Hughes Masonry Co., Inc. v. Greater Clark County School Bldg. Corp.

• Decision Date: 28 September 1981
• Docket Number: No. 80-2817,80-2817
• Citation: 659 F.2d 836
• Parties: HUGHES MASONRY COMPANY, INC., Plaintiff-Appellee, v. GREATER CLARK COUNTY SCHOOL BUILDING CORPORATION, Defendant. J. A. CONSTRUCTION MANAGEMENT CORPORATION, Defendant-Appellant, v. INSURANCE COMPANY OF NORTH AMERICA, Third Party Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 836

659 F.2d 836

HUGHES MASONRY COMPANY, INC., Plaintiff-Appellee, v. GREATER CLARK COUNTY SCHOOL BUILDING CORPORATION, Defendant.

J. A. CONSTRUCTION MANAGEMENT CORPORATION, Defendant-Appellant, v. INSURANCE COMPANY OF NORTH AMERICA, Third Party Defendant-Appellee.

No. 80-2817.

United States Court of Appeals, Seventh Circuit.

Argued June 5, 1981.

Decided Sept. 28, 1981.

John P. Price, Bingham, Summers, Welsh & Spilman, Indianapolis, Ind., for defendant-appellant.

Don A. Tabbert, Duvall, Tabbert, Lalley & Newton, Indianapolis, Ind., for plaintiff-appellee.

Before FAIRCHILD and CUDAHY, Circuit Judges, and GRANT ^*, Senior District Judge.

CUDAHY, Circuit Judge.

J. A. Construction Management Corporation ("J. A.") appeals from the district court's denial of its motion to compel arbitration. We vacate and remand for further proceedings consistent with this opinion.

I.

On February 15, 1975, James Associates Architects and Engineers, Inc. ("James Associates") entered into an agreement with the Greater Clark County School Building Corporation ("Clark") to provide the architectural and construction management services necessary for the construction of the Charlestown and Jeffersonville Middle Schools in Clark County, Indiana. James Associates was authorized under this agreement to assign project managers at both sites to oversee and coordinate all construction operations. Pursuant to this authority, James Associates executed a contract with J. A., under which J. A. was to perform the construction management services relating to the middle school projects.

On November 30, 1976, Hughes Masonry Company, Inc. ("Hughes") entered into an agreement with Clark to provide masonry services for construction of the two schools. Pursuant to the terms of this contract, J. A. was designated as construction manager for both projects. The contract also incorporated by reference the American Institute of Architects' "General Conditions," which, together with other contract documents, outlined the responsibilities of Clark, James Associates, J. A. and Hughes. Section 7.10.1 of the "General Conditions" provided that all disputes "arising out of, or relating to, this contract or the breach thereof ... shall be decided by arbitration." ¹

Several disputes arose soon after Hughes began its work on the school building projects in late summer of 1977, and, on March 18, 1978, Clark terminated its contract with Hughes. Clark's action was based on Hughes' alleged breach of its contractual obligations. Clark hired another contractor, allegedly at a substantial increase in cost, to complete the masonry work for the building projects. Therefore, in an effort to recover its alleged increase in costs from Hughes, Clark filed, on April 17, 1978, pursuant to Section 7.10.1 of the "General Conditions," a demand for arbitration of its dispute with Hughes with the American Arbitration Association.

Hughes subsequently filed separate actions against Clark in the United States District Court for the Southern District of Indiana and against J. A. in the Superior Court of Marion County, Indiana. In the district court, after Clark sought to compel arbitration, Hughes moved to enjoin any arbitration proceedings. On September 18, 1979, Hughes amended its complaint in federal court to add J. A. and the American Arbitration Association as defendants. ² Thirteen days later, on October 1, 1979, before J. A. had answered the amended complaint, the district court entered an order enjoining all defendants, including J. A., from proceeding to arbitration.

On May 28, 1980, after filing an answer which raised arbitration as an affirmative defense, J. A. filed a motion to compel arbitration of all contract disputes between itself, Hughes and Clark. The district court denied J. A.'s motion in an order dated December 12, 1980, and J. A. filed a timely appeal from that decision.

II.

Before J. A. was joined as a defendant in this action, Hughes opposed Clark's motion to compel arbitration, inter alia, on the ground that J. A. could not be "made part of the arbitration proceedings." In support of its position, Hughes cited Prestressed Concrete, Inc. v. Adolfson & Peterson, Inc., 308 Minn. 20, 240 N.W.2d 551 (1968), for the proposition that arbitration is not appropriate if all the parties to a dispute cannot be compelled to participate in the arbitration. ³

After the district court filed its order of October 1, 1979, J. A. filed its answer to Hughes' amended complaint and its motion to compel arbitration, in which J. A. agreed to participate in and be bound by arbitration of the disputes between the parties. Therefore, the concern articulated in Prestressed Concrete is no longer relevant, since, if arbitration is now compelled, all parties to this dispute would be included in the proceedings and bound by the determination.

Hughes now argues, however, that it cannot be required to arbitrate because J. A. is not entitled to invoke the arbitration provision of the Hughes-Clark agreement since it is not a party to that agreement.

Whatever the merit of this argument, we believe Hughes is equitably estopped from asserting it in this case, because the very basis of Hughes' claim against J.A. is that J.A. breached the duties and responsibilities assigned and ascribed to J.A. by the agreement between Clark and Hughes.

Hughes has characterized its claims against J.A. as sounding in tort, i. e., intentional and negligent interference with contract. In substance, however, Hughes is attempting to hold J.A. to the terms of the Hughes-Clark agreement. Hughes' complaint is thus fundamentally grounded in J.A.'s alleged breach of the obligations assigned to it in the Hughes-Clark agreement. ⁴ Therefore, we believe it would be manifestly inequitable to permit Hughes to both claim that J.A. is liable to Hughes for its failure to perform the contractual duties described in the Hughes-Clark agreement and at the same time deny that J.A. is a party to that agreement in order to avoid arbitration of claims clearly within the ambit of the arbitration clause. "In short, (plaintiff) cannot have it both ways. (It) cannot rely on the contract when it works to its advantage, and repudiate it when it works to (its) disadvantage." Tepper Realty Co. v. Mosaic Tile Co., 259 F.Supp. 688, 692 (S.D.N.Y.1966). See also Avila Group, Inc. v. Norma J. of California, 426 F.Supp. 537, 540 (S.D.N.Y.1977) ("To allow (defendant) to claim the benefit of the contract and simultaneously avoid its burdens would both disregard equity and contravene the purposes underlying enactment of the Arbitration Act.").

Although only Hughes and Clark are signatories to the Hughes-Clark agreement, that agreement identifies James Associates as the architect and J.A. as the construction manager for the school projects. Section 2.3.1 of the agreement provides that the "Architect and Construction Manager will be the Owner's representatives during construction (and) will have authority to act on behalf of the Owner, to the extent provided in the Contract Documents ...." Subsequent provisions of the agreement set forth various duties that James Associates and J.A. are to perform on behalf of the owner, including the scheduling and coordination of Hughes' work on the project, the processing of Hughes' payment applications and the certification of Hughes' work for payment by Clark. The Hughes-Clark agreement also gives J.A. the authority to approve original and revised work progress schedules prepared by Hughes, to approve Hughes' operations on the project sites and to determine whether materials and equipment used by Hughes are defective. ⁵

Presumably, James Associates and J.A. are not contractually liable for breach of obligations set forth in the Hughes-Clark agreement since they are not parties to that agreement. Rather, James Associates was obligated to perform the duties of construction management by virtue of its contract with Clark, which imposed those duties upon James Associates in consideration of 7.5% of the total construction cost. The construction management duties were in turn imposed on J.A. by virtue of the James Associates-J.A. contract (under which J.A. was to receive 3% of the total construction costs). ⁶

But Hughes seeks in this action to hold J.A. responsible for its failure to perform (or its improper performance of) the obligations set forth in the Hughes-Clark agreement. In Count I of its amended complaint, for example, Hughes alleges that "Clark and/or its construction manager" breached and were in default of the Hughes-Clark agreement. And, in Count III, Hughes alleges that J.A., "instead of carrying out its duties and responsibilities contained in the agreement," interfered with the contractual relationship between Clark and Hughes. Although Count III sounds in tort, the acts that Hughes alleges as constituting interference with the agreement in fact consist essentially of J.A.'s alleged failure to properly perform various duties ascribed to J.A. by the Hughes-Clark agreement. ⁷ Similarly, in its "Specific Contentions" filed at the request of the district court on August 29, 1980, Hughes alleged, as the basis for its claims against J.A., that J.A., as Clark's "agent," failed to carry out various duties and responsibilities specified in the Hughes-Clark agreement and therefore "intentionally interfered" with that agreement.

Hughes has thus merely attempted to characterize alleged failures to perform various construction management duties (or their...