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Cotton Exchange Investment v. Xcel Air Conditioning

United States District Court, E.D. Louisiana

May 1, 2019


         SECTION "L" (5)

          ORDER & REASONS


         Before the Court is a motion to dismiss filed by Defendant Commercial Renovation Services, Inc. (“CRS”). R. Doc. 156. The Motion is opposed. R. Doc. 166. CRS has filed a reply. R. Doc. 176. The Court having heard oral argument on the motion on April 22, 2019, R. Doc. 179, rules as follows.

         I. BACKGROUND

         Plaintiff Cotton Exchange Investment Properties LLC (“Cotton Exchange”) alleges its hotel property was damaged by water and moisture exposure caused by Defendants CRS and John T. Campo & Associates (“Campo”) during the hotel's renovation. R. Doc. 23 at 2. Plaintiff further contends the hotel sustained damages as a result of defective maintenance and repairs to the hotel's HVAC system performed by Defendant Xcel Air Conditioning Services, Inc. (“Xcel”).

         Plaintiff alleges that in 2014, Supreme Bright New Orleans LLC (“Supreme Bright”) owned the Cotton Exchange Building in downtown New Orleans and executed several contracts for its renovation. R. Doc. 23 at 2. In January 2014, Supreme Bright contracted with Xcel to provide HVAC services, including the maintenance of the hotel's cooling tower, roof top units, and chilled water pumps. R. Doc. 1 at 3. That same month, Supreme Bright entered into a contract with Campo, whereby Campo would provide architectural, design, and engineering services. R. Doc. 23 at 4. A few months later, Supreme Bright contracted with CRS to serve as general contractor for the project (the “Construction Contract”). R. Doc. 23 at 2. In June 2015, the hotel was bought by Pacific Hospitality Group (“PHG”), who assumed the rights to all three contracts. R. Doc. 1 at 3. PHG subsequently assigned all of its rights, title, and interest in the purchase to Plaintiff, including the contracts with Xcel, Campo, and CRS. R. Doc. 1 at 4. Plaintiff alleges that under the terms of their respective contracts, all three defendants agreed to indemnify Cotton Exchange for any property damage caused by negligent acts or omissions related to the scope of their work. R. Doc. 1 at 5; R. Doc. 23 at 3-4.

         Plaintiff alleges the hotel suffered serious moisture damage as a result of Defendants' faulty workmanship, including water damaged walls and floors due to exposed chilled water piping, missing or improperly sealed insulation, and cracked or leaking draining pans. R. Doc. 23 at 7. Plaintiff alleges it had to close the hotel due to this extensive damage. R. Doc. 23 at 6. Plaintiff canceled the HVAC contract pursuant to its terms in December 2015 and notified Xcel of the damage on three occasions. R. Doc. 1 at 5, 6. Xcel did not respond to the demand for indemnity. R. Doc. 1 at 6. Additionally, Plaintiff avers it demanded indemnity from CRS and Campo, but was unsuccessful in these demands. R. Doc. 23 at 7. As a consequence, Plaintiff filed suit on December 16, 2016 bringing breach of contract and negligence claims against all three Defendants and breach of warranty of good workmanship claims against CRS and Campo. R. Doc. 23 at 7-16.[1]

         On June 25, 2018, Campo filed a third-party complaint against Cosentini Associates, Inc. (“Cosentini”), alleging that “on or about August 14, 2013, Cosentini submitted a proposal to Campo ‘to provide MEP/FP engineering design services' for the [hotel renovation] project.” R. Doc. 88 at ¶ 3. Campo further contends that, because “Cosentiti was responsible for providing MEP/FP engineering design services for the project, . . . Cosentini, not Campo, is responsible, to the extent any exist, which is disputed, for any error or omissions related to the MEP/FP design and/or the design services provided [by] Cosentini related to the MEP/FP design.” Id. at ¶ 12.

         Plaintiff and Defendant CRS filed a consent motion to stay proceedings against CRS pending the completion of arbitration, R. Doc. 44 at 1, which the Court granted on June 14, 2017, R. Doc. 45 at 1. The Court denied Defendant Xcel's motions to dismiss in August 2017. R. Doc. 51. On October 10, 2018, Cosentini filed a motion seeking to compel arbitration of Campo's claims against it, R. Doc. 111, which the Court granted on November 8, 2018, R. Doc. 127. On November 9, 2018, the Court severed Campo's third-party complaint against Cosentini from the main action. R. Doc. 134.


         On March 21, 2019, CRS filed a motion seeking leave to lift the stay in order to file a motion to dismiss Plaintiff's claims against it. R. Doc. 152. On March 22, 2019, the Court granted the motion, lifting the stay solely to consider the merits of CRS's motion, R. Doc. 155, and the motion was filed into the record, R. Doc. 156. In their motion, CRS argues that, pursuant to the Louisiana Supreme Court's holding in Eagle Pipe v. Amerada Hess Corp., Cotton Exchange has no right of action against CRS in either contract or tort. R. Doc. 156 at 1. Because “[t]he various documents effecting and related to the sale of the property at issue in this case did not contain a valid assignment of the personal right to sue [CRS] for alleged defects related to a renovation of the property by CRS prior to the sale, ” CRS moves the Court to vacate Cotton Exchange's arbitration demand and dismiss with prejudice all of Cotton Exchange's claims against CRS. Id. at 1-2.

         In opposition, pointing to the fact that CRS and Cotton Exchange have been engaged in arbitration for nearly two years and that the arbitration hearing is scheduled to begin on December 2, 2019, Cotton Exchange argues this Court should refer CRS's motion to the arbitration panel. R. Doc. 166 at 1, 6-7. Alternatively, Cotton Exchange argues that, in the event the Court reaches the merits of CLS's motion, the motion should be denied, since the act of sale transferring ownership of the hotel from Supreme Bright to Cotton Exchange included the transfer of Supreme Bright's personal right to sue, and, even if the assignments did not contain a valid transfer of this right, the settlement reached between Supreme Bright and Cotton Exchange specifically and unequivocally contained a valid, retroactive assignment thereof. Id. at 2.

         In reply, CRS reiterates its argument that the fact that Cotton Exchange entered into an amended sales contract is irrelevant, given that the right to sue for damages “is a personal right that must be specifically assigned at the time of sale.” LeJeune Bros. v. Goodrich Petroleum Co., L.L.C., 981 So.2d 23, 31 (La. Ct. App. 3 Cir. 11/28/07) (emphasis added). As a result, CRS argues, because Cotton Exchange did not obtain the personal right to sue at the time of sale, “[Cotton Exchange] cannot avail itself of the provisions [of the Construction Contract], including the arbitration clause.” R. Doc. 176 at 1-3.

         III. LAW ...

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