Roy E Pietila v. Gordon R Pietila

STATE OF MICHIGAN
COURT OF APPEALS
ROY E. PIETILA and PIETILA INSURANCE UNPUBLISHED
AGENCY, INC., December 13, 2018
Plaintiffs-Appellants,
v No. 339939
Livingston Circuit Court
GORDON R. PIETILA, LC No. 17-029282-CZ
Defendant-Appellee.
Before: BOONSTRA, P.J., and JANSEN and GADOLA, JJ.
PER CURIAM.
Plaintiffs appeal as of right the trial court’s order denying their motion to modify or
correct an arbitration award and a subsequent order denying their motion for reconsideration.
Pursuant to the arbitration award, defendant was awarded $113,268 in unpaid renewal
commissions and neither party was awarded attorney fees. We affirm.
I. RELEVANT FACTUAL BACKGROUND
The underlying action involves a dispute over the ownership of the Pietila Insurance
Agency and other related claims. Defendant first sought redress in the circuit court, but after
protracted initial litigation, including an earlier appeal to this Court, the parties stipulated to
binding arbitration. The arbitration was to be conducted pursuant to the Uniform Arbitration
Act, MCL 691.1681 et seq., and the terms and conditions “set forth in Sec 7.2 of the parties’
Agency-Independent Contractor Agreement” (“the 2012 Agreement”). Section 7.2 (“Sec. 7.2”)
of the 2012 Agreement states:
7.2 If a dispute arises between Agency and Contractor relative to the terms of
this Agreement or the relationship established by the Agreement, then that
dispute shall be submitted to arbitration for resolution. Arbitration shall
take place in Livingston County, Michigan, before a single experienced
arbitrator licensed to practice law in Michigan, and selected in accordance
with the rules of the American Arbitration Association in effect at that
time, as the exclusive forum for resolving such claims or dispute. The
arbitrator shall not have authority to modify or change this Agreement in
any respect. Agency and Contractor shall each be responsible for payment
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of on-half [sic] the amount of arbitrator’s fees. The prevailing party in any
such arbitration shall be awarded its costs, expenses, and actual attorney’s
fees incurred in connection with the arbitration. The arbitrator’s decision
and/or award will be fully enforceable and subject to an entry of judgment
by any court of competent jurisdiction in the county, district or circuit
court where the arbitration takes place. This provision shall not bar a
proceeding for injunctive relief as a matter of first resort. Should any
party to this Agreement hereafter institute any legal action or
administrative proceeding against the other with respect to any claim
waived by this Agreement or pursue any arbitral dispute by any method
other than by arbitration, the responding party shall recover from the
initiating party all damages, costs, expenses and attorney’s fees incurred as
a result of such action.
The stipulation between the parties outlined the arbitrator’s authority:
3. The Arbitrator shall have the authority to determine the legal
enforceability of the [2012] Agreement and the terms and conditions set
forth therein in accordance with the Michigan Uniform Arbitration Act,
MCL 691.1686(3) and Sec. R-7(b), Jurisdiction, of the American
Arbitration Association (“AAA”) Commercial Arbitration Rules and any
such determination of enforceability shall not be construed as a
modification or change to the Agreement as otherwise prohibited by Sec.
7.2 thereof. For example and for sake of clarity, the Arbitrator shall have
the authority to determine whether rescission is required, and to what
extent (if any) the non-competition provisions at issue in this case may be
enforced under Michigan law without being constrained by the provisions
of the Agreement which prohibits modifications. The Arbitrator shall
have full authority to determine the rights and obligations of the parties as
set forth in the Michigan Arbitration Act and the AAA Commercial
Arbitration Rules. The Arbitrator shall have discretion to determine the
prevailing party with regard to the awarding of costs and fees.
The arbitrator concluded that the individual parties were not partners in the insurance
agency and that defendant was an independent contractor of the agency. He also found that the
2012 Agreement was binding on the parties and that the parties orally modified the agreement as
memorialized in various agreements signed by the parties, email exchanges, and a signed check.
In conclusion, pursuant to the 2012 Agreement and its modification, the arbitrator awarded
defendant $113,268 in renewal commissions. He did not award either party attorney fees
because he found that neither party prevailed in full. Subsequently, plaintiffs filed a motion to
correct or modify the arbitration award; however, the trial court held that the arbitrator acted
within the scope of his authority, denied the motion, and entered an order confirming the
arbitration award. On plaintiffs’ motion for reconsideration, relying on MCL 691.1704, the trial
court held that there was “no basis for the court to find that the claims were not submitted to the
arbitrator” and that the arbitrator had “full authority to determine the rights and obligations of the
parties.”
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II. STANDARD OF REVIEW
“This Court reviews de novo a trial court’s ruling on a motion to vacate or modify an
arbitration award.” Washington v Washington, 283 Mich App 667, 671; 770 NW2d 908 (2009).
“Whether an arbitrator exceeded his or her authority is also reviewed de novo.” Id. at 672. “A
reviewing court may not review the arbitrator’s findings of fact, and any error of law must be
discernible from the face of the award itself.” Id. Therefore, only legal errors that are “evident
without the scrutiny of intermediate mental indicia” are reviewable and warrant the overturning
of an arbitration award. Id. (quotation marks and citation omitted).
III. ARBITRATOR’S LEGAL AUTHORITY
Plaintiffs first argue that the trial court erred by denying their motion to modify the
arbitration award to include attorney fees because the arbitrator exceeded his legal authority
when he failed to enforce a provision of the 2012 Agreement, despite finding the 2012
Agreement to be binding on the parties. We disagree.
The section of the 2012 Agreement plaintiffs claim the arbitrator failed to enforce reads
as follows:
Should any party to this Agreement hereafter institute any legal action or
administrative proceeding against the other with respect to any claim waived by
this Agreement or pursue any arbitral dispute by any method other than by
arbitration, the responding party shall recover from the initiating party all
damages, costs, expenses and attorney’s fees incurred as a result of such action.
“Judicial review of arbitration awards is usually extremely limited[.]” Washington, 283 Mich
App at 671. “[A]n allegation that the arbitrators have exceeded their powers must be carefully
evaluated in order to assure that this claim is not used as a ruse to induce the court to review the
merits of the arbitrators’ decision.” Gordon Sel-Way, Inc v Spence Bros, Inc, 438 Mich 488,
497; 475 NW2d 704 (1991). The circuit court may confirm, vacate, or modify or correct an
arbitration award. MCR 3.602. The trial court’s authority is limited, however:
(I) Award; Confirmation by Court. A party may move for confirmation
of an arbitration award within one year after the award was rendered. The court
may confirm the award, unless it is vacated, corrected, or modified, or a decision
is postponed, as provided in this rule.
(J) Vacating Award.
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(2) On motion of a party, the court shall vacate an award if:
(a) the award was procured by corruption, fraud, or other undue means;
(b) there was evident partiality by an arbitrator appointed as a neutral,
corruption of an arbitrator, or misconduct prejudicing a party’s rights;
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(c) the arbitrator exceeded his or her powers; or
(d) the arbitrator refused to postpone the hearing on a showing of
sufficient cause, refused to hear evidence material to the controversy, or otherwise
conducted the hearing to prejudice substantially a party’s rights.
* * *
(K) Modification or Correction of Award.
* * *
(2) On motion made within 91 days after the date of the award, the court
shall modify or correct the award if:
(a) there is an evident miscalculation of figures or an evident mistake in
the description of a person, a thing, or property referred to in the award;
(b) the arbitrator has awarded on a matter not submitted to the arbitrator,
and the award may be corrected without affecting the merits of the decision on the
issues submitted; or
(c) the award is imperfect in a matter of form, not affecting the merits of
the controversy. [MCR 3.602.]
We initially note that plaintiffs moved the trial court to “modify or correct” the arbitration
award. However, an arbitration award may be modified or corrected only when there are evident
miscalculations or mistakes in the award, if the arbitrator awarded a party on a matter not
submitted to the arbitrator, or if the award is imperfect in matter of form. MCR 3.602(K)(2).
When a party alleges that the arbitrator “exceeded his or her powers,” the correct remedy to be
sought is vacation of the award. MCR 3.602(J)(2)(c). Accordingly, a correction or modification
of the award based on an arbitrator’s alleged improper exercise of power is not an available
remedy under the court rule under which plaintiffs proceeded.
Furthermore, we do not conclude that the arbitrator exceeded his authority. “[A]rbitrators
who derive their authority from the contract calling for their services are bound to act within the
terms of the submissions.” Detroit Auto Inter-Ins Exch v Gavin, 416 Mich 407, 432; 331 NW2d
418 (1982). “[A]rbitrators can fairly be said to exceed their power whenever they act beyond the
material terms of the contract from which they primarily draw their authority, or in contravention
of controlling principles of law.” Id. at 434. However, when an arbitration clause is written in
broad and comprehensive language to include all claims and disputes, an arbitrator’s award is
presumed to be within the scope of the arbitrator’s powers absent express language to the
contrary. Gordon Sel-Way, 438 Mich at 497. Importantly, courts may not engage in contract
interpretation or review the arbitrator’s factual findings because to do so would invade the
arbitrator’s authority. Konal v Forlini (On Remand), 235 Mich App 69, 74-75; 596 NW2d 630
(1999).
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In our view, plaintiffs’ argument that the arbitrator exceeded his legal authority is an
improper attempt to invade the arbitrator’s authority to interpret the parties’ contract and to
render factual findings. Id. Under the stipulation, the arbitrator had the explicit “authority to
determine the legal enforceability of the [2012] Agreement and the terms and conditions set forth
therein” and “the full authority to determine the rights and obligations of the parties.” (Emphasis
added.) Accordingly, the arbitrator had the authority to determine whether the arbitration
penalty provision was enforceable and whether any party was entitled to attorney fees.
Furthermore, there are multiple possible explanations for why the arbitrator may have
declined to award pre-arbitration attorney fees. See Hayman Co v Brady Mech, Inc, 139 Mich
App 185, 191; 362 NW2d 243 (1984). Ultimately, however, why the arbitrator did not enforce
the provision is unimportant because “only the kind of legal error that is evident without scrutiny
of intermediate mental indicia” is reviewable. Gavin, 416 Mich at 429. Here, to determine why
the arbitrator did not enforce the provision would require the trial court to speculate on the
arbitrator’s mental processes. Furthermore, as this Court has explained, “[a]s long as the
arbitrator is even arguably construing or applying the contract and acting within the scope of his
authority, a court may not overturn the decision even if convinced that the arbitrator committed a
serious error.” Ann Arbor v AFSCME Local 369, 284 Mich App 126, 144; 771 NW2d 843
(2009) (quotation marks and citation omitted). The arbitrator was arguably construing or
applying the contract and acting within the scope of his authority by ignoring the arbitration
enforcement penalty provision, because the arbitration stipulation gave him broad authority to
determine the enforceability of the 2012 Agreement and its individual terms and conditions.
Plaintiffs also make the cursory argument that they were the prevailing party and thus
entitled to attorney fees. However, as the stipulation outlines, the arbitrator had “the discretion
to determine the prevailing party with regard to the awarding of costs and fees.” (Emphasis
added.) Accordingly, the trial court may not disturb the arbitrator’s discretionary finding of fact
that neither party “prevailed in full” and his decision not to award attorney fees. Gavin, 416
Mich at 429 (holding that an “arbitrator’s findings of fact are unreviewable”).
IV. AWARD ON CLAIM NOT PLEADED
Plaintiffs next argue that the trial court erred by not modifying the arbitration award
because the arbitrator granted relief on a claim not submitted to arbitration. “[A]rbitrators do not
function in a legal vacuum” and may not make decisions “entirely without regard to the
controlling principles of law which govern the rights and duties of the parties.” Gavin, 416 Mich
at 432.
First, plaintiffs argue that the commission amount was simply a hypothetical calculation
and that the arbitrator erred by using it in awarding defendant. However, courts will not review
an arbitrator’s finding of fact. Id. at 429.
Next, plaintiffs argue that defendant failed to give notice of any claim for renewal
commissions, rendering the arbitrator’s decision erroneous. A trial court may not grant relief
based on a claim that was never pleaded in a complaint, Reid v Michigan, 239 Mich App 621,
630; 609 NW2d 215 (2000), and plaintiffs argue that this same principle of law applies to
arbitration. However, the applicable rules and procedures, as defined by the parties in the
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stipulation, were based on the Uniform Arbitration Act and the AAA Commercial Arbitration
Rules, not the Michigan Court Rules.
Under the AAA Commercial Arbitration Rules, the initiating party must file certain
information with the arbitrator, including “a statement setting forth the nature of the claim
including the relief sought and the amount involved.” AAA Commercial Rules of Arbitration,
R-4(e)(iv). Plaintiffs argue that defendant failed to do this in relation to his entitlement to
renewal commissions; they further point out that he did not “amend his claim” to include it as
required by the rules. AAA Commercial Rules of Arbitration R-6(b) (“Any new or different
claim or counterclaim . . . shall be made in writing and filed with the AAA, and a copy shall be
provided to the other party . . . .”). Defendant argues that plaintiffs were on sufficient notice
because he filed an arbitration complaint “setting forth the nature of the claim including the relief
sought and involved.” In his arbitration “complaint,” defendant made the following allegations
and prayer for relief:
38. Roy and Gordon orally agreed, in front of 12 family members, that Gordon
would be paid for 2 years, for the business he generated at the Agency and have a
2 year non-compete clause within Michigan.
* * *
40. Roy then refused to pay Gordon anything for his ownership interest in the
Agency or for any of the business generated by Gordon for the Agency.
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WHEREFORE Plaintiff, GORDON R. PIETILA, respectfully requests this court:
(a) Enter a judgment in his favor and against Defendants and rescind Independent
Agency Agreement and
(b) Enter an order determining Plaintiff to be a 40% owner of the Agency;
(c) Enter a judgment in Plaintiff’s favor and against Defendant for all profits
which should have been distributed to Plaintiff; and
(d) Enter a judgment for compensatory damages . . . ;
(e) Award Plaintiff his costs and attorneys [sic] fees; and
(f) Along with any other relief it deems fair and equitable.
Accordingly, defendant argues that “it is not possible to read [the complaint] without getting fair
notice that [he] wanted to be paid all the commissions to which he was entitled in accordance
with the agreement made.”
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We find more convincing the stipulation that the parties entered into, giving the arbitrator
broad power to determine the legal enforceability of the 2012 Agreement and all of its terms and
conditions. In the 2012 Agreement, the following term is found:
(B) Renewal Payments
Agency will pay to Contractor, a monthly payment equal to 25% of the renewal
commissions received by Agency during the previous months for clients who
were solicited by Contractor during the term of this Agreement and for whom
Contractor received commissions under this Agreement. To the extent renewal
premiums continue to be received by Agency, such renewal commission
payments shall continue for 4 years (48 months) following termination of this
Agreement.
Although defendant may not have explicitly asserted this claim in his statement of the nature of
the controversy, the stipulation allowing the arbitrator to determine the enforceability of all of
the provisions of the 2012 Agreement put plaintiffs on sufficient notice.
Next, plaintiffs argue that defendant’s complaint was premised on the fact that he was not
an independent contractor and that defendant did not allege any contractual claims to the renewal
commissions. Accordingly, they argue that the award should be stricken pursuant to MCL
691.1704, which provides, in relevant part:
(1) . . . [T]he court shall modify or correct the award if any of the
following apply:
* * *
(b) The arbitrator has made an award on a claim not submitted to the
arbitrator and the award may be corrected without affecting the merits of the
decision on the claims submitted. [MCL 691.1704(1) (emphasis added).]
However, the issue of the renewal commissions was adequately submitted as a claim
under the comprehensive grant of power to the arbitrator to determine the legal enforceability of
the 2012 Agreement and its terms and conditions. Although defendant may not have specifically
made a claim for the renewal commissions, he did mention the payments in his arbitration
“complaint,” and plaintiffs specifically argued that the 2012 Agreement was enforceable and that
defendant had breached it in multiple ways. Accordingly, the enforceability of the 2012
Agreement was a claim or matter submitted to arbitration. The arbitrator found that the 2012
Agreement was enforceable and that it had been orally modified, entitling defendant to renewal
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commissions. In light of these facts, the trial court did not err by finding that the claim was
made and that the arbitrator did not exceed his authority by rendering a decision on it.1
Next, plaintiffs assert that, assuming arguendo that defendant did assert a claim entitling
him to renewal commissions, any such claim was dismissed by the arbitrator. In light of the
above discussion, the arbitrator had wide discretion to determine what claims were presented and
the parties’ rights and obligations under the 2012 Agreement, even if he dismissed the specific
claims made by defendant. See United Paperworkers Int’l Union, AFL-CIO v Misco, Inc, 484
US 29, 38; 108 S Ct 364; 98 L Ed 2d 286 (1987) (“[W]here it is contemplated that the arbitrator
will determine remedies for contract violations that he finds, courts have no authority to disagree
with his honest judgment in that respect.”).
Finally, plaintiffs argue that defendant was barred from recovery under the election of
remedies doctrine because the award was inconsistent with his argument that the 2012
Agreement was void and unenforceable. However, “[a] plaintiff may . . . simultaneously pursue
all available remedies regardless of their legal consistency, if the plaintiff does not obtain a
double recovery.” Barclae v Zarb, 300 Mich App 455, 486; 834 NW2d 100 (2013). In
litigation, a party may allege separate claims “regardless of consistency,” MCR 2.111(A)(2)(b),
and it is unclear why a party in an arbitration proceeding could not do the same. Furthermore,
plaintiffs cite no applicable arbitration rule that would bar a party from pursuing alternate
theories.
Affirmed.
/s/ Mark T. Boonstra
/s/ Kathleen Jansen
/s/ Michael F. Gadola
1
We do not find persuasive plaintiffs’ attempt to distinguish between the language of MCR
3.602 and of MCL 691.1704. Under the court rule, the court “shall modify or correct the award
if . . . the arbitrator has awarded on a matter not submitted to the arbitrator.” MCR 3.602(K)(2)
(emphasis added). However, under the Uniform Arbitration Act, the court “shall modify or
correct the award if . . . [t]he arbitrator has made an award on a claim not submitted to the
arbitrator and the award may be corrected without affecting the merits of the decision on the
claims submitted.” MCL 691.1704(1) (emphasis added). Whether framed as “a matter” or “a
claim,” it is evident that the arbitrator was acting within the scope of his authority in deciding the
enforceability of the terms of the 2012 Agreement, because the parties specifically stipulated for
him to do just that.
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