Del E. Webb Const. v. Richardson Hosp. Authority

• Citation: 823 F.2d 145
• Decision Date: 03 August 1987
• Docket Number: No. 86-1570,86-1570
• Parties: DEL E. WEBB CONSTRUCTION, Plaintiff-Appellee-Cross-Appellee, v. RICHARDSON HOSPITAL AUTHORITY, Defendant-Cross-Plaintiff-Appellee Cross- Appellant, v. L.D.W.A./BUFORD AND WORK, INC., Cross-Defendant-Appellant Cross-Appellee. RAY BOYD CONSTRUCTION SYSTEMS, COMPANY, Plaintiff-Appellant, v. DEL E. WEBB CONSTRUCTION, Defendant-Third Party Plaintiff-Appellee, v. RICHARDSON HOSPITAL AUTHORITY, Third Party Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 145

823 F.2d 145

DEL E. WEBB CONSTRUCTION, Plaintiff-Appellee-Cross-Appellee, v. RICHARDSON HOSPITAL AUTHORITY, Defendant-Cross-Plaintiff-Appellee Cross- Appellant, v. L.D.W.A./BUFORD AND WORK, INC., Cross-Defendant-Appellant

Cross-Appellee.

RAY BOYD CONSTRUCTION SYSTEMS, COMPANY, Plaintiff-Appellant, v. DEL E. WEBB CONSTRUCTION, Defendant-Third Party Plaintiff-Appellee, v. RICHARDSON HOSPITAL AUTHORITY, Third Party Defendant-Appellee.

No. 86-1570.

United States Court of Appeals Fifth Circuit.

Aug. 3, 1987.

Rehearing Denied Sept. 1, 1987.

Ritta A. Miller, William Charles Bundren, Jackson, Walker, Winstead, Cantwell & Miller, Dallas, Tex., for L.D.W.A./Buford & Work, Inc.

Richard Gary Thomas, Dallas, Tex., for Ray Boyd Const. Systems.

Ben L. Krage, Kasmir, Willingham & Krage, Dallas, Tex., for Del E. Webb.

Kip M. Kugler, Joe F. Canterbury, Jr., Dallas, Tex., for Richardson Hosp. Authority.

Appeals from the United States District Court for the Northern District of Texas.

Before CLARK, Chief Judge, POLITZ, and HIGGINBOTHAM, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

This appeal is from a district court order compelling arbitration, pursuant to the Federal Arbitration Act, 9 U.S.C. Secs. 1-14, of a contract arising from the expansion and renovation of the Richardson Medical Center. The Richardson Hospital Authority, the owner of the medical center, and L.D.W.A./Buford & Work, Inc., the architect on the project, argue that the Federal Arbitration Act is inapplicable because the construction project is not a "transaction involving commerce," 9 U.S.C. Sec. 2; that the general contractor, Del E. Webb Construction, did not comply with the contractual prerequisites for demanding arbitration; and that Webb waived arbitration by substantially invoking the litigation process. In addition, LDWA argues that the district court improperly consolidated LDWA's claims in the arbitration between the Authority and Webb. We conclude that the Federal Arbitration Act governs this case, that the arbitrator must decide whether Webb satisfied the contractual prerequisites of demand, that the district court erred by ordering consolidated arbitration, and that the district court failed to address LDWA's waiver contention.

I

In October 1981, the Richardson Hospital Authority contracted with LDWA, an architect, to supervise the expansion and renovation of the Richardson Medical Center. The contract was a standard form agreement between owner and architect prepared by the American Institute of Architects and provided that all disputes arising from the agreement shall be arbitrated.

Later, the Authority signed two contracts with Del E. Webb Construction, the general contractor on the project. Both contracts included American Institute of Architects document A201 entitled, "General Conditions of the Contract for Construction," which also provided for arbitration of all disputes arising from the contract documents.

The parties had a number of disagreements during construction, including who should bear the costs of construction delays. The parties were unable to resolve their differences, and Webb sued in the United States District Court for the Northern District of Texas, seeking damages or arbitration of its claims. The Authority counterclaimed and joined LDWA and the bonding companies as third-party defendants. LDWA filed a counterclaim against Webb. Webb then filed a motion to compel arbitration, which the district court granted. Meanwhile, Ray Boyd Construction Systems Co., a subcontractor, sued Webb in the same district court, and the court consolidated the two proceedings. ¹

On June 27, 1986, the district court vacated its orders to compel arbitration and to consolidate, ordering the parties to submit evidence regarding Webb's compliance with the contractual prerequisites for arbitration. After reviewing the evidence, the district court granted Webb's motion to compel arbitration and ordered "that all third-party claims arising out of the primary suit shall be settled in the same arbitration action." The Authority and LDWA appeal.

II

The Authority and LDWA argue that the district court erred in holding that the Owner-Contractor contract is governed by the Federal Arbitration Act. ² An arbitration clause is subject to the Federal Arbitration Act if the arbitration clause is part of a valid written contract "evidencing a transaction involving commerce." 9 U.S.C. Sec. 2. In Mesa Operating Ltd. Partnership v. Louisiana Interstate Gas Corp., 797 F.2d 238 (5th Cir.1986), we explained the reach of the Act:

Citizens of different states engaged in performance of contractual operations in one of those states are engaged in a contract involving commerce under the FAA. Such a contract necessitates interstate travel of both personnel and payments. Commerce under the FAA is not limited to interstate shipment of goods ... but includes all contracts "relating to interstate commerce."

Id. at 243 (quoting Prima Paint v. Flood & Conklin Mfg. Co., 388 U.S. 395, 401 n. 7, 87 S.Ct. 1801, 1805 n. 7, 18 L.Ed.2d 1270 (1967)).

The district court found the Federal Arbitration Act applicable, noting that

[i]n this case, the contract involved persons from different states; employees of the plaintiff traveled interstate; the interstate mails were used to facilitate the work of the plaintiff's subcontractors; and materials used in the construction of the defendant's facilities were manufactured and moved in interstate commerce.

The Authority and LDWA do not dispute that the construction project involved some interstate commerce. Rather, they argue that there must be substantial interstate contacts. The Authority and LDWA contend that Webb did not show substantial interstate activity because all construction occurred in Texas, Webb maintained an office in Texas to supervise the construction of several Texas projects, and Webb issued payroll checks in Texas. However, we are persuaded that in the light of Mesa the district court's findings support its conclusion that the contracts relate to interstate commerce, a standard that implements the strong federal policy favoring arbitration. See Societe Generale de Surveillance, S.A. v. Raytheon European Management & Sys. Co., 643 F.2d 863, 867 (1st Cir.1981) ("[T]he courts have held that the term "commerce" in this provision of the Act refers to interstate or foreign commerce and is to be broadly construed.")

III

A

LDWA argues that the district court erred in compelling LDWA to participate in the arbitration between Webb and the Authority. LDWA contends that it was not a party to the arbitration agreement between Webb and the Authority and did not consent to arbitration.

The district court, rejecting LDWA's argument, noted:

In p 7.9.1, the contract provides that an arbitration action shall include the owner and the contractor, "and any other persons substantially involved in a common question of fact or law, whose presence is required if complete relief is to be accorded in the arbitration." As long as the proper joinder is made--as it has been here--resolution of multi-party claims arising out of a common question of law or fact may be made in a single arbitration action. Thus, the claims of the third-parties shall be resolved in this case in the same arbitration hearing as that settling the dispute between the plaintiff and the defendant.

LDWA contends that because it was not a party to the Owner-Contractor contract, the language in p 7.9.1 quoted by the court is irrelevant.

We agree that LDWA could not be compelled to arbitrate under the Owner-Contractor contract. See AT & T Technologies, Inc. v. Communications Workers, 475 U.S. 643, 106 S.Ct. 1415, 1419, 89 L.Ed.2d 648 (1986). But Webb could compel the Authority to arbitrate under the arbitration clause in the Owner-Contractor contract, and the Authority could compel LDWA to arbitrate under the arbitration clause in the Owner-Architect contract. Nevertheless, arbitration of LDWA's counterclaim against Webb was improper. LDWA and Webb have not agreed to arbitrate disputes between them.

Undoubtedly, the district court was concerned, as are we, about the potential for piecemeal litigation. But as the Supreme Court explained in Dean Witter Reynolds v. Byrd, 470 U.S. 213, 105 S.Ct. 1238, 1242-43, 84 L.Ed.2d 158 (1985):

The preeminent concern of Congress in passing the [Federal Arbitration] Act was to enforce private agreements into which parties had entered, and that concern requires that we rigorously enforce agreements to arbitrate, even if the result is "piecemeal" litigation, at least absent a countervailing policy manifested in another federal statute.

B

LDWA argues that it should not be compelled to arbitrate at all because it did not consent in writing as required in paragraph 7.9.1 of the Owner-Contractor contract. This provision says in part:

No arbitration arising out of or relating to the Contract Documents shall include, by consolidation, joinder, or in any other manner, the Architect, his employees or consultants except by written consent containing a specific reference to the Owner-Contractor Agreement and signed by the Architect, the Owner, the Contractor and any other persons sought to be joined.

But as we have explained, the source of LDWA's duty to arbitrate is the Owner-Architect contract, not the Owner-Contractor contract. The language in paragraph 7.9.1 involves the separate question of whether the district court properly consolidated arbitration of the disputes between the owner and the architect and arbitration of the disputes between the owner and the contractor. We treat this issue in our discussion of whether Webb complied with the prerequisites for arbitration, since both require us to determine which questions the district court should decide and which should be for the arbitrator.

IV

The district court found that Webb satisfied the contractual prerequisites to arbitration. Under Sec. 4 of the...