Chayce v. Path Construction ( 2024 )

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
CHAYCE CONCRETE, LLC, Plaintiff/Appellee,
v.
PATH CONSTRUCTION SOUTHWEST, LLC, et al., Defendants/Appellants.
No. 1 CA-CV 24-0030
FILED 10-22-2024
Appeal from the Superior Court in Maricopa County
No. CV2022-008136
The Honorable Bradley H. Astrowsky, Judge
VACATED AND REMANDED
COUNSEL
Husch Blackwell LLP, Phoenix
By Brendan A. Melander
Counsel for Defendants/Appellants
Thrasher Law PLLC, Phoenix
By Bobby O. Thrasher, Jr.
Co-Counsel for Plaintiff/Appellee
Hill, Hall & Deciancio, PLC, Phoenix
By Christopher Robbins
Co-Counsel for Plaintiff/Appellee
CHAYCE v. PATH CONSTRUCTION, et al.
Opinion of the Court
OPINION
Presiding Judge Jennifer B. Campbell delivered the opinion of the Court, in
which Judge Kent E. Cattani and Judge Paul J. McMurdie joined.
C A M P B E L L, Judge:
¶1 This is an appeal from the superior court’s order vacating an
arbitration award under A.R.S. § 12-3023(A)(1) and (A)(3). We vacate the
court’s order because it hinges on unsupported findings. We remand for
the trial court to confirm the arbitration award.
BACKGROUND
¶2 Path Construction Southwest, LLC, was the general
contractor on a City of Scottsdale trailhead improvement project. Chayce
Concrete, LLC, was a subcontractor hired to work on the project. Path
sought damages related to Chayce’s alleged failure to complete its work,
including damages arising from the project’s delayed completion. Chayce
sought damages related to Path’s alleged failure to make payments. Both
agreed to submit to binding arbitration to resolve the performance and
payment disputes.
¶3 The parties agreed that the arbitration would be governed by
the American Arbitration Association’s Construction Industry Arbitration
Rules and Mediation Procedures (the AAA Rules), and that a private
attorney would serve as the arbitrator. Consistent with AAA Rule R-24, the
parties agreed to exchange all documents they intended to rely on, and that
each could request production of additional relevant information.
¶4 Chayce served requests for production, and Path responded
with more than 7,000 documents. Path also objected in writing to producing
certain categories of requested documents. Path made general objections
claiming the documents requested were irrelevant, information not in its
possession, or were information to which both parties had access. Path also
made specific objections indicating that it would not be producing
documents related to third-parties’ work on the project. Path repeatedly
confirmed that it would “be producing responsive documents related only
to work completed by Chayce and/or to be completed by Chayce for [the
project].”
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Opinion of the Court
¶5 Three months after Path’s production and objections and only
a few days before the arbitration hearing, Chayce raised issues with Path’s
objections for the first time. In a pre-hearing brief, Chayce argued that
Path’s objections constituted a deliberate refusal to provide exculpatory
information about the possibility that third parties contributed to the
project’s delayed completion and Path’s alleged damages. Chayce also
argued that Path should have produced documents related to its contract
with the City and the retention of a subcontractor to replace Chayce on the
project. Chayce argued that it could be assumed that the undisclosed
documents undercut Path’s narrative—but Chayce did not request that the
arbitration be continued to allow resolution of the discovery issue. The
arbitration hearing went forward as scheduled.
¶6 There is no transcript from the arbitration hearing. At the oral
argument in the superior court on the motion to vacate the arbitration
award, Chayce asserted that its counsel repeatedly requested a
postponement at the arbitration hearing. But Chayce provided no evidence
confirming that assertion. To the contrary, it was Path’s counsel who
provided a sworn declaration stating that he did not recall any request for
postponement being made.
¶7 In a post-hearing brief to the arbitrator, Chayce did not once
refer to any previous request for postponement. Nor did it request a
post-hearing continuance or any other proceedings at the arbitration level
to address discovery issues. Chayce argued instead that Path’s
nondisclosure of third-party information precluded an assessment of delay
damages against Chayce. Chayce stated that witness Sean Lynch testified
at the arbitration hearing that Path sought and recovered delay damages
from other subcontractors. Chayce also argued—for the first time—that
Path’s nondisclosure of information about its pay-application
communications with the City entitled Chayce to an adverse inference.
Chayce stated that Path presented no evidence that it submitted Chayce’s
pay applications to the City.
¶8 The arbitrator issued a partial final award that addressed
Chayce’s nondisclosure arguments without mentioning any postponement
request. The arbitrator penalized Path for failing to disclose information
about third parties’ possible contributions to the completion delay by
precluding all delay damages. The arbitrator explained he ”refus[ed] to
reward Path for preventing Chayce’s counsel from discovering potential,
relevant information related to these delay issues.” In sum, Chayce
prevailed on delay damages as a direct result of Path’s failure to produce
relevant documents.
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CHAYCE v. PATH CONSTRUCTION, et al.
Opinion of the Court
¶9 The arbitrator concluded, however, that Chayce could not
recover damages based on Path’s nondisclosure of information related to
the status of the City’s progress payments on Chayce’s pay applications
(which, the arbitrator noted, Chayce could have monitored by filing a
request with the City under A.R.S. § 34-221(H)1). The arbitrator found that
documentary evidence showed that one pay application was rejected by
Path, and that Chayce then chose to abandon its work rather than submit a
corrected application.
¶10 The arbitrator concluded that “Path did not materially breach
the Subcontract by lawfully withholding submittal to the City or
certification of Chayce’s Pay Applications pursuant to A.R.S. § 34-221(I),”
which “allow[ed] Path . . . to withhold from the City a subcontractor’s pay
application or the certification of a subcontractor’s pay application for a
number of reasons including unsatisfactory job progress and defective
construction work.” The arbitrator awarded Path nearly $95,000 in damages
based on Chayce’s abandonment of its work under the subcontract, plus
attorney’s fees and costs totaling about $77,000.
¶11 Path, along with its insurer, moved the superior court to
confirm the arbitration award and enter judgment. Chayce objected and
moved to vacate the award, arguing that the arbitrator “awarded damages
to Path notwithstanding its withholding of critical evidence from Chayce”
and “refused Chayce’s request to continue the matter in violation of A.R.S.
§ 12-3023(A)(3).” In briefing before the superior court, Chayce emphasized
that Path refused to provide information regarding third-parties’ work
despite Lynch’s testimony that Path had also blamed other subcontractors
for the completion delay—information relevant to determining the delay
damages that Path sought (but was not awarded). Chayce also emphasized
that Path failed to provide information regarding pay-application
submissions and communications to the City for Chayce’s work—
information relevant to Chayce’s payment claims. But, contrary to Chayce’s
representations at oral argument on appeal, Chayce never alleged—in any
of the arbitration or superior court proceedings—that Lynch testified these
documents existed (unlike the arbitrator’s finding that Path lawfully
withheld the pay applications from the City).
1 Under A.R.S. § 34-221(H), “[a] subcontractor . . . may notify the
purchasing agency in writing requesting that the subcontractor . . . be
notified by the purchasing agency in writing within five days after payment
of each progress payment that is made to the contractor,” with the request
remaining effective “for the duration of the subcontractor’s . . . work on the
project.”
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Opinion of the Court
¶12 After briefing and oral argument, the superior court vacated
the arbitration award, finding that the award violated A.R.S.
§ 12-3023(A)(1) because “Path committed misconduct by intentionally
withholding critical information necessary for Chayce to prove claims and
defenses.” The court also found that the award violated A.R.S.
§ 12-3023(A)(3) because “[t]he Arbitrator refused Chayce’s request to
continue the matter,” thereby “den[ying] Chayce the ability to obtain and
present critical evidence” and “substantially prejudic[ing] Chayce.” Path
and the insurance company appealed.
DISCUSSION
¶13 Arizona public policy favors arbitration as a means for
resolving disputes. Clarke v. ASARCO Inc., 123 Ariz. 587, 589 (1979).
Accordingly, Arizona’s revised uniform arbitration act “strictly limits the
superior court’s options after the arbitration process is complete.” Hamblen
v. Hatch, 242 Ariz. 483, 490, ¶ 31 (2017). “An arbitrator’s decision generally
is final and conclusive; the act provides very limited grounds for the trial
court to deny confirmation of an arbitration award . . . .” Fisher v. Nat’l Gen.
Ins. Co., 192 Ariz. 366, 369, ¶ 11 (App. 1998) (construing an earlier version
of the act). The superior court’s review is not for factual or legal error, see
Atreus Cmtys. Grp. of Ariz. v. Stardust Dev., Inc., 229 Ariz. 503, 506, ¶ 13 (App.
2012), and the court may not substitute its view of the evidence for the
arbitrator’s, see Pawlicki v. Farmers Ins. Co., 127 Ariz. 170, 173–74 (App. 1980).
“The superior court may reject an arbitration award only on [the] narrow
statutorily enumerated grounds” of A.R.S. § 12-3023, Russell Piccoli P.L.C. v.
O’Donnell, 237 Ariz. 43, 49, ¶ 23 (App. 2015) (emphasis added) (citation
omitted), as proved by the party challenging the award, Fisher v. USAA Cas.
Ins. Co., 245 Ariz. 270, 272, ¶ 9 (App. 2018).
¶14 We review orders granting arbitration awards for abuse of
discretion. Atreus Cmtys., 229 Ariz. at 506, ¶ 13. Path urges us to adopt a less
deferential de novo standard to review orders vacating arbitration awards,
pointing to the absence of Arizona case law on the issue and several Ninth
Circuit cases. We need not resolve this issue because the superior court
erred under either standard.
I. Vacatur Under A.R.S. § 12-3023(A)(1)
¶15 We start with the superior court’s ruling that vacatur was
required under A.R.S. § 12-3023(A)(1), which provides that the court shall
vacate an arbitration award if it “was procured by corruption, fraud or
other undue means.” “[U]ndue means” requires proof of intentional
misconduct—i.e., “some type of bad faith” action, not merely “sloppy or
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Opinion of the Court
overzealous lawyering.” FIA Card Servs., N.A. v. Levy, 219 Ariz. 523, 525, ¶ 7
(App. 2008) (citations omitted).
¶16 The court found that Path “committed misconduct by
intentionally withholding critical information.” The record here does not
support the court’s finding. To be sure, Path withheld certain information
when responding to Chayce’s requests for production. But Path did not
obfuscate its nondisclosure—to the contrary, it clearly and repeatedly
stated which categories of information it would not produce and provided
the basis of the objection to production for each category of requested
documents. And Chayce gave Path little opportunity to cure the alleged
deficiencies—Chayce asked for the information once, received responses
and objections, and then waited four months, until mere days before the
arbitration hearing, to express its dissatisfaction with the production
provided. And even then, Chayce did not ask the arbitrator to exercise his
authority under the governing AAA Rules to order the production of
evidence deemed “necessary to an understanding and determination of the
dispute.” AAA Rule R-35(a). As the civil rules demonstrate, a party must
raise discovery issues timely for noncompliance to constitute misconduct.
See Ariz. R. Civ. P. 37(a) (providing that in civil cases, a party may move to
compel production only after good faith consultation to resolve the issue).
¶17 Even assuming that Path’s production was incomplete,
nothing suggests that Path engaged in corruption, fraud, or undue means.
Further, consistent with the arbitrator’s authority to weigh the evidence, see
AAA Rule R-35, Path was penalized for its failure to disclose the third-party
information. The court’s vacatur of the arbitration award was not justified
under A.R.S. § 13-3023(A)(1).
II. Vacatur Under A.R.S. § 12-3023(A)(3)
¶18 We next address the superior court’s ruling that vacatur was
required under A.R.S. § 12-3023(A)(3), which provides that the court shall
vacate an arbitration award if the “arbitrator refused to postpone the
hearing on showing of sufficient cause for postponement . . . so as to
prejudice substantially the rights of a party to the arbitration proceeding.”
¶19 The court premised its ruling on findings that the arbitrator
“refused Chayce’s request to continue the matter” based on Path’s
withholding of “critical evidence” to Chayce’s “substantial prejudice[].”
The record does not support these findings or the court’s ruling.
¶20 First, there is no evidence that Chayce requested to postpone
the arbitration to allow resolution of the discovery issues. Though Chayce’s
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Opinion of the Court
counsel stated at oral argument in the superior court that he had asked for
a postponement at the arbitration hearing, this assertion is not evidence. See
Quine v. Godwin, 132 Ariz. 409, 412 (App. 1982) (recognizing that counsel’s
arguments are not evidence). In fact, the only evidence about postponement
in the record is a sworn declaration from Path’s counsel avowing he did not
remember Chayce ever requesting a postponement. And, consistent with
that declaration, neither Chayce nor the arbitrator ever documented any
postponement request. The record simply does not support the court’s
finding that Chayce requested a postponement before the close of the
arbitration hearing. Accordingly, vacatur was unwarranted under A.R.S.
§ 13-3023(A)(3).
¶21 But even were we to assume that Chayce requested a
postponement in the arbitration proceedings, vacatur was still
inappropriate under A.R.S. § 13-3023(A)(3) because, under the AAA Rules,
Chayce waived its objection to the denial of the alleged request. The AAA
Rules provide that “[t]he arbitrator for good cause shown may postpone
any hearing,” but “[a]ny party who proceeds with the arbitration after
knowledge that any provision or requirement of these Rules has not been
complied with and who fails to state an objection in writing shall be deemed
to have waived the right to object.” AAA RulesR-31, R-42 (emphasis
added). Chayce did not preserve its objection to the denial of the alleged
postponement request in writing, either at the hearing or in its post-hearing
brief.
¶22 Finally, even were we to assume that Chayce properly
requested a postponement and preserved an objection to the request’s
denial, the arbitrator had discretion to manage the parties’ exchange of
information, weigh the evidence, and determine whether a postponement
was warranted under the circumstances. See AAA Rules R-24, R-31, R-35;
Canon Sch. Dist. No. 50 v. W.E.S. Constr. Co., Inc., 180 Ariz. 148, 150 (1994)
(holding that arbitration panel “did not abuse its discretion in denying . . .
motions” for withdrawal of counsel and continuance given lack of
prejudice); see also Moore v. Olson, 351 P.3d 1066, 1075–76 (Alaska 2015)
(noting, when construing Alaska’s substantially similar statute, that courts
typically reject claims for vacatur based on the denial of a postponement
request, and holding that denial was justified in the case at bar because the
claims were untimely raised and failed to describe adequate cause). On this
record, where Chayce waited until just before the hearing to raise with the
arbitrator complaints about identified nondisclosures and the arbitrator
expressly accounted for the nondisclosures in his decision, the arbitrator
acted well within his discretion by proceeding with the hearing. The
correctness of the arbitrator’s factual and legal decisions was beyond the
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Opinion of the Court
scope of the superior court’s review. See Atreus Cmtys., 229 Ariz. at 506, ¶ 13.
Accordingly, the court erred by vacating the arbitrator’s award under
A.R.S. § 12-3023(A)(3).
CONCLUSION
¶23 We reverse the vacatur of the arbitration award, including all
findings that Path committed misconduct. We remand for the superior
court to confirm the award consistent with A.R.S. § 12-3023(D). In the
exercise of our discretion, we deny Path’s request for attorney’s fees and
expenses on appeal under A.R.S. §§ 12-341.01 and -3025. We also deny
Chayce’s request for attorneys’ fees under A.R.S. § 12-341.01. Path may
recover its costs under A.R.S. § 12-341 upon compliance with ARCAP 21.
AMY M. WOOD • Clerk of the Court
FILED: AGFV
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