The Jamar Company v. Independent School District No. 2142, St. Louis County Schools, Minnesota ( 2015 )

This opinion will be unpublished and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UNPUBLISHED OPINION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
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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-
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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.
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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).
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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
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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))).
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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.
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