The Jamar Company v. Independent School District No. 2142, St. Louis County Schools, Minnesota

• Court: Court of Appeals of Minnesota
• Decided: May 18, 2015
• Docket: A14-1187
• Status: Unpublished

Opinion

This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2014).

STATE OF MINNESOTA IN COURT OF APPEALS A14-1187

The Jamar Company, Respondent,

vs.

Independent School District No. 2142, St. Louis County Schools, Minnesota, Appellant.

Filed May 18, 2015 Reversed and remanded Chutich, Judge

St. Louis County District Court File No. 69VI-CV-13-260

Dean B. Thomson, Matthew T. Collins, Lucas T. Clayton, Fabyanske, Westra, Hart & Thomson, P.A., Minneapolis, Minnesota (for respondent)

Stephen M. Knutson, Michelle D. Kenney, Knutson, Flynn & Deans, P.A., Mendota Heights, Minnesota (for appellant)

Considered and decided by Smith, Presiding Judge; Chutich, Judge; and

Minge, Judge.

 Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10. UNPUBLISHED OPINION

CHUTICH, Judge

Appellant Independent School District No. 2142, St. Louis County Schools (the

school district) challenges the district court’s decision to vacate an arbitration award

designating the school district as the prevailing party in a construction contract dispute.

The school district further argues that the district court erred in modifying the arbitration

award to name respondent Jamar Company as the prevailing party entitled to attorney

fees. Because the arbitrator did not exceed his authority in designating the school district

as the prevailing party, we reverse and remand for the district court to calculate the

appropriate amount of attorney fees to award in favor of the school district.

FACTS

In August 2010, Jamar signed a $1,430,485 contract with the school district to

construct a roof for a new school building in New Independence. Installation of the new

roof was to begin on February 3, 2011, and be completed by March 31, 2011. The

contract stated that Jamar would install a certain type of roof, known as a sure-white

roofing system, which could only be installed if the surface and/or ambient temperature

was 25 degrees Fahrenheit or warmer. The contract also specified that Jamar was

responsible for ensuring that it could install the roof despite winter conditions.

In early November 2010, Jamar told the school district, through the project

construction manager, that installation of the sure-white roofing system would be

impossible because the temperature would likely remain below 25 degrees Fahrenheit for

at least some of the installation period. Despite Jamar’s breach, the school district chose

2 not to terminate the contract and instead elected to accommodate Jamar and change to an

alternative hot-mopped roof system. On March 7, 2011, the school district issued a

construction change directive to allow Jamar to proceed with installation of the hot-

mopped system.

In August 2011, Jamar estimated that changing to the hot-mopped roof had cost an

additional $183,000. The school district refused to pay this amount. On April 16, 2012,

Jamar initiated an arbitration proceeding to recover the cost of installing the hot-mopped

system, seeking $149,308.65 in damages plus interest, fees, and costs. The school district

counterclaimed, seeking an award of $75,000 plus interest, fees, and costs. Before the

arbitration in September 2012, Jamar hired an expert witness to review its claim and as a

result, reduced its demand to $86,786.72.

During arbitration, Jamar argued that the temperature only became an issue after

the project construction manager, Kraus-Anderson, moved its installation schedule up to

early January. The arbitrator found that this argument was inconsistent with testimony

presented because Kraus-Anderson did not raise the issue of moving up the schedule until

December 2010 and Jamar asked to change the roof type in November. Indeed, Jamar’s

own expert testified that the proposed change in the construction schedule was immaterial

because Jamar would have needed to use some form of winter protection regardless of

whether the work was performed in January or February.

The arbitrator awarded Jamar $40,809.22. The arbitrator determined that Jamar

breached its contract when it refused to install the sure-white roofing system but that the

school district waived its right to terminate the contract when it elected to accept the hot-

3 mop roof system. The arbitrator stated that Jamar had originally priced its work on the

hot-mopped system at $183,000, and reduced it to $149,000, then to $86,786.72, and

ultimately recovered only $40,809.22. The arbitrator stated that “[i]f Jamar had

accurately calculated the costs for the changed work from the beginning, this entire

dispute would have likely been avoided.” The arbitrator then concluded that the school

district was the prevailing party and awarded it $109,454.85 for attorney fees and

$10,300 for expert-witness fees.

Jamar moved to vacate and modify the arbitration award in district court, arguing

that the arbitrator exceeded his authority. The district court granted Jamar’s motion and

vacated the portion of the arbitration award designating the school district as the

prevailing party. It concluded that the arbitrator exceeded his authority by relying on

facts outside the record, specifically focusing on the arbitrator’s statement that “[i]f Jamar

had accurately calculated the costs for the changed work from the beginning, this entire

dispute would have likely been avoided.” The district court characterized this statement

as “pure speculation and without any evidentiary support in the record.” The district

court also modified the award and named Jamar as the prevailing party entitled to recover

attorney fees and costs and remanded the issue of calculating attorney fees to the

arbitrator.

The school district then appealed the district court’s decision to vacate and modify

the arbitration award. This court dismissed the appeal because it was taken from a

nonfinal order. Jamar next moved the arbitrator for an award of all attorney fees, costs,

and disbursements that it had incurred.

4 The arbitrator issued a modified award, granting Jamar $125,865.20 in attorney

fees, costs, and disbursements relating to the arbitration. The arbitrator declined to award

Jamar attorney fees for its motion to vacate and modify the arbitration award, stating that

these amounts would be “more appropriately addressed by the District Court.”

Accordingly, Jamar filed a motion in district court to confirm the arbitration

award. The district court confirmed the award and concluded that Jamar’s motion for

attorney fees was timely. The district court also granted Jamar an additional $37,374.58

for attorney fees and costs incurred in the lawsuit following the arbitration. The school

district appealed.

DECISION

The arbitration process is favored in the law. Ehlert v. W. Nat’l Mut. Ins. Co., 296

Minn. 195, 199, 207 N.W.2d 334, 336 (1973). Arbitrators make final determinations of

law and fact. Grudem Bros. Co. v. Great W. Piping Corp., 297 Minn. 313, 316, 213

N.W.2d 920, 922-23 (1973). An arbitration award is set aside “only when the objecting

party meets its burden of proof that the arbitrators have clearly exceeded the powers

granted to them in the arbitration agreement.” Seagate Tech., LLC v. W. Digital Corp.,

854 N.W.2d 750, 760-61 (Minn. 2014) (quotation omitted).

In reviewing the arbitrator’s authority, this court exercises every reasonable

presumption “in favor of the finality and validity of the award.” Nat’l Indem. Co. v.

Farm Bureau Mut. Ins. Co., 348 N.W.2d 748, 750 (Minn. 1984). Thus, an appeal from

an arbitration decision is “subject to an extremely narrow standard of review.” Hunter,

Keith Indus., Inc. v. Piper Capital Mgmt. Inc., 575 N.W.2d 850, 854 (Minn. App. 1998).

5 This court reviews the scope of an arbitrator’s authority de novo. Seagate Tech., 854

N.W.2d at 760.

The school district argues that the contract gave the arbitrator broad discretion to

designate a prevailing party and sufficient evidence in the record supported his decision.

Jamar contends that the arbitrator exceeded his authority in designating the school district

as the prevailing party because the award relied on evidence outside the record. We

agree with the school district.

“The scope of an arbitrator’s authority is a matter of contract interpretation to be

determined from a reading of the parties’ arbitration agreement.” Cnty. of Hennepin v.

Law Enforcement Labor Servs., Inc., Local No. 19, 527 N.W.2d 821, 824 (Minn. 1995).

Arbitration awards will be set aside if the objecting party shows that the arbitrator has

clearly exceeded the powers granted in the arbitration agreements. Seagate Tech., 854

N.W.2d at 760–61. “[C]ourts will not overturn an award merely because they may

disagree with the arbitrators’ decision on the merits.” Id. at 761 (quotation omitted).

Here, the contract between the two parties stated, “[T]he ‘prevailing party’ shall be

determined by Arbitrator(s).” The term “prevailing party” was not defined in the

contract. The contract therefore gave the arbitrator complete discretion to name the

prevailing party.

Despite this broad discretion, Jamar contends that the arbitration award lacked

evidentiary support because it relied on an assumption outside the record—that the

conflict could have been avoided had Jamar accurately calculated the cost for the

6 changed work at the outset. After carefully reviewing the arbitrator’s decision, we

disagree.

The evidence here shows that Jamar breached the contract, the school district

accommodated the breach, and Jamar’s explanation for the breach was not credible and

belied by the testimony of its own expert witness. The record also shows a notable

discrepancy between Jamar’s initial asking price of $183,000, and its ultimate recovery of

$40,809.22. Jamar argues that this discrepancy was not a “fact” in the record and that the

arbitrator exceeded his authority by inferring that the entire litigation would have been

avoided had Jamar priced its work reasonably at the outset.1 But the arbitration award

did not rest solely on this discrepancy, and even if it were part of the arbitrator’s

reasoning, the arbitrator’s reliance on it was not an error warranting vacation of the

award. See Garvey, 532 U.S. at 509, 121 S. Ct. at 1728 (stating that an arbitrator’s

improvident and even “silly” fact-finding is not a basis for a reviewing court to refuse to

enforce the award).

Jamar also cites to numerous federal cases for the proposition that vacating an

arbitration award is warranted when the record reveals no support whatsoever for the

arbitrator’s determination. We reject this argument because, as stated above, sufficient

1 The arbitrator’s statement could also reasonably be interpreted as a way of chastising Jamar. But regardless of the statement’s interpretation, it was not the only fact supporting the arbitration award and is therefore not a basis upon which the award can be vacated. Cf. Major League Baseball Players Ass’n v. Garvey, 532 U.S. 504, 510, 121 S. Ct. 1724, 1728 (2001) (“It is only when the arbitrator strays from interpretation and application of the agreement and effectively ‘dispense[s] his own brand of industrial justice’ that his decision may be unenforceable” (quoting Steelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 593, 597, 80 S. Ct. 1358, 1361 (1960))).

7 evidence in the record supports the arbitration award. Moreover, these federal cases are

all distinguishable because, contrary to the situation here, the arbitrators in those cases

either relied on obvious mistakes of fact or modified clear contractual language. See

United Elec. Radio & Mach. Workers of Am., Local 1139 v. Litton Microwave Cooking

Prods., Litton Sys. Inc., 704 F.2d 393, 396-97 (8th Cir. 1983) (concluding that the

arbitrator erroneously calculated the work week); Storer Broad. Co. v. Am. Fed’n of TV

& Radio Artists, Cleveland Local, AFL-CIO, 600 F.2d 45, 48 (6th Cir. 1979)

(determining that the arbitrator’s finding that the union told its members they would

receive credited amounts in their profit sharing accounts was wholly unsupported in the

record); Detroit Coil Co. v. Int’l Ass’n of Machinists & Aerospace Workers, Lodge No.

82, 594 F.2d 575, 580–81 (6th Cir. 1979) (concluding that the arbitrator modified clear

and unambiguous language in a collective bargaining agreement).

Jamar further contends that the arbitration award is irreconcilable with Minnesota

cases that define “prevailing party.” We need not reach this issue, however, because

arbitration awards “will not be reviewed or set aside for mistake of either law or fact in

the absence of fraud, mistake in applying its own theory, misconduct, or other disregard

of duty.” See Seagate Tech., LLC v. W. Digital Corp., 834 N.W.2d 555, 565 (Minn. App.

2013) (emphasis added) (quotation omitted), aff’d, 854 N.W.2d 750 (Minn. 2014).

Because the arbitrator here did not engage in the type of conduct that would warrant a

review of the award, we decline to review the award for a misapplication of Minnesota

caselaw. See id.

8 Lastly, Jamar argues that the arbitrator’s “irrational analysis regarding potential

settlement demonstrates ‘evident partiality’ against Jamar” and is another basis for

affirming the district court’s vacation of the arbitration award. A district court shall

vacate an arbitration award if the arbitrator shows “evident partiality.” Minn. Stat.

§ 572B.23(a)(2)(A) (2014). But Jamar cites no compelling evidence to show that the

arbitrator demonstrated evident partiality here: the contract empowered the arbitrator to

designate a prevailing party and the arbitrator did so. Cf. Ag Servs. of Am., Inc. v.

Schroeder, 693 N.W.2d 227, 236–37 (Minn. App. 2005) (concluding that receiving an

adverse ruling is not a proper basis upon which to impute bias to a district court judge).

Accordingly, this contention fails.

In sum, we conclude that the vacation and modification of the arbitration award

was improper because the arbitrator did not exceed his authority or demonstrate evident

partiality, and the record supported his award. The original arbitration award is therefore

reinstated, and we reverse the attorney fees and costs awarded to Jamar for the arbitration

and ensuing litigation. We also remand for the district court to calculate reasonable

attorney fees, costs, disbursements, and interest in favor of the school district. Given our

conclusion above, we need not address the school district’s argument regarding the

timeliness of Jamar’s motion for attorney fees.

Reversed and remanded.