Remedial Construction Services, LP v. AECOM, Inc.

Filed 7/15/21 (unmodified opn. attached)
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SIX
REMEDIAL CONSTRUCTION 2d Civ. No. B303797
SERVICES, LP, (Super. Ct. No. 19CV04505)
(Santa Barbara County)
Plaintiff and Respondent,
ORDER DENYING PETITION
v. FOR REHEARING AND
MODIFYING OPINION
AECOM, INC., et al., (No Change in Judgment)
Defendants and Appellants.
THE COURT:
Appellants’ petition for rehearing is denied. It is ordered
that the opinion filed on June 15, 2021, be modified as follows:
On page 8, delete the following sentence in the second
paragraph: “And since the Subcontract is governed by California
law and is between two California-based companies working on a
California construction project, it seems unlikely that RECON
would willingly agree to waive dispute resolution in California in
favor of arbitration in Texas.”
No change in judgment.
GILBERT, P.J. PERREN, J. TANGEMAN, J.
Filed 6/15/21 (unmodified opinion)
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SIX
REMEDIAL CONSTRUCTION 2d Civ. No. B303797
SERVICES, LP, (Super. Ct. No. 19CV04505)
(Santa Barbara County)
Plaintiff and Respondent,
v.
AECOM, INC., et al.,
Defendants and Appellants.
Respondent Remedial Construction Services, L.P. (RECON)
sued appellants AECOM, Inc. and AECOM Technical Services,
Inc. (collectively AECOM) for damages related to AECOM’s
alleged failure to properly manage the construction project on
which RECON worked as one of AECOM’s subcontractors.
AECOM moved to compel arbitration based on an
arbitration clause contained in a separate contract (the Prime
Agreement) between AECOM and the property owner, Shell Oil
Products US LLC and Shell Pipeline Company (collectively
“Shell” or “Owner”). The Subcontract between RECON and
AECOM incorporates the 151-page Prime Agreement, excerpts of
which were marked as Exhibit M and attached as one of 37
exhibits to the Subcontract. The excerpts included the
arbitration clause.1 The trial court denied AECOM’s motion,
concluding that “[t]he Subcontract does not evidence an
intention, clear or otherwise, for arbitration of disputes between
RECON and AECOM.”
In the absence of a clear agreement to submit a dispute to
arbitration, we will not infer a waiver of a party’s jury trial
rights. (See Avery v. Integrated Healthcare Holdings, Inc. (2013)
218 Cal.App.4th 50, 59 (Avery).) The Subcontract’s incorporation
of a voluminous contract containing an arbitration agreement
between other parties was insufficient to subject RECON to
arbitration of its claims against AECOM. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
This dispute involves the demolition, remediation and
restoration of the Gaviota Terminal (Terminal) in Goleta, which
is owned by the Gaviota Terminal Company (GTC). Shell has an
ownership or leasehold interest in the Terminal and acted as
GTC’s authorized agent. GTC stopped using the Terminal in
2005.
In 2015, GTC commissioned a remedial action plan to
address the presence of chemicals on the Terminal property. It
retained AECOM to perform all design, engineering, procurement
1In response to our written query, AECOM’s counsel
confirmed at oral argument that the excerpts of the Prime
Agreement included in the record on appeal were attached as
Exhibit M to the Subcontract when it was executed. The entire
Prime Agreement was not attached. In light of this
representation, we deny as moot AECOM’s motion to take
evidence on appeal.
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and construction work necessary to complete the Gaviota
Terminal Decommissioning Project (the Project). Shell Oil
Products US, LLC, as the “Company,” and AECOM Technical
Services, Inc., as the “Contractor,” entered into the Prime
Agreement for goods and services related to the Project. The
Prime Agreement established a framework agreement by which
separate scope-of-work purchase orders would be executed. The
agreement is governed by Texas law and has a provision
requiring arbitration in Houston, Texas, which is where Shell has
its offices. That provision states: “Any dispute or claim, arising
out of or in connection with the CONTRACT or its subject matter
or formation, whether in tort, contract, under statute, or
otherwise . . . will be finally and exclusively resolved by
arbitration under the International Centre for Dispute
Resolution (‘ICDR’) International Dispute Resolution Procedures
(the ‘Rules’).”
AECOM subsequently issued a formal request for
subcontractor proposals. RECON submitted a proposal with
detailed pricing for more than 40 categories of work. RECON
was awarded the contract (Subcontract No. 88741).
By 2019, RECON believed that AECOM’s acts and
omissions were causing unnecessary and costly delays in the
Project. When AECOM declined to compensate RECON for
additional expenses, RECON filed this action for damages.
AECOM moved to compel arbitration, arguing that because
the Subcontract incorporated the Prime Agreement, the
arbitration clause in that document requires arbitration of
RECON’s claims against AECOM. AECOM further maintained
that Article 39.2 of the Subcontract requires arbitration because
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RECON’s claims were ones “for which the ‘Owner . . . may be
liable.’”
In denying AECOM’s motion, the trial court found that
RECON did not agree to arbitrate its disputes with AECOM in
the Subcontract or to be bound by the obligation to arbitrate in
the Prime Agreement. The court explained that “it is first, and
most glaring, that there is no general arbitration clause in the
Subcontract and the Subcontract does not directly incorporate an
arbitration agreement from the Prime [Agreement].” The court
further found that the proper interpretation of Article 39.2 of the
Subcontract is that it applies only to claims against the Owner
and not to claims between RECON and AECOM.
DISCUSSION
Standard of Review
“‘[T]here is no uniform standard of review for evaluating an
order denying a motion to compel arbitration. [Citation.] If the
court’s order is based on a decision of fact, then we adopt a
substantial evidence standard. [Citations.] Alternatively, if the
court’s denial rests solely on a decision of law, then a de novo
standard of review is employed. [Citations.]’” (Laswell v. AG
Seal Beach, LLC (2010) 189 Cal.App.4th 1399, 1406; Bautista v.
Fantasy Activewear, Inc. (2020) 52 Cal.App.5th 650, 655.)
“Interpreting a written document to determine whether it is an
enforceable arbitration agreement is a question of law subject to
de novo review when the parties do not offer conflicting extrinsic
evidence regarding the document’s meaning. [Citation.]” (Avery,
supra, 218 Cal.App.4th at p. 60.)
The party seeking to compel arbitration bears the burden of
proving by a preponderance of the evidence that a valid
agreement to arbitrate exists. (Pinnacle Museum Tower Assn. v.
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Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223,
236; Mitri v. Arnel Management Co. (2007) 157 Cal.App.4th 1164,
1169.)
AECOM has Failed to Establish the Existence
of an Agreement to Arbitrate RECON’s Claims
“Arbitration is . . . a matter of contract.” (Avery, supra, 218
Cal.App.4th at p. 59.) “The policy favoring arbitration cannot
displace the necessity for a voluntary agreement to arbitrate.
Although the law favors contracts for arbitration of disputes
between parties, there is no policy compelling persons to accept
arbitration of controversies which they have not agreed to
arbitrate. Absent a clear agreement to submit disputes to
arbitration, courts will not infer that the right to a jury trial has
been waived.” (Ibid., internal quotations and citations omitted,
italics added; Badie v. Bank of America (1998) 67 Cal.App.4th
779, 804.)
“‘The fundamental goal of contractual interpretation is to
give effect to the mutual intention of the parties.’ [Citations.]
‘Such intent is to be inferred, if possible, solely from the written
provisions of the contract.’ [Citations.]” (State of California v.
Continental Ins. Co. (2012) 55 Cal.4th 186, 195.) The contractual
language must be construed in the context of the document as a
whole and in the circumstances of the case. (Ibid.) We “give
effect to all of a contract’s terms, and . . . avoid interpretations
that render any portion superfluous, void or inexplicable.”
(Brandwein v. Butler (2013) 218 Cal.App.4th 1485, 1507
(Brandwein).)
“[T]he parties may incorporate by reference into their
contract the terms of some other document. But each case must
turn on its facts. For the terms of another document to be
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incorporated into the document executed by the parties the
reference must be clear and unequivocal, the reference must be
called to the attention of the other party and he must consent
thereto, and the terms of the incorporated document must be
known or easily available to the contracting parties.” (Shaw v.
Regents of University of California (1997) 58 Cal.App.4th 44, 54,
internal quotations and citations omitted.)
AECOM concedes the Subcontract has no arbitration
provision but argues that the Prime Agreement’s arbitration
clause was clearly incorporated into the Subcontract and is
therefore binding upon RECON. Article 22 of the Subcontract
states: “The contract between Contractor and [Owner] . . . is
hereby incorporated into and made a part of this Agreement by
reference. Subcontractor assumes toward Contractor all of the
obligations and responsibilities contained in the Prime
Agreement or client flow-down provisions . . . that Contractor
assumes towards its Client as they relate to Subcontractor’s
performance of the Work. In the event of a conflict between any
provision of this Agreement and the Prime Contract the more
restrictive provision shall govern.”
As RECON points out, it only assumed AECOM’s
obligations and responsibilities under the Prime Agreement to
the extent they relate to RECON’s performance of its work on the
Project. There is no indication this would include RECON’s
assumption of AECOM and Shell’s agreement to arbitrate their
own disputes. It is not reasonable to conclude that an arbitration
clause in a 151-page document would override the litigation
forum selection provision in the text of the Subcontract itself.
The right to select a judicial forum is a substantial and
fundamental right “not lightly to be deemed waived.” (Chan v.
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Drexel Burnham Lambert, Inc. (1986) 178 Cal.App.3d 632, 643
(Chan).)
In addition, Article 19.2 of the Subcontract provides an
“Order of Precedence” to resolve any “conflict, variation or
inconsistency between any provisions of the Subcontract
Documents.” The parties and the court “shall” construe the
documents in the following order: (1) Subcontract amendments,
(2) Subcontract, (3) General Conditions, (4) drawings and (5)
“specifications and other Subcontract Documents including the
Prime Agreement.” (Italics added.) Thus, AECOM and RECON
expressly agreed the terms of the Subcontract would control over
the Prime Agreement.
But even if we assume the arbitration provision was
incorporated into the Subcontract, it is inconsistent with Article
43.1 of the Subcontract, which states: “Any litigation initiated by
and between the Parties arising out of or relating to this
Subcontract shall be conducted in the federal or state court of
jurisdiction in the State whose laws govern this Subcontract and
Contractor and Subcontractor each consents to the jurisdiction of
such court. In the event a dispute arises between the Contractor
and Owner in connection with the Work or Subcontract,
Contractor shall have the right to implead Subcontractor into the
dispute resolution proceeding and Subcontractor hereby agrees to
any such impleader.” (Italics added.) Article 19.2 further
provides that “[i]n the event of any conflict, variation or
inconsistency between any provisions of the Subcontract
Documents,” which include the Prime Agreement, “the provision
imposing the more or most stringent requirement as the case
may be shall govern.”
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Thus, to the extent a conflict exists between the forum
selection provisions in the Subcontract and the Prime Agreement,
the more restrictive and stringent provision controls. AECOM
does not dispute that the Prime Agreement, by authorizing
arbitration, waives the contracting parties’ constitutional right to
a jury trial and limits their appellate rights. (See Vandenberg v.
Superior Court (1999) 21 Cal.4th 815, 831 [“[P]rivate arbitration
is a process in which parties voluntarily trade the safeguards and
formalities of court litigation for an expeditious . . . means of
resolving their dispute”].) Since the Subcontract upholds these
rights by providing for litigation, its forum selection provision is
the more restrictive and stringent and therefore controls the
parties’ dispute. (See Chan, supra, 178 Cal.App.3d at p. 643
[“[I]n case of doubt, the issue of contract interpretation should be
resolved in favor of preserving [the jury trial] right”].)
Moreover, accepting AECOM’s interpretation of the
Subcontract would impermissibly render Article 43.1
“superfluous, void or inexplicable.” (Brandwein, supra, 218
Cal.App.4th at p. 1507.) If the parties’ intent was to arbitrate
their disputes, as AECOM claims, there would have been no need
to include a litigation provision in the Subcontract. And since the
Subcontract is governed by California law and is between two
California-based companies working on a California construction
project, it seems unlikely that RECON would willingly agree to
waive dispute resolution in California in favor of arbitration in
Texas. As the trial court aptly stated, “[g]iven the sophistication
of the parties and the subject of the contracts, if an arbitration
agreement were intended to cover all claims arising from
performance of the Subcontract or from the Project, it would have
been expected that any arbitration clause – or clause
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incorporating the arbitration clause of the Prime Agreement –
would say so directly.”
Indeed, Article 39.6 of the Subcontract specifically provides
that “Force Majeure Events are defined as described in the Prime
Contract.” As the drafter of the Subcontract, AECOM had the
ability to similarly reference the Prime Agreement’s arbitration
clause. Instead, it drafted a Subcontract consenting to judicial
dispute resolution and application of California law. Thus, to the
extent an ambiguity exists regarding whether AECOM and
RECON intended to arbitrate their disputes, it should be
construed against AECOM as “the party who caused the
uncertainty to exist.” (Civ. Code, § 1654; Steller v. Sears,
Roebuck & Co. (2010) 189 Cal.App.4th 175, 183-184; see also Levi
Strauss & Co. v. Aetna Cas. & Surety Co. (1986) 184 Cal.App.3d
1479, 1486 [“The court does not have the power to create for the
parties a contract which they did not make, and it cannot insert
in the contract language which one of the parties now wishes
were there”].)
Nor are we persuaded that Article 39.2 of the Subcontract
entitles AECOM to arbitration. That provision concerns “Claims
Relating to Owner” and requires RECON, as the Subcontractor,
“to initiate all claims for which the Owner is or may be liable in
the manner and within the time limits provided in the
Subcontract Documents for like claims by the Contractor
[AECOM] upon the Owner and in sufficient time for the
Contractor to initiate such claims against the Owner in
accordance with the Subcontract Documents.”
AECOM contends that the phrase “claims in which an
[O]wner ‘may be liable’” broadly defines the scope of possible
claims. RECON asserts that it applies only to claims against the
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Owner and is inapplicable to claims against AECOM. We agree
with the trial court that the “‘is or may be liable’ language is to
provide a blanket statement regarding claims made against the
[O]wner, whether those claims are meritorious or not, and not to
include claims that are made against others unless the exception
for joinder in [Article] 40.2 applies.”
Article 40.2 states: “[I]n the event: a) Owner and
Contractor [AECOM] become involved in any arbitration,
mediation, litigation or other proceedings, and b) Contractor
determines that it would be appropriate that disputes under this
Subcontract be resolved in such dispute proceeding due to the
existence of common issues of fact or law, Subcontractor shall
consent to joinder to, and a consolidated resolution of issues in,
that proceeding.” This Article is an exception to the remaining
contract language in that it expressly includes arbitration as a
dispute resolution mechanism. If anything, it further confirms
that if there was an intent to arbitrate claims arising between
RECON and AECOM, the Subcontract would have so stated. The
only agreement to arbitrate involving RECON is one in which it
is joined as a party to an action between AECOM and the Owner.
We conclude AECOM has failed to show by a
preponderance of the evidence that an enforceable arbitration
agreement requires arbitration of its dispute with RECON. The
trial court properly found that “the Subcontract consistently
identifies arbitration only as a mechanism for dispute resolution
. . . between AECOM and owners in which RECON would be
appropriately impleaded as a party to that dispute. The
Subcontract does not evidence an intention, clear or otherwise,
for arbitration of disputes between RECON and AECOM.” We
are not convinced by AECOM’s arguments to the contrary.
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DISPOSITION
The trial court’s order denying AECOM’s motion to compel
arbitration and to stay litigation is affirmed. RECON shall
recover its costs on appeal.
CERTIFIED FOR PUBLICATION.
PERREN, J.
We concur:
GILBERT, P. J.
TANGEMAN, J.
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Donna D. Geck, Judge
Superior Court County of Santa Barbara
______________________________
Troutman Pepper Hamilton Sanders, Marion T. Hack,
Luke N. Eaton; Greines, Martin, Stein & Richland, Cynthia E.
Tobisman, Alana H. Rotter, Gary J. Wax; Aecom, Ivana Cingel,
for Defendants and Appellants.
Munsch Hardt Kopf & Harr, Tiffany A. Harrod (pro hac
vice); Mitchell Silberberg & Knupp, Stephen E. Foster, Andrew
C. Spitser, for Plaintiff and Respondent.
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