Hercules & Co. v. Shama Restaurant

• Decision Date: 13 November 1989
• Docket Number: No. 87-1212.,87-1212.
• Citation: 566 A.2d 31
• Court: D.C. Court of Appeals
• Parties: HERCULES & COMPANY, LTD., Appellant, v. SHAMA RESTAURANT CORPORATION, et al., Appellees.

566 A.2d 31

HERCULES & COMPANY, LTD., Appellant, v. SHAMA RESTAURANT CORPORATION, et al., Appellees.

No. 87-1212.

District of Columbia Court of Appeals.

Argued March 29, 1989.

Decided November 13, 1989.

COPYRIGHT MATERIAL OMITTED

Steven J. Kramer, with whom Martin F. McMahon and Cynthia L. Clark were on the brief, for appellant.

Donna S. McCaffrey, with whom John B. Tieder, Jr. was on the brief, for appellee Shama Restaurant Corp.

Warrick R. Furr, II, with whom Kenneth M. Willner was on the brief, for appellees Darrell Downing Rippeteau Architects, and Darrell Downing Rippeteau.

Before NEWMAN, BELSON, and SCHWELB, Associate Judges.

SCHWELB, Associate Judge:

I

THE CONTROVERSY

This case requires us to explore the "Byzantine peculiarities" of the law of appellate jurisdiction over arbitration orders, see New England Power Co. v. Asiatic Petroleum Corp., 456 F.2d 183, 189 (1st Cir. 19'72), and leads us through "the wilderness in which courts sometimes find themselves when searching for solutions to problems arising under the judicial nightmare known as Conflict of Laws." Forsyth v. Cessna Aircraft Co., 520 F.2d 608, 609 (9th Cir. 1975). Its genesis was a dispute over a construction project in Old Town, Alexandria, which went awry. Appellant Hercules & Co., Ltd. (Hercules) eventually walked off the job, claiming that appellees Shama Restaurant Corp. (Shama), for whom the work was being done,¹ and Darrell Downing Rippeteau (Rippeteau),² Shama's architect, had defrauded Hercules and had made it impossible for Hercules to perform. The predictable mutual recriminations which often accompany such events were followed inexorably by the inevitable lawsuit which is now before us.

In its comprehensive amended complaint, which consists of fifteen separate counts and 174 paragraphs, Hercules seeks $1,750,000 in compensatory and punitive damages against Shama and Rippeteau, together with costs, counsel fees and incidental equitable relief. Hercules' claims against Shama include fraudulent inducement of the agreement in general and of the clause in the agreement requiring arbitration of disputes in particular. Shama is also charged with negligent misrepresentation, conventional and anticipatory breach of contract, negligent selection of an agent (Rippeteau) and vicarious liability for Rippeteau's alleged wrongful acts. The principal claims against Rippeteau are fraud, negligent misrepresentation, breach of implied warranty, and negligence.

The facts, as alleged in the Amended Complaint, can be briefly summarized as follows. Hercules is a Washington, D.C. construction company which specializes in restoration work. Hercules alleges that in 1985 Rippeteau was the architect in the proposed restoration of a church complex located on Church Street in northwest Washington. Hercules was interested in participating in the Church Street project. Rippeteau allegedly represented to Hercules that if Hercules wished to bid on the Church Street restoration, it should first bid on the renovation of a building in Alexandria for which Rippeteau was also the architect. This was the project for Shama. Hercules alleges that it bid on the Alexandria project based on Rippeteau's representations that if it did so, it would later be afforded the opportunity to bid on the Church Street renovation.

Hercules was the successful bidder on Shama's work in Alexandria. Having experienced problems on another job as a result of inadequate owner financing, Hercules sought assurances that Shama's resources were sufficient to complete the project. Hercules claims that several of Shama's agents, including Rippeteau, assured Hercules that its construction loan had been approved and that its funding was adequate. Hercules alleges that prior to signing the agreement, it requested deletion of the arbitration clause. Hercules was advised by Shama and Rippeteau, however, that the bank providing the financing would not allow any changes in the general conditions on the contract, which was on a form prescribed by the American Institute of Architects. On June 19, 1986, relying on assurances from Shama and Rippeteau that sufficient funds were available, Hercules finally signed the agreement as tendered.

Rippeteau was not a party to the Agreement, but was listed as the architect for the project. Paragraph 6 of the Agreement provides that the documents there enumerated "constitute the entire agreement between the Owner and the Contractor."

Hercules alleges that difficulties developed shortly after it signed the Agreement and began to work on the project. A human skeleton was discovered on the premises, and a homicide investigation ensued. Hercules encountered further problems, allegedly not of its own making, with soil conditions. Hercules claims that Rippeteau's plans were deficient, that change orders were necessary, and that Rippeteau did not process the change orders. Moreover, according to Hercules, officers of Shama advised it that, contrary to the prior assurances which Hercules had received, Shama's funds were insufficient to complete the project. To add insult to injury, at least from its own perspective, Hercules discovered that bidding had closed on the Church Street project without Hercules having been offered an opportunity to compete. In February 1987, claiming that Shama and Rippeteau had destroyed its ability to perform its obligations under the Agreement, Hercules discontinued its work. Hercules filed this suit in the Superior Court the following month.

As previously noted, the contract between Hercules and Shama contained a broad arbitration clause. Shama promptly demanded that its dispute with Hercules be submitted to arbitration, and the issue of arbitrability came before Honorable Shellie Bowers. Concluding that Hercules' allegations of fraud in the inducement of the arbitration clause were insufficient as a matter of law, the trial judge stayed the proceedings and referred them to arbitration. He also dismissed several of the claims against Rippeteau, concluding that Virginia law applied and that under Virginia law these claims were not actionable. Although Rippeteau had not entered any agreement to arbitrate with Hercules, Judge Bowers referred the remaining claims against Rippeteau to the arbitration proceedings between Hercules and Shama.³ Hercules has appealed from these orders.

We conclude that the referral of Hercules' dispute with Shama to arbitration is not an appealable order, and therefore dismiss that portion of the appeal. We further conclude that the trial judge erred in holding that Virginia law applies to certain of Hercules' claims. Accordingly, we vacate these portions of the order and remand for further proceedings.

II

APPEALABILITY

A. The Shaky Edifice — Enelow-Ettelson and the Road to Brandon.

Shama contends that Judge Bowers' order referring Hercules' claims against it to arbitration is not an appealable order. Hercules counters that this court has jurisdiction of the appeal from that referral because it is an "interlocutory order . . . granting, continuing . . . or dissolving or refusing to . . . dissolve [an] injunction" within the meaning of D.C.Code § 11-721(a)(2)(A) (1989).⁴ By not allowing the judicial proceeding to continue, says Hercules, the court is in effect enjoining its prosecution, to Hercules' irreparable injury. In light of Brandon v. Hines, 439 A.2d 496 (D.C. 1981), and of recent developments in the applicable law, particularly Gulfstream v. Mayacamas Corp., 485 U.S. 271, 108 S.Ct. 1133, 99 L.Ed.2d 296 (1988), this contention has become untenable.

This court's appellate jurisdiction is purely statutory. Before 1971, with a single exception not here pertinent, we had jurisdiction of appeals only from final orders and judgments. Brandon, supra, 439 A.2d at 502. In 1971, Congress enlarged our jurisdiction to include, among other things, appeals from interlocutory orders respecting injunctions. Id.; see § 11-721(a)(2)(A).⁵

Brandon is the only decision of this court which has addressed the applicability of the "injunction" statute to the grant or denial of a stay pending arbitration. We held in that case, however, that the Supreme Court's interpretation of the analogous federal statute⁶ is "persuasive authority" in the construction of ours. 439 A.2d at 509. Before examining Brandon in detail, a few words about the development of the applicable federal law may be instructive.

For many years, pursuant to a line of much-criticized cases which exalted form over substance to a truly extraordinary degree, the federal courts resolved problems of the kind here presented by invoking the so-called Enelow-Ettelson doctrine.⁷ These cases and their progeny, see, e.g., Baltimore Contractors v. Bodinger, 348 U.S. 176, 75 S.Ct. 249, 99 L.Ed. 233 (1955), stood for the proposition that a grant or denial of a stay for the determination of an equitable defense was immediately appealable if the underlying action was at law, but not if the suit was in equity. As Judge Altimari retrospectively explained for the court in Steele v. L.F. Rothschild & Co., Inc., 864 F.2d 1, 2 (2d Cir. 1988):

Simply stated, the Enelow-Ettelson doctrine adopted the legal fiction that because an order from a chancellor staying an action at law traditionally took the form of an injunction, a stay based upon an equitable defense, e.g., the existence of an arbitration agreement, should be treated as an injunction, even though the "chancellor" is, in fact, a law judge.

The Enelow-Ettelson doctrine had little relation to reality.⁸ It was "divorced from any rational or coherent appeals policy. Lee v. Ply Gem Industries, Inc., 193 U.S. App.D.C. 112, 115, 593 F.2d 1266, 1269 (D.C.Cir.), cert. denied, 441 U.S. 967, 99 S.Ct. 2417, 60 L.Ed.2d 1073 (1979). Nevertheless, in spite of the fact that it was universally criticized, Gulfstream, supra, 108 S.Ct. at 1142 n. 11; Feldspar Trucking Co., Inc. v. Greater Atlanta Shippers Ass'n, 849 F.2d 1389, 1391 (...