Cumberland Casualty & Surety Company v. Lamar School District

ca03-961

ARKANSAS COURT OF APPEALS
NOT DESIGNATED FOR PUBLICATION

DIVISION I

CUMBERLAND CASUALTY &

SURETY COMPANY

APPELLANT

V.

LAMAR SCHOOL DISTRICT

APPELLEE

CA 03-961

OCTOBER 13, 2004

APPEAL FROM THE JOHNSON

COUNTY CIRCUIT COURT

[NO. CV-2003-50]

HONORABLE DENNIS

SUTTERFIELD, JUDGE

REVERSED AND REMANDED

John B. Robbins, Judge

Cumberland Casualty & Surety Company appeals from an order of the Johnson County Circuit Court denying its motion for arbitration of a claim brought against it on a construction performance bond by appellee Lamar School District.1 We hold that the circuit court erred and reverse and remand for arbitration of this claim.

Appellant issued the bond in December 2001 to guarantee the performance of a contract entered into between appellee and Jennifer Construction Company (Jennifer) for construction of a technology center. Steve Elliott, of Lewis, Elliott, & Studer, Inc., a Little Rock firm, was the architect that prepared the plans and specifications for the project. He also prepared the construction contract entered into by appellee and Jennifer, using standard forms provided by the American Institute of Architects. The AIA's Document A101-1997 was used for the contract, which incorporated the "General Conditions" (AIA form A201-

1997), the "Supplementary Conditions," and the "Project Manual." The performance bond incorporated the construction contract by reference.

The contract provided for arbitration as follows:

4.6 ARBITRATION

4.6.1 Any Claim arising out of or related to the Contract, except Claims relating to aesthetic effect and except those waived as provided for in Subparagraphs 4.3.10, 9.10.4 and 9.10.5, shall, after decision by the Architect or 30 days after submission of the Claim to the Architect, be subject to arbitration. Prior to arbitration, the parties shall endeavor to resolve disputes by mediation in accordance with the provisions of Paragraph 4.5.

4.6.2 Claims not resolved by mediation shall be decided by arbitration which, unless the parties mutually agree otherwise, shall be in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association currently in effect. The demand for arbitration shall be filed in writing with the other party to the Contract and with the American Arbitration Association, and a copy shall be filed with the Architect.

The supplementary conditions, however, discussed arbitration in this fashion:

1. The "General Conditions of the Contract for Construction," AIA Document A201, fifteenth edition, 1997, Articles 1 through 14 inclusive, is a part of this Contract.

2. The following supplements shall modify, delete, and/or add to the General Conditions. Where any article, paragraph, or subparagraph in the General Conditions is supplemented by one of the following paragraphs, the provisions of such article, paragraph, or subparagraph shall remain in effect and the supplemental provisions shall be considered an [sic] added thereto. Where any article, paragraph, or subparagraph in the General Conditions is amended, voided, or superseded by any of the following paragraphs, the provisions of such article, paragraph, or subparagraph not so amended, voided, or superseded shall remain in effect.

....

12. In subparagraph 4.5.1: Change the words "shall be subject to arbitration upon the written demand of either party" to read: "Shall be subject to arbitration if both parties agree to arbitrate."

13. Add subparagraph 4.5.2.1 "Arbitration proceedings shall be in accordance with the applicable laws of the State of Arkansas".

In August 2002, Jennifer advised appellee that it could not complete the contract. In September 2002, appellee declared Jennifer in default according to the terms of the performance bond. Although Jennifer notified appellee that it would continue construction as the contractor for appellant, it failed to do the work and appellee demanded that appellant perform its obligations under the bond. On November 21, 2002, appellee notified appellant that it was in default and informed it that appellee would hire an independent contractor to complete the work, for which appellant would be expected to pay. After the work was completed by Circle G Construction Management, Inc., appellee demanded payment of $62,048 from appellant. After appellant failed to pay, appellee filed this lawsuit against appellant. With the complaint, appellee filed copies of the construction contract and the performance bond.

Along with its answer, appellant filed a motion to compel arbitration. It stated that the phrase "shall be subject to arbitration upon the written demand of either party" was not contained within subparagraph 4.5.1 or any other subparagraph of the contract. Appellant argued that subparagraph 4.6.1 of the contract, which provided that any claim (with certain exceptions not applicable here) arising out of or related to the contract was subject to arbitration, had not been amended by the supplementary conditions and was still in effect.

In response to the motion to compel arbitration, appellee filed an affidavit by Steve Elliott and a copy of the AIA's Document A201-1997, which set forth the construction contract's general conditions and which was incorporated therein. It also filed a copy of the supplementary conditions that amended the general conditions.

In his affidavit, Mr. Elliott stated:

The undersigned put together the "Project Manual Including Specifications For Construction Technology Center for Lamar School District, Lamar, Arkansas." Attached as Exhibit "1" and incorporated herein by reference are the "Supplementary Conditions" contained in the above described Project Manual. The Supplementary Conditions are a part of the Contract between the Lamar School District and Jennifer Construction Company, Inc. The Supplementary Conditions modify AIA Document A201-1997 by deleting the requirement of arbitration. These "Supplementary Conditions" are contained on the computer of the architectural firm of the undersigned. Periodically, the AIA Documents are updated, and our computer forms that contain "Supplemental Conditions" are also updated. AIA Document A201-1997 is the 1997 version of Document A201. In that document, arbitration is contained in paragraph 4.6. In AIA Document A201-1987, the provision for arbitration found in paragraph 4.5. In AIA Document A201-1987, there is no provision for "mediation". The computer form at the office of the undersigned did not have the revision to change the provision on arbitration from 4.5 to 4.6. However, it was the intent and purpose of myself as architect and the author of the contractual agreement between the owner and the contractor to delete the term and condition [that] provided for arbitration. The requirement of arbitration was deleted and was not a part of the original contract between the owner and the contractor.

After a hearing, the circuit court denied the motion to compel arbitration. This appeal followed.

Our review of a trial court's denial of a motion to compel arbitration is de novo. Showmethemoney Check Cashers, Inc. v. Williams, 342 Ark. 112, 27 S.W.3d 361 (2000).

Appellant argues on appeal that the circuit court committed error in denying its motion to compel arbitration because the supplementary conditions did not effectively remove the general arbitration provisions from the construction contract. It points out that the words of the contract that the supplementary conditions purported to modify were not in fact in the contract. It also stresses that the incorporating language in paragraph 2 of the supplementary conditions expressly stated that any "article, paragraph, or subparagraph not so amended, voided, or superseded shall remain in effect." It further notes that the supplementary conditions did not even refer to paragraph 4.6, which expressly provided for arbitration. Appellant contends that, even if the drafter of the contract attempted to delete the contract's arbitration provisions, the alteration created, at most, an ambiguity and that, given the rules of construction applicable to ambiguous contracts, especially those containing arbitration clauses, the documents should be construed in favor of requiring arbitration. We agree.

Because the duty to arbitrate is a contractual obligation, we must first determine from the language of the arbitration agreement whether the parties intended to arbitrate the particular dispute in question. See Showmethemoney Check Cashers, Inc. v. Williams, supra. The Arkansas Uniform Arbitration Act provides that a party in a lawsuit may apply to the trial court to obtain a stay of the proceedings and an order for arbitration pursuant to their agreement. The party resisting arbitration may only dispute the existence or validity of the agreement to arbitrate. Id. An arbitration provision in a construction contract that is incorporated by reference in a performance bond is binding upon the parties to the bond. See Matson, Inc. v. Lamb & Assocs. Packaging, Inc., 328 Ark. 705, 947 S.W.2d 324 (1997). Arkansas Code Annotated section 16-108-201 (Supp. 2003) provides in relevant part:

(a) A written agreement to submit any existing controversy to arbitration arising between the parties bound by the terms of the writing is valid, enforceable, and irrevocable, save upon such grounds as exist for the revocation of any contract.

(b)(1) A written provision to submit to arbitration any controversy thereafter arising between the parties bound by the terms of the writing is valid, enforceable, and irrevocable, save upon such grounds as exist for the revocation of any contract.

See also Ark. Code Ann. § 16-108-202 (1987).

As a matter of public policy, arbitration is strongly favored. Hart v. McChristian, 344 Ark. 656, 42 S.W.3d 552 (2001). Arbitration is looked upon with approval by courts as a less expensive and more expeditious means of settling litigation and relieving docket congestion. Id. Arbitration is a matter of contract between the parties, and the same rules of construction and interpretation apply to arbitration clauses as apply to agreements generally. Id. The construction and legal effect of a written contract to arbitrate are to be determined by the court as a matter of law. Id. Accordingly, we will give effect to the parties' intent as evidenced by the arbitration agreement itself. Id. In light of the policy favoring arbitration, such agreements will not be construed strictly but will be read to include subjects within the spirit of the parties' agreement. Id. Any doubts and ambiguities of coverage will be resolved in favor of arbitration. Id.

Appellant argues that the contract is ambiguous and that, because any ambiguity is construed against the drafter (in this case, appellee, through its architect), the circuit court erred in denying the motion to compel arbitration. We agree that the contract, as amended by the supplementary conditions, is ambiguous. The supplementary conditions stated that the words in subparagraph 4.5.1. of the contract "shall be subject to arbitration upon the written demand of either party" were changed to read "[s]hall be subject to arbitration if both parties agree to arbitrate." However, the phrase "shall be subject to arbitration upon the written demand of either party" was not contained within subparagraph 4.5.1 of the contract. In fact, that phrase cannot be found in the contract at all. Further, the supplementary conditions did not even refer to subparagraph 4.6.1 of the contract, which stated that any claim arising out of or related to the contract was subject to arbitration. One could infer that the supplementary conditions were intended to modify the arbitration provision of the contract, even though their drafter expressed that intention inarticulately. On the other hand, that inference is inconsistent with the incorporating language found in paragraph 2 of the supplementary conditions that stated that any "article, paragraph, or subparagraph not so amended, voided, or superseded shall remain in effect."

A contract is ambiguous when its terms are susceptible to more than one equally reasonable construction. Cranfill v. Union Planters Bank, N.A., ___ Ark. App. ___, ___ S.W.3d ___ (April 14, 2004); Fryer v. Boyett, 64 Ark. App. 7, 978 S.W.2d 304 (1998). Ambiguities in a contract are to be resolved strictly against the party who drafted the contract. Id. Accord Carter v. Four Seasons Funding Corp., 351 Ark. 637, 97 S.W.3d 387(2003). Applying these principles, we hold that the circuit court erred in failing to find that the parties had a binding agreement to arbitrate.

Reversed and remanded.

Baker, J., agrees.

Griffen, J., concurs.

1 An order denying a motion to compel arbitration is an appealable order. Neosho Constr. Co. v. Weaver-Bailey Contractors, 69 Ark. App. 137, 10 S.W.3d 463 (2000).