Vold v. Broin & Associates, Inc.

• Decision Date: 22 June 2005
• Docket Number: No. 23464.,23464.
• Citation: 2005 SD 80,699 N.W.2d 482
• Court: South Dakota Supreme Court
• Parties: Greg VOLD d/b/a States Border Turf, Plaintiff and Appellant, v. BROIN & ASSOCIATES, INC., a South Dakota Corporation, Defendant and Appellee.

699 N.W.2d 482

2005 SD 80

Greg VOLD d/b/a States Border Turf, Plaintiff and Appellant, v. BROIN & ASSOCIATES, INC., a South Dakota Corporation, Defendant and Appellee.

No. 23464.

Supreme Court of South Dakota.

Considered on Briefs April 25, 2005.

Decided June 22, 2005.

Rehearing Denied July 21, 2005.

Ronald G. Schmidt of Schmidt, Schroyer, Moreno & Lee, Rapid City, South Dakota, Attorneys for plaintiff and appellant.

Tim R. Shattuck, Daniel J. Harmelink of Woods, Fuller, Shultz & Smith, Sioux Falls, South Dakota, Attorneys for defendant and appellee.

KONENKAMP, Justice.

[¶ 1.] In this appeal, we review a circuit court's decision to vacate an arbitration award. Because the arbitrator failed to follow his own order to issue a "reasoned award," we affirm.

Background

[¶ 2.] Broin & Associates is a South Dakota corporation engaged in the business of designing and constructing ethanol production facilities. On November 2, 2000, Broin contracted to design and build a production plant known as Northern Lights Ethanol, L.L.C. Broin served as the general contractor for the project.

[¶ 3.] In April 2001, Broin signed a contract with Gregory Vold, a Minnesota resident, who would perform the site and grading work. From the beginning, there were difficulties. By December 2002, Vold had not completed much of the required work. As a result, on December 19, 2002, Broin terminated Vold's contract for cause.

[¶ 4.] In November 2003, Vold filed a demand for arbitration, seeking payment for unapproved change orders, alleged work stoppages, and other claims. Under their contract, "[a]ll claims, disputes, and other matters in question between Design/Builder and Contractor arising out of or relating to the Construction Agreement Documents or the breach thereof ... will be decided by binding arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association [AAA]." Broin filed an answering statement with the AAA, denying liability on Vold's claims and seeking reimbursement for the costs and expenses sustained in connection with the remaining grading work on the construction project. Vold had thirteen claims, totaling more than $800,000. Broin had eleven claims, totaling approximately $500,000.

[¶ 5.] Norman Fast was selected to be the arbitrator. He conducted a telephonic preliminary hearing with the parties and their attorneys on February 2, 2004. The purpose of the hearing was to provide the arbitrator with guidance on the parameters of the arbitration proceeding. During the hearing, it was agreed that each side would submit a specification of claims to the AAA outlining their respective demands. It was also agreed that the arbitration would be held in Watertown, South Dakota, starting on June 21, 2004. As the hearing progressed, Tim R. Shattuck, one of the attorneys for Broin, requested that the arbitrator issue a "reasoned award." According to another of Broin's attorneys, Daniel R. Harmelink, the attorney for Vold, Ron Schmidt, consented to the award being in the form of a "reasoned award." Attorney Ron Schmidt, however, denies that he agreed to a reasoned award. There was no verbatim record kept of the hearing.

[¶ 6.] After the preliminary hearing, the arbitrator prepared and signed a report and scheduling order indicating that the form of the award was to be a "reasoned award." This order was then submitted to the AAA by the arbitrator. On February 10, 2004, the case manager from the AAA sent a letter to all parties setting out the terms of the arbitrator's preliminary hearing report and scheduling order. The letter stated that "[t]he form of Award to be issued in the above matter will be a reasoned award" and that "[t]his order shall continue in effect unless and until amended by subsequent order by the arbitrator."

[¶ 7.] The arbitration hearing began on June 21 and ended on June 24, 2004. Twelve witnesses testified. On July 13, 2004, the arbitrator issued his decision awarding $267,298 in damages to Vold and denying Broin's counterclaims. The arbitrator's award consisted of two pages. It itemized the various dollar amounts allowed for each of Vold's claims, but gave no reason for each award and no reason for rejecting Broin's claims. The award did not mention any of the relevant contract provisions at issue, cite any law, or discuss any of the evidence admitted during the four day hearing.

[¶ 8.] Following the arbitrator's decision, Broin sought to vacate the award in circuit court. The court heard the matter on September 8, 2004, and thereafter issued its Findings of Fact and Conclusions of Law and Order Granting Motion to Vacate Arbitration Award and Denying Motion to Confirm Award. Several times in its "findings" the court noted, contrary to attorney Ron Schmidt's assertion in his affidavit, that both Broin and Vold had agreed to a reasoned award during the telephonic preliminary hearing with the arbitrator on February 2, 2004. It is unclear how the court reached this factual, and perhaps, credibility, determination, since it appears that it heard no testimony during the hearing. Nonetheless, the court went on to conclude that "the parties had agreed to the issuance of a reasoned award" and "the arbitrator had exceeded the authority granted him by Broin and Vold by failing to issue a reasoned award." Accordingly, the court ruled that federal law required the award to be vacated.

[¶ 9.] Vold raises the following appeal issues: First: "Whether the trial court erred by substituting its judgment for that of the arbitrator on a strictly procedural issue, especially in light of the parties' contractual Rule 54 granting the arbitrator sole authority to interpret and apply the arbitration rules insofar as they govern his powers and duties?" Second: "Whether Broin's failure to pursue [his] remedy under contractual Rule 47(1) authorizing an aggrieved party, within 20 days of the award, (while the information is still fresh in the arbitrator's mind) to request the arbitrator to modify any alleged procedural, technical error (such as lack of reasoning) in the award: (1) was a condition precedent, and barred Broin's seeking judicial relief to cure such alleged defect, or, alternatively, (2) a waiver of a known right and/or an equitable estoppel barring him from seeking judicial relief?"¹

Analysis and Decision

[¶ 10.] In examining a circuit court's order vacating an arbitration award, we review the court's findings of fact under the clearly erroneous standard, but decide questions of law de novo. Boise Cascade Corp. v. Paper Allied-Indus., Chem. & Energy Workers (PACE), Local 7-0159, 309 F.3d 1075, 1080 (8th Cir.2002) (citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 947-48, 115 S.Ct. 1920, 1926, 131 L.Ed.2d 985 (1995)). "However, we must accord `an extraordinary level of deference' to the underlying award itself." Id. (quoting Keebler Co. v. Milk Drivers & Dairy Employees Union, Local No. 471, 80 F.3d 284, 287 (8th Cir. 1996)). "Indeed, we must confirm the award even if we are convinced that the arbitrator committed serious error, so `long as the arbitrator is even arguably construing or applying the contract and acting within the scope of his authority.'" Id. (extracting from Bureau of Engraving, Inc. v. Graphic Communication Int'l Union, Local 1B, 284 F.3d 821, 824 (8th Cir. 2002)). See also Stroh Container Co. v. Delphi Indus., Inc., 783 F.2d 743, 748-49 (8thCir.1986)

.

[¶ 11.] Arbitrators possess broad, but not unlimited, authority. Missouri River Servs., Inc. v. Omaha Tribe of Nebraska, 267 F.3d 848, 855 (8th Cir.2001) (following Trailmobile Trailer, LLC v. Int'l Union of Electronic, Electrical, Salaried, Mach. & Furniture Workers, AFL-CIO, 223 F.3d 744, 747 (8th Cir.2000)). Grounds for vacating an arbitration award are provided in the Federal Arbitration Act (FAA). 9 U.S.C. § 10 (2002). Section 10 of the FAA lists several bases for vacating an arbitration award. In addition, circuit courts may also vacate arbitration awards that are "completely irrational" or that "evidence a manifest disregard for the law." Hoffman v. Cargill Inc., 236 F.3d 458, 461 (8th Cir.2001) (alteration and citation omitted).

[¶ 12.] The arbitrator, Vold contends, was vested with discretion in how he handed down the final decision and award: the "arbitrator determined that he had no duty under the AAA Construction Industry Arbitration Rules to render a `reasoned' award." Because the "parties did not request any reasoned award, in writing, prior to the appointment of the arbitrator," Vold argues that the arbitrator's decision to declare an award without a reasoned explanation was within his right. And, even if the agreement was changed to require a "reasoned award," Vold contends that the matter was one of procedure, rather than substance, precluding the circuit court from substituting its judgment for that of the arbitrator. As such, Vold argues that the circuit court's sole basis for vacating the arbitration award was procedural in nature, therefore constituting reversible error.

[¶ 13.] In addressing Vold's arguments, we first turn to the Construction Industry Arbitration Rules provided by the AAA. Rule R-1(a) states:

The parties shall be deemed to have made these rules a part of their arbitration agreement whenever they have provided for arbitration by the [AAA] under its Construction Industry Arbitration Rules. These rules and any amendment of them shall apply in the form in effect at the time the administrative requirements are met for a demand for arbitration or submission agreement received by the AAA. The parties, by written agreement, may vary the procedures set forth in these rules. After appointment of the arbitrator, such modifications may be made only with the consent of the arbitrator.

(Emphasis added.) In accord with R-21(b), "the parties and the arbitrator," during the preliminary hearing, "should discuss the future conduct of the case, including...