Sooper Credit Union v. SHOLAR GROUP ARCHITECTS

• Decision Date: 13 June 2005
• Docket Number: No. 04SC206.,04SC206.
• Citation: 113 P.3d 768
• Parties: SOOPER CREDIT UNION, a credit union, Petitioners, v. SHOLAR GROUP ARCHITECTS, P.C., a/k/a Sholar Group, P.C., a Colorado professional corporation, Respondents.
• Court: Colorado Supreme Court

113 P.3d 768

SOOPER CREDIT UNION, a credit union, Petitioners, v. SHOLAR GROUP ARCHITECTS, P.C., a/k/a Sholar Group, P.C., a Colorado professional corporation, Respondents.

No. 04SC206.

Supreme Court of Colorado, En Banc.

June 13, 2005.

Canges, Iwashko, Bethke & Bailey, PC, Erich L. Bethke, James S. Bailey, Denver, for Petitioner.

Holt & Stalder, LLC, L. Tyrone Holt, Carrie L. Okizaki, Mathew Osofsky, Denver, for Respondent.

Justice RICE delivered the Opinion of the Court.

Petitioner seeks review of the court of appeals' decision reversing the district court's confirmation of the corrected arbitration award and reinstating the initial award. We reverse and remand. Section 13-22-211, 5 C.R.S. (2003), empowers an arbitrator to clarify an award that is confusing due to an error, ambiguity, or general lack of clarity. In such a circumstance, an arbitrator may modify the award to make it clearer and thereby effectuate his or her intent. The statute does not require that the confusion be evident on the face of the award or patently ambiguous, but an arbitrator may not redetermine the merits.

In the present case, the arbitrator held that Respondent charged excessive labor rates above the contractually agreed upon standard rates. Therefore, Petitioner prevailed on the merits. Nonetheless, the initial award was internally inconsistent because the arbitrator double charged Petitioner both standard and excessive labor rates when calculating the amount of recovery. When given an opportunity to correct this miscalculation, the arbitrator did so, eliminating confusion and effectuating his stated intent that Petitioner pay only standard labor rates.

This correction was a statutorily authorized clarification of the award. In addition, it did not constitute a redetermination on the merits. The relevant issue in arbitration was whether Respondent had overcharged Petitioner for labor. The arbitrator's affirmative determination remained unaltered in the corrected award. Removing the excessive labor rates from the recovery amount calculation was necessary to accurately implement the arbitrator's intent.

For these reasons, the arbitrator acted within his statutory authority, and the district court's confirmation of the corrected award should have been upheld.

I. Facts and Proceedings Below

This case concerns the statutory power of an arbitrator to modify an admittedly erroneous initial award upon a party's timely motion. Petitioner Sooper Credit Union entered into a contract with Respondent Sholar Group, P.C. to design and remodel Petitioner's main office. Specifically, the parties agreed to a "cost plus" fee arrangement, whereby Petitioner promised to pay Respondent a "Contract Sum equal to the Cost of the Work ... plus twelve percent (12%) thereof as [Respondent]'s contract fee." Cost of the work was defined as the "costs necessarily incurred by [Respondent] in the proper performance of the Work," though only "at rates not higher than the standard paid at the place of the project except with prior consent of [Petitioner]."

Work commenced, and Petitioner began paying for Respondent's performance as it was completed. Yet, Petitioner soon became concerned about mounting project overruns. Admittedly without "experience in the construction process," Petitioner hired an expert to investigate Respondent's charges. Shortly thereafter, Petitioner learned that it had been paying for labor above standard rates, which in its view violated the contract. This discovery prompted Petitioner to cease all payments. When the parties could not resolve the ensuing impasse, they entered arbitration pursuant to the contract.

In its Demand for Arbitration, Respondent identified compensable damages as "the `Cost of the Work' plus twelve percent." Petitioner argued that Respondent's calculation of the cost of the work was improper because it had billed over $400,000 in excessive, non-standard labor charges. Thus, Petitioner did not challenge the number of hours billed— only Respondent's charged labor rates. Following a five-day evidentiary hearing, the arbitrator found that Petitioner had been charged for labor in excess of the agreed upon standard rates.

To calculate the outstanding balance and to whom it was owed, the arbitrator looked at Respondent's draws, and added together an undefined "General Requirements" category and a "Non-labor Costs" category. That sum was increased by twelve percent, the agreed project fee. Then, the arbitrator added proper labor costs including a twelve percent fee as adopted from Petitioner's expert witness.¹ By combining these four sums, the arbitrator arrived at a total amount due of $2,685,464. Subtracting what Petitioner had already paid, the arbitrator concluded that Respondent had been underpaid by $199,338, and entered an initial award accordingly.

After receiving the initial award, Respondent filed an application for confirmation in the district court. This application, however, was qualified by a motion for correction of a mathematical error, as Respondent discovered an obvious $11,200 miscalculation in Petitioner's favor. On or about the same day, Petitioner filed an application to correct the award with the arbitrator, pointing out that the general requirements category upon which the arbitrator calculated the amount of recovery included Respondent's excessive labor rates. Since the arbitrator added proper labor costs to general requirements, according to Petitioner, the arbitrator had mistakenly required it to pay both the excessive and standard labor amounts.

The arbitrator responded to both parties by letter, stating that he had been "subjected to a plethora of contradictory numbers" and that he "in fact did miscalculate some figures in the body of [his] initial award." Yet, due to Respondent's action before the district court, the arbitrator felt it was inappropriate to correct the award absent the court's direction. Petitioner then moved the district court to correct the award's calculations, specifically asking that the court return the matter to the arbitrator. The district court assented and "submitted [the motion] to the Arbitrator ... for consideration."

Shortly thereafter, the arbitrator issued a corrected award that did not include improper labor costs from the general requirements category. To recalculate monies earned, the arbitrator added proper labor costs and non-labor costs together.² The arbitrator explained that "[t]he category of General Requirements was not used by the parties in this case as it usually is on construction projects which caused me to miscalculate the proper labor charges in my initial award." Without double charging Petitioner for labor, the arbitrator concluded that Respondent had earned $2,263,063 for its services. Since Petitioner had paid $2,486,126, it was owed the overage of $223,063.

The district court confirmed the corrected award and entered judgment. Respondent appealed, arguing that the arbitrator exceeded his statutory power by modifying the initial award and redetermining the merits. Petitioner, in contrast, contended that the corrected award was either a "clarification" or based upon an "evident miscalculation of figures"; in any event, the arbitrator did not redetermine the merits. In a published opinion, Sholar Group Architects, P.C. v. Sooper Credit Union, 97 P.3d 258 (Colo.App.2004), a unanimous division of the court of appeals agreed with Respondent and reversed the district court's confirmation of the corrected award.

First, the court of appeals noted that "when an arbitrator issues an award and delivers it to the parties, amendment or modification of the award by the arbitrator is permitted only under the narrow circumstances listed in [the statute]," such as a miscalculation of figures evident on the face of the award. Id. at 260 (citing Applehans v. Farmers Ins. Exch., 68 P.3d 594, 597 (Colo. App.2003)). Then, applying this interpretation to the initial award, the court of appeals recognized that "the arbitrator's intent was to require [Petitioner] to pay only standard costs, including labor, plus a twelve percent fee." Sholar Group Architects, 97 P.3d at 261. However, since nothing in the initial award defined general requirements or indicated how the term was used by the parties, the court of appeals concluded that the corrected award was not based upon an evident miscalculation; as a result, the corrected award was unjustified. Id.

Further agreeing with Respondent, the court of appeals went on to hold that the corrected award constituted an improper redetermination on the merits. Id. The court of appeals believed that the arbitrator was determining factual issues and interpreting the parties' contract when it removed Respondent's improper labor charges from general requirements. See id. (citing Applehans, 68 P.3d 594; In re Marriage of Gavend, 781 P.2d 161 (Colo.App.1989); Container Tech. Corp. v. J. Gadsden Pty., Ltd.,781 P.2d 119 (Colo.App.1989)).

Finally, the court of appeals rejected Petitioner's argument that the corrected award was a permissible clarification of the initial award, which contained a patent ambiguity. Assuming that such a clarification could be made under the statute, the court of appeals found no patent ambiguity evident on the face of the initial award, again because "nothing... indicate[d] that the category of general requirements had a unique meaning for the parties." Sholar Group Architects, 97 P.3d at 262. Based on these holdings, the court of appeals required Petitioner to pay Respondent the sum of the initial award plus the obvious $11,200 mathematical error identified by Respondent. Id.

Petitioner sought review and we granted certiorari to determine whether the court of appeals erred in vacating the arbitrator's corrected award.³ Reviewing the applicable statutes and the arbitration award, we hold that the arbitrator had statutory authority to correct his error for the purpose of clarifying...