. If the
       CONTRACTOR and Subcontractor or Supplier agreement
       provides an alternative dispute resolution process, which provides
       substantially equivalent rights to those set forth herein, it may be
       followed, unless the CONTRACTOR and affected Subcontractor or
       Supplier agree to follow the process outlined above.

       After considering this language, the magistrate judge held that the
subcontract did not compel TRC to arbitrate its breach of contract claim
because the breach of contract claim arose under the Contract Documents,
which require resolution pursuant to the Project Agreement, Article 16 of
which does not require arbitration. The district court, over LVI’s objection,
approved the magistrate’s recommendation. LVI filed this timely appeal.


                                       DISCUSSION
       We review the district court’s interpretation of the arbitration agreement
de novo. Webb v. Investacorp, Inc., 89 F.3d 252, 257 (5th Cir. 1996) (per

       1  Paragraph 16.2 of the Project Agreement states: “prior to pursuing any other
available remedies . . . . The parties agree to participate in mediation in good faith for up to
thirty (30) calendar days . . . . [T]hen each party is released to pursue other remedies available
to them.”

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curiam).    The determination of whether a party should be compelled to
arbitrate involves two steps: “(1) whether there is a valid agreement to
arbitrate between the parties; and (2) whether the dispute in question falls
within the scope of that arbitration agreement.” Will-Drill Res., Inc. v. Samson
Res. Co., 352 F.3d 211, 214 (5th Cir. 2003) (internal quotation marks omitted).
A presumption of arbitrability applies to step two; ambiguities regarding the
scope of the arbitration agreement are resolved in favor of arbitration.
Fleetwood Enters., Inc. v. Gaskamp, 280 F.3d 1069, 1073 (5th Cir. 2002). There
is no presumption regarding step one (i.e. a presumption that parties entered
into an agreement to arbitrate); step one is evaluated “on the basis of ordinary
state-law principles that govern the formation of contracts.” Id. (internal
quotation marks omitted).
      LVI   argues   that   the   parties   had   an   “express,   unambiguous,
uncontradicted” agreement to arbitrate disputes. LVI finds this express intent
to arbitrate in Article XXI.2(b) of the subcontract, which states that “disputes
between the Parties arising out of or related to this Subcontract . . . shall be
decided by arbitration.” LVI acknowledges that Section XXI divides disputes
into those “arising under the Contract Documents,” Article XXI.1, and those
“aris[ing] between the Parties and not under the Contract Documents,” Article
XXI.2. Article XXI.1 thus constricts Article XXI.2(b) to requiring arbitration
only when a dispute between the parties does not arise under the Contract
Documents. LVI argues that this is merely a “technical conflict” that should
not be construed to alter the otherwise clear intent of the parties.
      We find this argument unpersuasive. Under the first prong of Will-Drill
the parties have not agreed to arbitrate. See 352 F.3d at 214. The subcontract
divides disputes into two categories, those that arise under the Contract
Documents and those that do not. The former are governed by the terms of the


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                                   No. 14-51269
Project Agreement between TRC and the City of Austin.               The latter are
governed by the terms within the subcontract. The Project Agreement requires
certain alternative dispute resolution procedures, but not arbitration. The
subcontract requires arbitration of disputes that do not arise under the
Contract Documents.
      Contract Documents are defined in the subcontract as including the
subcontract. Thus disputes arising under the subcontract are subject to the
terms of the Project Agreement, which requires an alternative dispute
resolution process. The terms of the subcontract do not demonstrate that the
parties agreed to arbitrate disputes arising under the subcontract. The parties
instead appear to have created a catch-all provision that requires arbitration
of those disputes that do not arise under Contract Documents. LVI makes
several arguments against this interpretation, which we address briefly.
      First, LVI argues that the district court failed to “harmonize” the various
provisions within the subcontract. LVI starts with the language of Article
XXI.2(b) of the subcontract, which states that “disputes between the Parties
arising out of or related to this Subcontract . . . shall be decided by arbitration.”
Because the dispute arises out of the subcontract, LVI argues, the intent of the
parties is clearly to arbitrate.
      Second, LVI addresses the fact that this interpretation of the subcontract
appears to ignore that Article XXI.2 only applies to disputes that do not arise
under the Contract Documents. LVI’s solution to this problem to look to the
definition of “Contract Documents” under the Project Agreement instead of the
subcontract. The Project Agreement does not include the subcontract as part




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of “Contract Documents.” 2 If Articles XXI.1 and XXI.2 are read with this
different definition of the Contract Documents, then Article XXI.2(b)’s
arbitration agreement can be read to apply to all “disputes between the Parties
arising or related to this Subcontract.”
      This, LVI argues, is consistent with the parties’ intent because the
parties meant to subject only those disputes concerning project documents as
defined by the Project Agreement to the alternative dispute resolution
processes of the project agreement.            LVI would take the term “Contract
Documents” in Article XXI.1 of the subcontract to mean “Contract Documents”
as defined in the Project Agreement as opposed to the subcontract.                 But,
nothing in the subcontract suggests that “Contract Documents” refers to the
Project Agreement’s definition. Indeed, LVI does not address the subcontract’s
use and definition of the same term. Further, the language of the Project
Agreement suggests the opposite conclusion. Paragraph 6.4.3. of the Project
Agreement requires the contractor to include alternative dispute resolution
provisions mirroring those in the Project Agreement in its agreements with
subcontractors.    Paragraph 16.3 of the Project Agreement states that the
contractor “agrees to participate with such Subcontractor and/or Supplier in a
process substantially paralleling the steps set out in paragraphs 16.1 and 16.2
above [which provide for an alternative dispute resolution process].” R. at 406.
LVI’s interpretation of the subcontract is not consistent with these
requirements.
      Lastly, we note that LVI misconstrues the presumption in favor of
arbitration.   The Federal Arbitration Act codifies a “liberal federal policy


      2 The Project Agreement defines “Contract Documents” as “Project Manual, Drawings,
Addenda and Change Orders.” The subcontract defines “Contract Documents” as including
“this Subcontract and its Schedule, Exhibits, and Addenda and Amendments.”


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favoring arbitration agreements.” Gilmer v. Interstate/Johnson Lane Corp.,
500 U.S. 20, 25 (1991) (internal quotation marks omitted).              But, this
presumption applies when a court evaluates the scope of an arbitration under
the second step of the arbitration analysis, not when a court is determining
whether a valid arbitration agreement exists at all. E.g., Gaskamp, 280 F.3d
at 10730. Since we find there was no agreement to arbitrate disputes arising
under the Contract Documents and, therefore, the subcontract we do not reach
the second step of the arbitration analysis.


                                 CONCLUSION
         For the reasons discussed, the parties did not have a valid agreement to
arbitrate disputes arising under the subcontract. We AFFIRM the district
court.




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