Pathman Const. Co. v. Knox County Hospital Ass'n

• Decision Date: 05 May 1975
• Docket Number: No. 1--474A60,1--474A60
• Citation: 164 Ind.App. 121,326 N.E.2d 844
• Parties: PATHMAN CONSTRUCTION COMPANY et al., Defendants-Appellants, v. KNOX COUNTY HOSPITAL ASSOCIATION and the Governing Board of Knox County Hospital, Plaintiffs-Appellees.
• Court: Indiana Appellate Court

Page 844

326 N.E.2d 844

164 Ind.App. 121

PATHMAN CONSTRUCTION COMPANY et al., Defendants-Appellants, v. KNOX COUNTY HOSPITAL ASSOCIATION and the Governing Board of Knox County Hospital, Plaintiffs-Appellees.

No. 1--474A60.

Court of Appeals of Indiana, First District.

May 5, 1975.

Trockman, Flynn, Swain & Tyler, Evansville, for defendants-appellants

J. Lloyd Fitzpatrick, Washington, Robert P. Johnston, Indianapolis, for plaintiffs-appellees; Barnes, Hickam, Pantzer & Boyd, Indianapolis, of counsel.

LOWDERMILK, Judge.

This is an appeal from a judgment declaring an arbitration provision null and void, and enjoining and further action to enforce said provision.

The pertinent facts establish that on August 14, 1968, plaintiffs-appellees, Knox County Hospital Association and the Governing Board of Knox County Hospital (hereinafter collectively referred to as 'Hospital' unless otherwise indicated respectively as 'Association' or 'Board'). and defendants-appellants, Pathman Construction Company (Company), an Illinois corporation, entered into a construction contract for the building and remodelling of the Good Samaritan Hospital in Vincennes, Indiana, which contract was for $3,767,000.

Subsequently, on April 5, 1972, the contract was assigned to Pathman Construction Corporation of Indiana (Pathman). Numerous subcontractors were employed and among these were included several out-of-state companies and some out-of-state employees. The dollar value of the out-of-state contracts totalled over $700,000 and included such items as cabinets and such major components as structural steel and windows to be included in the hospital.

The contract between the parties included an arbitration clause which, in pertinent part, is as follows:

'7. Arbitration.--(a) It is mutually agreed that all disputes arising in connection with this contract shall be submitted to arbitration in accordance with the provisions of the current Standard Form of Arbitration Procedure of the American Institute of Architects and that all findings of fact by the arbitrators under this agreement shall be conclusive and binding on both parties. It is further mutually agreed that the decision of the arbitrators shall be a prior condition to any right of legal action which either party to the contract may have against the other.

(b) The work under this contract shall not be stopped or delayed in any way during the arbitration proceedings except by written mutual consent of both parties to the contract, and such mutual consent shall stipulate whether extension of the time for completion of the contract will be authorized by such stoppage or delay.

(c) Demand for arbitration in connection with any dispute shall be filed in writing with the Architect and with the other party to the contract. Any demand for arbitration shall be made within thirty days after the dispute has arisen if practicable, but, in any event, no demand for arbitration shall be made after the date of final payment except in the case of a dispute arising in connection with any guarantee provisions of the Contract Documents.

(d) The arbitrators hereunder shall have authority to award to the party whose contentions are approved as being in conformity with contract requirements such sums as they, or a majority of them, consider is proper to compensate the injured party for any loss in connection with the proceedings; and, if they find that the arbitration proceedings were demanded without reasonable cause, they may in addition award the injured party damages for delay, unless precluded by agreement between the contracting parties before arbitration. . . .'

In 1972 various disputes arose between the parties and Hospital filed a demand for arbitration under Paragraph 7(c) of the contract, with regard to the removal and patching of certain walls, the lack of temporary heat, unlevel floors and water leakage. Thereafter, Pathman demanded arbitration with regard to certain other disputes. The problems were submitted for arbitration and an award was made April 9, 1973.

In October of 1973 further problems between the parties developed and Pathman then demanded arbitration pursuant to the contract. At this time Hospital filed its complaint, asking that the arbitration provision in the contract be declared void, and seeking a temporary restraining order, a preliminary injunction, and a permanent injunction prohibiting Pathman from attempting to use said arbitration provision. A temporary restraining order was issued October 19, 1973, and on November 6, 1973, the trial court held that the restraining order would remain in force throughout the trial.

Trial of the matter was concluded on December 11, 1973, and on January 4, 1974, the trial court made its entry and judgment, declaring the arbitration provision null and void and enjoining Pathman from any further action to enforce said provision. In making this judgment the trial court specifically found that '. . . plaintiffs lacked the capacity to enter into such an agreement when the contract was executed in 1968 . . .'

This appeal follows the trial court's overruling of Pathman's motion to correct errors.

In this appeal Pathman raises three separate arguments.

1. That Hospital has waived the right to question the arbitration clause because of its participation in the previous arbitration proceedings.

Pathman further argues that Hospital is not entitled to the equitable relief of injunction because it enters the court with unclean hands.

2. That the Indiana Rules of Procedure, Trial Rule 38(E) nullifies prior law declaring agreements to arbitrate void by stating:

'(E) Arbitration. Nothing in these rules shall deny the parties the right by contract or agreement to submit or to agree to submit controversies to arbitration made before or after commencement of an action thereon or deny the courts In this same argument Pathman contends that the Uniform Arbitration Act, passed in Indiana in 1969 (IC 1971, 34--4--2--1 to 34--4--2--22 (Burns Code Ed.)) indicates an intent to revoke any prior case law declaring arbitration of future disputes contrary to public policy.

power to specifically enforce such agreements.'

Finally, Pathman argues in this respect that since arbitration is merely remedial and procedural, any acts relating thereto should be retroactive.

3. That the contract between the parties involves interstate commerce and is subject to the United States Arbitration Act, found at 9 U.S.C.A. § 1, et seq. Pathman contends this is a body of federal substantive law which pre-empts the field of arbitration under the circumstances here involved.

I.

We first deal with Pathman's arguments that T.R. 38(E) and/or the Indiana Uniform Arbitration Act of 1969 serve to validate the arbitration clause.

We would agree with Pathman that there are at least two situations where an act may have retroactive effect. First, where it is necessary to carry out the purpose of the law, and, second, where a remedy alone is provided, and no new rights are given or existing ones removed. See Herrick v. Sayler (7th Cir. 1957), 245 F.2d 171; Malone v. Conner (1963), 135 Ind.App. 167, 189 N.E.2d 590.

DECISION

Whatever the validity of such arguments they are of no effect in the case at bar, where the Uniform Arbitration Act specifically provides:

'Act not retroactive.--This act applies only to agreements made subsequent to the effective date (August 18, 1969) of this act.'

In light of such explicit language the above principles of statutory construction cannot be used to supplement the 1968 contract between the parties.

Further, we do not consider T.R. 38(E) as providing a remedy. By its plain language the Rule states simply that the Rules shall not affect agreements to arbitrate. We note that the Rules became effective after the Uniform Arbitration Act was passed. Therefore, with an Arbitration Act already in existence it would be unnecessary for the trial rules to create a remedy where one already existed. In our opinion T.R. 38(E) merely acknowledges the Uniform Arbitration Act and the power or capacity of any party or parties to submit disputes to arbitration.

The fact that the contract was assigned in 1972 does not alter our conclusion. We are here concerned with the validity and enforceability of the contract as originally drafted. The assignment did not amend the obligations of the parties, or include by reference, or otherwise, any statutory enactments. Rather, the assignment clearly states that the assignee would take over subject to the terms of the original contract.

II.

We next consider Pathman's argument that the United States Arbitration Act has pre-empted Indiana law on the subject here involved.

Pathman contends that the Federal Act was enacted pursuant to Article I, Section 8 of the Constitution, which gives Congress exclusive power to 'regulate Commerce with foreign Nations and among the several States, and with Indian Tribes.' Therefore, Pathman argues that it was the clear intent of Congress to create a body of substantive law relative to arbitration agreements in contracts which evidence a transaction in 'commerce.'

Pathman maintains that the use of numerous out-of-state subcontractors and the In response to Pathman's pre-emption arguments Hospital initially argues that Pathman misses the 'threshold point that the federal law does not apply to this case.' Hospital contends that the United States Arbitration Act does not and cannot create a capacity to arbitrate in state governmental bodies when such bodies exist only by state statutory enactment.

fact that Company is an Illinois business entity clearly demonstrate the interstate nature of the contract between the parties.

Hospital contends that the United States Arbitration Act provides for federal remedies in matters before a federal court. In addition, Hospital maintains that even if this case were within the federal Act it involves the same type of 'paramount public interest'...