JOHN T. JONES v. City of Grand Forks

• Decision Date: 16 July 2003
• Docket Number: No. 20020195.,20020195.
• Citation: 2003 ND 109,665 N.W.2d 698
• Parties: JOHN T. JONES CONSTRUCTION CO., Plaintiff, Appellant and Cross-Appellee, v. CITY OF GRAND FORKS, North Dakota, Defendant, Appellee and Cross-Appellant.
• Court: North Dakota Supreme Court

665 N.W.2d 698

2003 ND 109

JOHN T. JONES CONSTRUCTION CO., Plaintiff, Appellant and Cross-Appellee, v. CITY OF GRAND FORKS, North Dakota, Defendant, Appellee and Cross-Appellant.

No. 20020195.

Supreme Court of North Dakota.

July 16, 2003.

Rehearing Denied August 20, 2003.

Thomas R. Olson (argued) and Brian J. Wisdorf (on brief), Olson & Price, Ltd., St. Paul, MN, and Patrick W. Fisher (on brief), Fisher & Olson, Grand Forks, N.D., Michael Francis Daley (appeared), Wheeler Wolf, Bismarck, N.D., for plaintiff, appellant and cross-appellee.

Ronald F. Fischer (argued), Pearson Christensen, Grand Forks, N.D., and Howard D. Swanson (appeared), City Attorney, Grand Forks, N.D., for defendant, appellee and cross-appellant.

NEUMANN, Justice.

[¶ 1] John T. Jones Construction Company ("Jones") appealed, and the City of Grand Forks cross-appealed, from a judgment adopting an arbitrator's findings, conclusions and order in Jones's breach of contract action against the City. Because judicial review of the arbitrator's decision is governed by the provisions of the Uniform Arbitration Act, N.D.C.C. ch. 32-29.2, and none of the issues presented in this appeal were raised in the district court, we affirm the judgment.

I

[¶ 2] In November 1998, the City awarded Jones a $6,792,000 construction contract for expansion of its wastewater treatment plant. Jones submitted its winning bid for the project based on the plans and specifications prepared for the City by KBM, Inc., and a visit to the construction site by company representatives. The construction contract required the work be substantially completed by November 15, 1999, and provided that substantial completion and final completion dates "are of the essence of the Contract." The contract also contained a liquidated damages clause requiring the contractor to pay the City "$800.00 for each day that expires after the time" specified for substantial completion. Jones encountered soft soils at the construction site which eventually began heaving. Soil also sloughed from the side slopes of the excavation, and Jones claimed the sloughing resulted from unanticipated soil conditions. Jones did not substantially complete work on the project until March 20, 2000.

[¶ 3] After various change orders were approved that both increased and decreased the contract amount, the City paid Jones $6,672,190.74. Jones requested an additional $191,570.59 from the City, claiming the sloughing resulted from changed conditions at the site and caused project delays and additional costs. The City refused to pay the additional amount, claiming the sloughing was caused by improper construction techniques employed by Jones. In May 2000, Jones sued the City for breach of contract. The City counterclaimed, alleging Jones's work did not meet contract specifications and seeking liquidated damages for failure to meet the contractual time limits.

[¶ 4] In April 2001, the parties entered into, and the trial court signed, a "Stipulation and Order for Restricted Arbitration." The parties agreed to submit their disputes to arbitration, and set forth the procedure that would be followed. The parties agreed that the arbitration proceedings would be governed by the North Dakota Rules of Civil Procedure and the North Dakota Rules of Evidence, and that the arbitrator "shall make a reasoned and written determination as to liability and damages that conforms to the substantive law of the State of North Dakota." The parties further agreed that the arbitrator's "decision [would be] entered as an appealable judgment in Grand Forks County District Court, subject to appeal to the North Dakota Supreme Court," and that the arbitrator's

decision will be subject to appeal to the North Dakota Supreme Court based on the following standards of review:

Issue of Fact: Clearly erroneous

Issue of Law: de novo review based upon the same substantive law as stated above

[¶ 5] Following an 8-day hearing, a private arbitrator issued a 33-page decision ruling Jones was not entitled to additional compensation or an extension of the contract time under the differing site conditions clause of the contract because Jones had failed to establish the conditions at the site "were an unknown physical condition, were of an unusual nature, or that these conditions differed materially from those ordinarily encountered ..." The arbitrator further ruled the City was entitled to recover liquidated damages under the contract and damages for Jones's deviation from plans and specifications. After deducting the City's damages from the amount Jones claimed was due under the contract, the arbitrator ordered the City to pay Jones $66,043.22 plus interest. The arbitrator ruled each party would bear its own costs, disbursements and attorney fees.

[¶ 6] Under the Stipulation and Order for Restricted Arbitration, the trial court ordered entry of judgment in accordance with the arbitrator's findings, conclusions and order. Jones appealed the judgment to this Court, claiming the arbitrator erred as a matter of law in ruling Jones did not provide sufficient evidence of a differing site condition. The City cross-appealed, claiming the arbitrator erred in failing to award the City its costs, disbursements, expert fees and attorney fees.

II

[¶ 7] Jones argues we should apply a de novo standard of review in this case because the issues raised involve questions of law. The City argues we should apply the clearly erroneous standard of review under N.D.R.Civ.P. 52(a) to the disputed questions of fact and the de novo standard of review to the disputed questions of law, as set forth in the parties' agreement. Both parties contend the standard of review for vacating an arbitration award provided in the Uniform Arbitration Act, N.D.C.C. ch. 32-29.2, does not apply because the trial court approved their Stipulation and Order for Restricted Arbitration and because this case does not involve compelled arbitration.

[¶ 8] The validity of arbitration agreements is recognized by N.D.C.C. § 32-29.2-01, which provides:

A written agreement to submit any existing controversy to arbitration or a provision in a written contract to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable, and irrevocable, except upon such grounds as exist at law or in equity for the revocation of any contract. Sections 32-29.2-01 through 32-29.2-20 also apply to arbitration agreements between employers and employees or between their respective representatives unless otherwise provided in the agreement.

(Emphasis added.) Although the first sentence of N.D.C.C. § 32-29.2-01 does not specifically state a written agreement to arbitrate is governed by N.D.C.C. ch. 32-29.2, the second sentence of the statute states the chapter "also" applies to agreements between employers and employees. The only logical interpretation of the statute is that N.D.C.C. ch. 32-29.2 applies not only to compelled arbitration, but applies to a written agreement to submit any existing controversy to arbitration.

[¶ 9] Under N.D.C.C. § 32-29.2-11, a court must confirm an arbitration award unless there are grounds for vacating, modifying or correcting the award. The statutory grounds for vacating an arbitration award are set forth in N.D.C.C. § 32-29.2-12(1):

1. On application of a party, the court shall vacate an award if:

a. The award was procured by corruption, fraud, or other undue means;

b. There was evident partiality by an arbitrator appointed as a neutral, corruption in any of the arbitrators, or misconduct prejudicing the rights of any party;

c. The arbitrators exceeded their powers;

d. The arbitrators refused to postpone the hearing after sufficient cause was shown to postpone it or refused to hear evidence material to the controversy or otherwise so conducted the hearing, contrary to section 32-29.2-05, as to prejudice substantially the rights of a party; or

e. There was no arbitration agreement and the issue was not adversely determined in proceedings under section 32-29.2-02 and the party did not participate in the arbitration hearing without raising the objection.

The fact that the relief was such that it could not or would not be granted by a court of law or equity is not grounds for vacating or refusing to confirm the award.

We will vacate an arbitration award under N.D.C.C. § 32-29.2-12(1)(c) only 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. Superpumper, Inc. v. Nerland Oil, Inc., 2003 ND 33, ¶ 13, 657 N.W.2d 250. An arbitrator's mistake as to fact or law is not a sufficient ground for overturning an arbitration award. Id. The public policy underlying the limited judicial review of arbitration awards is stated in Scherbenske Excavating, Inc. v. North Dakota State Highway Dep't, 365 N.W.2d 485, 489 (N.D.1985):

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.

[¶ 10] We have said that "[a]rbitrators, 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., Ltd., 2003 ND 7, ¶ 12, 655 N.W.2d 417. We have not addressed whether parties to an arbitration agreement may contract for a heightened judicial standard of review for an arbitration award that differs from the statutory grounds for vacatur.

[¶ 11] Under the Federal Arbitration Act, 9 U.S.C. §§ 1-16, the federal courts are split on whether parties can contractually expand the judicial standard of review of an arbitration award. Some federal...