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

• Decision Date: 24 February 1994
• Docket Number: No. CV-92-0426-PR,CV-92-0426-PR
• Citation: 869 P.2d 500,177 Ariz. 526
• Parties: , 89 Ed. Law Rep. 997 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.
• Court: Arizona Supreme Court

Page 500

869 P.2d 500

177 Ariz. 526, 89 Ed. Law Rep. 997

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.

No. CV-92-0426-PR.

Supreme Court of Arizona, In Banc.

Feb. 24, 1994.

Favour, Moore, Wilhelmsen, Payette & Schuyler, P.A. by Lance B. Payette, David K. Wilhelmsen, Prescott, for plaintiff-appellant.

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

Thomas W. Pickrell, Phoenix, for amicus curiae, Arizona School Boards Ass'n, Inc.

Jennings, Kepner & Haug by William F. Haug, Robert O. Dyer, David W. Scanlon, Carolyn M. Kaluzniacki, Phoenix, for amici curiae, American Ins. Ass'n; Arizona Chapter of Associated Builders & Contractors, Inc.; Arizona Contractors Ass'n, Inc.; Arizona Roofing Contractors Ass'n; Associated Gen. Contractors of America, Arizona Building Chapter; Const. Financial Management

[177 Ariz. 527] Ass'n; Nat. Ass'n of Sur. Bond Producers; and the Sur. Ass'n of America.

OPINION

CORCORAN, Justice.

We are asked to determine whether Canon School District No. 50 (School District) is bound by its contractual agreement to arbitrate procurement-related claims brought against it by W.E.S. Construction Company, Inc. (W.E.S.). This issue arises because the administrative rules adopted by the Arizona Board of Education pursuant to A.R.S. § 15-213 purportedly establish an exclusive dispute resolution procedure for asserting procurement-related claims against any school district within the state. See Arizona Administrative Code, Office of the Arizona Secretary of State (A.A.C.), R7-2-1155 to -1182. Because we presume that a number of procurement contracts entered into by school districts contain arbitration provisions, we granted review to resolve this issue of statewide importance. We have jurisdiction pursuant to Ariz. Const. art. 6, § 5(3), and A.R.S. § 12-120.24.

Factual and Procedural Background

In January 1989, W.E.S. entered into a contract with the School District for the construction of a school building in Black Canyon City. The contract included a provision requiring all disputes between the parties to be resolved through arbitration. ¹

After W.E.S. began construction, the School District apparently experienced problems obtaining the requisite building permits from Yavapai County. W.E.S. claims that because of these problems, the School District instructed W.E.S. to discontinue its work on the project until the dispute was resolved, and consequently, construction was delayed for more than 2 months.

W.E.S. further alleges that in May 1989, it was prepared to resume construction upon receiving certain necessary information from the project architect. However, a dispute arose between W.E.S. and the project architect after each claimed that the other was not expeditiously performing its duties under the contract. Thus, in early July 1989, W.E.S. served the School District with a demand for arbitration, contending that the School District had breached the contract. W.E.S. claimed that as a result of these breaches, it incurred delay-related damages as well as lost profits and consequential damages.

After receiving the demand for arbitration, the School District filed a complaint in Yavapai County Superior Court requesting that the court enter a show cause order as to why the arbitration should not be stayed. The School District maintained that § 15-213 and the procurement rules adopted by the Board of Education thereunder, A.A.C. R7-2-1101 to -1195, rendered its contractual agreement to arbitrate invalid and unenforceable. After conducting a hearing in the matter, the trial court denied the School District's request to stay the arbitration. Moreover, the court declared the contract's arbitration provision valid and enforceable, and it awarded attorney's fees and costs to W.E.S.

The School District appealed from the trial court's judgment, and the court of appeals affirmed the judgment in part and reversed in part. Canon School Dist. v. W.E.S. Constr. Co., 174 Ariz. 269, 848 P.2d 848 (App.1992). The court of appeals held that although § 15-213(D) preserves W.E.S.'s contractual right to arbitrate its delay-related claims against the School District, all other procurement-related claims must be resolved according to the procedure set forth in the Board of Education's procurement rules. Additionally, the court found that the dispute resolution procedure created by the Board of Education does not deprive W.E.S. of its due process rights, and that the trial court was correct in refusing to find that the School District was estopped from challenging the enforceability of the arbitration provision.

In this court, W.E.S. filed a petition and the School District filed a cross-petition seeking review of the court of appeals' decision. We granted review, and for the reasons discussed below, we hold that A.R.S. § 15-213(D) preserves W.E.S.'s contractual right to arbitrate all of its procurement-related claims against the School District. ²

Discussion

Section 15-213 is the enabling statute that vests the Board of Education with authority to adopt rules establishing procurement practices for all school districts within the state. See A.R.S. § 15-213(A). The procurement rules adopted by the Board of Education are codified at A.A.C. R7-2-1001 to -1195, and they set forth, inter alia, a comprehensive dispute resolution procedure. Specifically, these rules designate how procurement-related claims brought against a school district shall be asserted, decided, and appealed. See, e.g., A.A.C. R7-2-1155 to -1182. Particularly relevant to this case is A.A.C. R7-2-1184, which states:

This Article [Article 10, School District Procurement Code; A.A.C. R7-2-1001 to -1195] provides the exclusive procedure for asserting a cause against the school district and its governing board arising in relation to any procurement conducted under this Article.

(Emphasis added.)

The School District argues that, notwithstanding its contractual agreement to arbitrate, all of W.E.S.'s procurement-related claims must be resolved according to the Board of Education's exclusive remedy procedure. To the contrary, W.E.S. maintains that § 15-213(D) preserves its contractual right to arbitrate its claims. Subsection (D) of § 15-213 provides:

A contract for the procurement of construction shall include a provision which provides for negotiations between the school district and the contractor for the recovery of damages related to expenses incurred by the contractor for a delay for which the school district is responsible, which is unreasonable under the circumstances and which was not within the contemplation of the parties to the contract. This section shall not be construed to void any provision in the contract which requires notice of delays, provides for arbitration or other procedure for settlement or provides for liquidated damages.

(Emphasis added.)

In light of the apparent conflict between the language of § 15-213(D) and the Board of Education's procurement rules, we must determine whether the School District's contractual agreement to arbitrate is valid and enforceable. If the exclusive remedy procedure set forth in the procurement rules conflicts with the statute, then to the extent of the conflict, the rules must yield to the statute. See Fullen v. Industrial Comm'n, 122 Ariz. 425, 428, 595 P.2d 657, 660 (1979). Thus, the precise issue in this case is whether the words "this section" in § 15-213(D) refer only to subsection (D) itself, or instead refer to § 15-213 in its entirety. If "this section" refers only to subsection (D), which addresses only delay-related damages, then the statute protects W.E.S.'s contractual right to arbitrate only its delay-related claims against the School District. On the other hand, if "this section" refers to § 15-213 in its entirety, the statute protects W.E.S.'s contractual right to arbitrate all of its procurement-related claims against the School District. Because this case turns on an issue of statutory construction, and therefore presents a question of law, our review is de novo. See Marsoner v. Pima County, 166 Ariz. 486, 488, 803 P.2d 897, 899 (1991).

In construing § 15-213(D), the court of appeals held that "this section" refers only to subsection (D) itself. Although acknowledging that it ordinarily would construe "this section" as referring to the entire statutory section--namely § 15-213--the court concluded that the Legislature intended "this section" to modify only the first sentence of subsection (D).

As evidence of the Legislature's intent, the court of appeals primarily relied upon similarities between § 15-213(D) and § 41-2617, ³ a similar statute in the general state procurement code. Specifically, the court noted that §§ 15-213(D) and 41-2617 both were enacted at the same time, both concern procurement by governmental bodies, and both contain virtually identical language. From this, the court speculated that the Legislature borrowed the language of § 15-213(D) from § 41-2617 and inadvertently neglected to change the words "this section" to "this subsection"; hence, the words "this section" in § 15-213(D) resulted from a draftsman's error. Therefore, to properly effectuate legislative intent, the court of appeals concluded that both statutes should be construed consistently. Because § 41-2617 preserves arbitration only for delay-related claims, the court held that § 15-213(D) likewise preserves arbitration only for delay-related claims. We disagree.

We have long recognized that one of the fundamental goals of statutory construction is to effectuate legislative intent. See, e.g., Automatic Registering Mach. Co. v. Pima County, 36 Ariz. 367, 370, 285 P. 1034, 1035 (1930). Yet, "[e]qually fundamental is the presumption that what the Legislature means, it will say." Padilla v. Industrial Comm'n, 113...