BEAVER CONST. CO. v. LAKEHOUSE, LLC

• Citation: 742 So.2d 159
• Parties: BEAVER CONSTRUCTION COMPANY, INC. v. LAKEHOUSE, L.L.C., et al.
• Decision Date: 06 August 1999
• Court: Supreme Court of Alabama

742 So.2d 159

BEAVER CONSTRUCTION COMPANY, INC. v. LAKEHOUSE, L.L.C., et al.

1971829.

Supreme Court of Alabama.

August 6, 1999.

John R. Bradwell of Hill, Hill, Carter, Franco, Cole & Black, P.C., Montgomery; and Edward P. Meyerson of Berkowitz, Lefkovits, Isom & Kushner, Birmingham, for appellant.

Randy Myers of Richard Jordan, Randy Myers & Ben Locklar, P.C., Montgomery, for appellees.

COOK, Justice.

Beaver Construction Company, Inc. ("Beaver"), appeals from an order of the Montgomery Circuit Court denying its motion to dismiss or to stay, pending arbitration, an action commenced against it by Lakehouse, L.L.C. ("limited liability company"), and individual "members" thereof, namely, Forrest E. Waters III, Kenneth T. Harris, Forrest E. Waters II, Marlin F. Waters, and Lewis C. McKinney II, and Kenneth T. Harris. We reverse and remand.

In the spring of 1996, Beaver and Lakehouse entered into an arrangement, whereby Beaver agreed to build, and Lakehouse agreed to pay for, an apartment complex in Birmingham, to be known as "Lakehouse Apartments." The agreement of the parties was memorialized by a number of written instruments, including (1) a form styled "Construction Contract Cost Plus," United States Department of Housing and Urban Development Form 92442A ("the HUD Form"); (2) a document styled "General Conditions of the Contract for Construction," American Institute of Architects Document A201 ("the AIA Document"); and (3) the project "drawings and specifications." The HUD Form and the AIA Document were executed on March 7, 1996. We will refer to those two documents, along with the project "drawings and specifications," collectively as "the Construction Contract."

The HUD Form was a four-page instrument that read in pertinent part:

"Article I —Scope of Contract

"A. The Contract between the parties is set forth in the `Contract Documents,' which consist of this Agreement, the Drawings and Specifications, which include the current edition of AIA Document A201, `General Conditions of the Contract for Construction,' and Form HUD 2445, `Supplementary Conditions of the Contract for Construction.'"

It was signed for Lakehouse by Forrest E. Waters III.

The AIA Document contained the following pertinent provisions:

"4.3.2 Decision of Architect. Claims, including those alleging an error or omission by the Architect, shall be referred initially to the Architect for action as provided in Paragraph 4.4. A decision by the Architect, as provided in Subparagraph 4.4.4, shall be required as a condition precedent to arbitration or litigation or a Claim between the Contractor and Owner...."

"4.5.1 Controversies and Claims Subject to Arbitration. Any controversy or Claim arising out of or related to the Contract, or the breach thereof 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 or arbitrators may be entered in any court having jurisdiction thereof...."

"13.1.1. The Contract shall be governed by the law of the place where the Project is located."

"13.4.1. Duties and obligations imposed by the Contract Documents and rights and remedies available thereunder shall be in addition to and not a limitation of duties, obligations, rights and remedies otherwise imposed or available by law."

(Emphasis added.)

In addition to the documents executed on March 7, the arrangement included an "Agreement," which was executed on February 27, 1996 (the "February Instrument"). In the February Instrument, Beaver was defined as the "Contractor." Five individual "members" of Lakehouse, namely, Forrest E. Waters III, Forrest E. Waters II, Marlin F. Waters, Lewis C. McKinney II, and Kenneth T. Harris, were named by the February Instrument as "Sponsors." It contained the following pertinent provisions:

"WHEREAS, CONTRACTOR has executed a Construction Contract Cost Plus [HUD Form 92442A], dated February 27, 1996, (hereinafter referred to as `CONTRACT')¹ with Lakehouse, LLC, an Alabama limited liability company (hereinafter referred to as "LLC") with an upset amount of Five Million, Six-Hundred Nineteen Thousand, and Thirteen Dollars ($5,619,013.00).

"WHEREAS, SPONSORS have agreed to pay certain payments to CONTRACTOR in addition to the amount which will be due CONTRACTOR under the said CONTRACT;

"WHEREAS, the intent of this Agreement is that CONTRACTOR will be paid the `actual cost of construction' of the project as defined in the CONTRACT plus the amount of $168,571, all of which shall not exceed $5,787, 584.00.

"NOW, THEREFORE, in consideration of One Dollar ($1.00) and other valuable consideration the receipt of and sufficiency of which is hereby acknowledged, the undersigned parties agree as follows:

"1. This Agreement does not modify any of the terms and conditions of said CONTRACT except to the extent it modifies the time of payment and requires SPONSORS to pay certain additional payments to CONTRACTOR.

". . . .

"3. [LAKEHOUSE] LLC and/or SPONSORS (as is appropriate) shall pay CONTRACTOR an amount which is computed as follows:

"(a) the `actual cost of construction' as defined in the CONTRACT and approved by for [sic] payment pursuant to the cost certification procedures of HUD,

"(b) plus the amount of $168,571.00, all of which shall not in any event, except for approved change orders, exceed $5,787,584.00

"4. The SPONSORS will pay the amount by which the CONTRACT is increased by this Agreement which is $168,571, plus approved Change Orders, in monthly increments pro rata to the percentage of project completion. Said amount shall be paid at the time the insured draws are paid. Final payment shall be due at the time of Final Endorsement by HUD of the mortgage note pertaining to the subject project.

"5. CONTRACTOR agrees to deliver the units in stages and as units are ready, to have HUD, the City and other necessary parties conduct occupancy inspections, and to permit the managing agent to begin leasing the units and achieve occupancy at the earliest possible date.

"6.(a) The undersigned CONTRACTOR agrees that it will be paid the sum of $168,571 by SPONSORS, plus all Change Orders approved in writing by Forrest E. Waters III or Marlin Waters. The undersigned CONTRACTOR does not now and will not later assert, any claim against the mortgaged property, the mortgage proceeds, any reserve or deposit made with the mortgagee or another required by the Assistant Secretary-FHA Commissioner in connection with the mortgage transaction, or against the rents or other income from the mortgaged property for payment of any part of such amount of $168,571.

"6.(b) If SPONSORS fail to pay any installment of the $168,571 when due, interest shall accrue on the total amount unpaid at the rate of 10% per annum and if CONTRACTOR employs the services of an attorney for collection, by suit or otherwise, SPONSORS shall pay all costs of collection and litigation, together with reasonable attorney's fees incurred by CONTRACTOR in connection therewith."

(Emphasis in original.) (Footnote added.) The February Instrument was signed by a vice president of Beaver and by the five individual "Sponsors."

On November 10, 1997, Lakehouse and the Sponsors sued Beaver, alleging (1) that Beaver had failed to prepare the construction site in conformity with the Construction Contract, (2) that it had "failed to install the sanitary sewer and related items prior to commencing work," and (3) that it was wrongfully withholding 121 "sewer tap permits" that the Jefferson County Sewer and Sanitation Department had issued for the construction of the project.² The complaint contained a claim alleging breach of the "Construction Contract" generally and a separate claim alleging breach of the February Instrument. It also contained claims alleging negligence, wantonness, and willfulness; misrepresentation, suppression, and fraudulent inducement; and conversion of the sewer tap permits (collectively "the tort claims").

On November 12, 1997, Beaver filed a demand for arbitration of the dispute with the American Arbitration Association, alleging that Lakehouse and the members had breached and improperly terminated the contract. On December 27, 1997, Beaver filed a "Motion to Dismiss or, in the Alternative, Application for a Stay," on the ground that the action had been commenced "in violation of a valid arbitration agreement." On June 8, 1998, the trial court denied Beaver's motion, stating that "the Plaintiffs did not intend to submit their claims against [Beaver] to arbitration." Beaver promptly appealed the denial of that motion. On appeal, Lakehouse and the Sponsors contend (1) that the parties did not intend for arbitration to be the exclusive means of redress; (2) that the tort claims are not arbitrable; (3) that the members are not required to arbitrate their individual claims against Beaver; and (4) that the claim alleging breach of the February Instrument is not arbitrable.

I. Exclusive Means of Redress

The first argument of Lakehouse and the Sponsors is based on the AIA Document, ¶¶ 4.3.2, 13.1.1, and 13.4.1. These three provisions, they contend, indicate that arbitration was not to be the exclusive means of redress. We disagree with that contention.

First, ¶ 13.1.1. merely provides that "[t]he Contract shall be governed by the law of the place where the Project is located." However, the law in Alabama is that agreements to arbitrate are enforceable if they are part of a valid contract involving interstate commerce. Georgia Power Co. v. Partin, 727 So.2d 2, 5 (Ala. 1998) (applying the Federal Arbitration Act, 9 U.S.C. § 1 et seq.). Cf. Fidelity Nat'l Title Ins. Co. of Tennessee v. Jericho Management, Inc., 722 So.2d 740, 743 (Ala. 1998) (the phrase "applicable law" in a provision requiring arbitration "unless arbitration would be `prohibited by applicable law'" included both state and federal law and did not preclude enforcement of...