Titan Group, Inc. v. Sonoma Valley County Sanitation Dist.

• Decision Date: 22 February 1985
• Citation: 211 Cal.Rptr. 62,164 Cal.App.3d 1122
• Court: California Court of Appeals
• Parties: TITAN GROUP, INC., a California Corporation, Petitioner and Appellant, v. SONOMA VALLEY COUNTY SANITATION DISTRICT, Defendant and Respondent. A024339.

Page 62

211 Cal.Rptr. 62

164 Cal.App.3d 1122

TITAN GROUP, INC., a California Corporation, Petitioner and Appellant, v. SONOMA VALLEY COUNTY SANITATION DISTRICT, Defendant and Respondent.

A024339.

Court of Appeal, First District, Division 5, California.

Feb. 22, 1985.

Review Denied May 23, 1985.

Richard A. Holderness, Dingus, Haley & Holderness, San Francisco, for petitioner and appellant.

Alan E. Harris, Daniel H. Bookin, San Francisco, for defendant and respondent.

HANING, Associate Justice.

Titan Group, Inc. (Titan) appeals, under Code of Civil Procedure section 1294, an order denying its petition to compel arbitration with Sonoma Valley County Sanitation District (District) over a disputed construction contract.

Titan, a construction contractor, and District entered into a contract for the construction of waste water treatment facilities. In compliance with Health and Safety Code section 4755, the contract was awarded after competitive bidding. It was drafted by District and awarded to Titan without negotiation of its terms or requirements.

Pursuant to a requirement of the United States Environmental Protection Agency (40 CFR, part 35, subpart E, section 35.938-8 and Appendix C-2, paragraph 7), the contract contained a provision ¹ stating: "Except as may be otherwise provided in this contract, all claims, counterclaims, disputes and other matters in question between the Owner and Contractor arising out of or relating to this agreement or the breach thereof will be decided by arbitration if the parties hereto mutually agree, or in a court of competent jurisdiction within the State in which the owner is located." (Emphasis supplied.)

The contract also contained the following arbitration clause ² concerning dispute resolution: "SG-24 ADJUSTMENT OF DISPUTE. All questions or controversies which may arise between the Contractor [Titan] and the Owner [District], under or in reference to this contract, may be subject to the decision of some competent person to be agreed upon by the Owner and the Contractor who shall act as referee, and his decisions shall be final and conclusive upon both parties. Should the Owner and the Contractor be unable to agree upon a referee, a board of three arbitrators shall be chosen, one by the Owner, one by the Contractor, and the third by the two so chosen, and the decision of any of said arbitrators shall be final and binding upon the parties. If either party to the contract neglects or fails for a period of ten days after notice from the other party to designate an arbitrator hereunder, the arbitrator designated by the other party shall have full power to decide the dispute in the same manner as though a board of three arbitrators had been selected. The referee or arbitrators shall decide which party shall pay the cost of referral or arbitration, and final payment to the contractor shall not be made until the full decision of the referee or arbitrators has been rendered." (Emphasis added.)

Following completion of the project, Titan submitted a claim for additional compensation. After unsuccessful attempts to negotiate the claim, Titan filed a petition to compel arbitration under Code of Civil Procedure sections 1281.2 and 1290, contending the contract required arbitration. District opposed the motion on the grounds the word "may" made arbitration voluntary, and that arbitration would be the method of resolving disputes only if both parties agreed thereto. District's opposition was accompanied by the sworn declaration of David L. Wallace, a civil engineer with Sonoma County Public Works Department, who was District's manager for the project. Part of his duties in connection therewith included "the supervision of the drafting of the contract that would govern construction of the Wastewater Reclamation Facilities." His declaration stated, in part: "The District wanted to preserve its right to have a court or jury decide a given dispute if the District thought it would be appropriate. Because the District sought participation in securing financing for the project from the Farmers Home Administration, United States Department of Agriculture (FmHA), certain ... supplemental general conditions were included in the contract [in addition to the EPA clause]. One of these supplemental general conditions was SG-24, 'Adjustment of Dispute.' ... Section SG-24, as proposed by the FmHA, provided that, 'All questions or controversies which may arise between the Contractor and the Owner, under or in reference to this contract, shall be subject to the decision of some competent person....' ... Because the District was adamant that arbitration of any dispute be voluntary rather than compulsory, we changed the language of SG-24 from 'shall be subject to' to 'may be subject to.' ... The purpose behind changing the language of SG-24 from 'shall' to 'may' was to ensure that arbitration was to be optional, rather than compulsory...." There is no indication that this act, nor the reasons therefore, were ever communicated to Titan. ³

The court, after hearing oral argument and considering the parties' papers, denied Titan's motion without issuing any statement of decision. Nothing in the record before us indicates either party sought a statement of decision. When an order refusing to compel arbitration contains nothing respecting its basis, its legality must be determined from the record and the provisions of Code of Civil Procedure, section 1281.2. (A.D. Hoppe Co. v. Fred Katz Constr. Co. (1967) 249 Cal.App.2d 154, 158-159, 57 Cal.Rptr. 95.)

Code of Civil Procedure section 1281.2 states, in pertinent part: "On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, ..." (Italics added.) "The clear purpose and effect of section 1281.2 is to require the superior court to determine in advance whether there is a duty to arbitrate the controversy which has arisen. The performance of this duty necessarily requires the court to examine and, to a limited extent, construe the underlying agreement." (Freeman v. State Farm Mut. Auto. Ins. Co. (1975) 14 Cal.3d 473, 480, 121 Cal.Rptr. 477, 535 P.2d 341.) The question here, therefore, is whether "the party resisting arbitration [i.e., District] in fact agreed to arbitrate." (Painters Dist. Council No. 33 v. Moen (1982) 128 Cal.App.3d 1032, 1037, and citations therein, 181 Cal.Rptr. 17.)

" 'An appellate court is not bound by [the trial court's] construction of the contract based solely upon the terms of the written instrument ... where there is no conflict in the evidence....' " (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865, 44 Cal.Rptr. 767, 402 P.2d 839.). In the absence of conflicting extrinsic evidence, the interpretation of a contract becomes a question of law and an appellate court "must make an independent determination of the meaning of the contract." (Id., at p. 866, 44 Cal.Rptr. 767, 402 P.2d 839.)

District, via the Wallace declaration, contends it included the FmHA clause only to obtain financing for its project from the Farmers Home Administration, but changed "shall" as proposed by FmHA, to "may" in order to preserve its right to court adjudication of disputes, thereby manifesting its intent to preserve its right to jury trial. It is the objective intent, as evidenced by the words of the contract, rather than the subjective intent of one of the parties, that controls interpretation. "[I]t is now a settled principle of the law of contract that the undisclosed intentions of the parties are ... immaterial; and that the outward manifestation or expression of assent is controlling." (Brant v. California Dairies, Inc. (1935) 4 Cal.2d 128, 133, 48 P.2d 13; see also Mission Valley East, Inc. v. County of Kern (1981) 120 Cal.App.3d 89, 97, 174 Cal.Rptr. 300; City of Mill Valley v. Transamerica Ins. Co. (1979) 98 Cal.App.3d 595, 603, 159 Cal.Rptr. 635.)

In construing the agreement, "we are guided by the rule that, contractual arbitration being a favored method of resolving disputes, every intendment will be indulged to give effect to such proceedings." (Painters Dist. Council No. 33 v. Moen, supra, 128 Cal.App.3d at p. 1037, 181 Cal.Rptr. 17; Madden v. Kaiser Foundation Hospitals (1976) 17 Cal.3d 699, 706-707, 131 Cal.Rptr. 882, 552 P.2d 1178; McRae v. Superior Court (1963) 221...