RAO Construction, LLC v. Ed Lunn Construction, Inc.

Background

Hudson Senior Housing hired CBS Construction Services as the general contractor for a senior living facility. CBS subcontracted the carpentry work to Ed Lunn Construction, Inc. (“ELC”), which then engaged RAO Construction, LLC (“RAO”). The parties disputed whether RAO was a subcontractor or merely loaned workers to ELC.

Years after construction ended, Hudson Senior Housing started a $4.5 million arbitration against CBS over water-intrusion damages. CBS brought ELC into the arbitration, and ELC brought RAO into it. RAO objected, claiming that it never agreed to arbitrate.

ELC relied on two documents. The first was a 2014 agreement that included an arbitration clause and purported to govern the parties’ present and future business dealings. RAO alleged that its president’s signature on that agreement was forged. The second was a 2015 project addendum containing an arbitration clause but no signatures. RAO’s forensic expert opined that the document’s computer metadata showed it was created in 2016, even though it was dated May 1, 2015. ELC argued that RAO accepted the addendum by performing work and receiving payment.

A preliminary arbitrator rejected RAO’s objection to being joined in November 2022. RAO then participated in several parts of the arbitration, including panel selection, scheduling, interrogatories, and discovery. After ELC noticed depositions of RAO employees, RAO filed this lawsuit and sought a preliminary injunction, as well as an order quashing the arbitration subpoenas and depositions.

Legal standard

The court applied the four factors used for preliminary injunctions in the Eighth Circuit: the likelihood that the moving party will succeed on the merits, the threat of irreparable harm without an injunction, the balance of harms, and the public interest. RAO had the burden to establish that emergency relief was proper.

Analysis

The court concluded that the factors did not favor RAO. Regarding the likelihood of success, the court said the broad language of the 2014 agreement appeared capable of covering the dispute, even if RAO only loaned workers to ELC. The court found RAO’s forgery allegation too weak at that stage to establish a likelihood of success, while acknowledging that discovery and factual development could strengthen the allegation.

As to the 2015 addendum, the court recognized that RAO’s metadata evidence was stronger than its forgery claim. But ELC had not yet had time to provide its own expert or rebuttal, and the court found limitations in RAO’s expert report. The court therefore could not conclude, on the limited record, that RAO was likely to succeed in proving that it never accepted the 2015 agreement.

The court also found no sufficient showing of irreparable harm. RAO would incur time and expense by participating in discovery and possibly defending itself in the arbitration, but the court treated those injuries as economic losses. It noted that an arbitration award could potentially be vacated if the American Arbitration Association lacked jurisdiction. The court also expected that arbitration discovery could reduce duplicative discovery in the federal case and observed that RAO employees might be subpoenaed as witnesses even if RAO were no longer a party. RAO’s extensive prior participation in the arbitration also suggested that there was no emergency.

The balance of harms favored neither side because the court found that both parties would primarily face litigation costs. The public interest was also neutral. The court explained that the public interest in enforcing arbitration agreements would favor ELC if the contracts were valid, while RAO’s public-interest arguments depended on assuming that the contracts were invalid.

Disposition

The court denied RAO’s motion for a preliminary injunction. Because it did not grant that injunction, it also denied RAO’s request to quash the American Arbitration Association subpoenas and depositions. The order did not finally resolve the validity of either contract or the ultimate arbitrability of the dispute.