Opinion ID: 1969505
Heading Depth: 2
Heading Rank: 1

Heading: SDCL 5-18-11 Is An Unconstitutional Delegation of Municipal Authority.

Text: Municipalities in South Dakota have the freedom to enter into contracts for binding arbitration. L.R. Foy Construction Co. v. Spearfish Sch. Dist., 341 N.W.2d 383 (S.D. 1983); City of Hot Springs v. Gunderson's, Inc., 322 N.W.2d 8 (S.D.1982). The question in this case is whether a municipality is bound by an arbitration clause contained in a statutorily required standardized form. Lien first claims this is an action for enforcement of a contract, not a question of creation of a contract. This claim evades the question; it is elementary that before a court may enforce a contract there must be a determination that a valid contract was created. The contract between Lien and City contains no express provision agreeing to arbitration. Lien claims that because its contract with City incorporated by reference the drawings and specifications of an engineering firm, SDCL 5-18-11 mandates that the arbitration provisions of the AIA standard form automatically became part of the contract. SDCL 5-18-11 provides: All contracts shall be made and set forth in writing and shall be signed on behalf of the public corporation by the proper officials thereof and with the formalities required by the governing statutes regulating the particular public corporation involved. The writing shall embody therein all of the terms and conditions of the contract, and, when based upon plans and specifications prepared by an architect or engineer shall contain no general provisions at variance with the general conditions of the latest edition of the standard form of the American institute of architects, except when in conflict with the laws of this state. (Emphasis added.) The AIA general conditions contain the following provision mandating arbitration: 4.5.1 Controversies and Claims Subject to Arbitration. Any controversy or Claim arising out of or related to the Contract or the breach thereof, shall be settled by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator or arbitrators may be entered in any court having jurisdiction thereof[.] City claims that SDCL 5-18-11 violates article III, § 26 of the South Dakota Constitution insofar as it delegates a municipality's authority to contract to a special commission, private corporation or association. The Constitution provides: The Legislature shall not delegate to any special commission, private corporation or association, any power to make, supervise or interfere with any municipal improvement, money, property, effects, whether held in trust or otherwise, or levy taxes, or to select a capital site, or to perform any municipal functions whatever. [2] This Court has previously addressed the constitutionality of statutes delegating municipal functions to a special commission, private corporation or association. In City of Sioux Falls v. Sioux Falls Firefighters, Local 814, 89 S.D. 455, 234 N.W.2d 35 (1975), we declared an entire chapter of the code, SDCL ch. 9-14A, unconstitutional as it unlawfully delegated to binding arbitration salary disputes between a municipality and its firemen and policemen. In a unanimous decision, this Court stated: [T]he framers of our Constitution saw a need to cure the evil of interference with municipal functions by the legislature in this state. This court has previously determined the setting of salaries to be a legislative function of a city.... We hold, therefore, that under the language of Article III, § 26 of this state's Constitution, SDCL 9-14A-18 is clearly unconstitutional. Sioux Falls Firefighters, 89 S.D. at 460, 234 N.W.2d at 37-38. In an earlier case, citing the same constitutional provision, this Court found unconstitutional an ordinance passed by an initiative in Sioux Falls. The ordinance tied the future salaries of city firemen and policemen to a yearly wage scale formulated by trade unions and private contractors. Schryver v. Schirmer, 84 S.D. 352, 171 N.W.2d 634 (1969). We held, it is unconstitutional because it delegates to private persons and agencies the absolute power to fix salaries and thus constitutes an unlawful delegation of legislative power. 84 S.D. at 358, 171 N.W.2d at 637. This case goes far beyond what was found to be unconstitutional in Sioux Falls Firefighters. In that case, the municipal authority was delegated to a board, a sort of quasi public commission and the board's authority was limited to labor disputes and arbitration. 89 S.D. at 457, 234 N.W.2d at 36. Here, SDCL 5-18-11 delegates to the AIA, a private association, the power, through its standardized form, to thrust into a contract eighteen pages of small print containing the general conditions of the contract for construction and bind City to all the provisions. Although this dispute centers on the provision mandating arbitration, under the statute City would be bound by all AIA provisions as part of the contract unless it could prove a provision was in conflict with the laws of this state. This delegation by the legislature is clearly an unconstitutional interference with a municipal function in light of precedent in this state. City has met its burden of proving clearly and unmistakably that SDCL 5-18-11 violates the South Dakota Constitution when applied to municipalities.