TSP Servs., Inc. v. National-Standard, LLC

• Citation: 329 Mich.App. 615,944 N.W.2d 148
• Decision Date: 17 September 2019
• Docket Number: No. 342530,342530
• Parties: TSP SERVICES, INC., doing business as TSP Environmental, Plaintiff/Counterdefendant-Appellee, v. NATIONAL-STANDARD, LLC, and DW-National Standard-Niles, LLC, doing business as National-Standard, LLC, Defendant/Cross-Defendants-Appellants, and National-Standard Company, Defendant/Cross-Defendant, and Environmental Demolition Group, LLC, Defendant/Counterplaintiff/Cross-Plaintiff.
• Court: Court of Appeal of Michigan (US)

329 Mich.App. 615

944 N.W.2d 148

TSP SERVICES, INC., doing business as TSP Environmental, Plaintiff/Counterdefendant-Appellee,

v. NATIONAL-STANDARD, LLC, and DW-National Standard-Niles, LLC, doing business as National-Standard, LLC, Defendant/Cross-Defendants-Appellants,andNational-Standard Company, Defendant/Cross-Defendant,andEnvironmental Demolition Group, LLC, Defendant/Counterplaintiff/Cross-Plaintiff.

No. 342530

Court of Appeals of Michigan.

Submitted September 5, 2019

Decided September 17, 2019, 9:05 a.m.

Deneweth, Dugan & Parfitt, PC, Troy, (by Mark D. Sassak ) for plaintiff.

Barnes & Thornburg LLP, Grand Rapids, (by Scott R. Murphy ) for defendants.

Before: Swartzle, P.J., and Gleicher and M. J. Kelly, JJ.

Swartzle, P.J.

With respect to a dispute over a construction contract, Michigan law limits a construction lien to the amount of the contract less any payment already made. Although a party suing for breach of contract might recover consequential damages beyond the monetary value of the contract itself, those consequential damages cannot be subject to a construction lien. The arbitrator in this case concluded otherwise, and this clear legal error had a substantial impact on the award. Accordingly, we reverse with respect to this portion of the award, but affirm in all other respects.

I. BACKGROUND

Defendants, National-Standard, LLC, and DW-National Standard-Niles, LLC (collectively, National-Standard), appeal by leave granted the trial court's order denying their motion to vacate an arbitration award and confirming the arbitration award and money judgment in favor of plaintiff, TSP Services, Inc. See TSP Servs., Inc. v. National-Standard, LLC , unpublished order of the Court of Appeals, entered August 8, 2018 (Docket No. 342530). Although the parties raised several issues during arbitration, this appeal centers primarily on whether TSP's inability and failure to remove steel from a construction site, and the potential lost profits from the sale of that unrecovered steel, may properly be the subject of a construction lien. Because the appeal involves a discrete question, and because the nature of arbitration disfavors this Court's review of the facts and merits of the case, we will only briefly review the facts underlying this dispute.

The parties entered into a contract on August 30, 2013, under which TSP was to perform asbestos abatement, demolition and disposal of scrap steel and other waste, and site-restoration work at a National-Standard facility in Niles, Michigan. The total price listed in the contract is $414,950, to be paid in installments—one-third as a down payment and the balance due "upon completion of abatement." Critical to this appeal, the contract does not mention the sale of scrap steel or TSP's potential profits from the sale of scrap steel. Although it is clear from the arbitration proceedings that both parties recognized that the sale of scrap steel was a major part of the project, the subject is not outlined in the contract, which provides for a total payment of $414,950 and includes an integration clause.

The project encountered various delays. Asbestos removal did not begin until May 2014. Because the asbestos removal was delayed, the extraction of steel was also delayed. TSP completed the asbestos-abatement work and was paid $273,867, but after several disputes, National-Standard requested that TSP suspend all work on the project. At that point, TSP had extracted only 9% of the available steel from the job site. In April 2015, TSP filed a claim of lien in the amount of $141,083, the amount still unpaid under the contract, plus additional damages, including the net value of the steel that TSP was unable to extract from the site.

The parties attended arbitration, and the arbitrator concluded that National-Standard had breached the contract. The arbitrator awarded $782,469.05 in damages to TSP, broken out as follows: $141,083 for the unpaid invoice under the contract, $46,557.39 for interest on that unpaid invoice, $391,809 for lost profits on steel inventory, $33,79 for interest on those lost profits, and $169,226.13 for attorney fees and costs. (There is a discrepancy of 53 cents between the total amount awarded by the arbitrator and the sum of the components awarded, though neither party takes issue with this de minimis discrepancy.) The arbitrator further determined that TSP's construction lien was valid as filed and could be enforced on the entire award.

National-Standard subsequently moved the trial court to vacate the arbitration award, arguing that the arbitrator committed clear legal error. The trial court denied National-Standard's motion, and this appeal followed.

II. ANALYSIS

A. LIMITED JUDICIAL REVIEW OF ARBITRATION AWARD

In general, courts have a limited role in reviewing arbitration awards. This Court reviews de novo a circuit court's decision whether to vacate an arbitration award. Hope-Jackson v. Washington , 311 Mich. App. 602, 613, 877 N.W.2d 736 (2015). "A court may not review an arbitrator's factual findings or decision on the merits." Ann Arbor v. American Federation of State, Co., & Muni. Employees (AFSCME) Local 369 , 284 Mich. App. 126, 144, 771 N.W.2d 843 (2009). Instead, a court may only review an arbitrator's decision for errors of law. Detroit Auto. Inter-Ins. Exch. v. Gavin , 416 Mich. 407, 443, 331 N.W.2d 418 (1982) ( DAIIE ); Saveski v. Tiseo Architects, Inc. , 261 Mich. App. 553, 554-555, 682 N.W.2d 542 (2004).

Not every error of law by an arbitrator, however, merits subsequent court intervention.

"[W]here it clearly appears on the face of the award or the reasons for the decision as stated, being substantially a part of the award, that the arbitrators through an error in law have been led to a wrong conclusion, and that, but for such error, a substantially different award must have been made, the award and decision will be set aside." [ DAIIE , 416 Mich. at 443, 331 N.W.2d 418, quoting Howe v. Patrons’ Mut. Fire Ins. Co. of Mich., Ltd., 216 Mich. 560, 570, 185 N.W. 864 (1921).]

Moreover, in determining whether there is legal error, the court cannot engage in a review of an arbitrator's mental process, Hope-Jackson , 311 Mich. App. at 614, 877 N.W.2d 736, but instead must review "the face of the award itself," Washington v. Washington , 283 Mich. App. 667, 672, 770 N.W.2d 908 (2009).

B. NO ERROR IN AWARD OF CONSEQUENTIAL DAMAGES

National-Standard challenges both the arbitrator's award of consequential damages and the construction lien securing those damages. Considering the first challenge, there is no basis to disturb the award of consequential damages. Generally speaking, a party asserting a breach of contract may recover damages that are "the direct, natural, and proximate result of the breach." Alan Custom Homes, Inc. v. Krol , 256 Mich. App. 505, 512, 667 N.W.2d 379 (2003). The arbitrator here recognized that both parties were aware that TSP intended to recover the steel from the demolition site and sell that steel for a profit. The arbitrator concluded that National-Standard had breached the contract, causing TSP to be unable to recover and sell the steel. The arbitrator further concluded that TSP potentially lost profits from the sale of the steel, and the lost profits could reasonably be considered a result of National-Standard's breach. The arbitrator's conclusions are in accord with our contract law, see id. , and our review of the arbitrator's award confirms that there is no sound basis to disturb this part of the award, see Saveski , 261 Mich. App. at 555, 682 N.W.2d 542.

C. CONSTRUCTION LIEN CANNOT EXCEED REMAINING AMOUNT UNDER THE CONTRACT

With respect to its second challenge, National-Standard asserts that the arbitrator awarded a construction lien on the amount of the entire award, rather than just the amount remaining on the contract itself. National-Standard argues that this exceeds the statutory limit on construction liens imposed by our Legislature.

As set forth in the Construction Lien Act, MCL 570.1101 et seq., "Each contractor, subcontractor, supplier, or laborer who provides an improvement to real property has a construction lien upon the interest of the owner or lessee who contracted for the improvement to the real property." MCL 570.1107(1). The act defines "improvement" to include "clearing, demolishing, excavating, ... altering, [or] repairing ... material, pursuant to a contract." MCL 570.1104(5), as amended by 2010 PA 147.¹ There is no question that, pursuant to the parties' contract, TSP provided an improvement to the real property within the meaning of the act. Nor does National-Standard challenge the arbitrator's finding that it breached the contract and, therefore, TSP is entitled to a construction lien.

Rather, National-Standard challenges the scope of the lien. The act provides in relevant part, "A construction lien acquired pursuant to this act shall not exceed the amount of the lien claimant's...