Adair Homes, Inc. v. Dunn Carney Allen Higgins & Tongue, LLP

• Decision Date: 16 April 2014
• Docket Number: A151203.,101217771
• Citation: 325 P.3d 49,262 Or.App. 273
• Court: Oregon Court of Appeals
• Parties: ADAIR HOMES, INC., an Oregon corporation, Plaintiff–Appellant, v. DUNN CARNEY ALLEN HIGGINS & TONGUE, LLP, an Oregon limited liability partnership, Defendant–Respondent.

262 Or.App. 273

325 P.3d 49

ADAIR HOMES, INC., an Oregon corporation, Plaintiff–Appellant,

v.DUNN CARNEY ALLEN HIGGINS & TONGUE, LLP, an Oregon limited liability partnership, Defendant–Respondent.

101217771; A151203.

Court of Appeals of Oregon.

Argued and Submitted May 23, 2013.

Decided April 16, 2014.

Rick Pope argued the cause for appellant. With him on the briefs was Kirklin Thompson & Pope LLP.

Thomas W. Brown argued the cause for respondent. With him on the brief were Julie A. Smith and Cosgrave Vergeer Kester LLP.

Before ORTEGA, Presiding Judge, and SERCOMBE, Judge, and EDMONDS, Senior Judge.

SERCOMBE, J.

This legal malpractice case arises from a law firm's representation of a homebuilder in a case asserting breach of contract to construct a home brought by the home's purchasers. Adair Homes, Inc.,¹ entered into a home construction contract with Paul and Renee Haynes and constructed the home. After the home was built, the Hayneses filed breach of contract, breach of warranty, and other claims against Adair Homes. Dunn Carney Allen Higgins & Tongue, LLP (Dunn Carney), represented Adair Homes in that litigation. After the Hayneses prevailed, they sought attorney fees under a fee provision in the construction contract. The contract also contained an arbitration provision. On behalf of Adair Homes, Dunn Carney disputed the amount, but not the Hayneses' entitlement to attorney fees. The trial court awarded attorney fees to the Hayneses.

Adair Homes then filed a legal malpractice claim against Dunn Carney. It claimed that Dunn Carney negligently failed to assert a viable defense to the attorney fee petition—that the Hayneses failed to comply with the construction contract requirement that they arbitrate the underlying dispute before seeking attorney fees—and that that failure caused it to suffer the damage of paying the attorney fee award.

The parties disagree on the meaning and application of the arbitration clause in the contract. Dunn Carney contends that the provision requires arbitration of “course of construction” disputes under the contract and not the post-construction claims on which the Hayneses prevailed. Adair Homes reads the provision more broadly, as covering all disputes arising from the parties' contractual relationship, including post-construction claims. After the parties filed cross-motions for summary judgment on the application of the arbitration and attorney fee provisions in the contract, the trial court sided with Dunn Carney, concluding that the contract did not require arbitration as a precondition to filing the post-construction claims and then seeking attorney fees for those claims. In light of that construction of the contract, the trial court determined that Dunn Carney's failure to assert an invalid defense caused Adair Homes no harm, and entered judgment in Dunn Carney's favor. Adair Homes appeals.

For the reasons we explain below, we conclude that the contract is ambiguous. Moreover, we conclude that the existence of competing extrinsic evidence about the meaning of the ambiguous contract provisions presents a factual question that makes the meaning of the contract inapposite for resolution on summary judgment. We accordingly reverse the judgment for Dunn Carney and remand the case for further proceedings.

In an appeal from a judgment involving cross-motions for summary judgment, both motions are subject to review if the parties have assigned error to the trial court's rulings on them. We review the record for each motion in the light most favorable to the party opposing it to determine whether there is a genuine issue of material fact and, if not, whether the moving party is entitled to judgment as a matter of law. ORCP 47 C; Eden Gate, Inc. v. D & L Excavating & Trucking, Inc., 178 Or.App. 610, 622, 37 P.3d 233 (2002).

On appeal, the parties generally reiterate the arguments that they made to the trial court. Briefly, each party contends that the contract is unambiguous and requires judgment in its favor as a matter of law. Adair Homes asserts that the trial court erred in construing the contract. It urges us to construe the contract as unambiguously requiring the arbitration of all disputes and to reverse and remand for entry of judgment in its favor. Dunn Carney argues that the trial court correctly construed the contract as unambiguously not applying to the post-construction disputes on which the Hayneses prevailed. Thus, Dunn Carney would have us uphold the judgment of the trial court in its favor.

Alternatively, Dunn Carney contends that, if we conclude that the contract is ambiguous, we should remand for a trial on all disputed issues, including causation, because the parties offered competing extrinsic evidence bearing on the applicability of the arbitration provision. As to that alternative argument, Adair Homes argues that, if we conclude that the contract is ambiguous, we should not reverse and remand for a trial. Instead, Adair Homes contends that we should apply a presumption in favor of arbitrability and conclude, as a matter of law, that the contract requires arbitration of all disputes and, hence, that it was entitled to summary judgment.

To interpret a contractual arbitration provision, we apply ordinary principles of contract interpretation. Gemstone Builders, Inc. v. Stutz, 245 Or.App. 91, 95, 261 P.3d 64 (2011); see also Industra/Matrix Joint Venture v. Pope & Talbot, 341 Or. 321, 331, 142 P.3d 1044 (2006) (stating same principle in context of contract subject to the Federal Arbitration Act). The goal is to determine whether the parties agreed to arbitrate a particular dispute. Gemstone Builders, Inc., 245 Or.App. at 95, 261 P.3d 64;Industra/Matrix Joint Venture, 341 Or. at 331, 142 P.3d 1044 (“A party cannot be required to submit to arbitration any dispute which it has not agreed so to submit.” (Internal quotation marks and brackets omitted.)); see also Granite Rock Co. v. International Broth. of Teamsters, 561 U.S. 287, 299, 130 S.Ct. 2847, 2857, 177 L.Ed.2d 567 (2010) (“Arbitration is strictly a matter of consent.” (Internal quotation marks omitted.)).

A party is entitled to summary judgment only if the terms of the contract are unambiguous on their face. Milne v. Milne Construction Co., 207 Or.App. 382, 388, 142 P.3d 475,rev. den.,342 Or. 253, 149 P.3d 1212 (2006). We review for legal error a ruling that a contract is unambiguous. Yogman v. Parrott, 325 Or. 358, 361, 937 P.2d 1019 (1997); Arlington Ed. Assn. v. Arlington Sch. Dist. No. 3, 196 Or.App. 586, 595, 103 P.3d 1138 (2004).

The threshold to show ambiguity is not high. Milne, 207 Or.App. at 388, 142 P.3d 475;Central Oregon Independent Health Serv. v. OMAP, 211 Or.App. 520, 529, 156 P.3d 97,rev. den.,343 Or. 159, 164 P.3d 1160 (2007). A contract term is ambiguous if, when examined in the context of the contract as a whole and the circumstances of contract formation, it is susceptible to more than one plausible interpretation. Id.; see also PGF Care Center, Inc. v. Wolfe, 208 Or.App. 145, 151, 144 P.3d 983 (2006) (a contract provision “is unambiguous only if its meaning is so clear as to preclude doubt by a reasonable person” (internal quotation marks omitted)). If a contract's provisions are internally inconsistent regarding a subject, then the contract is ambiguous regarding that subject. Madson v. Oregon Conf. of Seventh–Day Adventists, 209 Or.App. 380, 384, 149 P.3d 217 (2006).

If a contract is ambiguous, and there is relevant competing extrinsic evidence to resolve the ambiguity, ascertaining the meaning of the contract involves a question of fact and the dispute over the contract's meaning cannot be resolved on summary judgment. Abercrombie v. Hayden Corp., 320 Or. 279, 292, 883 P.2d 845 (1994); Dial Temporary Help Service v. DLF Int'l Seeds, 255 Or.App. 609, 612, 298 P.3d 1234 (2013) (“[I]t is the existence of competing extrinsic evidence—and the triable factual issue that the evidence creates—that, as a general rule, makes the resolution of the meaning of an ambiguous contract on summary judgment inappropriate [.]”); see also Madson, 209 Or.App. at 389, 389 n. 3, 149 P.3d 217.

To determine whether a contract is ambiguous, we examine the text of the disputed provisions in the context of the document as a whole. Yogman, 325 Or. at 361, 937 P.2d 1019;Milne, 207 Or.App. at 389, 142 P.3d 475. As we explain below, our examination of this contract as a whole reveals that it can plausibly be read either as requiring arbitration of all disputes or as requiring arbitration of only course-of-construction disputes. Accordingly, the contract is ambiguous.

The arbitration provision (paragraph 15) and the attorney fee provision (paragraph 16) of the parties' contract provide:

“15. DISPUTE RESOLUTION: The Owner and Adair realize that disagreements may arise in the course of contracting for the construction of a structure which the Parties may be unable to settle between themselves. If this happens, the Parties agree to settle all disagreements in an efficient, timely and fair manner at minimal or no cost. To accomplish this, the Parties agree to the following system of Dispute Resolution, which shall apply to all disagreements arising at any time and in any way relating to construction or to this Contract.

“(a) Decision by Inspectors: All work performed and materials provided on the property will be inspected by Government Agencies with jurisdiction and it is agreed that their decisions, within the scope and limits of their training and responsibilities, will be final and binding upon the Parties.

“(b) Mediation/Arbitration: If a dispute (or any part of a dispute) is not resolved through the inspection process ‘(a),’ the Parties agree to meet with an unbiased Mediator, with a working knowledge of residential construction, to be named by the Construction Arbitration Services, in an effort to resolve the dispute through mediation. If mediation fails to resolve the dispute, it will...