Hanover Ins. Co. v. Kiva Lodge Condo. Owners' Ass'n, Inc.

221 So.3d 446

The HANOVER INSURANCE COMPANY et al.

v.KIVA LODGE CONDOMINIUM OWNERS' ASSOCIATION, INC.

1141331

Supreme Court of Alabama.

Oct. 21, 2016

L. Graves Stiff III, Sybil Vogtle Newton, G. Matthew Keenan, and Amber M. Whillock of Starnes Davis Florie LLP, Birmingham, for appellant The Hanover Insurance Company; William H. McKenzie IV of Norman, Wood, Kendrick & Turner, Birmingham, for appellant Hudak & Dawson Construction Company, Inc.; and Vincent A. Noletto and Heather M. Houston of Carr Allison, Birmingham, for appellant Don Colvin d/b/a Colvin Plastering.

Jessica M. McDill and Joseph D. Thetford, Jr., of Chason & Chason, P.C., Bay Minette, for appellee.

MURDOCK, Justice.

The Hanover Insurance Company ("Hanover"), Hudak & Dawson Construction Co., Inc. ("Hudak"), and Don Colvin d/b/a Colvin Plastering ("Colvin") (hereinafter collectively referred to as "the appellants") appeal from the Baldwin Circuit Court's order granting a motion to stay, pending arbitration, the action filed against them by the Kiva Lodge Condominium Owners' Association, Inc. ("Kiva Lodge"). We affirm the judgment of the trial court.

I. Facts

Kiva Lodge is an Alabama nonprofit corporation formed for the purpose of administering and maintaining the Kiva Dunes Clubhouse and Condominium ("Kiva Dunes") located in Gulf Shores. On March 23, 2009, Kiva Lodge contracted with Hudak to be the general contractor for the remediation of deficiencies in Kiva Dunes buildings that were allowing water to enter the buildings.¹ Hudak subcontracted the stucco and/or sealant portion of the work to Colvin. Hanover, as surety for Hudak, issued to Kiva Lodge a performance bond ensuring and/or securing the full performance of Hudak's contractual obligations. Both Hanover's performance bond and Colvin's subcontract incorporated by reference the provisions of the contract between Kiva Lodge and Hudak.

The contract between Kiva Lodge and Hudak included a form contract entitled "General Conditions of the Contract for Construction, AIA² Document A201-1997" ("the form contract"). The form contract included two paragraphs that constituted the arbitration provision. Those paragraphs provided:

"§ 4.6.1 Any Claim arising out of or related to the Contract ... shall , after decision by the Architect after submission of the Claim to the Architect, be subject to arbitration . Prior to arbitration, the parties shall endeavor to resolve disputes by mediation in accordance with the provisions of Section 4.5.

"§ 4.6.2 Claims not resolved by mediation shall be decided by arbitration , which, unless the parties mutually agree otherwise, shall be in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association currently in effect. The demand for arbitration shall be filed in writing with the other party to the Contract and with the American Arbitration Association, and a copy shall be filed with the Architect."

(Emphasis added.)

Kiva Lodge and Hudak also executed an "Addendum to General Conditions of Owner-Contractor Agreement" ("the addendum"). The opening paragraph of the addendum expressly stated:

"This Addendum shall modify, delete from and add and replace by substitution to the ‘General Conditions of the Contract for Construction,’ AIA Document A201, 1997 between Kiva Lodge Condominium Owners' Association, Inc. as Owner and Hudak and Dawson Construction Co., Inc. as Contractor. ... If and to the extent that this Addendum is inconsistent with the Standard Form of Agreement between Owner and Contractor, any attachments thereto, the Specifications and Contract Documents, and the Supplementary Conditions, this Addendum shall control."

With regard to the arbitration provision in the form contract, the addendum provided for the following changes:

"4.6.1 Delete the word ‘shall’ in the second line and substitute in lieu thereof the words ‘may at the election of either party.’ Delete the second sentence in its entirety.

"4.6.2 Delete the word ‘shall’ in the first line and substitute in lieu thereof the words ‘may at the election of either party.’ "

Accordingly, §§ 4.6.1 and 4.6.2, as modified by the addendum, read:

"§ 4.6.1 Any Claim arising out of or related to the Contract ... may at the election of either partyafter decision by the Architect after submission of the Claim to the Architect, be subject to arbitration ....

"§ 4.6.2 Claims not resolved by mediation may at the election of either party be decided by arbitration , which, unless the parties mutually agree otherwise, shall be in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association currently in effect. The demand for arbitration shall be filed in writing with the other party to the Contract and with the American Arbitration Association, and a copy shall be filed with the Architect."

(Emphasis added.) In addition, the addendum added a new paragraph to the form contract—designated paragraph 20—which stated:

"Notwithstanding anything in this Addendum to the contrary, either party may pursue any claim or dispute in a court of law, or through mediation and arbitration . This Agreement shall be governed by the laws of the State of Alabama."

(Emphasis added.)

In May 2010, Hudak's remediation work was deemed to be substantially complete by Kiva Lodge's representative. In May 2010, Colvin issued a five-year warranty in favor of Kiva Lodge warranting that the stucco work was performed with "proper materials, workmanship, and arrangement." On September 16, 2010, Hudak issued a five-year warranty in favor of Kiva Lodge, warranting that the labor and materials were in compliance with the contract and with applicable specifications.

In September 2012, Kiva Lodge informed Hudak and Colvin of leaks and bubbling in the stucco exterior of the buildings at Kiva Dunes caused by water intrusion. Kiva Lodge alleges that Hudak and Colvin failed to determine and/or disclose the course of the problems and the proper scope of repairs necessary. It also alleges that Hanover breached the terms of its performance bond by failing to promptly remedy the default, complete the work within the scope of the contract in accordance with the terms and conditions, or arrange for payment of an alternative contractor to complete the work.

On April 16, 2015, Kiva Lodge sued the appellants in the Baldwin Circuit Court. The complaint asserted claims of breach of warranty, negligence, and fraud/suppression. The complaint requested that Kiva Lodge's claims be "referred to arbitration before the American Arbitration Association for an award of damages against [the appellants]."

On April 23, 2015, Kiva Lodge filed a motion to stay the proceedings pending arbitration of its claims. In support of its motion, Kiva Lodge submitted the form contract, together with the addendum, along with an affidavit from Kiva Lodge's president, Jim Edgemon, in which he asserted that the form contract evinced transactions involving interstate commerce.

On May 15, 2015, Hanover filed a motion to dismiss Kiva Lodge's claims against Hanover on the ground that, under its performance bond, any claim must be initiated within two years following the date on which final payment to the contractor became due and Kiva Lodge had not met this deadline. Therefore, Hanover argued, all of Kiva Lodge's claims against Hanover were time-barred pursuant to the terms of the performance bond.

Also in May 2015, Hudak and Colvin filed answers to the complaint opposing the motion to stay on the basis of the language in the addendum and denying the substantive allegations of the complaint. In July 2015, Hanover filed an answer to the complaint in which it also opposed the motion to stay by relying on the addendum while also arguing that Kiva Lodge's demand for arbitration was untimely. Hanover also asserted cross-claims against Hudak and Colvin, alleging breach of contract, breach of warranty, and negligence and seeking subrogation against or indemnity from each of them in the event of an award in favor of Kiva Lodge.

On July 21, 2015, the circuit court heard arguments concerning Kiva Lodge's motion to stay. On August 4, 2015, the circuit court entered an order that stated, in pertinent part: "Motion to Stay Pending Arbitration filed by [Kiva Lodge] is hereby granted. All parties are hereby ordered to arbitration." The circuit court simultaneously issued a separate order staying Hanover's motion to dismiss the claims against it pending arbitration.

On September 11, 2015, Hudak, Colvin, and Hanover timely appealed the circuit court's order that effectively granted Kiva Lodge's demand for arbitration.

II. Standard of Review

" ‘[T]he standard of review of a trial court's ruling on a motion to compel arbitration at the instance of either party is a de novo determination of whether the trial judge erred on a factual or legal issue to the substantial prejudice of the party seeking review.’ Ex parte Roberson , 749 So.2d 441, 446 (Ala. 1999). Furthermore:

" ‘A motion to compel arbitration is analogous to a motion for summary judgment. TranSouth Fin. Corp. v. Bell , 739 So.2d 1110, 1114 (Ala. 1999). The party seeking to compel arbitration has the burden of proving the existence of a contract calling for arbitration and proving that that contract evidences a transaction affecting interstate commerce. Id ."After a motion to compel arbitration has been made and supported, the burden is on the non-movant to present evidence that the supposed arbitration agreement is not valid or does not apply to the dispute in question.’ "

" Fleetwood Enters., Inc. v. Bruno , 784 So.2d 277, 280 (Ala. 2000) (quoting Jim Burke Auto., Inc. v. Beavers , 674 So.2d 1260, 1265 n.1 (Ala. 1995) (emphasis omitted))."

Vann v. First Cmty. Credit Corp. , 834 So.2d 751, 752–53 (Ala. 2002).

III. Analysis

The appellants do not dispute that a contract exists between Kiva Lodge and Hudak that references arbitration, that the contract evinces transactions affecting interstate commerce, or that the contract...