County of Middlesex v. Gevyn Construction Corp., No. 71-1175.

• Decision Date: 28 October 1971
• Docket Number: No. 71-1175.
• Citation: 450 F.2d 53
• Parties: COUNTY OF MIDDLESEX, Plaintiff, Appellant, v. GEVYN CONSTRUCTION CORP., Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

450 F.2d 53 (1971)

COUNTY OF MIDDLESEX, Plaintiff, Appellant, v. GEVYN CONSTRUCTION CORP., Defendant, Appellee.

No. 71-1175.

United States Court of Appeals, First Circuit.

October 28, 1971.

Henry Paul Monaghan, Boston, Mass., with whom John Paul Sullivan, Foley, Hoag & Eliot, R. Robert Popeo, John P. Birmingham, Jr., and Mintz, Levin, Cohn & Glovsky, Boston, Mass., were on brief, for appellant.

Leslie A. Hynes, New York City, with whom Hynes & Diamond, New York City, Joseph T. Fahy, Cornelius J. Moynihan, Jr., Peabody, Brown, Rowley & Storey, Boston, Mass., William D. Powers, New York City, and Robert J. Stern, Mamaroneck, N. Y., were on brief, for appellee.

Before ALDRICH, Chief Judge, McENTEE and COFFIN, Circuit Judges.

COFFIN, Circuit Judge.

This issue arises, one of many, from a singularly unhappy contract to construct a courthouse for the County of Middlesex by Gevyn Construction Corp. After mounting difficulties in the spring of 1970, when the parties negotiated concerning a claim by Gevyn for damages for delay occasioned by additional work, each party's dissatisfaction with the other mounted to the point where Gevyn threatened to and allegedly did suspend work on the project and the County terminated its contract with Gevyn. The County sued in the Massachusetts Superior Court, seeking a declaration that it was not obligated to arbitrate a number of matters pending before the American Arbitration Association, including the two at issue here—one being Gevyn's claim for delay damages and the other being its claim that the County wrongfully terminated the contract.

Gevyn removed the case to federal district court on diversity grounds. Eventually the County moved for a summary judgment that it was not required to arbitrate, while Gevyn moved for an order compelling arbitration and an injunction restraining the County from expending any of the unpaid balance for construction of the courthouse. The court granted neither summary judgment nor injunctive relief, but ordered the County to proceed with arbitration, meanwhile staying further judicial proceedings.

The County relies on two grounds to support its resistance to arbitration: (1) since it is prohibited by law from incurring liability in excess of legislatively authorized amounts, arbitration would be a futile act; and (2) since Gevyn allegedly committed a material breach of contract by stopping work, the arbitration clause itself should be treated as having been rescinded. Neither contention, in our view, has merit or warrants extended discussion.

The County's first argument, stripped to essentials, is simply that the maximum amount it could be forced to pay Gevyn is the contract price, excluding any damages for delay or termination. It cites statutes (Mass.G.L. c. 34 § 14 and c. 35 § 32) confining county expenditures and assumption of liabilities to amounts authorized or appropriated, and cases such as Adams v. County of Essex, 205 Mass. 189, 91 N.E. 557 (1910) voiding county contracts exceeding statutory authorization. While the obligating and spending authority of governmental units or departments is obviously dependent on proper authorization, suffice it here to say that we distill no such principle of inherent illegality in governmental units subscribing to arbitration clauses in construction contracts as would prompt us to enjoin arbitration. Cf. Dickstein v. DuPont, 443 F.2d 783 (1st Cir. 1971). Indeed, it has been held by implication that a Massachusetts town can enter a contract which provides for dispute settlement by arbitration rather than by lawsuit, M. S. Kelliher Co. v. Wakefield, 346 Mass. 645, 195 N.E.2d 330 (1964). We see no reason why the same rule would not be applied to counties. Even if there were no legal obligation binding the County to pay damages over and above the contract price, such would not render arbitration a "futile" act. The County, assuming that termination of the contract was justifiable, has, under the General Conditions (Article 14) the rights to offset the cost of completion and to recover any excess over the unpaid balance. Or an award in favor of Gevyn might involve an amount not in excess of the authorized price. Or, given the arbitrator's decision, the proper authorities might see fit to honor the award. In short, we think the legal obstacles sought to be raised by the County are premature and are no sufficient basis for refusing to arbitrate if the agreement to arbitrate still stands.

The County's second argument is made in the face of a broad arbitration clause,¹ covering "all claims, disputes and other matters in question arising out of, or relating to this Contract or the breach thereof", excepting only decisions of the architect relating to artistic effect and claims waived by the making or accepting of final payment. An additional subparagraph of the clause also contains an undertaking by the contractor to "carry on the work and maintain the progress schedule during any arbitration proceeding."

The pertinent federal arbitration statutes, not claimed to differ significantly from Mass.G.L. c. 251 §§ 1 and 2(a), are 9 U.S.C. §§ 2 and 4. Section 2 states that a written agreement to arbitrate is enforceable, "save upon such grounds as exist at law or in equity for the revocation of any contract." Section 4 requires a court to order arbitration "upon being satisfied that the making of the agreement or the failure to comply therewith is not in issue."

The County argues that (1) Gevyn's work stoppage was a material breach not only of the construction contract but of the arbitration clause itself; (2) that a material breach is a ground for revoking a contract; and (3) that therefore the arbitration clause is rendered...