Opinion
No. C9-97-605.
Filed October 14, 1997.
Appeal from the District Court, Hennepin County, File No. 97-1470.
Eric J. Magnuson, John B. Lunseth II, Kathy S. Kimmel, Rider, Bennett, Egan and Arundel, L.L.P., (for Respondent).
John G. Patterson, Leonard W. Glewwe, Moore, Costello Hart, P.L.L.P., (for Appellants).
Considered and decided by Norton, Presiding Judge, Schumacher, Judge, and Willis, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (1996).
UNPUBLISHED OPINION
Appellants contend the trial court erred in granting the school district's motion to stay and deny arbitration pursuant to Minn. Stat. § 572.09(b) (1996). The trial court abused its discretion when it evaluated preliminary procedural issues and made factual findings on the merits of the case; these tasks rest within the arbitrator's scope of authority. The trial court erroneously stayed and denied arbitration. We reverse.
FACTS
On March 12, 1995, Haymaker Construction Company, Inc. (Haymaker) entered into a general construction contract with respondent Robbinsdale Public Schools (the school district) for the renovation of the Cooper High School athletic facility. The contract incorporates a standard American Institute of Architects (AIA) A-201 contract. At the outset, the contract provides:
The Contract represents the entire and integrated agreement between the parties hereto and supersedes prior negotiations, representations or agreements, either written or oral. * * * [T]he Contract Documents shall not be construed to create a contractual relationship of any kind (1) between the Architect and Contractor, (2) between the Owner and a Subcontractor or Sub-subcontractor, or (3) between any persons or entities other than the Owner and Contractor.
The parties to the general construction contract were Haymaker, the "Contractor," and the school district, the "Owner." Haymaker formed two separate subcontract agreements with Fresh Mechanical, Inc. (Fresh) in which Fresh agreed to demolish and clear the project site and perform earth work, backfilling, compacting, grading, and erosion control on the project.
Work on the athletic facility was substantially completed by the end of September 1995. On March 1, 1996, Haymaker and Fresh submitted a "summary of claims" to the school district outlining the $346,738.88 worth of extra work they had completed on the athletic facility project. Of that amount, Fresh claimed $255,618.83; Haymaker claimed $91,120.05.
Haymaker and Fresh entered into a "claims prosecution agreement" in which Haymaker assigned to Fresh "all right, title and interest in and to the last $28,443 of Haymaker's Overhead and Profit claim in the amount of $34,661." Haymaker assigned to Fresh the right to prepare, present, and prosecute Haymaker's claims as well as Fresh's claims against the school district. With this agreement, Haymaker and Fresh each released the other from any claims and liabilities arising out of the subcontract agreement and the project.
The general conditions of the construction contract define a claim as "a demand or assertion by one of the parties seeking, as a matter of right, adjustment or interpretation of Contract terms, payment of money, extension of time or other relief with respect to the terms of the Contract." The definition of claim also includes "other disputes and matters in question between the Owner and Contractor arising out of or relating to the Contract." The contract requires that the parties make their claims by written notice and substantiate their claims. Parties must make their claims within 21 days after the occurrence of the event giving rise to the claim or within 21 days after the claimant first recognizes the condition giving rise to the claim, whichever is later.
The construction contract includes this arbitration clause:
4.5 ARBITRATION
4.5.1 Controversies and Claims Subject to Arbitration.
Any controversy or Claim arising out of or related to the Contract, or the breach thereof, shall be settled by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator or arbitrators may be entered in any court having jurisdiction thereof, except controversies or Claims relating to aesthetic effect and except those waived as provided for in Subparagraph 4.3.5. Such controversies or Claims upon which the Architect has given notice and rendered a decision as provided in Subparagraph 4.4.4 shall be subject to arbitration upon written demand of either party. Arbitration may be commenced when 45 days have passed after a Claim has been referred to the Architect as provided in Paragraph 4.3 and no decision has been rendered.
On October 29, 1996, Haymaker submitted a demand for arbitration on its claim for extra work. The school district moved to stay and deny the arbitration, challenging the timeliness of Haymaker's notice of claim and Fresh's right to arbitrate when it was not a party to the general contract. In opposing the motion, Haymaker and Fresh contend that they had notified the school district of their claims for this extra work while the work was occurring in 1995. To support this claim, Haymaker and Fresh submitted a series of letters and minutes from construction meetings that allegedly addressed the original work to be done under the contract and the additional work to be done. The trial court granted the motion to stay and deny arbitration pursuant to Minn. Stat. § 572.09(b) (1996). The court reasoned that Haymaker had filed an untimely notice of claim for arbitration and that Fresh had no claim against the school district because Fresh was not a party to the general contract and the arbitration agreement.
DECISION
The school district brought a motion to stay and deny arbitration on the basis that Haymaker had failed to give timely written notice of its claims and that Fresh could not arbitrate its claims because it was not a party to the arbitration agreement. Haymaker and Fresh contend their disputes with the school district were procedural issues for the arbitrator to decide. We agree.
Minnesota favors and encourages arbitration as a speedy, informal, and less expensive method for resolving controversies. Lickteig v. Alderson, Ondov, Leonard Sween, P.A. , 556 N.W.2d 557, 562 (Minn. 1996). The statute governing motions to stay arbitration provides:
On application, the court may stay an arbitration proceeding commenced or threatened on a showing that there is no agreement to arbitrate. Such an issue, when in substantial and bona fide dispute, shall be forthwith and summarily tried and the stay ordered if found for the moving party. If found for the opposing party, the court shall order the parties to proceed to arbitration.
Minn. Stat. § 572.09(b) (1996). When evaluating the issue of arbitrability on a motion to stay arbitration, the court must ascertain the intention of the parties from the language of the arbitration agreement. Minnesota Fed. of Teachers, Local 331 v. Independent Sch. Dist. No. 361 , 310 N.W.2d 482, 484 (Minn. 1981). In order to determine the parties' intent, this court must interpret their agreement; such an inquiry is a question of law that this court reviews de novo. Johnson v. Piper Jaffray, Inc. , 530 N.W.2d 790, 795 (Minn. 1995). When determining whether the parties intended to arbitrate the present dispute, the court resolves any doubts in favor of arbitration, "whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability." Id. (quoting Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp. , 460 U.S. 1, 24-25, 103 S.Ct. 927, 941 (1983)).
We follow the supreme court's guidelines when reviewing a motion to stay or compel arbitration:
(1) If the parties evinced a clear intent to arbitrate a controversy arising out of specific provisions of the contract, the matter is for the arbitrators to determine and not the court.
(2) If the intention of the parties is reasonably debatable as to the scope of the arbitration clause, the issue of arbitrability is to be initially determined by the arbitrators subject to the rights of either party reserved under Minn. St. 572.19, subd. 1(3,5).
(3) If no agreement to arbitrate exists, either in fact or because the controversy sought to be arbitrated is not within the scope of the arbitration clause of the contract, the court may interfere and protect a party from being compelled to arbitrate.
Atcas v. Credit Clearing Corp. 292 Minn. 334, 341, 197 N.W.2d 448, 452 (1972), quoted in Minnesota Fed. of Teachers, Local 331 , 310 N.W.2d at 484.
The record here clearly establishes that Haymaker and the school district had an arbitration agreement in their general construction contract. The specific language of the agreement exhibits the parties' intent to arbitrate "any controversy or Claim arising out of or related to the Contract." We are not persuaded by the school district's arguments that the denial of arbitration was proper because Fresh has no right to arbitrate. The parties agree that the arbitration agreement is between Haymaker and the school district; clause 1.1.2 specifically excludes the possibility of a contract between the school district and any subcontractor, such as Fresh.
The fact that Fresh has no right to arbitrate does not per se adversely affect Haymaker's right to arbitrate. All of the claims at issue belong to Haymaker, as the general contractor on the project. All claims arise from the construction contract with the school district. The assignment agreement between Haymaker and Fresh was for a fraction of the claims and appears to have been a way for them to streamline their dispute with the school district. Whether this assignment of claims affects the arbitrability of Haymaker's claims is a question for the arbitrator to determine. See City of Meridian, Miss. v. Algernon Blair, Inc. , 721 F.2d 525, 528-29 (5th Cir. 1983) (following philosophy favoring arbitration, court held that, if parties have valid arbitration agreement, case returns to arbitrator for decision on merits, including impact of assignment of claims from contractor to subcontractor). Thus, the parties meet the first two criteria for arbitration; they have an arbitration agreement that calls for arbitration of all claims, but limits the parties to the contract to Haymaker and the school district. See Atcas , 292 Minn. at 341, 197 N.W.2d at 452 (listing considerations when court evaluates motion to compel or stay arbitration).
Beyond the existence of the agreement to arbitrate, the parties contest the arbitrability of the claims by disputing the form and timeliness of the notice of claims. When reviewing questions of arbitrability, the court differentiates between substantive and procedural issues. See Millwrights Local 548 v. Pugleasa Co. , 419 N.W.2d 105, 107 (Minn.App. 1988) ( Pugleasa ) (arbitrability can be classified as either substantive or procedural). "[P]rocedural arbitrability issues examine whether preliminary steps of the grievance procedure have been exhausted or excused." Id. Once the court determines that the parties are obligated to arbitrate their issues, procedural issues that "grow out of the dispute and bear on its final disposition" should be reserved for the arbitrator. Id. at 108. The court is required to deny arbitration only when it can confidently say that a claim is "strictly procedural" and would bar the arbitration altogether. Id. (citing John Wiley Sons v. Livingston , 376 U.S. 543, 557-58, 84 S.Ct. 909, 918 (1964)).
This court has reversed in favor of arbitration where the facts surrounding the procedural issues were intertwined with the substantive facts in City of Morris v. Duininck Bros., Inc. , 531 N.W.2d 208, 211 (Minn.App. 1995) and Pugleasa , 419 N.W.2d at 109. The court avoids involvement in the procedural formalities in order to maintain one of the "fundamental objectives" of arbitration: speedy resolution of disputes. Brothers Jurewicz, Inc. v. Atari, Inc. , 296 N.W.2d 422, 427 (Minn. 1980).
Haymaker argues that actual notice of the completed work should have been sufficient to serve as a notice of claim. The school district, however, invokes Clause 4.3.3, which requires a party to make a claim, in writing, within 21 days of the occurrence of the event giving rise to the claim. Based on that contract provision, the school district contends that Haymaker's claims are untimely because it filed its formal summary of claims on March 1, 1996, and filed a demand for arbitration on October 29, 1996, even though work was substantially completed on the job site in the fall of 1995.
The timeliness of the notice of claims here is a preliminary procedural issue that grows out of the dispute between the parties and will affect the outcome of the case. See Duininck Bros. , 531 N.W.2d at 211 (holding that issue of waiver focusing on preliminary steps to arbitration, such as what parties knew and when, was procedural question for arbitrator to decide); Pugleasa , 419 N.W.2d at 109 (holding that union's reasons for untimeliness affected a claim of waiver and needed to be considered by arbitrator as threshold issue). The answer to the timeliness question here is tied to an investigation of what work the school district actually knew of and approved while construction was occurring. Those inquiries required the court to delve into the substantive merits of the case and find facts: a function reserved for the arbitrator. The trial court abused its discretion when it evaluated issues that were for the arbitrator to decide.
The parties have negotiated an arbitration clause into their construction contract for the purpose of having an arbitrator resolve their disputes. The evaluation of whether the claims of Haymaker and Fresh were timely was a preliminary procedural inquiry for the arbitrator. Once the trial court determined the parties had a valid arbitration agreement, the court should have deferred decision of the procedural issues to the arbitrator. The trial court erroneously stayed and denied arbitration.