Opinion ID: 2612656
Heading Depth: 1
Heading Rank: 1

Heading: A General Overview

Text: John R. Smith should look favorably upon what may have been his only encounter with the Idaho court system and its rules of procedure which are supposedly guided by the principle requiring a liberal construction so as to secure the just, speedy and inexpensive determination of every action and proceeding. I.R.C.P. 1(a). Rule 1 is a constant reminder that the rules are to be liberally construed, and a just result is always the ultimate goal to be accomplished. Sines v. Blaser, 98 Idaho 435, 439, 566 P.2d 758, 762 (1977). It has long been judicial policy in Idaho that controversies be determined and disposed of each on its own particular facts and as substantial justice may require. The exercise of judicial discretion should tend to bring about a judgment on the merits. Bunn v. Bunn, 99 Idaho 710, 711, 587 P.2d 1245, 1246 (1978). This policy is frequently applied when the Idaho courts are asked to set aside a judgment which has been taken against a defendant by default. Such happened to John R. Smith when in this action on September 16, 1977, judgment was entered against him for approximately $160,000 for proven damages chargeable to him arising out of his contract with Audrie Cudahy to supervise the construction of a residence dwelling. Later by order of the trial court the default and default judgment were set aside. Although the record before us does not contain any documentation showing the basis upon which this was accomplished, and it is not of issue on appeal, one may be certain that the long established judicial policy mentioned above played a prominent part in the judge's determination to set aside the judgment and give John Smith his day in court. But, on the other hand  In the annals of Idaho litigation Audrie B. Cudahy will surely be entitled to some reknown as one of the few unfortunate individuals who would see little of Idaho's judicial policy of liberality. All she wanted to do was build her own house. Unlike most who venture into that area, she did everything right  hired an architect, obtained a written contract with her builder, and required a performance bond  and she was surely entitled to look forward to that happy day when the house would be completed. How it was all to turn out, however, was first signalled in Loomis, Inc. v. Cudahy v. Smith, 101 Idaho 459, 615 P.2d 128 (1980), wherein are found the beginnings of Audrie Cudahy's tale of woe and frustration in this Court's statement of the factual background: Cudahy hired Smith, an architect, to design and supervise the construction of a house. Upon the recommendation of Smith, a contract was entered into with one Griffin for the construction of the house. Griffin was required to furnish a performance bond in connection with his contract to construct the house and that performance bond was issued by Ronald W. Liese and Liese & Associates Insurance, Inc. purportedly as agents for United Pacific Insurance Company. Griffin defaulted on his construction contract and failed to complete the building. Loomis, Inc. contracted to complete materials basis, and did so complete the structure according to the specifications, except for certain portions which were allegedly not completed because of weather. Griffin's original contract price for the construction of the house was $45,015.22. The asserted cost of the structure, as partially built by Griffin and completed by Loomis, was $71,610.02. When Loomis was not paid the amount of approximately $14,000.00 as his final bill for the completion of the structure, he filed the instant action seeking to foreclose a mechanic's lien against the Cudahy property. Cudahy filed a counterclaim against Loomis for the completion of the structure and also alleged Loomis used poor workmanship. Cudahy also filed a third party complaint against the architect Smith alleging malpractice and breach of contract, and against Liese, Liese Associates Insurance Company, and United Pacific Insurance Company, asserting liability under the performance bond obligation issued in connection with the Griffin contract. Upon motion therefor, Loomis, Inc. was granted summary judgment foreclosing the mechanic's lien on the Cudahy residence. 101 Idaho at 460, 615 P.2d at 129. The trial court's foreclosure of the mechanic's lien was reversed in that earlier case, a result I certainly was in favor of, although for procedural technicality I felt compelled to vote with Justice Bakes, who believed the appeal was premature. In Loomis, as I remember it, there was no suggestion that the many-pronged controversy involving the various parties might be split and some of it taken out of the court system. The unanticipated, however, was to occur, making it later appear that Audrie Cudahy, who thought she had done everything right, had not done so in failing to retain an attorney to examine the form contract which Smith provided. In all probability, however, she never expected any controversy with Smith, who was her friend, and who agreed on her behalf to supervise construction of her house. But even had she covered that base too, it is not likely that she would have comprehended that one simple little phrase in her contract with Smith mentioning arbitration would, in the event a dispute did arise, take her out of the Idaho courts and before some nonjudicial private enterprise tribunal operating out of Seattle, Washington offices. I doubt that either party knew much, if anything, about arbitration procedures, and doubt further that they discussed the arbitration provisions. It is extremely unlikely that either party had ever seen the Construction Industry Arbitration Rules of the Arbitration Association of America, which would be the tribunal of arbitration. [2] Confusion is the best description of the events which have transpired since the original complaint was filed by Loomis, Inc. more than five years ago. At the outset, respondent Smith's failure to answer the third-party claim which subsequently resulted in a default judgment being entered against him was ostensibly in belief that arbitration was the exclusive remedy for resolution of disputes arising between himself and appellant Cudahy, as is evidenced by the motion to dismiss for lack of jurisdiction filed when Smith had suffered the default judgment  the court deciding it would treat the motion to dismiss as a motion to compel arbitration. Smith's counsel urged upon the court that issues addressed to the arbitrability of the dispute were to be settled by the arbitrator at the arbitration hearing itself. I.C. § 7-901, however, determines the validity of arbitration agreements and supports a different conclusion. Validity of arbitration agreement.  A written agreement to submit any existing controversy to arbitration or a provision in a written contract to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable, save upon such grounds as exist at law or in equity for the revocation of any contract . .. . I.C. § 7-901 (1979) (emphasis added). I.C. § 7-901 is structured as a guideline for determination of the existence of a valid arbitration agreement as required by § 7-902(a). [3] It is not provided for arbitrators but rather for trial judges faced with motions to compel arbitration. As noted in Berkovitz v. Arbib & Houlberg, Inc., 230 N.Y. 261, 130 N.E. 288, 291 (1921), by Judge Cardozo, then of the Court of Appeals of New York, [w]hether [the parties] have so contracted [for arbitration] is a question which the court must still determine for itself. See Application of Spectrum Fabrics Corp., 285 App.Div. 710, 139 N.Y.S.2d 612 (1955), affirmed 309 N.Y. 709, 128 N.E.2d 416 (1955); 5 Am.Jur.2d, Arbitration and Awards § 15 (1962). It was error for the court to avoid this determination at the hearing on the motion to compel arbitration when I.C. § 7-901 specifically contemplates allowing introduction of such grounds as exist at law or in equity for the revocation of any contract as a defense to a valid, enforceable and irrevocable arbitration agreement. The judge's error in this regard substantially prejudiced Cudahy's interest since no subsequent opportunity was provided for her to present these fundamental issues. The judge, however, cannot be faulted for the end product of the confusion. Notwithstanding his certification of the issue to this Court pursuant to I.A.R. 12, this Court denied appellant Cudahy's interlocutory appeal. Similarly, the arbitrator's failure to rule on the arbitrability issue, although the American Arbitration Association (AAA) tribunal specifically acknowledged it, was a further inroad on Cudahy's rights  all in my opinion growing out of confusion born of the lack of precedential guidelines. One of the most disturbing aspects of this case, however, is the apparent failure of the AAA to comply with the Construction Industry Arbitration Rules (hereinafter Rules) promulgated by the AAA. Sections 13, 14 and 15 of the Rules outline the procedure for appointment of arbitrator(s). Each section initially contemplates input from the parties involved in the dispute regarding the individual(s) to be appointed for the hearing. It does not appear from the record that Cudahy was provided with any opportunity to determine who was to decide her fate. Smith originally had moved the district court to appoint the AAA to act as arbitrator and it was so ordered. Cudahy's counsel did not object to the AAA's appointment at that time. It was apparent that neither Smith nor Cudahy knew that the AAA did not act as an arbitrator and was merely a private enterprise court of sorts which would supervise the arbitration procedure. If Cudahy had by then acquired the AAA Rules (which were not attached to the contract), her failure to object may have been based upon an expectation that the AAA tribunal would follow the procedure which it had established for the appointment of arbitrators. The appointment of the arbitrator by the AAA came in a letter to the parties without further input from either side, therefore in contravention of the procedures established by the Rules. The apparent confusion surrounding the application of the AAA's Rules for selection of the arbitrator denied Audrie Cudahy input regarding who would decide her fate, and further reinforced the injustice now acquiesced in by this Court. It is obvious that confusion abounds in this controversy  not to mention in the original agreement between appellant and respondent. Without an opportunity to present her claims and defenses at a single trial or for that matter at a legitimate arbitration proceeding, Audrie Cudahy is doomed to watch her rights and remedies dissolve in a series of incongruous judgments, awards and now opinions.