City of Blaine v. John Coleman Hayes & Associates, Inc.
| Decision Date | 20 May 1991 |
| Court | Tennessee Court of Appeals |
| Parties | CITY OF BLAINE, Plaintiff-Appellee, v. JOHN COLEMAN HAYES & ASSOCIATES, INC., Defendant-Appellant, John L. Gilmore, Jr.; Richard Dedmon, Ricky Oakley; and Robert Ramsey, Defendants. 818 S.W.2d 33 |
Owen, Edwards and Bryant, Knoxville, for plaintiff, City of Blaine.
W. Lee Corbett & Associates, P.C., Nashville, for appellant John Coleman Hayes & Associates, Inc.
Plaintiff, City of Blaine (hereinafter Blaine) filed a complaint against John Coleman Hayes & Associates, Inc., et al (hereinafter Hayes) in which it seeks, inter alia, rescission of a contract between the parties and a temporary injunction to stay arbitration proceedings instituted by Hayes. In response to the complaint, Hayes filed an application for arbitration pursuant to T.C.A. Sec. 29-5-303 (Supp.1990) and a motion for stay of the court proceedings until the arbitration has been conducted.
In July of 1985, Blaine and Hayes entered into a contract for Hayes to perform professional engineering services for Blaine in connection with Blaine's construction of a waste water treatment and collection system. The contract contains provisions for arbitration as follows:
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7.5.1. All claims, counterclaims, disputes and other matters in question between the parties hereto arising out of or relating to this Agreement or the breach thereof will be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association then obtaining, subject to the limitations and restrictions stated in paragraphs 7.5.3 and 7.5.4 below. This Agreement so to arbitrate and any other agreement or consent to arbitrate entered into in accordance herewith as provided in this paragraph 7.5 will be specifically enforceable under the prevailing arbitration law of any court having jurisdiction.
7.5.2. Notice of demand for arbitration must be filed in writing with the other parties to this Agreement and with the American Arbitration Association. The demand must be made within a reasonable time after the claim, dispute or other matter in question has arisen. In no event may the demand for arbitration be made after institution of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statute of limitations.
7.5.3. All demands for arbitration and all answering statements thereto which include any monetary claim must contain a statement that the total sum or value in controversy as alleged by the party making such demand or answering statement is not more than $200,000 (exclusive of interest and costs). The arbitrators will not have jurisdiction, power or authority to consider, or make findings (except in denial of their own jurisdiction) concerning, any claim, counterclaim, dispute or other matter in question where the amount in controversy thereof is more than $200,000 (exclusive of interest and costs) or to render a monetary award in response thereto against any party which totals more than $200,000 (exclusive of interest and costs).
7.5.4. No arbitration arising out of, or relating to, this agreement may include, by consolidation, joinder or in any other manner, any person or entity who is not a party to this Agreement.
7.5.5. By written consent signed by all the parties to this Agreement and containing a specific reference hereto, the limitations and restrictions contained in paragraphs 7.5.3 and 7.5.4 may be waived in whole or in part as to any claim, counterclaim, dispute or other matter specifically described in such consent. No consent to arbitration in respect of a specifically described claim, counterclaim, dispute or other matter in question will constitute consent to arbitrate any other claim, counterclaim, dispute or other matter in question which is not specifically described in such consent or in which the sum or value in controversy exceeds $200,000 (exclusive of interest and costs) or which is with any party not specifically described therein.
7.5.6. The award rendered by the arbitrators will be final, not subject to appeal and judgment may be entered upon it in any court having jurisdiction thereof.
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After Blaine's refusal to pay certain sums allegedly due Hayes for its services, Hayes filed a demand for arbitration with the American Arbitration Association and gave notice thereof to Blaine. Shortly thereafter, Blaine filed the instant case in the Chancery Court for Grainger County seeking, among other things, a rescission of the contract because of the alleged fraud and misrepresentations by Hayes which induced Blaine to enter into the contract.
The trial court denied Blaine's application to enjoin the arbitration proceedings and did not grant Hayes' application for an order requiring arbitration and a stay of the court proceedings pending the arbitration proceedings. Both parties were granted an interlocutory appeal.
The dispositive issue for review is whether the arbitration provisions of the contract require that a claim of fraud in the inducement of the contract be submitted to arbitration.
The Uniform Arbitration Act was passed by our Legislature in 1983 and is now codified as T.C.A. Sec. 29-5-301--Sec. 29-5-320 (Supp.1990). The provisions of the act pertinent to the controversy before us are T.C.A. Sec. 29-5-302 and Sec. 29-5-303 which we quote:
29-5-302. Agreements to submit to arbitration--Jurisdiction.--(a) A written agreement to submit any existing controversy to arbitration or a provision in a written contract to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable save upon such grounds as exist at law or in equity for the revocation of any contract; provided, however, that for contracts relating to farm property, structures or goods, or to property and structures utilized as a residence of a party, the clause providing for arbitration shall be additionally signed or initialed by the parties.
(b) The making of an agreement described in this section providing for arbitration in this state confers jurisdiction on the court to enforce the agreement under this part and to enter judgment on an award thereunder.
29-5-303. Order for arbitration--Stay of arbitration proceeding--Effect of other proceedings involving issues subject to arbitration.--(a) On application of a party showing an agreement described in § 29-5-302, and the opposing party's refusal to arbitrate, the court shall order the parties to proceed with arbitration, but if the opposing party denies the existence of the agreement to arbitrate, the court shall proceed summarily to the determination of the issue so raised and shall order arbitration if found for the moving party; otherwise, the application shall be denied.
(b) On application, the court may stay an arbitration proceeding commenced or threatened on a showing that there is no agreement to arbitrate. Such an issue, when in substantial and bona fide dispute, shall be forthwith and summarily tried and the stay ordered if found for the moving party. If found for the opposing party, the court shall order the parties to proceed to arbitration.
(c) If an issue referable to arbitration under the alleged agreement is involved in an action or proceeding pending in a court having jurisdiction to hear applications under subsection (a) of this section, the application shall be made therein. Otherwise and subject to Sec. 29-5-318, the application may be made in any court of competent jurisdiction.
(d) Any action or proceeding involving an issue subject to arbitration shall be stayed if an order for arbitration or an application therefor has been made under this section or, if the issue is severable, the stay may be with respect thereto only. When the application is made in such action or proceeding, the order for arbitration shall include such stay.
(e) An order for arbitration shall not be refused on the ground that the claim in issue lacks merit or bona fides or because any fault or grounds for the claim sought to be arbitrated have not been shown.
In the instant case, the arbitration agreement contained in the contract is quite broad in providing for arbitration of "all claims, counter-claims, disputes and other matters in question between the parties hereto arising out of or relating to this agreement or the breach thereof...." Hayes asserts that a majority of jurisdictions that have considered such broad contractual arbitration provisions have held that if the alleged fraud in the inducement is directed to the contract as a whole and not merely to the arbitration provisions therein, the claim of fraudulent inducement is subject to arbitration and is not for trial in the courts. See Annotation, Claim of Fraud in Inducement of Contract as Subject to Compulsory Arbitration Clause Contained in Contract, 11 A.L.R.4th 774 (1982).
Illustrative of the arguments advanced by Hayes are Prima Paint Corp. v. Flood and Conklin Mfg. Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967) and Quirk v. Data Terminals Systems, Inc., 379 Mass. 762, 400 N.E.2d 858 (1980). In Quirk, the Court faced practically the same issue which we face in the instant case: 400 N.E.2d at 859. The Massachusetts arbitration statute, G.L. c. 251, provides in relevant part:
[A] provision in a written contract...
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