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City of Benkelman v. Baseline Engineering Corp.

United States Court of Appeals, Eighth Circuit

August 11, 2017

City of Benkelman, Nebraska, A Political Subdivision Plaintiff-Appellant
Baseline Engineering Corporation, A Colorado Corporation Defendant-Appellee Layne Christensen Company, a Delaware Corporation Defendant

          Submitted: August 1, 2017

         Appeal from United States District Court for the District of Nebraska - North Platte

          Before RILEY, BEAM, and SHEPHERD, Circuit Judges.

          SHEPHERD, Circuit Judge.

         A rural Nebraska community seeks federal review of its multi-million dollar claims against a Colorado corporation. A United States District Court in Nebraska determined that it lacked jurisdiction over the claims and issued a final judgment[1]ordering the parties to proceed to arbitration in Colorado. With jurisdiction under 28 U.S.C. § 1291, we reverse and remand for further proceedings.


         The City of Benkelman is a community of less than one thousand residents located in Dundy County, Nebraska. In 2005, the state health and human services department ordered the City to address the excessive amounts of uranium, arsenic, and other contaminants in the City's drinking water supply. The City subsequently contracted with Baseline Engineering Corporation, a Colorado organization, to assist with the permitting, design, and construction of a water treatment plant for the City. The City obtained partial funding for the project from the United States Department of Agriculture - Rural Development ("USDA-RD").

         The project began in July 2009 and the plant was operating by May 2012. In June 2012, however, laboratory tests of treated water samples showed that the uranium levels still did not comply with federal drinking water standards. Around five months later, the state denied final approval of the plant for failure to effectively treat the City's water supply.

         The City sued Baseline[2] in federal court in Nebraska, alleging breach of contract, negligence and professional malpractice, fraud, and negligent misrepresentation. Seeking damages in excess of $5.5 million, the complaint averred that Baseline failed to properly design the treatment plant, misrepresented itself as a water engineering expert, and gave false information about how to bring the City's water supply into compliance with state and federal laws.

         Baseline moved to dismiss the complaint. Citing generally Federal Rule of Civil Procedure 12(b), Baseline argued that the district court lacked jurisdiction due to a dispute resolution provision in a contract that both parties signed on or about July 21, 2009 (the "July 2009 Contract"). Under the July 2009 Contract, if the parties cannot resolve a dispute through a "a face-to-face meeting, " the dispute must be "submitted to binding arbitration . . . conducted at a suitable location within 15 miles of [Baseline's] then existing principal office. The arbitration shall be completed pursuant to the Uniform Arbitration Act, C.R.S. § 13-22-201, et seq., and governed by the provisions of the Colorado Rules of Civil Procedure, before a single arbiter." The July 2009 Contract further provides that, if the parties waive arbitration or if the arbitration provision is invalidated or does not apply, "venue for any court proceeding will be the District Court for Jefferson County, State of Colorado."[3]

         The City opposed Baseline's motion, arguing that the July 2009 Contract does not control because it was superseded by a second contract that the parties signed on or slightly before August 27, 2009[4] (the "August EJCDC Agreement"). The August EJCDC Agreement, comprised of thirteen pages and ten exhibits, is a standard form contract prepared by the Engineers Joint Contract Documents Committee (the "EJCDC"). The City claims that, because the treatment plant was funded in part by USDA-RD, the parties were required to execute the EJCDC agreement and have it approved by USDA-RD. Indeed, in a letter dated August 28, 2009, Baseline submitted the parties' signed August EJCDC Agreement to the USDA-RD, and the Agreement was approved on October 5, 2009. Because paragraph 6.01K of the August EJCDC Agreement states that "[a]ll [c]ontract [d]ocuments . . . shall be subject to [a]gency concurrence, " the City argues that the July 2009 Contract (which was not sent to USDA-RD for approval) simply memorialized the parties' initial agreement but was later replaced as the governing document by the agency-approved August EJCDC Agreement.

         The August EJCDC Agreement has its own arbitration provision, although the provision is not mandatory and is triggered only if a dispute survives the parties' good faith negotiation and mediation. In such an event the August EJCDC Agreement states that "either party may seek to have the [d]ispute resolved by a court of competent jurisdiction." Alternatively, if less than $200, 000 is in controversy, the dispute may be resolved by a method mutually agreed upon by the parties, "including but not limited to arbitration."

         In addition to conflicting arbitration and forum selection clauses, the July and August contracts contain the following terms relevant to Baseline's motion to dismiss:

(1)Incorporation by reference. Though the August EJCDC Agreement was signed around a month after the July 2009 Contract, it is twice incorporated by reference as "Exhibit B" to the July 2009 Contract. First, page 1 of the July 2009 Contract contains a box titled "Job Description" followed by an instruction to "[s]ee Exhibit B hereto - for accompanying EJCDC agreement." Second, a provision on page 3 titled "Entire Contract" states, "Exhibits A and B hereto are incorporated into this Agreement as fully set forth herein."
(2)Choice-of-law. The July 2009 Contract contains a choice-of-law provision stating that the parties' agreement "shall be governed by the laws of the State of Colorado." Under the August EJCDC Agreement, however, "the law of the state in which the Project is located"-Nebraska-controls.
(3)Merger clauses. Each contract purports to represent the entire agreement between the parties and to trump any prior or inconsistent agreements. The July ...

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