Dunn Indus. Group v. City of Sugar Creek

• Decision Date: 26 August 2003
• Docket Number: No. SC 85024.,SC 85024.
• Parties: DUNN INDUSTRIAL GROUP, INC., Dunn Industries, Inc., Respondents, v. CITY OF SUGAR CREEK, Missouri, et al., Defendants, LAFARGE CORPORATION, et al., Appellants.
• Court: Missouri Supreme Court

112 S.W.3d 421

DUNN INDUSTRIAL GROUP, INC., Dunn Industries, Inc., Respondents, v. CITY OF SUGAR CREEK, Missouri, et al., Defendants, LAFARGE CORPORATION, et al., Appellants.

No. SC 85024.

Supreme Court of Missouri, En Banc.

August 26, 2003.

Christopher J. Daus, Andrew W. Manuel, St. Louis, Kirk T. May, William D. Beil, Jerome T. Wolf, J. Bradley Leitch, Brian W. Fields, Kansas City, for Appellant.

Roy Bash, G. Edgar James, Kansas City, for Respondent.

PER CURIAM.¹

Lafarge Corporation and the city of Sugar Creek, Missouri, executed a lease agreement in October 1998. Lafarge contracted with Dunn Industrial Group, Inc. (DIG) for the design and construction of a new cement plant, known as the Sugar Creek II Cement Plant. Lafarge and DIG agreed to design and build the cement plant. Dunn Industries, Inc. (Dunn), DIG's parent company, signed a contract guaranty guaranteeing DIG's performance of its obligations under the construction contract with Lafarge. The construction contract between Lafarge and DIG contained an arbitration clause. The parties agreed to an October 4, 2000, change order.

Disputes arose, and litigation followed. In March 2001, DIG filed three separate mechanic's lien claims against the property. Shortly thereafter, DIG filed its petition against Lafarge and the city of Sugar Creek, which included counts to foreclose its mechanic's lien claims. Kansas City Electrical Supply Company then filed an equitable mechanic's lien action in Jackson County Circuit Court concerning the same property on June 4. Upon a joint motion by the parties, the trial court properly consolidated the case filed by DIG with the equitable mechanic's lien action under section 429.300.² Lafarge sought arbitration and filed a motion to stay litigation and compel arbitration. Dunn and DIG sought to stay arbitration. The trial court overruled Lafarge's motion to compel arbitration, sustained Dunn and DIG's joint motion to stay arbitration, and overruled Lafarge's motion to stay litigation.

The appeal of that portion of the judgment overruling the motion to stay litigation is dismissed as moot. Otherwise, the judgment is affirmed in part and reversed in part, and the case is remanded.

Jurisdiction to Appeal Orders Denying or Staying Arbitration

Lafarge appeals the trial court's judgment denying its motion to compel arbitration and granting Dunn and DIG's joint motion to stay arbitration. It also appeals the trial court's overruling of its motion to stay litigation.

The right to appeal is purely statutory, and where a statute does not give a right to appeal, no right exists. Farinella v. Croft, 922 S.W.2d 755, 756 (Mo. banc 1996). Section 435.400.1, a part of the Missouri Uniform Arbitration Act, expressly grants the right to appeal orders denying an application to compel arbitration or granting an order to stay arbitration.

Arbitrability of Claims Raised in DIG's Petition Against Lafarge

Lafarge claims that the trial court erred in denying its motion to compel arbitration because: (1) all of the disputes and claims asserted by DIG fall within the scope of the broad, mandatory arbitration provision of the construction contract; (2) the parties' October change order did not modify, rescind, or otherwise change the arbitration provision of the construction contract; and (3) enforcement of the arbitration provision is not barred by Missouri's equitable mechanic's lien statutes.

Arbitration Provision of Construction Contract

The Federal Arbitration Act (FAA) evinces a liberal policy favoring arbitration agreements so that disputes might be resolved without resort to the courts. Greenwood v. Sherfield, 895 S.W.2d 169, 173 (Mo.App.1995). Before a party may be compelled to arbitrate under the FAA, a court must determine whether a valid agreement to arbitrate exists between the parties and whether the specific dispute falls within the substantive scope of that agreement. Houlihan v. Offerman & Co., Inc., 31 F.3d 692, 694-95 (8th Cir. 1994). A court must compel arbitration if it determines that the parties agreed to arbitrate the dispute. Id. at 695.

The usual rules and canons of contract interpretation govern the subsistence and validity of an arbitration clause. Village of Cairo v. Bodine Contracting Co., 685 S.W.2d 253, 258 (Mo.App.1985). Whether a dispute is covered by an arbitration provision is relegated to the courts as a question of law. Drake Bakeries, Inc. v. Local 50, 370 U.S. 254, 256, 82 S.Ct. 1346, 8 L.Ed.2d 474 (1962). An appellate court's review of the arbitrability of a dispute is de novo. Fru-Con Constr. Co. v. Southwestern Redevelopment Corp. II, 908 S.W.2d 741, 743-44 (Mo.App.1995).

In construing arbitration clauses, courts have categorized such clauses as "broad" or "narrow." McCarney v. Nearing, Staats, Prelogar & Jones, 866 S.W.2d 881, 889 (Mo.App.1993). A broad arbitration provision covers all disputes arising out of a contract to arbitrate; a narrow provision limits arbitration to specific types of disputes. Id.

The June 1999 construction contract between Lafarge and DIG contained a broad arbitration clause:

Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.

All of the claims in DIG's petition arise out of or relate to the construction contract. The counts involve allegations of extra work or additions or changes to DIG's scope of work under the construction contract. The underlying claims sought to be enforced by mechanic's lien also arise out of the parties' construction contract. Resolution of DIG's claims requires an examination of Lafarge and DIG's respective obligations and performance under the construction contract. DIG's claims against Lafarge fall within the substantive scope of the parties' arbitration agreement.

October Change Order

DIG concedes that the original construction contract between it and Lafarge contained an arbitration agreement. The parties dispute the effect of the October 2000 change order.

The cardinal principle of contract interpretation is to ascertain the intention of the parties and to give effect to that intent. Butler v. Mitchell-Hugeback, Inc., 895 S.W.2d 15, 21 (Mo. banc 1995). The terms of a contract are read as a whole to determine the intention of the parties and are given their plain, ordinary, and usual meaning. Id.; City of Harrisonville v. Public Water Supply Dist. No. 9 of Cass County, 49 S.W.3d 225, 231 (Mo.App.2001). Additionally, each term of a contract is construed to avoid rendering other terms meaningless. City of Harrisonville, 49 S.W.3d at 231. A construction that attributes a reasonable meaning to all the provisions of the agreement is preferred to one that leaves some of the provisions without function or sense. Id.

A contract is ambiguous only if its terms are susceptible to fair and honest differences. Helterbrand, 48 S.W.3d at 658. A contract is not ambiguous merely because the parties disagree as to its construction. Id. Where the language of a contract is unambiguous, the intent of the parties is to be gathered from the contract alone, and a court will not resort to construction where the intent of the parties is expressed in clear, unambiguous language. City of Harrisonville, 49 S.W.3d at 230. Extrinsic evidence may not be introduced to vary or contradict the terms of an unambiguous agreement or to create an ambiguity. Helterbrand, 48 S.W.3d at 658.

The October change order incorporated all terms and conditions of the June 1999 construction contract to the extent those terms did not conflict with terms of the change order. Paragraph III.D. of the change order also provided:

Lafarge and DIG agree to first attempt to resolve the items marked on the PCO List by negotiation; however, either party, at any time, may resort to their respective contract remedies or remedies as provided by law.

DIG claims that the provision permitting a party to pursue its "remedies as provided by law" permits a party to proceed with a civil action in a court of law, thereby modifying or partially rescinding the arbitration provision in the original construction contract.

Mutual rescission of a contract must be clear, positive, unequivocal, and decisive, and it must manifest the parties' actual intent to abandon contract rights. AAA Uniform and Linen Supply, Inc. v. Barefoot, Inc., 17 S.W.3d 627, 629 (Mo. App.2000). Language excluding certain disputes from arbitration must be clear and unambiguous or unmistakably clear. Genesco, Inc. v. T. Kakiuchi & Co., Ltd., 815 F.2d 840, 847 (2d Cir.1987). Where an arbitration clause is broad and contains no express provision excluding a particular grievance from arbitration, only the most forceful evidence of a purpose to exclude the claim from arbitration can prevail. United Steelworkers of Am., 363 U.S. at 584-585, 80 S.Ct. 1347. A motion to compel arbitration of a particular dispute should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. Id. at 582-83, 80 S.Ct. 1347. Doubts as to arbitrability should be resolved in favor of coverage. Id. at 583, 80 S.Ct. 1347.

Paragraph III.D. of the October change order is not ambiguous and can be interpreted consistently with the broad mandatory arbitration provision of the original construction contract. The "contract remedies" clause requires Lafarge or DIG to submit any controversy or claim arising out of or relating to the construction contract to arbitration. The "remedies as provided by law" clause indicates that the parties reserve other unspecified rights or remedies that do not nullify or are not inconsistent with their obligation to arbitrate. See, e.g., Dickson...