O-S Corp. v. Samuel A. Kroll, Inc.

• Decision Date: 19 December 1975
• Docket Number: O-S,No. 240,240
• Citation: 348 A.2d 870,29 Md.App. 406
• Parties: CORPORATION et al. v. SAMUEL A. KROLL, INC.
• Court: Court of Special Appeals of Maryland

Page 406

29 Md.App. 406

348 A.2d 870

O-S CORPORATION et al. v. SAMUEL A. KROLL, INC.

No. 240.

Court of Special Appeals of Maryland.

Dec. 19, 1975.

Donald N. Rothman and Lawrence S. Greenwald, Baltimore, for appellants.

Mitchell Stevan, Baltimore, with whom were Sagner, Stevan & Harris, Baltimore, on the brief, for appellee.

Argued before MOYLAN, POWERS and LOWE, JJ.

LOWE, Judge.

A motion to vacate an arbitration award may give rise to an infrequent instance where even an equity court may not do equity. The Maryland Uniform Arbitration Act, codified as Subtitle 2, Title 3, of the Courts and Judicial Proceedings Act, provides that a court shall not vacate an award of arbitration 'on the ground that a court of law or equity could not or would not grant the same relief.' Cts. Art., Sec. 3-224(c). This legislative limitation upon judicial review is premised upon the common law consideration of arbitration as a 'favored' action,

'. . . and the awards of arbitrators would not be set aside by the courts unless the arbitrator was guilty of fraud, misconduct or prejudice, had exceeded his authority, or had made a mistake in law or fact appearing on the face of the award.' Bel Pre Med. v. Frederick Contr., 21 Md.App. 307, 316, 320 A.2d 558, 563, reversed on other grounds 274 Md. 307, 334 A.2d 526.

Adopting that concept statutorily, the General Assembly articulated it by restrictively defining the grounds upon which a court might vacate an award, and expressly proscribed any possibility of substitution of a reviewing court's judgment for that of the arbitrators. Among the narrow grounds permitting vacation of an award by the courts are the two here in question.

Cts. Art., Sec. 3-224.

'(b) Grounds.-The court shall vacate an award if:

(1) An award was procured by corruption, fraud, or other undue means; . . . (or if)

(3) The arbitrators exceeded their powers; . . ..' (Emphasis added).

At the heart of this appeal from the Circuit Court of Baltimore City is the question of whether either or both of these grounds permit judicial relief from an award for any reasons other than an apparent improbity. Is there judicial relief available from an arbitration award that was arrived at in good faith but, because of grossly misguided judgment, is shockingly absurd?

It is appellants' contention that (1) the Maryland Uniform Arbitration Act by employing the words 'undue means' and 'exceeded their powers,' intended to require a reviewing court to vacate an award which is rendered without any rational basis, and (2) the award rendered in this case is of that type. Appellee concedes that, despite the favor and finality with which arbitration is viewed, a line of cases has developed which holds that there is a distant threshold beyond which reason is so affronted that judicial remedy may be applied. From argument of counsel and from a similarity of authority cited in their briefs, we glean that the parties here may have approached some general agreement of the state of the law, though neither acknowledged it. Essentially appellants would permit us to vacate an 'arbitrary' award while appellee concedes us such authority only when the award is 'completely irrational.' Our interpretation of the law accords more with appellee; however, its application to the facts in this case does not bode him well.

We hold that when reviewing the fruits of an arbitrator's award, a judge may withold only such as were tainted by improbity or based on a completely irrational interpretation of the contract. We recognize the very limited extension of the reviewing court's scope of review to include authority to vacate an award that is 'completely irrational.' Statutory support for this is found not only in the fact that arbitrators 'exceeded their powers' when they reach a completely irrational result, but also in the connotation of the words 'undue means' in Sec. 3-224(b)(1). An award that is 'completely irrational' is inferentially opprobrious, i. e., '(e)xpressing or carrying a sense of disgrace or contemptuous scorn', ¹ causing it to be suspect in its conception.

The complete irrationality rule has as its genesis the New York Court of Appeals ² which was said to be 'the source of much instruction in this field' by the United States Third Circuit Court of Appeals when it too 'held that an award of an arbitrator is not subject to judicial revision unless it is 'completely irrational'.' Swift Industries, Inc. v. Botany Industries, Inc., 466 F.2d 1125, 1131. Although the interpretive dispute between appellants and appellee is superficially semantic, we think the New York rule offered by appellee better reflects how limitedly we see our authority to vacate arbitration awards than does the language offered by appellants. The test urged by appellants is that used in labor arbitrations under the Taft-Hartley Act ³ and is best depicted by a statement in Mogge v. District 8, International Ass'n. of Machinists, 7 Cir., 454 F.2d 510, 513:

'We have held this standard to mean that a reviewing court should not disturb the award so long as the interpretation was not arbitrary.'

An adoption of this standard would permit a review of an Interpretation of a contract under arbitration. It is our view that such review is beyond our authority.

If, however, the language of the contract under arbitration permits but one meaning, an arbitrator who does not follow such a clear contractual mandate exceeds his authority as surely as if he had gone beyond the scope of his express arbitration authority. An award so based does not derive from an arbitrary interpretation. Such a result is rather 'completely irrational' since the words of the contract are so clear that there is nothing to interpret. We must judicially accept an arbitrary interpretation of a contract by an arbitrator. We shall vacate a completely irrational one. Of the four questions we will consider in light of these limits, only one has been found to be completely irrational.

FACTS

Appellee contracted to build a condominium apartment building for appellants. Although the lengthy contract was in considerable detail, for simplicity's sake we will describe it as one in which the basis of payment was to be the cost of the work plus a fee, subject to an 'upset price.' ⁴ Appellee agreed to construct the building for a fee of $100,000.00 at a cost not to exceed $3,063,480.00. In addition to the payment of th fee, appellants agreed '. . . to reimburse the (appellee) Contractor for the Cost of the Work. . . .' as later defined. Because of disputes arising over what was to be reimbursed, the parties submitted to arbitration ⁵ pursuant to the terms of the General Conditions. Four items of the arbitration award were disputed by appellants, whereupon they petitioned the Circuit Court of Baltimore City to vacate the award. Appellee moved for, and was granted, summary judgment leaving the arbitrators' award intact. Still smarting from these adverse rulings, appellants come to us, seeking relief from the four items in the award which they consider arbitrary, but which in order to vacate, we must find completely irrational:

1. The amounts for wages billed to appellants by appellee in amounts exceeding wages actually paid to workmen on the job;

2. the cost of field overhead added to the 'upset price' arising out of work delay, the cause of which was disputed;

3. an additional fee for work performed on an apartment constructed for occupancy by appellant Meyerhoff (who wholly owned the corporate appellant);

4. the rental for equipment used on the job but not billed to appellants by appellee within the time required by the contract.

Procedurally our review is similar to a review under Md. Rule 1086 when we are called upon to review actions tried by a lower court without a jury. In such case, we may not substitute our judgment for that of the lower court on the evidence, but may only set aside the court's judgment when it is 'clearly erroneous.' On the other hand, our review her need not seek a preponderance of the evidence to support the award, nor even substantial evidence. There need by only some evidence to meet the test of ratinality, i.e., it may be so little as to make the result 'arbitrary', so long as it is not completely irrational.

LABOR COSTS

In addition to the 'fixed fee,' appellants contracted to reimburse appellee for 'Cost of the Work.' That term was defined by the contract in pertinent part as:

ARTICLE 9

COSTS TO BE REIMBURSED

9.1 The term Cost of the Work shall mean costs necessarily incurred in the proper performance of the Work and paid by the Contractor. Such costs shall be at rates not higher than the standard paid in the locality of the Work except with prior consent of the Owner, and shall include the items set forth below in this Article 9.

9.1.1 Wages paid for labor in the direct employ of the Contractor in the performance ance of the Work salary or wage schedule agreed upon by the Owner and Contractor, and including such welfare or other benefits if any, as may be payable with respect thereto.

9.1.3 Cost of contributions, assessments or taxes for such items as unemployment compensation and social security, insofar as such cost is based on wages, salaries, other other remuneration paid to employees of the Contractor and included in the Cost of the Work under Subparagraphs 9.1.1 and 9.1.2.'

It is conceded that appellee was awarded more than appellee paid out for labor. Appellee billed appellants for labor reimbursement in an amount of equal to the number of hours worked multiplied by the hourly wage appearing in the wage schedule referred to in Sec. 9.1.1 for each type of employee. Appellants contend that the contract provides for reimbursement for hours worked multiplied by the amount per hour actually paid to the workmen. The arbitrators awarded appellee the wages reflected in the schedule rather than limiting the award to wages appellee had actually paid. Further, the arbitrators added 15%...