Maxus, Inc. v. Sciacca

• Decision Date: 15 May 1992
• Citation: 598 So.2d 1376
• Parties: MAXUS, INC., d/b/a Maxus Construction Company v. Robert SCIACCA and Roseann Sciacca. 1901763.
• Court: Alabama Supreme Court

Page 1376

598 So.2d 1376

MAXUS, INC., d/b/a Maxus Construction Company v. Robert SCIACCA and Roseann Sciacca.

1901763.

Supreme Court of Alabama.

May 15, 1992.

Daniel T. Hull, Jr., Birmingham, for appellant.

J. David Pugh of Bradley, Arant, Rose & White, Birmingham, for appellees.

INGRAM, Justice.

This is an appeal from a judgment of the Circuit Court of Shelby County confirming an arbitration award.

The record reveals the following: Maxus, Inc., d/b/a Maxus Construction Company ("Maxus") entered into a written cost-plus contract dated May 11, 1988, with Robert and Roseann Sciacca for the construction of a residence for the Sciaccas. The contract was prepared using the American Institute of Architects ("AIA") standard forms. Included in the contract was a provision for arbitration as a means to settle controversies and claims arising out of, or related to, the contract or to a breach of the contract.

"4.5.1 Controversies and Claims Subject to Arbitration. Any controversy or Claim arising out of or related to the Contract, or the breach thereof, shall be settled by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association, and judgment upon the award may be entered in any court having jurisdiction thereof...."

The performance of the work pursuant to the contract involved approximately 50 subcontractors, in addition to the work performed by Maxus's own forces. The contract involved the purchasing and installing of thousands of pieces of materials and equipment manufactured in, and procured from, many different states and foreign countries. These materials were shipped by common and other carriers across state lines into Alabama and were ordered, followed up, and paid for by using the U.S. mails, telephones, and interstate financial transaction settlement procedures and institutions. The escrow funds were held, paid out, and invested by a national banking association using the U.S. mails, telephones, and interstate financial transaction settlement procedures and institutions.

Construction on the residence began in June 1988. In 1989, a controversy arose between the parties concerning the increase in costs of the project. After paying in full 14 detailed, monthly billings, aggregating in excess of $1,000,000, the Sciaccas found fault with particular cost items for which they had been billed, and withheld part of the 15th payment to Maxus. The Sciaccas withheld amounts concerned with costs they had been charged for rental items on the job, costs for repair or replacement of certain items of materials and work, as well as with the entitlement of Maxus to a contractor's fee on certain items of work. The Sciaccas stated that they were going to place any future objectionable rental charges and certain other overages into an escrow account until the entitlement to the sums could be determined.

Because of this disagreement concerning the billing disputes, the parties entered into an escrow agreement in September 1989. This agreement provided that a certain sum of money would be deposited into an escrow account. Undisputed portions of Maxus's monthly billings would be paid from the escrow, and any amounts in dispute would remain in escrow until a determination was made by an award in arbitration under the original contract. The agreement further provided that all parties should "assert any and all other arbitrable claims arising under the Contract."

This agreement, dated September 29, 1989, would allow work on the construction project to continue and permit Maxus to be paid. Pursuant to the agreement, SouthTrust Bank of Alabama, N.A. ("SouthTrust"), was to hold and disburse $312,000 deposited by the Sciaccas and estimated by Maxus to be required for its completion of the project.

Maxus continued with the construction work on the residence and brought the work to what it thought was a successful conclusion. A "Certificate of Occupancy" was obtained from the City of Hoover, Alabama, and the Sciaccas moved into the residence in October 1989.

In January 1990, both Maxus and the Sciaccas submitted demands for arbitration to the American Arbitration Association ("AAA"). Maxus' demand was received after the Sciaccas' demand and was treated as a reply and counterclaim to the demand of the Sciaccas. The Sciaccas' demand stated that the nature of the dispute was "disputed billing for house construction."

The parties mutually selected an arbitrator. Subsequently, the Sciaccas submitted to the AAA a written claim, which included items designated as "Defective / Incomplete / Warranty Work." The arbitrator allowed the Sciaccas to amend their claim and went forward with the hearings.

The hearing was conducted without the benefit of a stenographer. Therefore, there is no written record of what transpired during the hearing. The arbitrator's award read in part as follows:

"I. Maxus Inc., d/b/a Maxus Construction Co. (hereinafter referred to as Maxus) shall receive $43,026.00 of the funds currently in Escrow with the balance going to Dr. Robert J. Sciacca. Maxus is not to receive any interest on their portion of the Escrow funds. This payment shall constitute all monies due Maxus from Dr. Robert J. Sciacca on the subject contract less any amounts designated herein to be used for other purposes.

"The receipt of Maxus's share of the Escrow funds is contingent upon the successful completion of the items listed in 'Attachment 1,' attached hereto or as ordered herein.

"II. Maxus is to assist in satisfying the work stated in 'Attachment I' and is solely responsible for paying the subcontractors any outstanding balance due them on subject contract (see Attachment No. 2). Maxus shall be the sole debtor of the outstanding subcontractor balances and must furnish a release of lien and debt to the Escrow trustee prior to the Escrow funds being released (see attachment number 2, List of Subcontractors). Any claim by a subcontractor, performing work on the Sciacca residence, against Dr. Robert J. Sciacca shall be invalid and should go against Maxus."

The award also addressed the issue of attorney fees and the arbitrator's and the AAA's fees and expenses. The award ordered that 11 items of work listed in attachment 1 be completed within a maximum of 60 calendar days from the date of the order. Further, an impartial third party which could be the arbitrator, was to be hired to oversee the completion of the required work.

From the above order Maxus filed a motion with the Circuit Court of Shelby County requesting that the award be vacated. The Circuit Court affirmed the arbitration award, and Maxus now appeals to this Court. The broad issue before this Court, as framed by Maxus, concerns what standard of review and procedure a court in Alabama is to utilize in its review of an arbitration proceeding. In other words, once the parties have agreed to arbitrate a particular matter and one party is dissatisfied with the results, will this Court apply Alabama law or federal law to review the arbitration award? We emphasize that this is not a case where one of the parties is contending that arbitration was inappropriate. Clearly, both parties agreed to arbitrate the matter. It is only the law to be applied in reviewing the arbitration award that is in dispute.

Maxus contends that this transaction involved interstate commerce and that the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (FAA), applies. The Sciaccas argue that the FAA is not applicable and that the arbitration award may be reviewed only according to the Alabama Arbitration Statute. ¹ Therefore, in order to determine the applicable law to be applied in reviewing this arbitration award, we must determine whether the FAA applies.

In order for the FAA to be applicable, there must be (1) a written agreement calling for arbitration and (2) a transaction involving interstate commerce. Ex parte Costa & Head (Atrium), Ltd., 486 So.2d 1272 (Ala.1986). As concerns the first requirement, the record is clear that there was a written agreement providing for arbitration. Further, we find that the arbitration agreement is part of a transaction involving interstate commerce.

To "involve commerce," an agreement need have only the slightest nexus with interstate commerce. Ex parte Costa & Head. Here, while the transaction concerned the construction of a residence in Alabama, it involved the purchasing and installing of thousands of pieces of materials and equipment manufactured in, and procured from, many different states and foreign countries. As noted above, these materials were shipped by common and other carriers across state lines into Alabama, and were ordered, followed up, and paid for by using the U.S. mails, telephones, and interstate financial transaction settlement procedures and institutions. Further, the escrow funds were held, paid out, and invested by a national banking association using the U.S. mails, telephones, and interstate financial transaction settlement procedures and institutions. We, therefore, hold that the FAA is applicable here.

Having held that the FAA is applicable to this case, we point out that its application is controlled by principles of "substantive federal law." Ex parte Costa & Head, at 1275. In cases governed by the FAA, the federal substantive law of arbitration governs, despite contrary state law or policy. Southland Corp. v. Keating...