Aberthaw Construction Co. v. Centre County Hospital

• Decision Date: 06 December 1973
• Docket Number: Civ. No. 73-399.
• Citation: 366 F. Supp. 513
• Parties: ABERTHAW CONSTRUCTION COMPANY, Petitioner, v. CENTRE COUNTY HOSPITAL, Respondent.
• Court: U.S. District Court — Middle District of Pennsylvania

366 F. Supp. 513

ABERTHAW CONSTRUCTION COMPANY, Petitioner, v. CENTRE COUNTY HOSPITAL, Respondent.

Civ. No. 73-399.

United States District Court, M. D. Pennsylvania.

December 6, 1973.

Kenneth M. Cushman, Howard D. Venzie, Jr., Philadelphia, Pa., for petitioner.

William W. Litke, Bellefonte, Pa., for respondent.

OPINION

MUIR, District Judge.

This is a diversity action seeking to compel arbitration under the United States Arbitration Act of 1925, 9 U.S.C. § 1 et seq. The parties have briefed their positions and, there being no dispute as to the facts, the petition is ripe for decision.

On May 14, 1969, Petitioner entered into a contract with Respondent to perform general construction work on a new hospital. Paragraph 7 of the contract provides that "all disputes arising in connection with this contract shall be submitted to arbitration . . .."

Respondent and Lawrie and Green, the project architects, executed a Certificate of Substantial Completion on July 18, 1972. By letter dated October 3, 1972, Petitioner made a formal demand upon the Respondent for the following amounts: $212,763.34 as the amount of money due Petitioner under the contract and being held by Respondent as "retainages"; $17,561.10 as change estimates not yet processed into formal change orders; $520,126.00 as "Delay-Impact claim including increased labor, costs, material costs, health, welfare and taxes, overhead, loss of subcontractors, loss of profit, cash flow disruption and loss of bonding capacity." A copy of this letter was sent to the architects, and, on October 12, 1972, Respondent notified Petitioner that the demands contained in the October 3 letter had been referred to the architects. Apparently this was done because of the provisions in ¶ 6 of the contract which gives responsibility for contract interpretation in the first instance to the architects.¹ The architects did not issue a written decision within 10 days, but rather, by letter to Petitioner dated November 9, 1972, requested more information on Petitioner's delay claim. There is no indication in the record that this requested information was furnished to the architects. On November 22, 1972, Petitioner filed a Demand for Arbitration with the American Arbitration Association concerning the claims as outlined in the October 3, 1972 letter to Respondents. By letter dated January 3, 1973, Respondents made it clear that they intended to resist any attempt to arbitrate Petitioner's claims for alleged delays caused by the Respondent. As of this date, Respondent has refused to arbitrate Petitioner's claims.

Respondent takes the position that Petitioner's claim for delay damages is not an arbitrable issue. On the face of it, Petitioner's claim would appear to fall within the near limitless boundaries of the arbitration clause which calls for arbitration in "all disputes arising in connection with this contract." Respondent cites Harrison F. Blades, Inc. v. Jarman Memorial Hospital Building Fund, Inc., 109 Ill.App. 2d 224, 248 N.E.2d 289 which held that a claim for delay damages was beyond the scope of an arbitration clause identical to the clause in the case sub judice. However, that holding was an application of Illinois law under the Illinois Uniform Arbitration Act. In cases arising under the United States Arbitration Act of 1925, federal courts apply federal substantive law. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967). Federal substantive law requires that an agreement to arbitrate be liberally construed in favor of arbitration. Lundgren v. Freeman, 307 F.2d 104 (9th Cir. 1962); Metro Industrial Painting Corp. v. Terminal Construction Co., 287 F.2d 382 (2d Cir. 1961), cert. denied, 368 U.S. 817, 82 S. Ct. 31, 7 L.Ed.2d 24. The federal policy favoring arbitration was perhaps best stated by the Supreme Court in a case brought under § 301 of the Labor Management Relations Act, United Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582-583, 80 S.Ct. 1347, 1353, 4 L.Ed.2d 1409 (1960):

"An order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. Doubts should be resolved in favor of coverage."

Respondent cites cases for the proposition that an owner is not liable to a contractor for delay damages where, as here, the contract provides for an extension of time to the contractor for the completion of his contract, and where the contract provides that final payment shall be payable only when the contractor executes a complete release of all claims against the owner and submits the same to the architect. This argument goes to the substance of Petitioner's claim, not to the issue of whether the claim is arbitrable. The function of this Court is to determine whether the issue involved is one which the parties agreed to arbitrate, not to consider the merits of the controversy as to which arbitration is sought. International Union of Electrical, Radio and Machine Workers v. Westinghouse Electric Corp., 48 F.R.D. 298 (S.D.N.Y.1969). See United Steelworkers of America v. American Manufacturing Co., 363 U.S. 564, 568, 80 S.Ct. 1343, 1346, 4 L.Ed.2d 1403 (1960), where, in a parallel situation, the Supreme Court stated:

"The courts, therefore, have no business weighing the merits of the grievance, considering whether there is equity in a particular claim, or determining whether there is particular language in the written instrument which will support the claim. The agreement is to submit all grievances to arbitration, not merely those which the court will deem meritorious."

Respondent next contends that arbitration may only be had with respect to the matters set forth in paragraphs 5 and 6 of the contract,² and only after the matter has properly been referred to the architect under ¶ 6. The simple answer to the first part of this contention is that the arbitration clause refers to "all disputes arising in connection with this contract," and does not limit arbitrable issues to those set forth in paragraphs 5 and 6. As to Respondent's "exhaustion of remedies" argument, the contract does not specifically make submission of the claim to the architect a condition precedent to arbitration. Even if it were assumed that it be a condition precedent, it appears that the matter was referred to the architect and no written decision was issued within 10 days. Therefore, under ¶ 6 of the contract, the...