Plaintiff Oakland-Macomb Interceptor Drain Drainage District ("Drainage District"), a public sector drainage district, seeks to enforce provisions of its agreement to arbitrate with defendant Ric-Man Construction. The American Arbitration Association (AAA) failed to appoint a lawyer-member of the arbitral panel that had the specific, specialized qualifications set forth in the parties' agreement.
I. NATURE OF THE CASE
Plaintiff's objection to the AAA's failure to comply with the contractual requirements of a specific, highly specialized arbitral agreement raises an issue of first impression for a Michigan court's application of the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq. That is, will our courts enforce the conditions of an arbitral agreement before the arbitral award has been issued when (1) the underlying subject matter of the arbitration involves complex technical and legal issues, (2) the arbitration agreement requires that the arbitrators possess a highly specialized professional background, and (3) the arbitration agreement specifically outlines a precise method to select said arbitrators?
Other courts that have looked at this narrow, but important, issue have made the following distinction, which informs our analysis: Courts will not entertain suits to address preaward general objections to the impartiality or expertise of an arbitrator. But when suit is brought, as here, to enforce the key provisions of the agreement to arbitrate — i.e., when the criteria and method for choosing arbitrators are at the heart of the arbitration agreement — then courts will enforce these contractual mandates. To rule otherwise would essentially rewrite the parties' contract and rob the objecting party of this key contractual right to have a panel with the specialized qualifications necessary to make an informed arbitral ruling — which goes to the precise purpose and reason to arbitrate such technically and legally complex claims.
With this key distinction in mind and after a careful review of the comprehensive arbitration agreement,
In addition, the arbitration agreement expressly modifies the already sophisticated complex construction rules of the AAA by mandating very specific qualifications for the three-member arbitral panel and outlining the precise manner in which the AAA must appoint these panel members. Again, the parties spelled out very particularized qualifications that the panel members must possess. Their specialized experience would make it more likely that the panel would understand the complexity of the technical and legal issues presented, and thus render an informed decision.
Any objective reading of this agreement to arbitrate makes this intention very clear. Neither the parties to the agreement nor the AAA — which agreed to act as the third-party entity to implement this arbitration agreement — could possibly misunderstand or miss the significance of having high-level, quality arbitrators to hear the matters at issue and render an informed arbitral ruling. Therefore, when the AAA blatantly and inexplicably ignored these key provisions, plaintiff had only one course of action to ensure an arbitral hearing with the type of panel envisioned: it brought suit to enforce the contract. Notwithstanding the plain language of the agreement, defendant took the position that these provisions did not clearly call for the qualifications claimed by plaintiff. It also claimed that plaintiff's prearbitration suit to enforce said provisions was premature and contrary to the FAA that, it says, disallows prearbitration litigation regarding the qualifications of an arbitrator.
We disagree with defendant on both points and with the trial court, which ruled for defendant. Instead, we hold that it is abundantly clear that the agreement to arbitrate made the specialized qualifications of the panel central and key to the entire agreement. We also hold that when, as here, a provision to arbitrate is central to the agreement, the FAA provides that it should be enforced by the courts before the arbitral hearing.
The shibboleth that this approach would encourage delays is an artful and convenient dodge. It is quite obvious here that plaintiff strongly desires arbitration and, in fact, insists on an arbitral hearing, but only if it is meaningful, as contemplated by the contract between the parties. We also regard defendant's contention that the AAA followed the agreement as, at best, disingenuous.
For the reasons set forth in this opinion, we reject defendant's arguments, reverse the trial court's findings, and remand to the trial court to issue an order to the AAA consistent with this opinion.
II. FACTS AND PROCEDURAL HISTORY
Plaintiff is a special-purpose public corporation established under the Drain Code, MCL 280.1 et seq. It owns the Oakland-Macomb Interceptor (OMI), which is part of an extensive sanitary-sewer system that delivers wastewater from suburban areas to the Detroit Water and Sewerage Department for treatment. Defendant Ric-Man is a construction company that entered into two contracts with plaintiff to build infrastructure needed to perform repairs on the OMI. These construction contracts include a brief dispute-resolution clause, which allowed the parties to agree to submit the claim to another dispute resolution process. Because plaintiff and defendant asserted serious multimillion-dollar claims against each other during the construction project, they implemented their contractual right
Accordingly, the key provisions — and those provisions directly pertinent to this appeal — concern the composition and selection of the arbitral panel. If the parties could not agree on two construction professionals and one construction lawyer, then the AAA would choose a panel member that met the parties' stipulated qualifications. And, in order to ensure that the most qualified available lawyer was chosen, the arbitration agreement specifies the declining, but minimal order of qualifications in the event a lawyer with all the desired qualifications is unavailable. Taken together,
These portions of the arbitration agreement were triggered in January 2012, when the Drainage District filed its demand with the AAA for arbitration against
In August 2012, the AAA notified the Drainage District and Ric-Man that it had chosen Michael Hayslip as the construction-litigator member of the panel. Hayslip unquestionably did not meet the qualification requirements of the contract. Though Hayslip was admitted to the Ohio bar in 1994, and worked in the construction industry throughout his career,
Plaintiff subsequently filed suit against Ric-Man and the AAA in October 2012 to enforce its contractual right to have an attorney with the aforementioned qualifications on the panel. Plaintiff sought (1) a declaration that the AAA was required to appoint a lawyer with a background in construction litigation in compliance with the arbitrator-selection procedures specified in the arbitration agreement, (2) an injunction ordering the AAA to do the same, and (3) a judgment of summary disposition under MCR 2.116(C)(10), stating that Hayslip lacked the necessary experience required by the agreement and that any award issued by the current arbitration panel was void.
Plaintiff also alleged that the AAA failed to follow the arbitrator-selection process outlined in the agreement, pointing to Hayslip's relative lack of experience when compared to the alternate attorney-arbitrator, Weiers. Of course, as noted, in addition to his lack of experience in construction litigation, Hayslip's professional background did not meet the first two criteria the AAA was supposed to take into account when choosing arbitrators: (1) he was not a Large Complex Construction Dispute panel member with at least 20 years of experience in construction law, and (2) he did not have at least 20 years of experience in construction law with an emphasis in heavy construction. Whereas Hayslip did not satisfy either qualification, Weiers possessed both.
In response, Ric-Man stated that a court cannot second-guess an arbitration decision and that the AAA followed the specified arbitrator-selection process. It contended that the arbitration agreement did not actually require the attorney-arbitrator to have construction-litigation experience, and that plaintiff sued simply because it was unhappy with the selected group of arbitrators.
The trial court rejected plaintiff's arguments, and held, erroneously, that the AAA's selection of Hayslip complied with the plain language of the arbitration agreement. In so doing, it ruled that there was no language in the arbitration agreement requiring the AAA to appoint a construction lawyer with 10 to 20 years of construction-litigation experience. The trial court
Plaintiff filed an appeal in January 2013, claiming that the trial court erred when it denied the motion for summary disposition and dismissed the complaint. Specifically, plaintiff requests that our Court order the AAA to comply with the arbitration agreement.
III. STANDARD OF REVIEW
"This Court reviews de novo a trial court's decision on a motion for summary disposition." Hackel v. Macomb Co. Comm., 298 Mich.App. 311, 315, 826 N.W.2d 753 (2012). "In reviewing a motion under MCR 2.116(C)(10), this Court considers the pleadings, admissions, affidavits, and other relevant documentary evidence of record in the light most favorable to the nonmoving party to determine whether any genuine issue of material fact exists to warrant a trial." Walsh v. Taylor, 263 Mich.App. 618, 621, 689 N.W.2d 506 (2004). "Summary disposition is appropriate if there is no genuine issue regarding any material fact and the moving party is entitled to judgment as a matter of law." Latham v. Barton Malow Co., 480 Mich. 105, 111, 746 N.W.2d 868 (2008). "A genuine issue of material fact exists when the record, giving the benefit of reasonable doubt to the opposing party, leaves open an issue upon which reasonable minds might differ." West v. Gen. Motors Corp., 469 Mich. 177, 183, 665 N.W.2d 468 (2003).
The interpretation of a contract presents a question of law that is reviewed de novo. Kloian v. Domino's Pizza, LLC, 273 Mich.App. 449, 452, 733 N.W.2d 766 (2006). "Arbitration agreements are generally interpreted in the same manner as ordinary contracts. They must be enforced according to their terms to effectuate the intentions of the parties." Bayati v. Bayati, 264 Mich.App. 595, 599, 691 N.W.2d 812 (2004) (citation omitted). See also Equal Employment Opportunity Comm. v. Frank's Nursery & Crafts, Inc., 177 F.3d 448, 460 (C.A.6, 1999) ("Because courts are to treat agreements to arbitrate as all other contracts, they must apply general principles of contract interpretation to the interpretation of an agreement covered by the FAA.").
Because both the Drainage District and Ric-Man agree that this case involves materials shipped through interstate commerce and is thus is governed by the FAA,
Therefore, under §§ 4 and 5 of the FAA, courts have a statutory obligation to protect arbitral parties from abuse by the third-party agency conducting the arbitration. See Morrison v. Circuit City Stores, Inc., 317 F.3d 646, 678 (C.A.6, 2003). If courts were to refuse prearbitration relief, arbitration agencies could ignore with impunity the specific terms of the arbitration agreement, thus effectively modifying the agreed-upon terms without each party's consent. See Id. at 678-680; Farrell v. Subway Int'l, BV, unpublished opinion of the United States District Court for the Southern District of New York, issued March 23, 2011 (Docket No. 11 Civ 08), pp. 10-11, 2011 WL 1085017 ("[F]ederal law directs that the Court enforce the selection of the arbitrator in accordance with the terms of the [parties'] Agreement....") citing 9 U.S.C. § 5; and Jefferson-Pilot Life Ins. Co. v. LeafRe Reinsurance Co., unpublished opinion of the United States District Court for the Northern District of Illinois, issued November 20, 2000 (Docket No. 00 C 5257), p. 4, 2000 WL 1724661 ("The [FAA] clearly states that contractual provisions for the appointment of an arbitrator `shall be followed.'"), quoting 9 U.S.C. § 5. To prevent such a material alteration of the contract, in cases in which the "parties have agreed to arbitrate, but disagree as to the operation or implementation of that agreement," a court can remove an arbitrator before an award has been granted. B/E Aerospace, Inc. v. Jet Aviation St. Louis, Inc., unpublished opinion of the United States District Court for the Southern District of New York, issued July 1, 2011 (Docket No. 11 Civ 4032), p. 3, 2011 WL 2852857 (citations and quotation marks omitted).
Accordingly, a party may petition a court for relief before an arbitral award has been made if (1) the arbitration agreement explicitly specifies detailed qualifications the arbitrator must possess, and (2) the third-party arbitration administrator fails to appoint an arbitrator that meets these specified qualifications. Therefore, a court may issue an "order, pursuant to § 4 of the FAA, requiring that the arbitration proceedings conform to the terms of the arbitration agreement entered into by the parties." Morrison, 317 F.3d at 678.
To hold otherwise under these facts would negate the purpose of arbitration: parties make arbitration agreements with the expectation that the third-party arbitral agency will honor important provisions of the agreements. If that agency disregards the explicit terms of the arbitration agreement — terms that were central to the initial contract between the parties — the disadvantaged party must have some access to judicial relief, and relief can be effective only before the arbitral hearing.
In such cases — as here, and contrary to defendant's argument and the trial court's ruling — it is not premature to give the disadvantaged party access to judicial relief before an arbitral award has been made.
Accordingly, the AAA obviously ignored the arbitration agreement when it made Hayslip the attorney arbitrator. The AAA could have easily corrected its failure to comply with the arbitration agreement when the Drainage District protested Hayslip's selection, but it did not. Evidently, there were attorneys available to serve as arbitrators who met all the conditions of plaintiff and defendant's contract, as demonstrated by the AAA's decision to make Weiers — a lawyer with a "background in construction litigation" — the alternate attorney-arbitrator.
Pursuant to FAA §§ 4 and 5, plaintiff may enforce the precise language of
Reversed and remanded. We do not retain jurisdiction.
SAWYER, J., concurred with SAAD, P.J.
JANSEN, J. (dissenting).
Because I conclude that the circuit court reached the correct result in this case, albeit for the wrong reason, I must respectfully dissent.
The circuit court dismissed plaintiff's complaint for declaratory and injunctive relief, concluding that defendant American Arbitration Association (AAA) had fully complied with the plain language of the arbitration agreement when it selected Michael Hayslip as the lawyer-member of the arbitral panel. The circuit court ruled that plaintiff was "reading into the arbitration [agreement] a requirement that does not exist."
The circuit court reached the correct result by dismissing plaintiff's complaint, even though it did so for the wrong reason. For purposes of this appeal, it actually makes no difference whether the arbitration agreement required AAA to appoint a lawyer-member with a particular number of years of construction litigation experience. Irrespective of the exact requirements set forth in the arbitration agreement at issue in this case, it is well settled that "[a]ppellants cannot obtain judicial review of ... decisions about the qualifications of the arbitrators ... prior to the making of an award." Cox v. Piper, Jaffray & Hopwood, Inc., 848 F.2d 842, 843-844 (C.A.8, 1988). The Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq., "does not provide for pre-award removal of an arbitrator."
Of course, a court would have the authority to remove a particular arbitrator prior to issuance of the arbitral award if the dispute concerning the arbitrator's qualifications implicated "grounds ... at law or in equity for the revocation of [the] contract." 9 U.S.C. § 2; see also Aviall, 110 F.3d at 895. However, it is appropriate for the court to make such a preaward removal "only when there is a claim, for example, that there was `fraud in the inducement' or some other `infirmity in the contracting process' regarding the parties'
In the present case, there is no claim that AAA's selection of Hayslip as the lawyer-member of the arbitral panel involved fraud or any other fundamental infirmity in the contracting process that would completely invalidate the arbitration agreement. See 9 U.S.C. § 2; see also Gulf Guaranty, 304 F.3d at 491. Nor is there any claim that Hayslip had an inappropriate relationship with either party. See Aviall, 110 F.3d at 896. It may well be that Hayslip did not meet the specific requirements for appointment set forth in the arbitration agreement. But plaintiff was required to wait until after issuance of the arbitral award and raise this matter in a proceeding to vacate. See 9 U.S.C. § 10; see also Gulf Guaranty, 304 F.3d at 490-491; Florasynth, 750 F.2d at 174.
Because the dispute over Hayslip's qualifications to serve as the lawyer-member did not constitute a sufficient ground to warrant revocation of the entire arbitration agreement, the circuit court was without authority to reach the issue at this stage of the proceedings. See 9 U.S.C. § 2; see also Gulf Guaranty, 304 F.3d at 491 (noting that "a court may not entertain disputes over the qualifications of an arbitrator to serve merely because a party claims that enforcement of the contract by its terms is at issue, unless such claim raises concerns rising to the level that the very validity of the agreement be at issue"). The dispute regarding Hayslip's qualifications to serve, although framed by plaintiff as a request to enforce the arbitration agreement according to its terms, "is not the type of challenge that the [circuit] court was authorized to adjudicate pursuant to the FAA prior to issuance of an arbitral award." Id. at 492.
In my opinion, the circuit court reached the correct result, albeit for the wrong reason, when it dismissed plaintiff's complaint. "It is well settled that we will not reverse when the circuit court has reached the correct result, even if it has done so for the wrong reason." Hare v. Starr Commonwealth Corp., 291 Mich.App. 206, 226, 813 N.W.2d 752 (2011). I would affirm the circuit court's dismissal of plaintiff's complaint.
As noted, we do not find this analysis applicable to or persuasive under the specific circumstances of our case. See Truel v. City of Dearborn, 291 Mich.App. 125, 136 n. 3, 804 N.W.2d 744 (2010) (noting that "[d]ecisions from lower federal courts are not binding but may be considered persuasive"). As noted, requiring an objecting party to wait until an arbitral award has been issued before bringing a claim related to the composition of the arbitral panel, when said expertise is critical to a fully informed arbitral hearing, essentially robs the party of any opportunity to receive judicial relief. Guaranty also evinces an unwarranted lack of faith in the competence of our judiciary to distinguish between real and serious objections, as here, and frivolous developing tactics. We trust that in most cases, as here, the distinction is clear and obvious, and that courts should provide relief under the FAA.