Canon School Dist. No. 50 v. W.E.S. Const. Co., Inc.

• Decision Date: 30 September 1993
• Docket Number: CA-CV
• Parties: , 89 Ed. Law Rep. 641 CANON SCHOOL DISTRICT NO. 50, a political subdivision of the State of Arizona, Plaintiff-Appellant, v. W.E.S. CONSTRUCTION COMPANY, INC., an Arizona corporation, Defendant-Appellee. 191-0518.
• Court: Arizona Court of Appeals

Page 1014

868 P.2d 1014

177 Ariz. 431, 89 Ed. Law Rep. 641

CANON SCHOOL DISTRICT NO. 50, a political subdivision of the State of Arizona, Plaintiff-Appellant, v. W.E.S. CONSTRUCTION COMPANY, INC., an Arizona corporation, Defendant-Appellee.

1 CA-CV 91-0518.

Court of Appeals of Arizona,

Division 1, Department E.

Sept. 30, 1993.

Review Granted Feb. 15, 1994.

[177 Ariz. 434] Horne, Kaplan & Bistrow, P.C. by Thomas C. Horne and Martha B. Kaplan, Phoenix, and Favour, Moore, Wilhelmsen, Payette & Schuyler, P.A. by David K. Wilhelmsen, Prescott, for plaintiff-appellant.

Dillingham, Keilp & Cross, P.C. by John L. Dillingham, Phoenix, for defendant-appellee.

OPINION

LANKFORD, Judge.

This appeal from an action to confirm an arbitration award raises two issues:

(1) Did the superior court abuse its discretion by confirming the arbitration award despite the arbitrators' refusal to grant a continuance after counsel discovered a conflict of interest shortly before the arbitration hearing?

(2) Did the superior court err in awarding attorney's fees to W.E.S.?

In 1989, Canon School District No. 50 entered into a contract with W.E.S. Construction Co., Inc., ("the contractor") to construct a building at the Checkerboard School in Black Canyon City for the sum of $375,000. The contractor was to begin construction within five days of the date of the agreement and to complete construction within 120 days. The contract required the school district to obtain all necessary regulatory approval for the project to proceed. Under paragraph 7.9 of the contract, most disputes were to be referred to arbitration by the American Arbitration Association ("AAA").

Problems developed between the contractor and the project architect, George Myers. The contractor suspended construction and refused the district's demands that it resume. The Yavapai County Attorney, acting for the school district, wrote to the contractor's attorney that "[a]ll requirements of pertinent regulatory agencies have been met and the District requests that [the contractor] continue construction of the building immediately." When the parties failed to resolve their differences the contractor gave written notice that it was discontinuing work based on the architect's lack of cooperation and his refusal to abide by the terms and conditions of the agreement. Its letter stated:

Following our May 12th conference, my client and I were hopeful the architect would cooperate so that construction could resume promptly.

Unfortunately, the architect has continually failed to respond to legitimate requests, failed to meet with my client and failed to process Pay Request No. 3 in accordance with the terms of the contract. As such, my client has no alternative but to declare the owner to be in breach of contract thereby discharging the contractor from any further obligations under the January 25, 1989 Agreement.

. . . . .

Under these circumstances and based upon the failure to respond to submittals and failure to timely honor Pay Requests, my client is declaring the owner in breach of contract and is discontinuing its efforts on this project. As indicated, we are in the process of preparing a claim which will be submitted to Yavapai County. Please be advised my client will remove all of its property from the jobsite in the next few days.

The contractor subsequently filed a demand for arbitration with the AAA, claiming that the district's breach of contract had caused approximately $14,000 in damages. The district filed a counterclaim seeking damages for the contractor's failure to perform the work.

The school district then filed a petition in the superior court seeking a stay of arbitration on the grounds that the procurement rules of the State Board of Education required the dispute be referred to a district representative or the district's governing board for resolution. The superior court found article 7.9 valid, dismissed the suit and denied the district's request for a stay of execution. The district filed a notice of appeal but this court denied its request for a stay. ¹ It then filed a petition for special action, but we declined jurisdiction and the supreme court denied review.

The district had also filed a complaint in the Yavapai County Superior Court against the contractor and Transamerica Insurance Company. The district sought money damages for the contractor's alleged breach of the contract and sought recovery against Transamerica both under its statutory performance bond and for alleged bad faith denial of the district's claim. The contractor obtained a superior court order staying this action pending arbitration.

A conflict of interest problem subsequently arose for the district's counsel. On June 5, the office of the Arizona Attorney General substituted as counsel for the district and Charles Pierson, an assistant attorney general in the civil division, was assigned to the case. The civil division also represents the State Fire Marshal, an officer of the Department of Building and Fire Safety. Pierson had acted as the fire marshal's counsel.

In response to a request from the AAA dated March 5, 1990, the contractor had listed as witnesses for the arbitration hearing three employees of the fire marshal's office. In fact, one listed witness was the State Fire Marshal. These witnesses were expected to testify to the difficulty the fire marshal had in getting the architect's cooperation in approving project plans. The district had also listed as exhibits various letters and documents from the fire marshal's office. These included correspondence to the effect that the fire marshal had not given statutorily required approval for the construction project to proceed.

Pierson informed opposing counsel of the attorney general's representation of the fire marshal and warned this might involve a conflict of interest. These disclosures occurred in July and September of 1990.

In early October 1990, the arbitrators allowed the contractor to add the issue of whether the fire marshal had approved the project. At approximately the same time, counsel for the contractor wrote a letter to the attorney general's office in which he claimed that the fire marshal had not approved the project until April 2, 1990:

This morning I met with Jan Fontana of the Office of the State Fire Marshall [sic], Department of Building and Fire Safety. This meeting revealed new facts of which my client and the undersigned were completely unaware.

Approval of the project documents by the Department of Building and Fire Safety, which would permit construction pursuant to A.R.S. § 41-2163, was not obtained until April 2, 1990, almost a full year after my client left the project. Please find enclosed a copy of Jan Fontana's April 2, 1990, correspondence to Robert Gomez, who replaced Mr. Myers on the project. This information and letter was received by the undersigned for the first time this morning.

In addition, on May 11, 1989, Ms. Fontana wrote Mr. Myers and informed him that the project documents did not conform to the requirements of the code and that additional items still needed to be clarified before the project could be approved.

These facts conclusively demonstrate that at the time of the May 12th meeting under no circumstances could construction of this project resume. Thus, Tom Kelly's May 1st letter misrepresents the fact that "all requirements of pertinent regulating agencies have been met" such that construction may continue immediately. Again at the May 12th meeting, it was misrepresented to W.E.S. that construction was allowed to continue.

It is now quite clear that even had my client received the necessary information which would have physically allowed construction to resume, that without the fire marshal's approval construction could not continue. Since the inception of this dispute, the school district was intimately aware that final approval of the plans had not been received by the Department of Building and Fire Safety....

Needless to say, I was shocked to learn of this information....

On October 10, 1990, the contractor filed an "amended list of witnesses and exhibits in support of pre-hearing memorandum" which contained a letter dated April 2, 1990 from the fire marshal, approving the project: EXHIBITS

. . . . .

State Fire Marshall's [sic] Documents

Also listed as an exhibit and attached hereto is a document only recently produced by the State Fire Marshall's [sic] office pursuant to Claimant's subpoena. Such document is a letter of April 2, 1990 from the Office of the State Fire Marshall, [sic] Department of Building and Fire Safety, granting final approval as of such date to the project documents.

. . . . .

SUPPLEMENTAL STATEMENT OF UNCONTESTED FACTS

1. The Office of the State Fire Marshall [sic] only gave final approval to the project documents on April 2, 1990, contingent on a favorable field inspection.

On October 26, 1990 assistant attorney general Pierson moved for leave to withdraw as counsel and for a continuance of the arbitration hearing scheduled for November 4. He stated that by injecting the issue of fire marshal approval, W.E.S. had "change[d] ... its theory of the case" placing the attorney general's office amid a conflict between its two clients, the school district and the fire marshal. Because the hearing was less than a week away, Pierson requested a continuance so that the district could obtain new counsel.

The fact that employees of the fire marshal had been listed previously as witnesses does not indicate that Pierson should have recognized the conflict earlier. The contractor had stated that the fire marshal employees would testify as to "the difficulties the State Fire Marshal had in getting [the architect] to comply with their requirements for construction." At that time, the reasons for the contractor's refusal to complete the contract were the architect's failure to respond to the contractor's requests for information and his...