MPACT CONST. v. SUPERIOR CONCRETE CONST., 26A01-0209-CV-345.

785 N.E.2d 632

MPACT CONSTRUCTION GROUP, LLC, Appellant-Defendant, v. SUPERIOR CONCRETE CONSTRUCTORS, INC., Appellee-Plaintiff, and Flying J, Inc., FJI Plaza Company III, LLC, Lehman Brothers Holdings, Inc. d/b/a Lehman Capital, a division of Lehman Bros. Holdings, Inc., Gary's Plumbing Service, Inc., Koberstein Trucking, Inc., Combs Landscape & Nursery, Inc., B + B Electric Co., Inc., and June Rinsch, in her capacity as the Gibson County Treasurer, Appellees-Defendants, and J.D. Music Tile Company, Inc., and E & B Paving, Inc., Appellees-Intervenors.

No. 26A01-0209-CV-345.

Court of Appeals of Indiana.

March 26, 2003.

Steven S. Hoar, Kahn, Dees, Donovan, & Kahn, LLP, Evansville, IN, Don L. Smith, Smith & Cashion, PLC, Nashville, TN, Attorneys for Appellant.

Angela L. Freel, Rudolph, Fine, Porter & Johnson, L.L.P., Evansville, IN, Attorney for Superior Concrete Constructors, Inc.

James D. Johnson, Rudolph, Fine, Porter & Johnson, L.L.P., Evansville, IN, Attorney for Appellee Combs Landscape & Nursery, Inc.

R. Steven Krohn, Rudolph, Fine, Porter & Johnson, L.L.P., Evansville, IN, Attorney for Appellee J.D. Music Tile Company, Inc.

Jerry D. Stilwell, Bamberger, Foreman, Oswald & Hahn, LLP, Princeton, IN, Attorney for Appellee Koberstein Trucking, Inc.

Robert F. Stayman, Ziemer, Stayman, Weitzel & Shoulders, LLP, Evansville, IN, Attorney for Appellee B + B Electric Co., Inc.

OPINION

KIRSCH, Judge.

MPACT Construction Group, Inc. ("MPACT"), the general contractor for the construction of the Flying J Travel Plaza in Gibson County, Indiana, appeals the trial court's denial of its motion to compel arbitration and stay litigation and raises the following two restated issues:

I. Whether the general construction contracts, which mandate arbitration in the case of disputes arising between MPACT and the owner, Flying J, Inc. ("Flying J"), require Flying J to arbitrate its disputes with MPACT.

II. Whether the subcontracts between MPACT and the various subcontractors incorporate by reference the arbitration provision of the general contracts and thereby require the subcontractors to submit their claims with MPACT to arbitration.

We affirm in part and reverse in part.¹

FACTS AND PROCEDURAL HISTORY

On June 2, 2000, MPACT and Flying J entered into the American Institute of Architects ("AIA") Standard Form of Agreement Between Owner and Contractor ("Standard Agreement")² for the construction of the Flying J Travel Plaza, in Gibson County, Indiana.³ The Standard Agreement incorporated by reference the AIA General Conditions of the Contract for Construction ("General Conditions").⁴ Appellant's Appendix at 21.

Between July and December 2000, MPACT entered into subcontracts ("Subcontracts") with various subcontractors, including Superior Concrete Constructors, Inc. ("Superior Concrete"), Gary's Plumbing Service, Inc. ("Gary's Plumbing"), Koberstein Trucking, Inc. ("Koberstein Trucking"), Combs Landscape & Nursery, Inc. ("Combs Landscape"), B + B Electric Co., Inc. ("B + B Electric"), J.D. Music Tile Company, Inc. ("J.D. Music Tile"), and E & B Paving, Inc. ("E & B Paving") (collectively "Subcontractors").⁵

After Flying J failed to pay, MPACT and Subcontractors, with the exception of J.D. Music Tile who later intervened, recorded mechanic's liens against the property in the summer of 2001. In November 2001, Superior Concrete filed suit to foreclose its lien and recover the alleged unpaid subcontract amount. Superior Concrete also alleged a breach of contract by MPACT. A flurry of cross-claims and counter-claims followed as Subcontractors, as well as other subcontractors not parties to this appeal, asserted their claims for payment. MPACT also filed a cross-claim against Flying J for breach of contract and a claim to foreclose its mechanic's lien.

On May 30, 2002, MPACT filed a motion to compel arbitration and stay litigation, asserting that Subcontractors' claims were subject to arbitration based upon the terms of the Subcontracts and the General Conditions. After a hearing, the trial court denied the motion, and MPACT appealed as a matter of right pursuant to the provisions of Indiana's Uniform Arbitration Act, IC XX-XX-X-XX(a)(1), and the Federal Arbitration Act ("FAA"), 9 U.S.C. § 16.

DISCUSSION AND DECISION

I. Governing Law

In 1925, Congress passed the FAA, now codified at 9 U.S.C. §§ 1-16. It was enacted to reverse judicial hostility toward arbitration agreements that existed at common law and place arbitration agreements on equal footing with other contracts. Note, An Unnecessary Choice of Law: Volt, Mastrobuono, and Federal Arbitration Act Preemption, 115 Harvard L.Rev. 2250, 2252 (2002). Its "limited purpose" is to enforce arbitration agreements according to their terms. Id.

The FAA applies to any contract "evidencing a `transaction in commerce.'"⁶ 9 U.S.C. § 2. Under the FAA, arbitration provisions are "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." Id. The FAA applies whether the action is brought in state or federal court. See Pathman Constr. Co. v. Knox County Hosp. Ass'n, 164 Ind.App. 121, 132, 326 N.E.2d 844, 850-51 (1975); see also University Casework Sys., Inc. v. Bahre, 172 Ind.App. 624, 636, 362 N.E.2d 155, 162-63 (1977) (FAA must prevail wherever applicable). See also Zhaodong Jiang, Federal Arbitration Law and State Court Proceedings, 23 Loy. L.A. L.Rev. 473, 477 (1990) (federal and state courts generally agree that section 2 of FAA applies to state court proceedings).

In light of the interstate nature of the Flying J construction project,⁷ the FAA is applicable to this matter. See University Casework, 172 Ind.App. at 635,362 N.E.2d at 162 (evidence that university construction project involved parties from multiple states sufficient to demonstrate contract involved interstate commerce and FAA applied); Pathman, 164 Ind.App. at 134,326 N.E.2d at 853 (construction contract that involved contractors and subcontractors from different states contemplated interstate activity within the scope of FAA).⁸

Even though a matter falls within the scope of the FAA, courts generally apply state law to the issue of whether the parties agreed to arbitrate their claims. See Gibson v. Neighborhood Health Clinics, Inc., 121 F.3d 1126, 1130 (7th Cir.1997) (in determining whether valid arbitration agreement arose between parties, federal court should look to state law that ordinarily governs the formation of contracts, citing 9 U.S.C. § 2); Ziegler v. Whale Sec. Co., L.P., 786 F.Supp. 739, 742 (N.D.Ind. 1992) (court must look to state contract law to determine whether an arbitration agreement exists). See also Chan v. Drexel Burnham Lambert, Inc., 178 Cal.App.3d 632, 640, 223 Cal.Rptr. 838, 842 (Cal.Ct. App.1986) (existence of valid agreement to arbitrate involves general contract principles, and state law governs disposition of that question); Note, 115 Harvard L.Rev. at 2252 ("The Act thus requires courts to apply state contract principles to arbitration agreements, just as they would to any other contract.").

The FAA preempts state law, however, to the extent that they conflict. Note, 115 Harvard L.Rev. at 2253; see also Pathman, 164 Ind.App. at 130-32, 326 N.E.2d at 851 (in appeal from judgment declaring arbitration provision void, 1968 construction contract transaction fell within FAA and federal law preempted Indiana law that at the time did not favor arbitration). "The general idea is that the FAA precludes state laws that thwart parties' attempts to arbitrate their disputes." Note, 115 Harvard L.Rev. at 2254.

Because Indiana recognizes a strong policy favoring enforcement of arbitration agreements, Indiana CPA Society, Inc. v. Gomembers, Inc., 777 N.E.2d 747, 750 (Ind.Ct.App.2002), its laws do not conflict with the federal policy. See also Northwestern Mut. Life Ins. Co. v. Stinnett, 698 N.E.2d 339, 343 (Ind.Ct.App. 1998) (Indiana recognizes a strong policy favoring enforcement of arbitration agreements). Accordingly, it is appropriate to apply Indiana contract law even though the matter falls within the ambit of the FAA.⁹

Our standard of review in this case is de novo. See Gibson, 121 F.3d at 1130 (in determining whether employee's contract with employer incorporated arbitration provision found in employee handbook, court reviewed matter de novo); see also Mislenkov v. Accurate Metal Detinning, Inc., 743 N.E.2d 286, 290 (Ind.Ct. App.2001) (when reviewing the trial court's interpretation of a contract, we view the contract in same manner as trial court). The court should attempt to determine the intent of the parties at the time the contract was made by examining the language used to express their rights and duties. Mislenkov, 743 N.E.2d at 290. Words used in a contract are to be given their usual and common meaning unless, from the contract and the subject matter thereof, it is clear that some other meaning was intended. Id. Words, phrases, sentences, paragraphs, and sections of a contract cannot be read alone. Id. The entire contract must be read together and given meaning, if possible. Id.

II. Must Flying J Submit to Arbitration?

MPACT appeals the trial court's denial of its motion to compel arbitration and stay litigation. Flying J did not oppose MPACT's motion in the trial court, nor did it file an appellee's brief. When an appellee fails to submit a brief, we need not undertake the burden of developing an argument for the appellee. Kladis v. Nick's Patio, Inc., 735 N.E.2d 1216, 1219 (Ind.Ct.App.2000). This court may reverse the trial court if the appellant makes a prima facie showing of reversible error. Id. "Prima facie, in this context, is defined as `at first sight, on first appearance, or on the face of it.'" Burrell v. Lewis, 743 N.E.2d 1207, 1209 (Ind.Ct.App. 2001) (quoting Johnson County Rural Elec. Membership Corp. v. Burnell, 484 N.E.2d 989, 991 (Ind.Ct.App.1985)).

Under Indiana contract law, the...