Waterfront Marine Const., Inc. v. North End 49ers Sandbridge Bulkhead Groups A, B and C

• Decision Date: 19 April 1996
• Docket Number: No. 951218,951218
• Citation: 468 S.E.2d 894,251 Va. 417
• Parties: WATERFRONT MARINE CONSTRUCTION, INC. v. NORTH END 49ERS SANDBRIDGE BULKHEAD GROUPS A, B AND C. Record
• Court: Virginia Supreme Court

Page 894

468 S.E.2d 894

251 Va. 417

WATERFRONT MARINE CONSTRUCTION, INC. v. NORTH END 49ERS SANDBRIDGE BULKHEAD GROUPS A, B AND C.

Record No. 951218.

Supreme Court of Virginia.

April 19, 1996.

Gregory A. Giordano, Virginia Beach (Shuttleworth, Ruloff & Giordano, on briefs), for appellant.

John S. Norris, Jr., Norfolk (Norris & St. Clair, on brief), for appellee.

Present: All the Justices.

LACY, Justice.

In this appeal we consider whether the trial court's confirmation of an arbitration award was erroneous because the claims in the demand for arbitration either were not arbitrable or were barred by the doctrine of res judicata.

North End 49ers Sandbridge Bulkhead Groups A, B, and C (49ers) is an unincorporated association of 22 landowners in the Sandbridge section of Virginia Beach. In 1988, the 49ers sought bids for the construction of a bulkhead along their property. Waterfront Marine Construction, Inc. (WMC) presented a bid to construct sheet steel bulkheads with tiebacks rather than the wooden bulkheads previously used in the Sandbridge area. The 49ers accepted WMC's bid and entered into an agreement with WMC for the construction of the bulkhead at a price of $850,740.00. ¹ The construction contract included a provision providing for arbitration of any controversy or claim "arising out of or relating to the Contract or the breach thereof."

In 1989, the 49ers hired an engineering firm to inspect the bulkhead WMC had installed after a bulkhead of similar design had failed during a storm. At that point, the 49ers' bulkhead had not been completely backfilled. The inspection report concluded that the bulkhead design and construction were defective. Following the receipt of this report, the 49ers filed a demand for arbitration with the American Arbitration Association (AAA). The 49ers sought damages of $1,212,282.00, based on bids they received for work they contended was necessary to correct deficiencies in the bulkhead. WMC also filed a demand with the AAA seeking to recover $127,382.44--the unpaid balance of the construction price, plus interest and arbitration costs.

An arbitration panel comprised of three engineers was appointed by the AAA. Following a hearing, the panel entered an award on March 7, 1991, denying the 49ers' claim and granting WMC's claim. The arbitrators also ordered WMC to perform certain work relating to the tie rod connections and anchor piles within 60 days. According to the terms of the award, the work had to be performed to the satisfaction of an independent engineer jointly hired and paid by the 49ers and WMC. The award required WMC to guarantee the work done for one year from the date the independent engineer determined that the work was completed.

Despite numerous attempts, WMC and the 49ers could not agree on the independent engineer and, consequently, WMC did not perform the work required under the first arbitration award. During this time, the spring and summer of 1991, the parties engaged in settlement discussions. On October 31, 1991, an unusually strong northeaster hit the 49ers' property, but the bulkhead did not collapse. A second storm hit five days later, damaging approximately 600 feet of the 2,340-foot bulkhead.

On January 16, 1992, the 49ers filed a second demand for arbitration with the AAA, characterizing it as "a continuation" of the previous arbitration case, and requesting that the same panel be assembled to hear the demand. They also sought punitive damages. The AAA determined, however, that the matter was "filed as a new matter" and that reconvening the members of the original arbitration panel required agreement of the parties. The AAA also noted that WMC had raised an issue of "arbitrability" and stated "[a]s a nonjudicial body, the Association cannot determine whether or not an issue is arbitrable. Therefore, we will proceed with further administration of this case, unless otherwise requested by both parties, or unless the moving party is stayed by court order."

WMC filed a motion in the trial court seeking a temporary injunction to stay the pending arbitration proceeding. In its pleadings, WMC also sought a declaratory judgment that the 49ers' second arbitration demand was barred by collateral estoppel and res judicata. The trial court entered an ex parte order on September 4, 1992, enjoining the arbitration proceedings. Following a hearing on March 18, 1993, the trial court ruled from the bench that the first arbitration award was final, that it could be "recognized in the form of a judgment," and that it could be enforced. The court found that there was no agreement to "arbitrate the arbitration award."

The 49ers filed a motion to reconsider and, after further consideration of memoranda and argument of counsel, the trial court reversed its prior position and vacated its September 4 order enjoining further arbitration proceedings. The court entered an order on September 30, 1993, referring the following matters to arbitration: 1) whether the dispute involving the first arbitration award was arbitrable; 2) whether res judicata was applicable to the claim; and 3) whether the 49ers were entitled to punitive damages.

The arbitration panel determined that the dispute centering on enforcement of the first arbitration award was arbitrable. After a two-day hearing, the panel issued a second arbitration award on July 8, 1994. That award required the 49ers to pay WMC the balance due from the first arbitration award and required WMC to pay a total of $491,795.00 to the 49ers for repair and replacement of the bulkhead and tie-back system, pre-arbitration costs, and property damage.

Pursuant to Code § 8.01-581.09, the 49ers filed a motion in the trial court to confirm the second arbitration award. WMC filed a motion seeking to vacate the award pursuant to Code § 8.01-581.10 based on allegations, inter alia, that the arbitrators exceeded their authority by addressing issues that should have been resolved by the court and resolving issues that were not arbitrable. WMC also sought a modification of the award pursuant to Code § 8.01-581.011. After considering memoranda and argument of counsel, the trial court entered an order on March 30, 1995, denying WMC's motion to vacate, granting WMC's motion to modify by removing approximately $17,000 in pre-arbitration costs from the amount owed to the 49ers, and confirming the award as modified. We awarded WMC an appeal.

WMC raises a number of issues in its challenge to the trial court's action confirming the second arbitration award. These issues include whether the trial court's reference of the second demand for arbitration to the arbitration panel was erroneous because the claims in the demand either were not arbitrable or were barred by the doctrine of res judicata, whether the trial court used the proper standard of review in confirming the second arbitration award, and whether compulsory arbitration is available to current members of the 49ers who were not signatories to the 1988 contract which contained the arbitration agreement. We begin by considering a threshold issue raised by WMC: whether the trial court erred in its determination that the arbitration panel should decide the arbitrability of the claims contained in the 49ers' second demand for arbitration.

I. DECIDING ARBITRABILITY

WMC argues that the court, not the arbitrators, should determine whether a dispute is arbitrable. Therefore, it contends, the trial court erred when it referred to the arbitration panel the issue whether the compliance dispute was arbitrable. The 49ers maintain that Code § 8.01-581.02(B) restricts the trial court's role to considering only whether there is an agreement to arbitrate and that, in the absence of a specific agreement to the contrary, the arbitrators have the authority to resolve the issue of arbitrability. Because the existence of an arbitration agreement is not contested here, the 49ers conclude that the trial court properly referred the issue whether a dispute over the enforcement of the first award was arbitrable to the arbitration panel for resolution.

A. THE STATUTE

Contrary to the 49ers' assertion, Code § 8.01-581.02(B) authorizes the court to determine issues of arbitrability. That subsection provides in pertinent part:

On application, the court may stay an arbitration proceeding commenced or threatened on a showing that there is no agreement to arbitrate. Such an issue, when in substantial and bona fide dispute, shall be forthwith and summarily tried and the stay ordered if found for the moving party.

(Emphasis added). The 49ers contend that the phrase "agreement to arbitrate" in the subsection means that once a party shows that there is a valid contract between the parties and that the contract provides for arbitration of disputes, the court must order arbitration, leaving to the arbitrators issues of specific claim arbitrability. The statute, however, has not been applied to limit the trial court's authority in the manner suggested.

In two recent cases subject to the Uniform Arbitration Act, Code §§ 8.01-581.01 through -581.016, we have recognized the power of trial courts to resolve issues of arbitrability. In Trustees v. Taylor & Parrish, 249 Va. 144, 452 S.E.2d 847 (1995), the trial court ruled that the arbitration clause in the parties' contract encompassed a dispute over a change order and that the issues in an amended demand for arbitration were arbitrable. Id. at 148-49, 452 S.E.2d at 849-50. Likewise, in McMullin v. Union Land & Management Co., 242 Va. 337, 410 S.E.2d 636 (1991), the trial court ruled that a disputed claim for compensation was outside the scope of the arbitration clause. Id. at 341, 410 S.E.2d at 638. While this Court reversed the trial courts' conclusions, the reversals were not based on the trial courts' lack of jurisdiction to decide the arbitrability issues. Rather, in those cases, the trial courts erred in their conclusions regarding arbitrability. Trustees,...