3A Industries, Inc. v. Turner Const. Co.

• Court: Washington Court of Appeals
• Writing for the Court: PER CURIAM; Steven Scott
• Citation: 3A Industries, Inc. v. Turner Const. Co., 869 P.2d 65, 71 Wn.App. 407 (Wash. App. 1993)
• Decision Date: 11 October 1993
• Docket Number: No. 31687-7-I,No. 81264896
• Parties: 3A INDUSTRIES, INC., a Washington corporation, Respondent, v. TURNER CONSTRUCTION COMPANY, a New York corporation; Federal Insurance Company, Bond, a foreign surety company; and State of Washington, Department of Corrections, Appellants. Division 1

Page 407

71 Wn.App. 407

869 P.2d 65

3A INDUSTRIES, INC., a Washington corporation, Respondent, v. TURNER CONSTRUCTION COMPANY, a New York corporation Federal Insurance Company, Bond No. 81264896, a foreign surety company; and State of Washington, Department of Corrections, Appellants.

No. 31687-7-I.

Court of Appeals of Washington,

Division 1.

Oct. 11, 1993.

Reconsideration Denied Jan. 11, 1994.

Joseph Calmes, Betsy Gillaspy, Windus Thomas Cales & Wiley, Bellevue, for appellants.

John Ahlers, Charles Holley, Barokan & Martin, Seattle, for respondent.

PER CURIAM.

A commissioner of this court ruled that the superior court's denial of appellants, Turner Construction's (Turner) and Federal Insurance Company's (Federal), motion for stay pending arbitration was appealable as a matter of right. This court denied respondent 3A's motion to modify the commissioner's ruling and further ordered that the merits of the appeal should be briefed in an expedited fashion and the case heard on the next available judges' motion calendar. Having received the parties' briefs and considered the merits of the appeal, we reverse the decision of the trial court.

FACTS

Turner contracted with the State of Washington to act as the prime contractor on an inmate housing project at McNeil Island Corrections Center. On May 17, 1991, Turner executed a subcontract with 3A in which 3A agreed toprovide the labor necessary to install precast wall panels in certain buildings described in the prime contract. A dispute subsequently arose between Turner and 3A with regard to payment for 3A's work. On May 15, 1992, 3A filed suit against Turner, Federal Insurance (Turner's surety), and the State of Washington, Department of Corrections.

Turner and Federal moved for a stay of the matter pending arbitration pursuant to RCW 7.04.030. They argued that the contract executed between 3A and Turner incorporated by reference the arbitration clause in the prime contract that had been executed between Turner and the State of Washington.

3A opposed the stay arguing that the contract between 3A and Turner did not incorporate any arbitration clause, that Federal was not a party to the subcontract and 3A had a statutory right under the "Little Miller Act" (RCW 39.08 et seq.) to pursue its claim against Federal even if the prime contract arbitration clause was determined to be binding on 3A.

Judge Steven Scott denied the motion for stay as well as Turner's motion for reconsideration. No findings of fact were entered.

The issue presented on appeal is whether the trial court erred in concluding that the arbitration provision of the prime contract was not incorporated by reference into the subcontract and, therefore, Turner and Federal were not entitled to a stay pending arbitration?

DECISION

Article I of the subcontract between Turner and 3A states:

The Subcontractor shall perform and furnish all the work, labor services, materials, plant, equipment, tools, scaffolds, appliances and other things necessary for Receive, Distribute and Erect Precast Wall Panels, Buildings A, B, C, D, E and F (hereinafter called the Work) for and at the McNeil Island Corrections Center, Inmate Housing Package (hereinafter called the Project), located on premises at McNeil Island, Washington (hereinafter called the Premises), as shown and described in and in strict accordance with the Plans, Specifications, General Conditions, Special Conditions and Addenda thereto prepared by Sverdrup Corporation (hereinafter called the Architect) and with the terms and provisions of the General Contract (hereinafter called the General Contract) between Turner and the State of Washington Department of Corrections (hereinafter called the Owner) dated April 23, 1991, and in strict accordance with the Additional Provisions, page(s) 7A, 7B, 7C, 7D, 7E and 7F annexed hereto and made a part hereof.

Article II of the subcontract states:

....

With respect to the Work to be performed and furnished by the Subcontractor hereunder, the Subcontractor agrees to be bound to Turner by each and all of the terms and provisions of the General Contract and the other Contract Documents, and to assume toward Turner all of the duties, obligations and responsibilities that Turner by those Contract Documents assumes toward the Owner, and the Subcontractor agrees further that Turner shall have the same rights and remedies as against the Subcontractor as the Owner under the terms and provisions of the General Contract and the other Contract Documents has against Turner with the same force and effect as though every such duty, obligation, responsibility, right or remedy were set forth herein in full. The terms and provisions of this Agreement with respect to the Work to be performed and furnished by the Subcontractor hereunder are intended to be and shall be in addition to and not in substitution for any of the terms and provisions of the General Contract and the other Contract Documents.

This Subcontract Agreement, the provisions of the General Contract and the other Contract Documents are intended to supplement and complement each other and shall, where possible, be thus interpreted.

The General Conditions of the prime contract contains a section entitled "Dispute Resolution". It states in part:

any controversy or claim arising out of or relating to this Contract or breach thereof and the Owner[s] decision [on the claim or controversy], 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(s) may be entered in any court having jurisdiction thereof.

Based upon these contractual provisions, Turner and Federal argue that the arbitration clause of the prime contract was incorporated by reference into the subcontract and, therefore, 3A agreed to arbitrate all disputes regarding the subcontract. 3A responds that absent an express provision in the subcontract making the arbitration clause of the prime contract applicable, this court should not hold that 3A has contractually abandoned its right of action on the bond as provided by the "Little Miller Act", RCW 39.08. 3A cites several federal cases decided under the Federal Miller Act, 40 U.S.C.A. § 270a, in support of this contention.

Like the Federal Miller Act, Washington's "Little Miller Act" requires contractors to obtain bonds on public works projects for the protection of laborers and materialmen because mechanics' liens are unavailable on such projects. Hall & Olswang v. Aetna Casualty & Surety Co., 161 Wash. 38, 296 P. 162 (1931). RCW 39.08.030 provides laborers and mechanics a right of action in their own name against the bond for work done or materials or goods furnished in the project.

In a series of cases, the federal courts have considered whether a subcontractor's Miller Act right to sue on a bond was relinquished when the subcontract incorporated the prime contract by reference and the prime contract contained a "disputes clause". 3A contends that these cases support its assertion that the prime contract arbitration clause in the case at bar was not incorporated by reference into the subcontract. 3A's reliance on these cases is somewhat misleading because 3A gives an overly expansive reading to the term "disputes clause" as utilized in the federal cases.

In the seminal case of Fanderlik-Locke Co. v. United States for Use of Morgan, 285 F.2d 939 (10th Cir.1960), cert. denied, 365 U.S. 860, 81 S.Ct. 826, 5 L.Ed.2d 823 (1961), a subcontractor sought to recover from the prime contractor and the bondsman under the Federal Miller Act the value of labor performed and materials installed beyond that provided for in the subcontract. On appeal, the circuit court reversed the trial court judgment in favor of the subcontractor on the ground that the subcontractor had failed to exhaust his administrative remedies as required by the "disputes clause" of the prime contract. Upon reconsideration following rehearing, the circuit court withdrew its former opinion and affirmed the judgment in favor of the subcontractor. Fanderlik-Locke, 285 F.2d at 941.

According to the court, the subcontract provided

that the subcontractor should furnish material and perform labor in accordance with the general conditions of the contract between the owner and the contractor and "in accordance with the Drawings and the Specifications attached hereto which form a part of a Contract between the Contractor and the Owner * * * and hereby become a part of this Contract." The parties to the subcontract agreed "to be bound by the terms of this Agreement, the A.I.A. General Conditions attached, the drawings and specifications attached as far as apprehensible to this subcontract * * *." It was further provided that the subcontractor should be bound to the contractor "by the terms of the Agreement, General Conditions, Drawings and Specifications, and to assume toward him all the obligations and responsibilities that he, by those documents, assumes toward the Owner."

Fanderlik-Locke, 285 F.2d at 942.

The prime contract was "the standard form of government construction contract in general use at the time of its execution" and it contained the following "disputes clause":

Except as otherwise provided in this contract, any dispute concerning a question of fact arising under this contract which is not disposed of by agreement shall be decided by the Contracting Officer, who shall reduce his decision to writing and mail or otherwise furnish a copy thereof to the Contractor. Within 30 days from the date of receipt of such copy, the Contractor may appeal by mailing or otherwise furnishing to the Contracting Officer a written appeal addressed to the head of the department, and the decision of the head of the department or his duly authorized representatives for the hearings of such appeals shall, unless determined by a court of competent jurisdiction to have...