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Kisby Lees Mechanical LLC, T/A v. Pinnacle Insulation

September 24, 2012

KISBY LEES MECHANICAL LLC, T/A KISBY SHORE CORP. PLAINTIFF,
v.
PINNACLE INSULATION, INC., DEFENDANT.



The opinion of the court was delivered by: Hon. Jerome B. Simandle

OPINION

SIMANDLE, Chief Judge:

I. INTRODUCTION

This matter is before the Court on Plaintiff Kisby Lees Mechanical LLC's ("Kisby" or "Plaintiff") motion to dismiss Defendant's Counterclaim for failure to state a claim [Docket Item 9], which the Court converted into a motion for summary judgment pursuant to Fed. R. Civ. P. 12(d) in its July 31, 2012 Opinion and Order [Docket Items 18 & 19]. In its converted motion for summary judgment, Plaintiff argues that Defendant/Counterclaimant Pinnacle Insulation, Inc.'s ("Pinnacle" or "Defendant") Counterclaim must be dismissed pursuant to the doctrines of res judicata, the entire controversy doctrine, and the doctrine of arbitration and award. The principal issues for the Court to determine are (1) whether a dispute of fact exists whether Kisby's unconfirmed arbitration award was of limited scope, and (2) if so, whether the fact that a factfinder could conclude it was of limited scope limits the preclusive effect of the unconfirmed arbitration award in this matter. As explained below, because the Court answers both questions in the affirmative, the Court will deny Plaintiff's converted motion for summary judgment.

II. BACKGROUND

Plaintiff Kisby is a Heating, Ventilating and Air Conditioning ("HVAC") contractor, and Defendant Pinnacle is a supplier of insulation materials. Kisby engaged Pinnacle, as a subcontractor, to supply HVAC insulations on a number of projects that Kisby performed pursuant to subcontracts with higher tier contractors. Pinnacle now seeks payment from Kisby for the subcontracted work. The factual background and procedural history of this case were recounted in detail in Kisby Lees Mechanical LLC v. Pinnacle Insulation, Inc., Civ. No. 11-5093, 2012 WL 3133681 (D.N.J. July 31, 2012), when Defendant's motion to dismiss Plaintiff's counterclaims under Fed. R. Civ. P. 12(b)(6) was converted to the present motion for summary judgment under Rule 56. In light of this recent recitation, the Court will summarize the facts and procedural history here only briefly.

A. Factual Background and Arbitration

Plaintiff Kisby is a contractor that hired Defendant Pinnacle as an insulation subcontractor to provide labor and materials on various construction projects. [Decl. of James J. Lees, Jr. ¶¶ 2-3; Pinnacle Insulation (May 24, 2011) (Keefe, Arb.) at 1.] The Atlanticare Regional Medical Center, City Campus ("Atlanticare project") was one of the projects for which Pinnacle provided subcontract services for Kisby. [Aff. of Shana McMahon ¶ 11; Aff. of Robert J. Miller ¶¶ 1-3.] It is undisputed that Pinnacle performed its work, and there have been no allegations that any of the work was faulty. [Pinnacle Insulation (May 24, 2011) (Keefe, Arb.) at 1-2.] Pinnacle alleges Kisby has not paid it the amounts due for its work. Pinnacle alleges that there is a factual dispute whether Kisby has been paid by the project owners for the work done by Pinnacle.

On May 19, 2010, Pinnacle filed a complaint against Kisby with this Court seeking damages relating to unpaid contracts on 13 projects throughout New Jersey, docketed at Civ. No. 10-2573. [Aff. of Shana McMahon ¶ 2.] However, after discussions between the parties, Pinnacle agreed to voluntarily dismiss the action without prejudice to pursue the claims in arbitration. On June 18, 2010, Kisby's counsel, Jacob S. Perskie, wrote a letter to Pinnacle's counsel, Shana McMahon, to "confirm our agreement that you will dismiss the Complaint filed in the above-referenced matter and submit to arbitration all claims set forth therein." [Docket Item 9-3, Exh. B.] On June 25, 2010, the notice of dismissal was entered and the case terminated. [Notice of Dismissal, Civ. No. 10-2573, Docket Item 4.]

On October 15, 2010, Ms. McMahon sent an e-mail to Mr. Perskie, suggesting that the parties limit the scope of arbitration. [Docket Item 9-3, Exh. C.] Out of convenience and to save time and money, the parties agreed to submit only a narrow question to the arbitrator: whether Kisby owed Pinnacle for the subcontracted work only upon receipt of payment for that work from the project owners or the general contractors, or if Kisby owed Pinnacle regardless of whether Kisby received payment for Pinnacle's work from the project owners or the general contractors; in other words, whether the parties had created a "pay-if-paid" or a "pay-when-paid" contract.*fn1 [Pinnacle Insulation (May 24, 2011) (Keefe, Arb.) at 1; Docket Item 9-3, Exh. B, C.] The parties agreed that, if the contracts required Kisby to pay Pinnacle, Pinnacle was entitled to damages in the amount of $104,027.92. [Aff. of Shana McMahon ¶ 10; Pinnacle Insulation (May 24, 2011) (Keefe, Arb.) at 1.] On December 3, 2010, Ms. McMahon sent another e-mail to Mr. Perskie, stating in part: "We also agreed to speak to both of our clients regarding the binding nature of arbitration to ensure that they fully understand and are in agreement that the ultimate outcome will be final." [Docket Item 9-3, Exh. D.]

The parties conducted a private arbitration with John E. Keefe, a retired judge. Judge Keefe, in his written arbitration award, quoted the "engagement email to the arbitrator" drafted by Ms. McMahon to describe the scope of the inquiry:

The sole issue remaining is whether there [sic] payment provisions of the contract make payment to the subcontractor expressly contingent on the receipt of payment from the owner (pay-if-paid) or simply create at [sic] timing mechanism whereby the contractor may withhold payment from the subcontractor for a reasonable time while awaiting payment from the owner (pay-when-paid). [Id.]

Judge Keefe further noted that "[i]t is undisputed that Kisby has not been paid by either of the project owners" for work performed by Pinnacle. [Id.]

However, after agreeing to arbitrate, counsel for Pinnacle learned that Kisby continued to perform work for LF Driscoll Co. ("Driscoll"), the construction manager of the Atlanticare project, while maintaining that Driscoll had not yet paid Kisby for Pinnacle's past work. This continued business relationship raised suspicions in the minds of Pinnacle's counsel that Kisby might not have pursued payment for Pinnacle's work from Driscoll. [Aff. of Shana McMahon ¶ 13.] When Pinnacle asserted in its arbitration memorandum that the payment clause could not be enforced as a pay-if-paid clause if Kisby had not pursued payment, thus violating Kisby's duty of good faith and fair dealing, Kisby responded that the issue was not before the arbitrator, and the arbitrator agreed. [Aff. of Shana McMahon ¶ 14.]

Judge Keefe's conclusion as to the arbitration award, signed May 24, 2011, was succinct: "Award: The contract between the parties contains a valid pay-if-paid clause." [Pinnacle Insulation (May 24, 2011) (Keefe, Arb.) at 3.]

B. Procedural History

On August 16, 2011, Kisby filed an action to confirm the arbitration award in New Jersey state court, which Pinnacle later removed to this Court, pursuant to 28 U.S.C. § 1441 et seq., on the basis of diversity jurisdiction. [Docket Item 1.]

Pinnacle filed its Answer and Counterclaim on November 23, 2011. [Docket Item 5.] In its Counterclaim, Pinnacle asserted claims for (1) breach of contract, (2) unjust enrichment, and (3) promissory estoppel.

Kisby filed a motion to dismiss Pinnacle's Counterclaim under Rule 12(b)(6) for failure to state a claim. [Docket Item 9.] Kisby claimed that (1) res judicata, (2) the entire controversy doctrine, and (3) the doctrine of arbitration and award bar Pinnacle's Counterclaim. [Id.] Kisby supported its motion by attaching the declaration of Mr. Perskie, counsel for Kisby, which contained information regarding the arbitration proceedings and pre-arbitration discussions between the parties. [Id.] Kisby also submitted a statement from James J. Lees, Jr., a Kisby executive, averring, among other things, that "Kisby has not been paid for Pinnacle's work." [Decl. of James J. Lees, Jr. ¶ 5.] Because Kisby relied on matters outside the pleading in its Rule 12(b)(6) motion, this Court converted that motion to a Rule 56 motion for summary judgment. Kisby Lees Mechanical LLC v. Pinnacle Insulation, Inc., Civ. No. 11-5093, 2012 WL 3133681 at *5 (D.N.J. July 31, 2012).

Pinnacle filed its opposition to the converted motion for summary judgment on August 28, 2012, and attached two new affidavits in support of its position: one from Robert J. Miller, the executive vice president of Driscoll, averring that Kisby had been paid in full for Pinnacle's work on the Atlanticare project; and one from Ms. McMahon, counsel for Pinnacle, concerning the circumstances surrounding the Keefe arbitration. [Docket Item 22.] In its brief, Pinnacle reasserts its opposition to Kisby's res judicata, entire controversy doctrine and arbitration and award claims. [Id. at 4] Pinnacle adds that it did not learn that Kisby received payment from the Atlanticare project owner until after the 30-day period for vacating the arbitration award for fraud had passed. [Id. at 6.]*fn2 Pinnacle requests that, if summary judgment is granted, Pinnacle be given leave to file an amended complaint asserting a claim of fraud against Kisby. [Id. at 7.]

On September 11, 2012, Kisby submitted a reply brief in further support of its motion for summary judgment. [Docket Item 23.] Kisby requests summary judgment and, in the alternative, if summary judgment is denied, for the Court to compel Pinnacle to submit any surviving ...


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