Gemstone Builders Inc. v. Stutz

• Decision Date: 17 August 2011
• Docket Number: 160825106; A141847.
• Parties: GEMSTONE BUILDERS, INC., Plaintiff–Respondent,v.Jeff STUTZ and Jennifer Stutz, Defendants–Appellants.
• Court: Oregon Court of Appeals

245 Or.App. 91

261 P.3d 64

GEMSTONE BUILDERS, INC., Plaintiff–Respondent,

v.Jeff STUTZ and Jennifer Stutz, Defendants–Appellants.

160825106; A141847.

Court of Appeals of Oregon.

Argued and Submitted Aug. 12, 2010.Decided Aug. 17, 2011.

George W. Kelly, Eugene, argued the cause and filed the brief for appellants.Joel DeVore, Eugene, argued the cause for respondent. With him on the brief was Luvaas Cobb.Before ORTEGA, Presiding Judge, and SERCOMBE, Judge, and LANDAU, Judge Pro Tempore.ORTEGA, P.J.

Defendants appeal the denial of their petition to compel arbitration. ORS 36.730(1)(a). Because we conclude that the contract between plaintiff and defendants requires binding arbitration of their disputes, we reverse and remand.

The facts in the record are few. Plaintiff, a contractor, sued defendants, who had hired plaintiff to build a house for them. Plaintiff asserted claims for breach of contract, unjust enrichment, and fraud.

The contract between plaintiff and defendants includes several provisions that address the resolution of disputes. For ease of reference, we assign numbers to the pertinent paragraphs and letters to certain clauses of the contract, which contains no internal headings. In a paragraph concerning plaintiff's warranty of materials and workmanship (paragraph 1), the contract provides, “In the event of a bona fide dispute as to repair or replacement, the parties shall submit such dispute to arbitration prior to initiation of any suit or other actions at law and under the terms set forth hereinafter.” The next paragraph (paragraph 2) includes a provision that defendants “agree[ ] not to file any claims, warranty or otherwise, prior to allowing [plaintiff] the opportunity to correct the defect or resolve the claim.” After paragraphs addressing insurance, selection of materials, change orders, and other matters, the contract contains a paragraph (paragraph 3) stating that, if defendants fail to make payments or otherwise fail to comply with the contract terms, “then [plaintiff] shall have the right to declare the entire unpaid balance of the purchase price to be immediately due and payable, and to pursue any remedy afforded [plaintiff] at law or in equity for strict foreclosure.” Two paragraphs later, the contract contains this paragraph (paragraph 4):

“[ (a) ] In case suit, action or arbitration is instituted by either party hereto to enforce any provision hereof, the prevailing party in such suit, action or arbitration shall, in addition to the relief granted, be entitled to an award and judgment for such as the trial and each appellate court may adjudge reasonable in such court as an attorney's fee in such claim for relief, action or other proceeding, and in any appeal thereof. [ (b) ] Such sum shall include a reasonable amount as and for costs and attorney's fees to be incurred by the prevailing party in collecting any monetary judgment or decree entered in such claim for relief, action or other proceeding. [ (c) ] If there is cause for suit, dispute, or action, both parties agree to submit to arbitration under the rules and laws of the State of Oregon prior to entering into the case of suit. [ (d) ] In any case, the losing party shall bear the entire expense of arbitration for both parties. The decision from arbitration will be binding on both parties.”

The parties do not cite any other provisions that bear on the arbitration issue.¹

After plaintiff filed its complaint, defendants moved to dismiss and petitioned the trial court to order arbitration. Defendants argued that, under the contract, disputes at least had to be submitted to arbitration before the filing of any action and that it was questionable whether any action could be filed at all. In their petition, defendants stated that the contract was drafted by plaintiff, but they offered no evidence on that point. The only evidence that they offered was an affidavit describing their efforts to initiate arbitration and plaintiff's failure to participate. Plaintiff responded that the contract provisions concerning arbitration were irreconcilably contradictory and thus unenforceable. At the hearing on defendants' motion, neither party presented any evidence, although defendants' attorney suggested that “the court could ask for an evidentiary hearing on this.” The trial court denied defendants' motion.

Defendants appeal. They contend that the parties agreed to binding arbitration and that, although the contract does not provide much detail about the arbitration, the Oregon Uniform Arbitration Act fills the gaps in the parties' agreement. In defendants' view, paragraph 4 provides for attorney fees if either party files suit, regardless of whether the circuit court is the appropriate forum for trial, but also establishes that the case must be tried before an arbitrator, whose decision is binding. Indeed, defendants contend that, when read in context, the contract unambiguously requires arbitration. In the alternative, they argue, the contract is ambiguous.

Plaintiff responds that the arbitration provision is “too indefinite to be enforceable,” because it allows for the alternatives of litigation or arbitration but also provides that arbitration is binding. In the alternative, plaintiff proposes that the contract requires arbitration only in limited circumstances—namely, when a dispute arises as to repair or replacement under paragraph 1—and allows all other claims to be pursued through litigation.

The contract is surely not a model of clarity. Nevertheless, we conclude that it unambiguously requires the parties to arbitrate their disputes; the ambiguity lies in whether such arbitration is binding. Contrary to plaintiff's contention, that ambiguity does not render the arbitration provisions unenforceable. Rather, we follow ordinary principles of contract interpretation and, lacking any extrinsic evidence of the parties' intent, we resolve the ambiguity by applying maxims of construction that favor arbitrability.

We begin with the principles governing interpretation of an arbitration provision. Issues concerning the existence of an agreement to arbitrate and whether a controversy is subject to an agreement to arbitrate are for the court to decide. ORS 36.620(2).² The court must decide the issues of arbitrability “summarily”—that is, “expeditiously and without a jury,” Greene v. Salomon Smith Barney, Inc., 228 Or.App. 379, 385, 209 P.3d 333, rev. den., 347 Or. 348, 222 P.3d 29 (2009)—and order arbitration “unless it finds that there is no enforceable agreement to arbitrate,” ORS 36.625(1)(b).

To interpret an arbitration clause, we apply ordinary principles of contract interpretation, subject to a presumption in favor of arbitrability. Livingston v. Metropolitan Pediatrics, LLC, 234 Or.App. 137, 146–47, 227 P.3d 796 (2010). Thus, we begin by examining the disputed provisions in the context of the contract as a whole; if the contract is unambiguous, we construe it as a matter of law. Yogman v. Parrott, 325 Or. 358, 361, 937 P.2d 1019 (1997).

“A contract is ambiguous if it is susceptible to more than one reasonable interpretation. Batzer Construction, Inc. v. Boyer, 204 Or.App. 309, 313, 129 P.3d 773, rev. den., 341 Or. 366

[143 P.3d 239]

(2006). If a contract's provisions are mutually inconsistent regarding a subject, the contract is ambiguous as to that subject, Alpine Mountain Homes v. Bear Creek Homes, 202 Or.App. 390, 398, 122 P.3d 111 (2005); Portland Fire Fighters' Assn. v. City of Portland, 181 Or.App. 85, 91, 45 P.3d 162, rev. den., 334 Or. 491

[52 P.3d 1056]

(2002), unless the provisions can be reconciled in reading the contract as whole. See Yogman, 325 Or. at 361 .”

Madson v. Oregon Conf. of Seventh–Day Adventists, 209 Or.App. 380, 384, 149 P.3d 217 (2006). If the contract is ambiguous after an examination of its text in context, we consider extrinsic evidence of the contracting parties' intent. Yogman, 325 Or. at 363, 937 P.2d 1019. If the contract remains ambiguous after examination of any extrinsic evidence, we apply appropriate maxims of construction. Id. at 364, 937 P.2d 1019.

Accordingly, we begin with the text of the contract. For ease of discussion, we address plaintiff's proposed construction first. Plaintiff argues that the contract's provisions can be harmonized by reading paragraph 1 to limit the scope of arbitration to disputes about repair or replacement, paragraph 3 to allow plaintiff to pursue its remedies through litigation, and paragraph 4 to address procedural matters only. Plaintiff's construction, however, cannot be squared with the text of the contract.

Neither paragraph 1 nor paragraph 3, when viewed in context of the contract as a whole, defines the scope of claims subject to arbitration. Although paragraph 1 provides for arbitration of disputes over repair or replacement, nothing in paragraph 1 indicates that, contrary to the broad scope of the arbitration provisions of paragraph 4, paragraph 1 identifies the only disputes that are subject to arbitration. Nor does paragraph 3 direct that other disputes be litigated; rather, it provides that, if defendants fail to make payments or otherwise breach the contract, plaintiff may “pursue any remedy afforded [plaintiff] at law or in equity for strict foreclosure.” That paragraph addresses the scope of plaintiff's remedies, not the forum for pursuing such remedies; it does not indicate that plaintiff has a right to litigate such claims. See ORS 36.695(3) (providing that, subject to provisions regarding punitive damages and attorney fees, “an arbitrator may order such remedies as the arbitrator considers just and appropriate under the circumstances of the arbitration proceeding”).

Paragraph 4(c) contains a broad arbitration clause, which provides that the parties agree to arbitration “[i]f there is cause for suit, dispute, or action.” That broad arbitration provision makes paragraph 1 somewhat redundant: There is no need to specifically provide...