Wilson Construction Co. v. Scheffler Northwest, Inc
3:16-cv-00173
D. Or.Sep 8, 2016Background
- Wilson Construction (general contractor) hired Scheffler Northwest (subcontractor) to install 25 caisson foundations on a PGE transmission project under a $1,113,329 subcontract.
- Wilson had a separate Prime Contract with PGE that contained an Article 13 arbitration clause and was attached to the subcontract as Appendix A.
- The subcontract included an incorporation clause stating that "all provisions of the Prime Contract…are by this reference incorporated" to the extent "applicable with Subcontractor’s work."
- Dispute arises under the subcontract; Scheffler moved to dismiss or stay and compel arbitration under the Federal Arbitration Act (FAA).
- Court found the subcontract involves interstate commerce and thus the FAA applies.
- The central question became whether the subcontract’s incorporation clause reasonably incorporates the Prime Contract’s arbitration provision; the court determined the clause is ambiguous and resolved doubts in favor of arbitration.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the FAA applies to the subcontract | FAA does not apply (implicit: or not disputed by Wilson) | FAA applies because the subcontract involves interstate commerce | FAA applies — subcontract involves interstate commerce; FAA governs |
| Whether the subcontract incorporated Prime Contract's arbitration clause | Incorporation limited to provisions "applicable to the subcontractor's work" — administrative/dispute procedures not "applicable" | Incorporation is broad; arbitration clause relates to disputes about the "work" and general provisions are incorporated | Incorporation clause is ambiguous; under Oregon law and federal policy favoring arbitration, doubts resolved for arbitration; court compels arbitration and stays the case |
Key Cases Cited
- Allied–Bruce Terminix Cos. v. Dobson, 513 U.S. 265 (Sup. Ct. 1995) (defining "involving commerce" broadly under the FAA)
- Rogers v. Royal Caribbean Cruise Line, 547 F.3d 1148 (9th Cir. 2008) (transaction need only involve interstate commerce; parties need not have contemplated it)
- Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126 (9th Cir. 2000) (court’s two-step inquiry: existence of valid arbitration agreement and scope)
- First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (Sup. Ct. 1995) (apply ordinary state-law contract principles to decide whether parties agreed to arbitrate)
- United Steelworkers of Am. v. Warrior & Gulf Nav. Co., 363 U.S. 574 (Sup. Ct. 1960) (party cannot be required to arbitrate a dispute it has not agreed to submit)
- Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (Sup. Ct. 1985) (resolve doubts about arbitrability in favor of arbitration)
- Batzer Const., Inc. v. Boyer, 204 Or. App. 309 (Or. Ct. App. 2006) (under Oregon law, contract is ambiguous if susceptible to more than one reasonable interpretation)
- Delasmutt v. Parker Grp. Invests., LLC, 276 Or. App. 42 (Or. Ct. App. 2016) (presumption in favor of arbitration when contract is ambiguous)
- Johnson W. Johnson, Inc. v. Basic Constr. Co., 429 F.2d 764 (5th Cir. 1970) (reference to prime contract in subcontract construed to incorporate only provisions relating to the character and manner of subcontractor’s work)
- Central Steel Erection Co. v. Will, 304 F.2d 548 (9th Cir. 1962) (disputes clause in prime contract may not bind subcontractor absent clear incorporation)