Vermont Built, Inc. v. Krolick

• Decision Date: 31 October 2008
• Docket Number: No. 07-177.,07-177.
• Citation: 969 A.2d 80,2008 VT 131
• Parties: VERMONT BUILT, INC. v. Steve KROLICK and Lisa Stickney.
• Court: Vermont Supreme Court

969 A.2d 80

2008 VT 131

VERMONT BUILT, INC. v. Steve KROLICK and Lisa Stickney.

No. 07-177.

Supreme Court of Vermont.

October 31, 2008.

Andrew C. Boxer and Wesley M. Lawrence of Ellis Boxer & Blake, Springfield, for Plaintiff-Appellee.

Melvin Fink, Ludlow, for Defendants-Appellants.

Present: REIBER, C.J., DOOLEY, JOHNSON, SKOGLUND and BURGESS, JJ.

DOOLEY, J.

¶ 1. Homeowners Steve Krolick and Lisa Stickney appeal an order of the Windsor Superior Court awarding plaintiff contractor, Vermont Built, Inc., attorney's fees and prejudgment interest as an addition to an arbitrator's award of consequential damages for breach of a house-construction contract. On appeal, homeowners contend that: (1) the trial court's modification of the arbitrator's decision was not done in compliance with 12 V.S.A. § 5678(b); (2) the court abused its discretion in awarding attorney's fees; and (3) the court abused its discretion in awarding prejudgment interest when contractor's request was untimely and without factual basis. We reverse and remand.

¶ 2. The parties entered into the contract at the heart of this case in September 2004, agreeing on the terms pursuant to which contractor would construct a single-family residence in Springfield, Vermont. Paragraph nine of the contract stated, in pertinent part:

If OWNER, fails to make any of the progress payments called for, CONTRACTOR may, upon having given fourteen (14) days notice to the OWNER, terminate this contract, recover from OWNER payment for all work competed [sic] to such date, including the total amount of the charge above costs called for in paragraph number 2, and declare this contract null and void. The OWNER shall pay any court costs, attorneys' fees, or other costs associated with collecting monies owed CONTRACTOR by the OWNER.

In paragraph fourteen, the contract stated that "[a]ny controversy or claim arising out of or relating to this contract, or breach thereof, shall be settled by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association."

¶ 3. The dispute that ultimately led to this lawsuit arose with regard to a progress payment due April 26, 2005. Homeowners maintain that they refused payment because of dissatisfaction with the quality of contractor's work, including alleged flaws in installing a porch, chimney, bulkhead, furnace, siding, floors, and stairs. Homeowners further claim that contractor would not answer their questions regarding crediting a deposit for flooring and an earlier payment against the April invoice. Contractor halted construction work, and homeowners refused to make any further payments until contractor addressed their concerns. Further negotiations were fruitless, and contractor filed a mechanic's lien on May 5, 2005.

¶ 4. On June 30, contractor brought suit against homeowners alleging breach of contract and seeking to enforce the mechanic's lien. Contractor sought a nonpossessory attachment of homeowners' property, damages of $33,877, interest, and cost of suit. Homeowners responded, in part, with a counterclaim alleging breach of warranty, breach of contract, and consumer fraud. Homeowners sought damages of $40,000 plus exemplary damages, attorney's fees, and costs. Homeowners also moved to dismiss the case because sole jurisdiction of the dispute lay with the American Arbitration Association (AAA). The court granted contractor's motion for a writ of attachment, but directed the parties to arbitrate the dispute and designated the case as "pending but inactive" until the arbitration concluded.

¶ 5. The arbitration proceeded pursuant to an AAA form preliminary hearing and scheduling order. Under the heading "Form of Award," the order contained three alternatives with the direction to circle the selected option: standard award, reasoned award, or findings of fact and conclusions of law. The alternative circled was "standard award." On September 29, 2006, the arbitrator issued a one page award, with no findings of fact, concluding that contractor was entitled to $28,877 for work completed but not paid, less $8,130, the amount homeowners incurred to correct contractor's defective work. The arbitrator denied homeowners damages for the cost to complete construction and enhanced damages under the Consumer Fraud Act. The arbitrator denied contractor interest and denied both parties attorney's fees. The award required contractor to pay seventy-five percent of the cost of the arbitration, and homeowners twenty-five percent.

¶ 6. Contractor moved in superior court to vacate or modify the arbitration award "with respect to the issue of attorneys' fees and costs only," seeking full payment of these items. Contractor argued that the court had authority to modify or vacate the award under the Vermont Arbitration Act because the arbitrator "exceeded [his] powers." 12 V.S.A. § 5677(a)(3). Specifically, contractor argued that he was the substantially prevailing party and therefore was entitled to attorney's fees and costs under the Prompt Payment Act. 9 V.S.A. § 4007(c), and attorney's fees under the language of the contract between the parties. Homeowners responded that the arbitrator's award was fully consistent with Fletcher Hill, Inc. v. Crosbie, 2005 VT 1, 178 Vt. 77, 872 A.2d 292, and that "[t]he Arbitrator did not exceed his powers."

¶ 7. The superior court sided primarily with contractor, but did not grant the complete relief sought. Instead, the court remanded the matter to the arbitrator on the issue of attorney's fees and costs, and directed contractor to request from the arbitrator a written rationale for his decision denying attorney's fees and costs. The court said it would rule definitively on the motion to vacate or modify once it received the arbitrator's rationale for its decision. In a letter dated January 23, 2007, the arbitrator explained that his decision not to award attorney's fees to contractor was based on his conclusion that contractor "breached the contract in several ways, primarily by abandoning the work and that the breach voided the terms of the contract," and that contractor was "the party primarily responsible for assuring that the disputed issues were not equitably resolved in a timely manner by negotiation rather than resorting to arbitration." The arbitrator reasoned accordingly that, as "a matter of equity," homeowners "should not be required to pay [contractor's] legal fees and arbitration costs."

¶ 8. The arbitrator's decision led to another motion to vacate or modify and another objection. The superior court responded by granting contractor's motion to modify, ordering homeowners to pay contractor's attorney's fees and prejudgment interest at a rate of twelve percent per year. The court explained that "[t]he question presented is whether the arbitrator acted outside of his authority when he denied the additional remedies sought by plaintiff." In its discussion, the court reviewed applicable Vermont law and determined whether the arbitrator's decision was consistent with that law. On the critical point of who was the substantially prevailing party, the court held that the arbitrator had not "explained what was decided and why" and "did not find a good faith basis for the defendants to withhold payment." Thus, the court concluded that "[g]iven the lack of any finding that defendants withheld payment in good faith, the court agrees with plaintiff that an award of attorney's fees is mandatory." The court also awarded prejudgment interest and costs under the contract, noting that the arbitrator "did not explain why the plaintiff's actions would void some terms of the contract and not others." Thereafter, contractor submitted a proposed judgment order, complete with documentation of fees and costs. Homeowners responded by alleging that the amount of fees requested by contractor was "patently unreasonable" and that prejudgment interest was inappropriate under the Prompt Payment Act. On April 5, 2007, the court issued a final judgment order, awarding contractor, in addition to the $20,747 awarded by the arbitrator: (1) $4,795.11 in prejudgment interest; (2) $19,188.50 in attorney's fees; and (3) $339.50 in costs.¹ This appeal followed.

¶ 9. We begin with the issue of attorney's fees. Homeowners argue that the court abused its discretion in awarding contractor attorney's fees because: (1) the court had no statutory basis or legal authority to modify or vacate the arbitration award; and (2) attorney's fees may not, as a matter of law, be awarded to a party who materially breaches a contract. Before we address the merits of the first argument, we must address contractor's contention that this argument was not preserved below.

¶ 10. In effect, contractor faults homeowners for not presenting a clearer statement regarding the court's authority to modify or vacate the award in the trial court. Contractor asks too much. The purpose of our preservation rule is to "ensure that the original forum is given an opportunity to rule on an issue prior to our review." In re Entergy Nuclear Vt. Yankee, LLC, 2007 VT 103, ¶ 9, 182 Vt. 340, 939 A.2d 504 (quotation omitted). The preservation rule is satisfied when "the trial court had a fair opportunity to consider, evaluate and rule upon" the question raised on appeal. State v. Bressette, 130 Vt. 321, 322, 292 A.2d 817, 818 (1972).

¶ 11. It is evident from the record that contractor proposed a statutory basis for modification or vacatur of the award and that homeowners asserted that no such basis for modification or vacatur existed. In October 2006, contractor filed a motion to vacate the arbitration award, citing both 12 V.S.A. § 5677 (grounds to vacate arbitration award) and § 5678 (grounds to modify arbitration award), and contending that the arbitrator exceeded his powers by failing to include attorney's fees, costs, and interest in the arbitration award. Homeowners responded that the arbitrator did not exceed...