Union County School Dist. No. 1 v. Valley Inland Pacific Constructors, Inc., 25274

• Decision Date: 13 October 1982
• Docket Number: No. 25274,25274
• Citation: 59 Or.App. 602,652 P.2d 349
• Parties: , 7 Ed. Law Rep. 221 UNION COUNTY SCHOOL DISTRICT NO. 1, Respondent, v. VALLEY INLAND PACIFIC CONSTRUCTORS, INC., a corporation, Appellant. ; CA 16611. . *
• Court: Oregon Court of Appeals

Page 349

652 P.2d 349

59 Or.App. 602, 7 Ed. Law Rep. 221

UNION COUNTY SCHOOL DISTRICT NO. 1, Respondent, v. VALLEY INLAND PACIFIC CONSTRUCTORS, INC., a corporation, Appellant.

No. 25274; CA 16611.

Court of Appeals of Oregon In Banc. ^*

Argued and Submitted March 20, 1981.

Resubmitted In Banc Sept. 8, 1982.

Decided Oct. 13, 1982.

Elizabeth Yeats, Portland, argued the cause for appellant. With her on the briefs were Kobin & Meyer, and Daniel J. Seifer, Portland.

Jack L. Kennedy, Portland, argued the cause for respondent. With him on the brief were Kennedy, King & McClurg, Allen L. Reel, Portland, and Helm & Valentine and Carl G. Helm, La Grande.

BUTTLER, Judge.

In this declaratory judgment proceeding, plaintiff seeks a declaration that it is not required to comply with defendant's demand to arbitrate certain disputes under their contract, and an injunction prohibiting defendant from pursuing its demand for arbitration. Defendant appeals from a decree granting plaintiff the relief it sought.

Plaintiff and defendant entered into a contract on October 17, 1974, whereby defendant agreed to construct a school building in La Grande. The contract provided that all claims and disputes arising out of the contract, with certain limitations, were to be decided by arbitration in accordance with the rules of the American Arbitration Association. On September 18, 1975, during construction of the school, part of the structure collapsed, causing death to one worker, injury to four others, and a delay in the project. Actions were brought against defendant and its subcontractors for the death and personal injuries; those claims were settled between October, 1977, and May, 1978. No claims were made against plaintiff, and it was not a party to any of the settlements.

Thereafter, defendant completed construction of the building, and it was accepted by plaintiff in August, 1976. All monies due defendant from plaintiff were paid at or about that time, except for a retainage of $4,601.64, which was not paid until after defendant demanded arbitration in November, 1978.

In seeking arbitration, defendant claimed that plaintiff breached the contract by the failure of plaintiff's architect to inspect the work properly and interpret correctly the requirements of the contract, which failures caused the collapse. It sought damages of $1,403,508.64 for delay and repair costs and indemnification for the death and personal injury settlements.

In January, 1979, plaintiff filed this action for declaratory and injunctive relief. A preliminary injunction was granted enjoining defendant from proceeding with its demand for arbitration, and, after various preliminary matters, the case was tried to the court on November 14, 1979. The court granted plaintiff the relief it requested, including a permanent injunction, ruling that this dispute was not referable to arbitration for the following reasons: (1) the demand for arbitration was not made prior to "final payment" as required by the contract; (2) it was not the parties' intention at the time they entered the contract to arbitrate disputes of this type; (3) the demand was not timely made and is therefore barred by the statute of limitations, laches, and a contract provision requiring that an arbitration demand be made within a "reasonable time," and (4) defendant's claim is "frivolous and patently baseless," because the contract required defendant to indemnify plaintiff for the type of claims which defendant is here asserting.

Although defendant assigns 14 errors, we need only consider whether the court was correct in determining that arbitration was barred for any of the above four reasons. The underlying issue with respect to all of them is whether they should have been decided by the court or should be decided by the arbitrators. Defendant contends that, although this suit is one for declaratory relief, ORS 28.010 et seq., the court's inquiry is limited to those defenses to an order directing arbitration which it could have considered had the party seeking arbitration filed a petition to compel arbitration pursuant to ORS 33.230. ¹ That statute, which was designed to insure expeditious enforcement of a demand for arbitration pursuant to contract, by its terms permits a party resisting arbitration to raise only two issues: (1) that it is not in default, and (2) the contract or submission was not properly made.

We agree with defendant that a party who resists arbitration by seeking a judicial declaration that the dispute is not arbitrable may not expand the scope of the court's inquiry beyond that permitted by ORS 33.230. Under that statute the court determines only whether there is a contract (or submission) providing for arbitration and whether there is a default; it is contemplated that defenses to the claim, including its arbitrability, be decided by the arbitrator. Given that statutory scheme, a resisting party should not be allowed to circumvent it by taking the initiative to enjoin arbitration. The narrow statutory inquiry effectuates the parties' presumed desire for a fast, informal, and inexpensive means of resolving their disputes. See Peter Kiewit v. Port of Portland, 291 Or. 49, 65, 628 P.2d 720 (1981) (Denecke, C.J., concurring).

Although it is not clear what defenses may be considered in a proceeding under ORS 33.230, the statute permits either party to demand a jury to determine whether there was a contract providing for arbitration and whether there is a default, which suggests that only factual questions with respect to those defenses be determined. ² However, there are, undoubtedly, cases where the agreement to arbitrate is specifically limited to certain kinds of disputes and a court could conclude as a matter of law that there was no default in the agreement by the party refusing to arbitrate. ³ Generally, however, it is this state's policy to construe arbitration agreements liberally to enhance arbitrability of disputes, Budget Rent-A-Car v. Todd Investment Co., 43 Or.App. 519, 524, 603 P.2d 1199 (1979), and, at least under collective bargaining agreements, to refer the matter to arbitration unless the claim alleged is one which, on its face, is clearly and unambiguously excluded from arbitration. Corvallis Sch. Dist. v. Corvallis Education Assn., 35 Or.App. 531, 535, 581 P.2d 972 (1978). ⁴

The narrow inquiry in the judicial proceeding is consistent with the parties' expressed intent to arbitrate disputes, especially when defenses to arbitration intertwine with the merits of the dispute, requiring the parties to present the same evidence twice in the event the court rules in favor of arbitrability. Wiley & Sons v. Livingston, 376 U.S. 543, 558, 84 S.Ct. 909, 918, 11 L.Ed.2d 898 (1964). In Peter Kiewit v. Port of Portland, supra, the court treated the arbitration statutes (ORS 33.210 et seq ) as a whole, whether the question of arbitrability is raised under ORS 33.240 for abatement of a pending lawsuit to abide arbitration or whether it is raised in the independent proceeding provided by ORS 33.230. In Transco Northwest v. Allied Equit., 275 Or. 675, 678, 552 P.2d 824 (1976), n. 2, supra, the question arose under ORS 33.240 for abatement, and we think that it is consistent with Transco to limit, in general, the court's inquiry to those matters which, like settlement, require a minimal factual inquiry, and would be a complete bar to arbitration, and which the court or jury may decide without delving into the merits of the dispute itself.

With those limitations in mind, we consider the four grounds asserted by plaintiff as bars to arbitration, the first of which is that the demand for arbitration was not made prior to "final payment." The arbitration clause provides:

"All claims, disputes and other matters in question arising out of, or relating to, this Contract or the breach thereof, except as set forth in Subparagraph 2.2.9 with respect to the Architect's decisions on matters relating to artistic effect, and except for claims which have been waived by the making or acceptance of final payment as provided by Subparagraphs 9.7.5 and 9.7.6, shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association then obtaining unless the parties mutually agree otherwise. This agreement to arbitrate shall be specifically enforceable under the prevailing arbitration law. The award rendered by the arbitrators shall be final, and judgment may be entered upon it in accordance with applicable law in any court having jurisdiction thereof."

On its face, defendant's claim appears to be arbitrable under that clause. However, by its terms the clause provides that arbitration is not available for claims waived by making or accepting "final payment." Because the meaning of that term is unclear, the trial court determined, after hearing conflicting testimony, that "final payment" had been made when the $3,000,000 was paid in 1976. It was error for the court to decide that question, because the meaning of "final payment" is arbitrable as a dispute arising under the contract. The arbitrator, rather than the court, should decide whether "final payment" foreclosed arbitration of the merits.

As to plaintiff's second contention that arbitration is not required here because the parties did not intend that disputes of this type be arbitrable, the trial court admitted and considered testimony by plaintiff that, despite the clear language that "all claims, disputes and other matters in question arising out of, or relating to, this contract" are arbitrable, the parties did not intend to arbitrate this dispute. It was error to consider that evidence. The contract clause is unambiguous, and parol evidence is, therefore, inadmissible to contradict it. Knox v. Hanson, 242 Or. 114, 120, 408 P.2d 76 (1965). Plaintiff contends that, by reading the contract "within all four corners," giving the clause its plain meaning would...