Result Here Depends Entirely On Contract Construction Of Prime And Subcontracts
Our next case is entitled American Water Jetting, Inc., Plaintiff and Respondent, v. Highland Construction, Inc. et al., Defendants and Appellants, Case No. E054004 (Fourth Dist. Div. 2 January 25, 2013) (McKinster, J.) (unpublished). I don’t usually restate the full caption of a case. Here, however, I did so, because I find it curious that the Court of Appeal states: “The trial court denied the motion to compel arbitration, and AWJ filed a timely notice of appeal.” Why would the respondent, AWJ, file a timely notice of appeal, after successfully defeating Highland’s motion to compel arbitration in the trial court? Whatever. Let’s move on.
This case is filled with red herrings.
AWJ, a subcontractor retained by Highland, performed some of the work under a contract between Highland and Caltrans. Evidently, Caltrans paid Highland for AWJ’s work, but AWJ did not get fully paid by Highland under the subcontract. So AWJ sued. Highland moved to compel arbitration, and AWJ successfully opposed the motion, contending that its subcontract with Highland gave it an option to arbitrate or litigate, and alternatively, that Highland had waived arbitration. Let’s just say an appeal followed.
AWJ relied on a provision in the subcontract allowing it to sue or pursue arbitration in the event that Caltrans rejected AWJ’s claims for additional payment. But the Court of Appeal rejected that argument. Here, the dispute was between AWJ and Highland, not between AWJ and Caltrans, and the provision relied upon by AWJ “does not answer the question raised in this case, i.e., whether Highland can compel arbitration of AWJ’s claim that Highland breached the contract.”
Next, the Court of Appeal turned to Highland’s argument that the subcontract incorporated in its entirety the prime contract between Highland and Caltrans, and the prime contract required arbitration. But the Court of Appeal rejected the wholesale incorporation argument, because the incorporation language was expressly limited to “work to be performed by the Subcontractor,” and did not reference provisions of the prime contract pertaining to payment or to arbitration of disputes – the issues involved here.
In the end, the resulting contractual confusion did not help respondent Highland, because an agreement to arbitrate must be “clear and unmistakable.” Badie v. Bank of America, 67 Cal.App.4th 779, 894 (1998).
Because the conclusion that the subcontract did not permit Highland to compel arbitration of a payment dispute hinged on contract interpretation, the Court did not have to address respondent AWJ’s waiver argument. I know, I know, the Court says AWJ appealed. In any case, because the order below was affirmed, AWJ, the respondent, won its timely appeal. Got that?