Lamell Lumber Corp. v. Newstress International, Inc.

Citations: 182 Vt. 282; 2007 Vt. 83Docket: No. 05-567

Court: Supreme Court of Vermont; August 31, 2007; Vermont; State Supreme Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Plaintiff Lamell Lumber Corp., a lumber wholesaler in Essex Junction, Vermont, contracted with defendant Newstress International, Inc., a New Hampshire corporation, to fabricate precast concrete panels for a drying kiln. After completion, Lamell discovered significant cracks and holes in the concrete, leading to a lawsuit against Newstress for breach of contract, breach of implied warranty, and negligence. The jury found Newstress liable on all counts, awarding Lamell $100,000 in damages.

On appeal, Newstress raised several claims of error by the trial court: 1) the court lacked subject matter jurisdiction due to an arbitration clause in the contract; 2) the lawsuit was filed after the four-year statute of limitations for sales; 3) the negligence claim should not have been submitted to the jury; 4) the court improperly instructed on damages; 5) it excluded testimony from Newstress's expert witnesses; and 6) it imposed sanctions against Newstress. The appellate court affirmed the trial court's decisions.

Key facts include the November 1993 contract, which required Newstress to design and erect the concrete panels. Although the parties disputed the extent of Newstress's design involvement, evidence indicated it was responsible for critical design aspects. Lamell first reported cracks in spring 1998, and after unsuccessful repair attempts, filed suit in April 2003. Following pretrial motions, the trial took place in late 2005. Expert testimony suggested design flaws contributed to the concrete's deterioration. Newstress's claim of lack of jurisdiction based on the arbitration clause was countered by Lamell, who argued that Newstress had waived this right by engaging in litigation for two years before filing for arbitration just before trial.

In October 2005, the court ruled against the defendant's assertion of lack of subject matter jurisdiction and upheld the plaintiff's position that the defendant had waived arbitration rights. The defendant argued that the Vermont Arbitration Act (VAA) limited the court's jurisdiction to specific proceedings related to arbitration, thus excluding civil actions arising from the contract. However, the court explained that subject matter jurisdiction pertains to a court's authority to hear certain types of cases, with Vermont's superior court having broad original and exclusive jurisdiction over civil actions, barring specific exceptions. The court noted that, unlike limited jurisdiction courts, courts of general jurisdiction like the superior court assume they have subject matter jurisdiction unless proven otherwise.

The defendant's claim that the arbitration clause restricted the superior court's jurisdiction was rejected. The court found no legislative intent in the VAA to limit the superior court's authority over civil suits involving arbitration agreements. Furthermore, the defendant's arguments lacked support in case law, as precedents from other states consistently established that arbitration agreements do not strip courts of subject matter jurisdiction. Specifically, cases cited showed that the presence of an arbitration clause does not prevent courts from hearing breach of contract claims. Overall, the court concluded that it retained jurisdiction over the plaintiff's claims despite the arbitration agreement.

The defendant argues that the arbitration agreement is jurisdictional and cannot be voluntarily waived, referencing the Vermont Arbitration Act (VAA), which states that a written arbitration agreement is "valid, enforceable and irrevocable." Vermont law promotes arbitration as an efficient dispute resolution method. However, arbitration agreements are fundamentally contractual and can be waived by the parties involved. Courts cannot compel arbitration without a voluntary agreement or statutory authority. A party may lose the right to enforce contract terms through waiver or estoppel, supported by various cases from other jurisdictions that allow for waiver of arbitration rights through inaction. The VAA does not preclude waiver, and the trial court found that the defendant's active litigation participation and failure to timely assert the arbitration agreement constituted a waiver. Waiver is typically a factual question, assessed based on factors such as the timing of the arbitration request and the extent of participation in litigation. The defendant's claim that the VAA prohibits waiver was not substantiated by evidence of an abuse of discretion in the trial court's findings, leading to the conclusion that the waiver argument was forfeited on appeal.

The defendant argues that the court erroneously applied the six-year statute of limitations under 12 V.S.A. § 511, claiming that the four-year limitation from the Uniform Commercial Code (UCC), specifically 9A V.S.A. § 2-725(1), should have been applied due to the sale of goods involved. The contract included the sale of prestressed concrete slabs but also required the defendant to design, manufacture, transport, and erect these components. The trial court determined that the service elements of the contract were predominant, referencing precedent cases such as Congdon v. Taggart Bros. and Union Sch. Dist. No. 20 v. Lench, which applied the six-year limitation to contracts involving design and construction services. 

The determination of whether the UCC applies requires assessing if the contract's essence is primarily goods or services, utilizing various factors including the contract language and performance context. The court found that the defendant's substantial role in the design and assembly of the kiln indicated that the sale of materials was secondary to the service provision. Citing cases like Lincoln Pulp & Paper Co. v. Dravo Corp. and Care Display, Inc. v. Didde-Glaser, the court upheld that the predominant service aspect meant the contract was not governed by the UCC. Consequently, the application of the six-year limitation period under 12 V.S.A. § 511 was supported by both legal precedent and the facts presented, affirming the trial court's decision.

Defendant argues that the court erred in allowing the negligence claim to go to the jury, claiming the evidence did not establish a tort duty separate from the contractual obligation. However, the plaintiff presented substantial evidence supporting a theory of liability based on the defendant's negligent design and construction of the kiln, which falls within the recognized tort of professional negligence. The court's decision to submit the negligence claim was upheld.

Additionally, the defendant contests the jury instruction allowing damages for the "reasonable cost of either repairing or replacing" the kiln, arguing it contradicts a contract provision limiting damages to the cost of correcting defective materials. The contract provision specifically addresses defective materials, while evidence showed that the concrete's disintegration stemmed from improper design rather than material defects; thus, the damages were not limited as claimed by the defendant.

The defendant further claims the court abused its discretion by excluding the testimony of three proposed expert witnesses. The court had previously mandated expert disclosures by July 11, 2005, which the defendant failed to meet. After the deadline, the defendant attempted to disclose an expert witness, Chad Phillips, but did not respond to a motion to preclude this late disclosure. The court's August 23 order barring the expert testimony was deemed justified, as the defendant did not provide the required supplemental information. The claim that the late disclosure was warranted due to the plaintiff’s earlier expert disclosure was contradicted by the defendant’s own statements regarding their expert's purpose. Consequently, the court's decision to exclude the expert testimony was upheld, with no abuse of discretion found.

The court found no error in barring the expert testimony of engineer Terry Waite, as the defendant provided no supporting argument. Additionally, the court properly excluded Nishan Nahikian from testifying as an expert due to the defendant's failure to identify him by the disclosure deadline, despite his extensive testimony as a fact witness. The court maintains that expert opinions must be disclosed in a timely manner unless they arise from the witness's direct involvement in the case, which the defendant did not demonstrate here. 

Regarding sanctions, the court imposed a monetary penalty of $4,718.25 against Newstress for failing to appear at a jury draw, which the defendant contested without substantial argument supporting a shift of the sanctions to trial counsel. The court's decision to sanction Newstress was upheld. 

The original complaint did not include a negligence claim, but the court allowed the plaintiff to add one later. The original consumer fraud claim received a summary judgment in favor of the defendant, which the plaintiff did not appeal. 

Defendant's assertion that the VAA limits the court's jurisdiction more than federal arbitration law was dismissed, as no supporting evidence was found in the VAA or other relevant acts. Furthermore, the defendant's cited cases were determined not to support their position regarding jurisdictional issues related to arbitration.

Colorado and Montana courts recognize that arbitration is a contractual right that can be waived by the parties involved. The defendant's references to Bloch v. Bloch and Teltech, Inc. v. Teltech Communications, Inc. are deemed irrelevant; Bloch establishes that Maryland arbitration law limits court jurisdiction to issues of validity and scope of the arbitration agreement while acknowledging the possibility of waiver. Teltech clarifies that jurisdiction under Missouri's arbitration statute is determined by the arbitration location specified in the agreement, with no support for the defendant's position. 

Although the defendant later argued in a reply brief that its motion for summary judgment to enforce the arbitration clause was timely, such arguments are typically not considered on appeal. This issue first appeared in a motion for judgment on the pleadings filed just before the trial date. The case of DaimlerChrysler Services North America v. Ouimette is referenced, indicating that in similar contract actions, the four-year statute of limitations applies to the sales aspect of agreements. 

The defendant also invokes the 'economic loss' doctrine, which restricts tort recovery for economic losses; however, this argument was not presented at trial and thus is not preserved for appeal. The contract required the defendant to complete the kiln project competently, and the plaintiff provided significant evidence of a breach of this duty. The defendant submitted a hearing transcript suggesting the trial court was open to allowing expert testimony from Mr. Nahikian, contingent upon prior questioning during deposition, but failed to show that the testimony sought at trial was disclosed beforehand.