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X/&24Technical Document Style.. 23  Ԁ.   CRight ParRight-Aligned Paragraph NumbersI.A.1.a.(1)(a)i)a)3|x) <6X9`(*Courier 12pt10cpiXXx6X@JQX@( T$   dD{9&$(G.2$ FT!   XX     0  MARVINBERKELESLIEMcWILLIAMS($   0   VANNLASLEYPINCHAKMcDONALDLUFKINFRIERSONMcAFEE HOYTCARTAviresSchlosserRy S.E.S.E.2dStallingsMichieBr S.CtWitterReynoldsSouthlandKeatingDistribSupak MfgPervelIndusSutherland S.W.WilemanHP LaserJet 4M PlusHPPCL5MS,,,,,,0nLURtuvwxyz#,37=CIQYag1.a.i.(1)(a)(i)1)a)(;s$2,  0  .3  0   D U U V D U D U Ӏ' ("$    2 0Indent123  GGGG'dxd2" 0Indent20 23  2, 0Indent30 0 23  26 0Indent40 0 0 23  2@ 0Indent50 0 0 0 23  2J 0Indent60 0 0 0 0 23  2T 0Indent70 0 0 0 0 0 23  2^ 0Indent80 0 0 0 0 0 0 23  Y[^`abcd ?AGMSYaioIndent0I.A.1.a.(1)(a)i)a)P 8Mac DefaultMac Default ` X<  9p`(Courier New% Line 7 dnnnn7Border 1ddXoC << G<  9p`(Arial  F!  #d#m  qq   YYY FILEDq January28,1999CecilCrowson,Jr.qAppellateCourtClerk  " F!#d#m  I$m         ItdoesnotappearthateithertheHayesproposalortheParkssubcontractcontainedanarbitrationclause.(O{$0  2,  a  .3  0` (#(#(bD$0  0` (#(#2,   .3  0 ` (#` (#(x$0  0` (#(#0 ` (#` (#2,(  0  )3  0 (# (#(Ƃ$0  0` (#(#0 ` (#` (#0 (# (#2,(  a  )3  0h(#(#($0  0` (#(#0 ` (#` (#0 (# (#0h(#(#2,(   )3  0h(#h(#(4$0  0` (#(#0 ` (#` (#0 (# (#0h(#(#0h(#h(#2,  0  )3  0(#(#($0  0` (#(#0 ` (#` (#0 (# (#0h(#(#0h(#h(#0(#(#2,  a  )3  0p(#(# a F!#d#m  I$m         TheRuletakesitsnamefromJohnF.Dillon,aFederalCircuitJudge,ChiefJusticeoftheIowaSupremeCourt,notedlawprofessorandauthorofDillononMunicipalCorp. ' F!#d#m  I$m         T.C.A.756102(d)and(e)providethefollowing:     (d)Themunicipality,county,orcombinationthereof,oratransitauthoritycreatedundertheprovisionsofthispart,hasthepowerandauthoritytobargaincollectivelywithlabororganizationsrepresentingemployeesandmayenterintoagreementswithsuchorganizationsrelativetowages,salaries,hours,workingconditions,healthbenefits,pensionsandretirementallowancesofsuchemployees. (e)Inthecaseofanylabordisputeinvolvingsuchemployeeswherecollectivebargainingdoesnotresultinasettlement,thesameshallbesubmittedatthewrittenrequestofeitherpartytofinalandbindingarbitration,pursuanttotheprovisionsofanyagreemententeredintosoproviding,orintheabsenceofsuchprovisions,withthewrittenconsentofbothparties....  F!#d#m  I$m         Wilemanv.MayorandAldermen,Etc.,29Tenn.App.172,195S.W.2d325(1946). F!#d#m  I$m         T.C.A.Title29,Chapter5.XC<< CLevel 1Level 2Level 3Level 4Level 5PtPtPHH(FP(PHH(d'd"r\($$   1  ' dxdP PdStyl{WP}01  HH  2$HH  Geneva  <Px443!#4$*$$*$ KK  Geneva  Geneva .,6 Geneva   eskto Geneva  eskto Geneva F! . m    _7: XXdXXd7\RA'\ `    , 5  n u` RproA1-j| `@Rߛ@ INTHECOURTOFAPPEALS@ @ ATKNOXVILLECHATTANOOGAAREAREGIONAL@ @ ) HAMILTONCOUNTY TRANSPORTATIONAUTHORITY  ) 03A019712CH00524@ ) PlaintiffAppellant @ )@ )@ )  v.@ ) HON.HOWELLN.PEOPLES,@ ) CHANCELLOR@ )T.U.PARKSCONSTRUCTION@ ) COMPANY,aTennessee@ )Corporation,andHAYES@ )@ DRILLING,INC.,aMissouri@ )Corporation@ )@ ) DefendantsAppellees@ ) REVERSEDANDREMANDEDTIMOTHYM.GIBBONSOFCHATTANOOGAFORAPPELLANTRICHARDJ._McAFEE_ԀandCAMERONS.HILLOFCHATTANOOGAFORAPPELLEET.U.PARKSCONSTRUCTIONCOMPANYLAWRENCEA.ROUSEandKIRKT.MAYOFKANSASCITY,MISSOURI;ANDHOYTO.SAMPLESOFCHATTANOOGAFORAPPELLEEHAYESDRILLING,INC.@    OPINION         Goddard,P.J.  ChattanoogaAreaRegionalTransportationAuthority(CARTA)appealsajudgmentoftheChanceryCourtforHamiltonCountywhichsoughtadeclaratoryjudgmentthatitwasnotboundbythearbitrationprovisionsofacertaincontractenteredintowithT.U.ParksConstructionCompanyandalsoinjunctiverelieftopreventParksfromproceedingwitharbitration.ThesuitalsojoinedasapartyDefendantasubcontractorofParks,HayesDrilling,Inc.,whichhassoughttoarbitrateaclaimithadagainstParks.  CARTAisametropolitanauthoritycreatedpursuanttoChapter23oftheChattanoogaCityCode,asauthorizedbyT.C.A.Title7,Chapter56.ThecontroversybeforeushaditsorigininacontractenteredintobetweenCARTAandT.U.ParksConstructionCompany,ageneralcontractor,tobuildaprojectknownasShuttleParkNorth.Subsequenttoenteringintothecontract,ParksenteredintoasubcontractwithHayesDrilling,Inc.,toperformdrillingworkforcaissonfoundationsastotheproject.  AdisputearosebetweenParksandHayesrelativetowhetherHayeswasentitledtoadditionalcompensationunderitssubcontractforunanticipatedconstructionproblemsforwhichitcontendeditwasentitledtoadditionalcompensation.  OnoraboutApril25,1997,HayesdemandedarbitrationastoitsclaimsagainstParks,andthereafter,onJuly10,1997,ParksdemandedarbitrationastoCARTA.  ItwasCARTA'sprincipalpositionthatitisagovernmentalentityand,assuch,ithadnoauthoritytoenterintoacontractrequiringbindingarbitrationandthatitsactinthatregardwasultravires,andnotenforceable.  TheChancellor,afterissuingatemporaryinjunction,foundthatthearbitrationclausewasvalidanddeclinedtoconvertthetemporaryinjunctionhehadpreviouslyissuedintoapermanentone.CARTAappeals,raisingthefollowingissues:     A. WHETHERTHECHANCELLORERREDINRULINGTHATCARTA,ALOCALGOVERNMENTALENTITY,HASTHEPOWERTOARBITRATE? B. WHETHERTHECHANCELLORERREDINRULINGTHATTHECOMMONLAWPROHIBITIONAGAINSTLOCALGOVERNMENTALENTITIESFROMINDEMNIFYINGTHIRDPARTIESWASNOTAPPLICABLEINTHISCASE? C. ALTERNATIVELY,IFTHECHANCELLORWASCORRECTINHOLDINGTHATCARTAHASTHEPOWERTOARBITRATE,DIDTHECHANCELLORERRINHOLDINGTHATTHEDEMANDSFORARBITRATIONOFT.U.PARKSANDHAYESCOMPLIEDWITHTHECONTRACTUALCONDITIONSPRECEDENT?      Infurtheranceoftheconstructionproject,CARTAenteredintoastandardAIAcontractwithParks,which,aspertinenttothisappeal,containedthefollowingprovisions:     4.5ARBITRATION4.5.1ControversiesandClaimsSubjecttoArbitration. AnycontroversyofClaimarisingoutoforrelatedtotheContract,orthebreachthereof,shallbesettledbyarbitrationinaccordancewiththeConstructionIndustryArbitrationRulesoftheAmericanArbitrationAssociation,andjudgmentupontheawardrenderedbythearbitratororarbitratorsmaybeenteredinanycourthavingjurisdictionthereof,exceptcontroversiesorClaimsrelatingtoaestheticeffectandexceptthosewaivedasprovidedforinSubparagraph4.3.5.SuchcontroversiesorClaimsuponwhichtheArchitecthasgivennoticeandrenderedadecisionasprovidedinSubparagraph4.4.4shallbesubjecttoarbitrationuponwrittendemandofeitherparty.Arbitrationmaybecommencedwhen45dayshavepassedafteraClaimhasbeenreferredtotheArchitectasprovidedinParagraph4.3andnodecisionhasbeenrendered. ....  4.5.7JudgmentonFinalAward. Theawardrenderedbythearbitratororarbitratorsshallbefinal,andjudgmentmaybeentereduponitinaccordancewithapplicablelawinanycourthavingjurisdictionthereof.      Thereafter,apparentlyParksandHayesenteredintosometypeofsubcontractinconnectionwiththeproject.Wesay"apparently"becausetherecorddisclosesaproposaldatedMay25,1995,signedbyrepresentativesfromHayestoParks,butnotsignedbyParks,andanotherinstrumentdatedSeptember9,1995,generatedbyParks,styled"SUBCONTRACTAGREEMENT,"signedbyneitherParksnorHayes.Inanyevent,HayescommenceditsendeavorsontheprojectandaftercompletionthereofadisputearoseastocertainchargesclaimedbyHayes.Hayesmadeademandforarbitrationinaccordancewithitsunderstandingoftheagreement. s   ׀UponthisdemandbeingmadeonParks,ParksmadeademandforarbitrationastothisclaimagainstCARTA,whichresultedinthissuit.  Withregardtotheprincipalissueastothisappeal,beingwhetherCARTAhadauthoritytoenterintoacontractprovidingforarbitration,wefindthecaseofW.M.SchlosserCo.v.SchoolBoard,980F.2d253(4thCir.1992),particularlysignificant.  Inthatcaseacontractorwassuingtorequiretheschoolboardtoarbitrateadisputeinaccordancewithacontract,andtheschoolboarddefendedonthegroundthatithadnoauthoritytoenterintoanarbitrationagreementanditsactindoingsowasultraviresandunenforceable.  Inrespondingtothiscontention,the4thCircuitappliedwhatitdesignatedtheDillonRule {   ׀andopinedasfollows(atpage255):     ThequestionbeforethecourtiswhethertheSchoolBoardpossessestheauthorityunderthelawsoftheCommonwealthofVirginiatoagreetoarbitratecontractualdisputes,forifitdoesnot,thenanysuchagreementbytheBoardisunenforceableasultraviresandthemotiontocompelarbitrationthereforemustbedenied.SeeRichmondRy.Co.v.Richmond,Etc.,145Va.266,299,133S.E.888,898(1926)( Whenthecontractisoncedeclaredultravires,thefactthatitisexecuteddoesnotvalidateit,norcanitberatifiedsoastomakeitthebasisofsuitoraction,nordoesthedoctrineofestoppelapply.);accordRichardL.Deal&Assocs.,Inc.v.Commonwealth,224Va.618,299S.E.2d346(1983).TheresolutionofthisquestiondependsinturnuponapplicationoftheDillonRule,aruleofconstructionapplicableinVirginiawhendeterminingthepowersoflocalgovernment: TherecanbenoquestionthatVirginialonghasfollowed,andstilladheresto,theDillonRuleofstrictconstructionconcerningthepowersoflocalgoverningbodies.Commonwealthv.CountyBd.,217Va.558,232S.E.2d30,40(1977). AccordingtotheDillonRule,localgoverningbodiessuchascounties,municipalcorporations,andschoolboards possessandcanexerciseonlythosepowersexpresslygrantedbytheGeneralAssembly,thosenecessarilyorfairlyimpliedtherefrom,andthosethatareessentialandindispensable....TheRuleisstrictlyconstruedandstrictlyenforcedbytheVirginiaSupremeCourtandthecourtdoesnotliberallyrecognizegovernmentalpowersbyimplication.SeeBrown,329S.E.2dat472(powertoleaserealtycannotbeimpliedfromcountysexpresspowertosellorconveyrealty);Commonwealthv.CountyBd.,232S.E.2dat44(powertobargaincollectivelycannotbeimpliedfromexpresslygrantedpowersofschoolboardstocontract,hireemployees,andsettermsofemployment).Significantly, [i]fthereisanyreasonabledoubtwhetherlegislativepowerexists,thatdoubtmustberesolvedagainstthelocalgoverningbody.ConfrereClub,387S.E.2dat473(emphasesadded);accordStallingsv.Wall,235Va.313,316,367S.E.2d496,497(1988). SchlosserandtheSchoolBoardagreethatthestateconstitutiondoesnotexpresslyconferthepowertoarbitrateonVirginiaschoolboards.Bothpartiesalsoappeartoagreethatsuchapowercannotbeconsidered essentialor indispensabletothefunctioningofschoolboards.Therefore,ifthepowertoagreetoarbitrateisnotexpresslygrantedbystatuteorcannotbeimpliedfromapowerexplicitlyconferredonschoolboardsbytheGeneralAssembly,itdoesnotexist. Schlossercontendsthattheauthoritytoagreetoarbitrateisconferredinsection22.171oftheVirginiaCode.Thatstatute,whichliststhecorporatepowersoftheCommonwealthsschoolboards,providesthatevery D  D    schoolboardis...vestedwithallthepowersandchargedwithalltheduties,obligationsandresponsibilitiesimposeduponschoolboardsbylawandmaysue,besued,contract,becontractedwithand,inaccordancewiththeprovisionsofthistitle,purchase,take,hold,leaseandconveyschoolproperty....    Va.CodeAnn.22.171(Michie1985)(emphasisadded).SchlosserassertsthatbecausetheSchoolBoardhasthe capacitytocontract,[it]...clearlyhasthepowertoenterintoconstructioncontractscontainingarbitrationprovisionsfortheresolutionofclaimsrelatingtothecontract.AppellantsBr.at1011. ItisnotentirelyclearwhetherSchlossercontendsthatthegrantofthepowertocontractinsection22.171isanexpressconferralofthepowertoagreetoarbitrateorwhetheritcontendsthatthepowertoarbitrateisimpliedinthepowertocontract.Whileneithercontentioniswithoutforce,ultimatelyeachfails.BoththePublicProcurementAct,VirginiaCode1135etseq.,andsection15.1508oftheVirginiaCodeconfirmthattheVirginiaGeneralAssemblydoesnotconsiderthegrantofarighttocontractasexpresslyconferringarighttoagreetoarbitrate.Itisalsoevidentfromthesestatutes,especiallywhentheyareconstruedstrictlyasrequiredbytheDillonRule,thatwearenotatlibertytoimplysucharightfromtheSchoolBoardsrighttocontract.      InSchlosser,ashere,thecontractorcontendedthatevenifstatelawdoesnotpermitarbitration,theFederalStatute,whichdoes,overrulesstatelaw.IndisposingofthisquestiontheSchlosserCourtstatedthefollowing(atpage258):     Schlosser,perhapsanticipatingourholding,contendsthattheFederalArbitrationActpreemptsapplicationoftheDillonRule.Itarguesthatanystatelaw,suchastheDillonRule,thatprohibitsenforcementofanarbitrationagreementrunsafouloftheFAAbecausetheFAA isacongressionaldeclarationofaliberalfederalpolicyfavoringarbitrationagreements,notwithstandinganystatesubstantiveorproceduralpoliciestothecontrary,MosesH.ConeMemorialHosp.V.MercuryConstr.Corp.,460U.S.1,24,103S.Ct.927,941,74L.Ed.2d765(1983),whichrequiresthatfederalcourts rigorouslyenforceagreementstoarbitrate,DeanWitterReynoldsInc.v.Byrd,470U.S.213,221,105S.Ct.1238,1243,84L.Ed.2d158(1985).Thisargumentisunavailing. TheFAAdoesembody anationalpolicyfavoringarbitration.SouthlandCorp.v.Keating,465U.S.1,10,104S.Ct.852,858,79L.Ed.2d1(1984).Thispolicyisenunciatedbroadlyinsection2oftheFAA,whichprovidesinpertinentpartthat    [a]writtenprovisionin...acontractevidencingatransactioninvolvingcommercetosettlebyarbitrationacontroversythereafterarisingoutofsuchcontractortransaction,...shallbevalid;irrevocable,andenforceable,saveuponsuchgroundsasexistatlaworinequityfortherevocationofanycontract.    9U.S.C.2(emphasisadded).Andwehaveheldthat [t]helanguageof[section2]requiresthatstatesplacenogreaterrestrictionsuponarbitrationprovisionsthantheyplaceuponothercontractualterms,andthatgenerally, ifastatelawsinglesoutarbitrationagreementsandlimitstheirenforceabilityitispreempted.SaturnDistrib.Corp.v.Williams,905F.2d719,722(4thCir.)(emphasesadded;footnoteomitted),cert.Denied,____U.S.____,111S.Ct.516,112L.Ed.2d527(1990).InSaturn,forexample,weinvalidatedaprovisionoftheVirginiaMotorVehicleDealerLicensingActwhichprohibitedautomobilemanufacturersanddealersfromenteringintoagreementsthatincludedmandatoryalternativedisputeresolutionprovisions.WeheldthattheprovisionwaspreemptedbytheFAAbecauseit singled[d]outarbitrationclausesandunreasonablyburden[ed]theabilitytoformarbitrationagreements.905F.2dat723. TheDillonRule,however,doesnotsingleoutanddisproportionatelyburdenarbitrationprovisions.Itisaruleofgeneralapplicabilitythatdefinesandinvalidatesallultraviresactsoflocalgoverningbodies.UnliketheprovisiondrawnintoquestioninSaturn,theRuleisnot anidiosyncraticrulespecifictoarbitrationagreements,butisinstead merelyanunremarkablepartofVirginiasgenerallawsofcontractformation.Id.at725.As ageneralruleofcontractformation,Supak&SonsMfg.Co.v.PervelIndus.,Inc.,593F.2d135,137(4thCir.1979),itconstitutesa ground[]asexist[s]atlaworinequityfortherevocationofanycontract,withinthemeaningof9U.S.C.2.Assuch,itfallswithintheexceptiontosection2'sgeneralruleofenforceabilityofarbitrationprovisions,andthereforeisnotpreemptedbytheFAA.SeePerryv.Thomas,482U.S.483,492n.9,107S.Ct.2520,2527n.9,96L.Ed.2d426(1987)(undertheFAA, statelaw,whetheroflegislativeorjudicialorigin,isapplicableifthatlawarosetogovernissuesconcerningthevalidity,revocability,andenforceabilityofcontractsgenerally)(emphasisinoriginal);Supak,593F.2dat137( Section2[oftheFAA]dictatestheeffectofacontractuallyagreeduponarbitrationprovision,butitdoesnotdisplacestatelawonthegeneralprinciplesgoverningformationofthecontractitself.).      WerecognizethattheFederalCircuitCourtwasapplyingthegenerallawofVirginiainSchlosserrelativetoauthorityofgovernmentalbodiestocontract,butwefindthelawofVirginiaonthisquestiontobealmostidenticaltothelawofthisState.  WeaccordinglyconcludethatSchlosserisanappropriatecaseforustofollow.Consequently,wefindtheactionofCARTAinexecutingthecontractprovidingforarbitrationwasultravires.  OurdeterminationthatSchlosserisappropriateauthorityisreinforcedbythefactthatatleastoneolderTennesseecase,Nashvillev.Sutherland&Co.,92Tenn.335,21S.W.674(1893),quoteswithapprovaltheDillonRule,andthefurtherfactthattheenablingStatestatuteauthorizesarbitrationonlyastolabordisputes. |     Inreachingthisdecision,weareawarethatinatleastonecaseinvolvingamunicipality, }   ׄacasementionedbytheChancellorinhisbenchopinionacontractcontaininganarbitrationclausewasthesubjectofasuit,butinthatcasenoattackwasmadeastothevalidityoftheclauseandtheChancellorhimselfconcededthatitwasnotauthorityinthecaseatbar.  Finallyastothisissue,wearealsoawarethatthegeneralTennesseearbitrationstatute ~   ׀doesnotexemptgovernmentalentities,butwebelievethatundertheTennesseeruleastotheauthorityofsuchentities,itwouldbenecessaryforthearbitrationstatutetospecificallyincludethembeforetheywouldbeauthorizedtoenterintoanarbitrationagreement.  Inlightofourdispositionofthefirstissue,itisunnecessarythatweaddresstheothertwo.  BecausenoissueisraisedastotherightofHayestorequirearbitration,thestayissuedbythisCourtastothatfeatureofthecaseislifted.  FortheforegoingreasonsthejudgmentoftheTrialCourtisreversedandthereliefsoughtbyCARTAintheTrialCourtisgranted.Costsofappeal,aswellascostsbelow,areadjudgedagainstParks.      _______________________________      HoustonM.Goddard,P.J.CONCUR:________________________________DonT.McMurray,J.________________________________CharlesD.Susano,Jr.,J.