Boyd v. Davis

• Citation: 127 Wn.2d 256,897 P.2d 1239
• Decision Date: 13 July 1995
• Docket Number: No. 62356-2,62356-2
• Court: United States State Supreme Court of Washington
• Parties: Herschell H. BOYD, an individual, CO Corporation of Washington, a corporation, MI Corporation, a corporation and MC Corporation, a corporation, Petitioners, v. Andrew P. DAVIS, an individual, and Luvis, P.C., a corporation, Respondents.

Page 256

127 Wn.2d 256

897 P.2d 1239

Herschell H. BOYD, an individual, CO Corporation of Washington, a corporation, MI Corporation, a corporation and MC Corporation, a corporation, Petitioners, v. Andrew P. DAVIS, an individual, and Luvis, P.C., a corporation, Respondents.

No. 62356-2.

Supreme Court of Washington En Banc.

July 13, 1995.

Reconsideration Denied Sept. 7, 1995.

Perkins, Coie, Ronald Gould, Traci Sammeth, Harry Schneider, Jr., Seattle, for petitioner Herschell Boyd, Marili Boyd and Center Optical Inc. Bogle & Gates, Guy Michelson, David Goodnight, Samuel Osborne, Seattle, for respondents Andrew Davis, Lily Davis and Luvis, P.C.

William R. Bishin, Inc., P.S., William R. Bishin, Seattle, amicus curiae, for Alternative Dispute Resolution.

Philip Cutler, Seattle, amicus curiae, for Jams/Endispute Inc.

DOLLIVER, Justice.

Herschell P. Boyd seeks reversal of a Court of Appeals, Division One, ruling reinstating an arbitration award vacated by a trial court. That ruling resulted from the Court of Appeals' conclusion that the trial court improperly examined the agreements entered into by the parties in the course of determining whether the arbitrator exceeded the scope of his power within the meaning of RCW 7.04.160(4).

In April 1992, Respondent Andrew P. Davis, M.D., agreed to purchase an ophthalmological practice from Petitioner Herschell H. Boyd, M.D. The parties simultaneously executed five separate documents to memorialize this agreement: an Asset Sale Agreement, an Employment Agreement and Covenant Not To Compete, a Security Agreement, an Option Agreement, and a Lease. Under the Employment Agreement, Respondent agreed to retain Petitioner as an employee of the practice for 3 years in order to facilitate the transfer of patients. Under the Asset Sale and Security Agreements, Petitioner agreed to defer payment of $900,000 of the purchase price for 3 years, and to guarantee a $900,000 bank loan Respondent needed to obtain to make the purchase.

Several months after execution of these documents, disputes arose over insurance, accounting and payment matters. In February 1993, Petitioner filed a complaint in arbitration, claiming that Respondent breached the aforementioned agreements. He sought rescission of all five agreements. Respondent in turn filed a counterclaim for fraud, misrepresentation and breach of contract. He sought to rescind only the Employment Agreement and Covenant Not To Compete.

The arbitrator issued an award on September 10, 1993. That award, inter alia, rendered the Employment Agreement and Covenant Not To Compete null and void, but gave full force and effect to the Asset Sale Agreement, Option Agreement, Security Agreement, and Lease. Petitioner appealed to the trial court, moving to vacate the arbitration award pursuant to RCW 7.04.160(4). After examining the five agreements, the trial court granted the motion to vacate, ruling

that the arbitrator had exceeded his power in granting piecemeal rescission and that it was causing substantial injustice to the parties. The Court determined that the parties had entered into a single contract which was not severable.

Clerk's Papers, at 1254-55 (Amended Narrative Report of Proceedings). Consequently, the trial court remanded the case to a new arbitrator for re-arbitration.

Respondent subsequently appealed that ruling to Division One of the Court of Appeals, claiming that the trial court improperly examined the five agreements in reaching its conclusion that they constituted a single nonseverable contract. The Court of Appeals agreed with Respondent, reversed the trial court, reinstated the arbitrator's award, and awarded Respondent attorney fees and costs incurred on appeal to both the trial court and the Court of Appeals. Boyd v. Davis, 75 Wash.App. 23, 876 P.2d 478 (1994). Thereafter, Petitioner filed a petition for discretionary review with this court.

I

A trial court derives its power to vacate an arbitration award from RCW 7.04.160(4), which provides:

In any of the following cases the court shall after notice and hearing make an order vacating the award, upon the application of any party to the arbitration:

....

(4) Where the arbitrators exceeded their powers, or so imperfectly executed them that a final and definite award upon the subject matter submitted was not made.

The trial court is therefore charged with the responsibility of determining whether the arbitrator exceeded its power within the meaning of this statute. The question presently before this court is whether in the course of making such a determination the trial court is permitted to examine the contract that gave rise to the dispute. While Petitioner urges this court to answer this question in the affirmative, Respondent argues that it must be answered in the negative.

To support his argument, Petitioner relies upon a number of cases decided by the Court of Appeals. However, none of those cases is instructive because each is significantly distinguishable from the instant case.

In Lindon Commodities, Inc. v. Bambino Bean Co., 57 Wash.App. 813, 790 P.2d 228 (1990) and in Cohen v. Graham, 44 Wash.App. 712, 722 P.2d 1388 (1986), the trial court did not examine the contract that gave rise to the dispute. In each of those cases, the trial court reviewed only the face of the arbitral award and the pertinent common or statutory law. Lindon, at 816, 790 P.2d 228 (the court referred to the Washington statute addressing contract modification); Cohen, at 717-18, 722 P.2d 1388 (the court indicated that no principle of law prohibits a "covenant not to compete" clause).

Admittedly, a contract was examined by each of the trial courts in the remainder of the Court of Appeals cases cited by Petitioner. However, each of those trial courts reviewed the contract in order to ascertain the law governing the disputed point. ML Park Place Corp. v. Hedreen, 71 Wash.App. 727, 738, 862 P.2d 602 (1993) (the court examined an arbitration clause); Marine Enters., Inc. v. Security Pac. Trading Corp., 50 Wash.App. 768, 775-76, 750 P.2d 1290 (1988) (the court scrutinized a contract clause regarding production); Kennewick Educ. Ass'n v. Kennewick Sch. Dist. 17, 35 Wash.App. 280, 282, 666 P.2d 928 (1983) (the court referred to a contract clause making the governing law that of Washington); Agnew v. Lacey Co-Ply, 33 Wash.App. 283, 288-89, 654 P.2d 712 (1982) (the court looked to the contract's attorney fees clause); Moen v. State, 13 Wash.App. 142, 145, 533 P.2d 862 (1975) (the court reviewed a contract clause granting the plaintiff extra construction costs). In the present case, the contract is silent with respect to the issues in dispute: whether the five agreements constitute a single contract, and, if so, whether that contract is severable. Therefore, the trial court's examination of the contract could not have been for the purpose of ascertaining the governing law.

Common law governs in the absence of contract provisions addressing the issues.

"As a general rule ..., where several instruments are made as part of one transaction, they will be read together, and each will be construed with reference to the other. This is true, although the instruments do not in terms refer to each other."

Levinson v. Linderman, 51 Wash.2d 855, 859, 322 P.2d 863 (1958) (quoting 17 C.J.S. Contracts § 298, at 714 (1939)). Whether separate agreements are in fact part of one transaction depends upon the intention of the parties as evidenced by the agreements. Don L. Cooney, Inc. v. Star Iron & Steel Co., 12 Wash.App. 120, 122, 528 P.2d 487 (1974).

"Whether a contract is entire or divisible depends very largely on its terms and on the intention of the parties disclosed by its terms. As a general rule a contract is entire when by its terms, nature and purpose, it contemplates and intends that each and all of its parts are interdependent and common to one another and to the consideration."

(Footnote omitted.) Saletic v. Stamnes, 51 Wash.2d 696, 699, 321 P.2d 547 (1958) (quoting Traiman v. Rappaport, 41 F.2d 336, 338 (3d Cir.1930)).

Each of these principles of common law requires a court to discern the intent of the parties. In the present case, the trial court reviewed the five agreements specifically for the purpose of discerning this intent. In effect, therefore, it interpreted those agreements. Such an undertaking is tantamount to trying the case de novo. Essentially the question before this court is therefore whether a trial court reviewing an arbitral award is permitted to conduct a trial de novo. We have previously answered that question in the negative. We reaffirm that answer today.

In School Dist. 5 v. Sage, 13 Wash. 352, 43 P. 341 (1896), this court stated:

[I]nasmuch as there is no provision in the statute requiring arbitrators to file or preserve the evidence received upon the hearing, it would seem to follow that the errors which will sustain an exception to an award on the ground indicated must be discovered by an examination of the award alone. If it was the intention of the legislature to require the court, upon hearing exceptions taken to awards, to examine the evidence submitted to the arbitrators, or, in other words, to try the cause de novo, it is but reasonable to presume that they would have so declared. And in the absence of such provision, we think we are justified in adopting the rule announced in many well considered cases, and which we believe is subject to but few exceptions, viz., that the errors and mistakes contemplated by the statute must appear on the face of the award, or, at least, in some paper delivered with it....

Sage, at 356-57, 43 P. 341. The reasoning behind the Sage court's holding is no less compelling today than it was in 1896 when the decision was first rendered. Now, as then, "[t]he [arbitration] statute does not require a separate statement of findings of fact and conclusions of law in an arbitrator's award." Barnett v. Hicks 119 Wash.2d 151,...