McKenzie v. Warmka

• Decision Date: 03 January 1978
• Docket Number: No. 75-829,75-829
• Citation: 260 N.W.2d 752,81 Wis.2d 591
• Parties: Lawrence J. McKENZIE, d/b/a McKenzie Construction Company, Respondent, v. Richard A. WARMKA, d/b/a Warmka Floor & Wall Covering, Appellant.
• Court: Wisconsin Supreme Court

Page 752

260 N.W.2d 752

81 Wis.2d 591

Lawrence J. McKENZIE, d/b/a McKenzie Construction Company, Respondent, v. Richard A. WARMKA, d/b/a Warmka Floor & Wall Covering, Appellant.

No. 75-829.

Supreme Court of Wisconsin.

Submitted Dec. 1, 1977.

Decided Jan. 3, 1978.

This is an appeal from a judgment changing the award of the arbitrator in a construction contract dispute. The trial court changed the award of the arbitrator and entered judgment awarding damages in the amount of $1,902.71 to the plaintiff-respondent, Lawrence J. McKenzie, d/b/a McKenzie Construction Company (hereinafter McKenzie). The judgment also dismissed the counterclaim of the appellant-defendant, Richard A. Warmka, d/b/a Warmka Floor & Wall Covering (hereinafter Warmka). Warmka appeals.

Gregory K. Scott and Bruce R. Rasmussen Law Offices, Beaver Dam, submitted brief for appellant.

Ralph W. Fink and Fink & Fink, Richland Center, submitted brief for respondent.

CONNOR T. HANSEN, Justice.

Warmka entered into a contract with McKenzie whereby Warmka agreed to install a seamless floor covering in a kitchen at St. Joseph's Memorial Hospital in Hillsboro. The floor covering was to meet certain specifications, and the contract price was to be $3,092.

The flooring subsequently installed by Warmka was rejected by McKenzie because the materials used did not conform to the specifications of the contract and because of alleged, but unspecified, defects of workmanship in the surface of the flooring.

Warmka's efforts to remedy the defects were unacceptable to McKenzie. McKenzie contracted with a third party to remove the flooring, apparently by grinding it away, and to install new flooring. The cost of removing the unsatisfactory flooring was $744.71, and the cost of the new replacement flooring was $4,100.

McKenzie commenced this action to recover damages in the amount of $1,902.71. This figure represents the difference between the $4,844.71 cost of removing and replacing the flooring, and Warmka's original contract price of $3,092, minus $150 for work which was allegedly not performed. ¹ Warmka counterclaimed for the original contract price of $3,092.

The parties stipulated that the matter be submitted to arbitration. The stipulation provided that all matters at issue in the pending action were to be determined by the arbitrator, Sante DeMarco of Rockford, Illinois. The issues were to be submitted to DeMarco "to the end that a determination of the facts and findings made (sic) and filed with the court herein." The arbitrator was to "make a determination of the facts and decided (sic) the issues" after a hearing, and to file a report which could be supplemented "by further findings or determinations by the (trial) court, in the event, in the interests of fairness and justice, the court shall determine need for same." Chapter 298, Stats., was to govern the arbitration, except as otherwise provided in the stipulation. Judgment was to be entered "(u)pon final determination of the matter by the arbitrator and approval or modification of same by the court. . . ."

The arbitrator's "report" consisted of a letter to the trial court. The arbitrator found that Warmka knew that the architect specified one of three franchised products for the job; that Warmka was not a franchised applicator and "went ahead on his own and used an unspecified product." He also found that the floor had not been accepted by McKenzie, the architect or the owner, and that all three said the floor was not satisfactorily installed. Although the arbitrator found that Warmka did not use the type of flooring material specified in the contract, it was the arbitrator's belief that the floor would have been accepted if it had been properly installed.

The arbitrator found that McKenzie was claiming $744.71 for the removal of the flooring installed by Warmka and $1,158 as the difference between the original contract price and the price of the replacement flooring. The arbitrator concluded:

"I do not feel that Mr. McKenzie should have to pay to correct problems created by Mr. Warmka and therefor should be reimbursed the $744.71. I do not believe Mr. McKenzie is entitled to the $1,158.00 as it is a general contractor's responsibility to know the subs and their capabilities prior to signing a contract with them. . . ."

He also stated:

"The above decision is based on my personal judgment of the case. It is my understanding that Your Honor will review this decision and make whatever corrective stipulations he deems to be proper."

Upon receiving the arbitrator's report, the trial court advised the parties that their stipulation for arbitration provided for a hearing before the court would make its findings of fact and conclusions of law. Neither party requested such a hearing within the time specified by the trial court, and the court proceeded to render its decision. In its decision, the court stated:

"A reading of the (arbitrator's) letter shows the following award was made to plaintiff:

"(1) $744.71 for repairs to the floor surface;

"(2) $1158 for completion of the floor by another contractor."

However, the arbitrator had said in his letter, "I do not believe Mr. McKenzie is entitled to the $1,158.00 . . . " The trial court reversed the arbitrator's award with regard to the $1,158 amount. This action was based on the trial court's determination that the arbitrator was appointed to find facts, and not to apply the law. The trial court held the arbitrator had overstepped his authority by "inject(ing) his view of the law of contract into the award of $1158.00." Judgment was entered in favor of McKenzie in the amount of $1,902.71.

Additional facts will be discussed in considering the issues, which are:

1. Was the arbitrator authorized to decide questions of both law and fact, or only to make findings of fact?

2. Should the trial court have vacated the award on the ground that it was not final and complete?

3. Did the trial court err in changing the award with regard to McKenzie's claim for $1,158?

I.

The trial court, in its decision, stated that the arbitrator:

" . . . was appointed to find facts, as is abundantly clear from a reading of the arbitration stipulation. He was not appointed to apply the law."

We do not believe this conclusion is supported by the arbitration stipulation. The stipulation provided:

" . . . that in lieu of a trial all matters at issue set forth in the Complaint of the plaintiff herein shall be submitted to arbitration. . . .

"That all further proceedings of this action be stayed until such time as the issues now pending between the parties shall have been determined by a single arbitrator, . . .

" . . .. fu

"The arbitrator shall make a determination of the facts and decided (sic) the issues herein within a reasonable time. . . ." (Emphasis added.)

McKenzie argues that the arbitrator was authorized only to make findings of fact, and points out that the stipulation provides:

"The parties mutually agree to submit all issues now the subject of this action to said arbitrator to the end that a determination of the facts and findings made and filed with the Court herein." (sic) (Emphasis added.)

In isolation, this passage might tend to support the view that the arbitrator was merely to prepare findings of fact. However, the stipulation further provides that the arbitrator was to determine what was variously stated as "all matters at issue set forth in the Complaint . . ."; ". . . the issues now pending between the parties . . . "; " . . . all issues now the subject of this action . . . "; and " . . . the issues. . . ." He was to " . . . make a determination of the facts and decided (sic) the issues herein. . . ." (Emphasis added.)

This court has recognized that arbitrators ordinarily are expected to determine questions of law as well as fact. In Madison v. Frank Lloyd Wright Foundation, 20 Wis.2d 361, 392, 122 N.W.2d 409, 425 (1963), this court observed:

"It is not fatal that the arbitration process . . . will lead to a consideration of mixed questions of law and fact. On the contrary, this is to be expected and is entirely consistent with the basic purpose of arbitration proceedings as a substitute for normal litigation."

Considering the stipulation in its entirety, we are of the opinion that the parties submitted all aspects of their controversy to the arbitrator for resolution. There is no explicit limitation upon the power of the arbitrator, and the submission of the dispute empowered him to determine questions of law as well as fact.

II.

Warmka argues that the arbitrator's award was not final or complete and therefore should have been vacated. This argument rests primarily upon the alleged failure of the arbitrator to consider Warmka's counterclaim for the original contract price.

It is the policy of this court to encourage arbitration. Madison v. Frank Lloyd Wright Foundation, supra, 374, 122 N.W.2d 409; In re Lower Baraboo River Drainage Dist., 199 Wis. 230, 240, 225 N.W. 331 (1929). An arbitrator's award is therefore presumptively valid and will be disturbed only where invalidity is shown by clear and convincing evidence. Scherrer Const. Co. v. Burlington Mem. Hosp., 64 Wis.2d 720, 735, 221 N.W.2d 855 (1974).

Nevertheless, where the arbitrator so imperfectly executes his power that a final, complete and definite award upon the subject matter is not made, the award will be vacated. The instant parties stipulated that except as specifically provided otherwise, the provisions of ch. 298, Stats., would govern the arbitration proceedings. Sec. 298.10(1)(d) provides that upon application of a party the trial court must vacate the award:

"Where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final and definite award upon the subject matter submitted was not made."

This requirement reflects the common-law rule that an award must be definite and certain and sufficiently detailed to finally settle the...