Hayman Co. v. Brady Mechanical, Inc., Docket No. 71939

• Decision Date: 01 February 1985
• Docket Number: Docket No. 71939
• Citation: 139 Mich.App. 185,362 N.W.2d 243
• Parties: The HAYMAN COMPANY and Townhouse Associates, Plaintiffs-Appellees, v. BRADY MECHANICAL, INC., Defendant-Appellant.
• Court: Court of Appeal of Michigan — District of US

Page 243

362 N.W.2d 243

139 Mich.App. 185

The HAYMAN COMPANY and Townhouse Associates, Plaintiffs-Appellees, v. BRADY MECHANICAL, INC., Defendant-Appellant.

Docket No. 71939.

Court of Appeals of Michigan.

Submitted Oct. 16, 1984.

Decided Nov. 19, 1984.

Released for Publication Feb. 1, 1985.

Hyman, Gurwin, Nachman, Friedman & Winkleman by Laurance A. Berg, Southfield, for plaintiffs-appellees.

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

Before BRONSON, P.J., and J.H. GILLIS and DODGE, ^* JJ.

J.H. GILLIS, Judge.

Defendant appeals as of right from a circuit court order vacating an award rendered by the American Arbitration Association.

The parties entered into a contract on February 15, 1980, which called for defendant to perform certain heating and plumbing work for an apartment building owned by the plaintiffs. Article 21 of the contract, upon which the present dispute is centered, provided as follows:

"21.1 The Owner without invalidating the Contract may order Changes in the Work consisting of additions, deletions, or modifications, the Contract Sum and the Contract Time being adjusted accordingly. All such Changes in the Work shall be authorized by written Change Order signed by the Owner or the Architect as his duly authorized agent.

"21.2 The Contract Sum and the Contract Time may be changed only by Change Order.

"21.3 The cost or credit to the Owner from a Change in the Work shall be determined by mutual agreement."

Pursuant to the contract, defendant installed boilers in the apartment complex. When the boilers would not work properly, plaintiffs demanded that the defendant make them operational under penalty of forfeiting the balance owed on the contract. Defendant hired an independent contractor to make the repairs, which defendant concluded were made necessary by a defect in the design which had been provided by plaintiffs, as well as problems with electrical work performed by a separate contractor in direct privity with plaintiffs and under their supervision and control. Defendant requested compensation for the extra work performed, but plaintiffs refused to pay.

A demand for arbitration was filed by defendant on November 6, 1981. After several hearings before the arbitrator, an award in the amount of $10,012.98 was rendered in the defendant's favor.

Defendant filed a motion to confirm and plaintiff filed a motion to vacate the arbitration award in the circuit court. The lower court granted plaintiffs' motion, finding that article 21.1 of the contract entered into between the parties had been ignored by the arbitrator. In so doing, the lower court concluded that the arbitrator committed a substantial legal error, which, pursuant to Detroit Automobile Inter-Ins. Exchange v. Gavin, 416 Mich. 407, 331 N.W.2d 418 (1982), justified granting plaintiffs' motion to vacate the award. Defendant appeals from the circuit court's decision.

The first question to be addressed concerns the standard of review applicable to the arbitration award rendered in this case. Defendant advances the federal standard adopted by the Michigan Supreme Court in Kaleva-Norman-Dickson School Dist. No. 6 v. Kaleva-Norman-Dickson School Teachers' Ass'n, 393 Mich. 583, 591, 227 N.W.2d 500 (1975), and summarized in Ferndale Education Ass'n v. Ferndale School Dist. # 1, 67 Mich.App. 637, 643, 242 N.W.2d 478 (1976):

"Judicial review is limited to whether the award 'draws its essence' from the contract, whether the award was within the authority conferred upon the arbitrator by the collective bargaining agreement. Once substantive arbitrability is determined (as it was in the court below) judicial review effectively ceases. The fact that an arbitrator's interpretation of a contract is wrong is irrelevant."

See also Saginaw v. Michigan Law Enforcement Union, Teamsters Local 129, 136 Mich.App. 542, 358 N.W.2d 356 (1984).

Plaintiffs, on the other hand, argue for the applicability of the following standard adopted by the Supreme Court in Gavin :

" '[W]here it clearly appears on the face of the award or the reasons for the decision as stated, being substantially a part of the award, that the arbitrators through an error in law have been led to a wrong conclusion, and that, but for such error, a substantially different award must have been made, the award and decision will be set aside.' " Gavin, supra, 416 Mich. p. 439, 331 N.W.2d 418, quoting Howe v. Patrons' Mutual Fire Ins. Co., 216 Mich. 560, 570; 185 N.W. 864 (1921).

Defendant rejects this argument, contending that the standard of review announced in Gavin was specifically limited to automobile insurance policy statutory arbitration.

We agree with the plaintiffs that the standard adopted in Gavin is applicable not just to the automobile insurance policy setting, but to all statutory arbitration. Pursuant to GCR 1963, 769, a statutory arbitration award rendered under the authority of RJA Chapter 50 may be vacated where, among other grounds, "[t]he arbitrators exceeded their powers." GCR 1963, 769.9(1)(c). In Gavin, the Supreme Court noted that rule 769.9(1)(c) merely announced the scope of review. How the parties were to determine whether the arbitrators have exceeded their powers, i.e., the appropriate standard of review, required clarification, and thus the "substantial error of law" rule of Howe, supra, was adopted.

Since the case now before us involves statutory arbitration, GCR 1963, 769.9(1)(c) is applicable and the award may be vacated if the arbitrator exceeded his power. Further, since the scope of review is identical to cases involving automobile insurance policy arbitration, we can see no reason or justification for applying a different standard of review. Defendant offers none, but cites the following passage from Gavin to support its argument for a different standard:

"We accept and adopt for application to automobile insurance policy statutory arbitration this formulation as reflecting the proper role of the courts in acting upon a motion to confirm or vacate arbitration awards." Gavin, 416 Mich. p. 443, 331 N.W.2d 418.

We decline to read into this passage an intent to restrict the standard announced in Gavin to the automobile insurance setting. Rather, we believe the Supreme Court was simply announcing the application of the Howe standard to the facts of the case before the Court. The standard is equally applicable to any arbitration award which can be vacated because the arbitrators have exceeded their powers, i.e., statutory arbitration.

Next, we must determine whether the trial court ruled correctly in vacating the award on the ground that the arbitrator committed a substantial error of law. The trial court's ruling was based upon its assumption that the arbitrator must have either ignored, or considered and disregarded, article 21.1 of the contract, which states that all changes in the work order "shall be authorized by a written change order * * * ", and article 21.2, which provides that the contract sum may be changed only by a change order. The basis for this assumption was the trial court's...