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Flandreau Public School Dist. #50-3 v. G.A. Johnson Construction7/13/2005
Considered on Briefs on May 23, 2005
[ .] Flandreau School District and G.A. Johnson Construction entered into an agreement for the construction of an elementary school. The agreement included a provision requiring alternative dispute resolution (arbitration). A dispute subsequently arose over the appearance of the interior walls of the building, and Flandreau brought suit against Johnson in circuit court. Johnson moved to dismiss or compel arbitration. The trial court denied the motion. Johnson appeals and we affirm.
Facts and Procedural History
[ .] On April 19, 2002, the Flandreau School District (Flandreau) and G.A. Johnson Construction (Johnson) entered into an agreement for the construction of an elementary school. This agreement provided that if a dispute arose, "an initial decision by the Architect shall be required as a condition precedent to mediation, arbitration or litigation of all claims...." The agreement further provided that, after the architect's decision, " ny claim arising out of or related to the Contract, except Claims relating to aesthetic effect ... shall be subject to mediation as a condition precedent to arbitration or the institution of legal or equitable proceedings by either party." (Emphasis added). Any claim remaining after mediation, except one involving aesthetics, was then subject to arbitration. The agreement finally provided that mediation and arbitration were to be conducted in compliance with the Construction Industry Arbitration Rules of the American Arbitration Association (AAA). Those arbitration rules provided that the arbitrator had "the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement." AAA Rule R-8(a).
[ .] Dissatisfied with the appearance of the masonry walls in the school, Flandreau met with the architect and the legal representatives of Johnson. Flandreau subsequently filed a complaint in circuit court alleging substandard material and poor workmanship (allegedly falling below industry standards and violating project specifications). Because the parties had not arbitrated, Johnson moved to dismiss or compel arbitration. Johnson's motion incorporated evidence outside the pleadings (the agreement between owner and contractor, and the general conditions of the contract for construction). Flandreau opposed the motion contending that arbitration was not required for claims relating to aesthetic effect. Flandreau also submitted evidence outside the pleadings (an affidavit of the Flandreau School Board President and a report from an engineering consultant describing the alleged defects and suggested repairs).
[ .] Following a hearing, the trial court denied the motion to dismiss or compel arbitration. It found that "the reason necessitating the complaint of [Flandreau] is the unacceptable aesthetic quality of the workmanship and not any major structural defects...." The court further observed that "any time you have a complaint founded on [aesthetics] you are going to have negligence, poor workmanship, or improper construction complaints...." Because the trial court found that the complaint was "primarily related to aesthetics," it concluded that the aesthetic effect exception in the parties' arbitration agreement was applicable and arbitration was not required.
[ .] Johnson appealed under SDCL 21-25A-35(1), which permits an appeal from the circuit court's denial of an application to compel arbitration. Johnson contends that the trial court erred in not allowing the arbitrator to initially determine whether this dispute was subject to arbitration. Johnson also contends that the trial court erred in f
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