HOWARD HILL, INC. v. GEORGE A. FULLER COMPANY

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Docket Number

No. 72-1954.

Attorney(S)

Thomas R. Burnside, Jr., Augusta, Ga., Paul J. Walstad, Vienna, Va., for plaintiff-appellant. Samuel C. Waller, Augusta, Ga., Luther P. House, Jr., Kent P. Smith, Atlanta, Ga., for defendants-appellees.

Judges

William Homer Thornberry

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Smart Summary

Factual and Procedural Background

George A. Fuller Company (Fuller), as the prime contractor, contracted with the Richmond County Hospital Authority to construct a university hospital in Augusta, Georgia. Howard Hill, Inc. (Hill), by subcontract with Fuller, agreed to supply labor and materials for the project. A dispute arose between Hill and Fuller during construction, prompting Hill to file a diversity action against Fuller and Fuller's bondsman seeking over $77,000 for breach of contract, the value of labor and materials furnished, and attorney fees. Fuller moved the district court for a stay of proceedings pending arbitration as stipulated in the subcontract. The district court granted this motion, and the propriety of the stay order is the subject of this appeal.

Legal Issues Presented

Whether the arbitration provision in the prime contract was effectively incorporated by reference into the subcontract, thereby binding Hill to arbitration.
Whether Fuller waived its right to insist on arbitration under the incorporated arbitration clause due to actions or correspondence occurring after the dispute arose.
Whether the post-dispute correspondence between Hill and Fuller constituted a new contract obligating Hill to accept arbitration results between Fuller and the Hospital Authority.

Arguments of the Parties

Appellant's Arguments (Howard Hill, Inc.)

Hill contended that it was not bound by the prime contract arbitration provision because the subcontract language was ineffective to incorporate the arbitration clause by reference.
Hill argued that Fuller waived its right to insist on arbitration due to events occurring after the dispute arose.
Hill denied having agreed to be bound by the results of arbitration between Fuller and the Richmond County Hospital Authority, disputing Fuller's claim of a new contract formed by correspondence.

Appellees' Arguments (George A. Fuller Company, Inc.)

Fuller maintained that the subcontract incorporated the prime contract arbitration clause by reference, binding Hill to arbitration.
Fuller denied waiving its right to arbitration.
Fuller argued that correspondence between the parties established a new contract whereby Hill agreed to be bound by arbitration results between Fuller and the Hospital Authority.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
J.S. H. Construction Company v. Richmond County Hospital Authority, 473 F.2d 212 (5th Cir. 1973)	Validity of subcontract language incorporating prime contract arbitration provision by reference.	The court relied on this sister case, holding that the subcontract language here was sufficient to incorporate the prime contract arbitration clause, binding Hill to arbitration.
Burton-Dixie Corporation v. Timothy McCarthy Construction Company, 436 F.2d 405 (5th Cir. 1971)	Waiver of the right to insist on arbitration.	The court reaffirmed that waiver depends on the facts of each case and upheld the district court's finding that Fuller did not waive its arbitration rights.
Blake Construction Company v. United States for the Use and Benefit of Jacob Lichter, 252 F.2d 658 (5th Cir. 1958)	Standard of review for findings related to arbitration waiver under Fed.R.Civ.P. 52(a).	The court applied this precedent to defer to the district court's factual findings on waiver unless clearly erroneous.

Court's Reasoning and Analysis

The court began by addressing whether the subcontract effectively incorporated the prime contract's arbitration clause. Relying on the contemporaneously decided J.S. H. Construction Company case, which involved identical subcontract language, the court held that the arbitration provision was incorporated and binding on Hill.

Next, the court considered Hill's argument that Fuller waived its right to arbitrate by conduct occurring after the dispute arose. The court noted that waiver of arbitration rights depends on factual circumstances and is typically a question for the trier of fact. The district court found no waiver by Fuller, a finding the appellate court found not clearly erroneous. The court reviewed correspondence and affidavits showing that while Hill requested arbitration, Fuller proposed arbitration between itself and the Hospital Authority, not directly with Hill. Hill agreed to accept the arbitration results between Fuller and the Hospital Authority as satisfactory but did not unequivocally waive its right to participate in arbitration with Fuller or agree to be bound by the arbitration award. The court found these facts consistent with the district court's conclusion that Fuller did not waive its arbitration rights.

Finally, the court addressed Fuller's contention that the post-dispute correspondence formed a new contract binding Hill to the Fuller-Hospital Authority arbitration results. The district court implicitly rejected this view by ordering a stay pending arbitration "between the parties." The appellate court agreed, finding no basis to construe the correspondence as creating a new contract.

Holding and Implications

The order of the district court staying proceedings pending arbitration between the parties is affirmed.

The direct effect of this decision is to compel arbitration pursuant to the subcontract's incorporated arbitration clause, requiring the parties to resolve their dispute through arbitration rather than litigation at this stage. The court's ruling does not establish new precedent beyond confirming the applicability of the arbitration clause under the subcontract and the absence of waiver by Fuller. No broader legal implications were discussed.

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HOWARD HILL, INC., PLAINTIFF-APPELLANT, v. GEORGE A. FULLER COMPANY, INC., ET AL., DEFENDANTS-APPELLEES.

THORNBERRY, Circuit Judge:

George A. Fuller Company (Fuller), as prime contractor, contracted with the Richmond County Hospital Authority to build a university hospital in Augusta, Georgia. By a subcontract with Fuller, Howard Hill, Inc. (Hill) agreed to supply labor and materials for the hospital project. During construction of the hospital a dispute arose between Hill and Fuller, and because of it Hill brought this diversity action against Fuller and his bondsman to recover over $77,000 for breach of contract, the value of labor and materials furnished, and attorney fees. Fuller moved for a stay of proceedings in the district court pending arbitration as provided in the subcontract, and the Court granted this motion. The propriety of the stay order is at issue on this appeal.

Urging us to vacate the stay, appellant Hill argues first that it is not bound by the prime contract arbitration provision because the language of the subcontract was ineffective to incorporate it by reference. In a sister case to the instant one, J.S. H. Construction Company v. Richmond County Hospital Authority, 5th Cir. 1973, 473 F.2d 212, decided today, we have considered subcontract language identical to that used in the Fuller-Hill subcontract and have held it was sufficient to incorporate the prime arbitration provision into the subcontract there. For the reasons expressed in the J.S. H. Construction Company case, we hold that the prime contract arbitration provision was incorporated into the subcontract in this case and is binding on Hill.

Appellant Hill's second contention goes beyond the J.S. H. Construction Company case. Pointing to events which occurred after the contract dispute arose, Hill argues that Fuller waived its right to insist on arbitration under the incorporated clause. Fuller denies any such waiver and argues in addition that correspondence between Hill and Fuller established a new contract under which Hill agreed to be bound by the results of arbitration between Fuller and the Hospital Authority. The district court found Fuller had not waived its right to insist on arbitration and did not construe the post-dispute correspondence as a new contract. We find no occasion to disturb these conclusions.

It is well settled that a party to a contract may waive the right to insist on compliance with an arbitration clause, Burton-Dixie Corporation v. Timothy McCarthy Construction Company, 5th Cir. 1971, 436 F.2d 405, so that that party may no longer assert the arbitration clause as a defense to an action on the contract. "There is no settled rule, however, as to what constitutes a waiver or abandonment of the arbitration agreement. The question depends upon the facts of each case and usually must be determined by the trier of facts." Id. at 408. In granting the motion to stay proceedings, the district court found that Fuller had not waived its rights under the arbitration clause, and we cannot say that this finding was clearly erroneous. Fed.R.Civ.P. 52(a); cf. Blake Construction Company v. United States for the Use and Benefit of Jacob Lichter, 5th Cir. 1958, 252 F.2d 658, 662. The record in this case contains intermittent correspondence between Hill and Fuller from March 1970 until March 1971, when suit was filed, and affidavits of persons who had knowledge of the negotiations between them. From these documents it appears that Hill first requested arbitration in March 1970. In response Fuller promptly proposed to submit Hill's claim "to arbitration," apparently intending to signify thereby that Fuller would submit the claim to arbitration between itself and the Hospital Authority. Hill agreed to this proposal in a letter and stated that the settlement made in such arbitration would be "satisfactory and acceptable," but Hill did not expressly waive the right to participate in arbitration with Fuller or unequivocally agree that an award resulting from arbitration between Fuller and the Hospital Authority would be binding as to the Hill-Fuller dispute. An affidavit from Fuller's Project Manager indicates Hill may have considered Fuller's proposal to be one for three-party arbitration. After March 1970, Hill continued to press for arbitration; Fuller declined direct arbitration with Hill but undertook the preparation of Hill's claim for submission to the Hospital Authority. At the time the complaint was filed, both parties were insisting on arbitration but evidently had different ideas as to who would arbitrate with whom. We think these circumstances support the district court's finding that Fuller did not waive its rights under the arbitration clause.

We note that the district court ordered a stay pending "arbitration of the issues between the parties," implicitly rejecting Fuller's argument that Hill entered a new contract by which it gave up the right to participate in arbitration with Fuller and agreed to be bound by the Fuller-Hospital Authority arbitration award. Having reviewed the relevant correspondence, we find ourselves in accord with the district court's view.

The order of the district court staying proceedings pending arbitration between the parties is affirmed.