Snow Mountain Pine, Ltd. v. Tecton Laminates Corp.

869 P.2d 369, 126 Or. App. 523, 1994 Ore. App. LEXIS 257

• Court: Court of Appeals of Oregon
• Decided: February 23, 1994
• Docket: 91-12-10176-E, 91-10-10148-E; CA A75677
• Status: Published

Opinions

DURHAM, J.

pro tempore

Plaintiff appeals from a judgment on an arbitration award. ORS 36.365. It assigns error to the court’s orders abating the action and compelling arbitration, designating an arbitration panel¹ and refusing to set aside the arbitration award. We reach only the first two issues. We reverse the judgment and remand for further proceedings.

The dispute in this case stems from four agreements between defendant, which owns a lumber mill that makes laminated veneer, and plaintiff,² which owns an adjacent sawmill. Defendant’s sole shareholder was the principal partner in the company from which plaintiff purchased the sawmill.

The parties entered into the agreements in connection with plaintiffs purchase of the sawmill. Two of the agreements are in dispute. The first agreement, known as the “Log Supply Agreement,” provided that plaintiff would transfer to defendant certain logs that it obtained from the United States Forest Service. The agreement specified that title to the logs would pass to defendant as soon as the logs reached plaintiffs log yard, but that defendant would pay for the logs when plaintiff was required to pay the Forest Service. The second agreement, the “Log Yard Agreement,” provided that plaintiff would unload, scale, sort, deck and deliver the logs that it transferred to defendant. The agreement also provided that plaintiff would deliver steam and electricity to defendant which, in exchange, would deliver all of its hog fuel (i.e., waste wood products) to help produce the steam and electricity. The parties signed all of the agreements on the same day, and each contains an “entire agreement” clause that refers to the other agreements. For example, the Log Yard Agreement provides, as material:

“Entire Agreement. This Agreement, the Lease, the Log Supply Agreement and the documents delivered in connection with the Acquisition constitute the entire agreement between the parties concerning the subject matter hereof

The Log Yard Agreement also contains an arbitration clause, which provides, in part:

“Any controversies or claims arising out of or relating to this Agreement or the breach thereof, shall be settled by arbitration in Portland, Oregon, in accordance with the then current rules of the American Arbitration Association* * *.”

Although the three agreements contain several duplicated provisions, only the Log Yard Agreement contains an arbitration clause.

In 1991, plaintiff sought arbitration of a dispute under the Log Yard Agreement. Defendant raised counterclaims, some of which concerned disputes under the Log Supply Agreement. The parties agreed to submit all of the disputes to arbitration.

When additional disputes arose concerning defendant’s payments under the Log Supply Agreement, plaintiff refused to deliver additional logs, declared the agreement terminated and brought this action for damages and a declaration that defendant was in breach of the contract. Defendant moved to abate the action and to compel arbitration. The trial court granted the motion and also ordered that the panel that heard the earlier dispute under the Log Yard Agreement should hear this case as well.

Plaintiff argues that the court erred in compelling arbitration, because the dispute arose under the Log Supply Agreement, and it contains no arbitration clause. It contends that the arbitration clause in the Log Yard Agreement applies only to controversies or claims arising out of that agreement, and this dispute does not meet that description.

Defendant’s motion to abate plaintiffs action and to compel arbitration is governed by ORS 36.315, which provides:

“If any action, suit or proceeding is brought upon any issue arising out of an agreement which contains a provision for arbitration of the matter in controversy in such action, suit or proceeding, then, upon application, any judge of a circuit court, upon being satisfied that the issue is referable to arbitration, shall abate the action, suit or proceeding so that arbitration may be had in accordance with the terms of the agreement. The application shall be heard similarly to hearings on motions.”

The court examined the parties’ pleadings and agreements to determine whether the action was “referable to arbitration” under the statute. The complaint alleges, as material:

“5.

“Paragraph 5(a) of the Log Supply Agreement requires Tecton to pay SMP [plaintiff] for associated species logs [ASL] acquired by SMP directly from the United States Forest Service in accordance with the schedule contained in paragraph 5(a). Specifically,

“ ‘Tecton [defendant] shall pay (i) SMP’s Allocated Stumpage Costs with respect to ASL delivered during any month on or before the 25th day of the following month, and (ii) the Log Yard and Logging Costs and Reasonable Administrative Fees (A) on or before the 25th day of the month in which the ASL is delivered, with respect to ASL delivered on or after the first day to and including the 15th day of each month, and (B) on or before the 10th day of the month following the month in which the ASL is delivered, with respect to ASL delivered on or after the 16th day of the month to the end of the month.’

“6

“SMP asserts and Tecton denies that Tecton has breached its obligation to SMP under paragraph 5(a) of the Log Supply Agreement in at least the following particulars:

“a. Tecton has failed to pay SMP, on or before September 25, 1991, for SMP’s Log Yard and Logging Costs and Reasonable Administrative Fees, for logs delivered during the first half of September, in the amount of $75,577.45.

“b. Tecton has failed to pay SMP, on or before October 10, 1991, for SMP’s Log Yard and Logging Costs and Reasonable Administrative Fees for logs delivered in the latter half of September, in the amount of $62,923.46.

“c. Tecton has failed to pay SMP, on or before October 25, 1991, for SMP’s Allocated Stumpage Costs with respect to ASL delivered during September, in the amount of $42,915.47.

“d. Tecton has failed to pay SMP, on or before October 25, 1991, for SMP’s Log Yard and Logging Costs and Reasonable Administrative Fees for logs delivered in the first half of October, in the amount of $63,445.77.

“e. Tecton has failed to pay SMP, on or before November 10, 1991, for SMP’s Log Yard and Logging Costs and Reasonable Administrative Fees for ASL delivered during the latter half of October, in the amount of $67,401.14.

“f. Tecton has failed to pay SMP, on or before November 25, 1991, for SMP’s Allocated Stumpage Costs with respect to ASL delivered during October, in the amount of $22,602.49.

“g. Tecton has failed to pay SMP, on or before November 25, 1991, for SMP’s Log Yard and Logging Costs and Reasonable Administrative Fees for ASL delivered during the first half of November, in the amount of $72,838.44.”

The complaint also generally alleges that plaintiff had performed all conditions precedent to defendant’s performance, and that defendant’s material breaches entitles it to damages and to relief from any future obligations under the Log Supply Agreement.

Plaintiff asserts that the Log Supply Agreement is the only agreement that is relevant to the dispute described in the complaint, and it does not contain an arbitration clause. That begs the question of what is the parties’ agreement. When parties contemporaneously execute multiple agreements that address interrelated subjects, we are bound to construe them together as one contract to discern the parties’ intent. Hays v. Hug, 243 Or 175, 177, 412 P2d 373 (1966); Waxwing Cedar Products v. C & W Lumber, 44 Or App 167, 170, 605 P2d 719 (1980).

“When a written instrument refers in specific terms to another writing as containing part of the agreement, the other writing is itself a part of the contract between the parties.” Weber v. Anspach, 256 Or 479, 483, 473 P2d 1011 (1970).

The Log Supply Agreement and Log Yard Agreement recite that they “constitute the entire agreement between the parties concerning the subject matter hereof * * We will construe them together to determine whether the parties intended to arbitrate any issues arising out of the agreement that contains the arbitration clause.

We are bound to construe the arbitration agreement liberally to enhance arbitrability.

“Oregon’s policy is to construe general arbitration agreements broadly to enhance arbitrability of disputes. Cf. Abbott v. Bob’s U-Drive, et al, 222 Or 147, 153-55, 352 P2d 598, 81 ALR 2d 793 [1960] (arbitration statutes liberally construed); Corvallis Sch. Dist. v. Corvallis Education Assn., 35 Or App 531, 535, 581 P2d 972 (1978) (arbitration clauses to be interpreted in manner which favors coverage of the dispute).” Budget Rent-A-Car v. Todd Investment Co., 43 Or App 519, 524, 603 P2d 1199 (1979).

Under that policy, arbitration is required, unless we can say with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute, and we resolve all doubts in favor of coverage. Portland Assn. of Teachers v. School District No. 1, 51 Or App 321, 325, 625 P2d 1336 (1981).

“The presence of ambiguous language in a contract, whether in the arbitration clause or the substantive portions of the contract itself, is precisely the situation in which the question of arbitrability is one to be decided by the arbitrator.” 51 Or App at 327.

In determining whether an arbitration agreement arguably covers a dispute, we examine not only the arbitration clause, but the entire contract, subsidiary agreements, the relationship of the parties, the subject matter of the contract, the practical construction the parties themselves have placed on the contract by their acts, and other external circumstances that cast light on the intent of the parties. “The conduct of the parties to an agreement is strong evidence of their interpretation of it.” U.S. Nat’l Bank v. Caldwell, 60 Or App 639, 644, 655 P2d 180 (1982), rev den 294 Or 536 (1983).

Plaintiff’s complaint alleges that defendant breached paragraph 5(a) of the Log Supply Agreement by, among other things, failing to pay for plaintiffs “log yard costs” for several log deliveries in September, October and November, 1991. We must determine whether those allegations describe a dispute that is arguably covered by the arbitration clause in the Log Yard Agreement. The Log Supply Agreement defines “log yard costs” as “the fee specified in Paragraph 2(c) of the Log Yard Agreement.”

Paragraph 2(c) of the Log Yard Agreement requires defendant to pay fees for continuing log processing and delivery services described in paragraphs 2(a) and (b) of that agreement. Paragraphs 2(a), (b) and (c) provide, in part:

“(a) Interim Services. [Plaintiff] and [defendant] acknowledge that [defendant] is currently unable to process logs that it obtains from [plaintiff] under the Log Supply Agreement. [Defendant] agrees to use its commercially reasonable efforts to obtain the necessary facilities and equipment to process logs as soon as possible, and in any event within nine (9) months from the Effective Date. [Plaintiff] agrees, for a period of nine (9) months from the Effective Date or until [defendant] is able to provide its own processing, whichever occurs earlier (the ‘Interim Period’), to feed into the merchandiser and debark logs owned by [defendant]. [Plaintiff] agrees during this period to provide capacity sufficient to perform such processing for the logs supplied to [defendant] under the Log Supply Agreement, up to 600,000 board feet of logs in any calendar week.

“(b) Continuing Services. [Plaintiff] agrees, for a period beginning with the Effective Date and continuing until five (5) years from the Effective Date, to unload, scale, sort, deck and deliver logs owned by [defendant] to [defendant’s] barking and merchandising system (or, if Paragraph 2(a) above is then in effect, to the appropriate location following completion of the services there described) at the area (the ‘Log Yard’) within [plaintiffs] premises commonly known as the ‘Log Yard,’ or to such other place on [plaintiffs] premises or [defendant’s] adjacent premises as [defendant] may specify in writing to [plaintiff],

“(c) Fees. For the services performed by [plaintiff] under Paragraph 2(a), [defendant] agrees to pay [plaintiff], to the extent not paid under the Log Supply Agreement, a monthly service fee of $3.84 per thousand board feet of logs, and, in addition, for services performed by [plaintiff] under Paragraph 2(b), [defendant] agrees to pay [plaintiff], also to the extent not paid under the Log Supply Agreement, a monthly service fee of $8.00 per thousand board feet of logs.”

The complaint describes a controversy or claim that arguably arises out of or relates to the Log Yard Agreement or its breach, within the meaning of the arbitration clause. The “Log Yard Costs” that plaintiff claims under the Log Supply Agreement are fees stated in paragraph 2(c) of the Log Yard Agreement for log processing and delivery services that plaintiff must render to defendant under paragraph 2(a) and (b) of that agreement, unless those duties are suspended by defendant’s breach. Plaintiff contends that, because of defendant’s insolvency and breach, it was entitled to refrain from performing those services, to deliver logs to another site and to demand cash or further assurances of payment before delivering logs to the log yard. Plaintiff acknowledges that defendant denies any breach. If defendant did not breach the Log Supply Agreement, plaintiff was not entitled to suspend its performance under the Log Yard Agreement, and it is not entitled to the log yard fees that it claims in this action. Because any determination of plaintiffs right to those fees must necessarily include a determination whether plaintiff breached the Log Yard Agreement, the dispute is arguably arbitrable under the arbitration clause.

The court also examined the conduct of the parties, as evidence of their intention in agreeing to the arbitration clause, and found that the parties have previously agreed, without reservation, to arbitrate disputes that arose, in the form of counterclaims, under the Log Supply Agreement. That conduct is relevant when considered in the context of the ambiguity of the broad arbitration clause in the Log Yard Agreement.³ It indicates that the parties did not intend to rule out arbitration of disputes over related rights and duties that implicate the two agreements. See U.S. Nat’l Bank v. Caldwell, supra, 60 Or App at 644. The trial court adopted that inference, stating that the “parties’ actions speak louder than their words.” Plaintiff rejects that inference because “it is at least as likely that Snow Mountain Pine simply went along voluntarily with arbitration on that one previous occasion.” The trial court’s analysis was correct because, in determining whether conduct of the parties is a practical construction that reflects their written agreement to arbitrate a particular dispute, we resolve all reasonable doubts in favor of arbitration.

We do not disagree with the dissent’s contention that the phrase “this Agreement” in the arbitration clause refers to the Log Yard Agreement. However, that does not answer the issue before the court. That clause makes arbitrable ‘ ‘ [a]ny controversies or claims arising out of or relating to this Agreement or the breach thereof * * We determine only that this case presents a controversy or claim that arguably arises out of or relates to the Log Yard Agreement, because that contract entitles plaintiff to log yard costs if it performs certain duties that, according to the record, it did not perform. The dissent claims that that fact is irrelevant and cites passages in each agreement that entitle plaintiff to payment of those costs whether or not the Log Yard Agreement is in effect. The dissent’s arguments do not resolve the arbitrability issue. Only an interpretation of the Log Yard Agreement will resolve the question of whether, as plaintiff contends, the right to log yard costs is not dependent on performance of the obligations stated in the Log Yard Agreement. As the court correctly decided, the parties’ Log Yard Agreement requires an arbitrator to perform the task of interpretation.

We do not decide today that all aspects of the parties’ dispute are subject to arbitration.⁴ The determination of the coverage of the arbitration clause and the scope of arbitrable issues is, in the first instance, a task for the arbitrator. The trial court correctly ordered arbitration, because this action raises issues that are “referable to arbitration” under ORS 36.315.

Plaintiff also assigns error to the court’s order requiring the parties to submit to arbitration before an arbitration panel that they selected to decide a separate dispute. The arbitration clause provides a procedure for selecting an arbitrator. The parties agree that that procedure permits the parties to participate in the selection of the arbitrator or arbitration panel.

ORS 36.320 provides:

“If, in the arbitration agreement, no provision is made for the manner of selecting the arbitrators, or if, for any reason, there is a failure to act or a vacancy, and no provision in the agreement for the filing thereof, then, upon application of any party to the agreement, any court of record shall appoint an arbitrator or arbitrators to fill the vacancy, who shall act with the same force and effect as if specifically named in the arbitration agreement. Unless otherwise provided, the arbitration shall be by a single arbitrator.”

Under the statute, if the parties’ agreement provides a method for selecting an arbitrator, the court has no reason to appoint an arbitrator when it abates the action under ORS 36.315. The court erred in ordering the parties to submit to arbitration before a panel designated by the court. Defendant contends that plaintiff did not timely object to the court’s order, but the record refutes that argument. Plaintiff is entitled, on remand, to participate in the arbitrator selection process to which it agreed.

Reversed and remanded for further proceedings.

1 The court’s order said:

‘Tilt is

“HEREBY ORDERED that defendant’s motion to abate and compel arbitration is granted; and it is

“FURTHER ORDERED that this dispute be decided by the same arbitration panel that heard American Arbitration Association Case No. 75-199-0034-91, and that said arbitration panel, which is currently scheduled to hear the parties’ disputes under Harney County Circuit Court Case No. 91-10-10148, consolidate its hearing on both cases, with the recommendation of this court that, if at all possible, the combined arbitration hearing be scheduled within thirty days of the date of this order.”

2 Snow Mountain Pine Corporation, which is not a party to this action, purchased the sawmill and then assigned its rights to plaintiff, Snow Mountain Pine, Ltd. We refer to both as “plaintiff.”

3 We do not hold that the parties may be forced to arbitrate on the basis of their conduct. A written agreement that arguably covers the asserted dispute is a prerequisite to an order to arbitrate under ORS 36.315. See Halvorson-Mason Corp. v. Emerick Const. Co., 304 Or 407, 412, 745 P2d 1221 (1987). Our reference to the court’s discussion of the parties’ past conduct is only meant to indicate that where, as here, the necessary written agreement exists, the court does not err in considering whether the parties’ conduct sheds light on their contractual intent.

4 We do not analyze every term of the Log Yard Agreement that may require interpretation by an arbitrator. For example, the Log Supply Agreement, paragraph 5(a), entitles plaintiff to its log yard costs when it “delivers” logs. The Log Yard Agreement, paragraph 2(b), conditions its right to those costs on its agreement to “unload, scale, sort, deck and deliver” logs to defendant. In addition, the Log Yard Agreement, paragraph 2(d)(i), says that plaintiff “may not terminate its obligations hereunder unless it ceases to operate the Log Yard.” Plaintiff argues that it was entitled to terminate its processing and delivery services under paragraph 2(b), but it did not shut down the logyard. Those agreements may afford defenses to liability for the log yard fees that plaintiff claims. We do not address the applicability or meaning of those Log Yai'd Agreement provisions except to note that they appear to be part of the controversy that an arbitrator must decide.