American Water Jetting, Inc. v. Highland Construction,
Inc.

















Filed 1/25/13 American Water
Jetting, Inc. v. Highland Construction, Inc. CA4/2













NOT TO BE PUBLISHED IN OFFICIAL REPORTS







California Rules of Court, rule 8.1115(a), prohibits
courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115>.





IN THE COURT OF APPEAL OF THE STATE OF >CALIFORNIA>



FOURTH APPELLATE DISTRICT



DIVISION TWO






>

AMERICAN WATER JETTING, INC., Plaintiff and Respondent, v. HIGHLAND CONSTRUCTION, INC. et al., Defendants and Appellants.

E054004 (Super.Ct.No. CIVDS1013632) OPINION

APPEAL from the Superior Court of href="http://www.adrservices.org/neutrals/frederick-mandabach.php">San
Bernardino County.
Donald R. Alvarez, Judge.
Affirmed.

Mahoney & Soll,
Paul M. Mahoney and Richard A. Soll for Defendants and Appellants.

Oles Morrison
Rinker & Baker, Allen W. Estes and Meghan A. Douris for Plaintiff and
Respondent.

BACKGROUND

Highland
Construction, Inc. and its surety, Fidelity and Deposit Company of Maryland
(hereafter referred to jointly as Highland), appeal an order denying their
motion to compel arbitration of a claim for breach
of contract by American Water Jetting, Inc. (hereafter referred to
sometimes as AWJ).

AWJ is a
subcontractor retained by Highland to perform a portion of the work under a contract between Highland and the
California Department of Transportation (Caltrans) for the repair of specified
bridges in San Bernardino County. AWJ alleged that Highland breached
the subcontract in a number of ways, and that despite having been paid by
Caltrans for the work performed by AWJ, Highland refused to
pay AWJ. AWJ filed suit in Contra Costa County, where
its principal place of business is located.
Highland filed its answer and cross-complaint, and simultaneously filed a
motion for a change of venue to San Bernardino County, where
the work was performed. The motion was
granted.

Approximately eight
months after the case was transferred to San Bernardino County, Highland filed a
motion to compel arbitration, contending that the subcontract contained a
provision for arbitration and that there was a pending arbitration between Highland and
Caltrans on the prime contract involving issues of law and fact in common with
the litigation between Highland and AWJ. AWJ opposed the
motion, contending that the subcontract provided AWJ with the option to choose
arbitration or litigation of claims arising from the contract, or in the
alternative, that Highland had waived arbitration by waiting 10 months from the
date it was served with AWJ’s complaint to seek arbitration. It contended that it would be greatly
prejudiced if it were required to join in the arbitration between Highland and
Caltrans.

The trial court
denied the motion to compel arbitration, and AWJ filed a timely notice of
appeal.

LEGAL ANALYSIS

THE SUBCONTRACT DOES NOT PERMIT
HIGHLAND TO COMPEL AMERICAN WATER JETTING TO ARBITRATE THE DISPUTE

Parties to a
contract may agree to submit disputes arising from the contract or its
performance to arbitration. (Code Civ.
Proc., § 1281.) AWJ contends
that paragraph 13 of the subcontract gives it the option to litigate or
arbitrate claims against Highland. It quotes the following
language in paragraph 13: “Subcontractor
shall have the right to request arbitration in accordance with the provisions
of the prime contract if permissible there under, or file an action.”
Highland responds that the quoted portion of paragraph 13 is taken out
of context, and that the subcontract expressly incorporates the prime contract by
reference, including specification 9-1.10 of the prime contract, which provides
that claims for damages “arising under or related to performance of the
contract shall be resolved by arbitration,” unless, after the claim has arisen,
the parties agree in writing to have the claim litigated in court. Both parties point to language in other
portions of the subcontract which, they contend, buttresses their position.

Where no extrinsic
evidence as to the meaning of a contract has been introduced, interpretation of
the contract, based exclusively on the words of the contract, is a question of
law which an appellate court reviews independently. (Lange
v. TIG Ins. Co. (1998) 68 Cal.App.4th 1179, 1185.) Robertson
v. Health Net of California, Inc. (2005) 132 Cal.App.4th 1419, 1425.) No extrinsic evidence was adduced in this
case. Accordingly, we must determine
independently whether the subcontract permits Highland to compel arbitration of
this dispute.

We begin with
paragraph 13, on which AWJ relies. It
provides:

“13. SUBCONTRACTOR’S CLAIMS: Subcontractor shall be bound to Contractor to
the same extent as Contractor is bound to Owner [Caltrans], by all the terms
and provisions of the prime contract, and by all decisions, ruling [>sic] and interpretations for [>sic] the Owner or his authorized
representative. In the event
Subcontractor claims that he is entitled to additional compensation, other than
for extra work for which written authorization has been given prior to performance
thereof, or [in the] event that Subcontractor disputes any determination made
by Owner or Owner’s representative, he shall, within the time allowed by the
prime contract, prepare his claims or contentions in such written form as may
be required by the provisions of the prime contract for presentation by
Contractor to Owner. Subcontractor, at
his own cost and expense, shall designate a person who shall be charged with
presenting the claims or contentions of Subcontractor to the Owner, and such person
shall, together with a representative of Contractor, act jointly as
Contractor’s representative in all dealings with the Owner relative to such
claims or contentions. Subcontractor
shall be bound by the ruling or decision of the Owner upon all such matters to
the same extent that Contractor is bound, and Subcontractor shall have no right
to receive payment from Contractor upon any such claim or contention in any sum
greater than that allowed and paid by Owner. In the event Subcontractor is not satisfied
with the disposition made of his claim by Owner, and Subcontractor wishes to
pursue his claim either by arbitration or by the filing of an action,
Subcontractor shall have the right to request arbitration in accordance with
the provisions of the prime contract if permissible there under, or file an
action. Such arbitration or court
action shall indicate the name of contractor [sic] as the party thereto because of the lack of privity of
contract between Subcontractor and Owner, but all such proceedings shall be
conducted by Subcontractor with the cooperation of Contractor and at the sole
cost and expense of Subcontractor.
Subcontractor shall hold harmless and indemnify Contractor against all
costs of arbitration, suit attorneys’ fees and other items of expense connected
with such proceedings.

“Contractor shall
have the right to receive fifteen percent (15%) of any amount allowed by Owner
or recovered through arbitration or court proceedings in connection with any
such claim or contention presented on behalf of Subcontractor for Contractor’s
overhead, bond premium, profit and work performed by Contractor in presenting
the Subcontractor’s claims or contentions.”
(Italics added.)

AWJ relies on the
italicized sentence to contend that the subcontract gives it the option of
filing a breach of contract suit against Highland in court or submitting it to
arbitration. Paragraph 13, however,
appears to apply only to claims by AWJ that it is owed additional payments by
Caltrans: Paragraph 13 requires AWJ to
make a claim to Caltrans and requires Highland to cooperate with AWJ in
pursuing AWJ’s claim against Caltrans, and makes Highland only a nominal
defendant in any suit AWJ thereafter files to recover sums allegedly owed by
Caltrans.href="#_ftn1" name="_ftnref1"
title="">^[1] Paragraph 13 does not appear
to apply to claims that Highland failed to pay AWJ amounts which were approved
by Caltrans and paid to Highland for work performed by AWJ or to claims that
Highland breached the contract in any other manner, as alleged in AWJ’s
complaint. Accordingly, the provision in
paragraph 13 allowing AWJ to sue or pursue arbitration in the event that
Caltrans rejects AWJ’s claim for additional payment does not answer the
question raised in this case, i.e., whether Highland can compel arbitration of
AWJ’s claim that Highland breached the subcontract.

We now turn to
Highland’s contentions. Highland stateshref="#_ftn2" name="_ftnref2" title="">^[2] that the prime contract
contains the following provision, which it describes as “Standard Specification
9-1.10”:

“Article 7.1
(Sections 10240-10240.13, inclusive) of Chapter 1, Division 2 of the Public
Contract Code provides for the resolution of contract claims by arbitration.

“Claims (demands
for monetary compensation or damages) arising under or related to performance
of the contract shall be resolved by arbitration unless the Department and the
Contractor agree in writing, after the claim has arisen, to waive arbitration
and to have the claim litigated in a court of competent jurisdiction. Arbitration shall be pursuant to Public
Contract Code Sections 10240-10240.13. inclusive, and applicable regulations .
. . .”

Highland contends
that paragraphs 3 and 13 of the subcontract incorporate the prime contract in
its entirety by reference, including specification 9-1.10. We disagree.

We begin with
Paragraph 3. It provides in pertinent
part:

“3. EFFECT OF PRIME
CONTRACT: To the extent that they are
applicable to the work to be performed by Subcontractor under this agreement, >the provisions of the prime contract, plans,
specifications, addenda, change orders, and other documents forming a part of
the prime contract, are hereby incorporated into this agreement with the
same force and effect as though set forth in full. . . . In the event that any provision of this
agreement as applied to the work of Subcontractor hereunder is found to be
inconsistent with the provisions of the prime contract, the provisions of the
prime contract shall prevail and shall govern the rights and obligations of the
parties hereto.” (Italics added.)

Highland contends
that the language italicized above reflects the parties’ agreement that all
provisions of the prime contract are incorporated into the subcontract. AWJ counters that paragraph 3 applies only to
those provisions of the prime contract which pertain to the >work to be performed under the
subcontract, and that it does not apply to payment or resolution of
disputes. We agree. The first sentence of paragraph 3 states, “>To the extent that they are applicable to
the work to be performed by Subcontractor under this agreement, the
provisions of the prime contract, plans, specifications, addenda, change
orders, and other documents forming a part of the prime contract, are hereby
incorporated into this agreement with the same force and effect as though set
forth in full.” (Italics added.) The final sentence of paragraph 3 which we
have quoted above also states that if any provision of the subcontract “>as applied to the work of Subcontractor
hereunder” (italics added) is inconsistent with the provisions of the prime
contract, the provisions of the prime contract shall prevail. “The language of a contract is to govern its
interpretation, if the language is clear and explicit, and does not involve an
absurdity.” (Civ. Code, §
1638.) Here, paragraph 3 clearly and
explicitly states that those provisions of the prime contract which apply to
the work to be performed by AWJ are incorporated by reference into the
subcontract. It contains no reference to
provisions of the prime contract which pertain to payment or to arbitration of
disputes.

The first sentence
of paragraph 13, also relied upon by Highland as incorporating all terms of the
prime contract by reference, states:
“Subcontractor shall be bound to Contractor to the same extent as
Contractor is bound to Owner, by all the terms and provisions of the prime
contract, and by all decisions, ruling [sic]
and interpretations for [sic] the
Owner or his authorized representative.”
In isolation, that sentence at least arguably incorporates the prime
contract in its entirety in the subcontract.
However, the remainder of the paragraph describes in detail the
procedure AWJ must follow in order to obtain “additional compensation” to which
it believes it is entitled. Nowhere does
paragraph 13 state that Highland may require AWJ to arbitrate if AWJ is
dissatisfied with Caltrans’s resolution of the dispute. On the contrary, it explicitly states that
after AWJ has gone through the procedure described in paragraph 13, AWJ has the
option of filing suit or arbitrating the claim if it is dissatisfied with
Caltrans’s resolution of the dispute.
This is entirely inconsistent with Highland’s contention that the
subcontract incorporates by reference the arbitration provision of the prime
contract.

Because arbitration
involves the waiver of the right to a jury trial, an agreement to arbitrate
must be “‘clear and unmistakable.’” (>Badie v. Bank of America (1998) 67
Cal.App.4th 779, 804.) Highland has not
pointed to any provision of the subcontract which clearly and unmistakably
requires arbitration of a payment dispute between it and AWJ. Accordingly, Highland has not met its burden
to show that the trial court erroneously denied its motion to compel
arbitration.

Because we conclude
that the subcontract does not permit Highland to compel arbitration of a
payment dispute, we need not address the remaining issue.

DISPOSITION

The judgment is
affirmed. American Water Jetting, Inc.
is awarded costs on appeal.

NOT TO BE PUBLISHED
IN OFFICIAL REPORTS



MCKINSTER

J.





We concur:



RAMIREZ

P.
J.

RICHLI

J.