Jaffa v. Shacket
| Decision Date | 28 May 1982 |
| Docket Number | Docket No. 51043 |
| Citation | 114 Mich.App. 626,319 N.W.2d 604 |
| Parties | Harold S. JAFFA and Irving Taran, Plaintiffs-Appellees, v. Al A. SHACKET, Leroy Helfman, Hulett, Inc., and James G. Hartrick, Defendants-Appellants. 114 Mich.App. 626, 319 N.W.2d 604 |
| Court | Court of Appeal of Michigan — District of US |
[114 MICHAPP 629] Levin, Levin, Garvett & Dill by Wallace K. Sagendorph, Southfield, for plaintiffs-appellees.
Schwartz, Knauer, VanderKloot & Abrams, Birmingham, for defendants-appellants Shacket and Helfman.
Before V. J. BRENNAN, P. J. and ALLEN and MEGARGLE *, JJ.
This case involves a real estate development scheme gone sour. Defendants Al Shacket and Leroy Helfman arranged to purchase a parcel of land in Meridian Township through a land banking arrangement with James G. Hartrick. Shacket and Helfman later entered into a partnership with plaintiffs, Harold Jaffa and Irving Taran, and the partnership purchased the property from Hartrick's corporation, Hulett, Inc. Plaintiffs claim that Shacket and Helfman concealed their prior arrangements with Hulett, Inc., and inflated the price of the property, in violation of their fiduciary relationship to the partnership and with an intent to defraud plaintiffs.
On July 25, 1975, plaintiffs filed suit against the three men and Hulett and the case was assigned to then-Oakland County Circuit Court Judge William P. Hampton. The parties agreed to arbitration and selected Judge Hampton, who had then left the bench, as arbitrator. In February 1980, the arbitrator found Shacket and Helfman, but not [114 MICHAPP 630] Hulett or Hartrick, liable for $257,189.75. This award was confirmed by the Oakland County Circuit Court and defendants Shacket and Helfman now appeal as of right, challenging the arbitrator's decision on both fact and law.
Two business ventures are involved in this dispute. The first is a corporation formed in 1967 "to acquire, own, use, convey and otherwise dispose and deal with or in real property or any interest". Initially known as Geney, Inc., the business later became known as Hulett, Inc. Throughout this opinion, the venture will be referred to as Hulett. Hulett's president during most relevant times was Hartrick.
On November 8, 1967, Shacket, Helfman and Hartrick signed an agreement for development of land. As part of this agreement, Shacket and Helfman were to acquire purchase agreements with the right to assign them to Hartrick or Hulett. Hartrick was to furnish the money for this and Shacket and Helfman were to pay expenses for design, engineering and zoning of the property in order to develop it as a mobile home park. The agreement further provided that the property could be sold only to Shacket and Helfman, unless they agreed otherwise, until November 8, 1967. The buy-back price was set at $3,800 per acre, unless Hartrick agreed to less. Furthermore, Hartrick was to reimburse Shackett and Helfman for development costs if resale brought Hartrick a profit of at least $1,000 per acre.
The second venture is Stay Company, a partnership consisting of Shacket, Helfman, Jaffa, and [114 MICHAPP 631] Taran. Discussion about forming a partnership to develop a mobile home park began in the summer of 1969 and the partnership agreement was signed September 16, 1969. The park was to be on the same property involved in the Shacket and Helfman agreement with Hulett.
Under the partnership agreement, Shacket and Helfman were to transfer the land to the partnership "at their cost". In addition, both were to contribute $12,500. Jaffa and Taran were each to give $25,500 in cash and to loan $155,000 to the partnership.
The parties disagreed about whether Jaffa and Taran were informed of the 1967 agreement of Shacket, Helfman and Hartrick. The arbitrator found that there was no such disclosure before the formation of Stay Company and that Jaffa and Taran did not learn of the agreement until late 1973. The arbitrator further found that Hartrick was informed that a disclosure had been made.
From 1967 through 1969, Shacket and Helfman acquired options to purchase three real estate parcels, which together formed the 145-acre parcel that is the subject of the dispute. These options were assigned to Hulett for $1 each and closings on the options occurred from August through October 1969. The total purchase price for the entire parcel was $260,500.
Before Hulett closed on these properties, Shacket and Helfman, acting pursuant to the 1967 agreement, offered to buy the entire parcel for $525,000. The offer to purchase was dated July 15, 1969. Shacket and Helfman assigned their interest to Stay on September 16, 1969, and a land contract [114 MICHAPP 632] for the 145-acre parcel was executed October 7, 1969.
Payments were made under the land contract and a 55-acre parcel was transferred to Stay as payments were complete. This property was mortgaged to acquire funds for another development and was forfeited after Stay Company encountered financial difficulties in the 1970s. While payments were made on the remaining property, those payments were forfeited to Hulett when Stay defaulted on land contract payments after plaintiffs accused Shacket and Helfman of fraud.
In 1970, Stay attempted to acquire an additional parcel of land near the 145-acre parcel. This land, owned by Derwood Dickinson, was the subject of an offer to purchase by Shacket and Helfman. Shacket and Helfman informed their broker that they wished to purchase the property in the name of an associate, Donald White, for tax reasons, and another offer to purchase was drawn up and accepted. The purchase price of that additional parcel was to be $2,600 per acre.
Stay offered to purchase this land from White for a higher price and at a higher interest rate. Sale of this property was never consummated and plaintiffs stated at the arbitration hearing that they were not seeking damages from this transaction.
Plaintiffs learned of Shacket and Helfman's original offer to purchase the Dickinson land. Their subsequent investigation revealed Shacket and Helfman's actions in acquiring the options on the 145-acre parcel and plaintiffs initiated these proceedings.
[114 MICHAPP 633] On August 2, 1974, the parties signed an agreement in an attempt to settle their disputes. The agreement afforded plaintiffs an opportunity to buy out Shacket and Helfman's interest in the partnership. If plaintiffs failed to act by September 9, 1974, Shacket and Helfman could purchase plaintiffs' interest.
The agreement also included a release clause that was to be effective "upon execution".
Neither party exercised the option to purchase and plaintiffs proceeded with this suit, which was submitted to arbitration.
Initially, we must determine what scope of review is appropriate. The arbitration agreement was an unusual one and was designed to permit former judge Hampton to act as a "private judge". The agreement provided that for the purposes of the controversy, the arbitrator possessed "all powers possessed by a Circuit Court Judge for the State of Michigan, sitting as a Judge of law and facts". The agreement further stated that the arbitrator was to be governed by the statutes, court rules and substantive, procedural and evidentiary law of Michigan and that no decision at variance with the law was to be entered. Review of the award was to be pursuant to GCR 1963, 769.9 "except for the last sentence of 769.9(1)" and the provisions as to the powers of the arbitrator.
The court rule, including its last sentence, states:
[114 MICHAPP 634] "Upon application of a party, the court shall vacate an award where:
Plaintiffs and defendants indicated at the arbitration hearings that they intended by this agreement to hire a private judge who would make findings of fact and conclusions of law that were reviewable.
Generally, an agreement to submit a dispute to arbitration involves a pledge to abide by the arbitrator's decision. Under an arbitration agreement that does not provide otherwise, it is understood that the arbitrator's errors of fact or misinterpretation of the law are not generally grounds for setting aside the award. DAIIE v. McMillan, 97 Mich.App. 687, 691, 296 N.W.2d 147 (1980); Ferndale Education Ass'n v. School Dist. for the City of Ferndale, 67 Mich.App. 637, 242 N.W.2d 478 (1976). If, however, the arbitrator exceeded his powers by acting arbitrarily or manifestly disregarding the law, a reviewing court may set aside the award. McMillan, supra, DAIIE v. Spafford, 76 Mich.App. 85, 87, 255 N.W.2d 780 (1977).
[114 MICHAPP 635] An exception to this general rule has been recognized however, in North American Steel Corp. v. Siderius, Inc., 75 Mich.App. 391, 254 N.W.2d 899 (1977). There, where the parties agreed that the arbitrator was required to follow the Uniform Commercial Code, the scope of judicial review included an examination of the award to determine whether it conformed to the code.
The Siderius exception formed a model for the parties drafting this arbitration agreement. Rather than limiting review to errors of law, however, the parties herein indicated an intent to have the award reviewed for errors of both fact and law. We do not believe...
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