Opinion
A147767
03-29-2017
FONG & CHAN ARCHITECTS, Plaintiff and Respondent, v. WASHINGTON HOSPITAL HEALTHCARE SYSTEM, Defendant and Appellant.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (San Francisco County Super. Ct. No. CPF-15-514566)
Washington Hospital Healthcare System (Hospital) appeals from a judgment entered after the trial court confirmed an arbitration award of over $2.7 million in favor of respondent Fong & Chan Architects (FCA). Hospital contends there was no valid agreement to arbitrate the dispute and the judgment should be modified with respect to interest. We will affirm the judgment.
I. FACTS AND PROCEDURAL HISTORY
FCA performed architectural services for Hospital from 1998 to 2013. FCA's work included a project originally known as the "Phase 2 Hospital Replacement Project," later named the Morris Hyman Critical Care Pavilion Project (Project), and at times referred to as the "Replacement Building Project (aka CC/ED building)." Of relevance to the parties' arbitration and this appeal are the parties' 2002 contract, a 2008 addendum, purchase orders for particular work, and certain 2013 agreements.
A. 2002 Agreement
In July 2002, Hospital and FCA entered into a Standard Form Agreement (Agreement), a 58-page "umbrella" agreement that established the legal framework for the work that FCA would perform for Hospital. The Agreement covered numerous aspects of the parties' working relationship, including the basic services FCA would provide, the phases in which the work would be completed (bidding, design, etc.), Hospital's responsibilities, methods for compensating FCA, the termination of the Agreement, and the arbitration of disputes.
1. Termination Clause
Hospital was authorized to terminate the Agreement "for convenience" after seven days' written notice. If the termination occurred during the design or bidding phases of the work, however, Hospital was obligated to pay FCA a fee in the amount of 20 percent of all compensation FCA had earned for its services up to the termination date. This fee was intended to compensate FCA for the damage it would incur due to the termination, in light of the resources FCA had to devote to the Project and its need to decline work from other sources.
2. Arbitration Provisions
The Agreement contained an arbitration clause in paragraph 11.2, requiring the parties to mediate their disputes and, if mediation was unsuccessful, to submit the disputes to arbitration. Paragraph 11.1 broadly defined "disputes" to mean "[a]ll unresolved claims, counterclaims, disputes, controversies, and other matters in question between them arising out of or relating to this Agreement or the breach thereof." Unless the parties agreed otherwise, the dispute was to be submitted to arbitration "under the then current Construction Industry Rules of the American Arbitration Association."
As to whether the court or arbitrators would decide threshold issues of the arbitrability of a dispute, paragraph 11.5 provided: "In any judicial proceeding to enforce this Agreement to arbitrate, the only issues to be determined shall be those set forth in 9 U.S.C. Section 4 Federal Arbitration Act," and "[a]ll other issues, such as, but not limited to, arbitratibility [sic], and prerequisites to arbitration . . . shall be for the arbitrator(s), whose decision thereon shall be final and binding."
3. Blanks
Because the projects contemplated by the parties would take several years to complete and depend on voter approval of bond funds, some issues were uncertain when they signed the Agreement and had to be determined in the future. Accordingly, the parties agreed that the more specific descriptions of the work would be added later. To that end, the Agreement appended Exhibits A, B, C, and D, which are forms with spaces for the parties to fill in with respect to the project description, phase of work, payments, insurance, and other terms.
The parties have different views of the significance of the blank spaces in the Agreement. FCA emphasizes that the Agreement was signed by both parties, each page bore the parties' respective initials, and the parties specifically expressed their intention in paragraph 13.1.1 to be "bound" by the covenants in the Agreement. Hospital, on the other hand, now calls the Agreement a mere "template form contract," dependent for legal effect on the parties incorporating the specific terms of the work from other writings.
B. 2008 Addendum to the Agreement and Attachment for the Project
In August 2008, the parties signed an Addendum to the Agreement (Addendum) to "update the Agreement and bring it into compliance with applicable laws and regulatory requirements." The Addendum extended the Agreement's term by 15 years and stated that all the terms and conditions of the Agreement remained in full force and effect. The Addendum also attached documents describing the various projects that were governed by the Agreement. As the Hospital put it in its opening brief in the ensuing arbitration, "the 2008 Addendum reconfirmed the terms of the parties' contract."
Attachment A-1 to the Addendum specifically referred to the Project, noting a "Project Date" of January 1999 and adding, "Pending Board approval." The attachment was signed by both parties but does not identify particular work.
C. The Purchase Orders For Work On The Project
FCA performed its design work on the Project pursuant to a process of fee proposals and purchase orders. Hospital would ask FCA for a proposal for a specific facet of the design, FCA would provide a fee proposal setting forth the scope of work and the price and terms, Hospital would accept the proposal by issuing a purchase order, and FCA would invoice the Hospital for its services based on the purchase order. Between 2002 and 2012, Hospital and FCA negotiated and performed 40 purchase orders, each based on a written fee proposal, for design work on the Project.
The fee proposals and purchase orders did not expressly reference the Agreement and did not contain arbitration clauses themselves. Hospital's position in this appeal is that the purchase orders are the contracts for the design of the Project, and therefore the Agreement and its arbitration provisions do not apply.
D. The Parties' 2013 Dispute Over FCA's Termination Fee
As time went on, the relationship between the parties soured. In 2013, Hospital asked FCA to submit a fee proposal for the bidding and construction administration phases of the Project. FCA proposed to do the work for $9.5 million; Hospital proposed $5.5 million.
In July 2013, Hospital told FCA it would use Ratcliff Architects rather than FCA as its architect of record for the construction administration phase of the Project. The next day, FCA confirmed its termination by letter and invoiced Hospital for its 20 percent termination fee pursuant to the Agreement, in the amount of $2,757,118.77. Hospital refused to pay the termination fee on the ground it had not terminated the Agreement.
E. 2013 Contracts
The parties signed six additional contracts in late summer and fall of 2013—after Hospital's purported termination of FCA—related to the transition of design services. Hospital's amended counterclaim in the arbitration would later make allegations about four of these contracts, and the arbitration award discusses a fifth contract in finding that Hospital always believed the Agreement applied to the dispute and the arbitrators had jurisdiction.
F. Arbitration Proceedings
In December 2013, FCA filed a Demand for Arbitration with the American Arbitration Association (AAA), demanding arbitration under paragraph 11.2 of the Agreement and seeking its termination fee pursuant to paragraph 10.1.3.1 of the Agreement.
In January 2014, Hospital filed its Answering Statement and Counterclaim Request, denying the claims made in FCA's arbitration demand, including the allegation that FCA was terminated "pursuant to the Agreement between the parties or otherwise." However, Hospital did not contend the arbitrators lacked jurisdiction over the dispute. Hospital counterclaimed against FCA for breach of contract and indemnity.
In October 2014, Hospital sought leave to amend its counterclaim to add claims for breach of contract, professional negligence, and breach of fiduciary duty. Hospital's motion acknowledged that Hospital and FCA had entered into the Agreement and the Addendum, and sought leave to amend because it would "prevent the commencement of a separate arbitration" and help avoid "needless expenses and even inconsistent outcomes." Thus, rather than contending that the arbitrators lacked jurisdiction to hear FCA's claim, Hospital maintained that arbitrating its own claim with FCA's claim would be efficient and prudent. The arbitrators then granted Hospital leave to amend.
Hospital filed its amended counterclaim in November 2014. Hospital's amended counterclaim affirmed the Agreement, representing that "[v]enue is proper before the [AAA] pursuant to the Standard Form of Agreement Between Owner and Design Professional ('Contract') entered into by and between the Hospital and FCA (collectively, the 'Parties')." In what Hospital would later describe as a "pleading error," Hospital alleged that FCA was "tasked" with designing the Project in June 2006.
In its amended counterclaim, Hospital alleged that FCA breached the Agreement and Addendum in four ways: FCA failed to perform with "professional skill and care" as required by the Agreement and the Addendum; FCA breached paragraph 3.2.6 of the Agreement by refusing to do certain work it was required to do; FCA breached section 12.2 of the Agreement by withholding certain electronic design documents; and FCA breached the covenant of good faith and fair dealing implied in the Agreement by refusing to negotiate contract amendments in good faith.
The parties exchanged pre-hearing briefs in May 2015. In its brief, Hospital did not contend the arbitrators lacked jurisdiction.
The arbitration hearing took place in June 2015, and the parties thereafter filed closing briefs. Unlike its opening brief, Hospital now claimed that the Agreement contained blanks and the termination fee did not apply to the Project because no writing incorporated the Project into the Agreement. Hospital also asserted that it agreed to arbitrate its claims against FCA, but had not agreed to arbitrate FCA's termination fee claim against Hospital.
In August 2015, the arbitrator panel filed its award. The arbitrators rejected Hospital's contention that the arbitration clause did not apply to FCA's claim: after noting that Hospital had not raised the contention in its opening brief, and that Hospital repeatedly relied on the Agreement in making demands upon FCA, the arbitrators concluded that Hospital "always believed that the 2002 [Agreement] and Addendum were applicable to the [Project] and thus the dispute resolution mechanism was arbitration." The panel awarded FCA over $2.7 million on its termination claim and awarded Hospital nothing on its counterclaims.
G. Trial Court Proceedings
FCA filed a petition in San Francisco Superior Court for confirmation of the arbitration award. The petition was supported by a declaration from FCA's attorney, Peter Lyon, who summarized the arbitration proceedings, submitted copies of pleadings, and set forth the parties' agreement to arbitrate.
In response, Hospital filed a denial of the petition's allegations, a petition to vacate the arbitration award, a motion to dismiss FCA's petition, and an opposition to FCA's petition.
Hospital's petition to vacate the award was based on the proposition that the Agreement did not apply to the Project. Hospital submitted a declaration from Hospital administrator Edward Fayen, who averred that the Agreement containing the arbitration clause was merely a "pre-approved contract form" and not a "contract in and of itself" because the form left certain terms blank. Although Hospital signed the Agreement, Fayen asserted that the parties later did business through proposals and purchase orders that did not contain arbitration agreements.
FCA filed a reply brief in support of its petition to confirm the award. A second declaration from Peter Lyon and a declaration from FCA's founding principal, Chiu Lin Tse-Chan, asserted that Hospital agreed to arbitrate the parties' disputes by signing the Agreement and by signing the Addendum, which reaffirmed the Agreement and specifically referenced the Project. Lyon also pointed out that, during the arbitration, Hospital filed a counterclaim asserting FCA's alleged breach of the Agreement and Addendum.
The trial court confirmed the arbitration award and denied Hospital's petition to vacate the award and motion to dismiss. The court found that the Agreement and Addendum constituted valid contracts and applied to the Project (and, implicitly, that FCA's claim in the arbitration was within the scope of the Agreement's arbitration provisions). The court observed: "It is disingenuous for [Hospital] to argue that the 2002 Standard Form [Agreement] and the 2008 Addendum did not pertain to the Pavilion Project when in its cross-complaint [Hospital] identified the 2002 Standard Form and the 2008 Addendum as the contractual bases for [FCA's] work on the Pavilion Project."
Judgment was entered, and Hospital appealed.
II. DISCUSSION
A court may not confirm an arbitration award without first finding that the parties entered into an enforceable written agreement to arbitrate their dispute. (Toal v. Tardif (2009) 178 Cal.App.4th 1208, 1220-1221.) Here, the trial court made the required finding.
Hospital nonetheless contends (1) the questions of the enforceability and scope of the Agreement's arbitration clause were for the court; (2) the arbitration agreement was not enforceable; and (3) FCA's claims regarding the Project were not within the scope of the arbitration agreement. In addition, Hospital contends the judgment confirming the arbitration award should be modified to clarify the rate of post-judgment interest.
In an appeal from the trial court's judgment confirming an arbitration award, we review the court's factual findings for substantial evidence and review its legal findings—such as the interpretation of statutes and contract provisions on undisputed facts—de novo. (E.g., Cooper v. Lavely & Singer Professional Corp. (2014) 230 Cal.App.4th 1, 11-12; see Toal v. Tardif, supra, 178 Cal.App.4th at p. 1217.) We generally do not review the arbitration award itself for errors of fact or law, "even when those errors appear on the face of the award or cause substantial injustice to the parties." (Richey v. AutoNation, Inc. (2015) 60 Cal.4th 909, 916.)
A. Question for the Court or Arbitrators
It is usually for the court to decide whether the parties entered into an enforceable arbitration agreement and whether that agreement covers the parties' substantive dispute. (Ajamian v. CantorCO2e, L.P. (2012) 203 Cal.App.4th 771, 781 (Ajamian); Sandquist v. Lebo Automotive (2016) 1 Cal.5th 233, 249; see Code Civ. Proc., § 1281.2.) The parties will be deemed to have delegated those questions to the arbitrators, however, if the delegation is established by "clear and unmistakable" evidence. (Ajamian, supra, 203 Cal.App.4th at pp. 781-782; Gilbert Street Developers, LLC v. La Quinta Homes, LLC (2009) 174 Cal.App.4th 1185, 1190-1191 (Gilbert Street); see Rent-A-Center, West, Inc. v. Jackson (2010) 561 U.S. 63, 69, fn.1.)
FCA and Hospital debate at length whether there is clear and unmistakable evidence that they delegated these issues to the arbitrators. The question is of limited relevance, since Hospital did not actually raise these arbitrability issues to either the arbitrators or the court before the arbitration hearing, and both the arbitrators and the court ultimately decided the issues adverse to Hospital. But the delegation question appears nonetheless important to the parties because, if the arbitrability issues were delegated to the arbitrators, the arbitrators' resolution of the matter would be treated with deference in this appeal. (See Greenspan v. LADT, LLC (2010) 185 Cal.App.4th 1413, 1437.) In fact, FCA contends, the arbitrators' ruling on arbitrability could not be reviewed on appeal at all due to paragraph 11.5 of the Agreement, which provides that the arbitration award is final, "judgment may be entered upon it in any court having jurisdiction thereof, and the award will not be subject to modification or appeal." (Italics added.)
Here, the Agreement does not contain any express statement that the arbitrators will decide whether there is an enforceable arbitration agreement and whether the parties' dispute falls within the scope of that agreement. FCA relies instead on part of paragraph 11.5, part of paragraph 11.2, and Hospital's failure to raise the issue with the arbitrators until after the arbitration hearing.
1. Paragraph 11.5
Paragraph 11.5 reads in part: "In any judicial proceeding to enforce this Agreement to arbitrate, the only issues to be determined shall be those set forth in 9 U.S.C. Section 4 Federal Arbitration Act, and such issues shall be determined by the Court without a jury. All other issues, such as, but not limited to, arbitratibility [sic], prerequisites to arbitration, compliance with contractual time limits, applicability of indemnity clauses, clauses limiting damages and statutes of limitations shall be for the arbitrator(s), whose decision thereon shall be final and binding. There shall be no interlocutory appeal of any order compelling arbitration." (Italics added.)
Paragraph 11.5 is susceptible of multiple interpretations. One reasonable interpretation is that, if there is a court proceeding to enforce the arbitration clause, the court decides only the issues to be decided under 9 U.S.C. section 4, which are "(1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue." (Chiron Corp. v. Ortho Diagnostic Sys., Inc. (9th Cir. 2000) 207 F.3d 1126, 1130.) If the court finds an enforceable and applicable arbitration agreement, the arbitrators would then decide "[a]ll other issues," including "arbitratibility [sic]." Although it is unclear what issues of arbitrability would be left for the arbitrators to decide, the ostensible purpose of paragraph 11.5 is to limit the issues the court would decide if there is, in fact, a judicial proceeding to enforce the arbitration clause. Since there was no motion or petition to enforce the arbitration clause in this case, by its terms paragraph 11.5 would not apply.
On the other hand, paragraph 11.5 could be read to mean that arbitrators decide all issues, including arbitrability, except to the extent that a court has decided them in ruling on a motion or petition to enforce the arbitration agreement. The implication for this case would be that, since there was no motion or petition to enforce the arbitration clause, the arbitrators were to decide all arbitrability issues. This is basically FCA's position.
In Hospital's view, however, paragraph 11.5 indicates that the parties did not intend to delegate the issue to the arbitrators. Hospital maintains that the reference in paragraph 11.5 to "any judicial proceeding to enforce this Agreement to arbitrate" must refer to more than just a motion or petition to enforce an arbitration agreement, because paragraph 11.2 already grants the parties the right to commence an action for specific performance to compel arbitration. Therefore, Hospital reasons, paragraph 11.5 must also refer to judicial proceedings to confirm the arbitration award. Since FCA petitioned the court to confirm the arbitration award, Hospital asserts that the court was required to rule on the threshold arbitrability issues, and the arbitrators were to determine only "other" issues.
We need not decide which of these interpretations is best. Since there are multiple reasonable interpretations, not all of which point to the delegation of arbitrability issues to the arbitrators, paragraph 11.5 does not provide clear and unmistakable evidence that the parties delegated to the arbitrators the questions of the enforceability and scope of the arbitration agreement. (Ajamian, supra, 203 Cal.App.4th at p. 783.)
2. AAA Rules
Paragraph 11.2 of the Agreement provides for the parties to submit their disputes to arbitration under the "then current Construction Industry Rules of the American Arbitration Association." (Italics added.) At the time the parties' dispute arose and the arbitration demand was filed in 2013, rule 9(a) of the "then current" AAA rules gave an arbitrator "the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement." (Italics added.)
Hospital contends the Agreement's reference to the AAA rules does not suffice because rule 9(a) did not exist when the parties signed the Agreement in 2002. (See Gilbert Street, supra, 174 Cal.App.4th at pp. 1192-1194 [no clear and unmistakable delegation based on incorporation of AAA rules, where rule 9(a) did not exist at time of contracting].) But the record does not support Hospital's position. The record in this case indicates that rule 9(a) was included in the AAA rules as they appeared in 2003 and 2010. Although those rules post-date the 2002 Agreement, they pre-date the 2008 Addendum, in which the parties reaffirmed the terms of the Agreement, including the terms pertaining to arbitration. Moreover, the Gilbert Street case on which Hospital relies states that rule 9(a) existed back in September 2000, before the Agreement was signed. (Id. at p. 1188.)
Nevertheless, the fact that rule 9(a) gives arbitrators the authority to decide arbitrability issues does not mean that only the arbitrators had such authority, or that the parties were actually agreeing the issues would be presented to the arbitrators rather than to the court. We therefore find no clear and unmistakable evidence that the parties intended to delegate the issues of the enforceability and scope of the arbitration clause to the arbitrators. (Ajamian, supra, 203 Cal.App.4th at pp. 788-791 [recognizing split of authority but "seriously question[ing]" whether a general reference to AAA rules constitutes clear and unmistakable evidence of delegation].) We proceed to the merits.
FCA also points out that AAA rule 9(c) required Hospital to raise any objection to the arbitrators' jurisdiction when it answered FCA's arbitration demand, and Hospital failed to object. While Hospital's conduct in this regard may have relevance to issues of waiver, forfeiture and estoppel (see post), Hospital's failure to promptly bring the jurisdictional issue to the arbitrators does not suggest that Hospital believed the issue had to be brought to the arbitrators.
B. Enforceable Arbitration Agreement
The trial court concluded that "the 2002 Standard Form [Agreement] and the 2008 Addendum met the requirements for a valid written contract between an architect and a client." On that basis, there was an enforceable arbitration agreement. We reach the same conclusion.
1. The Arbitration Provisions in the Agreement Were Enforceable
" 'In California, "[g]eneral principles of contract law determine whether the parties have entered a binding agreement to arbitrate." ' " (Serafin v. Balco Properties Ltd., LLC (2015) 235 Cal.App.4th 165, 173.) The requirements for an enforceable contract are (1) parties capable of contracting; (2) their mutual consent; (3) a lawful object; and (4) sufficient consideration. (Civ. Code, § 1550.)
All four elements are satisfied here. First, both Hospital and FCA are businesses capable of contracting. Second, the parties expressed their mutual assent by signing the Agreement, which explicitly stated that the parties intended to be bound by its terms, which include the arbitration provisions. Specifically, paragraph 13.1.1 reads: "The Owner and the Design Professional each is hereby bound . . . to the other party to this Agreement . . . in respect of all covenants, agreements and obligations of this Agreement." Third, the Agreement's object—to provide design services to Hospital and, as relevant here, to arbitrate disputes—was lawful. Fourth, the Agreement was supported by adequate consideration, as the Agreement itself noted.
In addition to the Agreement's plain language, other evidence supports the conclusion that there was a valid agreement to arbitrate. The parties reaffirmed the Agreement's validity by signing the Addendum, which stated that the Agreement's terms and conditions remained in full force and effect. In Hospital's words, "the 2008 Addendum reconfirmed the terms of the parties' contract." (Italics added.) Furthermore, the parties performed for many years in accordance with the work descriptions and phases set forth in the Agreement. As the arbitrators explained: "[T]he scope of services being performed was consistent with the scope of services outlined in the Agreement and Addendum, and the parties were clearly operating under the Agreement and Addendum with respect to their respective duties." And Hospital demanded that FCA comply with parts of the Agreement, which evinces its understanding that the parties were bound by its terms. (Okun v. Morton (1988) 203 Cal.App.3d 805, 819 [parties' conduct after executing the Agreement is "persuasive evidence" in determining the Agreement's meaning].) In short, FCA established a valid arbitration agreement.
2. Hospital's Arguments
Hospital's arguments to the contrary are meritless.
a. Agreement to Agree Due to Blanks
Hospital contends the 2002 Agreement and 2008 Addendum are not valid contracts, but mere agreements to agree, because they contain blanks with respect to the specific work and terms by which it would be performed. We disagree.
As a general rule, when essential terms of a proposed contract are reserved for the parties' future agreement, no legal obligation arises until the future agreement. (Weddington Productions, Inc. v. Flick (1998) 60 Cal.App.4th 793, 812; Copeland v. Baskin Robbins U.S.A. (2002) 96 Cal.App.4th 1251, 1256.) On the other hand, a contract will be recognized if it is sufficiently definite for the court to ascertain the parties' obligations and to determine whether those obligations have been performed or breached. (Bustamante v. Intuit, Inc. (2006) 141 Cal.App.4th 199, 209.)
As set forth ante, there were sufficient terms in the Agreement to constitute a valid contract, particularly to the extent relevant here—the arbitration provisions. Despite blanks in the Agreement as to the details of the work for specific phases of FCA's services, there was clear mutual assent that the arbitration provisions would apply to disputes arising out of or relating to the Agreement, with each party giving up certain rights and taking on specified obligations. In paragraph 13.1 of the Agreement, the parties unequivocally agreed to be bound with respect to "all covenants, agreements and obligations of this Agreement," which would plainly include its arbitration provisions, and the Agreement's severance clause in paragraph 13.4 provides that, if any portion of the Agreement were held unenforceable, the remainder would still be enforceable. (See also Prima Paint Corp. v. Flood & Conklin Manufacturing Co., (1967) 388 U.S. 395, 403-404 [except where the parties otherwise intend, arbitration clauses are separable from the contracts in which they appear, and a party's challenge to the contract as a whole does not invalidate the arbitration clause]; Ericksen, Arbuthnot, McCarthy, Kearney & Walsh, Inc. v. 100 Oak Street (1983) 35 Cal.3d 312, 314, 322 [arbitration commitment is severable from the contract, such that even a claim for fraudulent inducement of a contract is subject to the arbitration provision].) Plainly there was an enforceable agreement to arbitrate disputes.
b. Integration Clause and No Signed Proposals
Hospital next contends the Agreement did not become a binding contract because it contained an integration clause that required signed writings to fill in the Agreement's blanks, and FCA never proved such a writing existed.
Hospital's argument has no merit. As already explained, the Agreement was sufficient as-is to constitute an enforceable agreement to arbitrate. Furthermore, the integration clause in paragraph 13.3.1 states that the "Agreement constitutes the entire agreement between the parties and . . . may be amended only in writing signed by the party against whom enforcement is sought." (Italics added.) The essence of the integration clause was that the Agreement was itself sufficient and could be amended only in writing. Nothing in this language required the parties to attach a signed writing to the already-signed Agreement to make the Agreement enforceable.
c. Illegality (Business and Professions Code Section 5536 .22)
Hospital lastly contends the Agreement is illegal because it violates Business and Professions Code section 5536.22 (section 5536.22) and section 70713 of the California Code of Regulations (regulation 70713). On this basis, Hospital urges, the arbitrators and court exceeded their powers in enforcing the arbitration clause. (Citing Paramount Unified School Dist. v. Teachers. Assn. of Paramount (1994) 26 Cal.App.4th 1371, 1381; Southern Cal. Rapid Transit Dist. v. United Transportation Union (1992) 5 Cal.App.4th 416, 423; Code Civ. Proc., § 1286.2, subd. (a)(4).) Not so.
Under section 5536.22, subdivision (a), an architect "shall use a written contract when contracting to provide professional services," and the "written contract shall include," among other things, (1) a description of services to be provided by the architect to the client; (2) a description of any basis of compensation applicable to the contract and method of payment agreed upon by both parties; and (3) a description of the procedure to be used by either party to terminate the contract.
Hospital's reliance on section 5536.22 is unavailing. In the first place, Hospital did not assert section 5536.22 as a defense during the arbitration. (See Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 31; Cummings v. Future Nissan (2005) 128 Cal.App.4th 321, 328-329.) Indeed, Hospital did not mention section 5536.22 until it petitioned the court to vacate the arbitration award, after the arbitration hearing and decision. In its reply brief in this appeal, Hospital insists that it briefed the illegality issues to the arbitration panel, referring us to its arguments that the Agreement was unenforceable because it had blank spaces for material terms. But Hospital does not point to anywhere in the record where Hospital referred the arbitrators to the illegality issue under section 5536.22. Thus, whether or not the threshold arbitrability issues were for the arbitrators to decide, the arbitrators were deciding the legality of the Agreement, yet section 5536.22 was never asserted.
At any rate, as the trial court found, the Agreement complies with section 5536.22. As for the requirement that the contract include a "description of the services to be provided by the architect," Article 3 of the Agreement sets forth the basic services FCA was to provide: FCA would develop design criteria and design requirements; during the schematic design phase, FCA would recommend surveys, prepare schematic design documents, prepare cost estimates, and attend project meetings; and during the design development phase, FCA would prepare plans, sections, elevation related drawings and preliminary technical specifications. Hospital contends this is insufficient because it "is defined as relating to the 'Project' that page 2 of the [Agreement] leaves blank." But Hospital fails to provide any authority that section 5536.22 requires not just a description of services to be provided, but also identify the particular project for which the services will be performed or the specific subset of work that would be performed in each phase. Furthermore, the Addendum, which reconfirmed the terms of the parties' contract, expressly identified the Project.
The Agreement also complies with the other requirements of section 5536.22, subdivision (a). In paragraph 7.1, it describes the basis for compensation: cost plus fixed fee; lump sum fee; or personnel expenses times a factor. And paragraph 10.1 describes the procedure for terminating the Agreement.
Hospital's reliance on regulation 70713 fares no better. The regulation provides: "If a hospital does not employ a qualified professional person to render a specific service to be provided by the hospital, there shall be arrangements for such a service through a written agreement with an outside resource - which meets the standards and requirements of these regulations. The responsibilities, functions, objectives and terms of agreement, including financial arrangements and charges of each such outside resource, shall be delineated in writing and signed by an authorized representative of the hospital and the person or the agency providing the service. . .." (Cal. Code Regs., tit. 22, § 70713. Italics added.)
Hospital did not raise regulation 70713 in the arbitration. Moreover, it fails to show that regulation 70713 even applies to the Agreement. The regulation applies only with respect to services "to be provided by the hospital." FCA was not hired under the Agreement to perform a service that would be provided by the hospital, but to provide architectural services to the hospital.
Hospital fails to establish that the court erred in concluding there was an enforceable agreement to arbitrate.
Hospital also contends that its consent to arbitrate the FCA's termination fee claim cannot be inferred from its consent to arbitrate its own claims. We address this issue in the context of the scope of the arbitration provision, post.
C. Scope of the Arbitration Agreement
We next consider whether the termination fee dispute is within the scope of the parties' arbitration agreement.
1. The Dispute Is Covered By The Broad Arbitration Clause
Paragraph 11.2 provides that "all" disputes the parties are unable to resolve by mediation shall be decided by arbitration. The term "disputes" is defined in paragraph 11.1 to mean "all unresolved claims, counterclaims, disputes, controversies, and other matters in question between them arising out of or relating to this Agreement or the breach thereof." (Italics added.)
The language "arising out of or relating to" indicates a "broad" arbitration clause. (Larkin v. Williams, Woolley, Cogswell, Nakazawa & Russell (1999) 76 Cal.App.4th 227, 230.) Arbitration of the dispute is thus appropriate " 'unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.' " (Gravillis v. Coldwell Banker Residential Brokerage Co. (2006) 143 Cal.App.4th 761, 771.)
Here, the arbitration clause is susceptible to an interpretation that covers the parties' dispute. The dispute plainly arose out of the Agreement and its purported breach, because FCA demanded a termination fee pursuant to paragraph 10.1.3.1 of the Agreement, Hospital allegedly breached the terms of that paragraph when it refused to pay, and FCA's arbitration demand relied on that paragraph.
Furthermore, the termination fee and FCA's work on the Project were related to the Agreement. The Project was referenced in an attachment to the Addendum, the Addendum provided that proposals attached to the Addendum were "incorporated by reference into the Agreement," and the Addendum ordained that the terms and conditions of the Agreement remained in effect.
In addition to the plain language of the Agreement, the parties' conduct in treating FCA's claim as arbitrable evinces their understanding that the Agreement's arbitration provisions were broad enough to cover such a dispute. FCA pursued its claim by filing an arbitration demand with the AAA under the Agreement's arbitration provision rather than filing a lawsuit. In its answer to FCA's arbitration demand, Hospital did not assert that the arbitrators lacked jurisdiction. Nor did Hospital make such an assertion in its counterclaim, its amended counterclaim, or its opening brief for the arbitration hearing. To the contrary, Hospital argued that it should be allowed to file an amended counterclaim so that it could be heard with FCA's termination fee claim. And in asserting that FCA failed to provide design documents for the Project, Hospital relied on paragraph 12.2 of the Agreement, thereby indicating that matters pertaining to the Project were indeed governed by the Agreement. As the arbitrators observed: "If the Hospital believed that Paragraph 12.2 obligated FCA to deliver design documents to the Hospital despite the fact that none of the executed Purchase Orders referred to the 2002 [Agreement] or the Addendum, then Paragraph 11 which commits the parties to arbitration as the applicable dispute resolution procedure was equally applicable as was the termination for convenience provision in Paragraph 10." And as the trial court put it in confirming the arbitration award: "It is disingenuous for [Hospital] to argue that the 2002 Standard Form [Agreement] and the 2008 Addendum did not pertain to the Pavilion Project when in its cross-complaint [Hospital] identified the 2002 Standard Form and 2008 Addendum as the contractual bases for [FCA]'s work on the Pavilion Project."
Hospital's failure to object to the arbitrators' jurisdiction in responding to FCA's arbitration demand as required by AAA rule 9(c), and its request for leave to file an amended counterclaim because arbitration would be an efficient forum for resolving the parties' disputes together, may also suggest that Hospital waived its right to object to the arbitrability of FCA's claim, or that Hospital is now estopped from contending that FCA's claims are not arbitrable. Indeed, the parties debate extensively whether doctrines of equitable estoppel and judicial estoppel apply. We need not and do not decide these additional issues to resolve the appeal.
2. Hospital's Arguments
Hospital's arguments center on the proposition that the arbitration provisions in the Agreement do not apply because the operable contract for FCA's work on the Project was not the Agreement, but the purchase orders by which the work was to be performed. The short answer to these arguments is that, whether or not the purchase orders constitute contracts for work on the Project, FCA's claim that it was entitled to a termination fee under paragraph 10.1.3.1 of the Agreement still arose out of and was related to the Agreement, and was therefore still within the scope of the arbitration provisions. As discussed more specifically next, Hospital's arguments are unpersuasive.
a. The Purchase Orders as Separate Contracts
Hospital first contends the purchase orders constituted separate contracts for work on the Project, and the Agreement's arbitration clause cannot cover claims under separate contracts. For this proposition, Hospital relies on Marsch v. Williams (1994) 23 Cal.App.4th 250 (Marsch).
In Marsch, the parties had entered into a 1973 partnership agreement, which did not contain an arbitration clause, and a 1986 partnership agreement, which did. (Id. at p. 252.) When the plaintiff sued the defendant for conduct relating only to the 1973 agreement, the defendant tried to compel arbitration by relying on the arbitration clause in the 1986 agreement. The trial court denied the petition to compel, and the appellate court affirmed, because the 1973 agreement lacked an arbitration clause and the two agreements were not "closely connected in purpose." (Id. at p. 256.) The court explained that, where parties have "separate contractual relationships, which involve separate enterprises and most importantly separate commercial risks, an arbitration clause which governs one contractual relationship cannot be imposed in the other relationship without undermining the parties' reasonable expectations." (Ibid.) The court contrasted situations, however, in which the arbitration provision appears in one of several interdependent contracts that create a single commercial relationship. (Ibid.)
Marsch is distinguishable from this case on its facts. In Marsch, the plaintiff brought his claim under a separate contract that did not contain an arbitration provision. Here, FCA brought its claim against Hospital not under a separate contract, but under the Agreement that does contain an arbitration provision.
Furthermore, even if FCA had brought its claim under a purchase order contract, the purchase orders for the Project were "closely connected in purpose" to the Agreement. (See Marsch, supra, 23 Cal.App.4th at p. 256.) The purchase orders were for work on the Project, which was referenced in an attachment to the Addendum, which carried forward the arbitration provisions and other terms of the Agreement; and all of these documents were for the provision of architectural services from FCA to Hospital. As such, this case is more akin to the situation Marsch distinguished, in which a single commercial relationship is created by a set of interdependent contracts such that, in reality, only one commercial relationship existed, and the arbitration clause applies. (Ibid.) Nothing in Marsch suggests that the parties' dispute over the termination fee was outside the scope of the arbitration provisions.
b. The Purchase Order Contracts Did Not Reference the Agreement
Hospital next contends the Agreement's arbitration provisions do not apply to disputes relating to the Project because the purchase orders for the Project did not incorporate the Agreement by reference. Whether the purchase orders incorporated the Agreement is immaterial, however, for two reasons.
First, even if the purchase orders did not incorporate the Agreement, the fact remains that the termination fee dispute was based on paragraph 10.1.3.1 of the Agreement, and therefore it arose out of and was related to the Agreement. That in itself was sufficient to bring the dispute within the coverage of the arbitration provisions.
Second, even if the purchase orders did not incorporate the Agreement, the fact remains that the arbitration provisions in the Agreement were carried forward by the Addendum, and the Addendum appended an attachment referencing the Project. Although the attachment did not specify what work would be provided and indicated that board approval for the Project was still pending, the obvious inference is that the Project and its purchase orders related to the Addendum and the Agreement. Disputes "relating to" the Agreement are within the scope of the arbitration provisions.
Hospital warns us that, if we agree with the arbitrators and the trial court that the Addendum covers work under separate contracts such as the purchase orders, we would be enforcing a 20 percent termination fee for those separate contracts, which would constitute a " 'grant [of] extra compensation or extra allowance to a public . . . contractor after service has been rendered or a contract has been entered into and performed in whole or in part,' " in violation of Article IV, Section 17, of the California Constitution. Hospital is incorrect. Article IV, section 17 limits the authority of the legislature to grant extra compensation to a contractor after a service is rendered or a contract is performed. We are not the legislature, and in any event the arbitration award does not grant FCA extra compensation, but only the compensation to which FCA was entitled under the parties' Agreement.
c. Arbitration Agreements Cannot Be Implied
Hospital next urges that an agreement to arbitrate the termination fee dispute cannot be implied. Specifically, it contends there cannot be an implied contract embracing the identical subject as an express contract but requiring different results. (Citing, e.g., Lance Camper Manufacturing Corp. v. Republic Indemnity Co. (1996) 44 Cal.App.4th 194, 203.) And it argues that finding an implied contract based on Hospital's subjective intent, as Hospital claims the arbitrators did, and then elevating the implied contract over an express contract, violates regulation 70713.
Hospital's arguments are misplaced, because there is no need to imply Hospital's agreement to arbitrate the termination fee dispute. The parties expressly agreed to arbitrate disputes arising out of or relating to the Agreement, and the dispute over FCA's termination fee under paragraph 10.1.3.1 of the Agreement was just that kind of dispute.
d. Paragraph 11.4's Prohibition of Implied Consent
Hospital further contends that, although it agreed to arbitrate its claims (from the 2013 Transition Agreement), paragraph 11.4 prohibited the arbitrators and the court from inferring that Hospital also consented to arbitrate FCA's claims. Hospital relies on paragraph 11.2 of the Agreement, which provides for all disputes to be decided by arbitration "subject to the limitations in Paragraph 11.4 below," and the portion of paragraph 11.4 that states: "No consent to arbitration in respect of a specifically described dispute will constitute consent to arbitrate any other dispute which is not specifically described in such consent. . . ."
Hospital's reliance on paragraph 11.4 is unavailing. Exclusionary clauses in an arbitration provision are narrowly construed. (Gravillis v. Coldwell Banker Residential Brokerage Co., supra, 143 Cal.App.4th at p. 771.) Here, paragraph 11.4 states that no consent to arbitrate a "specifically described dispute" will constitute consent to arbitrate any other dispute that is "not specifically described in such consent." (Italics added.) Reasonably read, the paragraph pertains to situations in which there has been an independent "consent" to arbitrate a particular dispute that would otherwise not fall within the ambit of the arbitration provisions. Under that interpretation, the quoted language from paragraph 11.4 does not apply here, since there was no independent consent. Alternatively, the "consent" to which paragraph 11.4 refers is the arbitration provision of paragraph 11.2. In that case, since Hospital consented to arbitrate any dispute "arising out of or relating to" the Agreement, and FCA's claim arises out of and relates to the Agreement, the dispute is "specifically described in the consent." In any event, Hospital has not shown that the limitation of paragraph 11.4 applies here.
Hospital fails to establish that the court erred in concluding FCA's termination fee claim was within the scope of the parties' agreement to arbitrate their disputes.
D. Interest Rate
Hospital points out that the court's judgment affirmed the arbitration award "with interest at the legal rate of 10% per annum from July 30, 2013." This statement in the judgment repeats a sentence from the arbitration award. It also complies with a statute pertaining to an award of pre-judgment interest. (Civ. Code, § 3289 ["If a contract . . . does not stipulate a legal rate of interest, the obligation shall bear interest at a rate of 10 percent per annum after breach."].)
Hospital contends the judgment does not specifically state that the 10 percent interest rate would apply only to pre-judgment interest, and asserts that post-judgment interest on judgments against a public entity such as Hospital is limited to an annual rate of seven percent. (California Fed. Savings & Loan Assn. v. City of Los Angeles (1995) 11 Cal.4th 342, 345-348; Cal. Const., art. XV, § 1.) Hospital urges us to modify the judgment to read: ". . . with pre-judgment interest at the legal rate of 10% per annum from July 30, 2013, to the date of this judgment, and with post-judgment interest at the legal rate applicable from thereafter." (Italics added.)
We decline to modify the judgment. In the first place, there is no indication that Hospital raised this matter in the trial court. Moreover, Hospital fails to demonstrate prejudicial error. If Hospital's view of the law is correct, the only way the judgment can lawfully be read is that, indeed, pre-judgment interest accrued at the legal rate of seven percent and post-judgment interest will accrue at the applicable legal rate. Because the judgment as it now reads would necessarily be interpreted so that it does not contain any error, Hospital's proposed additional language is unnecessary.
III. DISPOSITION
The judgment is affirmed.
/s/_________
NEEDHAM, J. We concur. /s/_________
SIMONS, ACTING P.J. /s/_________
BRUINIERS, J.