Johnston County v. R.N. Rouse & Co., Inc.

• Decision Date: 05 March 1992
• Docket Number: No. 308PA91,308PA91
• Citation: 331 N.C. 88,414 S.E.2d 30
• Court: North Carolina Supreme Court
• Parties: JOHNSTON COUNTY, N.C. v. R.N. ROUSE & CO., INC.

Page 30

414 S.E.2d 30

331 N.C. 88

JOHNSTON COUNTY, N.C. v. R.N. ROUSE & CO., INC.

No. 308PA91.

Supreme Court of North Carolina.

March 5, 1992.

Patton, Boggs & Blow by Charles B. Robson, Jr., Raleigh, and William Britt, County Atty., Smithfield, for petitioner-appellee.

Gordon C. Woodruff, P.A. by Gordon C. Woodruff, Smithfield, and Smith, Currie & Hancock by Ronald G. Robey and D. Lee Roberts, Jr., Atlanta, Ga., for respondent-appellant.

MEYER, Justice.

The sole question presented for review by this Court concerns the effect, if any, to be given an arbitration clause contained in a construction contract executed by the parties, Johnston County and R.N. Rouse & Co., Inc. Respondent contends that the Court of Appeals erred in concluding that another provision of the contract irreconcilably conflicted with the arbitration clause and thus rendered the arbitration clause ineffectual. We agree and therefore reverse the Court of Appeals.

The dispute in this case concerns a contract for the construction of the Johnston County Courthouse and Jail Annex in Smithfield, North Carolina. In July 1986, Johnston County solicited competitive bids for the project. R.N. Rouse & Co., Inc. ("Rouse"), a North Carolina corporation, submitted the lowest bid and was awarded the contract.

On 24 September 1986, Johnston County and Rouse entered into a contract for the construction of the project. An architect and engineer hired by Johnston County prepared the contract, which consists of several documents, including (1) American Institute of Architects Standard Form of Agreement Between Owner and Contractor (AIA Document A101); (2) American Institute of Architects General Conditions of the Contract for Construction (AIA Document A201); (3) supplementary general conditions; and (4) instructions to bidders.

Article 7 of the General Conditions of the Contract for Construction contains several provisions. Section 7.1.1 of the general conditions, following the title, "Governing Law," provides that "[t]he Contract shall be governed by the law of the place where the Project is located." Section 7.9 of the general conditions, entitled "Arbitration," includes an arbitration clause, as follows:

7.9.1 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 in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association then obtaining unless the parties mutually agree otherwise.... The foregoing agreement to arbitrate ... shall be specifically enforceable under the prevailing arbitration law. The award rendered by the arbitrators shall be final, and judgment may be entered upon it in accordance with applicable law in any court having jurisdiction thereof.

Also included in the contract between the parties are certain supplementary general conditions, which were drafted by Johnston County's architect and engineer. These provisions are typewritten, with typewritten article headings that correspond to the article headings contained in the general conditions. Article 7 of the supplementary general conditions includes the following provision:

7.1.1 By executing a contract for the Project the Contractor agrees to submit itself to the jurisdiction of the courts of the State of North Carolina for all matters arising or to arise hereunder, including but not limited to performance of said contract and payment of all licenses and taxes of whatever nature applicable thereto.

A typewritten document entitled "Instructions to Bidders & General Conditions" contains a provision concerning the precedence to be given conflicting provisions of the contract. Section 01.B. of the instructions provides that "in the event of any conflicting statements or requirements in these General Conditions and the Supplementary General [C]onditions ... of these Specifications, the Supplementary General Conditions shall have precedence."

After Rouse had completed construction of the project, a dispute arose concerning the payment due Rouse. In March 1989, Rouse filed with the American Arbitration Association a demand for arbitration. In its demand, Rouse alleged that it was due additional compensation for extra work, delays, inefficiencies, interferences, and hindrances caused by Johnston County and by those for whom Johnston County was responsible. Rouse also sought "compensation for the contract balance, the costs of ... arbitration, interest, attorney's fees and expenses, and for all other relief appropriate and just."

On 2 June 1989, Johnston County filed with the Johnston County Superior Court a motion to stay the arbitration proceeding. By order dated 24 July 1989, the trial court granted Johnston County's application for a stay and denied a motion to compel arbitration filed by Rouse. On Rouse's motion for findings of fact and conclusions of law, made pursuant to N.C.R.Civ.P. 52(b), the trial court subsequently entered an order on 7 August 1989 in which it concluded that the contract between Johnston County and Rouse did not contain an agreement to arbitrate and that the court was therefore required to stay the arbitration proceeding.

In an unpublished opinion, a unanimous panel of the Court of Appeals affirmed the trial court, reasoning, as did the trial court, that section 7.1.1 of the supplementary general conditions conflicted with the arbitration provision contained in section 7.9 of the general conditions. Applying the precedence clause contained in section 01.B. of the instructions to bidders, the Court of Appeals concluded that the contract did not contain an agreement to arbitrate, "the parties instead having agreed to submit their disputes to the North Carolina courts."

Respondent Rouse contends that the contract contains a binding arbitration provision, which was not superseded by the language provided in section 7.1.1 of the supplementary general conditions. We agree.

N.C.G.S. § 1-567.2 provides that a contract provision requiring that the parties settle disputes by arbitration is valid, enforceable, and irrevocable unless the parties agree to the contrary. Servomation Corp. v. Hickory Construction Co., 316 N.C. 543, 544, 342 S.E.2d 853, 854 (1986). North Carolina has a strong public policy favoring the settlement of disputes by arbitration. Our strong public policy requires that the courts resolve any doubts concerning the scope of arbitrable issues in favor of arbitration. This is true " 'whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.' " Cyclone Roofing Co. v. LaFave Co., 312 N.C. 224, 229, 321 S.E.2d 872, 876 (1984) (quoting Moses H. Cone Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 941-42, 74 L.Ed.2d 765, 785 (1983)). In Servomation Corp., we considered the public policy favoring arbitration and concluded that the plaintiff in that case had failed to show that the defendant had waived its contractual right to arbitration by proceeding to litigate a court action brought by the plaintiff. Today, we are faced with a question not of waiver of the parties' rights to compulsory arbitration but one concerning the existence of an arbitration agreement between the parties. We reaffirm the position we articulated in Cyclone Roofing Co. and Servomation Corp. and reiterate that any doubt concerning the existence of such an agreement must also be resolved in favor of arbitration.

The parties in this case have strenuously argued that there is no doubt concerning the existence of an arbitration agreement between the parties. According to respondent Rouse, the arbitration clause set forth in section 7.9 of the general conditions is "entirely consistent with" section 7.1.1 of the supplementary general conditions, and "both clauses should have been enforced by the trial court." Johnston County contends, and the Court of Appeals agreed, that the contract must be construed as requiring that all disputes arising under the contract be litigated in the courts of North Carolina. To support its position, Johnston County argues that section 7.9 of the general conditions (the arbitration clause) and section 7.1.1 of the supplementary general conditions (erroneously referred to as a forum selection clause by Johnston County) are in irreconcilable conflict, as they both purport to establish the exclusive forum for resolution of disputes arising under the contract. We agree with respondent and therefore reverse the decision of the Court of Appeals.

Historically, parties have endeavored to avoid potential litigation concerning judicial jurisdiction and the governing law by including in their contracts provisions concerning these matters. Although the language used may differ from one contract to another, one or more of three types of provisions (choice of law, consent to jurisdiction, and forum selection), which have very distinct purposes, may often be found in the boilerplate language of a contract. The first type, the choice of law provision, names a particular state and provides that the substantive laws of that jurisdiction will be used to determine the validity and construction of the contract, regardless of any conflicts between the laws of the named state and the state in which the case is litigated. Robert A. Leflar, American Conflicts Law § 144, at 405-07, § 147, at 413-19 (4th ed. 1986); see also Restatement (Second) of Conflict of Laws §§ 186, 187 (1971); U.C.C. § 1-105, 1 U.L.A. 29 (1989). The second type, the consent to jurisdiction provision, concerns the submission of a party or parties to a named court or state for the exercise of personal jurisdiction over the party or parties consenting thereto. By consenting to the jurisdiction of a particular court or state, the contracting party authorizes that court or state to act against him. Robert A....