RS Indus., Inc. v. Scott

• Decision Date: 07 June 2016
• Docket Number: No. 1 CA–CV 15–0035,1 CA–CV 15–0035
• Citation: 240 Ariz. 132,377 P.3d 329
• Parties: RS Industries, Inc. and Sun Mechanical Contracting, Inc., Plaintiffs/Appellants, v. J. Scott and Beverly Candrian, Defendants/Appellees.
• Court: Arizona Court of Appeals

240 Ariz. 132

377 P.3d 329

RS Industries, Inc. and Sun Mechanical Contracting, Inc., Plaintiffs/Appellants

v.J. Scott and Beverly Candrian, Defendants/Appellees.

No. 1 CA–CV 15–0035

Court of Appeals of Arizona, Division 1.

FILED June 7, 2016

Haralson, Miller, Pitt, Feldman & McAnally, PLC, Tucson, By Gerald Maltz, for Plaintiffs/Appellants.

Rusing, Lopez & Lizardi, PLLC, Tucson, By Michael J. Rusing, P. Andrew Sterling, for Defendant/Appellee.

Thomas A. Zlaket, PLLC, Tucson, By Thomas A. Zlaket, for Defendant/Appellee.

Presiding Judge Diane M. Johnsen delivered the opinion of the Court, in which Judge Patricia A. Orozco and Judge Kenton D. Jones joined.

OPINION

JOHNSEN, Judge:

¶ 1 After an arbitrator ruled on several claims and made a significant award of attorney's fees and expenses, the superior court confirmed the award and granted more fees and expenses. On appeal, the parties dispute whether their arbitration agreement and applicable law authorize the awards of fees and expenses. We affirm.

FACTS AND PROCEDURAL BACKGROUND

¶ 2 Scott and Beverly Candrian founded Sun Mechanical Contracting, Inc., a Tucson plumbing and HVAC contractor. In 2003, the Candrians entered into a series of agreements with RS Industries, Inc., an Iowa company, by which the Candrians exchanged their stock in Sun for a 25 percent interest in RS. Mr. Candrian agreed to serve as president of Sun, now wholly owned by RS, for ten years and, at the end of that period, RS would buy back the Candrians' stock in RS. Mr. Candrian was guaranteed a position on RS's board of directors so long as he owned RS stock; meanwhile, the Candrians continued to serve on the Sun board.

¶ 3 In late 2012, before time for the stock buy-back, RS accused Mr. Candrian of breaching his employment agreement and alleged that, as a result of his breach, the Candrians' stock in RS had no value. In response, the Candrians filed suit in federal district court, asking it to declare the value of the stock; several months later, Sun sued the Candrians in superior court, alleging $10.7 million in damages for breach of the employment agreement and seeking enforcement of newly passed corporate resolutions purporting to oust the Candrians from the Sun board. A month later, the district court dismissed the complaint in favor of arbitration. The parties eventually negotiated an arbitration agreement covering all their disputes, and the superior court stayed the state action pending arbitration.

¶ 4 The parties selected a Phoenix lawyer as their arbitrator. In the two court cases, they had made numerous filings and litigated an application for a temporary injunction.

They continued to battle during the run-up to the four-day arbitration. With several million dollars at stake, they retained expert witnesses, took depositions, propounded and responded to discovery requests, litigated discovery disputes, and briefed a motion by the Candrians for summary judgment. The arbitrator ultimately decided nearly all issues in favor of the Candrians, concluding they were owed $5,006,245 for their RS stock and that Mr. Candrian was due $77,000 in unpaid wages.

¶ 5 Having prevailed on the merits, the Candrians filed an application seeking $1,032,411.50 in attorney's fees and $211,240.41 in “costs.” Over RS's objection, the arbitrator granted the Candrians nearly every dollar they had sought, citing as authority the arbitration agreement, RS bylaws, Iowa indemnity laws (one of the contracts referenced Iowa law) and Arizona Revised Statutes (“A.R.S.”) section 12–341.01(A) (2016).¹ RS then filed a motion in superior court to vacate the arbitrator's award of attorney's fees and costs; the Candrians moved to confirm the award. After briefing and oral argument, the superior court denied the motion to vacate and confirmed the arbitration award in its entirety. The court then granted the Candrians attorney's fees and expenses of $54,781.33, along with taxable costs of $243, incurred in the confirmation proceeding.

¶ 6 RS timely appealed. We have jurisdiction pursuant to Article 6, Section 9, of the Arizona Constitution and A.R.S. §§ 12–2101(A)(1) (2016) and -2101.01(A)(6) (2016).

DISCUSSION

A. Arbitrator's Award of Attorney's Fees and Costs.

1. Attorney's fees.

¶ 7 Arizona public policy favors arbitration as a speedy and affordable means of resolving disputes, and judicial review of an arbitrator's award is substantially limited by statute. City of Cottonwood v. James L. Fann Contracting, Inc. , 179 Ariz. 185, 189, 877 P.2d 284, 288 (App. 1994). An arbitrator's decisions regarding questions of law and fact are final, and will not be disturbed unless the arbitrator has purported to decide a matter that is beyond the scope of the issues submitted for arbitration. Smitty's Super–Valu, Inc. v. Pasqualetti , 22 Ariz.App. 178, 180–81, 525 P.2d 309 (1974) ; see also Hirt v. Hervey , 118 Ariz. 543, 545, 578 P.2d 624, 626 (App. 1978) (“[A]n arbitration award is not subject to attack merely because one party believes that the arbitrators erred with respect to factual determinations or legal interpretations.”). Indeed, under Arizona's version of the Revised Uniform Arbitration Act, A.R.S. §§ 12–3001 et seq ., as relevant to this appeal, an aggrieved party may petition the superior court to vacate an arbitration award only if the “arbitrator exceeded the arbitrator's powers.” A.R.S. § 12–3023(A)(4) (2016). We review the superior court's decision to confirm an arbitration award in the light most favorable to upholding the decision and will affirm unless the superior court abused its discretion. See Atreus Communities Group of Ariz. v. Stardust Dev., Inc. , 229 Ariz. 503, 506, ¶ 13, 277 P.3d 208, 211 (App. 2012).

¶ 8 RS does not contest the arbitrator's findings on liability and damages, but argues the arbitrator exceeded his authority when he awarded attorney's fees and expenses. By statute, “[a]n arbitrator may award reasonable attorney fees and other reasonable expenses of arbitration only if that award is authorized by law in a civil action involving the same claim or by the agreement of the parties to the arbitration proceeding.” A.R.S. § 12–3021(B) (2016). In that regard, § 12–3021(B) grants an arbitrator the same power the superior court has to award fees in a civil action. See Sanders v. Boyer , 126 Ariz. 235, 241, 613 P.2d 1291, 1297 (App. 1980) (general rule is that attorney's fees are not allowed “except where expressly provided for by either statute or contract”).

¶ 9 The arbitration agreement the parties negotiated stated:

All Parties have the right to apply to the Arbitrator for recovery of reasonable attorney's fees incurred in connection with the arbitration, and also the authority to apply for reasonable attorneys' fees previously incurred in the lawsuits referenced in Recitals C [the prior district-court proceeding] and E [the prior state-court proceeding], under any applicable statute, rule, or contract.

After prevailing in the arbitration, the Candrians sought $611,693 in fees incurred in the two lawsuits before the arbitration began and $420,718.50 incurred in the arbitration. The arbitrator awarded them fees of $1,032,299.50.

¶ 10 Although RS broadly contends the arbitrator exceeded his powers, each argument RS raises to the fees award is a contention that the arbitrator ruled incorrectly, not that he lacked the power to rule. For example, RS argues the dismissals of the two lawsuits constituted res judicata against the Candrians, barring any fee award to them. It argues A.R.S. § 12–341.01, the Arizona statute that allows a court to grant fees to the prevailing party in a “contested action arising out of a contract,” did not apply because the buy-sell agreement specified that Iowa law would govern and the other claims were not sufficiently intertwined with claims under the employment agreement, to which Arizona law applied. And it argues the Iowa laws and the corporate bylaws the arbitrator cited do not permit a fees award under the circumstances presented here. All of these are arguments why the arbitrator assertedly erred in deciding to award fees, not arguments why he exceeded his authority in doing so.

¶ 11 RS further contends that under the language in the arbitration agreement quoted above, no fees could be granted except as provided by “applicable statute, rule, or contract.” The Candrians interpret the agreement differently; they argue the “applicable statute, rule, or contract” language was intended to apply to a request for fees incurred in the lawsuits but not to a request for fees incurred in the arbitration itself. Regardless, by their agreement, the parties granted to the arbitrator the power to resolve any dispute about the meaning of the fees provision. Pursuant to A.R.S. § 12–3023(A), on appeal, we will not review the merits of an arbitrator's factual findings or legal conclusions. See Atreus Communities , 229 Ariz. at 506, ¶ 13, 277 P.3d at 211 (“[T]he arbitrator's decisions are final and binding as to both issues of fact and law, regardless of the correctness of the decision.”).

¶ 12 RS failed to show the arbitrator exceeded the powers granted to him by the law and the agreement to award reasonable attorney's fees incurred in the arbitration proceeding and in the two lawsuits that preceded the arbitration. See A.R.S. § 12–3023(A). The superior court accordingly did not err in confirming the fees award.

2. Costs/Expenses.

¶ 13 The Candrians asked the arbitrator to award them roughly $98,600 in expenses incurred in the pre-arbitration lawsuits and $112,600 in expenses incurred during the arbitration. The arbitrator's award of $211,240.41 in expenses included filing fees, deposition transcripts and videographer charges, costs of travel to attend depositions, expert witness fees, food and lodging during the arbitration (both sides had Tucson lawyers; the arbitration was conducted in Phoenix), copying costs, delivery expenses, parking, and the costs of preparing hearing exhibits.²

¶ 14 As noted, ...