Pugh's Lawn Landscape Co. Inc v. Jaycon Dev. Corp.

• Decision Date: 22 September 2010
• Docket Number: No. W2008-01366-SC-R11-CV.,W2008-01366-SC-R11-CV.
• Citation: 320 S.W.3d 252
• Parties: PUGH'S LAWN LANDSCAPE COMPANY, INC.v.JAYCON DEVELOPMENT CORPORATION.
• Court: Tennessee Supreme Court

320 S.W.3d 252

PUGH'S LAWN LANDSCAPE COMPANY, INC.
v.
JAYCON DEVELOPMENT CORPORATION.

No. W2008-01366-SC-R11-CV.

Supreme Court of Tennessee,
at Jackson.

April 7, 2010 Session.
Sept. 22, 2010.

320 S.W.3d 253

COPYRIGHT MATERIAL OMITTED

320 S.W.3d 254

Kathy Baker Tennison and Stuart B. Breakstone, Memphis, Tennessee, for the appellant, Pugh's Lawn Landscape Co., Inc.

Stephen F. Libby, Memphis, Tennessee, for the appellee, Jaycon Development Corporation.OPINIONJANICE M. HOLDER, C.J., delivered the opinion of the Court, in which CORNELIA A. CLARK, GARY R. WADE, WILLIAM C. KOCH, JR., and SHARON G. LEE, JJ., joined.

JANICE M. HOLDER, C.J.

We granted appeal in this case to address whether parties may modify by agreement the scope of judicial review of an arbitrator's award. We hold that judicial review of arbitration awards is governed by the Tennessee Uniform Arbitration Act (“TUAA”). As such, the provision in the parties' arbitration agreement purporting to expand the scope of the judicial review beyond that set forth in the TUAA is invalid. We further hold that the failure of this provision constitutes a mutual mistake requiring rescission of the parties' arbitration agreement. We therefore reverse the judgment of the Court of Appeals, vacate the trial court's judgment confirming the arbitrator's award, and remand

320 S.W.3d 255

this case to the trial court for further proceedings.I. Facts and Procedural History

On March 8, 2006, Pugh's Lawn Landscape Company, Inc. (“Pugh's”) filed a complaint for breach of contract against Jaycon Development Corporation (“Jaycon”) in the Circuit Court for Shelby County. In its answer, Jaycon asserted a counterclaim against Pugh's for breach of contract. The contract expressly provided that any disputes arising from the contract would be governed by Tennessee law and that any litigation or arbitration must be conducted in Tennessee. The contract did not, however, require the parties to submit to arbitration. Nonetheless, after conducting limited discovery, the parties agreed to submit the matter to arbitration.

On May 15, 2007, the trial court entered a consent order captioned “Order of Reference to Arbitration and Reservation of Appellate Rights” (“consent order”), which provided as follows:

The parties agree that a) any and all findings, rulings or judgments issued by the arbitrator shall be appealable, using the same standards of review, as if the finding, ruling or judgment in question was issued by [the trial court]; b) that the agreement that the arbitrator's ruling is appealable was material consideration for the agreement of each party to submit this matter to arbitration.

A local attorney conducted the arbitration in May 2007 and issued a written decision on December 11, 2007, awarding Jaycon $51,082.20 in damages, plus attorneys fees, court costs, and the cost of the arbitration. On January 4, 2008, Jaycon filed a motion asking the trial court to confirm the arbitrator's award. Pugh's did not file a response. On January 18, 2008, the trial court entered an order confirming the arbitrator's award and entering judgment in favor of Jaycon.

Pugh's appealed. Relying on the language in the consent order permitting either party to seek an appeal, Pugh's asked the Court of Appeals to review the arbitrator's award pursuant to the parties' “reservation of appellate rights.” At oral argument, the Court of Appeals sua sponte raised the issue of whether parties may modify by agreement the scope of judicial review of an arbitrator's award and ordered the parties to file supplemental briefs.¹ The Court of Appeals held that judicial review of an arbitrator's decision is statutorily limited by the Tennessee Uniform Arbitration Act (“TUAA”) and that parties may not modify by agreement the scope of judicial review of an arbitrator's award from that set forth in the TUAA. Having so held, the intermediate appellate court affirmed the trial court's order confirming the arbitrator's award.

Pugh's filed a petition for rehearing in which Pugh's contended that the consent order's provision for expanded judicial review was a material element of the parties' agreement to arbitrate and that the agreement should be rescinded based on mutual mistake. The Court of Appeals denied the petition for rehearing based on Pugh's failure to object in the trial court to Jaycon's

320 S.W.3d 256

motion to confirm the arbitration award and raise the issue of mutual mistake. The intermediate appellate court held that the record therefore lacked sufficient information from which to determine the validity of the agreement to arbitrate.

We granted Pugh's application for permission to appeal to determine whether parties may agree to a scope of judicial review of an arbitrator's award that differs from the judicial review set forth in the TUAA.

II. Analysis A. Scope of Review of an Arbitration Award in Tennessee

An agreement to arbitrate is governed by the TUAA.² Tenn.Code Ann. §§ 29-5-301 to -320 (2000). The TUAA provides that

(a) A written agreement to submit any existing controversy to arbitration ... is valid, enforceable and irrevocable save upon such grounds as exist at law or in equity for the revocation of any contract....

(b) The making of an agreement described in this section providing for arbitration in this state confers jurisdiction on the court to enforce the agreement under this part and to enter judgment on an award thereunder.

Tenn.Code Ann. § 29-5-302. We have held that “[a] judgment by consent is in substance a contract of record made by the parties and approved by the court.” Third Nat. Bank v. Scribner, 212 Tenn. 400, 370 S.W.2d 482, 486 (1963) accord Harbour v. Brown, 732 S.W.2d 598, 599-600 (Tenn.1987). Thus, the parties' agreement to arbitrate embodied in the consent order falls within the scope of the TUAA.

Three statutes describe the judicial review that a court must apply when asked to enforce an arbitration award pursuant to the TUAA. See Tenn.Code Ann. §§ 29-5-312 to -314. Pursuant to section 29-5-312, “the court shall confirm an award, unless, within the time limits hereinafter imposed, grounds are urged for vacating or modifying or correcting the award, in which case the court shall proceed as provided in §§ 29-5-313 and 29-5-314.” (Emphasis added). The grounds enumerated in sections 29-5-313 and 29-5-314 for vacating, modifying, or correcting an arbitration award are narrow.³

320 S.W.3d 257

In this case, however, the parties agree that they did not intend to invoke the narrow judicial review provisions provided in the TUAA. To obtain review pursuant to the TUAA, one of the parties was required to request that the trial court vacate, modify, or correct the arbitrator's award pursuant to the limited grounds set forth in the TUAA. See id. §§ 29-5-313, -314. Neither party objected to the trial court's confirmation of the award, and therefore neither party preserved a basis for appeal from the trial court's confirmation. See id. § 29-5-312.

Instead, the parties in this case attempted to appeal the arbitrator's award, not the trial court's confirmation of the award. To do so, the parties included a provision in their consent order stating that the arbitrator's award “shall be appealable, using the same standards of review, as if the finding, ruling or judgment in question was issued by [the trial court].” Simply put, they attempted to make the decision of the arbitrator the judgment or ruling of the trial court and to permit an appeal therefrom.

We therefore must determine whether an arbitration agreement may provide for a judicial review of an arbitration award that is broader than the scope of review provided by the TUAA or whether the application of the TUAA limits the manner in which the arbitrator's award may be reviewed. This is an issue of law, which we review de novo. Edwards v. Allen, 216 S.W.3d 278, 284 (Tenn.2007).

We have not addressed this issue directly, but we previously have touched on the role of trial courts in arbitration. In Arnold v. Morgan Keegan & Co., Inc., we observed that the language of the TUAA evinced the General Assembly's intent “to limit the trial court's authority to retry issues decided by arbitration.” 914 S.W.2d 445, 448 (Tenn.1996). We also emphasized the importance of finality in the arbitration award process: “To permit a dissatisfied party to set aside the arbitration award and to invoke the Court's judgment upon the merits of the cause would render arbitration merely a step in the settlement of the dispute, instead of its final determination.” Id. at 452.

In Arnold, we relied heavily on the United Stated Supreme Court's decision in First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995), which concerned the Federal Arbitration Act (“FAA”). We explained that both the FAA and the TUAA were adopted “to promote private settlement of disputes, thereby bypassing the courts. As such, the scope of review advanced by the United States Supreme Court has equal application in a case under the

320 S.W.3d 258

[TUAA] to the extent that such review furthers the common goal of acts.” ⁴ Arnold, 914 S.W.2d at 448 n. 2. For the same reason, the United States Supreme Court's decision in Hall Street Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 128 S.Ct. 1396, 170 L.Ed.2d 254 (2008), also concerning the FAA, guides our analysis of the issue presented in this case.

In Hall Street, the Supreme Court rejected the parties' agreement to expand the trial court's review of their arbitration awards under the FAA. The arbitration agreement between the parties in Hall Street provided that the trial court “shall vacate, modify or correct any award: (i) where the arbitrator's findings of facts are not supported by substantial evidence, or (ii) where the arbitrator's conclusions of law are erroneous.” Id. at 579, 128 S.Ct. 1396. The arbitration agreement was executed and entered as an order of the trial court during...