Gordon Sel-Way, Inc. v. Spence Bros., Inc.

• Decision Date: 26 June 1989
• Docket Number: Docket No. 102655,INC,SEL-WA
• Citation: 177 Mich.App. 116,440 N.W.2d 907
• Parties: GORDON, Plaintiff-Appellee, Cross-Appellant, v. SPENCE BROTHERS, INC., Defendant-Appellant, Cross-Appellee. 177 Mich.App. 116, 440 N.W.2d 907
• Court: Court of Appeal of Michigan — District of US

Page 907

440 N.W.2d 907

GORDON SEL-WAY, INC., Plaintiff-Appellee, Cross-Appellant, v. SPENCE BROTHERS, INC., Defendant-Appellant, Cross-Appellee.

Docket No. 102655.

177 Mich.App. 116, 440 N.W.2d 907

Court of Appeals of Michigan.

Submitted March 7, 1989.

Decided May 15, 1989.

Released for Publication June 26, 1989.

[177 MICHAPP 118] Fitzgerald, Peters & Dakmak, P.C. by Neill T. Peters and Stuart J. Snider, Detroit, for plaintiff-appellee, cross-appellant.

Federlein, Grylls & Keranen, P.C. by Walter J. Federlein, Royal Oak, for defendant-appellant, cross-appellee.

Before SHEPHERD, P.J., and CYNAR and SAWYER, JJ.

SHEPHERD, Presiding Judge.

This case involves a construction contract dispute between a general contractor defendant Spence Brothers, Inc., and a subcontractor, plaintiff Gordon Sel-Way, Inc., which was submitted to arbitration pursuant to the terms of their October 9, 1978, contract. A three-member arbitration panel awarded $1,572,442.12 plus $343,007.79 in interest to plaintiff on November 5, 1986. Two days later, plaintiff commenced this action under MCR 3.602(I) in Washtenaw Circuit Court to confirm the award. Defendant responded by filing an application under MCR 3.602(J) and (K) to vacate or modify the award. Pursuant to a judgment dated July 24, 1987, and related opinions and orders, the trial court confirmed the award of $1,572,442.12, but vacated the interest award because there was no contractual basis for pre-award interest. However, the trial court allowed interest of five percent per annum commencing from the date of the arbitration award and continuing until payment. Defendant appeals as of right, seeking to vacate the award due to alleged "evident partiality"[177 MICHAPP 119] by one of the arbitrators and the failure of the arbitrators to state which of plaintiff's multiple claims were the bases of the award. Plaintiff cross-appeals from the interest award. We affirm.

I

We first consider defendant's assertion that the award should be vacated due to alleged "evident partiality" of arbitrator Charles R. Scales, Jr. The trial court's authority to vacate the arbitration award stems from MCR 3.602(J)(1)(b) which states that "the court shall vacate an award if ... there was evident partiality by an arbitrator." Here, as in other arbitral proceedings, the procedure established to safeguard the arbitral process against claims of partiality is one of disclosure. Under Rule 19 of the American Arbitration Association's Construction Industry Arbitration Rules, which governed the parties' arbitration, the AAA determines whether an arbitrator should be disqualified upon disclosure by the appointed arbitrator.

The problem in this case is that arbitrator Charles Scales did not fill out and return the AAA's required "notice of appointment" form which required a disclosure of "any past or present relationship with the parties or their counsel, direct or indirect, whether financial, professional, social or other kind." The information that the defendant claims should have been disclosed at the time of Charles Scales' appointment in November, 1985, was his association with the consulting engineering firm of Scales & Associates, Inc., and the fact that Charles Scales filed a lawsuit as the attorney for the Scales consulting firm against the defendant corporation in 1984. Charles Scales' status as the president of the consulting firm was disclosed in his biographical sketch provided by the AAA to [177 MICHAPP 120] the parties and, hence, the central issue before us is whether Charles Scales' failure to disclose that he filed the lawsuit on behalf of his consulting firm is grounds for vacating the award. We conclude that it is not.

It has been held that an arbitrator's failure to disclose certain facts which might reasonably lead to an impression of bias constitutes grounds for vacating the award. Albion Public Schools v. Albion Education Ass'n, 130 Mich.App. 698, 701, 344 N.W.2d 55 (1983), lv. den. 419 Mich. 944 (1984). However, the failure to disclose does not per se require that the award be vacated. The questions presented by the parties in this appeal require consideration of two important qualifications on the relief available to the complaining party.

The first qualification is that a party's failure to raise the disqualification issue in the arbitral proceeding may constitute a waiver. A waiver has been described as follows:

"Waiver is the intentional relinquishment of a known right.... The usual manner of waiving a right is by acts which indicate an intention to relinquish it, ... or by so neglecting and failing to act as to induce a belief that it was the intention and purpose to waive." [Maxey v. Proctor, 343 Mich. 453, 457, 72 N.W.2d 198 (1955), quoting Bailey v. Jones, 243 Mich. 159, 162, 219 N.W. 629 (1928).]

Waiver in an arbitration case has been defined as consisting of knowledge actual or constructive, in the complaining party of the tainted relationship or interest of the arbitrator. International Brotherhood of Teamsters, Local Union 560 v. Bergen-Hudson Roofing Supply Co., 159 N.J.Super. 313, 387 A.2d 1246 (1978).

The second qualification is that, to overturn the [177 MICHAPP 121] arbitration award, the partiality or bias must be certain and direct, not remote, uncertain or speculative. Belen v. Allstate Ins. Co., 173 Mich.App. 641, 645, 434 N.W.2d 203 (1988); Kauffman v. Haas, 113 Mich.App. 816, 819, 318 N.W.2d 572 (1982). Although the trial court based its decision not to vacate the award on the waiver issue, we conclude that a consideration of both qualifications supports the court's decision not to vacate the award.

The record submitted by the parties on the disqualification issue consisted of the record of the arbitration proceedings, affidavits, and documentary proofs. While there were some factual disputes established by this record, the trial court did not resolve the disputes but rather based its decision on undisputed facts. Those facts that were not disputed established that there is no basis for vacating the award due to "evident partiality."

Addressing first the waiver issue, the record indicates that Charles Scales did in fact file a lawsuit against the defendant in 1984 on behalf of his consulting firm. The lawsuit was commenced in September, 1984, in an effort to collect on a debt owed to the consulting firm by Olympian Sprinkler, Inc., for shop drawings prepared by the consulting firm. Olympian was then a subcontractor on a construction project at the University of Michigan. The general contractor was Spence Brothers, Inc., the defendant in this case. Although the consulting firm's contract was with Olympian, it named the defendant as a party on the theory that the defendant, as the general contractor, might owe Olympian for the shop drawings. The case was settled two months later when the project manager for the defendant, Thomas Spence, sent a joint check for $2,279 to Olympian and the consulting firm to settle the matter. As project manager, Thomas Spence was [177 MICHAPP 122] responsible for all administrative matters relating to the project, including litigation.

By contrast, the project manager of the project underlying the instant arbitration action was the president of the defendant, Herbert Spence. The project entailed construction of a portion of the Ann Arbor Waste Water Treatment Plant. Defendant was the general contractor for the project and the plaintiff, Gordon Sel-Way, was a subcontractor responsible for excavation work.

Plaintiff originally filed an arbitration claim for about $900,000 in 1982 under a subcontract, but the proceedings were adjourned by mutual consent while settlement negotiations were pursued with the project owner. In November, 1985, Charles Scales was appointed as a member of the arbitration panel. Arbitration proceedings commenced in January, 1986, on an amended claim for $4,000,000 and terminated in November, 1986, when the panel reached a decision. Hugh Spence, the vice-president of the defendant and the project superintendent, appeared at the arbitration hearing on behalf of the defendant. According to Hugh Spence's affidavit, he shared responsibility for the management of the project, including litigation, with Herbert Spence.

There is some conflict in the evidence regarding whether Charles Scales made a disclosure of his participation in the 1984 lawsuit prior to the arbitration hearing. On the one hand, Charles Scales asserted in a December, 1986, memorandum to the AAA that he may not have disclosed some information regarding a previous relationship with the defendant and "had forgotten" that the defendant was named as a party in the prior lawsuit. On the other hand, Charles Scales averred in a January, 1987, affidavit that he made a disclosure of the lawsuit when the arbitration hearing commenced[177 MICHAPP 123] on January 7, 1986, although the transcript of the hearing and the affidavit of other participants do not support this assertion. We note that these factual disputes might never have occurred had the AAA not permitted the hearing to begin without first obtaining the required form from Charles Scales.

However, there was no dispute that at least two agents of the defendant had knowledge of the prior relationship between the defendant and Charles Scales in his status, as agent for the consulting firm. Thomas Spence acquired knowledge through his role as project manager of the University of Michigan project, while Herbert Spence acquired knowledge as president of the defendant in 1985 when he undertook to contact Charles Scales regarding a court notice of the lawsuit that was sent to the defendant in error. In a letter dated March 6, 1985, to the court, Herbert Spence explained:

Enclosed is a copy of Notice of Court Appearance received by us for March 19, 1985.

Since we had no knowledge of this case we contacted Mr. Charles R. Scales, Jr.

We were informed by Mr. Scales that the Notice was sent...