Tsp Services Inc v. National-Standard LLC ( 2019 )

If this opinion indicates that it is “FOR PUBLICATION,” it is subject to
revision until final publication in the Michigan Appeals Reports.
STATE OF MICHIGAN
COURT OF APPEALS
TSP SERVICES, INC., doing business as TSP FOR PUBLICATION
ENVIRONMENTAL, September 10, 2019
9:05 a.m.
Plaintiff/Counterdefendant-
Appellee,
v No. 342530
Berrien Circuit Court
NATIONAL-STANDARD, LLC, and DW- LC No. 2016-000018-CB
NATIONAL STANDARD-NILES, LLC, doing
business as NATIONAL-STANDARD, LLC,
Defendant/Cross-Defendants-
Appellants,
and
NATIONAL-STANDARD COMPANY,
Defendant/Cross-Defendant,
and
ENVIRONMENTAL DEMOLITION GROUP,
LLC,
Defendant/Counterplaintiff/Cross-
Plaintiff.
Before: SWARTZLE, P.J., and GLEICHER and M. J. KELLY, JJ.
SWARTZLE, P.J.
With respect to a dispute over a construction contract, Michigan law limits a construction
lien to the amount of the contract less any payment already made. Although a party suing for
breach of contract might recover consequential damages beyond the monetary value of the
contract itself, those consequential damages cannot be subject to a construction lien. The
arbitrator in this case concluded otherwise, and this clear legal error had a substantial impact on
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the award. Accordingly, we reverse with respect to this portion of the award, but affirm in all
other respects.
I. BACKGROUND
Defendants, National-Standard, LLC, and DW-National Standard-Niles, LLC
(collectively, National-Standard), appeal by leave granted the trial court’s order denying their
motion to vacate an arbitration award and confirming the arbitration award and money judgment
in favor of plaintiff, TSP Services, Inc. See TSP Servs, Inc v National-Standard, LLC,
unpublished order of the Court of Appeals, entered August 8, 2018 (Docket No. 342530).
Although the parties raised several issues during arbitration, this appeal centers primarily on
whether TSP’s inability and failure to remove steel from a construction site, and the potential lost
profits from the sale of that unrecovered steel, may properly be the subject of a construction lien.
Because the appeal involves a discrete question, and because the nature of arbitration disfavors
this Court’s review of the facts and merits of the case, we will only briefly review the facts
underlying this dispute.
The parties entered into a contract on August 30, 2013, under which TSP was to perform
asbestos abatement, demolition and disposal of scrap steel and other waste, and site restoration
work at a National-Standard facility in Niles, Michigan. The total price listed in the contract is
$414,950.00, to be paid in installments—one third as a down payment and the balance due “upon
completion of abatement.” Critical to this appeal, the contract does not mention the sale of scrap
steel or TSP’s potential profits from the sale of scrap steel. Although it is clear from the
arbitration proceedings that both parties recognized that the sale of scrap steel was a major part
of the project, the subject is not outlined in the contract, which provides for a total payment of
$414,950.00 and includes an integration clause.
The project encountered various delays. Asbestos removal did not begin until May 2014.
Because the asbestos removal was delayed, extraction of steel was also delayed. TSP completed
the asbestos-abatement work and was paid $273,867.00, but after several disputes, National-
Standard requested that TSP suspend all work on the project. At that point, TSP had extracted
only 9% of the available steel from the job site. In April 2015, TSP filed a claim of lien in the
amount of $141,083.00, the amount still unpaid under the contract, plus additional damages,
including the net value of the steel that TSP was unable to extract from the site.
The parties attended arbitration, and the arbitrator concluded that National-Standard
breached the contract. The arbitrator awarded $782,469.05 in damages to TSP, broken out as
follows—$141,083.00 for the unpaid invoice under the contract; $46,557.39 for interest on that
unpaid invoice; $391,809.00 for lost profits on steel inventory; $33,793.00 for interest on those
lost profits; and $169,226.13 for attorney fees and costs. (There is a discrepancy of 53 cents
between the total amount awarded by the arbitrator and the sum of the components awarded,
though neither party takes issue with this de minimis discrepancy.) The arbitrator further
determined that TSP’s construction lien was valid as filed and could be enforced on the entire
award.
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National-Standard subsequently moved the trial court to vacate the arbitration award,
arguing that the arbitrator committed clear legal error. The trial court denied National-
Standard’s motion, and this appeal followed.
II. ANALYSIS
A. LIMITED JUDICIAL REVIEW OF ARBITRATION AWARD
In general, courts have a limited role in reviewing arbitration awards. This Court reviews
de novo a circuit court’s decision whether to vacate an arbitration award. Hope-Jackson v
Washington, 311 Mich. App. 602, 613; 877 NW2d 736 (2015). “A court may not review an
arbitrator’s factual findings or decision on the merits.” Ann Arbor v American Federation of
State, Co, & Muni Employees (AFSCME) Local 369, 284 Mich. App. 126, 144; 771 NW2d 843
(2009) (citations omitted). Instead, a court may only review an arbitrator’s decision for clear
errors of law. Detroit Auto Inter-Insurance Exch v Gavin, 416 Mich. 407, 433; 331 NW2d 418
(1982) (DAIIE); Saveski v Tiseo Architects, Inc, 261 Mich. App. 553, 554-555; 682 NW2d 542
(2004).
Not every error of law by an arbitrator, however, merits subsequent court intervention.
Rather, the error must be particularly egregious, have a material effect on the outcome, disregard
fundamental principles, or otherwise “unequivocally generate a legally unsustainable result.”
DAIIE, 416 Mich. at 430. Moreover, in determining whether there is legal error, the court cannot
engage in a review of an arbitrator’s mental process, Hope-Jackson, 311 Mich. App. at 614, but
instead must limit its review to “the face of the award itself,” Washington v Washington, 283
Mich. App. 667, 672; 770 NW2d 908 (2009).
B. NO CLEAR ERROR IN AWARD OF CONSEQUENTIAL DAMAGES
National-Standard challenges both the arbitrator’s award of consequential damages and
the construction lien securing those damages. Considering the first challenge, there is no basis to
disturb the award of consequential damages. Generally speaking, a party asserting a breach of
contract may recover damages that are “the direct, natural, and proximate result of the breach.”
Alan Custom Homes, Inc v Krol, 256 Mich. App. 505, 512; 667 NW2d 379 (2003). The arbitrator
here recognized that both parties were aware that TSP intended to recover the steel from the
demolition site and sell that steel for a profit. The arbitrator concluded that National-Standard
breached the contract, causing TSP to be unable to recover and sell the steel. The arbitrator
further concluded that TSP potentially lost profits from the sale of the steel, and the lost profits
could reasonably be considered a result of National-Standard’s breach. The arbitrator’s
conclusions are in accord with our contract law, see id., and our review of the arbitrator’s award
confirms that there is no sound basis to disturb this part of the award, see Saveski, 261 Mich. App.
at 555.
C. CONSTRUCTION LIEN CANNOT EXCEED REMAINING AMOUNT UNDER THE
CONTRACT
With respect to its second challenge, National-Standard asserts that the arbitrator awarded
a construction lien on the amount of the entire award, rather than just the amount remaining on
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the contract itself. National-Standard argues that this exceeds the statutory limit on construction
liens imposed by our Legislature.
As set forth in the construction lien act, “Each contractor, subcontractor, supplier, or
laborer who provides an improvement to real property has a construction lien upon the interest of
the owner or lessee who contracted for the improvement to the real property.” MCL
570.1107(1). The act defines “improvement” to include “clearing, demolishing, excavating . . .
altering, [or] repairing . . . material, pursuant to a contract.” MCL 570.1104(5), as amended by
2010 PA 147.1 There is no question that, pursuant to the parties’ contract, TSP provided an
improvement to the real property within the meaning of the act. Nor does National-Standard
challenge the arbitrator’s finding that it breached the contract and, therefore, TSP is entitled to a
construction lien.
Rather, National-Standard challenges the scope of the lien. The act provides in relevant
part, “A construction lien acquired pursuant to this act shall not exceed the amount of the lien
claimant’s contract less payments made on the contract.” MCL 570.1107(1). The statute defines
the term “contract” as “a contract, of whatever nature, for the providing of improvements to real
property, including any and all additions to, deletions from, and amendments to the contract.”
MCL 570.1103(4). Therefore, under “the plain language of the statute, the amount of the lien is
determined by the terms of the contract.” Mich Pipe and Valve-Lansing, Inc v Hebeler
Enterprises, Inc, 292 Mich. App. 479, 487; 808 NW2d 323 (2011).
The parties’ contract sets out that TSP would complete three phases of work, namely (1)
asbestos abatement, (2) demolition and disposal of all refuse, and (3) restoration work. The total
amount that National-Standard agreed to pay TSP for the work is $414,950.00, and at the time of
the arbitration it had already paid $273,867.00, leaving an unpaid balance of $141,083.00. The
contract contained no mention of scrap steel or any compensation for TSP for the removal or sale
of the scrap steel. While the parties understood that TSP would try to make a profit on the
disposal of scrap steel, this was an understanding outside of the four corners of the integrated
contract. In sum, the parties contractually agreed that TSP would dispose of the refuse
(including scrap steel), and how it did so and under what financial conditions were solely up to
TSP and not part of the contract. Thus, pursuant to the plain meaning of the construction lien
act, the amount of any construction lien for TSP could not exceed the remaining unpaid balance
under the contract, i.e., $141,083.00. See MCL 570.1103(4); Mich Pipe, 292 Mich. App. at 487;
see also CD Barnes Associates, Inc v Star Heaven, LLC, 300 Mich. App. 389, 427-428; 834
NW2d 878 (2013) (concluding that attorney fees not contemplated by the parties’ contract could
not be included as part of the construction lien).
The arbitrator approved a construction lien well in excess of the amount authorized by
statute. Specifically, the arbitrator approved a lien for $782,469.05, which is $641,386.05
1
The Legislature amended MCL 570.1104 in December 2018. See 2018 PA 367. Because the
underlying proceedings in this case preceded that amendment, we cite to the prior version of the
statute. See 2010 PA 147.
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greater than the unpaid balance under the contract. TSP argues that it is entitled to lost-profit
damages in excess of the unpaid balance, the arbitrator agreed, and as discussed earlier, we have
no sound basis to question this part of the award. Yet, it is clear from the parties’ arguments and
the arbitrator’s award that the lost profits were awarded as damages that reasonably flowed from
National-Standard’s breach of the contract, but were not, strictly speaking, part of the contract
itself, i.e., the lost profits were awarded as consequential damages. The construction lien act is
clear that a lien authorized by the act cannot exceed the unpaid amount of the contract itself, and
this unpaid amount does not include consequential damages.
The arbitrator’s approval of the construction lien in excess of the unpaid amount was a
clear error of law. Correction of the error would reduce the value of the lien by over $500,000,
and compared to the original contract and the arbitrator’s total award, this correction would be a
substantial one. Thus, because the arbitration award contains a clear error of law that, if
corrected, would substantially change the award, judicial interference with the award is justified.
See DAIIE, 416 Mich. at 444-445. While we would ordinarily not act before the trial court
entered a final order, here the final order would be one foreclosing on the lien. See MCL
570.1121. It is appropriate for this Court to correct the error now, before such an order is
entered, to ensure the correct legal result before enforcement of the lien.
As a final, corollary argument, National-Standard asks this Court to amend the
arbitrator’s award of attorney fees to reflect the correction of the construction lien. We reject the
request because National-Standard made it in a cursory manner, Joerger v Gordon Food Service,
Inc, 224 Mich. App. 167, 178; 568 NW2d 365 (1997), without showing clear error on the face of
the fee award, DAIIE, 416 Mich. at 444-445, and any review would require us to delve into the
arbitrator’s mental process, which we cannot do, Hope-Jackson, 311 Mich. App. at 614.
III. CONCLUSION
Michigan’s construction lien act authorizes a lien up to the unpaid balance of the amount
contracted. A lien that includes an amount for consequential damages flowing from, but
otherwise outside of the four corners of the contract, exceeds the authorized amount of the act.
In resolving the parties’ dispute, the arbitrator made this error of law, and given the clarity and
scope of the error, we conclude that the award must be vacated to the extent that the construction
lien exceeded the unpaid amount under the contract. Accordingly, we reverse the trial court in
part and order relief consistent with this opinion; in all other respects, we affirm.
/s/ Brock A. Swartzle
/s/ Elizabeth L. Gleicher
/s/ Michael J. Kelly
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