Modern Piping, Inc. v. Blackhawk Automatic Sprinklers, Inc.

• Decision Date: 29 July 1998
• Docket Number: No. 96-1878,96-1878
• Citation: 581 N.W.2d 616
• Parties: MODERN PIPING, INC., Appellant, v. BLACKHAWK AUTOMATIC SPRINKLERS, INC., Appellee.
• Court: Iowa Supreme Court

Page 616

581 N.W.2d 616

MODERN PIPING, INC., Appellant, v. BLACKHAWK AUTOMATIC SPRINKLERS, INC., Appellee.

No. 96-1878.

Supreme Court of Iowa.

July 29, 1998.

Rehearing Denied Oct. 5, 1998.

Mark J. Herzberger and Randall D. Armentrout of Moyer & Bergman, P.L.C., Cedar Rapids, for appellant.

Craig A. Levien and Jean Dickson Feeney of Betty, Neuman & McMahon, L.L.P., Davenport, for appellee.

Considered by HARRIS, P.J., and LARSON, LAVORATO, SNELL, and ANDREASEN, JJ.

SNELL, Justice.

This case involves a claim of indemnity by plaintiff subcontractor against defendant subcontractor who installed a sprinkler system. Damage occurred after the work was completed when sprinkler pipes burst. A jury returned a verdict in favor of the defendant subcontractor. The trial court denied plaintiff's motion for judgment notwithstanding the verdict. Although the trial court erred by submitting the case for jury determination, we affirm on a separate issue of law.

I. Background Facts and Proceedings

In 1986, the Veterans Administration awarded a contract to M.A. Mortenson, a general contractor, to construct an addition to the Veterans Administration Medical Center in Iowa City. Mortenson entered into a subcontract with the plaintiff, Modern Piping, Inc., to install the piping for the project. Modern Piping then entered into a subcontract with the defendant, Blackhawk Automatic Sprinklers, Inc., to install a sprinkler system in the addition. The Veterans Administration gave its final acceptance and took possession of the addition on August 29, 1990. On March 5, 1991, sprinkler pipes in a sound room in the addition erupted, resulting in damage to property and equipment. Mortenson expended $30,571 to repair the damages and replace the damaged equipment. It originally sought to collect the amount expended from Blackhawk but was unsuccessful because it had no direct contractual relationship with Blackhawk. Therefore, Mortenson withheld the amount from the retainage due Modern Piping under the parties' contract.

Modern Piping then requested that Blackhawk indemnify it for the amount withheld pursuant to an indemnity clause in the parties' contract. Blackhawk refused. On March 15, 1995, Modern Piping filed a petition claiming Blackhawk breached the indemnity and warranty provisions of the parties' contract by failing to pay the requested amount. On August 15, 1995, Modern Piping filed a motion for summary judgment, arguing that the language of the indemnity clause entitled it to judgment as a matter of law. The court denied the motion on the ground that "reasonable minds could differ in their opinions as to the cause of the leaking sprinkler system making summary judgment on this issue improper."

On September 18, 1996, five days before trial was to begin, Modern Piping filed a motion to stay the proceedings and compel arbitration pursuant to a provision in the contract and Iowa Code section 679A.2 (1995). The court denied the motion in an oral ruling on September 20 and filed a written order confirming the ruling on September 25. The matter proceeded to trial. The district court denied Modern Piping's motion for directed verdict. The jury found in favor of Blackhawk. Modern Piping filed a notice of appeal on October 18 from the district court's denial of its motion to compel arbitration. It filed a second notice of appeal on December 6 after the court denied its posttrial motion for judgment notwithstanding the verdict or new trial.

II. Issues on Appeal

On appeal, Modern Piping contends the district court erred as follows: (1) in denying its motion to stay the proceedings and compel arbitration; (2) by submitting the legal question of contract construction and interpretation to the jury; and (3) in instructing the jury on negligence. It requests that we either order the parties to arbitrate, grant the motion for judgment notwithstanding the verdict, or order a new trial on all issues.

III. Discussion

A. Denial of Motion to Compel Arbitration

In its first allegation of error, Modern Piping contends the district court erred in denying its motion to compel arbitration. Modern Piping argues that the court was required to order arbitration because it established the required elements of Iowa Code section 679A.2, governing proceedings to compel or stay arbitration. In response, Blackhawk maintains that Modern Piping waived its right to arbitration by substantially invoking the litigation process. It argues that Modern Piping's conduct and activity during the eighteenth-month period between filing the petition and filing the motion to compel arbitration "was wholly inconsistent with the right to arbitration and was prejudicial to Blackhawk." In addition, Blackhawk asserts the common-law doctrine of election of remedies, arguing that Modern Piping elected its right to proceed via civil litigation instead of arbitration.

1. Iowa's Arbitration Statute

Iowa Code chapter 679 governs arbitration procedures. Section 679A.1(2) governs the validity of arbitration agreements found in contract provisions addressing future controversies between the parties to the contract:

A provision in a written contract to submit to arbitration a future controversy arising between the parties is valid, enforceable, and irrevocable unless grounds exist at law or in equity for the revocation of the contract. This subsection shall not apply to any of the following:

a. A contract of adhesion.

b. A contract between employers and employees.

c. Unless otherwise provided in a separate writing executed by all parties to the contract, any claim sounding in tort whether or not involving a breach of contract.

Section 679A.2 addresses proceedings to compel or stay arbitration:

1. On application of a party showing an agreement described in section 679A.1 and the opposing party's refusal to arbitrate, the district court shall order the parties to proceed with arbitration. However, if the opposing party denies the existence of a valid and enforceable agreement to arbitrate, the district court shall proceed to the determination of the issue and shall order arbitration if a valid and enforceable agreement is found to exist. If no such agreement exists, the court shall deny the application.

2. Whether an Arbitration Clause Can Be Waived

The first issue regarding waiver of arbitration is whether Modern Piping had an absolute right under Iowa Code section 679A.2 to arbitration and a stay of the pending judicial proceedings. The interpretation of section 679A.2 is a question of law, and we review the district court's interpretation for correction of errors of law. Iowa R.App. P. 4. Modern Piping contends that as long as the contract at issue contains an arbitration clause as provided in section 679A.1 and Blackhawk refused to arbitrate, the district court did not have any discretion under section 679A.2 to deny Modern Piping's motion for an order to stay proceedings and compel arbitration. We disagree.

We have previously recognized that circumstances may exist under which a party may be deemed to have waived a contractual right to arbitration. Most recently, in Clinton National Bank v. Kirk Gross Co., 559 N.W.2d 282 (Iowa 1997), we considered whether the filing of a mechanic's lien constitutes waiver of the right to request arbitration under a contract provision. In Clinton National Bank, the parties entered into a contract for the remodeling of a bank. The contract included an arbitration clause covering "all disputes" between the parties. A dispute arose over the quality of carpet installed, and the bank refused to pay the remaining amount due on the contract. The contractor filed a mechanic's lien, and shortly thereafter the bank sued, claiming the contractor breached its warranty by installing substandard carpeting. The contractor filed a motion to dismiss the warranty suit on the ground that the arbitration agreement was mandatory and took priority over the suit. It also withdrew its mechanic's lien filing. In its resistance to the motion to dismiss, the bank argued the contractor had waived its right to arbitration by filing the mechanic's lien. The district court granted the contractor's motion to dismiss. Clinton Nat'l Bank, 559 N.W.2d at 283.

In considering the waiver issue on appeal, we found that because arbitration is a favored method of settling civil disputes, "evidence of an alleged waiver must be compelling, especially in view of the fact that section 679A.1, which identifies certain circumstances under which arbitration will not be recognized, does not even mention waiver." Id. at 284. After considering cases from other jurisdictions regarding the actions necessary to constitute waiver of arbitration, we concluded that the contractor's mere filing of a mechanic's lien did not constitute court action, and therefore did not establish waiver of the right to arbitration. Id. Despite our conclusion that the contractor's actions in this case did not rise to the level of a waiver, we implicitly recognized that waiver of an arbitration provision is possible even in light of the arguably mandatory language of section 679A.2.

In Des Moines Asphalt & Paving Co. v. Colcon Industries Corp., 500 N.W.2d 70 (Iowa 1993), we considered the issue of timeliness in connection with a motion to compel arbitration. In that case, Colcon, a general contractor, was sued by Des Moines Asphalt, a subcontractor who had not been paid by Colcon because the owner of the property refused to make full payment for the work, alleging the paving had been completed improperly. Colcon filed a cross-claim against the property owner. The owner's answer contained an affirmative defense alleging the dispute was subject to an irrevocable arbitration clause in the parties' contract. Shortly thereafter, the owner filed a motion to stay the proceedings and compel arbitration. The district court denied the motion six weeks later on the ground it was untimely. Des Moines Asphalt, 500...