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

Decision Date23 July 1992
Docket NumberNo. 1,CA-CV,1
Citation174 Ariz. 269,848 P.2d 848
Parties, 81 Ed. Law Rep. 1099 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. 90-094.
CourtArizona Court of Appeals
OPINION

LANKFORD, Judge.

Canon School District No. 50 ("the District") appeals from the superior court's refusal to stay arbitration of a breach of contract claim brought by W.E.S. Construction Company ("W.E.S."). The superior court's judgment denied the stay sought by the District. We affirm in part and reverse in part.

This appeal raises four issues:

(1) Does the dispute resolution procedure created by the State Board of Education procurement rules abrogate either the arbitration procedure approved by Ariz.Rev.Stat. (A.R.S.) § 15-213(D) or an express agreement to arbitrate in the contract?

(2) Does the dispute resolution procedure violate W.E.S.'s right to procedural due process?

(3) Is the District estopped from challenging the validity of the arbitration provision? and

(4) Is the superior court's declaration that the arbitration provision is "valid and enforceable" overly broad in light of the relief sought by W.E.S.?

I.

The District and W.E.S. entered into a contract for the construction of a school building. The contract contained a provision for arbitration of disputes. A dispute arose between W.E.S. and the project architect during construction, and as a result, W.E.S. served the District with a demand for arbitration on the ground that the District had breached the contract.

The District filed a complaint in Yavapai County Superior Court. The District sought an order to show cause why the arbitration proceeding should not be stayed, a declaration that the arbitration provision of the parties' contract was invalid and unenforceable, a stay of the arbitration, and an award of attorney's fees. An order to show cause was entered, and W.E.S. filed an answer to the complaint.

After the hearing on the order to show cause, the superior court denied the request for a stay of arbitration, awarded attorney's fees and costs to W.E.S., and declared the arbitration provision in the contract valid and enforceable.

For reasons discussed below, we affirm the judgment in part and reverse in part.

II.

The first question is whether arbitration was precluded by an exclusive dispute resolution mechanism created by the State Board of Education's procurement rules. 1 The Board's administrative rules contemplate an initial decision by "a district representative" or the district's governing board. 2

W.E.S. argues that A.R.S. § 15-213(D) expressly permits arbitration of procurement-related disputes. If the exclusive remedy provision in the administrative regulation conflicts with the statute, then the regulation must yield to the statute. See Grove v. Ariz. Crim. Intelligence System, 143 Ariz. 166, 169, 692 P.2d 1015, 1018 (App.1984).

A.

Our first task is to interpret the scope of A.R.S. § 15-213, and specifically to decide whether arbitration is available in this matter. A.R.S. § 15-213 is entitled, "Procurement practices of school districts; adoption of rules; ... recovery of damages by contractor for delay...."

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.)

The first problem in interpreting this statute is determining whether the language protecting arbitration rights covers only disputes involving expenses incurred as a result of delay or extends to all disputes arising under the construction contract. Stated another way, do the words "this section" in the second sentence of subsection D refer to the entire section, and thus include all contract disputes, or to subsection D alone, which deals only with delay claims?

Ordinarily, we would regard a reference to "this section" as encompassing all of the section (here, § 15-213) and not merely a subsection (D). However, we should not frustrate legislative purpose by a wooden interpretation of the Legislature's words. See State Farm Auto. Ins. Co. v. Dressler, 153 Ariz. 527, 531, 738 P.2d 1134, 1138 (App.1987). "In interpreting statutes it is the spirit of the law that prevails." Id. (citing Navajo Tribe v. Arizona Dep't of Administration, 111 Ariz. 279, 528 P.2d 623 (1974)).

We decline to adopt a literal, wooden application of this legislation. To do so would be unfaithful to the Legislature's wishes. A literal interpretation without regard to the overall legislative scheme would lead us to the absurdity decried in Southern Bell Tel. & Tel. Co. v. South Carolina Tax Comm'n, 297 S.C. 492, 377 S.E.2d 358, 360 (Ct.App.1989) (Sanders, J.).

By this logic [of literal interpretation], we would be obliged to conclude that the New York Yankees had no players from the South and the Cincinnati Reds adhered to the teachings of Marx. Much of the misunderstanding abroad in the world can be attributed to literal thinking.

Our ultimate duty is to implement legislative intent. One indication of the Legislature's intention is the use of the words "this section" in a very similar statute dealing with state procurement contracts. Because the Legislature appears to have borrowed the language of subsection D from another statute without changing the words "this section" to "this subsection," the reference in § 15-213(D) to "this section" appears to be a draftsman's error.

The error can be traced as follows. The source of § 15-213(D), the school procurement provision, is A.R.S. § 41-2617 of the general state procurement code. The provisions are virtually identical. The procurement code provides:

A contract for the procurement of construction shall include a provision which provides for negotiations between the state governmental unit and the contractor for the recovery of damages related to expenses incurred by the contractor for a delay for which the state governmental unit 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.)

Thus, both statutes state that the mandatory contract provision for negotiations will not void any arbitration provision in the contract. The only subject of § 41-2617 is resolution of delay claims against the State. We conclude that the subject of § 15-213(D) is similarly limited to delay claims.

The conclusion that § 15-213(D) applies only to delay claims is supported by the rule of statutory construction that parallel terms in statutes enacted during the same legislative session as "aspects of a systematic approach" are interpreted the same way unless contrary to clear legislative intent or public policy. Dieckmann v. Superior Court (International Harvester), 175 Cal.App.3d 345, 220 Cal.Rptr. 602 (1985). Sections 15-213(D) and 41-2617 both were enacted at the same time, concern procurement by governmental bodies, and contain virtually identical language. (Laws of 1987, ch. 266, § 1 and § 3.) These statutes should therefore be construed consistently.

The words "this section" in the second sentence of § 15-213(D), therefore, have the same meaning as the same words in § 41-2617. The latter statute clearly preserves arbitration only for government-caused delay claims, not for all claims arising out of government procurement contracts. As a result, the arbitration provision in § 15-213(D) also applies only to delay claims. 3

Finally, the legislative history supports this construction. The minutes of the House Committee on Government reveal that the purpose of the bill to amend § 15-213 by adding subsection (D) was to "provide for recovery of damages by a contractor from a public agency for unreasonable delays in a construction project caused by the public agency." (Emphasis added.)

Therefore, we hold that the exclusive remedy regulation conflicts with A.R.S. § 15-213(D), but only to the extent that the statute preserves arbitration solely for delay claims against a school district.

B.

We next consider whether the exclusive administrative remedy regulation can nevertheless be sustained because it is authorized by another statute. According to the District, the exclusive remedy rule was authorized by A.R.S. § 15-213(A), 4 which provides that the State Board of Education's procurement rules be "consistent with the procurement practices prescribed in title 41," i.e., the general procurement rules. Because the general procurement statute contains an exclusive remedy provision, the District argues, the Board of Education could also enact an exclusive remedy rule.

Section 41-2615 of the state procurement code provides:

Notwithstanding any law to the contrary, including the provisions of ... title 12, chapter 9, article 1, [validity of arbitration agreements] this article and the rules promulgated under this article shall provide...

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