Carteret County v. United Contractors of Kinston, Inc.

Annotate this Case

462 S.E.2d 816 (1995)

CARTERET COUNTY v. UNITED CONTRACTORS OF KINSTON, INC.

No. 943SC396.

Court of Appeals of North Carolina.

October 3, 1995.

*819 Wheatly, Wheatly, Nobles & Weeks, P.A. by Stephen M. Valentine, Beaufort, and Poyner & Spruill by Donald R. Teeter, Raleigh, for plaintiff-appellant.

Erwin & Bernhardt by Fenton T. Erwin, Jr., Charlotte, for defendant-appellee.

McGEE, Judge.

Plaintiff brings forth eighteen assignments of error, which it groups into six questions presented. These questions can be divided into three areas: 1) whether defendant had a right to arbitrate its claims against plaintiff; 2) whether the arbitration award should be vacated because of the alleged partiality of the arbitrators; and 3) whether the arbitrators' alleged consideration of improper issues is grounds for vacating the award. For the reasons stated below, we affirm the judgment of the trial court confirming the arbitration award in favor of defendant.

I. Right to Arbitrate

Plaintiff argues the trial court should have vacated the arbitration award because defendant was not entitled to arbitration of its claims against plaintiff. We disagree.

A. Validity

Plaintiff first alleges the arbitration clause is invalid because a county does not have the power to enter into a binding arbitration agreement. The well-settled rule in this State governing the permissible scope of municipal or county actions, commonly called Dillon's Rule, is set out in White v. Union County, 93 N.C.App. 148, 377 S.E.2d 93 (1989). The rule states:

"[A] municipal corporation possesses and can exercise the following powers, and no others: First, those granted in express words; second, those necessarily or fairly implied in or incident to the powers expressly granted; third, those essential to the accomplishment of the declared objects and purposes of the corporation...."

White, 93 N.C.App. at 151, 377 S.E.2d at 95 (quoting Greene v. City of Winston-Salem, 287 N.C. 66, 72, 213 S.E.2d 231, 235 (1975). Counties have been given the express power to enter into contracts with private entities under N.C.Gen.Stat. § 153A-449 (1991). Further, our General Assembly has recognized and authorized contractual provisions providing for arbitration of controversies arising under a contract. N.C.Gen.Stat. § 1-567.2 (1983).

*820 While it is true counties have not been given the express power to enter into arbitration agreements, they do have the power to enter into contracts. Since the General Assembly has recognized the validity of contractual arbitration agreements, it is therefore "necessarily or fairly implied" under Dillon's Rule that counties may enter into arbitration agreements incident to their power to contract.

Our courts have also upheld the validity of arbitration agreements in controversies involving counties. In Johnston County v. R.N. Rouse & Co., 331 N.C. 88, 414 S.E.2d 30 (1992), our Supreme Court held a consent to jurisdiction clause requiring the parties to submit to the jurisdiction of North Carolina courts did not conflict with a general arbitration clause, and therefore the county was bound to arbitrate the dispute. This Court upheld an arbitration award in favor of a county where the county had sought arbitration under the terms of its contract with plaintiff in Ruffin Woody and Associates v. Person County, 92 N.C.App. 129, 374 S.E.2d 165 (1988), disc. review denied, 324 N.C. 337, 378 S.E.2d 799 (1989). As these cases demonstrate, North Carolina counties have the power to enter into contractual arbitration agreements.

Plaintiff next argues the arbitration clause is invalid because it conflicts with plaintiff's constitutional right to a jury trial. This argument is without merit. "An agreement to arbitrate a dispute is not an unenforceable contract requiring waiver of a jury...," Miller v. Two State Construction Co., 118 N.C.App. 412, 416, 455 S.E.2d 678, 681 (1995), and there is no constitutional impediment to arbitration agreements. Id. at 417, 455 S.E.2d at 681. Also, plaintiff never demanded a jury trial and did not assign this as error. Participation in arbitration proceedings without making any protest or demand for a jury trial waives any right to later object to the arbitration award on these grounds. McNeal v. Black, 61 N.C.App. 305, 307, 300 S.E.2d 575, 577 (1983). Therefore, this argument fails.

Plaintiff next contends the arbitration provision is void because it was not independently negotiated, and cites Routh v. Snap-On Tools Corp., 108 N.C.App. 268, 423 S.E.2d 791 (1992) for this proposition. However, plaintiff's reliance on Routh is misplaced.

In Red Springs Presbyterian Church v. Terminix Co., 119 N.C.App. 299, 458 S.E.2d 270 (1995), the plaintiff also argued an arbitration agreement was void because it was not independently negotiated. This Court distinguished Routh, holding that the basis of the Routh decision was the lack of a valid agreement as evidenced by the failure of the plaintiff to properly sign the contract, and therefore the Routh language was not controlling. Red Springs, 119 N.C.App. at 301-302, 458 S.E.2d at 272-73. The Red Springs decision held that where the contract language is clear and unambiguous, and the parties by evidence of their proper signing of the contract have agreed to the arbitration provision, then a valid agreement to arbitrate exists. Red Springs, 119 N.C.App. at 302, 458 S.E.2d at 273.

In this case, the arbitration language contained in the contract is clear and unambiguous. The arbitration provision itself contains seven sections and comprises almost a full page of the contract document. We find no merit to plaintiff's argument that "there is no indication the parties to the contract even knew [the arbitration provision] was in the contract." It is reasonable to expect that a building contractor and a body politic frequently involved in capital construction know the contents of a standard AIA construction contract. Because the contract language is clear and both parties properly signed the document, the parties reached a valid agreement to arbitrate. The arbitration provision is valid and enforceable by the defendant.

B. Waiver of Right to Arbitrate

Plaintiff argues defendant waived the right to arbitration by failing to fulfill certain contractual conditions precedent to filing an arbitration demand. Specifically, plaintiff contends defendant failed to file its claims *821 within twenty-one days after the events giving rise to the claims as called for by the contract. However, even if defendant did not timely file its claims, under the facts of this case defendant was still entitled to arbitration.

North Carolina has a strong public policy in favor of arbitration, and any allegation of waiver of such a favored right will be closely scrutinized. Cyclone Roofing Co. v. LaFave Co., 312 N.C. 224, 229, 321 S.E.2d 872, 876 (1984). "[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability." Id. (quoting Moses H. Cone Hospital v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S. Ct. 927, 941, 74 L.Ed.2d. 765, 785 (1983)). Before a party will be found to have impliedly waived a contractual right to arbitration, that party must have, by its delay or actions inconsistent with arbitration, caused another party to be prejudiced by an order compelling arbitration. Cyclone Roofing, 312 N.C. at 229, 321 S.E.2d at 876.

In this case, nothing in the record indicates plaintiff was prejudiced by defendant's alleged delay in filing its claims, and plaintiff makes no such argument. We also note the trial court found the claims were timely filed. Regardless of whether the claims were timely filed, because of the strong public policy in favor of arbitration and because no prejudice to plaintiff has been shown, we find defendant did not waive its contractual right to arbitration.

II. Alleged Partiality of Arbitrators

Plaintiff argues the arbitration award should be vacated because an arbitration panel consisting of three contractors was "fundamentally unfair" and because the chairman of the panel was "biased" against the plaintiff. We find no merit to these contentions.

The court shall vacate an arbitration award upon application of a party if "[t]here was evident partiality by an arbitrator appointed as a neutral or corruption in any of the arbitrators or misconduct prejudicing the rights of any party." N.C.GenStat. § 1-567.13(a)(2) (1983). Other grounds for vacating an award under N.C.Gen.Stat. § 1-567.13(a) include:

(1) The award was procured by corruption, fraud or other undue means; ... (3) The arbitrators exceeded their powers; (4) The arbitrators refused to postpone the hearing upon sufficient cause being shown therefor or refused to hear evidence material to the controversy or otherwise so conducted the hearing, contrary [to statute] as to prejudice substantially the rights of a party; or (5) There was no arbitration agreement and the issue was not adversely determined in proceedings under G.S. 1-567.3 and the party did not participate in the arbitration hearing without raising the objection....

G.S. § 1-567.13(a)(1), (3)-(5). A party seeking to set aside an arbitration award has the burden of demonstrating an objective basis to support its allegations of an arbitrator's improper conduct. Thomas v. Howard, 51 N.C.App. 350, 353, 276 S.E.2d 743, 745 (1981). Plaintiff did not meet this burden.

Plaintiff first contends an arbitration panel consisting unanimously of contractors is inherently unfair, and cites Bennish v. N.C. Dance Theater, 108 N.C.App. 42, 422 S.E.2d 335 (1992). In Bennish, this Court held an arbitration panel where two of the three arbitrators were directly tied to the defendant was inherently unfair. Bennish, 108 N.C.App. at 45-46, 422 S.E.2d at 337. Bennish is distinguishable from this case in that there are no direct ties between the arbitrators and the defendant. In Bennish, the two arbitrators in question were a staff member and a trustee of the defendant corporation. Here, the only link between the arbitrators and the defendant is that they have the same occupation. To accept plaintiff's argument that this is inherently unfair *822 would be like accepting an argument that three judges cannot impartially decide a matter involving an attorney because they are members of the same profession. Plaintiff's "inherent unfairness" argument fails.

As specific evidence of partiality, plaintiff cites the following: 1) the panel's failure to take an oath before the proceedings; 2) the panel's award of damages "far in excess of the damages the defendant was able to establish"; 3) the arbitrators refusal to clarify their award even after the trial court ordered them to do so; 4) the chairman of the arbitration panel's prior business relationship with one of the defendant's witnesses; and 5) one of the arbitrators' dissent from the award. These allegations do not amount to an objective basis for showing evident partiality as required under G.S. § 1-567.13 and by the Thomas decision.

As plaintiff admits in its brief, the arbitrators were under no duty to take an oath. The arbitrators requested the administration of an oath be dispensed with unless either party objected, and there was no objection. As to the excessive damages claim, defendant presented evidence alleging more than $1.3 million in damages. Whether or not defendant was able to establish such damages was for the arbitration panel to decide. Plaintiff's dissatisfaction with the amount awarded is not objective evidence pointing to partiality by the arbitrators. Also, plaintiff's argument that the arbitrators did not clarify their award has no merit. "Arbitrators have no obligation to the court to give their reasons for an award." United Steelworkers v. Enterprise Corp., 363 U.S. 593, 598, 80 S. Ct. at 1361, 4 L. Ed. 2d 1424, 1428 (1960). Our Supreme Court has said:

Arbitrators are no more bound to go into particulars and assign reasons for their award than a jury is for its verdict. The duty is best discharged by a simple announcement of the result of their investigation. They are not bound to decide according to law when acting within the scope of their authority, being the chosen judges of the parties and a law unto themselves, but may award according to their notion of justice and without assigning any reason.

Bryson v. Higdon, 222 N.C. 17, 19-20, 21 S.E.2d 836, 837 (1942).

We also find no merit to plaintiff's contention the award should be vacated because of an alleged bias on the part of Cleve Paul, the chairman of the arbitration panel. Plaintiff bases its argument on the fact the chairman admitted having a prior business relationship with one of the defendant's witnesses. However, this alone does not show bias. Further, even if the chairman was biased, plaintiff waived its right to object on this ground.

The chairman fully informed both parties of his prior relationship with the witness. After stating that he would give no more credibility to that witness' testimony than any other witness, the transcript shows the following exchange:

[Mr. Paul]: We discussed this in the back, and I just wanted to make that known for the record. I think both parties have agreed that they don't see a problem with that. Is that correct? [Plaintiff's Attorney]: Yes. I believe you indicated to us that your association with those people would not affect how you evaluated this case or how you evaluated their testimony? [Mr. Paul]: No. [Plaintiff's Attorney]: That's good enough for us. We talked to our client.

There is no indication in the record that the chairman was biased in any way by his prior association with the witness. Further, the chairman also indicated he had prior business relationships with several of plaintiff's witnesses. Finally, even if the chairman's relationship with the witness prevented him from being impartial, in light of the above exchange plaintiff cannot be heard to complain. "[T]he disability of an arbitrator is waived if the complaining party had prior knowledge of it." Thomas v. Howard, 51 *823 N.C.App. 350, 354, 276 S.E.2d 743, 746 (1981). Not only did plaintiff have knowledge of the alleged disability, its counsel for the arbitration proceedings also acknowledged plaintiff believed the chairman could be impartial.

We fail to see how the fact that one of the arbitrators dissented from the award shows plaintiff did not receive a fair, impartial hearing. Plaintiff seems to argue that because of the dissent, but for the alleged bias of the chairman, it would have won at arbitration. However, as stated above, plaintiff presents no objective evidence of partiality by the chairman, and even if it had, it waived its right to object on this ground. Therefore, plaintiff is not entitled to have the award vacated because of partiality.

We note that plaintiff also asked this Court to modify the award based on the "fundamental unfairness" of the panel's makeup. As stated above, a panel consisting of three contractors was not fundamentally unfair. Further, such allegations are not proper grounds for modification under N.C.Gen.Stat. § 1-567.14 (1983).

III. Consideration of Improper Issues

Plaintiff argues the arbitrators erred by considering improper issues and testimony and by awarding consequential and punitive damages, and therefore the award should be vacated. Again, we find no merit to these arguments.

Plaintiff contends the arbitrators improperly considered evidence of defendant's increased overhead due to the project's extension of time. Plaintiff argues the contract did not allow recovery for increased overhead and that it was error to hear evidence and consider this issue and therefore the award should be vacated. However, errors of law or fact or erroneous decisions of matters submitted to arbitration are not sufficient to invalidate an arbitration award fairly and honestly made. Fashion Exhibitors v. Gunter, 41 N.C.App. 407, 411, 255 S.E.2d 414, 417-18 (1979). If 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. FCR Greensboro v. C & M Investments, 119 N.C.App. 575, 577, 459 S.E.2d 292, 294 (1995).

In this case, the arbitration agreement reads: "Any controversy or Claim arising out of or related to the Contract, or the breach thereof, shall be settled by arbitration...." This Court, in Rodgers Builders v. McQueen, 76 N.C.App. 16, 331 S.E.2d 726 (1985), held a similar arbitration provision to be sufficiently broad to include all claims arising out of or related to the contract or its breach. Here, whether defendant would be entitled to increased overhead expenses due to the extension of the contract completion date is an issue arising out of the contract and falls within the scope of the arbitration agreement. Since the arbitrators had the power to rule on the issue, even if they erroneously considered evidence of increased overhead expenses it would not be grounds to vacate the award.

Lastly, plaintiff argues the arbitration award impermissibly included consequential and punitive damages, which it contends are not recoverable. However, we need not determine whether such damages would be recoverable in this case. Because the arbitrators did not clarify their award, plaintiff's contention that the award contains impermissible consequential and punitive damages is speculation. Even if the award did contain such damages, it would not provide grounds for vacating the award. "[T]he fact that the relief was such that it could not or would not be granted by a court of law or equity is not ground for vacating or refusing to confirm the award." N.C.Gen.Stat. § 1-567.13(a)(5) (1983). accord, Turner v. Nicholson Properties, Inc., 80 N.C.App. 208, 341 S.E.2d 42, disc. review denied, 317 N.C. 714, 347 S.E.2d 457 (1986). If the courts were to invalidate awards based upon errors of law, it would "[open 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 *824 party. Thus ... arbitration, instead of ending would tend to increase litigation." Fashion Exhibitors, 41 N.C.App. at 415, 255 S.E.2d at 420 (quoting Poe & Sons, Inc. v. University, 248 N.C. 617, 625, 104 S.E.2d 189, 195 (1958)).

Plaintiff has failed to produce objective evidence that the arbitrators were partial, or any other grounds to vacate the arbitration award. Plaintiff argues it would be unfair to the county and its residents to allow a large damage award to stand under these circumstances. However, arbitration is intended to be a final settlement of disputes without litigation. Parties agreeing to abide by a decision of a panel of arbitrators will not be heard to attack the fairness of such an award. Thomas, 51 N.C.App. at 352, 276 S.E.2d at 745.

The defendant did not brief or argue its two assignments of error and its third and fourth cross assignments of error. Therefore, these are deemed abandoned pursuant to N.C.R.App.P. 28(a). Because of our holding, we need not discuss defendant's remaining cross assignments of error. For the reasons stated above, we affirm the judgment confirming the arbitration award.

Affirmed.

LEWIS and WYNN, JJ., concur.