Court Opinion

ID: 9348617
Source: CourtListenerOpinion
Date Created: 2022-12-20 14:08:41.665673+00
Date Added: 2024-06-11T16:42:29.861904
License: Public Domain

IN THE COURT OF APPEALS OF NORTH CAROLINA

                               2022-NCCOA-557

                                No. COA21-781

                              Filed 16 August 2022

Buncombe County, No. 19 CVS 1433

R.E.M. CONSTRUCTION, INC., Plaintiff,

            v.

CLEVELAND CONSTRUCTION, INC.; MHG ASHEVILLE TR, LLC; ASHEVILLE
ARRAS RESIDENCES, LLC; AND FEDERAL INSURANCE COMPANY;
Defendants,

and

UNITED STATES SURETY COMPANY, Intervenor.

      Appeal by defendant Cleveland Construction, Inc., from judgment and order

entered 10 September 2021 by Judge Alan Z. Thornburg in Buncombe County

Superior Court. Heard in the Court of Appeals 24 May 2022.

      Erwin, Capitano & Moss, P.A., by Fenton T. Erwin, Jr., and Erin C. Huegel,
      for plaintiff-appellee R.E.M. Construction, Inc.

      Chamberlain Hrdlicka White Williams & Aughtry, by Seth R. Price, pro hac
      vice, and Hamilton Stephens Steele + Martin, PLLC, by Tracy T. James and
      Carmela E. Mastrianni, for defendant-appellant Cleveland Construction, Inc.

      Everett Gaskins Hancock LLP, by James M. Hash, and Thompson Law Group,
      LLC, by Kelley Herrin, pro hac vice, for intervenor-appellee.

      ZACHARY, Judge.
                      R.E.M. CONSTR., INC. V. CLEVELAND CONSTR., INC.

                                        2022-NCCOA-557

                                       Opinion of the Court

¶1         Defendant Cleveland Construction, Inc., (“CCI”) appeals from the trial court’s

     judgment and order (1) granting the motion of Plaintiff R.E.M. Construction, Inc.,

     (“REM”) to confirm the arbitration panel’s award, and (2) denying CCI’s motion to

     modify or, in the alternative, to partially vacate the panel’s award. After careful

     consideration, we affirm.

                                         Background

¶2         This appeal arises out of an arbitration proceeding following CCI’s termination

     of REM from a construction project in Asheville. CCI’s appeal presents a narrow

     question of law concerning the arbitration panel’s award of damages to REM. On

     appeal, CCI does not challenge the panel’s conclusions that (1) CCI did not properly

     terminate REM for default under the terms of the parties’ subcontracts, and (2) REM

     was “entitled to monetary compensation from CCI[.]” Instead, CCI argues that the

     panel exceeded its authority by awarding damages that were not permissible under

     the express terms of the parties’ subcontracts, and that the trial court thus erred by

     confirming the panel’s award. As CCI does not contest the panel’s conclusions

     regarding the merits of REM’s claims, we recite only those facts pertinent to the

     present dispute concerning the award of damages.

¶3         On 29 August 2017, CCI entered into a pair of substantially identical

     subcontracts (“the Subcontracts”) with REM for work on the “exterior envelope” of a

     nineteen-story building in Asheville. Intervenor United States Surety Company
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                                         2022-NCCOA-557

                                        Opinion of the Court

     (“USSC”) issued performance bonds dated 25 January 2018 for both of the

     Subcontracts. REM began work in November 2017, but between May and September

     2018 the project suffered several problems and resultant delays. On 5 October 2018,

     CCI terminated REM for default and notified USSC of the termination.

¶4         On 3 April 2019, REM filed suit against Defendants CCI, MHG Asheville TR,

     LLC, and Asheville Arras Residences, LLC in Buncombe County Superior Court.1

     CCI elected to arbitrate REM’s claims pursuant to the terms of the Subcontracts,

     each of which provides in pertinent part that “[a]ny controversy or claim of . . . [REM]

     against [CCI] shall, at the option of [CCI], be resolved by arbitration pursuant to the

     Construction Industry Arbitration Rules of the American Arbitration Association in

     effect on the date on which the demand for arbitration is made.” Accordingly, on 3

     May 2019, CCI filed a motion to stay pending arbitration alongside its motion to

     dismiss. On 26 June 2019, the trial court entered an order staying proceedings

     pending the arbitration.

¶5         A panel of arbitrators confirmed by the American Arbitration Association

     (“AAA”) and approved by the parties heard this matter. On 15 March 2021, the panel

     issued its award, determining in pertinent part “that CCI did not properly terminate

           1 On 26 June 2019, the trial court entered an order allowing Plaintiff to amend its
     complaint to bring claims against additional Defendant Federal Insurance Company.
     Defendants MHG Asheville TR, LLC, Asheville Arras Residences, LLC, and Federal
     Insurance Company are not involved in the present appeal.
                      R.E.M. CONSTR., INC. V. CLEVELAND CONSTR., INC.

                                         2022-NCCOA-557

                                       Opinion of the Court

     REM for default; . . . and REM shall be entitled to monetary compensation from CCI

     in accordance with the terms of” the Subcontracts. To calculate the amount of the

     damage award, the panel first looked to the terms of the Subcontracts:

                  73. As stated above, the termination for default by [CCI]
                  against REM was improper. In a case of an improper
                  termination, the contract provides in Article 31.8 as
                  follows:

                         “If after termination it is determined that, for
                         any reason, [REM] was not in default or that
                         [REM] is not properly terminated for default,
                         then such termination shall have been
                         deemed to be for the convenience of [CCI] and
                         [REM] shall be entitled to the actual direct
                         cost of all Subcontract Work satisfactorily
                         performed and materials furnished prior to
                         notification of termination. [REM] shall not
                         be entitled to compensation for profit and
                         overhead. [REM] shall not be entitled to
                         compensation for work not performed or
                         materials not furnished. [REM] shall not be
                         entitled to recover exemplary, special or
                         consequential damages, or anticipated profit
                         on account of such termination or on account
                         of [CCI’s] breach of the subcontract
                         agreement.”

     (Emphases added.)

¶6         The panel then reviewed the record, but found insufficient evidence on which

     to base a calculation of the “actual direct cost” to which REM was entitled under the

     Subcontracts. As such, the panel determined that it would fashion an equitable

     remedy pursuant to the AAA rules:
                      R.E.M. CONSTR., INC. V. CLEVELAND CONSTR., INC.

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                                       Opinion of the Court

                  74. The contractual starting point for determining the
                  damages or compensation for REM is the actual direct cost
                  of all Subcontract Work prior to October 5, 2018. The
                  problem is that there is no evidence of “actual direct cost”
                  of all work. There was little evidence of the job costs of REM
                  presented to the Panel.

                  75. It is unfair to deny any compensation to REM as a
                  result of the improper termination of its subcontracts with
                  [CCI]. Therefore, the Panel develops an equitable remedy
                  pursuant to the AAA Rules. Specifically, Rule R-48 (a) of
                  the Construction Industry Rules of the AAA states, “The
                  arbitrator may grant any remedy or relief that the
                  arbitrator deems just and equitable and within the scope of
                  the agreement of the parties, including, but not limited to,
                  equitable relief and specific performance of a contract.”

¶7         Therefore, the panel set out to estimate REM’s “actual direct cost” under

     Article 31.8 of the Subcontracts. The panel examined the evidence in the record to

     determine “the amount of the contract funds earned by REM at the time of

     termination.” The panel identified a document provided by CCI as “the best source

     for contract funds earned by REM through September 30, 2018” and calculated a total

     of $211,151.00 in earnings for that period. Then, recognizing that this amount “d[id]

     not include the work of REM performed from October 1-5, 2018[,]” the panel

     determined that “the labor and equipment, including demobilization for October 1-5,

     2018, is $25,000.00.” Ultimately, the panel concluded that “REM is entitled to a total

     of $236,151.00 for contract work performed on this project.” The panel added $926.00

     for technical violations of the North Carolina Prompt Pay Act to its total award, and
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                                          Opinion of the Court

       ordered that CCI pay the administrative costs and fees of arbitration as well as

       prejudgment interest; the panel rejected REM’s other claims for additional payment

       and compensation.

¶8           Upon request from CCI, the panel entered a modified award on 30 April 2021,

       correcting a computation in the amount of prejudgment interest. Although CCI also

       “complain[ed] about the [p]anel’s reliance” on the document that the panel used to

       calculate REM’s actual direct cost when determining the damage award, the panel

       declined to otherwise modify its award.

¶9           The parties then returned to the trial court, where they filed a series of

       motions. On 10 May 2021, REM filed a motion to confirm the award. On 24 May 2021,

       USSC filed a motion to intervene and to modify the award. On 1 June 2021, CCI filed

       motions to lift the stay and to modify or, alternatively, to partially vacate the award.

       The matter came on for hearing on 12 July 2021 in Buncombe County Superior Court.

       On 10 September 2021, the trial court entered its judgment and order, in which it: (1)

       lifted the stay; (2) allowed USSC to intervene; (3) denied CCI’s motion to modify or,

       alternatively, partially vacate the award; (4) granted REM’s motion to confirm the

       award; and (5) entered judgment confirming the award. CCI timely filed notice of

       appeal.

                                            Discussion

¶ 10         As stated above, CCI does not challenge the merits of the panel’s conclusions
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                                         Opinion of the Court

       that (1) CCI did not properly terminate REM for default under the terms of the

       Subcontracts, and (2) REM was “entitled to monetary compensation[.]” Further, CCI

       notes that it does not contest the award of costs and fees of arbitration and has

       already reimbursed REM for that amount.

¶ 11         Instead, CCI argues that the trial court erred by denying its motion to modify

       or, alternatively, to partially vacate the award because the panel “improperly applied

       Rule 48 of the AAA Construction Industry Rules . . . to award [REM] money to which

       it was not entitled.” Alternatively, CCI argues that the trial court should have

       vacated the panel’s award “because the panel manifestly disregarded the law.” We

       disagree.

             I. Standard of Review

¶ 12         “Since this appeal arises from a decision on a motion to confirm an arbitration

       award, we first note that a strong policy supports upholding arbitration awards.”

       WMS, Inc. v. Weaver, 166 N.C. App. 352, 357, 602 S.E.2d 706, 709 (citation and

       internal quotation marks omitted), disc. review denied, 359 N.C. 197, 608 S.E.2d 330

       (2004). “Judicial review of an arbitration award is confined to a determination of

       whether there exists one of the specific grounds for vacation of an award” under the

       Revised Uniform Arbitration Act, N.C. Gen. Stat. § 1-569.1 et seq. (2021). Dalenko v.

       Peden Gen. Contr’rs, Inc., 197 N.C. App. 115, 125, 676 S.E.2d 625, 632 (2009) (citation

       omitted), notice of appeal dismissed, 363 N.C. 801, 690 S.E.2d 534, cert. denied, 363
                        R.E.M. CONSTR., INC. V. CLEVELAND CONSTR., INC.

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                                          Opinion of the Court

       N.C. 854, 694 S.E.2d 202 (2010).

¶ 13         “[E]rrors of law or fact or erroneous decisions of matters submitted to

       arbitration are not sufficient to invalidate an arbitration award fairly and honestly

       made.” Carteret Cty. v. United Contr’rs of Kinston, Inc., 120 N.C. App. 336, 346, 462

       S.E.2d 816, 823 (1995), petition for disc. review withdrawn, 343 N.C. 121, 471 S.E.2d

       65 (1996).

                    An award is intended to settle the matter in controversy,
                    and thus save the expense of litigation. If a mistake be a
                    sufficient ground for setting aside an award, it opens the
                    door for coming into court in almost every case; for in nine
                    cases out of ten some mistake either of law or fact may be
                    suggested by the dissatisfied party. Thus[,] arbitration
                    instead of ending would tend to increase litigation.

       Cyclone Roofing Co. v. David M. LaFave Co., 312 N.C. 224, 236, 321 S.E.2d 872, 880

       (1984) (citation omitted). Accordingly, “[i]f the dispute is within the scope of the

       arbitration agreement, then the court must confirm the award unless one of the

       statutory grounds for vacating or modifying the award exists.” United Contr’rs, 120

       N.C. App. at 346, 462 S.E.2d at 823.

             II. Analysis

¶ 14         CCI argues that the trial court should have vacated the panel’s award of

       damages under N.C. Gen. Stat. § 1-569.23(a)(4), which provides that a trial court may

       vacate an arbitration award where “[a]n arbitrator exceeded the arbitrator’s

       powers[.]” N.C. Gen. Stat. § 1-569.23(a)(4). CCI contends that the panel “exceeded its
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                                           Opinion of the Court

       authority by electing to fashion an award outside of what was contemplated in the

       negotiated contract” when it applied AAA Rule 48 to “develop[ ] an equitable remedy”

       where there was “no evidence of ‘actual direct cost’ of all work” in the record before

       the panel.

¶ 15         In light of the strong public policy that “supports upholding arbitration

       awards[,]” Weaver, 166 N.C. App. at 357, 602 S.E.2d at 709 (citation omitted), this

       Court has recognized with regard to the award of remedies that “an arbitrator does

       not exceed his powers if (1) state law allows the remedy for the specified cause of

       action, and (2) the arbitration contract does not unequivocally preclude it[,]” id. at

       359, 602 S.E.2d at 711.2 In the present case, state law unquestionably allows for the

       equitable remedy fashioned by the panel. See N.C. Gen. Stat. § 1-569.21(c) (“[A]n

       arbitrator may order any remedies the arbitrator considers just and appropriate

       under the circumstances of the arbitration proceeding. The fact that a remedy could

       not or would not be granted by the court is not a ground for . . . vacating an award

       under G.S. 1-569.23.”). Thus, the issue presented here is whether the Subcontracts

       “unequivocally preclude[d]” the panel’s award. Weaver, 166 N.C. App. at 359, 602

       S.E.2d at 711.

             2   Although Weaver concerned arguments under the Federal Arbitration Act, the
       applicable federal and state provisions both allow a trial court to vacate an award where,
       inter alia, the arbitrators exceeded their powers. Compare 9 U.S.C. § 10(a)(4) (2018), with
       N.C. Gen. Stat. § 1-569.23(a)(4).
                         R.E.M. CONSTR., INC. V. CLEVELAND CONSTR., INC.

                                           2022-NCCOA-557

                                          Opinion of the Court

¶ 16         Each of the Subcontracts provides, in pertinent part, that “[a]ny controversy

       or claim of . . . [REM] against [CCI] shall, at the option of [CCI], be resolved by

       arbitration pursuant to the Construction Industry Arbitration Rules of the American

       Arbitration Association in effect on the date on which the demand for arbitration is

       made.” AAA Rule 48(a), as quoted by the panel in its award, provides that “[t]he

       arbitrator may grant any remedy or relief that the arbitrator deems just and

       equitable and within the scope of the agreement of the parties, including, but not

       limited to, equitable relief and specific performance of a contract.” The Subcontracts

       do not explicitly preclude the equitable remedy that the panel fashioned; rather, they

       expressly vest the arbitration panel with broad discretion to craft equitable remedies

       through the specific adoption of the AAA Rules, including Rule 48(a). Hence, in

       estimating the “actual direct cost” incurred by REM pursuant to Article 31.8 of the

       Subcontracts, the panel did not exceed the vast equitable powers with which it was

       endowed by the parties.

¶ 17         Notably, CCI does not directly argue on appeal that the Subcontracts explicitly

       precluded the equitable remedy fashioned by the panel. Instead, CCI offers a series

       of arguments otherwise attacking the panel’s equitable authority, including: (1) that

       “Rule 48(a) is an equitable remedy that is not applicable in this context”; (2) that even

       if Rule 48(a) were applicable, the relief designed by the panel was not “within the

       scope of the agreement of the parties” as required by Rule 48(a); and (3) that “Rule
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       48(a) does not allow an arbitration panel to award monetary damages in direct

       contradiction of the governing contract’s terms” and that “[t]o hold otherwise would

       be to eviscerate the central concept underlying all arbitrations: that the arbitrators

       derive their powers from the parties’ contract and are thus limited to awarding relief

       within the scope of that contract.” These arguments are unpersuasive.

¶ 18         Although CCI asserts that the panel’s award of monetary damages was in

       “direct contradiction of the [Subcontracts’] terms[,]” we again note that the

       Subcontracts themselves do not contain any express limitation that would preclude

       the panel’s award. The Subcontracts provide that, in the event that CCI improperly

       terminated REM for default, REM would not be entitled to “compensation for profit

       and overhead”; “compensation for work not performed or materials not furnished”; or

       “exemplary, special or consequential damages, or anticipated profit[.]” But the

       Subcontracts explicitly state that REM “shall be entitled to the actual direct cost of

       all Subcontract Work satisfactorily performed and materials furnished prior to

       notification of termination.” And AAA Rule 48(a), which the Subcontracts specifically

       adopt, authorizes the arbitration panel to “grant any remedy or relief that the

       arbitrator deems just and equitable and within the scope of the agreement of the

       parties, including, but not limited to, equitable relief[.]” (Emphases added).

¶ 19         In its equitable award, the arbitration panel did not provide REM with any of

       the forms of compensation prohibited by the Subcontracts. In fact, it expressly
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       constrained its calculation of equitable relief—authorized by Rule 48(a)—to an

       approximation of “the amount of the contract funds earned by REM at the time of

       termination” and rejected REM’s claims for “additional payment or compensation.”

       Therefore, the arbitration panel’s estimation of REM’s “actual direct cost” was

       properly calculated to be consistent with the Subcontracts’ terms.

¶ 20         At its essence, the sole source of CCI’s complaints on appeal is that the panel

       estimated an approximate “amount of the contract funds earned by REM at the time

       of termination” when REM had not submitted any evidence to that effect, based on

       the panel’s statement that it would be “unfair to deny any compensation to REM”

       under the circumstances presented. However, CCI cannot point to any provision in

       the Subcontracts that forbids the panel from (1) awarding this equitable relief—

       which, again, was explicitly authorized by Rule 48(a) and not specifically precluded

       by the terms of the Subcontracts—and thus (2) estimating the “actual direct cost” to

       which REM was entitled based on evidence in the record before it, regardless of which

       party provided that evidence. “[T]he parties could have—but did not—write into the

       contract a limiting provision” forbidding the arbitration panel from fashioning this

       specific remedy. Faison & Gillespie v. Lorant, 187 N.C. App. 567, 577, 654 S.E.2d 47,

       54 (2007) (citation omitted).

¶ 21         We conclude that in the case at bar the arbitration panel did not “act[ ] contrary

       to the express authority conferred on them by statute and by the language of the
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                                         Opinion of the Court

       parties’ private arbitration agreement.” Id. at 575, 654 S.E.2d at 52. “In making [its]

       award the arbitrat[ion panel] construed the contract, as it was [its] right and duty to

       do. [It] added nothing to the agreement. Instead, [it] based [its] conclusions on a

       permissible construction of the written instrument.” Id. at 577, 654 S.E.2d at 54

       (citation omitted). Because the arbitration panel did not exceed the authority afforded

       it by the parties in the Subcontracts, the trial court did not err by confirming the

       award.

¶ 22         Lastly, CCI contends that “the panel’s award should be vacated because the

       panel manifestly disregarded the law.” CCI maintains that the panel acted in

       manifest disregard of the law by declining to apply the parties’ subcontracts as

       written in calculating its damages award.

¶ 23         “To establish manifest disregard, a party must demonstrate: (1) the disputed

       legal principle is clearly defined and is not subject to reasonable debate; and (2) the

       arbitrator refused to apply that legal principle.” Warfield v. Icon Advisers, Inc, 26

       F.4th 666, 669–70 (4th Cir.) (citation and internal quotation marks omitted), reh’g

       and reh’g en banc denied, 2022 U.S. App. LEXIS 7583 (2022).

¶ 24         The “manifest disregard” analysis has been adopted by other jurisdictions, but

       has not been employed by the North Carolina courts; indeed, the federal circuit courts

       of appeal are split as to whether the “manifest disregard” ground is viable as a matter

       of federal law. See id. at 669–70 n.3. However, CCI asks this Court to adopt an
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       arbitrator’s “manifest disregard of the law” as an additional, non-statutory ground

       for vacating an arbitrator’s award.

¶ 25         In that we have already determined that the arbitration panel here did not

       “act[ ] contrary to the express authority conferred on them by statute and by the

       language of the parties’ private arbitration agreement[,]” Faison, 187 N.C. App. at

       575, 654 S.E.2d at 52, we need not accept CCI’s invitation to adopt this alternative

       analysis, see In re Fifth Third Bank, Nat. Ass’n, 216 N.C. App. 482, 488, 716 S.E.2d

       850, 855 (2011) (concluding that, because the appellant “fail[ed] to demonstrate that

       the Arbitrator either ‘manifestly disregarded the law’ or ‘dispensed his own brand of

       industrial justice,’ . . . we need not determine the extent, if any, to which ‘manifest

       disregard of the law’ remains a valid non-statutory basis for vacating an arbitration

       award” under the Federal Arbitration Act).

                                              Conclusion

¶ 26         For the foregoing reasons, we conclude that the trial court did not err in

       denying CCI’s motion to modify or, alternatively, to partially vacate the award. The

       trial court’s judgment and order confirming the arbitration award is affirmed.

             AFFIRMED.

             Judges INMAN and JACKSON concur.