Court Opinion

ID: 9475163
Source: CourtListenerOpinion
Date Created: 2023-08-05 05:18:43.487059+00
Date Added: 2024-06-11T17:44:32.292741
License: Public Domain

GARTH, Circuit Judge,
dissenting:
This case involves a dispute over the reach of an arbitration clause in a construction subcontract in the construction of the Atlantic City Hilton Hotel/Casino (“the Project”). Because I disagree with the majority both as to the applicable standard of review and as to the construction of the subcontract, I dissent.
I.
The majority attempts to characterize the dispute in this case as one of contract interpretation rather than contract construction. This threshold characterization is a critical one because questions of construction are questions of law subject to plenary review by this court, whereas questions of interpretation are questions of fact, and must be reviewed under a “clearly erroneous” standard. Ram Construction Co. v. American States Insurance Co., 749 F.2d 1049 (3d Cir.1984). In contrast with the majority, I believe that the dispute in this case is one of contract construction, not contract interpretation.
In Ram Construction, we defined “construction” of a contract as the process of determining its legal effect. Id. at 1053 (citing 3 Corbin on Contracts § 534). Interpretation, in contrast, is a narrower process of ascertaining the meaning of the particular words used and their applicability to a specific fáctual situation. The distinction is clearly stated by Williston: “The word ‘interpretation’ is used with respect to language itself; it is the process of applying the legal standard to expressions found in the agreement in order to determine their meaning. ‘Construction,’ on the other hand, is used to determine, not the sense of the words or symbols, but the legal meaning of the entire contract; the word is rightly used wherever the import of the writing is made to depend upon a special sense imposed by law.” Williston on Contracts § 602, at 320 (3d ed. 1961). See also Patterson, The Interpretation and Construction of Contracts, 64 Colum.L.Rev. 833, 833-36 (1964).
In Ram Construction, this court decided that the issue of whether two agreements were or were not part of a single contract was a question of construction, not of interpretation. In this case, as in Ram Construction, we are required to construe two contracts: the Principal Contract entered into by Harkins and Tishman, as agent for the owner, Hilton (“the Principal Contract”); and the Subcontract entered into by Harkins and Waldinger (“the Subcontract”). Harkins argues that the Subcontract is governed by the arbitration clause in the Principal Contract, because the Principal Contract is incorporated by reference into the Subcontract. Waldinger, in contrast, argues that the specific arbitration clause of the Subcontract overrides the general provision incorporating the Principal Contract into the Subcontract. This dispute, like that in Ram Construction, deals with “the legal meaning of the entire contract,” not the meaning of particular words. It therefore presents a question of construction, as distinct from a question of interpretation, and is subject to plenary review by this court. It is not, in my opinion, a question of fact to be reviewed under the “clearly erroneous” standard as the majority holds.1
*664II.
Even if I were to agree with the majority, which I do not, that this case should be reviewed under the “clearly erroneous” standard, I believe that even that standard would require reversal of the judgment below. See United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948) (“clearly erroneous” standard requires reversal where court is “left with the definite and firm conviction that a mistake has been committed”). Both the principle that a contract should be construed so as to reconcile apparent inconsistencies and give meaning to all its terms, and the principle that specific language in a contract governs over more general language, dictate that the district court erred and that we reverse.
A.
The dispute in this case concerns the question of how to construe the arbitration clause of the Subcontract between Harkins and Waldinger in light of that Subcontract’s incorporation of the Principal Contract between Harkins and Tishman. At the outset, it should be noted that the Federal Arbitration Act reflects a strong federal policy favoring arbitration. “The Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.” Moses H. Cone Hospital v. Mercury Construction Corp., 460 U.S. 1, 25, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983); see also Stateside Machinery Co. v. Alperin, 591 F.2d 234 (3d Cir.1979). The Supreme Court, in Cone, was referring to the arbitration clause of a construction contract. Contrary to the assertion of the majority, therefore, there can be no question that federal policy embodied in the Arbitration Act, as interpreted by the United States Supreme Court, favors the arbitration of commercial as well as labor disputes. However, even absent the dictates of Cone and the congressional policies attending the Arbitration Act, basic principles of contract construction mandate reversal here.
The Subcontract between Harkins, the prime contractor, and Waldinger, the subcontractor, was based on a form subcontract provided by Harkins, and modified by three attachments. Paragraph 17 of the form subcontract provides as follows:
All disputes, claims or questions arising hereunder shall be subject to arbitration and shall be submitted to arbitration in accordance with the provisions then obtaining of the Standard Form Arbitration Procedure of the A.I.A. A determination thereunder shall be final and binding upon the parties thereto. Pending determination, there shall be no work stoppage.
App. 22.
The Subcontract also incorporated the Principal Contract by reference in two places. The front page of the Subcontract provides:
Enter our order for the following materials, equipment and/or services to be furnished and performed in accordance with the General Conditions, Special Conditions, Plans, Specifications, Drawings, and Addenda, (hereinafter called CONTRACT DOCUMENTS), prepared by John Carl Warnecke & Assocs. & David Jacobson assoc., Arch., all of which form a part of the Contract between JOHN F. HARKINS CO., INC. and Tishman Construction Company, (hereinafter referred to as PRINCIPAL CONTRACT) and hereby becomes a part of this Contract as if set forth at length attached hereto.
App. 21.
The second reference to the Principal Contract is in paragraph 2 of the form Subcontract, which provides:
Work performed by SUBCONTRACTOR shall be in strict accordance with *665CONTRACT DOCUMENTS applicable to the work to be performed and materials, articles and/or equipment to be furnished hereunder. SUBCONTRACTOR shall be bound by all provisions of these documents and also by applicable provisions of the PRINCIPAL CONTRACT to which the CONTRACTOR is bound, and to the same extent. Where specific work as set forth in the CONTRACT DOCUMENTS is not described in this order, SUBCONTRACTOR shall perform all work normally construed to come within the scope of his activities, as required of the CONTRACTOR under the PRINCIPAL CONTRACT. All work shall be performed to the complete satisfaction of the CONTRACTOR, the Architect and Owner.
App. 22 (emphasis added).
Harkins contends, and the majority agrees, that these incorporating provisions, and particularly the emphasized portion of paragraph 2, override the specific arbitration clause in paragraph 17 of the Subcontract, making the arbitration provisions of the Principal Contract applicable here. The Principal Contract’s arbitration provisions, contained in paragraphs 37 and 38 of that Contract, provide for arbitration only in the specific instance of a disagreement over the amount to be paid under a signed written change order, and are therefore not applicable to the disputes which Waldinger seeks to arbitrate here.2
B.
It is a general principle of contract law that, where two provisions of a contract are inconsistent, general language must yield to more specific language. Affiliated Food Distributors, Inc. v. Local Union No. 229, 483 F.2d 418 (3d Cir.1973); see also Corbin on Contracts, § 547; Restatement 2d Contracts § 203.
The language of paragraph 17 of the Subcontract is clear and unequivocal: “All disputes, claims or questions arising hereunder shall be subject to arbitration____” App. 22 (emphasis added). In contrast, the language from paragraph 2 of the Subcontract pointed to by Harkins, which allegedly overrides this clause, is general and vague, merely stating that Waldinger, the subcontractor, is bound by the Principal Contract to the same extent as is Harkins, the prime contractor. Even if this language of the Principal Contract were inconsistent with the Subcontract, the provisions of the latter would control.
This principle of contract law has been applied to situations in the construction industry where a subcontract incorporated a principle contract. Thus, the Fifth Circuit has held that, “while a reference in a subcontract to the provisions, plans and specifications of a general contract imports them into the subcontract where not inconsistent with its terms, it is quite well settled that such a reference is not effective beyond this, and that if the subcontract contains words of definite limitation, they will be given effect and the reference limited accordingly.” Perry v. United States, 146 F.2d 398, 400 (5th Cir.1945).
Similarly, the D.C. Circuit has held, relying on the general principles of contract *666law, that, “even if the prime contract were fully incorporated into the subcontract, its general provisions would not overcome the specific provisions of the subcontract.” John W. Johnson, Inc. v. Basic Construction Co., 429 F.2d 764, 772 (D.C.Cir.1970). The D.C. Circuit rejected the prime contractor’s argument that, “because the subcontract fully integrated the terms and conditions of the prime contract [it] operated to bind [the subcontractor] to the same terms, including the Disputes Clause of the prime contract.” Id.
In a case virtually on all fours with the instant one, the District Court for the Northern District of Alabama construed a clause in a subcontract which provided that “the contractor shall have the same rights and privileges against the subcontractor as the owner has against the contractor.” McKinney Drilling Co. v. Collins Co., 517 F.Supp. 320, 325 (N.D.Ala.1981), affirmed, 701 F.2d 132 (11th Cir.1983). The defendants contended that provisions of the specifications contained in the prime contract controlled over the terms of the subcontract. The court stated,
[Defendants’ contention ... is legally unsound. Numerous cases have held that a subcontractor is free to contract in any manner that it desires; and if the specific provisions of the subcontract conflict with the plans and specifications, or with the general contract between the prime contractor and the owner (all of which are incorporated into the subcontract), the terms of the subcontract prevail.
Id. at 327-28.3
According to Harkins, the incorporation of the Principal Contract in the instant case was intended to limit the remedies available to the subcontractor, Waldinger, so that Waldinger would not have greater rights as against Harkins than Harkins had as against Hilton. In this manner, Harkins contends, it ensures that it can “pass through” to the owner any claim made against it by the subcontractor. Harkins maintains that the meaning of such a “conduit clause” in restricting the remedies available to the subcontractor is well-known to persons with experience in the construction industry.
The cases cited above dealing with construction industry contracts refute this argument. See also United States v. Cleveland Electric Co., 373 F.2d 585 (4th Cir.1967); Central Steel Erection Co. v. Will, 304 F.2d 548 (9th Cir.1962). They suggest that there is no necessary symmetry between a principal contract and a subcontract. The prime contractor’s contract with the subcontractor must be read on its own terms, and there is no reason why these terms may not enlarge the remedies mutually available to the subcontractor and the prime contractor beyond those that are available to the prime contractor in his relationship to the owner. Whatever subjective intent may have been in Harkins’ mind at the time it signed the Subcontract,4 *667that intent cannot override the explicit language of the Subcontract. The mere insertion of a so-called “conduit clause” cannot operate magically to protect the contractor from meeting his obligations to the subcontractor.
C.
A second principle of contract construction leads to the same result: a contract should be interpreted so as to give meaning to all its terms. Restatement 2d, Contracts § 203(a); See Schultz v. Onan Corp., 681 F.2d 177 (3d Cir.1982). Under the construction of the subcontract espoused by the majority, the all-disputes arbitration clause of paragraph 17 becomes mere surplusage, for, in the view of the majority, it is overridden by the arbitration clauses of the Principal Contract.
In my opinion, the incorporating language of paragraph 2 of the Subcontract can be read so as to be consistent with paragraph 17 of the Subcontract, thereby giving full effect to both paragraphs. The majority would read paragraph 2 to mean that Waldinger, the subcontractor, is bound by the Principal Contract only to the extent that the prime contractor is bound. It is equally plausible, however, to read this language as meaning that the subcontractor is bound at least to the same extent as the prime contractor. If the latter construction is correct, then there is no inconsistency between the arbitration clauses of the Prime Contract and the Subcontract: Paragraph 17 of the Subcontract merely imposes an additional requirement to arbitrate on Harkins that, while it goes beyond the arbitration requirement in the Principal Contract, in no way contradicts the Principal Contract.
A second plausible construction of the language of paragraph 2, which also would render it consistent with paragraph 17, would hold that the incorporating language of paragraph 2, which binds the subcontractor “to the same extent” as the prime contractor, refers only to the terms and conditions of the Principal Contract that deal with the scope, character, and manner of performance of the work itself, and not to those that deal with the settlement of disputes. In fact, a number of courts construing similar language have taken this position. John W. Johnson, Inc. v. Basic Construction Co., 429 F.2d 764, 775-776; United States for Use of B’s Co. v. Cleveland Electric Co., 373 F.2d 585, 588 (4th Cir.1967); McKinney Drilling Co. v. The Collins Co., 517 F.Supp. 320, 328 (N.D.Ala.1981).
However, we need not construe paragraphs 2 and 17 to be consistent with each other. Even if the general incorporating language of paragraph 2 were inconsistent with the specific arbitration provision of paragraph 17, the principle of giving a reasonable and effective meaning to all the terms of the contract would require that the all-disputes arbitration clause of paragraph 17 be given effect. Paragraph 17 must override paragraph 2 because only in this manner can meaning be given to both paragraphs. In contrast, paragraph 2 cannot be construed as the majority does without voiding paragraph 17 of all meaning.5
*668III.
The fact that the Subcontract between Harkins and Waldinger specifically provides for arbitration of all disputes should suffice to dispose of this case, particularly in view of the policy in favor of arbitration and the general rule of contract law that a contract is to be construed most strictly against the drafter (in this case Harkins). Both the principles of contract law and the cases dealing with the construction industry clearly provide that a specific provision of a subcontract is valid, even though it conflicts with a provision of a principal contract which has been incorporated by reference into the subcontract, and even though the provision of the subcontract grants different rights and remedies to the subcontractor than those which the prime contractor may have available to it in relation to the project’s owner.6
For these reasons, I dissent and would reverse the judgment below.

. The 1985 amendment to Federal Rule of Civil Procedure 52(a), which provides that a lower court’s factual findings, "whether based on oral or documentary evidence, shall not be set aside *664unless clearly erroneous,” is not to the contrary, for the amendment refers to questions of interpretation, not to questions of construction.

. Paragraphs 37 and 38 of the Principal Contract provide, in relevant part, as follows:
"37. In any case in which it is provided by the terms of this contract that any specific dispute or specific payments to be made shall be determined by arbitration, such arbitration shall be conducted in the City in which the Site is located in accordance with Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any Court having jurisdiction thereof.
38. The Owner, without invalidating this contract, may order extra work or make changes by altering, adding to or deducting from the work, the contract price to be adjusted accordingly. The contractor ' shall not make any alterations or omit anything, or perform additional or extra work, except upon written order signed by the Owner____ No request for payment for extra work will be honored unless accompanied by such written order____
******
In the case of disagreement as to the amount to be paid or allowed, the Contractor shall promptly comply with the order and the amount shall be determined by arbitration as herein provided.”
App. 10-11 (emphasis added).

. The majority's attempt to distinguish McKinney Drilling and Basic Construction from the instant case does not withstand analysis. Contrary to the assertion of the majority, maj.op. at 662, the language of the subcontract in McKinney Drilling is virtually identical to that in the instant case. McKinney Drilling, 517 F.Supp. at 320. But more important, the holdings in these cases do not rest upon the precise language of the incorporating clause, but on the principle that a specific clause in the subcontract overrides general language of incorporation.

. The affidavit of Harkins’ president, John F. Harkins, which merely recites Harkins’ interpretation of paragraph 2, is irrelevant to the dispute here. The Subcontract at issue here is clear on its face, and therefore Harkins' intent, to the extent that it contradicts the express language of the contract, should be immaterial and inadmissible under the parol evidence rule. See, e.g., Mellon Bank, N.A. v. Aetna Business Credit, Inc., 619 F.2d 1001, 1009-10 (3d Cir.1980).
Harkins’ construction of the contract might conceivably carry some weight if this construction were accepted in the industry, or if there were any evidence that Waldinger shared this construction. Restatement 2d, Contracts §§ 201(2), 202(5). The first possibility, that this is the accepted construction of such a clause in industry circles, is belied by the cases cited above.
Nor is there any evidence that Waldinger knew of Harkins’ construction of paragraph 2. The majority, quoting the district court, suggests that Waldinger’s proposal to add paragraph 3 of *667Attachment C to the subcontract indicates that Waldinger was aware that paragraph 2 limited Waldinger’s rights to those specified in the principal contract. Maj.op. at 661. Paragraph 3 of Attachment C adds the following to paragraph 2 of the Subcontract: "Subcontractor shall have the benefit of all rights, remedies and redress against the Contractor which Contractor has against Tishman, the Owner under the Contract Documents." App. 31.
This language is obviously designed merely to ensure that Waldinger not be denied any remedy that might be available to Harkins under the Principal Contract. It does not even remotely suggest that Waldinger was aware that its remedies vis-a-vis Harkins were limited to those available to Harkins vis-a-vis Tishman. In fact, as Waldinger points out, although Attachment C is a paragraph by paragraph amendment of the terms of the Subcontract, it contains no reference to arbitration, nor does it amend the “all-disputes” provision of paragraph 17 in any way.

. Harkins would have us believe that paragraph 17 is not surplusage because it grants Harkins the right to initiate arbitration on any issue against Waldinger, even though it grants no reciprocal right to Waldinger. However, there is nothing in either the Principal Contract or the Subcontract to support the view that the Subcontract was intended to give Harkins greater rights than Waldinger to initiate arbitration. *668The Principal Contract does not give asymmetrical rights to Tishman as against Harkins, and it is hard to see how the same contract could, by virtue of being incorporated into the Subcontract, be construed to give such asymmetrical rights to Harkins as against Waldinger. If arbitration is indeed limited to the subjects described in the Principal Contract, then this limitation applies to all parties, and not iust to Waldinger.

. The two cases cited by Harkins, Industrial Indemnity Co. v. Wick Construction Co., 680 P.2d 1100 (Alaska 1984), and Starr Electric Co. v. Basic Construction Co., 586 F.Supp. 964 (M.D.N.C.1982), are not to the contrary, because in those cases no inconsistency was found between the provisions of the subcontract and the provision of the principal contract that was assertedly applicable to the relationship between the prime contractor and the subcontractor.