Ex parte Costa and Head (Atrium), Ltd.

• Decision Date: 14 March 1986
• Citation: 486 So.2d 1272
• Parties: Ex parte COSTA AND HEAD (ATRIUM), LTD., et al. (In re: COSTA AND HEAD (ATRIUM), LTD. v. DUNCAN, INC., et al. and Duncan, Inc. v. COSTA AND HEAD (ATRIUM), LTD., et al.) 85-140.
• Court: Alabama Supreme Court

Page 1272

486 So.2d 1272

Ex parte COSTA AND HEAD (ATRIUM), LTD., et al.

(In re: COSTA AND HEAD (ATRIUM), LTD. v. DUNCAN, INC., et al. and Duncan, Inc. v. COSTA AND HEAD (ATRIUM), LTD., et al.)

85-140.

Supreme Court of Alabama.

March 14, 1986.

J. Ross Forman, III, and Robert H. Rutherford, of Thomas, Taliaferro, Forman, Burr & Murray, Birmingham, for petitioners.

Charles E. Sharp and W. Lee Thuston, of Sadler, Sullivan, Sharp & Stutts, Birmingham, for respondents.

ADAMS, Justice.

This mandamus proceeding arises out of a lawsuit involving a dispute over a construction contract and directly involves an arbitration agreement. From an order enjoining arbitration, petitioner seeks a writ of mandamus requiring the Jefferson County Circuit Court to reverse its order and stay circuit court proceedings pending arbitration. The writ is hereby granted.

Petitioners are Costa and Head Land Co., Ltd., Costa and Head (Birmingham One), Ltd., Costa and Head (Atrium), Ltd., Pedro C. Costa, Nelson Head, and Beverly Head. Costa and Head (Atrium), Ltd., is the owner and developer of a Birmingham office development called "The Atrium." Costa and Head (Birmingham One), Ltd., and Costa and Head Land Co., Ltd., are general partners of Costa and Head (Atrium), Ltd. Pedro C. Costa and Nelson Head are partners of all three limited partnerships listed above, and Beverly Head is a general partner of Costa and Head Land Co., Ltd. In addition, Costa is the project architect.

Respondents are Duncan, Inc., general contractor for the Atrium project; John B. Pike & Son, Inc., the parent company of Duncan, Inc., and a guarantor of Duncan, Inc.'s performance; and Reliance Insurance Company, a surety of Duncan, Inc.'s, performance.

On June 26, 1984, Costa and Head (Atrium), Ltd., as owner, and Duncan, Inc., as general contractor, executed a standard American Institute of Architects construction contract and a handwritten addendum thereto. Article Seven, Section 9.1, of the standard contract provides that "All claims, disputes and other matters in question between the contractor and the owner arising out of, or relating to, the contract documents or the breach thereof ... shall be decided by arbitration."

Disputes arose between Costa and Head (Atrium), Ltd. (hereinafter referred to as "Costa and Head"), and Duncan during the course of construction relating to construction plans and specifications, workmanship, payment to subcontractors, and other matters.

On April 9, 1985, Costa and Head notified Duncan that it would exercise its contractual right to terminate Duncan and hold Duncan liable for the costs of completing the construction unless certain alleged defaults and breaches under the contract were corrected by April 17, 1985.

On April 10, 1985, Costa and Head filed a complaint in circuit court, seeking to gain access to project records of "The Atrium" that were in Duncan's control.

On April 12, 1985, Duncan sued petitioners in circuit court for $5,500,000.00, alleging breach of the construction contract, fraud, negligence, and wrongful termination. (CV 85-2180).

On April 18, 1985, Costa and Head terminated Duncan and filed suit against Duncan in circuit court for $1,000,000.00, alleging breach of contract and fraud. (CV 85-2329). In Count Five of its complaint, Costa and Head requested a court order requiring that all parties submit to arbitration and staying circuit court proceedings in this suit and Duncan's suit pending arbitration of all arbitrable issues. Costa and Head expressly stated in its complaint that by filing suit it did not waive its right to arbitrate all arbitrable issues.

On April 18 or 19, Costa and Head filed a demand with the American Arbitration Association, requesting arbitration of all claims. Duncan declined to submit to arbitration. Costa and Head refiled its demand on April 29, 1985.

Between March 6, 1985, and November 18, 1985, 29 subcontractors and materialmen filed suit for amounts owing and due for materials or work performed on the Atrium project. Each suit named some or all of the petitioners and respondents as defendants. Various cross-claims and third-party complaints were filed in these actions.

On May 23, 1985, all petitioners moved the trial judge to stay cases CV 85-2180 and CV 85-2329 pending arbitration and to compel arbitration of all arbitrable issues. The trial judge denied petitioners' motion to stay the circuit court proceedings pending arbitration and enjoined the pending arbitration proceedings on September 27, 1985. In a pertinent portion of his order, the trial judge stated:

There is no dispute between Costa and Head, Ltd., as partners, and Duncan, Inc., as builder, that they are subject to a provision in the contract entered into between them, which calls for arbitration in the event of disputes. There is some dispute as to whether other named parties are subject to arbitration. Duncan, Inc., makes much of the fact that Costa, in addition to being an owner, is also the architect for this project, and questions whether or not in that capacity, he is subject to binding arbitration.... The court finds itself concerned as to the ability of arbitrators to adjudicate the amount of the various suppliers' and subcontractors' claims so as to bind these materialmen and subs and to preclude them from proceeding with the various civil actions which are currently pending and others which are conceivably to be filed in this court. The court envisions the possibility of arbitrators reaching a decision as to amounts owing to these subs and/or materialmen and the responsibility for payment as between the principals in this litigation, with the possibility remaining that the affected subs and materialmen might wish to proceed with the civil litigation with a substantially different result possible other than that reached by the arbitrators. This concern causes the court to deny Costa and Head (Atrium), Ltd., a limited partnership's, motion....

Costa and Head argue that the arbitration agreement at issue is governed by the Federal Arbitration Act, 9 U.S.C. § 1 et seq., and that pursuant to Section 3 of the Act, the trial court has no discretion to stay arbitration on the grounds stated in its order. ¹ Duncan contends that its contract with Costa and Head is not subject to the Act because the contract does not evidence a transaction involving commerce. Furthermore, Duncan argues that both the threat of inconsistent results due to a lack of necessary parties in the arbitration proceedings and the existence of non-arbitrable issues are sufficient grounds for the trial court's order. Finally, Duncan asserts several grounds which it contends makes the arbitration clause between the parties non-binding.

We must first determine whether the Federal Arbitration Act applies to this case. We note that the application of the FAA in this case is controlled by principles of "substantive federal law." E.C. Ernst, Inc. v. Manhattan Const. Co., 551 F.2d 1026, 1040 (5th Cir.1977). For the FAA to be applicable, there must be (1) an agreement in writing calling for arbitration and (2) a transaction involving interstate commerce evidenced by the written agreement. Bernhardt v. Polygraphic Co., 350 U.S. 198, 76 S.Ct. 273, 100 L.Ed. 199 (1956); American Home Assurance Co. v. Vecco Concrete Construction Co., 629 F.2d 961 (4th Cir.1980). We are of the opinion that both of these requirements have been met in the instant case; the record evidences a written agreement providing for arbitration and that agreement reflects a transaction involving interstate commerce. ²

The requirement of the FAA that an arbitration agreement "involve commerce" has been construed very broadly so that the slightest nexus of the agreement with interstate commerce will bring the agreement within the ambit of the FAA. See Snyder v. Smith, 736 F.2d 409 (7th Cir.1984), cert. denied, 469 U.S. 1037, 105 S.Ct. 513, 83 L.Ed.2d 403 (1985). In our case, the transaction involves the construction of a building located in Alabama. Costa and Head is a limited partnership partially composed of limited partners from states other than Alabama. Duncan's principal place of business is Knoxville, Tennessee, and Duncan's parent company, John B. Pike & Son, Inc., is a New York corporation with its primary place of business in Rochester, New York. In addition, some of the subcontractors and others hired to perform work on the project either reside, or were incorporated, in states other than Alabama. Finally, materials incorporated into the project were manufactured in states other than Alabama and transported into this state. This is sufficient evidence of the involvement of interstate commerce to bring the construction contract within the FAA.

Having held the FAA applicable to the case at hand, we now decide whether the trial court has discretion to stay arbitration proceedings because of concerns that arbitration may lead to inconsistent results due to the absence of parties involved in litigation. The recent holding of the United States Supreme Court in Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985), compels us to decide this issue in the negative. In Byrd, the Supreme Court opined:

[T]he Arbitration Act requires district courts to compel arbitration of pendent arbitrable claims when one of the parties files a motion to compel, even where the result would be the possibly inefficient maintenance of separate proceedings in different forums.

The Arbitration Act provides that written agreements to arbitrate controversies arising out of an existing contract "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. By its terms, the Act leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration...