R. J. Palmer Const. Co., Inc. v. Wichita Band Instrument Co., Inc., 52889

• Decision Date: 11 March 1982
• Docket Number: No. 52889,52889
• Citation: 7 Kan.App.2d 363,642 P.2d 127
• Parties: R. J. PALMER CONSTRUCTION CO., INC., Plaintiff-Appellee, v. WICHITA BAND INSTRUMENT CO., INC., and Gary L. Ray and Jane A. Ray, Defendants-Appellees, v. UNITED STATES FIDELITY AND GUARANTY COMPANY, Third Party Defendant-Appellee, and J. Craig Mann, Third Party Defendant-Appellant.
• Court: Kansas Court of Appeals

Page 127

642 P.2d 127

7 Kan.App.2d 363

R. J. PALMER CONSTRUCTION CO., INC., Plaintiff-Appellee, v. WICHITA BAND INSTRUMENT CO., INC., and Gary L. Ray and Jane

A. Ray, Defendants-Appellees, v. UNITED STATES FIDELITY AND GUARANTY COMPANY, Third Party

Defendant-Appellee,

and

J. Craig Mann, Third Party Defendant-Appellant.

No. 52889.

Court of Appeals of Kansas.

March 11, 1982.

Syllabus by the Court

1. If the Federal Arbitration Act (9 U.S.C. § 1 et seq.) is applicable to a controversy, it will apply whether the action is pending in state or federal court.

2. The determination of whether a contract evidences a transaction involving interstate commerce within the meaning of the Federal Arbitration Act is governed by federal substantive law.

3. A contract which does not call for the interstate shipment of goods may nonetheless evidence a transaction involving interstate commerce within the meaning of the Federal Arbitration Act.

4. A contract for personal services with a business engaged in interstate commerce is subject to the Federal Arbitration Act when the personal service contract contemplates substantial interstate activity.

5. The significant question in determining whether a contract evidences a transaction involving interstate commerce is whether the parties, at the time they entered into the contract containing an arbitration clause, contemplated substantial interstate activity.

6. Under the Federal Arbitration Act, an agreement between two or more parties to submit their dispute to arbitration is not rendered unenforceable merely because there are additional parties to the dispute who are not bound by the arbitration agreement.

7. A contract between parties domiciled within a state to design and construct a building entirely within a state may evidence a transaction involving interstate commerce and therefore be subject to the Federal Arbitration Act when construction materials cross state lines and the building is intended to house a business engaged in interstate commerce.

8. In an action in which some of the parties have contracted to arbitrate certain disputes, it is held that the trial court erred in not ordering those parties subject to the contract which provides for arbitration to submit to arbitration in accordance with the terms of the agreement.

David A. Gripp, of Crockett & Gripp, Wichita, for third party defendant-appellant.

No appearance by appellees.

Before ABBOTT, P. J., and PARKS and MEYER, JJ.

ABBOTT, Presiding Judge:

The issue in this appeal is whether the third party defendant, J. Craig Mann, is entitled to arbitration of his dispute with the defendants Wichita Band Instrument Co., Inc., and Gary L. Ray and Jane A. Ray.

The problem is presented as follows: The plaintiff, R. J. Palmer Construction Co., Inc., (Palmer) commenced an action against defendants, Wichita Band Instrument Co., and Gary L. Ray and Jane A. Ray, alleging they are indebted to Palmer in the amount of $5,634 for labor and material furnished in constructing and repairing a business building for defendants. Defendants answered and counterclaimed, alleging breach of contract and breach of express and implied warranties. The dispute apparently arose because of leaks in the roof of the new building. Defendants then filed a third-party petition against J. Craig Mann (Mann), the appellant in this case, and United States Fidelity and Guaranty Company (USF&G), which issued a performance bond and a labor and material payment bond guaranteeing performance by Palmer on the construction contract with defendants. Defendants employed Mann to provide architectural services which included designing the building, drawing specifications and representing the defendants (who are now also third party plaintiffs) in the administration and supervision of the construction contract. Defendants sought damages for losses suffered by reason of Mann's alleged malfeasance and misfeasance. Mann counterclaimed against Gary Ray for $740 allegedly due and owing on the contract of employment.

Mann subsequently filed a motion to compel the defendants to submit their claim against him to arbitration pursuant to his contract with them and to stay the case until arbitration was completed. The trial judge denied the motion and Mann appeals. None of the defendants filed a brief on appeal.

Mann contends on appeal that by virtue of the arbitration clause in the contract he is entitled to have his dispute with the defendants submitted to arbitration, pursuant to the Kansas Uniform Arbitration Act (K.S.A. 5-401 et seq.) and/or the Federal Arbitration Act (9 U.S.C. § 1 et seq.).

The trial court's ruling, as we understand it, is that the contract did not evidence a transaction involving commerce within the meaning of the Federal Arbitration Act, so federal law concerning enforcement of arbitration agreements would not apply; and that the Kansas Uniform Arbitration Act does not apply because the action essentially involved a claim in tort.

The Kansas Uniform Arbitration Act, unlike the Uniform Arbitration Act, prohibits parties from enforcing a contractual provision to arbitrate a "claim in tort." The Federal Arbitration Act is the same as the Uniform Arbitration Act in that if it is otherwise applicable, it applies regardless of whether the action sounds in tort or in contract. If the federal act is applicable to a controversy, it will apply whether the action is pending in state or federal court. Pathman Constr. Co. v. Knox Co. Hosp. Assn., 164 Ind.App. 121, 326 N.E.2d 844 (1975). Although Mann comes perilously close to failing to sustain his burden of proof that the contract evidences a transaction involving commerce, we conclude that the contract does evidence a transaction involving commerce and the trial court erred in its ruling that no commerce was involved.

The federal act applies to the facts of this case if the transaction involves commerce (9 U.S.C. § 2), and that question is governed by federal substantive law. Janmort Leas., Inc. v. Econo-Car Intern., 475 F.Supp. 1282, 1286 (E.D.N.Y.1979); E. C. Ernst, Inc. v. Manhattan Const. Co. of Texas, 551 F.2d 1026, 1040 (5th Cir. 1977), cert. denied 434 U.S. 1067, 98 S.Ct. 1246, 55 L.Ed.2d 769 (1978). The Federal Arbitration Act applies in state courts as well as federal, and the act requires state courts to enforce an applicable arbitration clause despite contrary state law or policy. Allison v. Medicab Int'l., 92 Wash.2d 199, 597 P.2d 380 (1979).

In the case at bar, the trial judge, in determining the contract did not evidence a transaction involving commerce, relied on Electric Co. v. Hospital Corp., 42 N.C.App. 351, 256 S.E.2d 529 (1979), wherein the North Carolina Court of Appeals held that a contract between an owner and a subcontractor did not evidence a transaction involving commerce under the Federal Arbitration Act. The contract contained an arbitration agreement, but the subject of the contract was the construction of the Durham County General Hospital which the North Carolina Court of Appeals did not consider to be an act in interstate commerce. Electric Co. does not discuss any facts concerning involvement in commerce. It cited as authority Varley v. Tarrytown Associates, Inc., 477 F.2d 208 (2d Cir. 1973), which held that a contract providing for arbitration was within the Federal Arbitration Act, because it contemplated that a textile consultant would evaluate fabrics manufactured throughout the United States and foreign countries.

Although the North Carolina Supreme Court did not specifically overrule the Electric Co. case, it clearly disemboweled it in Burke Cty. Public Sch. v. Shaver Partnership, 303 N.C. 408, 279 S.E.2d 816 (1981). The North Carolina Court of Appeals had considered an architect's demand for arbitration in an action brought by a school board against the architect alleging damages resulting from a defective roof design. The contract provided for the defendant to supply architectural services to the school board for the construction of two high schools. The Court of Appeals held that the Federal Arbitration Act did not apply because the essence of the contract did not involve the interstate shipment of goods. Bd. of Education v. Shaver Partnership, 46 N.C.App. 573, ...