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Safeway, Inc. v. Nordic PCL Construction, Inc.

Intermediate Court of Appeals of Hawaii

October 30, 2013

SAFEWAY, INC., Plaintiff-Appellee,
NORDIC PCL CONSTRUCTION, INC., a Hawaii corporation, Defendant-Appellant, and VERSAFLEX INCORPORATED, a Missouri corporation, CB TECH SERVICES, INC., a Hawaii corporation, HAWAII NUT & BOLT, INC., a Hawaii corporation, CASCADE INDUSTRIES, INC., a Hawaii corporation, Defendants-Appellees and JOHN DOES 1-50, JANE DOES 1-50, DOE PARTNERSHIPS 1-50, DOE CORPORATIONS 1-50, DOE ENTITIES 1-50, Defendants and CASCADE INDUSTRIES, INC., Third-Party Plaintiff-Appellee,
GRANT HENRY, DIVISION SEVEN CONSULTING OF HAWAII, INC., Third-Party Defendants-Appellee, and JOHN DOES 2-50, JANE DOES 2-50, DOE PARTNERSHIPS 1-50, DOE CORPORATIONS 2-50, and DOE ENTITIES 1-50, Third-Party Defendants and VERSAFLEX INCORPORATED, a Missouri corporation, Third-Party Plaintiff-Appellee,


David Schulmeister and Jeffrey M. Osterkamp (Cades Schutte LLP) and Wayne M. Sakai, Michiro Iwanaga, and Daniel M. Chen (Sakai Iwanaga Sutton Law Group) for Defendant-Appellant Nordic PCL Construction, Inc.

Terence J. O'Toole, Judith Ann Pavey, and Wil K. Yamamoto (Starn O'Toole Marcus & Fisher) for Plaintiff-Appellee Safeway, Inc. for Defendant-Appellant

Lorraine H. Akiba, Paul B.K. Wong, and Jordon J. Kimura (McCorriston Miller Mukai MacKinnon) for Defendants/Appellees Division Seven Consulting of Hawaii, Inc. and Grant Henry




Defendant-Appellant Nordic PCL Construction, Inc. ("Nordic") seeks to enforce a contractual provision requiring arbitration of disputes relating to performance of three construction contracts entered into between Nordic and Plaintiff-Appellee Safeway Inc. ("Safeway") for the construction of a Safeway Store and retail shops on Kapahulu Avenue. Safeway contends that a set of supplemental conditions formed part of the contract for the project, and that those conditions expressly deleted the arbitration clause. The Circuit Court of the First Circuit ("Circuit Court")[1] declined to enforce the arbitration provision, concluding that "the agreement itself is ambiguous[.]"

Nordic appeals from the July 1, 2010 order denying its application to compel arbitration, and the September 23, 2010 order denying its motion to clarify, amend, or reconsider the order denying the application to compel arbitration. Nordic alleges that the Circuit Court erred by (1) concluding in those orders that the supplementary conditions were part of the construction contract, and (2) denying Nordic's request for an evidentiary hearing.

We concur with the Circuit Court that there were genuine issues of material fact pertaining to the existence of an agreement to arbitrate, but conclude that the court should have held, and must now hold, an evidentiary hearing to promptly determine those issues.


In 2006, Safeway engaged Nordic as the prime general contractor for the construction of the Safeway Store #2747, retail shops, and related site improvements on Kapahulu Avenue, in Honolulu, Hawai'i (the "Project"). Shortly after the store opened, a waterproofing membrane installed on the parking deck, situated above the store, began to fail and water leaked into the store. Eventually, the parties to this appeal, as well as several others, sought to litigate responsibility for the failure as well as claims to monies withheld by Safeway.

A. Nordic Receives the Bid and Contract Documents

In early 2006, Safeway, in the course of soliciting general contractors for the Project's construction, had its architect, Benner Stange Associates Architects, Inc. ("Benner"), assemble a project manual ("Project Manual"), consisting of standard forms prepared by Safeway and including a list of supplementary conditions ("Supplementary Conditions"), for distribution to prospective general contractors.[2] On or about February 6, 2006, Benner sent a copy of the Project Manual to Glen Kaneshige, then-President of Nordic.

Mr. Kaneshige described the section of the Project Manual entitled Bid Form and Supplements as including, among other things, "an unsigned eight-page document named 'Construction Contract, '" ("Initial Construction Contract"), "a nine-page document named 'General Conditions, '" ("General Conditions"), and the Supplementary Conditions. According to Mr. Kaneshige, "Nordic and Safeway never negotiated the terms of any of these documents, and they never became a part of the Parties' Contracts."

On April 10, 2006, Safeway notified Nordic that Nordic had been selected as the Project's general contractor. Safeway then provided Nordic with a set of documents, including a modified version of the Initial Construction Contract ("Modified Initial Construction Contract") and a document titled AIA Document A201-1997: General Conditions of the Contract for Construction with many edits, either by strike-through text (apparently deletions) or underlined text (apparently additions) ("A201 Document"). Safeway provided further copies of the Project Manual to Nordic in May and June 2006.

Final drafts of three contract documents, each entitled AIA Document A101-1997: Standard Form of Agreement Between Owner and Contractor were sent to Nordic by Safeway on or about October 2, 2006. Each contract corresponded to one of three Project components - construction of the store site ("Site Contract"), the store itself ("Store Contract"), and associated retail shops ("Shops Contract") (collectively, the "A101 Documents"). Both the A101 Documents and the A201 Document were derived from form contracts commonly used in the construction industry. The final drafts of the A101 and A201 Documents apparently replaced the Initial and Modified Initial Construction Contracts. On November 17, 2006, Nordic sent fully executed copies of the A101 Documents to Safeway.

B. The Contract Documents

The A101 Documents are the controlling contract documents; they also enumerate the documents that comprise the whole of the contract documents, including by reference to or incorporation of those other documents. Although the A201 Document, which contains an arbitration provision, is referenced in the A101 Documents, the parties disagree over whether the A101 Documents also incorporate the Supplementary Conditions, which purport to delete the arbitration provision. In relevant part, each of the three A101 Documents begins:

The Contract Documents consist of this Agreement, Conditions of the Contract (General, Supplementary and other Conditions), Drawings, Specifications, Addenda issued prior to execution of this Agreement, other documents listed in this Agreement and Modifications issued after execution of this Agreement; these form the Contract, and are as fully a part of the Contract as if attached to this Agreement or repeated herein. . . . An enumeration of the Contract Documents, other than Modifications, appears in Article 8.

Article 8 in each of the three A101 Document, entitled Enumeration of Contract Documents, purports to enumerate the specific documents that comprise the Contract Documents. In the Store Contract, Article 8 provides the following:[3]

§ 8.1 The Contract Documents, except for Modifications issued after execution of this Agreement, are enumerated as follows:
§ 8.1.3 The Supplementary and other Conditions of the Contract are those contained in the Project Manual dated, and are as follows:
Document Title Pages
§ 8.1.4 The Specifications are those contained in the Project Manual dated as in Section 8.1.3, and are as follows: (Either list the Specifications here or refer to an exhibit attached to this Agreement)
Title of Specifications exhibit: Exhibit A attached hereto and made a part hereof. § 8.1.7 Other documents, if any, forming part of the Contract Documents are as follows:
(List here any additional documents that are intended to form part of the Contract Documents. AIA Document A201-1997 provides that bidding requirements such as advertisement or invitation to bid, Instructions to Bidders, sample forms and the Contractor's bid are not part of the Contract Documents unless enumerated in this Agreement. They should be listed here only if intended to be part of the Contract Documents.)

Safeway Inc. (Nor/Cal) Modified AIA Document A201-1997 General Conditions of the Contract for Construction.

Article 8 of each of the Shops and Site Contracts are identical with the Store Contract, except for Section 8.1.3. That section, in both the Shops and Site Contracts, provides:

§ 8.1.3 The Supplementary and other Conditions of the Contract are those contained in the Project Manual dated, and are as follows:
Value Engineering
Safeway Kapahulu
Store #2747

The A201 Document is incorporated by Article 8, Section 8.1.7 in each A101 Document. Paragraph 4.6 of Article 4 of the A201 Document is titled Arbitration; it contains several subparagraphs. It begins:

4.6.1 Any Claim arising out of or related to the Contract [apart from certain exceptions] shall ... be subject to arbitration. Prior to arbitration, the parties shall endeavor to resolve disputes by mediation in accordance with the provisions of Paragraph 4.5.

Subparagraph 4.6.6, relating to arbitration costs and fees was amended by Safeway as follows:[4]

4.6.6 Judgment on Final Award. The award rendered by the arbitrator or arbitrators shall be final, and judgment may be entered upon it in accordance with applicable law in any court having jurisdiction thereof. The Owner and the Contractor shall share equally the costs of any arbitration proceedings instituted under this Paragraph 4.6. In the event that either party finds it necessary to bring an action at law or other proceedings against the other to enforce the decision of the arbitrator, the prevailing party shall be paid at reasonable attorneys' fees incurred in bringing such action or proceedings.

The Project Manual is referenced in Sections 8.1.3 and 8.1.4 of the A101 Document as well as Subparagraph 1.1.7 of the A201 Document[5] and includes Supplementary Conditions. Each of the Project Manual's General Conditions[6] and Supplementary Conditions are contained in the record. In relevant part, the Supplementary Conditions provide:

The following supplements modify, change, delete from or add to the "General Conditions of Contract for Construction", AIA Document A201 - 1977, Fifteenth Edition. Where any article of the General Conditions is modified or any paragraph, subparagraph or clause thereof is modified or deleted by these supplements, the unaltered ...

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