Warbington Const. v. Franklin Landmark
| Decision Date | 25 July 2001 |
| Docket Number | No. M2000-00676-COA-R3-CV.,M2000-00676-COA-R3-CV. |
| Parties | WARBINGTON CONSTRUCTION, INC. v. FRANKLIN LANDMARK, L.L.C. |
| Court | Tennessee Court of Appeals |
David K. Taylor, Nashville, TN, for appellant.
Jefferson C. Orr, Christopher S. Dunn, Nashville, TN, for appellee.
This appeal involves the vacating of an arbitration award by the court below. The trial court applied nonstatutory grounds to vacate the decision of the arbitrator. Because we decline to adopt the nonstatutory grounds for judicial review of an arbitration award under the Federal Arbitration Act, we reverse.
The appellant, Warbington Construction, Inc., (Warbington), is a general contractor. At all times relevant to this appeal, Warbington was an unincorporated business entity. The appellee, Franklin Landmark, LLC, (Franklin), is a business engaged in the ownership and management of motel properties.
The dispute in this case arises out of a contract entered into by the parties for the construction of a Howard Johnson Express Motel in Franklin, Tennessee. Warbington and Franklin entered into a contract for the construction of the motel for a price of $1,440,000.00. Warbington began work on the project in August 1997. Thereafter, Warbington performed all work under the contract except certain "punch list" items. When Warbington submitted its final payment request from Franklin, Franklin refused, stating that Warbington had not completely fulfilled its duties under the contract. As a result, Warbington initiated arbitration pursuant to the contract.
The parties underwent three days of arbitration in August of 1999. One of the issues raised by Franklin during arbitration was whether Warbington was properly licensed under Tennessee's Contractor Licensing Laws.1 Warbington's license only authorized it to enter into construction contracts for one million dollars or less. The contract at issue, however, was for 1.4 million dollars. Therefore, Franklin argued that under the statutes governing contractors in Tennessee, unlicensed contractors may only recover their actual documented expenses if they present clear and convincing evidence of these expenses. Warbington, on the other hand, argued that it was engaged in a joint venture on the Franklin project with a Pennsylvania corporation named Bilt-Rite Contractors, Inc. (Bilt-Rite). Bilt-Rite's license was unlimited, and it is undisputed that the Board Rules governing contractors allow two validly licensed contractors to form a joint venture and combine their monetary limitations so that they may bid and undertake projects which would otherwise exceed their individual limitations. There was conflicting proof on the issue of whether Warbington and Bilt-Rite were engaged in a joint venture, and the arbitrator did not make a specific finding on this issue.
On October 1, 1999, the arbitrator awarded $75,331.81 to Warbington on its substantive claims and $6,408.88 in pre-judgment interest. The arbitrator awarded $14,915.70 to Franklin on its counterclaim. The result was a net award to Warbington in the amount of $66,824.99.
On November 30, 1999, Warbington filed a Motion to Confirm Arbitration Award in Davidson County Chancery Court pursuant to the Tennessee Uniform Arbitration Act. Franklin responded by filing an Application to Vacate Arbitration Award Rendered in Favor of Plaintiff and to Confirm Arbitration Award Rendered in Favor of Defendant. Franklin argued that two grounds that have been judicially grafted into the Federal Arbitration Act warranted vacating the arbitration award. Franklin specifically argued that the arbitrator committed manifest disregard of Tennessee's Contractor Licensing laws as well as violated the public policy of the laws. Franklin argued that since Warbington's license only allowed it to contract for jobs valued at one million dollars or less and the contract at issue was for 1.4 million dollars, Warbington should have been subject to the statutory penalty set out under Tennessee law, which states that unlicensed contractors shall only be permitted to recover actual documented expenses upon a showing of clear and convincing proof.
On March 6, 2000, the chancellor granted Franklin's Motion to Vacate the Arbitration Award. The chancellor found that the arbitration award was rendered in manifest disregard of the Tennessee Contractor's Licensing Act codified at section 62-6-101 et. seq., of the Tennessee Code. The court further found that the arbitration award was in violation of Tennessee public policy. The court upheld the $14,915.70 award to Franklin.
Warbington appeals the decision of the trial court, and presents the following issues, as quoted from their brief, for our review:
I. In an issue of first impression under Tennessee Law, should Tennessee trial courts, like the trial court below, be allowed to consider and apply nonstatutory grounds to vacate an arbitration award under the Federal Arbitration Act.
II. Is the arbitration award in favor of Appellant subject to being vacated under the specific statutory provisions of the Federal Arbitration Act.
III. Assuming that this court rules that the trial court below could apply nonstatutory grounds under the Federal Arbitration Act to vacate the arbitration award in favor of Appellant, did the trial court err in finding that the arbitration award should have been vacated on the basis of these nonstatutory grounds.
Additionally, Franklin cites the following two issues in its brief:
I. Whether Tennessee courts should be permitted to apply the common law pertaining to vacating when reviewing arbitration awards which violate the Tennessee Contractor's Licensing Act.
II. Whether the trial court correctly vacated the arbitrator's award in favor of Warbington Construction, Inc.
When reviewing a trial court's decision in an arbitration case, we review findings of fact under a "clearly erroneous" standard. See Arnold v. Morgan Keegan & Co., Inc., 914 S.W.2d 445, 449 (Tenn.1996). "Matters of law, if not able to be resolved by resort to the controlling statutes, should be considered independently, with the utmost caution, and in a manner designed to minimize interference with an efficient and economical system of alternative dispute resolution." Id. at 450. Our supreme court has also stated that "[u]nder this deferential standard of review, courts are not permitted to consider the merits of an arbitration award...." Id.
Because this case clearly involves interstate commerce, the provisions of the Federal Arbitration Act, 9 U.S.C.A. § 1 (1999), et. seq. (the FAA), rather than Tennessee's Uniform Arbitration Act, Tenn.Code Ann. § 29-5-301 (2000) et. seq., apply to this appeal. The provisions of the FAA are to be applied in both state and federal courts. See Frizzell Constr. Co., Inc., v. Gatlinburg, L.L.C., 9 S.W.3d 79, 84 (Tenn.1999) (citations omitted). "The FAA contains no express pre-emptive provision, nor does it reflect a congressional intent to occupy the entire field of arbitration." Id. (quoting Volt Info. Sciences, Inc. v. Board of Trustees, 489 U.S. 468, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989)).
The FAA has four statutory grounds under which an arbitration award may be vacated. See 9 U.S.C.A § 10(a) (1999). Under this section, arbitration awards may be vacated:
(1) Where the award was procured by corruption, fraud, or undue means.
(2) Where there was evident partiality or corruption in the arbitrators, or either of them.
(3) Where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced.
(4) Where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.
Id.
In addition to the statutory grounds cited above, federal case law has created additional grounds for vacating an arbitration award. Although Tennessee has not adopted the judicially created grounds for reviewing an arbitration award, the trial court below used two common law grounds to vacate the arbitration award in favor of Warbington. The trial court specifically stated that the arbitrator's award was rendered in manifest disregard of the law and that the award was contrary to the public policy of Tennessee.
The "manifest disregard of the law" ground for vacating arose from the Supreme Court's opinion in Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953) (). In Wilko, the Court stated that "the interpretations of the law by the arbitrators in contrast to manifest disregard are not subject, in the federal courts, to judicial review for error in interpretation." Id. at 436-37, 74 S.Ct. 182. Although Wilko was overruled in Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 485, 109 S.Ct. 1917, 104 L.Ed.2d 526 (1989), the Supreme Court later clarified that it did not extinguish the manifest disregard doctrine in First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). Some states and every federal circuit court has adopted some form of "manifest disregard" as a nonstatutory ground for reviewing awards under the FAA.2 The burden of proving that an arbitrator acted in manifest disregard of the law is extremely high. "[T]he decision must fly in the face of clearly established legal precedent." See Merrill Lynch v. Jaros, 70 F.3d 418, 421 (6th Cir.1995).
The second judicially created ground that the trial court below used was that the arbitration award...
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