Carolina-Virginia Fashion Exhibitors, Inc. v. Gunter, CAROLINA-VIRGINIA

• Decision Date: 07 December 1976
• Docket Number: No. 15,CAROLINA-VIRGINIA,15
• Citation: 230 S.E.2d 380,291 N.C. 208
• Court: North Carolina Supreme Court
• Parties: FASHION EXHIBITORS, INC., a corporation v. William L. GUNTER and Robert B. Russell, general partners trading and doingbusiness under the name of Charlotte Development Associates, a limitedpartnership.

Page 380

230 S.E.2d 380

291 N.C. 208

CAROLINA-VIRGINIA FASHION EXHIBITORS, INC., a corporation

v.

William L. GUNTER and Robert B. Russell, general partners trading and doingbusiness under the name of Charlotte Development Associates, a limitedpartnership.

No. 15.

Supreme Court of North Carolina.

Dec. 7, 1976.

Harry C. Hewson of the firm of Jones, Hewson & Woolard, Charlotte, for defendant appellants.

Bradley, Guthery & Turner by Paul B. Guthery, Jr., Charlotte, for plaintiff appellee.

HUSKINS, Justice:

Judge Snepp, in his judgment, found no misconduct on the part of the arbitrators, Supported by competent evidence, which justified setting aside the award. He did find, however, that but for his conclusion of law that the depositions of the arbitrators were not admissible to impeach their award, he would have found such misconduct. The threshold question presented to this Court, therefore, is whether the trial judge correctly concluded that the 'depositions of the arbitrators are not competent to show the basis by which the arbitrators arrived at their decision or to show misconduct on the part of the arbitrators.'

The plaintiff argues that the cases and encyclopedias of law support the ruling of the trial judge. At 5 Am.Jur.2d Arbitration and Award, § 187, we find the statement that it is 'the general rule that an arbitrator may not be affidavit or testimony impeach his own award or show fraud or misconduct on the part of the arbitrators.' Similarly, it is stated in 6 C.J.S. Arbitration § 177, that 'an arbitrator is not a competent witness to prove his own fraud or misconduct. . . .' Many cases gave lip service to this rule. See e.g., Sapp v. Barenfeld, 34 Cal.2d 515, 212 P.2d 233 (1949); Giannopulos v. Pappas, 80 Utah 442, 15 P.2d 353 (1932). 'It has been held with great unanimity that the admissions of an arbitrator made after the filing of an award are inadmissible in proceedings to set aside the letter.' Bisnovitch v. British American Assur. Co., 100 Conn. 240, 123 A. 339 (1924).

Examination of the many cases cited in support of this proposition, however, demonstrates that the decisions are neither unanimous nor clear as to what may and what may not be impeached. To clarify the present state of the law it is necessary to examine the decisions and exceptions in some detail.

It is clear that the testimony of the arbitrators is not competent to impeach the Mental process involved in determining the award. For example, in Grudem Brothers Co. v. Great Western Piping Corp., 297 Minn. 313, 213 N.W.2d 920 (1973), the appellants contended that the arbitrators meant to allow offsets for damages but that, through inaccurate wording, this intent was not apparent on the face of the award. An attempt to introduce testimony of an arbitrator to show intent was rejected, the court stating that '(t)o allow such testimony would vary the terms of the agreement and work to impeach it. The award should be interpreted from the language used therein rather than the testimony of one of the arbitrators as to what they meant to do by the award.' But see Black v. Woodruff, 193 Ala. 327, 69 So. 97 (1915); Oregon-Washington R. & Nav. Co. v. Spokane, P. & S. Ry. Co., 83 Or. 528, 163 P. 989 (1917).

Similarly, a court will not admit testimony of the arbitrators as to how well they followed instructions in ascertaining damages, Gramling v. Food Machinery and Chemical Corp., 151 F.Supp. 853 (W.D.S.C.1957).

In Matter of Weiner Co., 2 A.D.2d 341, 155 N.Y.S.2d 802 (1956), it was summed up in this way: 'An arbitrator should not be called upon to give a reason for his decision. Inquisition of an arbitrator for the purpose of determining the processes by which he arrives at an award, finds no sanction in law. Bernhardt v. Polygraphic Co., 350 U.S. 198, 203, 76 S.Ct. 273, 100 L.Ed. 199; Shirley Silk Co. v. American Silk Mills, 257 App.Div. 375, 377, 13 N.Y.S.2d 309, 311.'

On the other hand, it is widely accepted that proof is admissible 'for the purpose of showing that all matters included in the submission were considered and adjudicated by the arbitrators, and of showing what entered into their decision . . ..' Jensen v. Deep Creek Farm & Live Stock Co., 27 Utah 66, 74 P. 427 (1903). See also Sapp v. Barenfeld, supra; Twin Lakes Reservoir & Canal Co. v. Platt Rogers, 112 Colo. 155, 147 P.2d 828 (1944); Stowe v. Mutual Home Builders' Corp., 252 Mich. 492, 233 N.W. 391 (1930); Grudem Brothers Co. v. Great Western Piping Corp., supra; Giannopulos v. Pappas, supra. This principle has been firmly implanted in the law of North Carolina. The Court early stated that '(p)arol evidence is not only admissible, but necessary in order to show what matters the arbitrators acted on.' Brown v. Brown, 49 N.C. 123 (1856). See Cheatham v. Rowland, 105 N.C. 218, 10 S.E. 986 (1890); Osborne v. Calvert, 83 N.C. 365 (1880); Walker v. Walker, 60 N.C. 255 (1864). The reason for this rule has been stated thusly: '(I)t often becomes necessary, in determining that questions are concluded by the award, or whether the award is in itself binding upon the parties, to show by parol evidence what took place before the referee, what was in controversy before him and what matters entered into his decision. The referee is a competent witness himself to establish these facts.' Evans v. Clapp, 123 Mass. 165, 25 Am.Rep. 52 (1877).

There are other acknowledged exceptions to the 'general rule' as stated. Testimony of a dissenting arbitrator is admitted to show misconduct on the part of the other arbitrators. Griffith Co. v. San Diego College for Women, 45 Cal.2d 501, 289 P.2d 476 (1955); Cont. Bk. Supply Co. v. Int. Brotherhood of Bookbinders, 239 Mo.App. 1247, 201 S.W.2d 531 (1947). Testimony is admitted where it is not objected to and where the responding party cross-examines the arbitrator. William H. Low Estate Co. v. Lederer Realty Corp., 35 R.I. 352, 86 A. 881 (1913).

Here, appellants do not seek to introduce the testimony of the arbitrators under any of the exceptions which we have noted thus far--nor would they have any grounds to do so. The depositions were taken over strenuous objection by the plaintiffs. It is conceded that the award was duly signed and assented to by all the arbitrators.

Rather, appellants contend that the action of the arbitrators in entering the building in the absence of the parties and in basing their decision in part on information gathered at that time constitutes misconduct. They further contend that this Court should hold, contra to the oft-stated 'general rule,' that such misconduct may be proved by the depositions and testimony of the arbitrators themselves. For the reasons which follow, we agree.

First, we note that many cases which cite the 'general rule' relative to the incompetency of testimony of an arbitrator to impeach his own award or show fraud or misconduct on the part of an arbitrator Do not support that statement with respect to misconduct. In Griffith Co. v. San Diego College for Women, supra, the 'general rule' is cited but testimony of an arbitrator was admitted under the dissenting arbitrator exception discussed above. Sapp v. Barenfeld supra, again citing the 'general rule,' allowed the testimony as it tended to show what matters were considered. The court in Lauria v. Soriano, 180 Cal.App.2d 163, 4 Cal.Rptr. 328 (1960), found it to be 'settled law that an arbitrator cannot impeach the award by testifying to his fraud or misconduct,' yet in the next sentence found that no such testimony had been offered. In Bisnovitch v. British American Assur. Co., supra, the plaintiffs attempted to introduce the testimony of a witness as to a conversation he had with the referee. The testimony was excluded. The court said the plaintiff should have allowed the Arbitrator to testify first and then used the statement of the witness to impeach him if necessary. Later, however, the court cited the general rule that admissions of an arbitrator are inadmissible To impeach an award. In Giannapolus v. Pappas, supra, the court cited the 'general rule' that the testimony of an arbitrator is inadmissible to prove misconduct, yet found 'misbehavior' on the part of one of the arbitrators based in part on the affidavits of the other arbitrators.

Plaintiff relies strongly on Fukaya Trading Company, S.A. v. Eastern Marine Corp., 322 F.Supp. 278 (E.D.La.1971), a federal district court decision. Examination of this case reveals that its support is not as strong as plaintiff would contend. The court did refuse to allow depositions to be taken of the arbitrators, yet it implied that Were there any objective evidence on which to base the allegations of misconduct, the depositions would have been allowed. The requirement of an objective basis of misconduct was derived from Continental Materials Corp. v. Gaddis Mining Co., 306 F.2d 952 (10th Cir. 1962), and reflects the court's concern that 'fishing expeditions' might be encouraged without the objective evidence requirement.

Although cases may be found in which the rule is arguably applied and an arbitrator's testimony of misconduct is excluded, See e.g., Ellison v. Weathers, 78 Mo. 115 (1883), it is apparent from an examination of the cases discussed that the law is not so settled nor the rule so general as the plaintiff asserts. Rather, it appears that the 'general rule' is subject to many exceptions, depending upon the particular fact situation presented.

It is therefore instructive to examine those cases where, as here, an ex parte investigation by the arbitrator is alleged. None of the cases examined speak directly to the issue of impeachment by the testimony of the arbitrator. Several, however, base the finding of misconduct on the affidavit of the arbitrator.

In Berizzi Co. v. Krausz, 239 N.Y. 315, 146 N.E. 436 (1925), the arbitrator was held to have been engaged in misconduct where he made an investigation by himself of the quality of a product. Speaking for the court, Judge...