MCI Construction v. Hazen and Sawyer, 1:99CV00002 (M.D.N.C. 8/29/2003)

• Decision Date: 29 August 2003
• Docket Number: 1:99CV00002.
• Court: U.S. District Court — Middle District of North Carolina
• Parties: MCI CONSTRUCTION, LLC, Plaintiff, v. HAZEN AND SAWYER, P.C., a New York Corporation and CITY OF GREENSBORO, NORTH CAROLINA, A Municipality organized under the laws of North Carolina, Defendants.

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MCI CONSTRUCTION, LLC, Plaintiff, v. HAZEN AND SAWYER, P.C., a New York Corporation and CITY OF GREENSBORO, NORTH CAROLINA, A Municipality organized under the laws of North Carolina, Defendants.

1:99CV00002.

United States District Court, M.D. North Carolina.

August 29, 2003.

ORDER

RUSSELL ELIASON, District Judge.

This case comes before the Court on a motion made by J. Edward Kitchen for a protective order prohibiting his deposition and an order quashing plaintiff's notice of that deposition. Kitchen, who is not a party to this action, currently works as the City Manager for the defendant City of Greensboro. This lawsuit involves a construction contract dispute. Article 16 of the contract contains a clause which allows Mr. Kitchen to decide controversies between the parties even though he works for one of them.

Plaintiff wishes to take Kitchen's deposition for two reasons. First, plaintiff wants to depose him concerning work he did as the City Manager prior to and during the time that project disputes developed between the parties. Second, plaintiff wants to depose him in order to determine the reasons and bases for his decisions while acting as the referee for the parties' disputes. Kitchen ruled against plaintiff in those decisions.

The parties' positions on Kitchen's motion vary. Naturally, plaintiff seeks to take the deposition which it noticed. The engineer for the project, defendant Hazen and Sawyer, has made no comment on the issue. The other defendant, the City of Greensboro, has neither categorically stated that it opposes the deposition nor joined in Kitchen's motion for a protective order.

I.

Boiled down to its bare essentials, Kitchen claims that he should not be deposed because he should be treated as if he were an arbitrator. The idea that Kitchen is an arbitrator, or at least something akin to one, is hardly new to this case. Early in the case, before Kitchen's status directly impacted any of the central issues, Kitchen was frequently referred to by the parties and the Court as an "arbitrator." However, this was merely a generic or descriptive term because no final decision on his actual status had ever been made.

At one time, plaintiff sought to compel certain discovery on the issue of "arbitrator bias." Because everyone treated Kitchen as an arbitrator, the undersigned denied the motion by holding:

The general rule is that the Federal Rules of Civil Procedure do not apply to post hoc questioning of arbitrators and that any discovery into arbitrator bias is handled pursuant to judicial supervision and only then in the limited situation where clear evidence of impropriety has been shown. Woods v. Saturn Distribution Corp., 78 F.3d 424, 430 (9th Cir.), cert, dismissed, 518 U.S. 1051, 117 S.Ct. 30, 135 L.Ed.2d 1123 (1996); Lyeth v. Chrysler Corp., 929 F.2d 891, 899 (2d Cir. 1991); Matter of Andros Compania Maritima, S.A. of Kissavos, 579 F.2d 691, 702 (2d Cir. 1978). This limitation on discovery pertains even though it may well be very difficult to prove actual bias without discovery. See Portland General Elec. Co. v. U.S. Bank Trust Nat. Ass'n, 38 F. Supp.2d 1202, 1208 (D. Ore. 1999), rev'd on other grounds, 218 F.3d 1085 (9th Cir. 2000) (collecting cases.

(Order of June 28, 2001, at 2-3). Consequently, prior to conducting any such discovery, plaintiff was required to obtain an order permitting and setting the scope of such discovery from the trial judge. (Id.)

On September 6, 2000, the district judge assigned to the case ruled on plaintiff's motion to vacate Kitchen's decisions made in his status as a referee. The Court held that unless Kitchen could be classified as an arbitrator under the Federal Arbitration Act, 9 U.S.C. § 1, et seq. ("FAA"), plaintiff could not seek vacatur under that Act. This is because vacatur of an arbitration decision is a "unique remedy available only under the Federal Arbitration Act." (J. Osteen's Mem. Op. and Order, Sept. 6, 2002, at 5) Judge Osteen found that Kitchen was not an "arbitrator" subject to the rules and protections of the FAA, but was instead a contractually appointed referee. (Id. at 14-15) As a consequence, Kitchen's decisions are not to be evaluated under the FAA, but under the law as set out in Elec-Trol, Inc. v. C. J. Kern Contractors, Inc., 54 N.C. App. 626, 284 S.E.2d 119 (1981), rev, denied, 305 N.C. 298, 290 S.E.2d 701 (1982), and Welborn Plumbing & Heating Co. v. Randolph County Bd. of Educ., 268 N.C. 85, 150 S.E.2d 65 (1966). Those cases provide that the parties are bound by the referee's decision except "`in case of fraud or such gross mistake as would necessarily imply bad faith or a failure to exercise an honest judgment.'" Welborn, 268 N.C. at 90, 150 S.E.2d at 68, quoting, 13 Am. Jur.2d Building, Etc. Contracts § 34.

Judge Osteen further held that plaintiff's motion to compel discovery on arbitrator bias was premised on incorrect standards given that Kitchen was not an arbitrator. The motion was ultimately denied for that reason. (Mem Op. and Order, Sept. 6, 2002 at 18) The Opinion and Order did not identify what standards would apply in order to depose Kitchen, nor did it address whether Kitchen's status as a contractually appointed referee made any difference at all for discovery purposes.

II.

Returning to the discovery issue now before the Court, Kitchen attaches great importance to his status as a contractually appointed referee. He claims that because his decision can only be defeated if plaintiff can meet the high standard of showing fraud or gross mistake evidencing bad faith or a failure to exercise honest judgment, it follows that his deposition can be taken only if plaintiff first provides some proof that he engaged in that type of misconduct. This type of heightened proof requirement would be similar to the one previously applied to Kitchen when he was thought to be an unbiased arbitrator operating under the FAA or similar acts.

Kitchen rests his conclusion on a group of North Carolina cases which hold that parties are not allowed to delve into the mental processes of contractually designated arbitrators without a clear showing of a reason to believe that misconduct occurred. See In re National Risk Underwriters. Inc., 884 F.2d 1389, 1989 WL 100649 (4th Cir. August 22, 1989) (unpublished); William C. Vick Construction Co. v. North Carolina Farm Bureau Federation, 123 N.C. App. 97, 472 S.E.2d 346, rev. denied, 344 N.C. 739, 478 S.E.2d 14 (1996); Ruffin Woody And Associates, Inc. v. Person County, 92 N.C. App. 129, 374 S.E.2d 165 (1988), rev. denied, 324 N.C. App. 337, 378 S.E.2d 799 (1989); Turner v. Nicholson Properties, Inc., 80 N.C. App. 208, 341 S.E.2d 42, rev, denied. 317 N.C. 714, 347 S.E.2d 457 (1986). Those cases do state that arbitrators cannot be deposed absent a preliminary showing of misconduct. However, they are different in critical ways from the case at bar.

First, the cases cited by Kitchen all involve neutral arbitrators that were truly separate from the parties to the arbitrations. This is apparent because all four of the cases arise from motions to vacate brought under North Carolina's version of the Uniform Arbitration Act, N.C. Gen. Stat. S 1-567.1, et seq. (NCUAA).¹ That Act works very similarly to the FAA, in that a party may bring a motion to confirm, modify, or vacate an arbitration decision before a judge who will overturn the decision only if very high standards are met.² Turner, 80 N.C. App. at 211-212, 341 S.E.2d at 45 (mistakes of fact or law immaterial). Further, similar to FAA arbitrators, state law arbitrators cannot be deposed to support such a motion to vacate, unless a preliminary showing of misconduct is made. Ruffin Woody, 92 N.C. App. at 139, 374 S.E.2d. at 171.

In contrast to the arbitrators in the cited cases. Kitchen is neither an arbitrator nor neutral. He is the referee selected in the parties' contract and he worked under an obvious and inherent bias in favor of the City. Accordingly, his decisions were not made under the auspices of the FAA; nor, as will be seen, the NCUAA. Instead, Judge Osteen's Order specifically held that plaintiff's attack on Kitchen's decision is controlled by the standards set out in Elec-Trol and Welborn. These cases do not involve motions to vacate brought under the NCUAA, but instead establish an entirely different standard of review. In conclusion, Kitchen is not an arbitrator operating under either the FAA or NCUAA.

Kitchen has not cited any cases to support his proposition that biased referees are entitled to the same protection from discovery as are neutral arbitrators who are subject to the FAA or the NCUAA. He argues, however, that he should be protected from deposition in the same way as those arbitrators because there is a similar need to protect the process set up by the parties. In Kitchen's view, when the parties contracted for a truncated method of dispute resolution, they could not have also intended to involve the "arbitrator" in depositions and hearings in order to examine his rationale and reasoning used in reaching his decisions. To do so, it is argued, would defeat this intention.

The Court agrees with Kitchen that protecting the dispute resolution process is an important factor in deciding whether to allow discovery in cases subject to the FAA and NCUAA. National Risk Underwriters, 1989 WL 100649, at **3; Turner, 80 N.C. App. at 211, 341 S.E.2d at 44-45. The arbitrator decides the merits of the disputes and any review of that decision is, itself, subject to a truncated procedure involving a limited presentation to a judge to confirm, modify, or vacate the award under a narrow standard of review. The abbreviated procedures of both arbitration and review prevent the proceeding from devolving into a standard litigation battle. In such circumstances, it is imperative that discovery be restricted.

In the instant case, the referee's decision seems to be a process similar to the expedited procedure used in an FAA...