Sheffield Assembly of God Church, Inc. v. American Ins. Co., WD

• Decision Date: 22 February 1994
• Docket Number: No. WD,WD
• Citation: 870 S.W.2d 926
• Parties: SHEFFIELD ASSEMBLY OF GOD CHURCH, INC., Respondent, v. The AMERICAN INSURANCE CO., et al., Appellant. 47479.
• Court: Missouri Court of Appeals

Page 926

870 S.W.2d 926

SHEFFIELD ASSEMBLY OF GOD CHURCH, INC., Respondent, v. The AMERICAN INSURANCE CO., et al., Appellant.

No. WD 47479.

Missouri Court of Appeals Western District.

Feb. 22, 1994.

Patrick L. Dunn, Mitchell, Kristl & Lieber, P.C., Kansas City, for appellant.

Clem W. Fairchild, Fairchild Stang Beal Barber & Sanders, P.C., Kansas City, for respondent.

Before BERREY, P.J., and BRECKENRIDGE and SMART, JJ.

SMART, Judge.

This appeal arises from entry of an order confirming an arbitration award after a breach of a construction contract. The American Insurance Company ("American") and Mills/Design Build Group, Inc. ("Mills") appeal from the trial court's order affirming the arbitration award of $475,000.00 in favor of Sheffield Assembly of God Church, Inc. ("Sheffield").

Judgment is affirmed.

On August 15, 1982, Sheffield contracted with Mills for the construction of the "Family Life Center," a multi-purpose addition for Sheffield Assembly of God Church. Mills originally bid to perform the work on a "design/build" basis, meaning that Mills offered a bid to perform both the architectural and construction services under one contract. After extensive negotiations between the parties, Sheffield signed a construction contract with Mills as the general contractor and a separate agreement with George Mills, individually, as the architect. Thus, the parties executed two contracts for the project, a construction contract and a contract for architectural services. The construction contract contained an arbitration clause for the resolution of disputes.

On August 12, 1982, American issued a performance bond binding itself to Sheffield, as obligee, to perform the construction contract in the event Mills failed to perform under the terms of the agreement, or to pay the cost of completion of the project. American declined to issue a performance bond on the design services to be rendered by George Mills.

Construction began on the project in late 1982. After approximately one year had passed, on January 5, 1984, Sheffield terminated the construction contract for default in performance. On October 18, 1984, Sheffield filed suit against Mills and American, as Mills' surety, for failure (1) to perform work in accordance with the plans and specifications; (2) to perform work in compliance with the building code; (3) to continue performance of the contract; and (4) to complete work within designated time specifications of the contract. Both American and Mills, in response, raised mandatory arbitration as an affirmative defense to the action.

On February 6, 1985, Mills filed a demand for arbitration alleging that Sheffield wrongfully terminated the contract. Sheffield counterclaimed in the arbitration proceeding for breach of contract. The trial court granted Mills' motion to stay the civil court proceedings over Sheffield's objections. Arbitration proceedings took place on August 8 and on November 10 through November 14, 1986. American was not a named party to the arbitration proceedings. On February 25, 1987, before rendering a decision in the proceeding, the arbitrator assigned to the Sheffield-Mills case died.

On August 11, 1989, after it appeared Mills was insolvent, Sheffield filed a motion to dismiss Mills without prejudice and filed its first amended petition for contractual damages solely against American. The trial court denied Sheffield's motion to dismiss Mills and granted American's motion to dismiss the amended petition because the issues raised in the amended petition were the same as those of the arbitration proceeding. The matter was presented to a new panel of three arbitrators. On October 16, 1992, the arbitration panel awarded Sheffield $475,000.00 on its counterclaim. Sheffield then filed an application to confirm the arbitration award and filed a motion for partial summary judgment to make the arbitration award binding against American. Thereafter, Mills filed a motion to vacate the arbitration award, alleging evident bias of one of the arbitrators and contending that the arbitrators had exceeded their authority in awarding damages. After a hearing on the motion, the trial court entered judgment confirming the arbitration award, overruling the motion to vacate and granting Sheffield's motion for partial summary judgment against American. ¹ Mills and American appeal from the trial court's judgment.

Arbitration Award

Appellants first claim that the trial court erred in confirming and not vacating the arbitration award of $475,000.00 entered against Mills and on behalf of Sheffield because the verdict was against the weight of the evidence, was unsupported by substantial evidence and misapplied the law. Respondents complain that (1) one of the arbitrators who heard their case was biased; and (2) the arbitrators clearly exceeded their authority by awarding damages to Sheffield in the amount of $475,000.00. This court-tried case is governed by the principles set down in Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976), and it must be affirmed unless there is no substantial evidence to support it, the judgment is against the weight of the evidence, or it erroneously declares or applies the law.

Arbitration proceedings are favored and encouraged by the courts, since the object is to obtain such a settlement as will put an end to the dispute. Masonic Temple Ass'n v. Farrar, 422 S.W.2d 95, 109 (Mo.App.1967). Every reasonable intendment is indulged in favor of an arbitration award. Id. Moreover, courts construe the arbitration proceedings with liberality. Id. Missouri has adopted the Uniform Arbitration Act ("UAA"), fashioned after the federal act, found in §§ 435.350-.470, RSMo 1986. It has been held that the purpose of the UAA is to afford parties the opportunity to reach a final disposition of differences in an easier more expeditious manner than by litigation. Western Waterproofing Co. v. Lindenwood Colleges, 662 S.W.2d 288, 291 (Mo.App.1983). In order to facilitate this purpose, judicial review of arbitration awards is limited. Id.

Evident Bias

Section 435.405.1(2) of the UAA provides that an arbitration award shall be vacated upon application of a party where "[t]here was evident partiality by an arbitrator appointed as a neutral...." Appellants argue that one of the arbitrators, David R. Frensley, should have been disqualified from the arbitration panel due to his evident bias. In May 1992, after submission of the arbitration case and before an arbitration award was announced, the arbitration administrator informed the parties that Arbitrator Frensley was associated with an attorney that had represented Gashland Baptist Church in a dispute with Mills ten years prior to the current arbitration. On June 3, 1992, Mills objected to Mr. Frensley continuing as an arbitrator and requested that a new panel of arbitrators be appointed and the case be resubmitted. Sheffield opposed Mills' request for a new panel of arbitrators. On August 25, the American Arbitration Association ("AAA") reaffirmed the appointment of David Frensley as arbitrator in the Sheffield-Mills dispute.

In December, appellants took the deposition of Mr. Frensley in connection with their motion to vacate the arbitration award. Frensley testified that he has been a practicing attorney for 23 years and is one of the partners in Frensley and Towerman, P.C. David Hargrave, the attorney associated with the Gashland-Mills arbitration, is of counsel to Frensley's firm pursuant to an office sharing arrangement. Hargrave became affiliated with the firm after Frensley had been selected as an arbitrator in this matter. Frensley testified that in April, 1992, after the arbitrators had reached a decision, he became aware that Hargrave had represented Gashland Baptist Church over ten years ago in a matter involving Mills. Frensley promptly communicated this information to the AAA. Frensley and Hargrave did not discuss the specific facts involved in either arbitration proceeding.

The record is completely devoid of any evidence establishing partiality by Frensley. Courts interpreting the UAA in other jurisdictions have held that in order to show evident partiality, the interest or bias of the arbitrator must be direct, definite and capable of demonstration, rather than remote, uncertain or speculative. William B. Lucke, Inc. v. G.B. Spiegel, 131 Ill.App.2d 532, 266 N.E.2d 504, 508 (1970); Sidarma Societa Italiana di Armamento Spa v. Holt Marine Industries, Inc., 515 F.Supp. 1302, 1307 (S.D.N.Y.1981). The arbitration award in the Sheffield-Mills dispute was determined before Hargrave's prior association became known to Frensley. The details of the prior association were not revealed to Frensley. Upon learning of the prior arbitration involving Mills, Frensley immediately notified the AAA. The matter was then fully reviewed by the AAA and both parties were given the opportunity to submit evidence on whether Frensley should be disqualified. After the evidence was submitted, the AAA examined the circumstances regarding the appointment of David Frensley as an arbitrator, and subsequently affirmed his appointment. The trial court denied Mills' motion to vacate the arbitration award. No evidence of bias, evident or otherwise, exists in the record. Thus, we conclude that appellants have failed to show evident bias or partiality required by § 435.405.1(2) for vacation of the award.

Exceeded Authority

Appellants next challenge the confirmation of the arbitration award on the basis that the arbitrators exceeded their authority by awarding Sheffield damages that did not arise out of the construction agreement. Section 435.405.1(3) allows a court to vacate an arbitration award if it is shown that "[t]he arbitrators exceeded their powers." Mills and American claim that a substantial portion of the...