Gratech Co., Ltd. v. Wold Engineering, P.C.

• Decision Date: 27 March 2007
• Docket Number: No. 20060272.,20060272.
• Citation: 729 N.W.2d 326,2007 ND 46
• Parties: GRATECH COMPANY, LTD., Plaintiff, Appellant and Cross-Appellee v. WOLD ENGINEERING, P.C., Defendant, Appellee and Cross-Appellant.
• Court: North Dakota Supreme Court

729 N.W.2d 326

2007 ND 46

GRATECH COMPANY, LTD., Plaintiff, Appellant and Cross-Appellee v.WOLD ENGINEERING, P.C., Defendant, Appellee and Cross-Appellant.

No. 20060272.

Supreme Court of North Dakota.

March 27, 2007.

Ronald G. Schmidt of Schmidt, Schroyer, Moreno, Lee & Bachand, P.C., Rapid City, S.D., for plaintiff, appellant and cross-appellee.

Collin P. Dobrovolny of McGee, Hankla, Backes & Dobrovolny, Minot, N.D., for defendant, appellee and cross-appellant.

MARING, Justice.

[¶ 1]Gratech Company, Ltd., ("Gratech") appeals the district court's judgment confirming an arbitration award in favor of Wold Engineering, P.C., ("Wold") and against Gratech.Wold cross-appeals that part of the district court's judgment denying it attorney's fees.We hold that the district court's order confirming the arbitration award was proper because the arbitration award was neither completely irrational nor evidenced a manifest disregard for the law.We hold that a district court must provide its rationale for its decision on a request for attorney's fees so that this Court can properly review whether there was an abuse of discretion.Therefore, we affirm the district court's judgment confirming an arbitration award in favor of Wold, and reverse and remand that part of the judgment denying Wold attorney's fees for the district court to explain its reasoning.

I

[¶ 2] Gratech entered into a contract with the North Dakota Department of Transportation("NDDOT") on August 18, 1997, to work on U.S. Highway 281 in Rolette County.Wold entered into a subcontract with the NDDOT on April 9, 1998, to perform engineering work on the U.S. Highway 281 project.

[¶ 3] Gratech encountered poor soil conditions, which required additional sub-cutting, plowing, discing, and drying of the soil.Gratech requested additional compensation from the NDDOT.When the NDDOT denied Gratech's claim for additional compensation, Gratech filed a demand for arbitration.The arbitration panel concluded Gratech's failure to file a written notice of claim precluded arbitration of all but one of Gratech's claims against the NDDOT.This Court, in Gratech Co. v. North Dakota Dep't of Transp.,2004 ND 61, 676 N.W.2d 781, affirmed a judgment dismissing Gratech's application to vacate the arbitration panel's decision.In Gratech Co. v. North Dakota Dep't of Transp., Gratech asked this Court to adopt a de novo standard of review for questions of law in a statutorily-mandated arbitration.Id.at ¶¶ 10, 12.This Court decided it was unnecessary to resolve the issue because the arbitration panel correctly decided the issue regardless of the standard used.Id.at ¶ 13.

[¶ 4] In a complaint against Wold dated April 11, 2002, Gratech alleged breach of duty, bad faith, misconstruction of a contract, negligent misrepresentation, and deceit.Gratech, in its complaint, claimed Wold, contrary to the contract, classified plowing, discing, and drying as unplanned subcuts, or incidental work, and refused to pay for them.Purportedly unknown to Gratech, at the beginning of the project Wold classified the unstable soils encountered during the project as unsuitable.Gratech contended Wold threatened liquidated damages if the project was not completed on time, even though Wold knew of the conditions that delayed the project.Gratech claimed Wold ordered and directed a substantial amount of uncompensated extra work.

[¶ 5] Wold answered on May 16, 2002, seeking dismissal of Gratech's complaint, attorney's fees, and a jury trial.On February 18, 2003, Wold moved for summary judgment, claiming Gratech's claims were barred by res judicata or collateral estoppel, or alternatively, Gratech was required to arbitrate all claims.Gratech moved for partial summary judgment on liability.The district court granted Wold's motion and denied Gratech's motion.In Gratech Co. v. Wold Engineering, P.C.,2003 ND 200, ¶ 25, 672 N.W.2d 672, this Court held that N.D.C.C. § 24-02-26 required Gratech to arbitrate its claims against Wold.

[¶ 6] Subsequently, Gratech filed a demand for arbitration against Wold.On April 7, 2005, Wold moved for summary disposition of the arbitration proceedings based on res judicata, collateral estoppel, statute of limitations, and exclusivity of remedy.The motion was denied by the arbitrator, although he found Wold had satisfied the second, third, and fourth elements of collateral estoppel.The arbitrator determined the first element of collateral estoppel had not been established, as a matter of law and, therefore, required an evidentiary hearing.Following a four day hearing, on January 11, 2006, the arbitrator awarded Gratech nothing on its claims against Wold, but awarded Wold costs.In his explanation of the award, the arbitrator stated that the claim was barred by res judicata and collateral estoppel.The arbitrator found that "the facts giving rise to Gratech's claim in the first arbitration against ND/DOT are the same in this, the second arbitration."

[¶ 7] On January 13, 2006, Gratech moved to vacate the arbitration award and sought a new arbitrator.Wold moved to have the arbitration award confirmed.On September 13, 2006, the district court denied Gratech's motion to vacate the arbitration award.The district court entered judgment confirming the arbitrator's award in favor of Wold, but denying Wold's request for attorney's fees.Gratech appeals the district court's judgment confirming the arbitration award and Wold cross-appeals that part of the district court's judgment denying it attorney's fees.

II

[¶ 8] Gratech argues the district court's judgment confirming the arbitration award in favor of Wold should be reversed and the arbitration award vacated because the arbitration award was completely irrational, or alternatively, evidences a manifest disregard for the law.This Court has said before, "without a transcript, we would not be able to conduct a meaningful review of the . . . factual findings."Superpumper, Inc. v. Nerland Oil, Inc.,2003 ND 33, ¶ 17, 657 N.W.2d 250."The appellant assumes the consequences and the risk for the failure to file a complete transcript.If the record on appeal does not allow for a meaningful and intelligent review of alleged error, we will decline review of the issue."Id.This Court, in Superpumper, reviewed the issue under the limited record, because a transcript was not provided.Id.at ¶ 18.In this case, there is not a transcript of the arbitration proceeding.Gratech, as the appellant, assumed the consequences and risk for failing to file a complete transcript.This Court's ability to administer a meaningful and intelligent review is severely hindered by the incomplete record available on appeal.This Court, therefore, reviews the issues under the limited record provided.

[¶ 9] Gratech relies on N.D.C.C. § 32-29.3-23 to support its claim that the arbitration award should be vacated.

1.Upon motion to the court by a party to an arbitration proceeding, the court shall vacate an award made in the arbitration proceeding if:

. . . .

d. An arbitrator exceeded the arbitrator's powers;

. . . .

3 . . . .If the award is vacated on a ground stated in subdivision . . . d . . . of subsection 1, the rehearing may be before the arbitrator who made the award or the arbitrator's successor.

N.D.C.C. § 32-29.3-23.

[¶ 10] In Nelson Paving Co. v. Hjelle,207 N.W.2d 225, 234(N.D.1973), this Court, after considering decisions from other jurisdictions, adopted the rule that an arbitration award will not be vacated unless the award is completely irrational.An arbitration award is only vacated "if it is completely irrational, in that the decision is either mistaken on its face or so mistaken as to result in real injustice or constructive fraud.An arbitrator's mistake as to fact or law is not a sufficient ground for overturning an arbitration award."John T. Jones Construction Co. v. City of Grand Forks,2003 ND 109, ¶ 9, 665 N.W.2d 698(citation omitted)."Arbitrators, acting under the authority granted to them by a contract or statute, unless expressly limited by the terms of the contract or statute, are the judges of both the law and the facts."State v. Gratech Co.,2003 ND 7, ¶ 12, 655 N.W.2d 417.

[¶ 11] In Scherbenske Excavating, Inc. v. North Dakota State Highway Dep't,365 N.W.2d 485, 487-88(N.D.1985), this Court discussed the completely irrational standard by reviewing other courts' analyses."`As long as the award "draws its essence" from the contract, and is based upon a "passably plausible" interpretation of the contract, it is within the arbitrator's authority and our review must end.'"Id. at 487(quotingRhode Island Council 94 v. State,456 A.2d 771, 773(R.I.1983))."Yet another explanation of the completely irrational standard of review is that an arbitrator exceeds his powers when he gives a completely irrational construction to the agreement in dispute, thereby effectively creating a new contract between the parties."Scherbenske,365 N.W.2d at 487-88(citingSweeney v. Herman Mgmt., Inc.,85 A.D.2d 34, 447 N.Y.S.2d 164, 168(N.Y.App.Div.1982))."[T]he definitive constituents of a completely irrational award cannot be formulated in the abstract but, . . . can best be developed on a case-by-case basis."Scherbenske,365 N.W.2d at 488.

Obviously, the effect of applying the clearly irrational standard of review is to give to the arbitrators every benefit of every doubt.It affords them the widest latitude to exercise their authority and arrive at their decision without the customary restraints of traditional judicial review.It is but a reflection of the strong public policy favoring the arbitration process.We find no reasons compelling or persuasive enough to warrant revising the completely irrational standard of review and therefore we decline to overrule or modify Nelson Paving.

Scherbenske,365 N.W.2d at 489.

[¶ 12]The Court of Appeals for the Eighth Circuit has adopted an expanded standard of...