City and County of Denver v. District Court In and For City and County of Denver

• Decision Date: 30 June 1997
• Docket Number: No. 97SA56,97SA56
• Citation: 939 P.2d 1353
• Parties: 21 Colorado Journal 9 CITY AND COUNTY OF DENVER, Petitioner, v. The DISTRICT COURT IN AND FOR the CITY AND COUNTY OF DENVER, STATE of Colorado; and the Honorable Robert P. Fullerton, one of the Judges thereof, Respondents.
• Court: Colorado Supreme Court

Page 1353

939 P.2d 1353

21 Colorado Journal 9

CITY AND COUNTY OF DENVER, Petitioner, v. The DISTRICT COURT IN AND FOR the CITY AND COUNTY OF DENVER,

STATE of Colorado; and the Honorable Robert P.

Fullerton, one of the Judges thereof, Respondents.

No. 97SA56.

Supreme Court of Colorado,

En Banc.

June 30, 1997.

Bookhardt & O'Toole, Kevin J. O'Toole, Dawn P. Bookhardt, Denver, Daniel E. Muse, City Attorney, Lee Marable, Arlene V. Dykstra, Assistant City Attorneys, Denver, for Petitioner.

Berryhill, Cage & North, P.C., Mark W. Williams, James R. Cage, Denver, Leonard, Street & Deinard Lowell J. Noteboom, Steven R. Lindemann, Minneapolis, MN, for Plaintiff PCL-Harbert.

Berenbaum, Weinshienk & Eason, P.C., James Kurtz-Phelan, Dean Panos, Denver, for Plaintiff Corradini Corporation.

Justice BENDER delivered the Opinion of the Court.

This case involves a dispute between the City and County of Denver and a general contractor hired to construct the terminal building at Denver International Airport. The City and County of Denver (Denver) entered into a series of contracts (the Contract) with PCL-Harbert, a general contractor (PCL), to build the terminal building at Denver International Airport (DIA). The Contract required PCL to perform all the work necessary to complete construction of the terminal building. As part of its mission, PCL subcontracted with Corradini Corporation (Corradini) for the installation of terrazzo flooring in the terminal building.

Disputes arose over work performed under the Contract and the parties engaged in settlement discussions. Thereafter, PCL brought suit against Denver in Denver District Court claiming breach of contract and promissory estoppel and requesting declaratory judgment. In addition, Corradini filed one claim against Denver alleging breach of contract. Denver moved to dismiss PCL's claims for lack of jurisdiction and failure to state a claim, arguing that PCL was required to submit its claims through the alternative dispute resolution (ADR) procedures set forth in the Contract. Denver also sought to stay Corradini's claim pending outcome of the ADR procedures regarding the disputes between Denver and PCL. The district court denied Denver's Motion to Dismiss, and Denver, the petitioner in this court, brought an action under C.A.R. 21 seeking a writ of prohibition to prevent the respondent district court from proceeding further with the case.

Alternative dispute resolution mechanisms are favored in Colorado as a convenient, efficient alternative to litigation. We issued a rule to the district court to show cause because enforcement of non-arbitration ADR procedures in appropriate cases provides guidance and fosters stability for those seeking the benefits of similar dispute resolution procedures in their business dealings. We now make the rule absolute.

The right of parties to contract encompasses the correlative power to agree to a specific procedure for the resolution of disputes. Failure to follow the mandates of a valid ADR clause contravenes Colorado's public policy of supporting ADR as well as frustrates the intent of the parties who originally agreed to an alternate remedy to resolve their disputes. PCL may not avoid a portion of the Contract, the ADR procedure, while retaining the benefits of the Contract. The ADR clause of the Contract is broad in scope, and we apply a presumption in favor of alternative dispute resolution to PCL's claims. We analyze PCL's claims by focusing on their core factual allegations and not on the legal causes of action pled. We conclude that the factual disputes involve either Denver's alleged failure to pay PCL for work performed or overbilling by PCL for which Denver seeks reimbursement. Each claim of PCL concerns the construction of the terminal building at DIA. Hence, we hold that PCL's claims are "disputes regarding the contract" and must be presented according to the ADR procedures set forth in the Contract.

We reverse the district court's denial of Denver's motion to dismiss PCL's claims and the district court's refusal to stay Corradini's claim pending the outcome of the ADR procedures. We therefore remand with instructions for the district court to dismiss PCL's claims, thereby allowing all of PCL's claims, including the overbilling dispute, to be heard under the ADR procedures. We direct the district court to stay proceedings on Corradini's claim pending determination of all of PCL's claims through the ADR proceedings.

I. THE FACTS OF THE DISPUTE

We summarize the facts alleged by PCL and Corradini assuming the specific allegations of their amended complaint to be true. See Rosenthal v. Dean Witter Reynolds, Inc., 908 P.2d 1095, 1099 (Colo.1995) (accepting all statements of material fact in complaint as true in determining C.R.C.P. 12(b)(1) motions).

On August 21, 1991, Denver and PCL entered into the Contract for the construction of the terminal building at DIA. The Contract was publicly bid and drafted by Denver. PCL was to furnish "everything necessary and required for the construction of Contract No. F-121B, Terminal Complex Structure and Finishes for the Denver International Airport," ¹ and was paid approximately $315 million. PCL subcontracted with Corradini to install terrazzo flooring in the terminal building. Denver, pursuant to Change Order No. 4, changed the flooring material from terrazzo to a unique granite product which could only be installed by Tecnomaiera SRL (Tecnomaiera), the exclusive producer of this product. When Denver substituted granite for the terrazzo flooring material, PCL was forced to terminate its subcontract with Corradini for the terrazzo flooring and to enter into an agreement with Tecnomaiera to install the granite flooring. The Change Order and the Contract provided that Denver was required to pay the termination costs of both PCL and Corradini. In October of 1995, Denver, PCL and Corradini negotiated a verbal settlement agreement concerning the termination costs of the terrazzo flooring subcontract whereby Denver agreed to pay $625,000 to Corradini and $12,500 to PCL, plus 6% interest. ²

Tecnomaiera failed to perform on a portion of its subcontract with PCL and appeared to be insolvent. On June 18, 1993, officials of PCL and Denver met to discuss Tecnomaiera's performance problems. At this time, Denver wanted to meet the airport's initially scheduled opening date of October 31, 1993. Thus, Denver required PCL to continue to work with Tecnomaiera and authorized PCL to advance funds so that Tecnomaiera would be able to fulfill its performance obligation. At this meeting, officials of Denver verbally agreed to reimburse PCL for its funding of Tecnomaiera. ³

Other disputes occurred between Denver and PCL in the construction of the terminal building. Denver wanted PCL to repair cracks in the granite flooring under a warranty basis, that is, without charge. PCL claimed the Contract required payment for repairs on a cost-plus basis. Acting on information obtained during an audit, Denver notified PCL that it had been overbilled by PCL and had, in turn, overpaid approximately $2.4 million. Denver demanded reimbursement. Because of the alleged overbilling, Denver refused to pay any further monies to PCL and retained approximately $700,000 of funds previously allocated for payment to PCL.

Negotiations over these issues proved fruitless, and on September 13, 1996, PCL filed both a lawsuit against Denver in Denver District Court, which is the case before us, and a petition for administrative hearing pursuant to the ADR procedures set forth in the Contract. ⁴ The amended complaint alleges eight causes of action, ⁵ some pled in the alternative. PCL alleges: (1) two breach of contract claims involving the October 1995 verbal settlement agreement when representatives of Denver agreed to pay PCL $12,500 and Corradini $625,000 plus interest for the termination of the terrazzo flooring subcontract (second and third claims of the amended complaint); (2) a breach of contract claim because the Contract required that PCL be reimbursed for termination costs due to the cancellation of the terrazzo flooring subcontract (fourth claim); (3) a breach of contract claim based upon Denver's failure to pay the Contract close-out balance which included reimbursement to PCL for monies advanced to Tecnomaiera (fifth claim); (4) a promissory estoppel claim for the monies advanced to Tecnomaiera to enable completion of the granite flooring, based on Denver's verbal promise to reimburse PCL for these advances (sixth claim); (5) a declaratory judgment seeking a judicial interpretation of the Contract to the effect that the Contract required Denver to pay PCL on a cost-plus basis for repair work to the granite floor (seventh claim); and (6) a declaratory judgment seeking a judicial finding that under the terms of the Contract PCL was entitled to bill Denver and be reimbursed for all costs related to Tecnomaiera, including the $2.4 million Denver now claims to have been overbilled (eighth claim). In two of its claims (the third and fourth claims), PCL sought payment on behalf of Corradini as well. Corradini, in the first claim of the amended complaint, sued Denver as an additional party plaintiff claiming that Denver breached its October 1995 verbal settlement agreement by failing to pay Corradini $625,000 for the termination of the terrazzo flooring subcontract.

Denver moved to dismiss PCL's claims for lack of subject matter jurisdiction and failure to state a claim, arguing that the Contract required the parties to submit to alternative dispute resolution. Procedures for dispute resolution are addressed in two separate provisions of the Contract between Denver and PCL. The broader provision, Article VI, provides as follows: "It is agreed and understood by the parties hereto that disputes regarding this contract shall be resolved by administrative hearing under procedures described in Revised Municipal Code § 56-106...