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

• Decision Date: 17 September 1991
• Docket Number: SEL-WA,Docket No. 86819,INC
• Citation: 438 Mich. 488,475 N.W.2d 704
• Parties: GORDON, Plaintiff-Appellee-Cross-Appellant, v. SPENCE BROTHERS, INC., Defendant-Appellant-Cross-Appellee.
• Court: Michigan Supreme Court

Page 704

475 N.W.2d 704

438 Mich. 488

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

Docket No. 86819.

Supreme Court of Michigan.

Argued March 6, 1991.

Decided Sept. 17, 1991.

[438 Mich. 489] Fitzgerald, Peters, Dakmak & Miller, P.C., Neill T. Peters, Stuart J. Snider, Detroit, for Gordon Sel-Way, Inc.

Federlein, Grylls & Keranen, P.C. by Walter J. Federlein, Thomas M. Keranen, Patrick A. Facca, Royal Oak, for Spence Bros., Inc.

OPINION

BOYLE, Justice.

In the private arbitration award which underlies this action, a panel of arbitrators included in their award an amount "in interest." Subsequently, in the civil action instituted to confirm the award and reduce it to judgment, the trial court modified the arbitration award by deleting the interest portion and then confirming the award as modified. It also granted pre- and postjudgment interest under M.C.L. Sec. 438.7; M.S.A. Sec. 19.4 at the rate of five percent per annum from the date of the arbitration award until the date the judgment was satisfied. The Court of Appeals affirmed the decision of the trial court. 177 Mich.App. 116, 440 N.W.2d 907 (1989).

We granted leave to decide (1) whether the arbitrators improperly included interest as part of the award, (2) what interest rate applies under M.C.L. Sec. 438.7; M.S.A. Sec. 19.4 following entry of the arbitration award, and (3) at what point, if at all, interest is governed by M.C.L. Sec. 600.6013; M.S.A. Sec. 27A.6013. We hold (1) that under these facts, the arbitrators had authority to include interest as a part of their award, and thus it was improper for the trial court to delete the interest portion of the arbitration award, (2) that the applicable interest rate under M.C.L. Sec. 438.7; M.S.A. Sec. 19.4 is the legal rate supplied under M.C.L. Sec. 438.31; M.S.A. Sec. 19.15(1), and (3) that interest is governed by Sec. 6013 from the date a complaint is filed requesting confirmation of an award and continues until the date judgment rendered on the award is satisfied. Thus, we reverse in part and affirm in part the decision of the Court of Appeals and remand this case to the trial court to reinstate the interest portion of the award and to recompute the proper postaward statutory interest under M.C.L. Sec. 438.7; M.S.A. Sec. 19.4 and M.C.L. Sec. 600.6013; M.S.A. Sec. 27A.6013.

I

This appeal arises out of a construction contract dispute between a general contractor and a subcontractor. In July, 1978, Spence Brothers, Inc., as the general contractor, entered into a contract with Washtenaw County Department of Public Works, as owner, for construction of a portion of the Ann Arbor wastewater treatment plant. The following October, Spence, as general contractor, and Gordon Sel-Way, Inc., as subcontractor, entered into an agreement providing that Sel-Way was to perform certain excavation work at the treatment plant project. Under the terms of the Spence/Sel-Way contract, the parties agreed to arbitrate according to the construction industry rules of the American Arbitration Association all claims or disputes arising out of, or relating to, the parties' contract or any breach thereof. ¹

A dispute arose between Sel-Way and Spence concerning compensation that Sel-Way claimed it was owed under the contract, and in September, 1982, Sel-Way demanded arbitration. Its original claim in the amount of $902,550.43 was later amended to $4,000,000. By mutual agreement, the Spence/Sel-Way arbitration proceedings were adjourned pending Spence's settlement negotiations of its own arbitration claims against Washtenaw County.

The Spence/Sel-Way arbitration commenced in January, 1986, and on November 5, 1986, a three-member arbitration panel of the American Arbitration Association's Construction Industry Arbitration Tribunal awarded Sel-Way the sum of $1,572,442.12 plus $343,007.79 in interest, for a total award of $1,915,449.19. Two days later, Sel-Way filed a complaint and motion in Washtenaw Circuit Court requesting the court to confirm the award and reduce it to judgment pursuant to MCR 3.602(I). Spence responded with an answer to the complaint and an application to vacate or modify the arbitration award on the grounds that there was evident partiality on the part of one of the arbitrators, MCR 3.602(J)(1)(b), and that the arbitrators had exceeded their power by awarding interest, MCR 3.602(J)(1)(c), MCR 3.602(K)(1)(b). ²

Initially, on February 26, 1987, the trial judge issued an opinion and order denying Spence's motion to vacate or modify the arbitration award, but expressly allowed Spence thirty days to file a motion for reconsideration. On May 22, 1987, the trial court issued its further opinion and order in this matter. It denied Spence's motion for reconsideration. However, it did accept one of Spence's arguments and found that there was no contractual basis for the arbitrators' award of interest and ordered that the award be modified accordingly under MCR 3.602(K). The trial court also rejected Sel-Way's argument that M.C.L. Sec. 600.6013; M.S.A. Sec. 27A.6013 entitled Sel-Way to interest at the rate of twelve percent commencing on the date it filed its complaint to confirm the arbitration award. Instead, the trial court held that pursuant to M.C.L. Sec. 438.7; M.S.A. Sec. 19.4 and M.C.L. Sec. 438.31; M.S.A. Sec. 19.15(1), Sel-Way was entitled to receive interest on the award at the rate of five percent per annum commencing on the date of the award. On July 24, 1987, judgment was entered ordering Spence to pay Sel-Way $1,572,442.12 plus interest at the rate of five percent per annum from the date the arbitration award was rendered until the date the judgment was paid. ³

Both Spence and Sel-Way appealed in the Court of Appeals. Spence once again sought to vacate the award "due to alleged 'evident partiality' 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." 177 Mich.App. at 118-119, 440 N.W.2d 907. Sel-Way cross-appealed and raised the same three issues it raises here, i.e., the propriety of the trial court's striking of the arbitrators' award of interest, the appropriate rate of interest under M.C.L. Sec. 438.7; M.S.A. Sec. 19.4, and the applicability of M.C.L. Sec. 600.6013; M.S.A. Sec. 27A.6013 under these circumstances. The Court of Appeals affirmed the decision of the trial court in all respects.

This Court denied Spence's application for leave to appeal, but held in abeyance Sel-Way's application for leave to appeal as cross-appellant pending its decision in Old Orchard by the Bay Associates v. Hamilton Mutual Ins. Co., 434 Mich. 244, 454 N.W.2d 73 (1990). 433 Mich. 912 (1989). On October 29, 1990, this Court granted Sel-Way's application for leave to appeal and directed the parties to include argument on the following issues: (1) was it improper for the arbitrators to include interest as part of the award, (2) what interest rate applies under M.C.L. Sec. 438.7; M.S.A. Sec. 19.4 following entry of the arbitration award, and (3) at what point, if at all, is interest governed by M.C.L. Sec. 600.6013; M.S.A. Sec. 27A.6013? 436 Mich. 881.

II

We first consider Sel-Way's contentions that the lower court erred when it modified the arbitration award by striking the amount identified as "interest" and that the Court of Appeals erred when it affirmed that decision. Spence argued, and the lower courts agreed, that the arbitrators exceeded the scope of their powers when they awarded $343,007.79 in interest absent express authority to do so under the terms of the Spence/Sel-Way contract. It is undisputed that there is no provision for interest in the Spence/Sel-Way contract. ⁴ Sel-Way contends nonetheless that the absence of an interest provision in the contract is not fatal. It argues that the arbitrators properly included the interest amount as an element of damages by virtue of the parties' broad arbitration clause. This Court must determine whether the arbitrators did in fact exceed their powers when they granted preaward interest in Sel-Way's favor. ⁵

Because the Spence/Sel-Way arbitration clause provides that judgment may be entered on the arbitration award, it falls within the definition of a "statutory arbitration," and is governed by M.C.L. Sec. 600.5001 et seq.; M.S.A. Sec. 27A.5001 et seq. DAIIE v. Gavin, 416 Mich. 407, 417, 331 N.W.2d 418 (1982). M.C.L. Sec. 600.5021; M.S.A. Sec. 27A.5021 specifies that statutory arbitrations are to be conducted in accordance with the rules of the Michigan Supreme Court. In this context, the court rules provide the court with three options: it may confirm, modify or correct, or vacate the award. The court's power to modify, correct, or vacate an arbitration award, however, is very limited. MCR 3.602(J) and (K). ⁶ By narrowing the grounds upon which an arbitration decision may be invaded, the court rules preserve the efficiency and reliability of arbitration as an expedited, efficient, and informal means of private dispute resolution. See Callahan, Bramble & Lurie, Arbitration of Construction Disputes, Sec. 8.6, p. 185. See also Westminster Construction Corp. v. PPG Industries, Inc., 119 R.I. 205, 208-209, 376 A.2d 708 (1977); J.A. Jones Const. Co. v. Flakt, Inc., 731 F.Supp. 1061, 1063 (N.D.Ga., 1990).

Although both MCR 3.602(J)(1)(c) and MCR 3.602(K)(1)(b) address the appropriate remedy when the court determines that the arbitrators have exceeded the scope of their authority, the trial court in this case did not vacate the award under MCR 3.602(J)(1)(c). It modified the award under MCR 3.602(K)(1)(b) which provides:

"[T]he court shall modify or correct an award if:

"(b) the arbitrator has awarded on a matter not submitted to the arbitrator, and the award may be corrected without affecting the merits of the decision on the issues submitted."

Thus, MCR 3.602(K)(1)(b) is the pertinent court rule...