SCA Services, Inc. v. General Mill Supply Co. , 129 Mich. App. 224 ( 1983 )

129 Mich. App. 224 (1983) 341 N.W.2d 480

SCA SERVICES, INC.
v.
GENERAL MILL SUPPLY COMPANY

Docket No. 63354.

Michigan Court of Appeals.

Decided September 27, 1983.

Hill, Lewis, Adams, Goodrich & Tait (by Timothy D. Wittlinger, Richard C. Sanders, and Linda S. Walton), for plaintiffs.

C. William Garratt & Associates, P.C. (by Dennis J. Dlugokinski and Mark D. Evans), for defendant.

Before: T.M. BURNS, P.J., and CYNAR and P.J. MARUTIAK,^[*] JJ.

PER CURIAM.

On December 9, 1981, plaintiffs, SCA Services, Inc., Tri-County Sanitation Systems, Inc., and Sanitation Systems, Inc., filed a complaint against the defendant, alleging that on October 1, 1981, the defendant, General Mill Supply Company, filed a demand for arbitration with the American Arbitration Association relating to certain contracts between plaintiffs and defendant. Plaintiffs requested a stay of arbitration, contending that General Mill waived its right to arbitrate by presenting its claims under these contracts to the United States District Court for the Southern District of Illinois. In that case, SCA, the parent company of the other two plaintiffs, originally brought the action. General Mill filed a counterclaim, alleging breaches of the contracts. SCA then brought a motion to stay the proceedings on the counterclaim since the contracts in dispute were subject to an arbitration provision. On July 6, 1976, the district court judge granted SCA's motion, finding that, although General Mill had repudiated its obligation to enforce arbitration, SCA had elected to insist on performance of the arbitration provisions. The district court judge stated that, by moving to stay the proceedings, SCA had "served notice upon GM that it expects GM to submit its claims to arbitration if it desired further to pursue them".

General Mill filed its demand for arbitration on October 1, 1981. On December 9, 1981, plaintiffs filed their complaint requesting the trial court to stay arbitration based upon General Mill's alleged waiver. General Mill moved for summary judgment. The trial court granted General Mill's motion and plaintiffs filed this appeal. Pending our determination of this appeal, we note that the parties have completed arbitration which resulted in an award for General Mill. That award was certified by the trial court.

We first consider whether SCA waived its right to contest arbitration by participating in the arbitration proceedings. SCA vigorously disputed the authority of the arbitrator to determine the waiver question, both in the courts and during the arbitration proceedings. As stated by the Court in Detroit Demolition Corp v Burroughs Corp, 45 Mich. App. 72, 77-78; 205 NW2d 856 (1973):

"While it is true that one who volitionally and without objection participates in arbitration proceedings may well have waived his right subsequently to object to the arbitrability of previously decided issues, cases so holding would not appear applicable to the case at bar. As stated in 33 ALR3d 1242, § 4, p 1250:

"``A number of cases indicate that a party's participation in arbitration proceedings will not result in waiver of his right to raise the issue of arbitrability of the dispute if he has made a timely objection to arbitrability before a hearing on the merits.'"

See also American Fidelity Fire Ins Co v Barry, 80 Mich. App. 670; 264 NW2d 92 (1978), lv den 402 Mich. 915 (1978).

Certainly, SCA's actions in both the arbitration proceeding and the courts manifested an opposition to the arbitration proceeding on the ground that General Mill had waived its right to arbitration. SCA was not required to file a motion to vacate the arbitration award in order to preserve these objections. Arrow Overall Supply Co v Peloquin Enterprises, 414 Mich. 95; 323 NW2d 1 (1982). In this case it would not have been proper to do so, since the same issues were already pending in this court action. Accordingly, SCA did not waive its right to contest General Mill's right to arbitration by participating in the arbitration proceedings.

We next consider whether the trial court correctly decided that the issue of waiver should be resolved by the arbitrator. The trial court relied on Northland Ins Co v Sny, 98 Mich. App. 507; 296 NW2d 292 (1980), to find that the contract gave the arbitrator the power to resolve any disputes relating to the agreement. GCR 1963, 769.2 sets forth the rule governing proceedings to compel or stay arbitration:

"[I]f the opposing party denies the existence of the agreement to arbitrate, the court shall proceed summarily to the determination of the issue so raised and shall order arbitration if found for the moving party, otherwise the application shall be denied." GCR 1963, 769.2(1).

In a recent decision, the Supreme Court stated:

"Whenever the jurisdiction of an arbitrator is questioned, it must be determined in order to make an award on arbitration binding.[2] The existence of a contract to arbitrate and the enforceability of its terms is a judicial question which cannot be decided by an arbitrator.[3]

"[2] In Waterford Ass'n of Educational Secretaries v Waterford School Dist, 95 Mich. App. 107; 290 NW2d 95 (1980), the Court of Appeals stated that a finding of no agreement to arbitrate precludes the power or jurisdiction of an arbitrator to act. The Court also stated, ``A lack of jurisdiction was recognized by this Court as a basis for attack of an arbitration award in Brown v Holton Public Schools, 62 Mich. App. 328; 233 NW2d 274 (1975), vacated on other grounds 397 Mich. 71; 243 NW2d 255 (1976).' Also, in Stowe v Mutual Home Builders Corp, 252 Mich. 492, 497; 233 N.W. 391 (1930), we said that an award outside of the scope of an agreement of arbitration is not binding because it has no legal sanction.

"[3] See Detroit Demolition Corp v Burroughs Corp, 45 Mich. App. 72, 79; 205 NW2d 856 (1973). Though the case deals with the arbitrability of specific issues, the same rationale holds for the arbitrability of the entire dispute. Also see 5 Am Jur 2d, Arbitration and Award, § 15, pp 531-532." Arrow Overall Supply Co v Peloquin Enterprises, 414 Mich. 95, 98-99; 323 NW2d 1 (1982).

The Michigan Supreme Court has also vacated one of this Court's previous decisions which affirmed a trial court's granting of summary judgment which was based on Sny. Joba Construction Co v Monroe County Drain Comm'r, 411 Mich. 1025 (1981), vacating the order in the Court of Appeals case (Docket No. 57402, decided June 8, 1981). The Supreme Court cited Anno: Waiver of or estoppel to assert substantive right or right to arbitrate as question for court or arbitrator, 26 ALR3d 604; Anno: Defendant's participation in action as waiver of right to arbitration of dispute involved therein, 98 ALR3d 767, for consideration in determining whether the court is the proper forum to determine whether arbitration has been waived. The pertinent annotation states that, "although the decisions are not unanimous, it has been usually held that the court is the proper forum to determine the effect of a general lapse of time in requesting or demanding arbitration, or the effect of participating in an action at law prior to demanding arbitration". 26 ALR3d, 604, 606-607. (Footnotes omitted.)^[1] Considering this issue in light of Arrow Overall Supply Co, supra, we are inclined to follow the majority position holding that the court is the proper forum to determine whether there has been a waiver of this sort. Since the trial court based its decision on a finding that the arbitrator was responsible for determining the issue of waiver, the order granting summary judgment is reversed.^[2]

We next consider whether General Mill waived its right to arbitrate. Plaintiffs argue that General Mill made such a waiver by filing a counterclaim in federal court, conducting discovery relating to the disputed contracts, and delaying its demand for arbitration. Filing a counterclaim may constitute a waiver of arbitration. 98 ALR3d 767, 781-787. SCA, however, successfully persuaded the federal court to stay proceedings pending arbitration on the merits of the case. SCA's current argument, that filing the counterclaim was a waiver, is inconsistent with its previous argument that the merits of the case should be submitted to arbitration. SCA is estopped from making its current argument to this extent. Bowerman v Detroit Free Press, 287 Mich. 443; 283 N.W. 642 (1939); Washburn v Peck, 245 Mich. 351; 222 N.W. 768 (1929).

SCA, however, is not estopped from arguing that General Mill's actions subsequent to the federal court's stay pending arbitration constituted a waiver, since these actions occurred after SCA argued in favor of arbitration. SCA contends that General Mill conducted discovery on the contracts after the federal court stayed the proceedings on them. Proceeding with discovery may be a waiver of the right to demand arbitration. Winter v Arvida Corp, 404 So 2d 829 (Fla App, 1981). Pursuing discovery in a court may be viewed as being inconsistent with demanding arbitration since discovery is not generally available in arbitration, Dearborn v Freeman-Darling, Inc, 119 Mich. App. 439; 326 NW2d 831 (1982).

The mere fact that during discovery certain facts about the contracts now in dispute were discussed does not constitute a waiver by General Mill. On remand, if the trial court finds that General Mill conducted this discovery to defend against SCA's action in the federal court, there was no waiver. If it is found that this discovery was unnecessary for General Mill's defense in the federal court, there was a waiver.

The trial court, in its opinion, failed to address the issue of laches. This appears to be SCA's major argument for waiver, since it concedes in its brief that it would not have argued for a waiver had General Mill promptly demanded arbitration. This Court has recognized that laches can give rise to a waiver of arbitration. Buckley v Small, 52 Mich. App. 454; 217 NW2d 422 (1974). SCA should have been permitted to introduce evidence on this question to the trial court.

Reversed and remanded.

NOTES

[*] Circuit judge, sitting on the Court of Appeals by assignment.

[1] If waiver is predicated upon failure to comply with procedural aspects of an arbitration agreement, the issue is properly resolved by the arbitrator.

[2] The trial court also found that General Mill's actions in the lower court did not terminate the arbitration provision but that res judicata may apply. This Court in Auto Owners Ins Co v Higby, 69 Mich. App. 485, 488; 245 NW2d 102 (1976), stated: "We are concerned here with the effect of a lawsuit on contractual rights, rather than the effect of one lawsuit on another lawsuit." Therefore, whether the arbitration provision is still effective or not does not involve the doctrine of res judicata. SCA may have a valid res judicata claim though in that it contends that the arbitrator may have awarded General Mill damages for overpayments on the contracts when General Mill had already recovered these damages in federal court.