Source: https://casetext.com/case/vermont-built-inc-v-krolick
Timestamp: 2019-04-26 04:30:58
Document Index: 377229073

Matched Legal Cases: ['§ 5678', '§ 5677', '§ 4007', '§ 5651', '§ 5677', '§ 5678', '§ 5677', '§ 5678', '§ 5677', '§ 5677', '§ 12', '§ 10', '§ 5677']

Vermont Built, Inc. v. Krolick, 2008 Vt. 131 | Casetext
2008 Vt. 131 (Vt. 2008)
Vermont Built, Inc.v.Krolick
Supreme Court of VermontOct 31, 2008
2008 Vt. 131•969 A.2d 80•185 Vt. 139•
No. 07-177.
Opinion Filed October 31, 2008.
Appeal by defendants from order awarding attorney's fees and prejudgment interest as addition to arbitrator's award of consequential damages. Windsor Superior Court, DiMauro, J., presiding. Reversed and remanded.
Andrew C. Boxer and Wesley M. Lawrence of Ellis Boxer Blake, Springfield, for Plaintiff-Appellee.
¶ 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.
¶ 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.
¶ 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."
¶ 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 plaintiffs 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. This appeal followed.
Homeowners have not appealed the award of costs.
¶ 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).
¶ 12. Having held that homeowners preserved an objection to whether statutory authority exists for the court to take the action it did, we must add that this preservation was minimal and was not sufficient to cover all the issues homeowners have raised in their appellate brief. As the parties and the superior court recognized, the scope of review of an arbitration award is governed by the Vermont Arbitration Act, 12 V.S.A. §§ 5651 - 5681. Although at the superior court contractor cited both the section of the Act that authorizes the court to vacate the award, § 5677, and the separate section that authorizes the court to modify an award, § 5678, it relied specifically only on a ground to vacate the award — that the arbitrator exceeded his powers under § 5677(a)(3). On appeal, homeowners argue that contractor actually sought modification of the award under § 5678, not vacatur under § 5677, and that none of the statutory grounds for modification apply. However, homeowners never argued in the superior court that § 5677(a)(3) was inapplicable or that contractor's theory — that the failure to award attorney's fees, costs, and interest under the Prompt Payment Act was beyond the power of the arbitrator — was wholly invalid. Thus, we do not address homeowners' argument that only the modification grounds apply. We will confine our review to that ground to vacate the award and assume that it applies.
¶ 13. We stress that the standard of review of an arbitration award by the superior court or by this Court is very limited. "Vermont has a strong tradition of upholding arbitration awards whenever possible." R.E. Bean Constr. Co. v. Middlebury Assocs., 139 Vt. 200, 204, 428 A.2d 306, 309 (1980). "Indeed, we have long recognized the importance of arbitration as an alternative to litigation for the efficient resolution of disputes, understanding that, if courts were accorded a broad scope of review, then arbitration would become merely another expensive and time consuming layer to the already complex litigation process." Brinckerhoff v. Brinckerhoff, 2005 VT 75, ¶ 5, 179 Vt. 532, 889 A.2d 701 (mem.) (quotations omitted). While the trial court acts "as an appellate tribunal with a limited scope of review," it does not "reweigh the evidence presented to the arbitrator or subject the merits of the controversy to judicial review." Matzen Constr., Inc. v. Leander Anderson Corp., 152 Vt. 174, 177, 565 A.2d 1320, 1322 (1989) (quotations omitted); see also Muzzy v. Chevrolet Din, Gen. Motors Corp., 153 Vt. 179, 185, 571 A.2d 609, 613 (1989) ("We are not at liberty to set aside an arbitration panel's award because of an arguable difference regarding the meaning or applicability of laws urged upon it.") (quotations omitted). The trial court can modify or vacate an arbitrator's award only pursuant to statutory grounds or if the parties are "denied due process." Brinckerhoff, 2005 VT 75, ¶ 5.
In Muzzy, we discussed but did not adopt another ground for vacating an arbitrator's decision — that the arbitrator manifestly disregarded the law. 153 Vt. at 185, 571 A.2d at 613. This ground was recognized in some federal circuits, and was perceived to be court-created and not based on the Federal Arbitration Act. Hall Street Assocs. v. Mattel, Inc., 552 U.S. 576, 584, 128 S. Ct. 1396, 1403 (2008). However, the United States Supreme Court has since held that under the Federal Arbitration Act a court has no authority to review for an arbitrator's legal errors. Id. at 586, 128 S. Ct. at 1404. While contractor did not raise this ground, we take this opportunity to clarify that we do not recognize a court's right to review an arbitrator's decision for manifest disregard of the law.
¶ 14. The resulting arbitration award implicates another limitation on court review. Unless the arbitration agreement provides otherwise, arbitrators "need not provide any explanation or reasoning beyond the award figure." Shahi v. Ascend Fin. Servs., Inc., 2006 VT 29, ¶ 13, 179 Vt. 434, 898 A.2d 116. Here, the parties explicitly agreed that they did not want the arbitrator to provide findings of fact and conclusions of law, and contracted for the arbitrator to produce only a statement of the award.
¶ 15. We first address the substantive standard governing contractor's request to vacate the award of the arbitrator. Contractor asserted one statutory ground for vacating the award — that the arbitrator exceeded his powers. Contractor's argument in essence is: (1) the arbitrator made a legal error in determining the award, (2) because it made this error, the arbitrator exceeded its power, and (3) the superior court is to act as an appellate court with respect to the arbitrator's application of the law. In fact, the statutory ground is much narrower than contractor's argument suggests.
¶ 16. We have not directly ruled on the scope of the vacatur ground that the arbitrator exceeded his powers. In substantial part, the Vermont Arbitration Act is based on the Uniform Arbitration Act of 1956, and this ground for vacatur is taken from § 12(a)(3) of that uniform act. See Unif. Arbitration Act (1956), 7 U.L.A. 100, 497 (2005) (table of adoptions and explanation of Vermont adoption). The uniform act has been adopted in twenty-six other states, and many courts have construed the provision before us. Id. at 8 (Supp. 2008). Moreover, the Federal Arbitration Act, which we have noted contains review provisions that are identical in substance to the Vermont Arbitration Act, Muzzy, 153 Vt. at 184, 571 A.2d at 612, includes a comparable ground to vacate: "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." 9 U.S.C. § 10(a)(4).
The Act has been replaced by the Uniform Arbitration Act of 2000, and twelve states have adopted this more modern version. 7 U.L.A. 1 (Supp. 2008). Vermont has not adopted the 2000 Act. Section 23(a)(4) of the 2000 Act has a similar ground to vacate an award — that the "arbitrator exceeded the arbitrator's powers," id. at 74 (2005), and we see no relevant difference in meaning. Thus, decisions construing this ground in the 2000 Act are equally helpful.
¶ 17. Decisions under statutes based on the Uniform Arbitration Act and under the Federal Arbitration Act are helpful to us in construing the Vermont act. The decisions are virtually uniform that the vacatur ground that the arbitrator exceeded his powers does not authorize the court to review the legal or factual conclusions of the arbitrator. The proper inquiry "focuses on whether the arbitrator[] had the power, based on the parties' submissions or the arbitration agreement, to reach a certain issue, not whether the arbitrator[] correctly decided that issue." DiRussa v. Dean Witter Reynolds Inc., 121 F.3d 818, 824 (2d Cir. 1997); see also Bic Pen Corp. v. Local No. 134, United Rubber, Cork, Linoleum Plastic Workers of Am., 440 A.2d 774, 776 (Conn. 1981) (under uniform act, determination of whether arbitrator exceeded his or her powers is "limited to a comparison of the award to the submission" and does not review factual or legal decisions); Fairman v. Dist. of Columbia, 934 A.2d 438, 442 (D.C. 2007) (under uniform act, in determining whether arbitrator exceeded his authority, appeals court does not review arbitrator's award on the merits, only whether arbitrator ruled on matters within the scope of the arbitration agreement); LeNeve v. Via South Florida, L.L.C., 908 So. 2d 530, 534 (Fla. Dist. Ct. App. 2005) (under uniform act, arbitrator exceeds authority when she "decides an issue not pertinent to the resolution of the issue submitted to arbitration" (quotation omitted)). Thus, "[a]n arbitrator exceeds his powers when he rules on issues not submitted to him by the parties." Hoeft v. MVL Group, Inc., 343 F.3d 57, 71 (2d Cir. 2003) (quotation omitted). An arbitrator does not exceed his or her powers where the "real objection appears to be that the arbitrators committed an obvious legal error in denying [plaintiff] attorney's fees." DiRussa, 121 F.3d at 824.
¶ 19. The Idaho Supreme Court noted that courts normally interpret the statutory ground to vacate the award "to mean that the arbitrator considered an issue not submitted, or that he exceeded the bounds of the contract between the parties." Id. at 1023. It further found that the parties submitted all issues, including those involving attorney's fees, to the arbitrator, and the issues raised by the request for attorney's fees required "judgment about facts and law." Id. It concluded:
¶ 21. We note that the superior court also erred in the procedure it adopted. As we stated above, the arbitrator had no responsibility to explain the grounds for his decision or to make findings of fact or conclusions of law. Yet the superior court initially ruled that it could not confirm the arbitration award because "the arbitrator did not delineate his rationale for denying attorney's fees and costs." The court obtained the explanation to which it was not entitled by remanding the matter to the arbitrator and requiring that the arbitrator give such an explanation. In effect, the arbitrator was required to testify to the grounds for the decision in the court proceeding. While there may be circumstances when a party can inquire into the motivations of an arbitrator — for example, where there are claims of bias or prejudice — "cases are legion in which courts have refused to permit parties to depose arbitrators . . . regarding the thought processes underlying their decisions." Hoeft, 343 F.3d at 67; see also Woods v. Saturn Distribution Corp., 78 F.3d 424, 430 (9th Cir. 1996); Sperry Int'l Trade, Inc. v. Gov't of Israel, 602 F. Supp. 1440, 1443-44 (S.D.N.Y. 1985) (holding that it would be "improper" for a court to question an arbitrator as to the reasoning that led to his award). The superior court's inquiry was improper here.
¶ 22. The result of the two errors — that is, treating errors of fact and law as actions that exceeded the power of the arbitrator, and obtaining an explanation from the arbitrator of his decision — is apparent in the final decision. The superior court acted like an appellate court reviewing the decision of a trial court. Having required an explanation from the arbitrator, it ruled that the explanation was insufficient to support the action of the arbitrator under the governing law. Thus, the superior court undertook an unauthorized substantive review of an explanation that it had improperly required. As a matter of law, contractor demonstrated no permissible ground to overturn the arbitrator's decision denying it attorney's fees, and that failure should have ended the inquiry.
¶ 23. We turn next to homeowners' arguments about prejudgment interest. We treat this issue separately because homeowners raise a different argument against this component of the trial court decision. Contractor initially challenged only the omission of attorney's fees and costs from the arbitrator's award. Almost two months later, and over seventy days after the arbitrator's decision, contractor filed a supplemental motion to vacate arguing that it was entitled to prejudgment interest as a matter of law. Homeowners argue that this motion was untimely because the vacatur section of the arbitration act, 12 V.S.A. § 5677(c), requires such a motion to be made within 30 days from delivery of a copy of the arbitrator's award.
The record does not show when the award was delivered, but we can assume the delivery was over thirty days before contractor filed its supplemental motion.