Davidson v. Hensen

Decision Date07 May 1998
Docket NumberNo. 21RN46485958231,No. BLHCO,R,No. 65230-9,BLHCO,21RN46485958231,65230-9
Citation135 Wn.2d 112,954 P.2d 1327
CourtWashington Supreme Court
PartiesSamuel DAVIDSON and Elizabeth Davidson, Petitioners, v. Bruce HENSEN, d/b/a BLH Construction, Registration* *066CJ; and ITT Hartford Insurance Company, Bondespondents.
Seligmann & Beckerman, Willard G. Smith, Jr., Seattle, for Petitioners

Kathryn E. Meyers Carruthers, Bainbridge Island, for Respondents.

TALMADGE, Justice.

This case involves both the policy of Washington's arbitration act, RCW 7.04, which confers substantial finality on decisions of arbitrators, and the contractor registration act, RCW 18.27, which denies unregistered contractors access to the courts to seek collection of compensation for work performed. Because the parties entrusted the issue of a contractor's compliance with RCW 18.27 to the arbitrator, and the homeowners failed to assert any grounds under RCW 7.04.160 for vacating the arbitrator's award, Washington's strong public policy preference for finality of arbitrators' awards applies. We affirm the Court of Appeals' decision upholding the confirmation of the arbitrator's award.

ISSUE

In the proceeding before the superior court to confirm an arbitration award, did the homeowners raise any grounds under RCW 7.04.160 for overturning the arbitration award in the contractor's favor?

FACTS

Contractor Bruce Hensen agreed to remodel a barn into a house for the Davidsons. The parties signed a written contract on January 25, 1994, and Hensen began work on January 31, 1994. The contract contained a broad arbitration clause:

5. Disputes 5.1 Any claims or disputes between the Contractor and the Owner arising from this Agreement shall be resolved by arbitration in accordance with Construction Industry Arbitration Rules of the American Arbitration Association unless both parties agree otherwise.

Clerk's Papers at 37.

After disputes arose, Hensen filed for arbitration in December 1994 in accordance with the parties' contract for amounts due thereunder. The Davidsons answered and counterclaimed in January 1995, asserting theories of breach of contract, breach of warranty, conversion, fraud, misrepresentation, violation of the Consumer Protection Act (RCW 19.86), and failure to account. Some four months after Hensen filed for arbitration, and just prior to the commencement of the arbitration hearing, the Davidsons' trial counsel contacted the Department of Labor and Industries (Department) by phone on April 21, 1995, and was told Hensen had been continuously licensed and bonded, as required by RCW 18.27, since 1989 with no substantial lapses. The Davidsons' trial counsel requested copies of documents confirming Hensen's registration status that same day.

The arbitration hearing took place on April 27, 28, and May 1, 1995. Although the exact nature and scope of the questioning is disputed because there is no transcript of the arbitration hearing, it is undisputed the parties questioned Hensen about his registration status. At the completion of the hearing on May 1, the arbitrator asked if either side had any additional evidence to present. Both sides agreed they had completed their cases except for the post-hearing briefs. The arbitrator then closed the evidentiary hearing on May 1 and began drafting the award.

On May 12, 1995, the Davidsons' attorney received a certified copy of Hensen's registration status from the Department showing Hensen's registration had lapsed from October 27, 1991, to March 30, 1994, and his bond had lapsed from October 27, 1991, to January 31, 1994. A few days later on May 16, 1995, the Davidsons moved to reopen When Hensen moved to confirm the award, the Davidsons argued that Hensen was not in compliance with RCW 18.27 at the time of contracting, and the court should therefore vacate the award. In its memorandum opinion, the trial court, the Honorable M. Karlyn Haberly, found the arbitrator had heard and determined Hensen's registration status, and ruled the court was limited to reviewing the face of the arbitration award unless a party was deprived of a full and fair hearing. Because no error existed on the face of the award, 1 the trial court confirmed the arbitration award. 2 The Court of Appeals affirmed the trial court order. Davidson v. Hensen, 85 Wash.App. 187, 189, 933 P.2d 1050 (1997). On the Davidsons' petition, we granted review.

the hearing. The arbitrator denied the request and subsequently awarded Hensen approximately $7,500.

ANALYSIS
A. Arbitration Under RCW 7.04

Washington has established its policy for arbitration in RCW 7.04, our "code of arbitration." Price v. Farmers Ins. Co., 133 Wash.2d 490, 495, 946 P.2d 388 (1997); Washington courts have given substantial finality to arbitrator decisions rendered in accordance with the parties' contract and RCW 7.04. The shorthand description for this policy of finality is that judicial review of an arbitration award is limited to the face of the award. Boyd, 127 Wash.2d at 263, 897 P.2d 1239. In the absence of an error of law on the face of the award, the arbitrator's award will not be vacated or modified. Id.; see also Lindon Commodities, Inc. v. Bambino Bean Co., 57 Wash.App. 813, 816, 790 P.2d 228 (1990) (applying the above cited rule and reversing the trial court confirmation of an arbitration award, and remanding the matter for a new arbitration hearing, where an error of law appeared on the face of the award).

Northern State Constr. Co. v. Banchero, 63 Wash.2d 245, 249, 386 P.2d 625 (1963). Washington law generally favors the use of alternative dispute resolution such as arbitration where the parties agree by contract to submit their disputes to an arbitrator. Boyd v. Davis, 127 Wash.2d 256, 262, 897 P.2d 1239 (1995) (noting encouraging parties voluntarily to submit their disputes to arbitration is an increasingly important objective in our ever more litigious society). See, e.g., Perez v. Mid-Century Ins. Co., 85 Wash.App. 760, 765, 934 P.2d 731 (1997) (recognizing a strong public policy in Washington state favoring arbitration of disputes); Clearwater v. Skyline Constr. Co., 67 Wash.App. 305, 314, 835 P.2d 257 (1992), review denied, 121 Wash.2d 1005, 848 P.2d 1263 (1993) (same). See also Munsey v. Walla Walla College, 80 Wash.App. 92, 94-95, 906 P.2d 988 (1995) (recognizing the strong public policy favoring arbitration of disputes and noting arbitration eases court congestion, provides an expeditious method of resolving disputes and is generally less expensive than litigation); accord King County v. Boeing Co., 18 Wash.App. 595, 602-03, 570 P.2d 713 (1977) (and cases cited therein). See also Barnett v. Hicks, 119 Wash.2d 151, 160, 829 P.2d 1087 (1992) (noting the object of arbitration is to avoid the formalities, delay, expense and vexation of ordinary litigation). The parties' rights with regard to arbitration are controlled by their contract and the provisions of RCW 7.04. Price, 133 Wash.2d at 495-96, 946 P.2d 388.

Phrased a different way, judicial review of an arbitration award in the context of a proceeding under RCW 7.04.150 to confirm an arbitrator's award is exceedingly limited. A court may confirm, vacate, modify, or correct an arbitrator's award in accordance with the applicable provisions in RCW 7.04. Barnett, 119 Wash.2d at 156, 829 P.2d 1087; Expert Drywall, Inc. v. Ellis-Don Constr., Inc., 86 Wash.App. 884, 888, 939 P.2d 1258 (1997), Groves v. Progressive Cas., 50 Wash.App. 133, 135, 747 P.2d 498 (1987), review denied, 110 Wash.2d 1016 (1988). Judicial review of an arbitration award, therefore, does not include a review of the merits of the case. Barnett, 119 Wash.2d at 157, 829 P.2d 1087; Westmark Properties, Inc. v. McGuire, 53 Wash.App. 400, 402, 766 P.2d 1146 (1989). Ordinarily, the evidence before the arbitrator will not be considered by the court. Id.; Lindon, 57 Wash.App. at 816, 790 P.2d 228.

B. Judicial Review of Arbitrator's Award

Turning to the award in this case, the Davidsons cannot point to an error that appears on the face of the arbitrator's award. However, they claim the arbitrator's award should be vacated because of alleged procedural irregularities in the arbitrator's refusal to re-open the hearing to address the issue of Hensen's alleged failure to comply with RCW 18.27. They further allege the arbitrator had no authority to issue an award because their contract with Hensen was illegal by virtue of Hensen's alleged noncompliance with RCW 18.27.020. 3

The Davidsons' contentions are governed by the provisions In any of the following cases the court shall after notice and hearing make an order vacating the award, upon the application of any party to the arbitration:

of RCW 7.04.160 pertaining to judicial vacation of an arbitrator's award. RCW 7.04.160 states:

(1) Where the award was procured by corruption, fraud or other undue means.

(2) Where there was evident partiality or corruption in the arbitrators or any of them.

(3) Where the arbitrators were guilty of misconduct, in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence, pertinent and material to the controversy; or of any other misbehavior, by which the rights of any party have been prejudiced.

(4) Where the arbitrators exceeded their powers, or so imperfectly executed them that a final and definite award upon the subject matter submitted was not made.

(5) If there was no valid submission or arbitration agreement and the proceeding was instituted without either serving a notice of intention to arbitrate, as provided in RCW 7.04.060, or without serving a motion to compel arbitration, as provided in RCW 7.04.040(1).

An award shall not be vacated upon any of the grounds set forth under subdivisions (1) to (4), inclusive, unless the court is satisfied that substantial rights of the parties were prejudiced thereby.

Where an award is vacated, the court may, in its discretion, direct a...

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