Wb v. El Destino Lp, 1 CA–CV 10–0077.

Decision Date02 June 2011
Docket NumberNo. 1 CA–CV 10–0077.,1 CA–CV 10–0077.
Citation257 P.3d 1182,227 Ariz. 302
PartiesWB, THE BUILDING COMPANY, LLC an Idaho limited liability company, Plaintiff/Appellant,v.EL DESTINO LP, an Arizona limited partnership; Community Development, Inc., an Idaho Corporation, doing business as West Coast Affordable Housing, Inc., an Idaho Corporation Defendants/Appellees.
CourtArizona Court of Appeals

OPINION TEXT STARTS HERE

Sherman & Howard, LLC. By Arthur W. Pederson, David W. Garbarino, Christopher W. Payne, Phoenix, Attorneys for Plaintiff/Appellant.Perkins Coie LLP, By Tawn T. Pritchette, Craig A. Morgan, Phoenix, Attorneys for Defendants/Appellees.

OPINION

WINTHROP, Judge.

¶ 1 WB, the Building Company, LLC (WB), an Idaho limited liability company, appeals from a grant of summary judgment in favor of El Destino, LP, an Arizona limited partnership, and Community Development, Inc., an Idaho corporation dba West Coast Affordable Housing (collectively Appellees). WB argues that the court erred by not compelling arbitration in this matter. Alternatively, WB contends that the court erred in granting summary judgment. WB also challenges the award of attorneys' fees and costs. For the reasons set forth below, we affirm on the merits, but vacate the award of attorneys' fees and costs and remand that issue to the superior court.

FACTS AND PROCEDURAL BACKGROUND

¶ 2 Wright Brothers, The Building Company (Wright Brothers), an Idaho Corporation, is a “general construction and construction management company.” At the urging of its insurer, Wright Brothers formed WB to manage its residential construction projects while Wright Brothers focused solely on commercial construction. The directors of Wright Brothers hold the exact same positions for WB, and Wright Brothers is the only guarantor and member of WB. Wright Brothers had a history of working for Appellees to develop real estate in multiple states.

¶ 3 In March, 2006, WB and Appellees entered a construction contract wherein WB was retained by Appellees to improve and develop real property in Santa Cruz County, Arizona. The contract was signed by Appellees' manager and Joseph Rausch in his capacity as WB's vice president (Rausch held the same position for Wright Brothers). The contract contained the following relevant arbitration provisions (“the arbitration agreement”):

§ 4.6.1 Any Claim arising out of or related to the Contract, except Claims relating to aesthetic effect and except those waived as provided for in Sections 4.3.10, 9.10.4 and 9.10.5, shall, after decision by the Architect or 30 days after submission of the Claim to the Architect, be subject to arbitration. Prior to arbitration, the parties shall endeavor to resolve disputes by mediation in accordance with the provisions of Section 4.5.

§ 4.6.2 Claims not resolved by mediation shall be decided by arbitration which, unless the parties mutually agree otherwise, shall be in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association currently in effect. The demand for arbitration shall be filed in writing with the other party to the Contract and with the American Arbitration Association, and a copy shall be filed with the Architect.

Subsequently, Appellees signed an amendment that was executed by Robert A. Wright in his capacity as Wright Brothers' president (Wright held the same position with WB). The “Contractor's Certification and Representations” listed only WB as the contractor and was signed by Rausch, but the contract did not denote whether he was acting in his capacity as the vice president of WB or Wright Brothers. Construction began on the project in April, 2006.

¶ 4 On March 25, 2008, WB filed an amended complaint in the Arizona Superior Court claiming that Appellees had breached the contract and requesting additional relief on grounds of equitable estoppel, promissory estoppel, and unjust enrichment/ quantum meruit. WB also requested that the court stay the proceedings so that the parties could engage in arbitration as required by the contract. On September 15, 2008, the court issued an order staying proceedings until the arbitrator issued a final decision or until the court received an application to affirm or enter an arbitration award.

¶ 5 On November 25, 2008, Appellees filed an OMNIBUS MOTION TO LIFT STAY, FOR SUMMARY JUDGMENT, AND FOR INDEFINITE STAY OF ARBITRATION PROCEEDINGS” (“the Omnibus motion). While engaged in arbitration, Appellees discovered that WB had not been licensed as a contractor when it entered the agreement and had not been licensed when construction commenced. In fact, WB had not received a contractor's license until October 5, 2006—almost six months after WB entered the contract. Appellees argued that both the contract and the arbitration clause were, therefore, void and unenforceable pursuant to Arizona Revised Statutes (“A.R.S.”) section 32–1151 (2008) and that WB was barred from obtaining relief pursuant to A.R.S. § 32–1153 (2008). WB responded that a stay of arbitration would be inappropriate as the issue of whether the contract was valid was a matter for the arbitrator alone to decide, and not one for the court to consider. Further, WB argued that summary judgment would be inappropriate as there were genuine issues of material fact regarding WB's substantial compliance with Arizona licensing laws and whether Wright Brothers was a party to the contract.1

¶ 6 On February 12, 2009, the court lifted the stay and granted summary judgment, stating that the arbitration clause was not legally enforceable and WB was barred from relief because it did not have a contractor's license when it entered the contract. On November 19, 2009, the court granted Appellees' application for attorneys' fees and expenses. WB timely appealed the grant of attorneys' fees and also filed a motion for a new trial. We suspended the appeal to allow the trial court to make a ruling on WB's pending motion for a new trial.

¶ 7 On April 14, 2010, the court issued a final judgment. The judgment denied WB's motion for a new trial and also incorporated the court's minute entries of February 12, 2009, and September 25, 2009.2 The final judgment also awarded Appellees $200,000.00 for their reasonable attorneys' fees; $225,988.41 for their non-taxable expenses; and $6,701.72 for their taxable costs. WB timely appealed.

¶ 8 We have jurisdiction pursuant to A.R.S. §§ 12–2101(B) and (F)(1) (2003), and 12–2101.01(A)(2) (2003).

DISCUSSION

¶ 9 On appeal, WB contends that the court lacked authority to determine whether the contract was void and was required to compel arbitration on the matter. WB argues that the arbitrator is the only entity that may make a determination on the validity of the contract. Appellees respond that the court was correct in finding that the arbitration agreement was invalid and unenforceable, and therefore, considering their motion for summary judgment. In the alternative, WB contends that granting summary judgment was inappropriate as there are genuine issues of material fact. Finally, WB argues that the awards of attorneys' fees and costs were excessive, unreasonable, and unsubstantiated.

I. Validity of Arbitration Clause

¶ 10 WB contends that the subject matter of the contract implicates interstate commerce, and therefore, the Federal Arbitration Act applies to this analysis. See 9 U.S.C. §§ 2 and 4 (West 2010); see also Southland Corp. v. Keating, 465 U.S. 1, 14–15, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984) (finding that the term “involving commerce” in 9 U.S.C. § 2 implicates Congress' interstate commerce powers, and therefore, the Federal Arbitration Act is “intended to apply in state and federal courts). On the other hand, section 13.1.1 of the contract states that the governing law is “the law of the place where the Project is located,” in this case, Arizona. We note that the relevant state statutes, A.R.S. §§ 12–1501 (2003) and 12–1502 (2003) are substantially similar in scope and purpose to 9 U.S.C. §§ 2 and 4. See, e.g., U.S. Insulation, Inc. v. Hilro Const. Co., Inc., 146 Ariz. 250, 253, 705 P.2d 490, 493 (App.1985) (stating that section 4 of the Federal Arbitration Act is “very similar in purpose to A.R.S. § 12–1502.”). Given the substantial similarities between the statutory schemes, we believe that the same analysis is mandated by both sets of statutes.

¶ 11 We begin our analysis by recognizing that both federal and state public policies weigh heavily in favor of enforcing arbitration agreements. See Stevens/Leinweber/Sullens, Inc. v. Holm Dev. & Mgmt., Inc., 165 Ariz. 25, 29–30, 795 P.2d 1308, 1312–13 (App.1990) (citing Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967); Mitsubishi Motors Corp. v. Soler Chrysler–Plymouth, Inc., 473 U.S. 614, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985); Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985); U.S. Insulation, 146 Ariz. 250, 705 P.2d 490; New Pueblo Constructors, Inc. v. Lake Patagonia Recreation Ass'n, Inc., 12 Ariz.App. 13, 467 P.2d 88 (1970)). Although public policy supports such enforcement, it is also well-established that arbitration agreements are severable from the rest of the contract, and therefore, a court may only stay arbitration if there is a challenge to the arbitration clause itself.3 See Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445–46, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006) (stating that “an arbitration provision is severable from the remainder of the contract” and “the issue of the contract's validity is considered by the arbitrator in the first instance”); see also Rent–A–Center, West, Inc. v. Jackson, ––– U.S. ––––, 130 S.Ct. 2772, 2778, 177 L.Ed.2d 403 (2010) (noting that arbitration agreements are not “unassailable” and that “the federal court must consider the challenge

[to the

arbitration agreement] before ordering compliance with that agreement”); Stevens, 165 Ariz. at...

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