JBC of Wyoming Corp. v. City of Cheyenne

• Citation: 843 P.2d 1190
• Decision Date: 21 December 1992
• Docket Number: No. 92-32,92-32
• Parties: JBC OF WYOMING CORP., a corporation, Appellant (Plaintiff), v. CITY OF CHEYENNE, Wyoming; and Cheyenne Board of Public Utilities, Appellees (Defendants).
• Court: United States State Supreme Court of Wyoming

Page 1190

843 P.2d 1190

JBC OF WYOMING CORP., a corporation, Appellant (Plaintiff), v. CITY OF CHEYENNE, Wyoming; and Cheyenne Board of Public Utilities, Appellees (Defendants).

No. 92-32.

Supreme Court of Wyoming.

Dec. 21, 1992.

Bruce A. Salzburg of Herschler, Freudenthal, Salzburg, Bonds & Rideout, Cheyenne, and Stephen S. Dunham (argued), and Roxanne Jensen of Morrison & Foerster, Denver, CO, for appellant.

J. Kent Rutledge (argued), of Lathrop & Rutledge, Cheyenne, for appellees.

Before MACY, C.J., and THOMAS, CARDINE, URBIGKIT ^* and GOLDEN, JJ.

CARDINE, Justice.

An arbitrator awarded JBC consequential damages equal to thirty percent (30%) per year of the unpaid amounts due JBC in its contractual dispute with the defendants City of Cheyenne (City) and Cheyenne Board of Public Utilities (Board). This amount was to be paid to JBC in addition to other awards in its favor, and interest due on them. An appeal to the district court resulted in reversal of the consequential damage award. JBC of Wyoming Corporation (JBC) now appeals the trial court's reversal of the consequential damage award.

Because the arbitrator abused his discretion in making this consequential damage award, we affirm the trial court's order.

JBC states the issue before us as follows:

Did the district court err when it found that the neutral arbitrator exceeded his authority by awarding compensatory damages for appellees' failure to pay monies owed to appellant?

This action arises out of the construction of the Stage II Little Snake Diversion Pipeline Project (Project) near Encampment, Wyoming. JBC was the general contractor for, and the City the owner of, the Project. The Project involved the construction of 16 miles of roads, 103 stream diversion and collection structures, and 120,000 feet of pipeline in the mountains of the Medicine Bow National Forest. The contract price was approximately $20,485,000.00. The contract contained a provision requiring the parties to negotiate any disputes between them under the contract prior to commencing any litigation.

As the Project proceeded, problems developed with one of JBC's subcontractors, Varra Companies, Inc. (Varra). JBC brought suit against Varra after Varra allegedly "walked off the job." This suit eventually expanded to include numerous other issues and to engulf JBC, Varra, the Board, Banner Associates (the architect on the Project), and various surety companies in costly litigation in state and federal courts, which lasted until a settlement was reached on the eve of trial. As part of the settlement process, and in view of their painful and expensive experience with the court system, JBC and the appellees entered into an agreement to submit any remaining and future contractual disputes between them to binding arbitration.

The Submission Agreement required the appellees and JBC each to appoint a representative with full settlement authority. If the representatives failed to agree on any issue, they were to appoint a neutral third party to decide it. Subsequent to execution of the Submission Agreement, numerous problems in addition to those already in controversy arose with the Project. The most serious of these concerned the 66- and 72-inch pipe installed below ground at the Project site. The pipe had become defective, and repairs estimated at over $4.5 million were needed.

On July 10, 1987, JBC filed suit in state district court against the City, the Board, and other named defendants, seeking damages for the pipe design failures, structural embankment failures, water quality problems, and payment of retainage due from the City and Board under the contract. The complaint stated claims in both tort and contract. The City and the Board responded with a motion to dismiss and application for order of arbitration. On October 20, 1987, the trial court determined that JBC's claims against the City and the Board were subject to the previously-executed Submission Agreement. It stayed the suit as to the City and Board and ordered JBC to submit its claims against them to arbitration under the Agreement.

Meanwhile, by the end of August 1987, the Board had suspended progress payments under the contract to JBC. The Board claimed this suspension was justified under its contractual right to "nullify" previous payments because of the construction defects. On September 4, 1987, JBC responded by notifying the Board that it was terminating the contract for nonpayment. After this notice of termination, JBC proceeded to complete the Project at its own expense.

On October 28, 1987, JBC sent the Board a list of claims it intended to submit to the arbitration process. These claims were divided into two categories: "Alternate A" and "Alternate B." Alternate A was a total cost claim under the contract for the expenses of the work plus a reasonable profit. JBC estimated the amount due under Alternate A at $14.5 million. Alternate B consisted of a number of individual claims totalling $8.25 million.

JBC initially presented a number of the individual claims under Alternate B for resolution through the arbitration process, and some of them were resolved. However, JBC became dissatisfied with the Board's nonpayment of these claims after resolution and with its continued withholding of nullification payments, so on March 3, 1989, JBC presented its "total cost claim" for $19,895,133.00 to Warren Hunter, the neutral arbitrator. The claim was based on a provision of the contract which allowed the contractor, in the event of nonpayment, to terminate the agreement and to receive payment for "all work executed and any expense sustained plus a reasonable profit." In a footnote to its claim, JBC stated: "If this claim is granted and total cost awarded, it will cover and dispose of all JBC's other claims."

On May 18, 1989, Hunter ruled that JBC was not entitled to exercise the total cost remedy provided for in the parties' contract. However, because of the "serious effects" of the Owner's withholding of funds from JBC, Hunter ruled that:

A. The Owner must pay JBC an additional 30% per year (over and above the interest allowed in Paragraph 101.16.04) on all funds found to have been improperly withheld from the Contractor. This ruling will also apply to any funds not promptly paid the Contractor because of the Owner's purported budgetary problems. The additional dollar amount will be calculated starting on the date the monies were originally due and continue until paid in full.

B. JBC retains the right to pursue any or all of their claims that have not been settled.

In a letter to the parties dated June 28, 1989, Hunter further explained this award as follows:

2. Even though I did not feel JBC was entitled to the complete Total Cost Claim * * *, I did feel they were entitled to compensatory damages for the effects on their company that resulted from the monies wrongfully withheld by the Board. My reasoning for this was explained throughout the decision.

3. The 30% is not interest. It is just the method I chose to determine the compensatory damages.

4. The 30% was awarded as fair and equitable compensatory damages to JBC for the damages they suffered because of the Board wrongfully withholding payments due JBC. Because I did not have, nor would the total information be available until all claims were settled, all of the information needed to determine a fixed amount for compensatory damages, I chose the percentage method because it could easily be applied to the present known monies and also to any future monies that may apply. [emphasis in original]

The City and Board moved the trial court for an order correcting or vacating Hunter's award of 30% compensatory damages. They also moved to disqualify Hunter as the neutral arbitrator, on the grounds that he was biased toward JBC. Angered by their suggestion of bias, Hunter resigned as the neutral arbitrator on July 16, 1989. The trial court entered an order holding the motion to correct the award in abeyance. It appointed a new arbitrator, Stuart Bartholomew, to hear JBC's remaining individual claims.

After JBC's substantive claims were heard and decided, and only the interest amount remained to be considered, JBC petitioned the court, with extensive briefs and exhibits, to confirm the 30% compensatory damage award and to remand for a calculation of damages. The defendants responded by opposing this motion and again moving that the 30% arbitration award be vacated. On December 19, 1991, the trial court ruled that Hunter exceeded his authority in making the 30% award. It vacated the award. After the trial court certified that there was no just cause for delay pursuant to W.R.C.P. 54(b), JBC took timely appeal to this court from the trial court's order vacating the arbitrator's award.

Standard of Review

We have located no cases setting out the standard of review to be followed when evaluating an order of the trial court which vacates an arbitration award. Our prior cases do not make clear whether we owe any deference to the trial court's determination that grounds existed for vacating the award.

The trial court's power to set aside an arbitration award seems best analogized for standard of review purposes to its power to grant judgment notwithstanding a jury's verdict (JNOV). See W.R.C.P. 50(b). When reviewing the trial court's entry of a JNOV, we "undertake a full review of the record without deference to the views of the trial court." Inter-Mountain Threading, Inc. v. Baker Hughes Tubular Serv., Inc., 812 P.2d 555, 558 (Wyo.1991). Like the question of whether a JNOV should be entered, the issue of whether the arbitrator exceeded his authority is primarily a question of law. We owe no deference to the trial court's determination of questions of law. Cf. Union Pacific R.R. Co. v. State Bd. of Equalization, 802 P.2d 856, 859 (Wyo.1990) (no deference to trial court's determination of questions of law in agency appeal).

In reviewing the record below, we are...