W.M. Schlosser Co., Inc. v. School Bd. of Fairfax County, Va.

• Decision Date: 13 January 1993
• Docket Number: No. 92-1008,92-1008
• Citation: 980 F.2d 253
• Parties: 79 Ed. Law Rep. 382 W.M. SCHLOSSER COMPANY, INCORPORATED, Plaintiff-Appellant, v. SCHOOL BOARD OF FAIRFAX COUNTY, VIRGINIA, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 253

980 F.2d 253

79 Ed. Law Rep. 382

W.M. SCHLOSSER COMPANY, INCORPORATED, Plaintiff-Appellant, v. SCHOOL BOARD OF FAIRFAX COUNTY, VIRGINIA, Defendant-Appellee.

No. 92-1008.

United States Court of Appeals, Fourth Circuit.

Argued Sept. 29, 1992.

Decided Nov. 18, 1992.

As Amended Jan. 13, 1993.

Herman Martin Braude, Braude & Margulies, P.C., Washington, D.C., argued (Roger C. Jones, on brief), for plaintiff-appellant.

Thomas John Cawley, Hunton & Williams, Fairfax, Va., argued (Stuart A. Raphael, on brief), for defendant-appellee.

Before PHILLIPS, NIEMEYER, and LUTTIG, Circuit Judges.

OPINION

LUTTIG, Circuit Judge:

The W.M. Schlosser Company appeals an order of the district court denying its motions to compel arbitration and to appoint an arbitrator to resolve its construction contract dispute with the School Board of Fairfax County, Virginia. We conclude that regardless of whether the School Board agreed to arbitrate the dispute in question, it lacked the legal authority to arbitrate under the laws of the Commonwealth of Virginia. We therefore affirm.

I.

The relevant facts necessary to the disposition of this appeal are not in dispute. On June 10, 1988, the W.M. Schlosser Company [Schlosser], a Maryland corporation, entered into a contract with the Fairfax County School Board [the School Board] for the performance of renovation construction at the Falls Church High School. The contract comprised a number of documents, the most important of which were two standard construction forms prepared by the American Institute of Architects, the AIA Standard Agreement and the AIA General Conditions, and a set of Supplementary Conditions that included extensive modifications to the terms of the AIA standard forms. J.A. at 5-41.

The AIA General Conditions provide for the arbitration of claims arising under the contract. Article 2.2.7 of the General Conditions stipulates that all disputes between contractors and owners must first be referred to the project architect for an initial decision. ¹ Id. at 14. Article 2.2.10 states that "[a]ny claim, dispute or other matter that has been referred to the Architect ... shall be subject to arbitration upon the written demand of either party." Id. Finally, Article 7.10, entitled "ARBITRATION," provides that all contract disputes shall be arbitrated in accordance with the Construction Industry Arbitration Rules of the AIA and outlines the arbitration process. Id. at 20. In the Supplementary Conditions portion of the contract, Schlosser and the School Board left Articles 2.2.7 and 2.2.10 unchanged. Id. at 27. They deleted Article 7.10 of the AIA General Conditions, however, in its entirety. Id. at 30. ²

Prior to completion of the Falls Church High School project, Schlosser alleged that it had been delayed in the performance of its contract obligations by the School Board, and on August 3, 1990, it served the Board with a claim for damages in the amount of $1,152,941. Schlosser submitted a copy of the claim to the project architect for an initial adjudication, pursuant to Article 2.2.7 of the General Conditions. Id. at 3. Several months later, the architect granted Schlosser a short extension of the time within which it was required to complete its work, but denied Schlosser's damages claim. Id. at 75-79.

On March 27, 1991, Schlosser presented the Board with a written demand for arbitration pursuant to Article 2.2.10 of the General Conditions. The following day, invoking the court's diversity jurisdiction, Schlosser moved in the district court to compel arbitration and to designate and appoint an arbitrator under the terms of the Federal Arbitration Act [FAA], 9 U.S.C. §§ 1 et seq. Schlosser's petition was referred to a federal magistrate who, after conducting a hearing, denied both of Schlosser's motions on the ground inter alia that the School Board lacked the authority to arbitrate under Virginia law and thus that any attempt by the Board to contract to arbitrate was unenforceable. J.A. at 103, 105.

Schlosser appealed the magistrate judge's decision to the district court. ³ The district court adopted the magistrate's recommendations, holding that the Board had no authority under Virginia law to arbitrate contract disputes. Id. at 125-26. This appeal followed. ⁴

II.

A.

The question before the court is whether the School Board possesses the authority under the laws of the Commonwealth of Virginia to agree to arbitrate contractual disputes, for if it does not, then any such agreement by the Board is unenforceable as ultra vires and the motion to compel arbitration therefore must be denied. See Richmond Ry. Co. v. Richmond, Etc., 145 Va. 266, 299, 133 S.E. 888, 898 (1926) ("When the contract is once declared ultra vires, the fact that it is executed does not validate it, nor can it be ratified so as to make it the basis of suit or action, nor does the doctrine of estoppel apply."); accord Richard L. Deal & Assocs., Inc. v. Commonwealth, 224 Va. 618, 299 S.E.2d 346 (1983). The resolution of this question depends in turn upon application of the Dillon Rule, a rule of construction applicable in Virginia when determining the powers of local government: "There can be no question that Virginia long has followed, and still adheres to, the Dillon Rule of strict construction concerning the powers of local governing bodies." Commonwealth v. County Bd., 217 Va. 558, 232 S.E.2d 30, 40 (1977). ⁵

According to the Dillon Rule, local governing bodies such as counties, municipal corporations, and school boards "possess and can exercise only those powers expressly granted by the General Assembly, those necessarily or fairly implied therefrom, and those that are essential and indispensable." ⁶ City of Richmond v. Confrere Club, 239 Va. 77, 387 S.E.2d 471, 473 (1990) (citing cases); County Bd. v. Brown, 229 Va. 341, 329 S.E.2d 468, 470 (1985); see also School Bd. v. Burley, 225 Va. 376, 378, 302 S.E.2d 53, 55 (1983) ("A school board may exercise only the power granted it by the General Assembly."); Kellam v. School Bd., 202 Va. 252, 117 S.E.2d 96, 98 (1960) (school boards "constitute public quasi corporations that exercise limited powers and functions of a public nature granted to them expressly or by necessary implication, and none other"). The Rule is strictly construed and strictly enforced by the Virginia Supreme Court and the court does not liberally recognize governmental powers by implication. See Brown, 329 S.E.2d at 472 (power to lease realty cannot be implied from county's express power to sell or convey realty); Commonwealth v. County Bd., 232 S.E.2d at 44 (power to bargain collectively cannot be implied from expressly granted powers of school boards to contract, hire employees, and set terms of employment). Significantly, "[i]f there is any reasonable doubt whether legislative power exists, that doubt must be resolved against the local governing body." Confrere Club, 387 S.E.2d at 473 (emphases added); accord Stallings v. Wall, 235 Va. 313, 316, 367 S.E.2d 496, 497 (1988).

B.

Schlosser and the School Board agree that the state constitution does not expressly confer the power to arbitrate on Virginia school boards. Both parties also appear to agree that such a power cannot be considered "essential" or "indispensable" to the functioning of school boards. Therefore, if the power to agree to arbitrate is not expressly granted by statute or cannot be implied from a power explicitly conferred on school boards by the General Assembly, it does not exist.

Schlosser contends that the authority to agree to arbitrate is conferred in section 22.1-71 of the Virginia Code. That statute, which lists the corporate powers of the Commonwealth's school boards, provides that every

school board is ... vested with all the powers and charged with all the duties, obligations and responsibilities imposed upon school boards by law and may sue, be sued, contract, be contracted with and, in accordance with the provisions of this title, purchase, take, hold, lease and convey school property....

Va.Code Ann. § 22.1-71 (Michie 1985) (emphasis added). Schlosser asserts that because the School Board has the "capacity to contract, [it] ... clearly has the power to enter into construction contracts containing arbitration provisions for the resolution of claims relating to the contract." Appellant's Br. at 10-11. ⁷

It is not entirely clear whether Schlosser contends that the grant of the power to contract in section 22.1-71 is an express conferral of the power to agree to arbitrate or whether it contends that the power to arbitrate is implied in the power to contract. While neither contention is without force, ultimately each fails. Both the Public Procurement Act, Virginia Code §§ 11-35 et seq., and section 15.1-508 of the Virginia Code confirm that the Virginia General Assembly does not consider the grant of a right to contract as expressly conferring a right to agree to arbitrate. It is also evident from these statutes, especially when they are construed strictly as required by the Dillon Rule, that we are not at liberty to imply such a right from the School Board's right to contract.

C.

The Public Procurement Act, which governs the procurement of goods and services by counties, cities, towns, and school divisions from nongovernmental sources, sets forth procedures for resolving contract disputes between public entities and private contractors. Section 11-69 of the Act requires in relevant part that "[e]ach public body ... include in its contracts a procedure for consideration of contractual claims," and mandates that "[t]he decision of the public body shall be final and conclusive unless the contractor appeals...." Appeal of the final decision of the public body is limited to the "[invocation of] administrative procedures meeting the standards of § 11-71, if available, or in the alternative [to] institut[ion] [of] legal action [in the appropriate state court]." Va.Code Ann. § 11-69 D. (Michie 1985...