Storey Construction Inc. v. Hanks

224 P.3d 468, 148 Idaho 401
CourtIdaho Supreme Court
DecidedDecember 31, 2009
Docket35459-2008
StatusPublished
Cited by18 cases

This text of 224 P.3d 468 (Storey Construction Inc. v. Hanks) is published on Counsel Stack Legal Research, covering Idaho Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Storey Construction Inc. v. Hanks, 224 P.3d 468, 148 Idaho 401 (Idaho 2009).

Opinions

EISMANN, Chief Justice.

This is an appeal from an order permanently enjoining arbitration regarding a construction contract on the ground that the claims alleged in the arbitration were barred by res judicata. The party seeking arbitration had asserted a counterclaim for construction defects in a prior arbitration and that counterclaim had been denied by the arbitrators. The district court held that the award barred all future claims for construction defects, even if they were unknown at the time of the prior arbitration and could not reasonably have been discovered. Because that holding is not consistent with the terms of the parties’ arbitration agreement, we reverse.

I. FACTS AND PROCEDURAL HISTORY

Lily Reeves (Trustee) is the trustee of the Sun Valley Trust (Trust), and beneficiaries are Tom Hanks and Rita Wilson (Beneficiaries). The Trustee entered into a contract dated July 21, 2000, with Storey Construction, Inc., (Contractor) to build a single family residence and other improvements on certain real property located near Sun Valley. The contract included an arbitration clause.

A dispute arose between the Contractor and Trustee in late 2002, when construction [404]*404was almost complete. The Contractor requested arbitration of the dispute, asserting claims against the Trustee and the Beneficiaries. The Trustee and Wilson asserted counterclaims in the arbitration proceeding, which included an allegation that the Contractor had “breached the Construction Contract by performing substandard and defective work.” At that time, they allegedly had no knowledge of any such substandard or defective work and did not offer any evidence on that counterclaim.

The arbitration hearing was held on nine days in September and October of 2003. On January 27, 2004, the arbitrators issued their final award. They awarded the Contractor $1,218,820 against the Trust and Trustee, plus interest, costs, attorney fees, and arbitrators’ compensation and expenses; they dismissed the Contractor’s claims against the Beneficiaries and awarded the Beneficiaries costs and attorney fees against the Contractor; and they dismissed the Trustee and Wilson’s counterclaims against the Contractor.

During the winter of 2005-2006, the Beneficiaries allege that they experienced water intruding into the house and other problems. When the Trustee’s experts removed portions of the structures to determine the source of the problems, they allegedly discovered additional construction defects that were previously unknown. On November 7, 2007, the Trustee filed a demand to arbitrate these defects.

On December 20, 2007, the Contractor responded by filing an action against the Beneficiaries and the Trustee seeking to stay the arbitration proceedings and to recover damages for abuse of process. On February 15, 2008, the Beneficiaries and Trustee filed a motion to dismiss the complaint or, in the alternative, to compel arbitration or stay the court proceedings. On February 19, 2008, the Contractor filed a motion to confirm the prior arbitration award and a motion to stay the arbitration based upon the defense of res judicata.

The motions were heard on March 4, 2008. The district court granted the motion to confirm the arbitration award. It then ruled that the Contractor’s defense of res judicata was not subject to arbitration and that it would stay the arbitration until the court decided the merits of that defense. Finally, it denied the motion to dismiss the complaint, but ruled that the abuse of process claim would be stayed until the court decided the issue of res judicata. On March 10, 2008, the district court entered an order staying the arbitration until it decided the res judicata issue. On the same date, it also entered an order denying the Trustee and Beneficiaries’ motions to dismiss the claim for abuse of process, but it did grant their motion to stay that claim until resolution of the Trustee’s demand for arbitration.

On June 19, 2008, the district court held a hearing on the issue of whether the construction defect claims in the Trustee’s demand for arbitration were barred by the doctrine of res judicata. The court viewed the issue as whether, as a matter of law, any claim for latent construction defects was barred by res judicata because the Trustee had alleged in the prior arbitration a breach of contract claim seeking damages for “substandard and defective work.” The district court held that where the Trustee had asserted a breach of contract claim for construction defects in the prior arbitration, all future claims for construction defects under the same contract were barred by res judicata, even if the future claims had not been asserted in the prior arbitration, were unknown at that time, and could not reasonably have been known. On June 27, 2008, the district court issued an order permanently staying the demand for arbitration and lifting the stay on the claim for abuse of process. The order was not entered until July 2, 2008.

On June 30, 2008, the Trustee and Beneficiaries filed a notice of appeal from the order staying arbitration issued on June 27, 2008. They also filed a motion for reconsideration of that order. On July 18, 2008, they filed an amended notice of appeal from the order issued on June 27, 2008, even though their motion for reconsideration had not yet been heard. The motion for reconsideration was heard on September 22, 2008, and on October 1, 2008, the district court entered an order denying it.

[405]*405II. ANALYSIS

In Deeds v. Regence Blueshield of Idaho, 143 Idaho 210, 212, 141 P.3d 1079, 1081 (2006), this Court held that an order denying a motion to compel arbitration “is final for the purposes of our rules and is therefore appealable as a matter of right.” In this case, the district court entered two orders staying arbitration.

On February 19, 2008, the Contractor filed a “Motion to Temporarily Stay Arbitration Pending Hearing Re: Res Judicata,” pursuant to Idaho Code § 7-902(b). In support of its motion, the Contractor contended that under its contract with the Trustee, the parties had not agreed to arbitrate the issue of res judicata. In making that argument, the Contractor relied primarily upon Waterfront Marine Const. Inc. v. North End 49ers Sandbridge Bulkhead Groups A, B and C, 251 Va. 417, 468 S.E.2d 894 (1996). Relying primarily upon Chiron Carp. v. Ortho Diagnostic Systems, Inc., 207 F.3d 1126 (9th Cir.2000), the Trustee argued that the issue of res judicata was subject to arbitration under the parties’ agreement.

The motion was argued on March 4, 2008, and on March 10, 2008, the district court entered an “Order Staying Arbitration.” The court ordered, “The above-referenced arbitration proceeding shall be and is hereby ordered STAYED in all respects until further order of this Court and the completion of a summary trial as provided for in I.C. 7-902(b).” As will be shown, by this order the district court, in effect, held that the defense of res judicata was not arbitrable.

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Storey Construction Inc. v. Hanks
224 P.3d 468 (Idaho Supreme Court, 2009)

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Bluebook (online)
224 P.3d 468, 148 Idaho 401, Counsel Stack Legal Research, https://law.counselstack.com/opinion/storey-construction-inc-v-hanks-idaho-2009.