Court Opinion

ID: 2744094
Source: CourtListenerOpinion
Date Created: 2014-10-21 16:03:08.981871+00
Date Added: 2024-06-11T10:07:12.515882
License: Public Domain

United States Court of Appeals
                            For the Eighth Circuit
                        ___________________________

                                No. 14-1037
                        ___________________________

              Quam Construction Co., Inc., a Minnesota corporation

                        lllllllllllllllllllll Plaintiff - Appellant

                                            v.

                  City of Redfield, a South Dakota municipality

                       lllllllllllllllllllll Defendant - Appellee
                                      ____________

                    Appeal from United States District Court
                   for the District of South Dakota - Aberdeen
                                  ____________

                          Submitted: September 23, 2014
                             Filed: October 21, 2014
                                 ____________

Before RILEY, Chief Judge, LOKEN and KELLY, Circuit Judges.
                              ____________

KELLY, Circuit Judge.

      Quam Construction Co., Inc. (Quam) appeals from the district court’s order
denying its motion to compel arbitration for contract disputes between Quam and the
City of Redfield, South Dakota (the City). Because the parties’ contract does not
mandate arbitration, we affirm the judgment.
                                    I. Background

       The City and Quam entered into a construction contract that included, among
other things, the installation of pipes at the job site. After issues arose regarding the
subsurface ground conditions where the pipes were to be installed, the parties
disagreed about Quam’s obligations under the contract. The parties attempted
mediation in accordance with their contract. Mediation failed, and Quam served the
City with a demand for arbitration. The City refused to arbitrate. Quam then
petitioned the district court to compel arbitration under 9 U.S.C. § 4 and moved to
compel the City to arbitrate. The district court1 denied Quam’s motion, and Quam
appealed. This court has jurisdiction on appeal under 9 U.S.C. § 16(a)(1)(B) and 28
U.S.C. § 1294(1).

                                    II. Discussion

       “We review de novo the district court’s denial of a motion to compel arbitration
based on contract interpretation.” Indus. Wire Prods., Inc. v. Costco Wholesale
Corp., 576 F.3d 516, 520 (8th Cir. 2009) (quotation omitted). “If the district court’s
order concerning arbitrability is based on factual findings, we review such findings
for clear error.” Lyster v. Ryan’s Family Steak Houses, Inc., 239 F.3d 943, 945 (8th
Cir. 2001). “A dispute must be submitted to arbitration if there is a valid agreement
to arbitrate and the dispute falls within the scope of that agreement.” Id. The issue
in this case lies with the first step — determining whether there is a valid agreement
mandating arbitration if a dispute arises that cannot otherwise be resolved.

       “[A]rbitration is a matter of contract and a party cannot be required to submit
to arbitration any dispute which he has not agreed so to submit.” AT&T Techs., Inc.

      1
       The Honorable Charles B. Kornmann, United States District Judge for the
District of South Dakota.

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v. Commc’ns Workers of Am., 475 U.S. 643, 648 (1986) (quotation omitted).
“Unless the parties clearly and unmistakably provide otherwise, the question of
whether the parties agreed to arbitrate is to be decided by the court, not the
arbitrator.” Id. at 649. “State contract law governs whether an arbitration agreement
is valid.” Lyster, 239 F.3d at 946. Under South Dakota law, “[a] contract is to be
examined as a whole and all provisions read together to construe the contract’s
meaning.” City of Watertown v. Dakota, Minn. & E. R. Co., 551 N.W.2d 571, 575
(S.D. 1996).

      Paragraph 26(a) of the parties’ contract states as follows:

      Any controversy or claim arising out of or related to the contract, or the
      breach thereof, shall first be submitted to the American Arbitration
      Association Mediation Department. A mutually agreed upon qualified
      alternative dispute organization may be used.

      Mediation shall continue (1) until resolution of the dispute or (2) until
      the mediator notifies the parties that it is unlikely that the dispute will
      be resolved through mediation.

      Arbitration: If the dispute is not resolved through mediation, the parties
      may submit the controversy or claim to Arbitration. If the parties agree
      to arbitration, the following will apply:

      The Contractor shall not cause a delay of the work because of the
      pendency of arbitration proceedings, except with the written permission
      of the Engineer, and then only until the arbitrators shall have an
      opportunity to determine whether or not the work shall continue until
      they decide the matters in dispute.

      The demand for arbitration shall be delivered in writing to the Engineer
      and the adverse party, either personally or by registered mail to the last
      known address of each, within ten days of the receipt of the Engineer’s
      decision, and in no case after final payment has been accepted except as

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      otherwise expressly stipulated in the Contract Documents. If the
      Engineer fails to make a decision within a reasonable time, a demand for
      arbitration may be made as if his decision had been rendered against the
      demanding party.

(Emphasis added). Paragraph 26(b) details requirements for the selection of the
arbitrator and the power of the arbitrator or arbitrators to enter a binding decision.
The end of paragraph 26(b) reads: “If there be one arbitrator, his decision be [sic]
binding. If three, the decision of any two shall be binding in respect to both the
matters submitted to and the procedure followed during the arbitration. Such decision
shall be a condition precedent to any right of legal action.” (Emphasis added).
Paragraph 26(c) articulates the arbitration procedure.

        The City asserts that this case is simple: Because the contract explicitly states
“if the parties agree to arbitrate,” arbitration is not mandatory. According to the City,
this language expressly means that both parties must agree before any dispute
proceeds to arbitration. Under South Dakota law, “[a]n agreement to agree does not
fix an enforceable obligation. It is indefinite, vague, and uncertain. An agreement
must be sufficiently definite to enable a court to give it an exact meaning.” Estate of
Fisher v. Fisher, 645 N.W.2d 841, 847 (S.D. 2002) (quotation omitted). The language
in this contract “if the parties agree to arbitrate” suggests the obligation under South
Dakota law is uncertain, and thus unenforceable.

       Quam, on the other hand, stresses that under South Dakota law, “[a]n
interpretation which gives a reasonable and effective meaning to all the terms [of a
contract] is preferred to an interpretation which leaves a part unreasonable or of no
effect.” Nelson v. Schellpfeffer, 656 N.W.2d 740, 744 (S.D. 2003). Quam points to
the contract language specifying that the arbitrator’s decision is a “condition
precedent to any right of legal action” to support its argument that arbitration is
mandatory under the contract. “A condition precedent is a fact or event which the
parties intend must exist or take place before there is a right to performance [under

                                          -4-
the contract].” Weitzel v. Sioux Valley Heart Partners, 714 N.W.2d 884, 895 (S.D.
2006) (quotation omitted). Thus, Quam argues, because the contract describes the
arbitrator’s decision as a “condition precedent” to any right of legal action, arbitration
must be mandatory; otherwise, the “condition precedent” language is meaningless.
According to Quam, the parties would have no reason to identify the arbitrator’s
decision as a “condition precedent” to legal action if the parties had already agreed
to arbitrate.

       The term “condition precedent” does not necessarily contradict a finding that
arbitration is permissive. A reasonable interpretation, giving meaning to all
provisions of the contract, is that if the parties agree to arbitrate, the arbitrator’s
decision is a “condition precedent” to any further legal action. One party may not
abandon the arbitration process, once it has begun, and instead file a legal action in
court. If the parties do not agree to arbitrate their claims, however, no arbitration will
occur, the arbitration rules and procedures do not apply, and either party may seek a
legal right of action in the first instance.

       Quam contends that the language in its contract with the City is sufficiently
similar to the language in the contract addressed in American Italian Pasta Co. v.
Austin Co., 914 F.2d 1103 (8th Cir. 1990), so the decision in American Italian Pasta
is dispositive. We disagree. In American Italian Pasta, this court concluded that
arbitration was mandatory as a result of a contract that stated, “If both parties agree
that a dispute or disagreement is of such nature that it cannot be settled as provided
for above, then such dispute or disagreement may be submitted to arbitration . . . .”
American Italian Pasta, 914 F.2d at 1104.2 In that case, the phrase “[i]f both parties

      2
       Missouri state law applied, though we cited Eighth Circuit cases to support our
reasoning. The parties do not address whether American Italian Pasta is
distinguishable from the present case based on a difference between South Dakota
and Missouri contract law, and we do not endeavor to answer this question, as we
find American Italian Pasta is distinguishable based on the contract language at issue.

                                           -5-
agree” referred to the inability of the parties to reach a settlement. Id. The “may”
language was interpreted as giving “an aggrieved party the choice between arbitration
or the abandonment of its claim.” Id. In contrast, the language in the contract
between Quam and the City reads, “If the dispute is not resolved through mediation,
the parties may submit the controversy or claim to Arbitration. If the parties agree
to arbitration, the following will apply.” (Emphasis added). The phrase “if the
parties agree,” unlike in American Italian Pasta, refers directly to the parties’ decision
to submit their dispute to arbitration. This language demonstrates that arbitration is
permissive, and American Italian Pasta does not dictate a different result.

       We also find it instructive that Quam and the City included a provision in their
contract that mandated mediation: “Any controversy or claim arising out of or related
to the contract, or the breach thereof, shall first be submitted to the American
Arbitration Association Mediation Department. A mutually agreed upon qualified
alternative dispute organization may be used.” Thus, the parties used the word
“shall” in connection with their obligation to mediate but chose the word “may” when
describing the next step of dispute resolution: arbitration. The district court
concluded that the contract between Quam and the City allowed “either party the
option of agreeing to arbitration rather than mandating such a procedure when
mediation fails,” so neither party can compel arbitration. We agree. The district
court properly found that “no agreement to arbitrate was made,” as the contract allows
“for one or the other party to simply disagree and not allow arbitration to proceed.”

                                    III. Conclusion

      We affirm the denial of Quam’s motion to compel arbitration.
                     ______________________________

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