Cyclone Roofing Co., Inc. v. David M. LaFave Co., Inc.

• Decision Date: 06 November 1984
• Docket Number: No. 181A84,181A84
• Citation: 312 N.C. 224,321 S.E.2d 872
• Parties: CYCLONE ROOFING COMPANY, INC., Plaintiff, v. DAVID M. LAFAVE COMPANY, INC., Defendant, and Joseph C. FRYE and Emma Gray Frye, Defendants and Third-Party Plaintiffs, v. David M. LAFAVE, Third-Party Defendant.
• Court: North Carolina Supreme Court

Page 872

321 S.E.2d 872

312 N.C. 224

CYCLONE ROOFING COMPANY, INC., Plaintiff, v. DAVID M. LAFAVE COMPANY, INC., Defendant, and Joseph C. FRYE and Emma Gray Frye, Defendants and Third-Party Plaintiffs, v. David M. LAFAVE, Third-Party Defendant.

No. 181A84.

Supreme Court of North Carolina.

Nov. 6, 1984.

Horack, Talley, Pharr & Lowndes, P.A. by Robert C. Stephens and Susan Christman, Charlotte, for David M. LaFave Company, Inc., defendant.

Mraz & Boner by John A. Mraz and Richard D. Boner, Charlotte, for Joseph C. Frye and Emma Gray Frye, defendants and third-party plaintiffs.

MARTIN, Justice.

By contract dated 2 May 1978 Joseph C. Frye, Jr. and Emma Gray Frye (Fryes) engaged the services of David M. LaFave Company (LaFave Company) to build a house. David M. LaFave (LaFave) is president of LaFave Company. The contract price of $191,000 included a contractor's fee of $20,000, and the contract specified that construction of the house was to be completed by 15 May 1979.

During construction of the house disagreements arose among the parties concerning progress of the work, quality of worksite supervision, installation of fixtures and flooring, and other aspects of construction. Negotiations between counsel for each of the parties failed to resolve the dispute satisfactorily, and on 24 September 1979 LaFave Company notified the Fryes that it was ceasing work under the contract. On 18 October 1979 LaFave Company filed a claim of lien against the property. Thereafter the Fryes spent more than $60,000 to complete the house and correct defective work. While this further construction was being carried out, counsel for the Fryes and LaFave Company continued to correspond, trying to resolve outstanding differences in the parties' contentions. Although the contract between the Fryes and LaFave Company provided for arbitration of problems arising out of the contract, neither side demanded arbitration while these negotiations were going on.

On 5 March 1980 Cyclone Roofing Company, Inc. (Cyclone), a subcontractor of LaFave Company, filed this action against LaFave Company and the Fryes in Mecklenburg County District Court. On 7 July 1980 LaFave Company answered the complaint and crossclaimed against the Fryes for breach of the construction contract. The crossclaim alleged that LaFave Company had performed its duties under the contract and that the Fryes owed the company a balance of $47,449.27. The crossclaim included a demand for jury trial. On 9 July 1980 the Fryes filed an answer to the Cyclone complaint and a crossclaim against LaFave Company. The Fryes' crossclaim alleged that LaFave Company breached the contract, causing damages of $50,000. The Fryes' answer also included a third-party claim against LaFave individually, alleging negligence resulting in damages of $50,000. The Fryes demanded a jury trial. On 14 July 1980 the Fryes answered the LaFave Company crossclaim, denying that the company had performed under the contract and denying that any balance was due. On 11 August 1980 LaFave Company and LaFave filed an answer to the Fryes' crossclaim and third-party complaint, alleging for the first time that the dispute between the parties was subject to mandatory arbitration pursuant to the contract. On the same date LaFave Company and LaFave individually also filed a motion to stay litigation pending arbitration. The Fryes filed affidavits and a memorandum in opposition to this motion, denying that arbitration was mandatory and that it was the exclusive remedy for resolving disputes under the contract. The Fryes also contended that LaFave Company had waived any right to demand arbitration.

On 18 November 1980 District Court Judge L. Stanley Brown entered an order staying litigation between LaFave Company and the Fryes while they arbitrated their differences in accordance with the terms of the contract. In its discretion the court also stayed litigation between the Fryes and LaFave individually pending the outcome of arbitration between the Fryes and LaFave Company. The Fryes appealed the district court's order that they proceed to arbitration; this appeal was dismissed by the Court of Appeals. On 24 November 1980 the case was properly transferred to the Mecklenburg County Superior Court. ¹

In accordance with the contract, LaFave Company and the Fryes first submitted their dispute to the architect of the project. The architect determined that the Fryes had not breached the construction contract and ordered that because of LaFave Company's breach, LaFave Company was to pay the Fryes $32,500.01. ² Pursuant to the contract, LaFave Company appealed this award to an arbitrator, and arbitration was conducted under the Construction Industry Arbitration Rules of the American Arbitration Association. The arbitrator ordered the Fryes to pay LaFave Company $37,094.27, without any offset for the amount awarded to the Fryes by the architect.

Pursuant to N.C.G.S. 1-567.12, LaFave Company properly applied for confirmation of this award by the superior court. Upon motion of the Fryes the superior court ordered the arbitrator to clarify his award. After reviewing the arbitrator's clarification of his findings, calculations, and conclusions, the superior court confirmed the award. From this order and judgment the Fryes appealed to the Court of Appeals. N.C.Gen.Stat. § 1-567.18(a)(3) (1983). They also renewed their appeal from the order of the district court directing the parties to pursue arbitration under the contract. A divided panel of the Court of Appeals vacated the award of the arbitrator, holding that the district court erred in ordering arbitration. LaFave Company appealed the decision of the Court of Appeals to this Court pursuant to N.C.G.S. 7A-30(2). LaFave Company's petition for discretionary review of the question whether the superior court erred by confirming the arbitration award was allowed 6 July 1984.

We now turn to an analysis of the questions arising upon the foregoing facts. The first issue for consideration is whether the Court of Appeals erred in holding that as a matter of law both parties waived the arbitration agreement contained in the construction contract. We hold that the court did so err, and we reverse.

N.C.G.S. 1-567.2(a) provides:

Two or more parties may agree in writing to submit to arbitration any controversy existing between them at the time of the agreement, or they may include in a written contract a provision for the settlement by arbitration of any controversy thereafter arising between them relating to such contract or the failure or refusal to perform the whole or any part thereof. Such agreement or provision shall be valid, enforceable, and irrevocable except with the consent of all the parties, without regard to the justiciable character of the controversy.

The contract between the Fryes and LaFave Company contained a provision stating that if any dispute arose between the parties it would first be submitted for decision to the architect for the project. After the architect rendered a decision, the claim or dispute involved "shall be subject to arbitration upon the written demand of either party." Under N.C.G.S. 1-567.2(a) this provision was enforceable and irrevocable except with the consent of both the Fryes and LaFave Company.

N.C.G.S. 1-567.3(a) provides in pertinent part that "[o]n application of a party showing an agreement described in G.S. 1-567.2; and the opposing party's refusal to arbitrate, the court shall order the parties to proceed with arbitration ...." N.C.G.S. 1-567.3(c) provides in part that "[i]f 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." Under these statutes LaFave Company properly applied to the District Court of Mecklenburg County for an order directing arbitration. In opposition to LaFave Company's motions the Fryes alleged that LaFave Company had waived its right to arbitrate by having filed pleadings concerning the dispute and by having negotiated informally for two years in an effort to come to agreement. We agree with the district court that by these actions LaFave Company did not waive its right to have the controversy arbitrated. See, e.g., ATSA of California, Inc. v. Continental Ins. Co., 702 F.2d 172 (9th Cir.1983). See generally Annot., 98 A.L.R.3d 767, 781-93 (1980 & Supp.1984). The court properly ordered the parties to arbitrate under the terms of the contract.

Waiver of a contractual right to arbitration is a question of fact. E.g., Davis v. Blue Cross of Northern California, 25 Cal.3d 418, 158 Cal.Rptr. 828, 600 P.2d 1060 (1979); Doers v. Golden Gate Bridge, Etc., Dist., 23 Cal.3d 180, 151 Cal.Rptr. 837, 588 P.2d 1261 (1979). Because of the strong public policy in North Carolina favoring arbitration, see N.C.Gen.Stat. § 1-567.3 (1983); Thomas v. Howard, 51 N.C.App. 350, 355-56, 276 S.E.2d 743, 747 (1981), courts must closely scrutinize any allegation of waiver of such a favored right. See Keating v. Superior Court, 31 Cal.3d 584, 183 Cal.Rptr. 360, 645 P.2d 1192 (1982), dismissed in part and rev'd in part on other issues sub nom. Southland Corp. v. Keating, --- U.S. ----, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984); Doers v. Golden Gate Bridge Etc. Dist., 23 Cal.3d 180, 151 Cal.Rptr. 837, 588 P.2d 1261. See also Moses H. Cone Hospital v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 941-942, 74 L.Ed.2d 765, 785 (1983) ("[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability."). Because of the reluctance to find waiver, we hold that a party has impliedly waived ³ its contractual right to arbitration if by its delay or by actions it takes which are...