Lent's, Inc. v. Santa Fe Engineers, Inc.

• Decision Date: 11 May 1981
• Docket Number: No. 8086-5-I,8086-5-I
• Citation: 628 P.2d 488,29 Wn.App. 257
• Parties: LENT'S, INC., Respondent, v. SANTA FE ENGINEERS, INC.; Howard Electric Company; Appellants, and The American Arbitration Association, Defendant.
• Court: Washington Court of Appeals

Page 257

29 Wn.App. 257

628 P.2d 488

LENT'S, INC., Respondent, v. SANTA FE ENGINEERS, INC.; Howard Electric Company; Appellants and The American Arbitration Association, Defendant.

No. 8086-5-I.

Court of Appeals of Washington, Division 1.

May 11, 1981.

Ferguson & Burdell, Henry C. Jameson, Seattle, Wash., for appellants.

Peter N. Ralston, Seattle, for defendants.

Bogle & Gates, Richard A. Bersin and James A. Smith, Seattle, for respondent.

SWANSON, Judge.

This appeal involves the validity of an arbitration award vacated by the trial court on the ground that it was not rendered within 30 days of the close of the arbitration hearings as required by RCW 7.04.090. ¹ Appellants, Santa Fe Engineers, Inc. and Howard Electric Co., contend that the award was rendered in a timely manner or, in the alternative, that respondent, Lent's, Inc., waived any objection it had to the timeliness of the award. In a cross-appeal, Lent's contends that the trial court erred in not holding that the arbitration award demonstrated on its face an error in the application of law.

The pertinent facts are these: Santa Fe Engineers, a California corporation, was prime contractor for construction of training facilities at the Naval Torpedo Station in Keyport, Washington. Howard Electric Co., a Colorado corporation, and Lent's, Inc., a Washington corporation located in Bremerton, were respectively, the electrical and mechanical subcontractors for the project.

The subcontracts between Santa Fe and Howard and Santa Fe and Lent's contained a clause providing that either party could demand that a dispute be submitted to arbitration in accordance with the rules of the American Arbitration Association (AAA). During construction, a dispute arose concerning which one of the two subcontractors waqes responsible for furnishing and installing electric motor starters and disconnect switches for certain mechanical equipment. Santa Fe, as general contractor, directed Howard to do the work, but it withheld $158,949 from Lent's pending resolution of the dispute. On March 20, 1977, Howard invoked the arbitration clause of the contract and demanded arbitration of the motor starter dispute. Santa Fe, in turn, made demand upon Lent's for arbitration of the same dispute. By agreement, the separate proceedings were consolidated, and a Seattle attorney was appointed arbitrator. The stipulation for consolidation of the hearings also specified that the arbitration was to be governed by the Construction Industry Arbitration (CIA) rules of the AAA.

Hearings were held on November 15, and 16, 1978, during which testimony was taken and exhibits introduced. By letter dated November 30, 1978, the Tribunal Administrator for the AAA advised the parties that the hearing would be held open until December 5, 1978, to permit submission of post-hearing summations. The letter further advised that the arbitrator's award would be transmitted within 30 days of the close of the hearing, or January 4, 1979. Despite that the deadline for the submission of briefs was December 5 Lent's submitted a brief dated December 14, 1978. Over Howard's written objection, the arbitrator agreed to consider Lent's brief and briefs of the other parties if they desired to submit them. The arbitrator also stated that he nonetheless anticipated that the award would be rendered by January 4, 1979.

On January 4, 1979, the tribunal administrator sent another letter to the parties indicating that the arbitrator's decision was not ready and requesting that the parties extend the date for the award until January 15, 1979. Santa Fe and Howard executed a written extension, but Lent's neither agreed nor objected to the extension. On January 12, 1979, the arbitrator prepared his award and mailed it to the AAA. The award was received by the AAA on January 15, retyped on an AAA form, signed, and mailed to the parties on January 16, 1979.

The award was substantially in favor of Howard Electric, awarding it $158,948 as the cost of furnishing and installing the motor starters and switches. Lent's was awarded $15,000 which had been wrongfully withheld by Santa Fe. The arbitrator also indicated in his January 12 letter that he would explain the award if requested by the parties. In response to a request by Lent's, the arbitrator gave reasons for the award in a letter dated January 25, 1979.

On April 9, 1979, Lent's filed an action in superior court to vacate the award on two grounds: (1) that the award had not been rendered within 30 days of the close of the hearing as required by RCW 7.04.090, and (2) that the award was clearly erroneous as a matter of law. The trial court disagreed that the award was erroneous as a matter of law, but it granted the motion to vacate because the award was not made within the time specified by the statute.

In this appeal, Santa Fe first argues that federal law, rather than state law, governs the enforceability of the award by virtue of either a choice of law provision in its subcontract with Lent's or the supremacy clause of the United States Constitution. We do not reach that issue, however, because the trial court erred in concluding that the award was without legal effect under RCW 7.04.090.

The trial court held that the statute is mandatory and its provisions may not be waived. We agree that the statute's plain language provides that the 30-day time for award may be altered only by execution of a written extension or ratification signed by all the parties. However, the trial court's oral decision reveals that in reaching its conclusion it focused on only part of the statute. The court failed to give effect to the first clause of the statute which limits its application to those situations where "the time within which the award shall be made is not fixed in the arbitration agreement, ..."

Arbitration is consensual and contractual in nature. Balfour, Guthrie & Co. v. Commercial Metals, Co., 93 Wash.2d 199, 607 P.2d 856 (1980). The statute recognizes that the parties may, as they have here, establish a time for the award in the arbitration agreement. The disputes clause of the respective subcontracts did not set forth a time limit in terms of specific days or weeks. However, "The parties to an arbitration fix the time within which an award must be made, either by a specific agreement or by accepting the rules of an agency referred to in their arbitration clause. Parties enjoy considerable freedom in this regard." M. Domke, The Law & Practice of Commercial Arbitration, § 29.01 (1968); accord, Fagnani v. Integrity Finance Corp., 3 Storey 193, 53 Del. 193, 167 A.2d 67 (1960).

The dispute clause of the subcontracts provide that "either party may demand that the dispute be submitted to arbitration in accordance with the rules of the American Arbitration Association." Further, the stipulation for consolidation of the hearings specified that the Construction Industry Arbitration rules of the AAA were to govern the arbitration, and no claim is now made that those rules are inapplicable.

We must give effect to the parties' clear manifestation of intent to conduct the arbitration in accordance with the CIA rules and to be bound by those rules. This court was presented with an analogous question in Keith Adams &amp Associates, Inc. v. Edwards, 3 Wash.App. 623, 477 P.2d 36 (1970), where we recognized that provisions of RCW 7.04 could be waived when the parties agreed to conform to the by-laws of a local realtors' board which contained procedures for arbitration that differed from certain provisions of our state arbitration statute.

Because the parties have agreed to be bound by the CIA rules, this case is distinguishable from Marsala v. Valve Corp. of America, 157 Conn. 362, 254 A.2d 469 (1969), upon which Lent's places reliance. The statute at issue in that case, like our statute, declared that a late award was to have no legal effect unless the parties expressly extended the time for award, and any extension or ratification was required to be in writing. Faced with language clearly making the statute mandatory and spelling out the manner in which the time limits could be modified, the Connecticut Supreme Court rejected the argument that there had been a waiver by conduct of a late award. However, a factor crucial to the result in Marsala is noted in this observation by the Connecticut court:

While the agreement for the arbitration of a dispute may contain special provisions governing the conduct of the arbitration proceedings, in the absence of such special provisions the arbitration proceedings are governed by the applicable provisions of our general arbitration statutes.... Neither party makes any claim that the provisions of chapter 909 are not applicable or that the agreement to arbitrate contained any special provisions relevant or material to the present controversy.

Marsala at 365-66, 254 A.2d 469. Here, but for the parties' agreement to be bound by the CIA rules of the AAA, we would not reach the issue of waiver, given the clear mandatory language of RCW 7.04.090. However, Lent's may not escape its obligations under the CIA rules.

Turning to those rules, we find that section 41, ² like RCW 7.04.090, provides that unless otherwise agreed by the parties, the award is to be made within 30 days from the close of the hearing. ³ However, section 38 of the CIA rules provides that a party may be deemed to have waived the right to object to noncompliance with the rules:

Waiver of Rules. Any party who proceeds with the arbitration after knowledge that any provision or requirement of these Rules has not been complied with and who fails to state an objection thereto in writing, shall be deemed to have waived the right to object.

We have no difficulty in concluding that under the CIA rules Lent's waived its right to object...