BOARD OF WATER & SEWER COM'RS v. BILL HARBERT CONST. CO.

• Decision Date: 27 June 2003
• Citation: 870 So.2d 699
• Parties: BOARD OF WATER & SEWER COMMISSIONERS OF THE CITY OF MOBILE v. BILL HARBERT CONSTRUCTION COMPANY.
• Court: Alabama Supreme Court

870 So.2d 699

BOARD OF WATER & SEWER COMMISSIONERS OF THE CITY OF MOBILE v. BILL HARBERT CONSTRUCTION COMPANY.

1012198.

Supreme Court of Alabama.

June 27, 2003.

E.J. Saad, James E. Atchison, and Frank G. Taylor of Atchison, Crosby, Saad & Beebe, P.C., Mobile, for appellant.

Susan S. Wagner and James H. White of Berkowitz, Lefkovits, Isom & Kushner, P.C., Birmingham, for appellee.

HARWOOD, Justice.

This appeal, taken pursuant to Rule 4(d), Ala.R.Civ.P., is from an order denying a motion to compel arbitration.

On December 15, 1999, Bill Harbert Construction Company ("Harbert") sued the Board of Water & Sewer Commissioners of the City of Mobile ("the Board"), Federal Insurance Company ("Federal"), and Sika Corporation ("Sika"). Harbert's various claims arose from its termination as contractor on two public works projects in Mobile involving the construction of water mains, sanitary sewers, and sewage pump stations. Harbert amended its complaint to add as defendants various project design engineers, subcontractors, and related insurers and to assert further claims against the Board. After further pleadings and extensive discovery, the Board, on April 15, 2002, filed motions "To Confirm and Enforce the Arbitrator's Decisions,"¹ and, in the alternative, to "Enforce Arbitration Concerning Contracts" ("the arbitration motions"). The Board asserted that the construction contracts it had entered into with Harbert, both of which incorporated paragraph 5.01 of the Standard Specifications for Water Mains, Sanitary Sewers, and Sewage Pump Stations ("the standard specifications"), vested authority in the project engineer to arbitrate the matter. The Board supported the arbitration motions with documentary evidence and deposition testimony. The arbitration motions were briefed to a special master appointed by the trial court, and the special master issued a detailed report determining that the contracts did not contain an arbitration clause. On August 19, 2002, the trial court entered an order adopting the findings of the special master, and the Board appealed.

The dispositive issue in this appeal is whether the trial court erred in denying the arbitration motions on the basis that the construction contracts, and specifically paragraph 5.01 of the standard specifications incorporated into those contracts, did not contain an arbitration clause.

Facts

In 1992, the Board entered into a contract with the engineering firm of BCM Converse, Inc. ("BCM"),² to provide design, consulting engineering, and construction services for modifications and improvements to the Board's Clifton C. Williams Wastewater Treatment Plant ("Project 15") and for modifications and improvements to the sludge-treatment facility at the same plant ("Project 16"). Harbert entered into two construction contracts with the Board, one for Project 15 and one for Project 16, in December 1994 and January 1995, respectively. The contract for Project 15 was entitled the Clifton C. Williams WWTF Upgrade and Modifications BCM Project XX-XXXX-XX ("Contract 15"), and the contract for Project 16 was entitled the Sludge System Upgrade, BCM Project XX-XXXX-XX ("Contract 16"). Harbert was to be paid $11,106,963.39 under Contract 15, and $1,298,125.79 under Contact 16.

After undertaking work pursuant to Contract 15, Harbert determined that reactor basin # 2 specified under that contract was unable to pass a pressure test as required by the plans and specifications because the Sikadur Combiflex System, manufactured by Sika and intended to be the sealant system under the plans and specifications, was unsuitable for that purpose. Harbert recommended an alternative system, but BCM, as project engineer, rejected that alternative on the ground that BCM had determined that the Sikadur Combiflex System was suitable as the sealant system for reactor basin # 2. BCM attributed the failure of reactor basin #2 to pass the pressure test to the failure of Harbert and its subcontractor, Spiderman's Professional Services, Inc. ("Spiderman"), to construct and install the sealant system properly. Disputes between Harbert and BCM also arose with respect to work under Contract 16 concerning centrifuges installed by Harbert. On BCM's recommendations the Board eventually terminated Harbert's participation in the projects and called on Federal, the surety on the performance bond, to complete the work under Contract 15 and Contract 16.

Harbert brought the instant action seeking damages in excess of $3,000,000 on claims of breach of contract and breach of what it characterized as "the implied warranty of reasonable results," and seeking a declaratory judgment. Harbert alleged that the plans and specifications for Project 15 were defective because, it said, the sealant system was not suited for its intended purpose. Harbert further alleged that the Board had terminated its participation on Project 15 and Project 16 in order to avoid responsibility for the design error. Harbert also asserted claims against BCM, but that aspect of the action has been stayed because of bankruptcy proceedings involving BCM and its insurers. Harbert also asserted claims against Spiderman; those claims have been settled.

The Board filed various counterclaims against Harbert asserting theories of breach of contract, breach of warranty, negligence, and fraud. The Board has also filed a third-party complaint against Federal on theories that Federal had breached its obligations under the performance bonds, and the Board filed cross-claims against Sika on theories of breach of warranty.

The standard specifications are included among the provisions contained in the various documents that constitute Contract 15 and Contract 16. Section 5 of the standard specifications is entitled "Control of Work" and contains the following provision:

"5.01 AUTHORITY OF THE ENGINEER:

"To prevent misunderstandings, disputes, and litigation, the Engineer shall decide any and all questions which arise concerning the quality and acceptability of materials furnished and work performed, the rate of progress of the Work, interpretation of the Plans and Specifications, and the acceptable fulfillment of the Contract on the part of the Contractor. The Engineer will determine the amount, quantity, classification, and quality of the several kinds of work performed and materials furnished which are to be paid for under the Contract and his decision and estimate shall be conclusive and binding on both parties thereto and such decision and estimate of the Engineer, in case any questions arise, shall be a condition precedent to the right of the Contractor to receive any money due him under the contract. Explanations concerning the meaning of the Plans and Specifications and Contract, all directions necessary to complete or make definite the Plans, Special Provisions, Specifications or Contract and to give them due effect will be given by the Engineer and his findings shall be final and binding on both parties hereto. The Engineer shall have authority to enforce and make effective decisions and orders as apply to conformance with the Contract. He shall decide disputes and mutual rights between Contractors.

"Notwithstanding any general clauses, wording, paragraphs, or other references contained in the Plans, Specifications, General Conditions, or elsewhere in the Special Provisions, the Engineer and his Resident Project Representative are not charged with the responsibility of directing the actual procedures and detail methods of construction to be used by the Contractor in accomplishing the Work contained in the contract between the Owner and the Contractor nor is the Engineer responsible to act as superintendent, foreman, or safety engineer for the contract, nor for the safety of the contractor's personnel."

The parties do not dispute that the "Engineer" referenced in paragraph 5.01 is BCM. In the arbitration motions, the Board asserted that this paragraph is properly construed as an arbitration agreement, and that under paragraph 5.01, the Engineer's decisions and dispositions under the contracts are final and binding and therefore foreclose Harbert's claims. Alternatively, the Board asserts that claims not otherwise resolved by the Engineer must, under this paragraph, be arbitrated by the Engineer.

Discussion

Our standard for the review of the grant or denial of a motion to compel arbitration is settled.

"This Court reviews the denial of a motion to compel arbitration de novo. Green Tree Fin. Corp. v. Vintson, 753 So.2d 497, 502 (Ala.1999); Patrick Home Ctr., Inc. v. Karr, 730 So.2d 1171, 1172 (Ala.1999). The party seeking to compel arbitration has the initial burden of proving the existence of a contract calling for arbitration and proving that the contract evidences a transaction substantially affecting interstate commerce. TranSouth Fin. Corp. v. Bell, 739 So.2d 1110, 1114 (Ala.1999); Sisters of the Visitation v. Cochran, 775 So.2d 759 (Ala. 2000). `[A]fter a motion to compel arbitration has been made and supported, the burden is on the nonmovant to present evidence that the supposed arbitration agreement is not valid or does not apply to the dispute in question.' Jim Burke Auto., Inc. v. Beavers, 674 So.2d 1260, 1265 n. 1 (opinion on application for rehearing) (Ala.1995)."

American Gen. Fin. Inc. v. Morton, 812 So.2d 282, 284-85 (Ala.2001).

In this case we focus upon whether paragraph 5.01 constitutes an agreement to arbitrate the disputes that arose under Contract 15 and Contract 16.

"[I]n determining whether the parties agreed to arbitrate a dispute, this Court `should apply ordinary state-law principles that govern the formation of contracts.' First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995); accord Quality Truck & Auto Sales, Inc. v. Yassine, 730 So.2d 1164, 1167-68 (Ala. 1999). Consequently, `in applying general state-law principles of contract interpretation to the

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