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Eugene Water and Electric Board v. MWH Americas, Inc.

Court of Appeals of Oregon

July 25, 2018

EUGENE WATER AND ELECTRIC BOARD, an Oregon municipal corporation, Plaintiff-Respondent,
v.
MWH AMERICAS, INC., a foreign corporation, Defendant, and ADVANCED AMERICAN CONSTRUCTION, INC., an Oregon corporation, Defendant-Appellant. ADVANCED AMERICAN CONSTRUCTION, INC., an Oregon corporation, Third-Party Plaintiff-Appellant,
v.
MacTAGGART, SCOTT & COMPANY LIMITED, a foreign business entity; and Olsson Industrial Electric, Inc., an Oregon corporation, Third-Party Defendants-Appellants.

          Argued and submitted March 2, 2017

          Lane County Circuit Court 15CV11521; Charles D. Carlson, Judge. (Orders entered September 9, 2015, and January 21, 2016), Karsten H. Rasmussen, Judge. (Opinion entered December 10, 2015)

          Tara M. Johnson argued the cause for appellant Advanced American Construction, Inc. Also on the briefs were Dan Gragg and Seifer, Yeats, Zwierzynski & Gragg, LLP.

          Jonathan Henderson argued the cause for appellant Olsson Industrial Electric, Inc. Also on the briefs was Davis Rothwell Earle & Xochihua, P.C.

          [293 Or.App. 42] Susan T. Alterman, Robert B. Lowry, Mathew W. Lauritsen, and Kell, Alterman & Runstein, L.L.P., fled the brief for appellant MacTaggart, Scott & Company Limited. On the reply brief were Eileen I. McKillop and Sedgwick LLP.

          Casey M. Nokes argued the cause for respondent. Also on the brief were Nicole A. W. Abercrombie and Cable Huston LLP.

          Before DeVore, Presiding Judge, and Garrett, Judge, and James, Judge. [*]

         Case Summary:

         In this action brought by the Eugene Water and Electric Board (EWEB) for breach of contract and negligence, defendants appeal from three orders of the trial court denying defendants' petitions to stay judicial proceedings and compel arbitration between EWEB, defendants, and third-party defendants under ORS 36.625. Held: The trial court did not err in denying the petitions to stay proceedings and to compel arbitration. As between EWEB and defendant Advanced American Construction (AAC), and as between AAC and the third-party defendants MacTaggart, Scott & Company Limited (MacTaggart) and Olsson Industrial Electric, Inc. (Olsson), the court did not have authority to compel arbitration and stay proceedings because those parties had not refused to arbitrate, as required by ORS 36.625(1). As between EWEB and defendants MacTaggart and Olsson, the court did not err in refusing to compel arbitration and stay proceedings, because EWEB had not agreed to submit its claims against those parties to arbitration.

         [293 Or.App. 43] DeVORE, P. J.

         This case involves the procedure to compel arbitration and the applicability of a contractual arbitration provision to defendants who are not parties to the contract. We conclude that the trial court did not err in denying petitions to arbitrate or in concluding that the arbitration provision was not applicable. We affirm.

         I. PROCEDURAL BACKGROUND

         A. Contracts and Claims

         The Eugene Water and Electric Board (EWEB) entered into an agreement with MWH Americas, Inc. (MWH) for the engineering of improvements to the Leaburg Dam on the McKenzie River. In turn, MWH facilitated the bidding process through which EWEB selected Advanced American Construction (AAC) as the general contractor for construction of the project. EWEB, as the owner of the property, and AAC, as the general contractor, executed the prime contract. AAC then engaged subcontractors MacTaggart, Scott & Company Limited (MacTaggart) and Olsson Industrial Electric, Inc. (Olsson). When the improvements failed, EWEB filed a complaint against AAC and MWH in Lane County Circuit Court on May 5, 2015. AAC filed third-party claims against MacTaggart and Olsson, and EWEB filed claims against the subcontractors in an amended complaint.

         In three separate orders, the trial court rejected petitions by defendants to stay judicial proceedings and compel arbitration of EWEB's claims against AAC and MacTaggart, and the third-party claims of AAC against MacTaggart and Olsson. The court concluded that there was no enforceable agreement to arbitrate between EWEB and MacTaggart or Olsson. See ORS 36.625(1) ("On petition of a person showing an agreement to arbitrate and alleging another person's refusal to arbitrate," the court shall order the parties to arbitration, "unless it finds that there is no enforceable agreement to arbitrate."). Defendants have assigned error to each of the orders. We write to address each contention.

         [293 Or.App. 44] B. Order of September 9, 2015

         The first order on appeal, entered on September 9, 2015, rejected a petition by AAC to compel arbitration of EWEB's claims against AAC and to stay judicial proceedings pending arbitration. We recount the proceedings to explain the order. On June 19, 2015, AAC filed a third-party complaint naming MacTaggart and Olsson as third-party defendants. Simultaneously, AAC filed a "petition to stay judicial proceeding and compel arbitration," seeking to have "the parties compelled to pursue their claims via private binding arbitration," pursuant to provisions in AAC's contract with EWEB (the prime contract). AAC alleged in its petition that EWEB and AAC had entered into a contractual relationship relating to improvements to the Leaburg Dam and that EWEB had asserted claims against AAC relating to services provided under the contract. AAC alleged that, pursuant to the contract between EWEB and AAC, either party was entitled to request arbitration. AAC alleged that, in light of the contractual provisions, the court should stay judicial proceedings and the parties should be compelled to pursue their claims via private, binding arbitration. Critically, as we will later explain, AAC's petition did not allege that EWEB had refused a request to arbitrate any claims between EWEB and AAC.

         AAC also sought a stay of the third-party proceeding pending arbitration "to have the entirety of these third party claims also abated and compelled to independent private binding arbitration." On July 2, 2015, MWH filed a response to AAC's petition and an answer and affirmative defenses to EWEB's complaint. MWH did not seek arbitration.

         On July 6, 2015, EWEB filed a response to AAC's petition, asserting that AAC

"has no power to cut off EWEB's jury trial right and right to immediate recourse against MWH. The contract between EWEB and MWH does not include an arbitration provision * * * and MWH has not consented to arbitration."

(EWEB's emphasis and boldface.) EWEB acknowledged, however, that EWEB and AAC had a contractual agreement for arbitration and asked the court to deny the stay "to the extent that it includes any parties other than EWEB and [293 Or.App. 45] [AAC]." (Emphasis added.) EWEB requested an order "establishing parallel litigation tracks, allowing EWEB to simultaneously pursue its claims against [AAC] in arbitration and its claims against MWH here, in Lane County Circuit Court." On July 17, 2015, AAC replied that it conceded that "[t]he intent of the pending Petition was to address those claims between AAC and EWEB."[1]

         On August 26, 2015, third-party defendant MacTaggart filed a response to AAC's petition, denying "that it may be compelled to arbitrate the claims asserted by AAC." MacTaggart noted that AAC had not produced any signed written agreement between AAC and MacTaggart requiring arbitration. Nevertheless, "in the interest of efficient resolution of all claims and judicial economy," MacTaggart agreed to consent to "participated in such arbitration" on certain conditions, including the conditions that it be "permitted to provide input on the choice of the third arbitrator (the other two having already been selected by AAC and EWEB)," and that MacTaggart "will not be deemed to have waived any right, defense or claim of any kind by consenting to arbitration."

         On the same day, August 26, 2015, EWEB and AAC filed a "stipulation to stay proceedings" between EWEB and AAC pending resolution of the arbitration. Their filing stated that AAC and EWEB

"hereby stipulate to entry of an order staying proceedings related to claims between EWEB and [AAC] in this case, until resolution of Arbitration of the claims between EWEB [293 Or.App. 46] and [AAC]. This Stipulation does not stay the remaining claims pending in this case between any other parties."

         On August 31, 2015, each of the parties appeared at a hearing on the petitions before Judge Carlson. At the hearing, counsel for EWEB expressed doubt about the desirability of the arbitration to which it had stipulated. EWEB's misgivings were based on MacTaggart's position that it could not be compelled to arbitrate the third-party claims asserted by AAC and by MWH's choice not to participate in private arbitration. EWEB's counsel observed:

" [W] e end up with a very unattractive procedural posture standing here today. * * *
"EWEB's strong preference is to have everything come in a single forum, all at once, quickly, so that it can recover and pay for the repairs happening at the Leaburg Dam right now. So the issue is what to do with this stipulation.
"Standing here today, I'd ask that we just set this stipulation aside, look at what's best for the Court and the parties. The likelihood of us resolving the arbitration with just AAC, prior to what the Court expects in terms of judicial finality at the trial level, is incredibly low and will be very complicated and expensive, not just for EWEB as a public entity, but for the other businesses that are involved in this dispute.
"So EWEB would like for all of this to proceed in this court all on one schedule and meet this court's docket expectations."

         In any event, EWEB added that it would not agree to arbitration of the third-party claims against MacTaggart.

         MacTaggart's counsel did not have a signed copy of MacTaggart's contract with AAC, but took the position that provisions in the prime contract between EWEB and AAC, including a "flow-down" provision, authorized it to consent to arbitration, and that it would do so.

         Olsson's counsel stated that Olsson did not have an arbitration provision in its agreement with AAC and took the position that the prime contract provided for arbitration between only EWEB and AAC. Olsson took a neutral [293 Or.App. 47] position as to a stay, expressing a preference for all claims to be litigated in one forum for the sake of efficiency.

         Counsel for A AC asked, in light of EWEB's expressed misgivings that seemingly suggested a "refusal" to arbitrate, that the court compel arbitration as to EWEB's claims against AAC pursuant to ORS 36.625(1) and stay any ...


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