Web Iv, LLC v. Samples Constr., LLC.

• Decision Date: 28 February 2019
• Docket Number: A18A1791
• Citation: 824 S.E.2d 107,349 Ga.App. 607
• Court: Georgia Court of Appeals
• Parties: WEB IV, LLC et al. v. SAMPLES CONSTRUCTION, LLC.

349 Ga.App. 607

824 S.E.2d 107

WEB IV, LLC et al.

v.SAMPLES CONSTRUCTION, LLC.

A18A1791

Court of Appeals of Georgia.

February 28, 2019

Reconsideration Denied March 20, 2019

O'Dell & O'Neal, Justin B. O'Dell, Nicholas M. Booth, for Appellants.

Michael L. Chapman, G. Roger Land, Atlanta, for Appellee.

Markle, Judge.

Web IV, LLC and William E. Brown, defendants and counterclaim plaintiffs in the breach of contract action below, appeal from the trial court's order staying litigation and compelling arbitration. Web IV argues that the trial court erred by referring to the arbitrator the threshold question of whether Samples Construction, LLC, the plaintiff below, waived its right to compel arbitration. Web IV also contends that the trial court erred by compelling arbitration as to other parties, with whom Web IV had not signed an arbitration agreement. Upon careful consideration, we affirm the trial court's order.

We review a trial court's order granting or denying a motion to compel arbitration de novo. Miller v. GGNSC Atlanta, LLC , 323 Ga.App. 114, 117 (1), 746 S.E.2d 680 (2013). Additionally, "[t]he construction of an arbitration agreement, like any other contract, presents a question of law, which is subject to de novo review." Order Homes v. Iverson , 300 Ga.App. 332, 333, 685 S.E.2d 304 (2009).

The record shows the following relevant facts. On August 5, 2016, Samples Construction, LLC entered into a standard form cost-plus fee agreement (the "Agreement") with Web IV for the construction of the Governors Gun Club in Kennesaw, Georgia. The Agreement identified the Design-Build Institute of America's Standard Form of General Conditions of Contract between Owner and Design-Builder (the "General Conditions") as part of the contract documents. Article 10 of the General Conditions, titled "Contract Adjustments and Disputes," outlines a dispute resolution process. Pursuant to Section 10.2, in the event of any disagreement, the parties would first attempt to resolve the dispute through their respective field level representatives, and then through their respective senior representatives. If those efforts proved unsuccessful, the parties would submit to non-binding mediation. Section 10.3.1 provides for arbitration:

Any claims, disputes or controversies between the parties arising out of or relating to the Agreement, or the breach thereof, which have not been resolved in accordance with the procedures set forth in Section 10.2 above, shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the AAA then in effect, unless the parties mutually agree otherwise.

The parties further agreed, under Section 12.3.1, that the contract "shall be governed by the laws of the place of the Project, without giving effect to its conflict of law principles."

The contract was signed by Bert Brown, managing member of Web IV, and Michael Samples, owner of Samples Construction. Work proceeded under the contract until April 18, 2017, when Brown sent an e-mail to Samples terminating the Agreement effective immediately. Samples Construction filed a materialman's and mechanic's lien against the property on June 9, 2017, seeking $526,960.34 in payment for work that had already been performed. Then, two subcontractors filed liens against the property as well. Web IV responded by filing a Notice of Contest of Lien, demanding that Samples Construction and subcontractors file suit within 60 days or their liens would be cancelled.

On August 10, 2017, Samples Construction filed suit against Web IV and Brown, raising claims for breach of contract, quantum meruit, foreclosure on mechanic's lien bond, and attorney fees. Samples Construction expressly reserved the right to arbitrate the suit, demanded arbitration in accordance with the General Conditions, and requested that the suit be stayed pending the outcome of arbitration. Web IV filed an answer and counterclaims, asserting claims of breach of contract, negligent construction, slander of title, and attorney fees against Michael Samples, Pride Electric, Inc., and Devotie Construction Company (the "third-party defendants").

Samples Construction subsequently filed a motion to stay litigation and compel arbitration under the Georgia Arbitration Code, OCGA § 9-9-6. Web IV objected, arguing in pertinent part that Samples Construction waived any right to compel arbitration because the parties never completed the dispute resolution process outlined in Section 10.2 of the General Conditions which, according to Web IV, was a condition precedent to demanding arbitration. Web IV also argued that it had no contractual obligation to arbitrate with Brown or the subcontractors. The trial court ruled in favor of Samples Construction and entered an order staying the lawsuit and compelling arbitration. The trial court then certified its order for immediate review and we granted Web IV's application for interlocutory appeal. This timely appeal followed.

1. In two related enumerations of error, Web IV contends that the trial court erred in concluding that the threshold question of arbitrability should be decided by the arbitrator rather than by the court. We disagree and conclude that the trial court properly referred this issue to the arbitrator.

The parties’ agreement includes a provision that the contract "shall be governed by the laws of the place of the Project"—Georgia—and the motion to compel arbitration was filed pursuant to OCGA § 9-9-6 of the Georgia Arbitration Code ("GAC"). Although the Federal Arbitration Act ("FAA") applies to cases involving interstate commerce, "[s]tate law may apply where parties agree to be bound by state arbitration law, so long as that law does not conflict with the FAA." North Augusta Assocs. Partnership v. 1815 Exchange , 220 Ga.App. 790, 792 (1), 469 S.E.2d 759 (1996). The GAC, like its federal counterpart, reflects "a clear public policy in favor of arbitration." (Citation and punctuation omitted.) Iverson , 300 Ga.App. at 334-335 (1), 685 S.E.2d 304. Further, due to the similarities, we can refer to federal law when interpreting state law. Id. at 335 (1), 685 S.E.2d 304. With this framework in mind, we turn to the parties’ specific arguments in this case.

(a) Web IV asserts that this case presents a threshold question of substantive arbitrability and contends that, consistent with the general rule, this matter must be resolved by the trial court rather than the arbitrator.

The parties’ breach of contract and related claims clearly fall within the scope of the arbitration clause incorporated into the agreement between Samples Construction and Web IV, as that clause provides either party may insist on arbitration to resolve "[a]ny claims, disputes or controversies between the parties arising out of or relating to the Agreement, or the breach thereof[.]" The question, then, is whether the trial court or the arbitrator should decide whether Samples Construction waived its right to compel arbitration by allegedly failing to comply with the dispute resolution procedures listed in Section 10.2 of the General Conditions. We agree with Web IV that this is a "threshold question," but we conclude that it is one of procedural, rather than substantive, arbitrability.

Web IV is correct that gateway issues of substantive arbitrability, such as allegations of " ‘conduct-based’ waiver of arbitration rights," are generally decided by the trial court. Brown v. RAC Acceptance East, LLC , 303 Ga. 172, 175 (2) (a), 809 S.E.2d 801 (2018). On the other hand, " ‘procedural questions’ which grow out of the dispute" are generally for the arbitrator to decide. Archer W. Contractors v. Holder Constr. Co. , 325 Ga.App. 169, 175 (3), 751 S.E.2d 908 (2013) (physical precedent only) (quoting Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002) ). Unless the parties explicitly agree otherwise, such procedural matters include disputes as to whether the party seeking to compel arbitration has satisfied any applicable conditions precedent. Archer , 325 Ga.App. at 175 (3), 751 S.E.2d 908.

Although Web IV characterizes the question of whether Samples Construction waived its right to arbitration by failing to comply with the dispute resolution procedures set forth in the parties’ agreement as a question of conduct-based waiver, it is more accurately described as a procedural question that grows out of the agreement itself. The present case is clearly distinguishable from those that have been described as posing questions of conduct-based waiver. For example, in Brown , the plaintiff rented furniture from the defendant. The rental store swore out a warrant for the plaintiff's arrest, alleging that she had failed to make payments as required, and the plaintiff subsequently filed a tort action against the store, raising claims of malicious prosecution, libel, and slander. 303 Ga. at 173 (1), 809 S.E.2d 801. When the store sought to compel arbitration of the tort claims pursuant to the arbitration clause in the parties’ furniture-rental agreement, the Georgia Supreme Court concluded that whether the store had waived its right to compel arbitration by swearing out the warrant was an issue of conduct-based waiver, which would normally be resolved by the trial court rather than the arbitrator. Id. at 175-176 (2) (a), 809 S.E.2d 801. The Court further found, however, that the parties in Brown had specifically delegated all questions as to the enforceability of their agreement, including the matter presented in that appeal, to the arbitrator. Accordingly, it followed the parties’ explicit agreement rather than the general rule and affirmed the trial court's decision to refer the issue to the arbitrator. Id. at 175-177 (2) (a), (b), 809 S.E.2d 801. See also Wise v. Tidal Constr. Co. , 261 Ga.App. 670, 674 (2), 583 S.E.2d 466 (2003) (where plaintiff argued that defendant had waived its right to compel arbitration by engaging in litigation including...