Ruby-Collins, Inc. v. City of Huntsville, Alabama, 748 F.2d 573, 11th Cir. (1984)
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Scribd Government DocsRuby-Collins, Inc. v. City of Huntsville, Alabama, 748 F.2d 573, 11th Cir. (1984)
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Scribd Government Docs748 F.
2d 573
RUBY-COLLINS, INC., Plaintiff-Appellee,
v.
CITY OF HUNTSVILLE, ALABAMA, Defendant-Appellant.
No. 83-7430.
United States Court of Appeals,
Eleventh Circuit.
Dec. 10, 1984.
Howell R. Riggs, Paul J. Walstad, Huntsville, Ala., George C. Baldwin,
Vienna, Va., Cantey Cooper, Huntsville, Ala., for defendant-appellant.
Gary C. Huckaby, Huntsville, Ala., David Flint, Atlanta, Ga., for plaintiffappellee.
Appeal from the United States District Court for the Northern District of
Alabama.
Before RONEY and VANCE, Circuit Judges, and SIMPSON, Senior
Circuit Judge.
SIMPSON, Senior Circuit Judge:
The City of Huntsville, Alabama, and Ruby Collins, Inc., a Kentucky
corporation, entered into a written contract for the construction of a sewer
pipeline. During the course of construction, Ruby-Collins encountered
unanticipated groundwater in a section of the jobsite which it claims could not
have been discovered in the pre-bid site inspection specified in the contract.
The contractor submitted a claim for an equitable adjustment of the contract
price to the supervising engineer in which it requested over nine hundred and
fifty thousand dollars to cover time, labor, materials and equipment necessary
to dewater the site and complete construction. The engineer took no action.
However, the City directly responded and refused any adjustment. When the
City refused a subsequent request to arbitrate the dispute, the contractor
invoked the diversity jurisdiction of the district court and filed an action to
compel arbitration under the United States Arbitration Act, 9 U.S.C. Secs. 1-14.
The City's pleadings admitted execution of the written contract but asserted that
the Act was inapplicable because the contract did not involve interstate
commerce and contained no enforceable agreement to arbitrate claims for
equitable adjustment. After holding an evidentiary hearing at which the
contractor proved the interstate nexus required by Sec. 2 of the Act, 9 U.S.C.
Sec. 2, the court found an enforceable agreement in Sec. 50-01 of the contract
and ordered the city to honor it. The City now appeals alleging that the district
court erred in failing to hold a "summary trial", in ignoring Alabama law which
declares contracts divesting courts of jurisdiction over disputes arising in the
future void ab initio and in misinterpreting Sec. 50-01 as an enforceable
agreement to arbitrate a claim for equitable adjustment.
2
Though the City concedes the execution of the written contract and the
authenticity and admissibility of the contract copies submitted to the court, it
nevertheless argues that it has been denied a statutory right to a "summary trial"
concerning "the making of the agreement for arbitration," which is purportedly
guaranteed by 9 U.S.C. Sec. 4. The argument is frivolous. Appellant has raised
only one issue which even arguably addresses "the making of the arbitration
agreement." The city contends that the parties could have formed no
enforceable agreement to arbitrate a future dispute because all such agreements
are void ab initio under Alabama law. Though the appellant has correctly stated
the position of the Alabama courts up to and including the date of oral
argument before this court, the question raises no issue of fact, to be determined
at trial. Moreover, the legal premise upon which it is based is no longer
recognized as valid in the state courts of Alabama. Intervening state authority
recognizes that the United States Arbitration Act creates a federal right to enter
into enforceable agreements to arbitrate future disputes which may not be
limited by state law. Ex Parte Alabama Oxygen Co., 452 So.2d 860, 861
(Ala.1984). At oral argument before this court, the City conceded that the
contractor had proven that the construction contract involved interstate
commerce and that the act would therefore apply to any arbitration agreement
contained within that contract. Consequently, we find no error in failing to hold
a "summary trial" (a term neither employed by the statute nor defined by the
City) or in failing to apply state law limitations on the formation and
interpretation of arbitration agreements to a contract which falls under the Act.
The construction of the pertinent contract clauses is more problematic due to
the complex nature of a public works contract which consists of a hodge-podge
of government forms. The possible remedies available to the parties appear in
Sec. 50-01 of the general conditions and supplemental general conditions 31
and 72 which supercede any conflicting general provisions by the authority of
supplemental general condition 1(a).3
The City argues that no section of the contract can be construed as an
enforceable arbitration agreement because supplemental condition 7 states that
the parties may agree to arbitrate disputes arising out of the contract and that
any construction of the contractual language of other paragraphs as an
enforceable agreement would fail to give effect to this language. We disagree.
The district court's opinion does no violence to rules of contract construction in
recognizing that the parties to the instant contract may recognize the value and
validity of arbitration agreements in one section of the contract and actually
form such an agreement in another.
The City next raises an alternative equitable argument that inasmuch as the
language of Sec. 50-01 does not grant the power to enter judgment on an
arbitration award, no order specifically enforcing the agreement can be entered
because a court may not require the parties to perform a useless act. Though
Sec. 9 of the Arbitration Act, 9 U.S.C. Sec. 9, does authorize a court to enter
judgment on an arbitrator's award if the parties so provide in their agreement,
nothing in the language of the Act, which grants the district court the power to
compel arbitration and enforce awards in independent sections, implies that
Congress intended to limit the court's authority to enforce an agreement to
those cases in which it has the power to enforce the award. Nor do we have
confidence in the City's interpretation of Sec. 50-01 as failing to grant the
district court the power to affirm the award or in its characterization of
arbitration as "useless" in the absence of such authority. The Supreme Court has
construed an arbitration agreement which provided that the arbitrator's decision
was "final and binding" as authorizing entry of judgment. Marine Transit Corp.
v. Dreyfus, 284 U.S. 263, 276, 52 S.Ct. 166, 169, 76 L.Ed. 282 (1932). The
language of Sec. 50-01, though somewhat loosely drafted, implies that the
results of arbitration would be final. Moreover, the City's argument ignores the
fact that a state or federal court which lacks the statutory or contractual
authority to enter judgment enforcing an arbitration award may still hear and
adjudicate an action based upon a party's failure to honor the award itself. A.J.
Curtis Co. v. D.W. Falls, Inc., 305 F.2d 811 (3d Cir.1962); McCullough v.
Clinch-Mitchell Const. Co., 71 F.2d 17, 22 (8th Cir.) cert. denied 293 U.S. 582,
55 S.Ct. 96, 79 L.Ed. 678 (1934). Further, the evidence gathering and fact
finding functions of arbitration are useful per se and assist in resolving disputes
through encouraging settlement or fixing the parties' positions in succeeding
arbitration or litigation. Cf. Dallas Typographical Union No. 173 v. A.H. Belo
Co., 372 F.2d 577, 583 (5th Cir.1967) (arbitrator may draw freely on principles
akin to stare decisis, res judicata and collateral estoppel in related cases); see
also, Maidman v. O'Brien, 473 F.Supp. 25, 29 (S.D.N.Y.1979) (collateral
estoppel applied to suit following arbitration); Hotel, Motel, Restaurant and
Hirise Employees and Bartenders' Union, Local 355 v. Fontainebleau Hotel
Corp., 423 F.Supp. 83, 85 (S.D.Fla.1976).
6
Next, appellant asks us to hold that the scope of any arbitration agreement
found in Sec. 50-01 is so limited by its own terms and the superceding language
of Special Condition 3 which grants the City final authority whether to grant an
adjustment of the contract price due to varying site conditions, as to preclude its
application to the instant dispute. We do not agree. Though Special Condition 3
imposes certain conditions upon the contractor's pursuit of a claim for
adjustment of the contract price, it also provides that an equitable adjustment
"shall be made" if the Owner (the city) finds a material variance between the
site conditions and the contract specifications. Special Condition 3 fails,
however, to specify or limit the remedies available in the event that the owner
violates his contractual obligation to adjust the contract price. Special
Condition 7, "Remedies" specifically provides that the parties may arbitrate
claims "unless the contract otherwise provides." Because Special Condition 3
contains no express limitation on arbitration, we conclude that an arbitration
agreement appearing elsewhere in the contract may be applied to a dispute
arising out of the City's failure to grant an equitable adjustment without running
afoul of Special Conditions 3 or 7.
Finally we are faced with the seminal question in this case. Can Sec. 50-01,
recited below, be construed as an arbitration agreement which would cover the
instant dispute? In answering this question we are bound by the special rule of
contract construction which is applied in all cases brought under the Arbitration
Act: arbitration clauses are to be generously construed and all doubts are to be
resolved in favor of arbitration. Seaboard Coast Line Ry. v. Trailer Train Co.,
690 F.2d 1343 (11th Cir.1982). Though the language of Sec. 50-01, recited
below,4 is hardly the language of choice for an arbitration agreement covering
the instant dispute, we are unable to find error in the district court's
construction of the contract. The Engineer is charged with a duty to decide
questions which may arise as to "the quality and acceptability of the work
performed, the rate of the progress of the work, interpretation of the Drawings
and Specifications and all questions as to the acceptable fulfillment of the
Agreement on the part of the Contractor," and the contract finally provides "All
claims of the Owner or the Contractor shall be presented to the Engineer for his
decisions which shall be final except in cases where time and/or financial
considerations are involved, and such cases shall be subject to arbitration if not
solved by mutual agreement between the Owner and the Contractor." A
determination whether the work site materially differs from the contract
specifications necessarily involves some of those factors which are committed
to the Engineer's judgment (e.g. interpretation of drawings and specifications).
Obviously, financial considerations are the heart of the instant contractor's
claim. Though we entertain some doubt whether the agreement was intended to
cover the instant claim, we must enforce federal policy and come down in
favor of arbitration. Id.
8
The judgment of the district court is AFFIRMED.
Differing Site Conditions:
(a) The Contractor shall promptly, and before such conditions are disturbed,
notify the Owner in writing of:
(1) subsurface or latent physical conditions at the site differing materially from
those indicated in this contract.
(2) unknown physical conditions at the site, of an unusual nature, differing
materially from those ordinarily encountered and generally recognized as
inhering in work of the character provided for this contract. The Owner shall
promptly investigate the conditions, and if he finds that such conditions do
materially so differ and cause an increase or decrease in the Contractor's cost
of, or the time required for, performance of any part of the work under this
contract whether or not changed as a result of such conditions, an equitable
adjustment shall be made and the contract modified in writing accordingly.
(b) No claim of the Contractor under this clause shall be allowed unless the
Contractor has given the notice required in (a) above, provided, however, the
time prescribed therefor may be extended by the Owner.
(c) No claim by the Contractor for an equitable adjustment hereunder shall be
allowed if asserted after final payment under this contract.
7. Remedies. Except as may be otherwise provided in this contract, all claims,
counter-claims, disputes and other matters in question between the Owner and
the Contractor arising out of or relating to this agreement or the breach thereof
will be decided by arbitration if the parties hereto mutually agree, or in a court
of competent jurisdiction within the State in which the Owner is located
1. General (a) The Owner and the Contractor agree that the following
supplemental general provisions shall apply to the work to be performed under
this contract and that such provisions shall supersede any conflicting provisions
of this contract
50-01 Observation of the Work
The terms, "observation of the work", "inspection of construction",
"supervision of construction" mean a periodic observation of materials and
completed work to observe their general compliance with Plans, Specifications
and design and planning concepts and does not include responsibility for the
superintendence of construction processes, site conditions, operation,
equipment personnel, or the maintenance of a safe place to work, or any safety
in, on or about the site of the work.
The Engineer shall decide questions which may arise as to the quality and
acceptability of materials and/or equipment furnished, the quality and
acceptability of work performed, the rate of progress of the work,
interpretations of the Drawings and Specifications, and all questions as to the
acceptable fulfillment of the Agreement on the part of the Contractor. The
Contractor shall abide by these decisions. The duties and responsibility of the
Engineer as set forth herein shall not be estended (sic) except through written
consent of the Engineer and the Owner.
All materials and each part or detail of the work shall be subject at all times to
observation by the Engineer and the Owner, and the Contractor shall be held
strictly to the intent of the Contract Documents in regard to quality of materials,
equipment and workmanship, and also in regard to the diligent execution of the
Contract Observations may be made at the site or at the source of material
supply, whether mill, plant or shop. The Engineer shall be allowed access to all
parts of the work and shall be furnished with such information and assistance
by the Contractor as is required to make his observations and construction
review.
The Engineer's decision as to the acceptability or adequacy of the work shall be
final and binding upon the Contractor. The Contractor agrees to abide by the
Engineer's decision relative to the performance of the work.
All claims of the Owner or the Contractor shall be presented to the Engineer for
his decisions, which shall be final except in cases where time and/or financial
considerations are involved and such cases shall be subject to arbitration if not
solved by mutual agreement between the Owner and the Contractor.
Common questions
Powered by AIThe main legal issue was whether an enforceable agreement to arbitrate disputes, specifically regarding equitable adjustments to the contract price, existed under Section 50-01 of the contract between Ruby-Collins, Inc. and the City of Huntsville. The case examined if this section could be construed as an arbitration agreement despite arguments from the City that contracts for future dispute arbitration were void ab initio under Alabama law. However, the court found that federal law under the United States Arbitration Act superseded state limitations, thus enforcing the arbitration agreement .
Section 50-01 was crucial as it was interpreted as an arbitration agreement under federal arbitration policy, even though its language was not explicit. The court applied a rule of generous construction for arbitration clauses, resolving doubts in favor of arbitration, thus affirming it could cover the present dispute, which involved significant financial considerations stemming from the contract's Differing Site Conditions clause .
The court's decision underscores the enforceability of arbitration agreements in public construction contracts regardless of state-level prohibitions, promoting the use of arbitration as a viable dispute resolution method. It implies that courts will likely favor arbitration provisions that align with the federal policy, encouraging parties in future contracts to ensure clear arbitration clauses to facilitate equitable dispute settlements without defaulting to litigation .
The Engineer's role, as defined in the contract, involved deciding on the quality, acceptability, and progress of the work. Decisions by the Engineer were considered final unless arbitration was invoked in disputes involving time or financial considerations. The Engineer's authority over interpretations and site conditions played a significant role in the court supporting arbitration for the financial disputes arising from these contractual interpretations .
The court examined the contract's clauses, specifically Special Conditions 3 and 7, alongside Section 50-01, resolving that while some provisions like Special Condition 3 imposed restrictions, they did not explicitly limit arbitration as a remedy. The court found no specific limitation against arbitration, allowing Section 50-01 to govern its applicability to disputes like the failure to adjust contract prices, favoring arbitration as per federal arbitration policy .
The contract required the contractor to notify the Owner in writing about subsurface or latent conditions that materially differed from contract indications promptly. This notification obligation was crucial in seeking equitable adjustments. In this case, proper notification was part of the procedural groundwork that supported Ruby-Collins' claims, aligning with conditions necessary for arbitration consideration under the contract's terms .
The City argued that no enforceable agreement to arbitrate existed because such agreements were considered void under Alabama law. The City also contended that the specific contract provisions did not permit arbitration of the dispute at hand. However, the outcome was that federal law under the United States Arbitration Act precluded state limitations, allowing the arbitration clause to be enforced .
The City's argument claimed that without an explicit clause granting power to enter judgment on an arbitration award, the arbitration agreement was ineffective. However, the court upheld that under the Arbitration Act, even in the absence of such a clause, an arbitration agreement can be enforced, and judgment may still be entered if parties provide so in their agreement. The court also noted that arbitration provides substantial value in dispute resolution, including settlement facilitation and fact-finding .
The court referenced several precedents, notably the Supreme Court case Marine Transit Corp. v. Dreyfus, which interpreted arbitration agreements as final and binding, supporting judgment entry. Additionally, it cited cases like Seaboard Coast Line Ry. v. Trailer Train Co., reiterating the principle that arbitration clauses should be generously construed with doubts resolved in favor of arbitration .
Federal law, specifically the United States Arbitration Act, was pivotal in the court's decision, overriding Alabama state law which declared prospective arbitration agreements void. The Act established a federal right to enter enforceable arbitration agreements that cannot be nullified by conflicting state laws, allowing the court to validate the arbitration clause within the contract .
