Title: City of Lenexa v. CL Fairley Constr. Co.

State: kansas

Issuer: Kansas Supreme Court

Document:

245 Kan. 316 (1989)
777 P.2d 851
CITY OF LENEXA, KANSAS, Appellee,
v.
C.L. FAIRLEY CONSTRUCTION COMPANY, INC., Appellant.
No. 62,002

Supreme Court of Kansas.
Opinion filed July 17, 1989.
Stephen J. Dennis, of Niewald, Waldeck, Norris & Brown, of Overland Park, argued the cause and was on the briefs for appellant.
R. Scott Beeler, of Gage & Tucker, of Overland Park, argued the cause and Albert F. Kuhl, of the same firm, was with him on the briefs for appellee.
The opinion of the court was delivered by
LOCKETT, J.:
C.L. Fairley Construction Company, Inc., (Fairley) appealed from an order of the Johnson County District Court denying its motion to confirm an arbitration award against the City of Lenexa and from that court's order denying its motion to alter or amend judgment. In an unpublished opinion, the Court of Appeals reversed, finding that the arbitration agreement was enforceable and irrevocable. This court granted Lenexa's petition for review.
On June 19, 1984, Fairley and Lenexa entered into a construction contract which contained these provisions:
*317 [The Role of the City Engineer in Settling Disputes]
"Decisions on Disagreements:
[The Arbitration Provision]
....
[The Remedy Provision]
After a dispute arose over delays which allegedly impeded Fairley's ability to complete the project, Fairley filed a demand for arbitration. On the morning of the second day of the scheduled hearing, pursuant to K.S.A. 5-402, Lenexa filed a petition to stay the arbitration proceedings. The district court denied Lenexa's petition.
Subsequently, the arbitrator provided by the American Arbitration *318 Association entered a written arbitration award in favor of Fairley for $21,434.53 and assessed the administrative expenses of the American Arbitration Association and the fees of the arbitrator against Lenexa. The Association subsequently directed Lenexa to pay Fairley an additional $1,050 for arbitration fees which Fairley had previously advanced. K.S.A. 5-410.
After the award was entered, Fairley filed a motion to confirm the award in the district court. K.S.A. 5-411. Thereafter, Lenexa filed a motion to vacate the award. K.S.A. 5-412. After a hearing, the district court denied Fairley's motion to confirm the award, thereby rendering moot Lenexa's motion to vacate. After the district court found that the arbitration provision in the contract was ambiguous with respect to whether the parties intended for arbitration to be binding, it admitted extrinsic evidence to determine this issue. The district court determined the parties had specifically deleted a provision in the contract making an arbitrator's award binding.
After the district court denied Fairley's motion to alter or amend judgment, Fairley appealed and the Court of Appeals reversed, holding that the arbitration provision "is straightforward and clearly compels arbitration" and that the district court's admission of extrinsic evidence on the issue was erroneous. Significant to the court's holding was its determination that K.S.A. 5-401 which provides that written agreements to arbitrate are "valid, enforceable and irrevocable," makes no distinction between binding and nonbinding arbitration.
Lenexa claims that the Court of Appeals erred by determining that the contract was not ambiguous and, more importantly, by its interpretation of the Kansas Uniform Arbitration Act, K.S.A. 5-401 et seq. Lenexa asserts that the Court of Appeals' interpretation of the Act "create[s] an improper presumption against the right of parties to contract freely for nonbinding arbitration in Kansas."
Lenexa alleges that the contract was ambiguous as to the effect of arbitration and that the district court properly admitted extrinsic evidence to determine the parties' intent. In essence, Lenexa argues that the contract provides for advisory arbitration, i.e., the parties never agreed to be bound by an arbitrator's decision.
Lenexa points to two provisions in the contract which it claims *319 are ambiguous as to whether the parties intended to be bound by an arbitrator's decision. The first provision is paragraph 16.5, which provides in part: "[T]he rights and remedies available to [the parties] shall be in addition to, and shall not be construed in any way as a limitation of, any rights and remedies available to them which are otherwise imposed or available by law, by special guarantee or by other provisions of the Contract Documents."
The Court of Appeals rejected this contention, finding that this "wording, read in harmony with the plain, unambiguous requirement for arbitration, preserves to the parties `any rights and remedies available to them which are otherwise imposed or available by law' which, when it refers to `other provisions of the contract documents,' strengthens the obligation of the parties to arbitrate." We agree.
The second provision which Lenexa claims to be ambiguous is in the arbitration clause itself: "[T]he failure to demand arbitration within said thirty days' period shall result in ENGINEER'S decision being final and binding upon [the parties]." Basically, Lenexa relies upon the rule of expressio unius est exclusio alterius (the expression of one excludes the other) in arguing that the use of the words "final and binding" with regard to the engineer's decision and not with regard to an arbitrator's decision creates an ambiguity on this point. We disagree.
Generally, courts seek to uphold arbitration agreements even where the contract provisions are somewhat uncertain and indefinite. Arbitration agreements are construed "by the usual rules and canons of contract interpretation." Village of Cairo v. Bodine Contracting Co., 685 S.W.2d 253, 258 (Mo. App. 1985). Regardless of the construction of a written instrument made by the trial court, on appeal the instrument may be construed and its legal effect determined by the appellate court. Cornwell v. Jespersen, 238 Kan. 110, 116, 708 P.2d 515 (1985).
Fairley's argument mirrors the Court of Appeals' decision: (1) the contract contained an arbitration clause; (2) the Kansas Uniform Arbitration Act makes no distinction between binding and nonbinding arbitration; and (3) K.S.A. 5-401, which provides that written agreements to arbitrate are "valid, enforceable and irrevocable," compels the enforcement of the arbitration award in this case.
*320 Black's Law Dictionary 96 (5th ed. 1979) defines arbitration as:
In Miller v. Brumbaugh, 7 Kan. 343, 350-53 (1871), we discussed arbitration, stating:
In Guild v. Railroad Co., 57 Kan. 70, 78, 45 Pac. 82 (1896), we defined arbitration as a submission to the decision of one or more persons of a matter in controversy or dispute between the parties. The power of the arbitrator to render a valid award rests on the continuing consent of the parties. We also recognized the common-law rule that either party may revoke the arbitration agreement at any time prior to the making of an award, even *322 where the parties have entered into an express agreement not to revoke.
Arbitration proceedings were provided for by statute after May 1, 1876. See L. 1876, ch. 102. In Clark v. Allaman, 71 Kan. 206, 80 Pac. 571 (1905). Justice Burch traced the history of the applicability of the common law within the territory which is now Kansas from the time of its acquisition by the United States up to the time of the opinion. He concluded that the common law was prevalent throughout the area under every form of governmental organization until the autumn of 1868, when the general statutory law of this state replaced the common law. See G.S. 1868, ch. 119, § 3. In Board of Neosho County Comm'rs v. Central Air Conditioning, Inc., 235 Kan. 977, 683 P.2d 1282 (1984), we reasserted that, when a statute conflicts with the common law, the statute controls. We also determined that the common-law principles of arbitration had been modified by the legislature when Kansas adopted the Uniform Arbitration Act in 1973. See K.S.A. 5-401 et seq.; see generally Comment, Arbitration: Confirming Application of the Kansas Uniform Arbitration Act, 24 Washburn L.J. 615, 622-24 (1985).
On the date the present contract was made, the Kansas Uniform Arbitration Act provided:
In Wauregan Mills, Inc. v. Textile Workers Union, 21 Conn. Supp. 134, 137, 146 A.2d 592 (Super. Ct. 1958), the Connecticut court defined an arbitration agreement as "`an arrangement for taking and abiding by the judgment of selected persons in some disputed matter, instead of carrying it to established tribunals of justice, and it is intended to avoid the formalities, the delay, the expense and vexation of ordinary litigation.'" (Emphasis added.)
K.S.A. 5-420 requires that the Act be construed as to effectuate its general purpose to make uniform the laws of those states which have enacted it. It is widely held in those states which have adopted the Uniform Arbitration Act that its purpose is to "enforce arbitration agreements as a matter of the cogent public policy in favor of resolution of disputes without resort to the *323 courts." Village of Cairo v. Bodine Contracting Co., 685 S.W.2d  at 258.
In addition, legal scholars have also recognized the binding nature of arbitration. "The fact that an arbitration decision is reached in a short term and is final is a substantive and real advantage in the arbitration process." Kanner, The Dynamics of the Arbitration Process, 39 Arb. J., June 1984 at 57,60 (emphasis added); see Lucas, The Future of Arbitration, 42 Arb. J., June 1987 at 55; McDonald & Bivins, Alternative Dispute Resolution and the Courts, 42 Arb. J., June 1987 at 58.
Since the enactment of the Kansas Uniform Arbitration Act in 1973, no appellate court in this state has used the term "nonbinding arbitration" in an opinion. This term, however, infrequently appears in cases from other jurisdictions. In one such case, the Colorado Court of Appeals held that a collective bargaining agreement, which provided for "advisory" umpire reports, "effectively operated as a nonbinding arbitration agreement." Hoffsetz v. Jefferson Cty School D. R-1, 757 P.2d 155, 157 (Colo. App. 1988). But this decision is not contrary to our Act. The Kansas Legislature has asserted that it is against public policy for contracts of insurance, contracts between an employer and employees, and provisions of a contract providing for arbitration of a claim in tort to be subject to arbitration under the Act.
The term "binding arbitration" is redundant. Arbitration is, by definition, binding. Mediation and conciliation are the recognized legal terms of art for what is commonly referred to as "nonbinding arbitration." See Black's Law Dictionary 262, 885 (5th ed. 1979). Domke on Commercial Arbitration § 4:17 (Prac. Guide 1987) explains: "Mediation ... clauses are not to be treated as arbitration clauses. From a procedural standpoint, arbitration is binding whereas mediation ... [is] not. Parties signing mediation ... clauses may not wish to expose themselves to the inherent finality of an arbitral proceeding."
The difference between arbitration and mediation may also be seen by comparing the use of "valid, enforceable and irrevocable" in K.S.A. 5-401 with the language used in K.S.A. 44-817, a statute which defines the role of mediators in labor relations disputes: "It shall be the function of such mediator to bring the parties together voluntarily under such favorable auspices as will tend to effectuate settlement of the dispute, but ... the mediator *324... [shall not] have any power of compulsion in mediation proceedings." This disparity in language clearly indicates our legislature's intent to distinguish between arbitration and mediation.
Here, the contract does not call for "advisory" or "nonbinding" arbitration, or more accurately, for mediation. It provides that either Lenexa or Fairley "may demand arbitration." Given the legal meaning of the word "arbitration," and the fact that K.S.A. 5-401 does not distinguish between binding and nonbinding arbitration, the Court of Appeals was correct in finding that the "plain meaning of all of the terms of the agreement compels a holding that the parties bound themselves upon demand of either to arbitrate their disputes."
The judgment of the Court of Appeals reversing the district court is affirmed. The judgment of the district court is reversed and the case is remanded.