Weatherguard Roofing v. D.R. Ward Const., 1 CA-CV 05-0247.

Citation152 P.3d 1227,214 Ariz. 344
Decision Date27 February 2007
Docket NumberNo. 1 CA-CV 05-0247.,1 CA-CV 05-0247.
PartiesWEATHERGUARD ROOFING CO., INC., a defunct Arizona corporation, Plaintiff/Appellant, v. D.R. WARD CONSTRUCTION COMPANY, INC., an Arizona corporation, Defendant/Appellee.
CourtCourt of Appeals of Arizona

Schneider & Onofry, P.C. By Charles D. Onofry and Luane Rosen, Phoenix, Attorneys for Plaintiff/Appellant.

Turley, Swan & Childers, P.C. By Christopher J. Bork, and Bremer Whyte Brown & O'Meara, LLP By Jeffrey D. Holland, Phoenix, Attorneys for Defendant/Appellee.

OPINION

NORRIS, Judge.

¶ 1 Appellant, Weatherguard Roofing Co., Inc., was a subcontractor on a custom residential project. On appeal, it argues the superior court should not have denied its motion to stay an arbitration proceeding between it and the general contractor on the project, Appellee, D.R. Ward Construction Co., Inc. The superior court concluded that because a clause in the construction contract between Ward and the project owners providing for binding arbitration had been incorporated by reference in the subcontract between Ward and Weatherguard, Weatherguard was bound to participate in the arbitration. For reasons that follow, we agree with the superior court and affirm.

FACTS AND PROCEDURAL HISTORY

¶ 2 In 1993, Ward signed a contract to construct a home for John and Jean Rae Gaskin. The parties signed an American Institute of Architects form entitled "Abbreviated Form of Agreement" ("prime contract"). Ward had previously worked with Weatherguard and asked it to bid on some aspects of the project. Ward and Weatherguard later executed three subcontracts (collectively, the "subcontract") by which Weatherguard agreed to perform waterproofing and roofing and to install copper on various structural elements. Construction proceeded, and Weatherguard performed its work. The house was completed in June 1995.

¶ 3 In September 2002, the Gaskins notified Ward, various subcontractors, and their insurers of a claim that construction defects had caused water intrusion and mold damage to the house. Ward in turn notified Weatherguard that some of the alleged defects concerned Weatherguard's work and asked for indemnification and a defense.

¶ 4 In May 2003, the Gaskins served a demand for arbitration on Ward and sought almost $7 million in damages.1 An arbitrator was appointed to handle the dispute between the Gaskins and Ward. In turn, because the contracts between Ward and the subcontractors required the subcontractors to indemnify2 Ward for claims arising out of or resulting from the subcontractors' work, Ward asserted the subcontractors were liable for the defects alleged by the Gaskins and demanded indemnification from and arbitration with the subcontractors. Ward asserted Articles 30.1 and 30.23 of the subcontract's "general conditions," which were contained in a document separate from — but referenced in — the subcontract, gave Ward the right to demand arbitration and required the subcontractors to "prepare and present Contractor's case, to the extent the proceedings are related to Subcontractor's claims under this Subcontract." Weatherguard responded to Ward's demand and asserted no contract or rule required it to participate in the arbitration between Ward and the Gaskins, but stated it would voluntarily participate without waiving its right to seek a judicial determination that it was not required to submit to arbitration. Weatherguard also suggested that the general conditions had not been attached to the subcontract, and, thus, had not become part of the subcontract.

¶ 5 Before the arbitration took place, Ward settled with the Gaskins. It also settled most of its claims against the subcontractors, excluding those against Weatherguard and one other subcontractor. After the settlement, Weatherguard requested the superior court to stay the arbitration, asserting Weatherguard had not agreed to arbitrate any disputes between it and Ward.

¶ 6 The superior court denied Weatherguard's request for a stay. Weatherguard appealed. We have jurisdiction over this appeal pursuant to Arizona Revised Statutes (A.R.S.) section 12-2101(B)(2003).

DISCUSSION

¶ 7 On appeal, Weatherguard argues, as it did in the superior court, that it was not contractually obligated to arbitrate Ward's indemnity claim.4 It argues, first, that the general conditions never became part of its subcontract with Ward; second, that even if the general conditions became part of the subcontract, the general conditions did not incorporate by reference, and thus did not bind Weatherguard to, the arbitration provision in the prime contract; and third, that because the subcontract contained express provisions governing arbitration, which Ward admitted did not require Weatherguard to arbitrate Ward's indemnity claim, these "more specific" provisions controlled the "more general" arbitration provision in the prime contract. For the following reasons, we disagree with each argument.

I. Incorporation of the General Conditions into the Subcontract

¶ 8 Weatherguard first argues the general conditions never became part of its subcontract with Ward. To explain the requirements for incorporation by reference, Weatherguard cites our decision in United California Bank v. Prudential Ins. Co. of America, 140 Ariz. 238, 268, 681 P.2d 390, 420 (App.1983), which states:

It is a basic rule of contract construction that to incorporate by reference: "[T]he reference must be clear and unequivocal and must be called to the attention of the other party, he must consent thereto, and the terms of the incorporated document must be known or easily available to the contracting parties. . . .

(citing 17A C.J.S. Contracts § 299 at 136 (1963)(emphasis and alterations in original)). But, our discussion in United California Bank of the requirements for incorporation did not stop there. We went on to state: "While it is not necessary that a contract state specifically that another writing is `incorporated by this reference herein,' the context in which the reference is made must make clear that the writing is part of the contract." Id.

¶ 9 Here, the last page of the subcontract stated, "The attached General Conditions are part of the subcontract." This statement made clear that the separate general conditions were part of the subcontract. The statement thus worked an incorporation by reference.

¶ 10 Despite the clarity of the words used to incorporate by reference the general conditions into the subcontract, Weatherguard nevertheless argues incorporation never occurred because Ward failed to attach a copy of the general conditions to the subcontract.5 However, whether the general conditions were attached to the subcontract is irrelevant. As we stated in United California Bank, "physical attachment is not necessary if the document . . . is clearly and unambiguously incorporated by reference." Id. at 268, 681 P.2d at 420 (emphasis in original). Thus, even if Ward failed to attach a copy of the general conditions to the subcontract, Weatherguard was on notice of the general conditions, and their incorporation into the subcontract.6

II. Incorporation of the Prime Contract's Arbitration Provision into the Subcontract

¶ 11 Weatherguard next argues the general conditions failed to incorporate by reference the prime contract's arbitration provision into the subcontract. Article 2.1 of the general conditions determines this issue. Article 2.1 stated:

The Contract Documents consist of the Subcontract (including the cover page, general conditions and all exhibits hereto); all Work Orders or Notices to Proceed issued pursuant thereto; all addenda issued prior to and all approved Change Orders or other modifications issued after the execution of the Subcontract, the plans and specifications, working drawings and details pertaining to the Work; the terms and conditions of the Contract between the Owner and Contractor for the construction of the Project (the "General Contract"). Subcontractor shall assume and agree to perform all obligations of Contractor in the General Contract, and any amendments thereof, insofar as they pertain to the Work, and Subcontractor shall assume toward Contractor all of the obligations and responsibilities which Contractor assumes toward Owner under the General Contract. Subcontractor shall be bound by the determination of any disputed question made, pursuant to the provisions of the General Contract. Contractor shall have the same rights and privileges as against Subcontractor as the Owner in the General Contract has against Contractor.

(Emphasis added.)

¶ 12 In our view, the emphasized language incorporated the arbitration provision of the prime contract into the subcontract. Pursuant to these provisions, Weatherguard assumed toward Ward the duties — that is, the "obligations" and "responsibilities" — Ward owed the Gaskins. And, of critical importance, Ward was given the same "rights and privileges" against Weatherguard the Gaskins had against Ward. Under the prime contract, the Gaskins were given the right and privilege to demand arbitration of any dispute with Ward. Accordingly, Ward enjoyed the same right and privilege to demand arbitration with Weatherguard. Simply put, because the prime contract required Ward to submit to arbitration, that provision, as incorporated into the subcontract through Article 2.1, required Weatherguard to submit to arbitration as well.7

¶ 13 Nevertheless, Weatherguard asserts we should not construe Article 2.1 as incorporating the arbitration provision of the prime contract into the subcontract because the language of incorporation was not sufficiently specific. Under Weatherguard's view, because a party cannot be compelled to arbitrate a dispute unless it has agreed to do so we should demand extraordinary clarity before we find an agreement to arbitrate has been incorporated by reference. In making this argument, Weatherguard relies on an Arizona case concerning...

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