Shafer v. Scarborough

FILED
IN THE OFFICE OF THE
CLERK OF SUPREME COURT
DECEMBER 22, 2022
STATE OF NORTH DAKOTA
IN THE SUPREME COURT
STATE OF NORTH DAKOTA
2022 ND 233Justin A. Shafer, Plaintiff and Appellant
v.
Justin Scarborough, individually and d.b.a.
Diamond Development & Custom Homes, L.L.C.; Defendants and Appellees
and
Trilite Stone, Inc., a Minnesota Corp.; ProBuild,
a Colorado Limited Liability Company; Defendants
No. 20220124
Appeal from the District Court of Williams County, Northwest Judicial
District, the Honorable Paul W. Jacobson, Judge.
AFFIRMED.
Opinion of the Court by VandeWalle, Justice.
Charles L. Neff, Williston, ND, for plaintiff and appellant.
H. Malcolm Pippin, Williston, ND, for defendants and appellees.
Shafer v. Scarborough
No. 20220124
VandeWalle, Justice.
[¶1] Justin Shafer appealed from a district court judgment confirming an
arbitration award against Diamond Development & Custom Homes, L.L.C.
Shafer argues the district court erred by failing to increase the amount of
damages he was awarded. He also argues this Court should narrowly expand
the standard for reviewing an arbitration award. We reject Shafer’s request to
expand the standard of review, and we conclude the district court did not err
in confirming the arbitration award. We affirm.
I
[¶2] In 2015, Shafer sued Justin Scarborough, individually and doing
business as Diamond, seeking damages for claims of breach of contract,
negligence, unjust enrichment, and fraud in the inducement related to the
construction of a new home. Shafer alleged he entered into a contract with
Diamond as the general contractor to build a new home for $678,000, Diamond
failed to construct the home in a timely manner, there were numerous defects
in the work Diamond completed, and there were substantial mold and water
issues. Shafer alleged he terminated the contract with Diamond and hired
another company to remove the mold and repair and finish the home.
[¶3] Scarborough and Diamond moved to compel arbitration and stay the
proceedings. They alleged the construction contract has an arbitration
provision requiring arbitration of all disputes. Shafer opposed the motion to
compel arbitration. Scarborough and Diamond also filed an answer and
counterclaim.
[¶4] In July 2016, the district court determined an enforceable arbitration
provision exists in the parties’ contract and compelling arbitration would allow
that process to occur. The court granted the motion to compel arbitration and
stayed the proceedings.
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[¶5] The parties completed arbitration, and the arbitrator issued a final
award in favor of Shafer. The arbitrator found that Diamond breached the
parties’ construction contract and its warranties under the contract and that
Shafer suffered damages as a result of the breaches. The arbitrator awarded
Shafer $419,057.71 in damages and $26,702.13 in prejudgment interest. The
arbitrator also awarded Shafer $21,226.31 for the cost of the arbitration. The
total amount of the award was $466,986.15.
[¶6] In June 2021, Shafer moved in the district court to modify the arbitration
award to increase the damages to the contract amount of $678,000. He argued
Diamond did not substantially complete the Shafer home, the doctrine of
substantial performance applies, the arbitrator’s findings provide a factual
basis for the court to apply the doctrine, and the full amount of the contract is
the proper measure of damages under the doctrine of substantial performance.
He alternatively requested the court confirm the arbitration award against
Diamond.
[¶7] Diamond moved to deny or reduce the arbitration award. Diamond
argued Shafer destroyed or withheld evidence, Diamond was not liable for the
acts or omissions of independent contractors, and Shafer should not be
awarded any damages.
[¶8] The district court confirmed the arbitration award. The court adopted
the arbitrator’s factual findings without change or modification. The court
determined that the arbitrator correctly applied North Dakota law to the
factual findings and that the award was not irrational and does not contain a
“manifest disregard of the law.” The court confirmed the award and ordered
judgment be entered accordingly.
[¶9] Shafer moved for specific findings. The district court denied the motion.
Judgment was entered against Diamond for $466,986.15 plus interest.
II
[¶10] Shafer argues the district court erred in reviewing the arbitration award
by failing to apply the law of substantial performance for construction
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contracts to the facts as found by the arbitrator and increase the damages.
Shafer claims he should be awarded the entire contract amount as damages
under the substantial performance doctrine because Diamond did not
substantially perform the contract.
[¶11] Review of an arbitration award is limited. An arbitration award will not
be vacated unless it is completely irrational. Gratech Co., Ltd. v. Wold Eng’g,
P.C., 2007 ND 46, ¶ 10, 729 N.W.2d 326. An arbitration award is completely
irrational if “the decision is either mistaken on its face or so mistaken as to
result in real injustice or constructive fraud.” Id. “An arbitrator’s mistake as
to fact or law is not a sufficient ground for overturning an arbitration award.”
Id. We have explained the clearly irrational standard of review gives “the
arbitrators every benefit of every doubt. It affords them the widest latitude to
exercise their authority and arrive at their decision without the customary
restraints of traditional judicial review. It is but a reflection of the strong public
policy favoring the arbitration process.” John T. Jones Constr. Co. v. City of
Grand Forks, 2003 ND 109, ¶ 9, 665 N.W.2d 698 (quoting Scherbenske
Excavating, Inc. v. N.D. State Highway Dep’t, 365 N.W.2d 485, 489 (N.D.
1985)).
[¶12] The arbitrator made detailed findings of fact, including Diamond did not
finish construction of the house, the house had mold issues requiring mold
remediation, there were problems with the trusses and the problems could
weaken the integrity of the structure and potentially lead to structural failure
if not repaired, and there were other defects in the construction. The arbitrator
determined Diamond breached the parties’ construction contract and
warranties under the contract, and Shafer suffered damages as a result of
Diamond’s breaches. The arbitrator considered Shafer’s request of $678,000 in
damages, but found such an award would be excessive and the damages caused
by Diamond did not exceed the contract price. The arbitrator concluded the
cost of repair was the only viable measure of damages, and awarded Shafer
damages in the amount of $419,057.71 against Diamond.
[¶13] Under N.D.C.C. § 32-03-09, the measure of damages for a breach of
contract is the amount which will compensate the aggrieved party for the
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detriment proximately caused by the breach. This Court has repeatedly held
there are two potential measures of damages for breach of a construction
contract, either the cost of repair or the difference in value between what would
have been built according to the contract and what was actually built. See
Swain v. Harvest States Coop., 469 N.W.2d 571, 573 (N.D. 1991); Biteler’s
Tower Serv., Inc. v. Guderian, 466 N.W.2d 141, 146 (N.D. 1991); Dittmer v.
Nokleberg, 219 N.W.2d 201, 206 (N.D. 1974); Dobler v. Malloy, 214 N.W.2d 510,
518 (N.D. 1973). The arbitrator used the cost of repairs to calculate the
damages in this case and found the amount requested by Shafer was excessive.
The arbitrator’s choice of one of the recognized measures of damages is not
completely irrational.
[¶14] Shafer conceded during argument that the arbitration award is not
completely irrational. We agree. We conclude the district court did not err in
confirming the arbitration award.
III
[¶15] Shafer argues we should narrowly expand the grounds for review of an
arbitration award to include whether there was an intentional disregard for
the applicable law. He contends this Court previously considered adopting this
standard in Gratech, 2007 ND 46, and the standard should be adopted and
applied in this case because the arbitrator willfully disregarded the law of
substantial performance in determining the damages.
[¶16] The grounds for modifying or vacating an arbitration award are
governed by statute. See N.D.C.C. §§ 32-29.3-23 and 32-29.3-24. A party can
request the district court confirm an arbitration award under N.D.C.C. § 32-
29.3-22, modify or correct an arbitration award under N.D.C.C. § 32-29.3-24,
or vacate an award under N.D.C.C. § 32-29.3-23. An award may be modified if:
a. There was an evident mathematical miscalculation or an
evident mistake in the description of a person, thing, or property
referred to in the award;
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 upon the claims submitted; or
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c. The award is imperfect in a matter of form not affecting the
merits of the decision on the claim submitted.
N.D.C.C. § 32-29.3-24. An award may be vacated for a number of reasons,
including if:
a. The award was procured by corruption, fraud, or other undue
means;
b. There was:
(1) Evident partiality by an arbitrator appointed as a neutral
arbitrator;
(2) Corruption by an arbitrator; or
(3) Misconduct by an arbitrator prejudicing the rights of a
party to the arbitration proceeding; [or]
...
d. An arbitrator exceeded the arbitrator’s powers[.]
N.D.C.C. § 32-29.3-23(1).
[¶17] Sections 32-29.3-23 and 32-29.3-24, N.D.C.C., list the grounds upon
which an arbitration award may be modified or vacated. The statutes do not
explicitly authorize modifying or vacating an award that evidences a manifest
disregard of the law.
[¶18] In Gratech, 2007 ND 46, ¶ 12, we acknowledged the Eighth Circuit Court
of Appeals adopted an expanded standard for review of arbitration awards
beyond the statutory grounds to allow an award to be vacated when the award
is completely irrational or evidences a manifest disregard for the law. See
Lincoln Nat’l Life Ins. Co. v. Payne, 374 F.3d 672, 674 (8th Cir. 2004); Hoffman
v. Cargill Inc., 236 F.3d 458, 461 (8th Cir. 2001). However, we ultimately
determined that we did not need to address whether the standard of review
should be expanded because the district court’s decision confirming the
arbitration award would be affirmed under either the completely irrational or
manifest disregard standard. Gratech, at ¶ 15.
[¶19] Although we previously discussed an expanded standard of review,
N.D.C.C. §§ 32-29.3-23 and 32-29.3-24 authorize the grounds upon which an
arbitration award may be vacated or modified. The statutes are part of the
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Uniform Arbitration Act, which is a uniform law. “Any provision in this code
which is a part of a uniform statute must be so construed as to effectuate its
general purpose to make uniform the law of those states which enact it.”
N.D.C.C. § 1-02-13.
[¶20] Section 32-29.3-23, N.D.C.C., which provides the grounds for vacating an
arbitration award, is based on the Uniform Arbitration Act § 23 (2000). See
Hearing on S.B. 2061 Before the House Judiciary Comm., 58th N.D. Legis.
Sess. (Mar. 3, 2003) (testimony about the bill by Sen. Tom Trenbeath); Unif.
Arbitration Act (2000), U.L.A. Refs & Annos (table of jurisdictions wherein the
act has been adopted). The comments to this section of the uniform law indicate
including the “manifest disregard of the law” standard as a ground for vacating
an arbitration award was considered and ultimately rejected by the Committee
of the Whole at the July 2000 meeting of the National Conference of
Commissioners on Uniform State Laws. See Unif. Arbitration Act § 23 (2000),
comment.
[¶21] The drafters of the uniform law chose not to include the “manifest
disregard of the law” standard as a ground for vacating an arbitration award.
We may look to this comment from the official editorial board for guidance
when we interpret and apply the uniform law’s provisions. See In re Bradley K.
Brakke Trust, 2017 ND 34, ¶ 12, 890 N.W.2d 549. Furthermore, courts in other
jurisdictions that have adopted the Uniform Arbitration Act (2000) have also
declined to expand the grounds for vacating an arbitration award to include
the manifest disregard of the law standard. See Coors Brewing Co. v. Cabo, 114
P.3d 60, 64-66 (Colo. App. 2004); Floor Solutions, LLC v. Johnson, 322 Or. App.
417, 422 (Ore. Ct. App. 2022). Because N.D.C.C. § 32-29.3-23 is a uniform law,
we must construe the statute to provide consistency and uniformity in the law.
See Smith v. Hall, 2005 ND 215, ¶ 17, 707 N.W.2d 247.
[¶22] We are bound by the statutory standard for reviewing arbitration
awards, and we do not have authority to expand the grounds for vacating an
arbitration award. It is for the legislature to decide to modify the statute and
expand the grounds for vacating an arbitration award. We reject Shafer’s
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request to expand the review of an arbitration award by adopting the manifest
disregard of the law standard.
IV
[¶23] We affirm the judgment confirming the arbitration award.
[¶24] Jon J. Jensen, C.J.
Gerald W. VandeWalle
Daniel J. Crothers
Lisa Fair McEvers
Jerod E. Tufte
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