Plaintiff C & L Ward Bros. Company filed a complaint in the circuit court for review of an arbitration decision and subsequently filed a motion to reinstate the arbitration proceeding and to vacate the arbitrator's summary dismissal of plaintiff's claim for breach of contract. The arbitrator had concluded that the breach of contract claim was not arbitrable under the parties' contract and therefore he lacked jurisdiction to address the claim on the merits. Plaintiff appeals as of right the circuit court's order denying its motion challenging the arbitrator's ruling and dismissing plaintiff's complaint. Setting aside some procedural, jurisdictional, and briefing issues or flaws that might also support affirming the circuit court's ruling, we ultimately affirm on the basis of our agreement with the arbitrator, the circuit court, and a federal district court involved in the litigation, that plaintiff's contract claim was simply not arbitrable under the plain language of the parties' contract.
Plaintiff entered into a contract with defendant Outsource Solutions, Inc. (OSI), in 2003, pursuant to which OSI was to provide payroll administration services for plaintiff, which included handling the payment of all applicable local, state, and federal taxes. Years later, plaintiff accused OSI of overcharging plaintiff for payments made to cover state and federal unemployment taxes relative to plaintiff's employees, disguising the overcharge as being generally attributable to "payroll taxes," and retaining the overcharged revenue. Plaintiff initiated a class action suit against OSI, successor corporations, and various corporate officers in the United States District Court for the Eastern District of Michigan (Southern Division), alleging fraudulent misrepresentation, fraud in the inducement, common-law and statutory conversion, violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 USC 1961 et seq., and negligence.
Plaintiff, pursuant to a somewhat-limited arbitration clause contained in the contract with OSI, proceeded to commence an arbitration action for breach of contract with the American Arbitration Association (AAA). Defendants' position was that the contract claim was not arbitrable and now also barred by res judicata in light of the dismissed federal suit. Defendants' effort to reopen the federal case to procure an order enjoining the arbitration proceeding was rejected by the federal court, as the court, while sympathetic to and in agreement with defendants' stance, believed that the arbitrator had to first address the arguments against arbitration. The arbitrator subsequently ruled that it lacked jurisdiction because the mandatory arbitration language in the arbitration clause was not implicated with respect to the particular contract claim being made, rather, the claim fell within an express exception to arbitration as set forth in the arbitration clause. The arbitrator also found that the claim was now barred by res judicata given the dismissed federal lawsuit. Plaintiff then returned to the federal court in an attempt to reopen the case and pursue or add a contract claim, but the request was rejected by the court, which rejection was affirmed in C & L Ward Bros, Co v Outsource Solutions, Inc, 547 Fed Appx 741 (CA 6, 2013).
Plaintiff next filed a complaint for review of the arbitration decision in the state circuit court, followed by a motion to reinstate the arbitration proceeding and to vacate the arbitrator's summary dismissal of plaintiff's contract claim. Defendants challenged the motion, arguing, in part, that the arbitrator was correct in his analysis, that the circuit court itself lacked subject-matter jurisdiction to vacate the arbitrator's decision as there was no arbitration "award" for purposes of review under the arbitration statutes and court rule, and that the arbitrator did not "exceed" his powers as a matter of law considering that he declined to exercise any powers. The circuit court agreed with these arguments presented by defendants and apparently disagreed with additional arguments posed by defendants that had been based on res judicata and collateral and judicial estoppel. The circuit court denied plaintiff's motion challenging the arbitration decision and dismissed plaintiff's complaint with prejudice. On appeal, plaintiff argues that the circuit court had jurisdiction to vacate the arbitrator's ruling, that the contract claim was within the scope of the mandatory arbitration language found in the arbitration clause and not the exception to arbitration, or minimally there existed an ambiguity in regard to the clause's scope necessitating a finding against OSI as the contract's drafter or further inquiry and factual development by the arbitrator, and that the res judicata issue was nothing but a red herring.
A. STANDARDS AND PRINCIPLES OF REVIEW
In Ann Arbor v American Federation of State, Co, & Muni Employees (AFSCME) Local 369, 284 Mich.App. 126, 144-145; 771 N.W.2d 843 (2009), this Court discussed the nature of our review of a circuit court's ruling relative to an arbitration decision, as well as the circuit court's review of the arbitrator's ruling:
474 Mich. 27, 30; 707 N.W.2d 341 (2005), jurisdictional issues, Elba Twp v Gratiot Co Drain Comm'r, 493 Mich. 265, 278; 831 N.W.2d 204 (2013), matters involving the interpretation or legal effect of a contract, Rory v Continental Ins Co, 473 Mich. 457, 464; 703 N.W.2d 23 (2005), the construction of court rules and statutes, Estes v Titus, 481 Mich. 573, 578-579; 751 N.W.2d 493 (2008), and "the application of legal doctrines, such as res judicata and collateral estoppel," id.
The Michigan arbitration act (MAA), MCL 600.5001 et seq., was repealed by our Legislature pursuant to 2012 PA 370 and replaced by the uniform arbitration act (UAA), MCL 691.1681 et seq., which was enacted pursuant to 2012 PA 371. The repeal of the MAA and the enactment of the UAA became effective July 1, 2013. See 2012 PA 370 and 371. The UAA provides that "[o]n or after July 1, 2013, this act governs an agreement to arbitrate whenever made." MCL 691.1683(1). The circuit court order being appealed was entered on April 8, 2013; therefore, the now-repealed MAA still applied to the proceedings. MCR 3.602(A), which has yet to be amended, provides that "[t]his rule governs statutory arbitration under MCL 600.5001-600. 5035[,]" i.e., arbitration under the MAA. MCL 600.5001(2) provided:
Here, the arbitration clause in the parties' contract provided for the entry of a judgment on an arbitrator's award, thereby qualifying any contract-related arbitration proceeding as statutory arbitration as opposed to common-law arbitration. Wold Architects & Engineers v Strat, 474 Mich. 223, 229-230; 713 N.W.2d 750 (2006).
MCL 600.5025 provided:
Under MCR 3.602(J)(1), "[a] request for an order to vacate an arbitration award under this rule must be made by motion." (Emphasis added.) Pursuant to MCR 3.602(J)(2)(c), "[o]n motion of a party, the court shall vacate an [arbitration] award if . . . the arbitrator exceeded his or her powers." (Emphasis added.)
Defendants, relying exclusively on caselaw from foreign jurisdictions, argue that the arbitrator never entered an "award."
While there is some textual logic to defendants' argument that only an "award" can be judicially reviewed and that there was no "award" entered by the arbitrator, we find it unnecessary to specifically determine whether the arbitrator's ruling constituted an "award" subject to circuit court review.
"Arbitrators exceed their powers whenever they act beyond the material terms of the contract from which they draw their authority or in contravention of controlling law." Miller, 474 Mich at 30, citing DAIIE v Gavin, 416 Mich. 407, 433-434; 331 N.W.2d 418 (1982) (emphasis added). Our Supreme Court in Arrow Overall Supply Co v Peloquin Enterprises, 414 Mich. 95, 98-99; 323 N.W.2d 1 (1982), after first referencing MCL 600.5025 and its jurisdictional attributes, observed:
In Fromm v MEEMIC Ins Co, 264 Mich.App. 302, 305-306; 690 N.W.2d 528 (2004), this Court stated:
So while an arbitrator can engage in construing a contract in the process of addressing the merits of an arbitration claim and resolving the dispute, AFSCME Local 369, 284 Mich App at 144-145, it is a court of law, through interpretation of an arbitration clause in conjunction with contemplation of a party's particular claim alleged to be arbitrable, that decides the arbitrability of the claim in the first instance. This proposition found force in MCL 600.5025, which provided that "the circuit courts have jurisdiction to enforce the [arbitration] agreement." The principle that a court and not an arbitrator decides whether a claim is subject to arbitration is further reflected in MCR 3.602(B).
Disregarding defendants' jurisdictional argument relative to the alleged lack of an "award" and even assuming that the arbitrator exceeded his authority by resolving the issue whether the contract claim was arbitrable, we nevertheless affirm the circuit court's ruling not to vacate or otherwise disturb the arbitrator's decision.
The parties' contract specified that OSI was "an independent contractor . . . engaged in the business of providing professional employer services[.]" The contract was for a one-year period, subject to automatic renewal for one-year periods until terminated by either party with 30 days prior written notice. Under the contract, OSI was required to provide payroll services, "including payment of applicable federal, state, and local taxes the responsibility for which [OSI] shall assume in respect of Employees without regard to the receipt of payment from [plaintiff]." The contract further provided that plaintiff was to pay OSI "a service fee equal to the calculation as shown on Exhibit D, which is attached and made a part of this Agreement." Exhibit D was a "Proposal" booklet from YourSource, Inc., to plaintiff, which included a single page comparing, in two columns, the cost of plaintiff using its own in-house human resources department to administer payroll and other employee services to the cost that would be incurred in having YourSource, Inc., administer payroll and other services.
The last paragraph in the plaintiff-OSI contract addressed arbitration of disputes, providing as follows:
The federal-action defendants had noted in their brief in support of dismissal that OSI regularly sent plaintiff "invoices reflecting two separate, agreed-upon charges: the charge of 1.65% of payroll for the human resource administration (later reduced to 1.25%) and the additional charge of 10.5% of gross payroll for payroll taxes," which plaintiff "dutifully paid . . . and did not question . . . until December 2010." We note that the contract was terminated in 2011. The federal-action defendants asserted that plaintiff's claim that they were overcharged more than $450,000 was based on the mistaken assumptions that plaintiff was not obligated to pay for tax-related services at the flat rate of 10.5% of gross annual payroll and that plaintiff's sole contractual obligation in regard to tax-related services was to simply reimburse OSI "for the employer-side tax payments that [OSI] actually made." (Emphasis added.) In other words, defendants' position was that plaintiff was obligated to pay OSI 10.5% of the gross annual payroll for purposes of taxes and tax-related services regardless of how much in taxes was actually paid by OSI to the state and federal governments. Accordingly, there were no overcharges or overpayments under the terms of the contract and plaintiff's claims regarding fraudulently-calculated state and federal unemployment taxes had no basis in law or fact.
In its arbitration complaint, plaintiff alleged that defendants "breached the contract by overcharging [plaintiff] service fees in excess of the 1.65% agreed upon in the contract" and "by concealing the overcharges on invoices to [plaintiff] with all charges lumped together deceptively identified only as `payroll taxes[.]'"
Plaintiff argues that the clause requiring OSI to provide payroll services to plaintiff, "including payment of applicable federal, state, and local taxes," did not pertain to plaintiff's obligation to make payments to OSI, and therefore the exception to arbitration was not triggered. OSI's practices resulted in plaintiff paying $458,183 more to OSI than it should have paid to cover the actual state and federal unemployment taxes. We disagree. The clause cannot be viewed in a vacuum but would need to be examined and analyzed in conjunction with the other clauses referenced above in order to coherently and soundly determine plaintiff's payment obligations under the contract. Moreover, even when viewed in isolation, the clause cited by plaintiff could arguably be the determinative provision relative to the nature of plaintiff's payment obligation, as it could perhaps be viewed as the contract's sole clause directly related to tax-payment services, yet it did not provide for a fee being assessed against plaintiff. In other words, it may indirectly or implicitly pertain to plaintiff's payment obligations. Indeed, in plaintiff's own appellate brief, it states that the clause requiring OSI to cover the tax payments "did [not] authorize [OSI] to collect amounts above and beyond the actual statutory payroll taxes." Thus, plaintiff itself acknowledges that the clause has a bearing on its contractual payment obligations.
Plaintiff next argues that OSI breached the contract by skimming profits for itself from the payroll tax overcharges. But this argument is necessarily tied to the question of plaintiff's payment obligations under the contract, considering that there would be no contractual breach for the skimming of profits if OSI collected from plaintiff an amount plaintiff was actually obligated to pay OSI under the contract. Plaintiff additionally argues that the only provision in the contract that required it to compensate OSI for its services was the clause providing for the payment of "a service fee equal to the calculation as shown on Exhibit D." Therefore, argue plaintiffs, the "breach of contract claim has nothing to do with its `obligations to make payments.'" We fail to see the logic in this argument. It appears to be more of an argument with respect to why plaintiff would be successful in litigating a breach of contract claim, as opposed to circumventing a conclusion that the contract claim concerned plaintiff's payment obligations under the contract.
Plaintiff, adamantly and with emphasis, next argues that nowhere in the contract was there a provision that allowed OSI to "collect monies beyond the actual . . . taxes charged by the applicable taxing authorities," nor was there any provision that obligated plaintiff to pay over and above the service fee of 1.65% or 1.25% as later reduced. Again, these arguments go to the substance or merits of the contract claim and do not defeat our ruling that the contract claim would entail construction of the contract to determine plaintiff's payment obligations thereunder, thereby falling within the confines of the arbitration exception. Countering plaintiff's argument on the merits of the dispute is defendants' substantive argument that contractual language did require plaintiff to pay more than the 1.65% / 1.25% or the actual taxes assessed. The dispute would require interpretation of contractual clauses with respect to determining plaintiff's payment obligations.
Plaintiff further argues that the arbitration exception in the arbitration clause pertained solely to collection matters in case plaintiff stopped paying its bills, thereby allowing OSI to avoid arbitration in any attempt to recover amounts owing by plaintiff. We again fail to see the logic in plaintiff's argument. Plaintiff is apparently comparing an arbitration proceeding to a collection effort, such as employment of a collection agency, which does not reach the level of court litigation. We conclude, however, that the arbitration clause plainly and unambiguously concerns ultimate dispute resolution as between the contracting parties in either a court or arbitration forum. Nothing under our construction of the arbitration clause would have prevented OSI to initially pursue out-of-court collection efforts against plaintiff had monies actually been allegedly due under the contract, with any unresolved dispute concerning contract interpretation and plaintiff's payment obligations thereafter being submitted to arbitration. In sum, the arbitration exception applied.
Plaintiff next contends that the arbitration clause was ambiguous and should therefore either be construed against OSI as the contract's drafter under the doctrine of contra proferentem or the matter should be remanded to the arbitrator for further factual and legal development regarding the parties' intent. "In ascertaining the meaning of a contract, we give the words used in the contract their plain and ordinary meaning that would be apparent to a reader of the instrument." Rory, 473 Mich at 464. "If the language of [a] contract is unambiguous, we construe and enforce the contract as written." Quality Prod & Concepts Co v Nagel Precision, Inc, 469 Mich. 362, 375; 666 N.W.2d 251 (2003). A contract is ambiguous if its provisions are capable of conflicting interpretations. Klapp v United Ins Group Agency, Inc, 468 Mich. 459, 467; 663 N.W.2d 447 (2003). If the contract language is ambiguous, "the ambiguous language presents a question of fact to be decided by a" trier of fact. Cole v Auto-Owners Ins Co, 272 Mich.App. 50, 53; 723 N.W.2d 922 (2006). In Klapp, 468 Mich at 470-471, our Supreme Court discussed the rule of contra proferentem, observing:
"The rule of contra proferentem is a rule of last resort because, `The primary goal in the construction or interpretation of any contract is to honor the intent of the parties,' and the rule of contra proferentem does not aid in determining the parties' intent." Id. at 473 (citation omitted).
The heading or prefatory language of the arbitration clause was "Independent Legal Advice" and the last sentence of the clause stated, "The Parties agree that the arbitration procedure herein shall be the sole and exclusive remedy to resolve any controversy or dispute arising under this Agreement." (Emphasis added.) Plaintiff argues that this language created an ambiguity in regard to the scope of the arbitration clause. With respect to the heading, the contract itself provided that "[t]he headings of this Agreement are inserted solely for the convenience of reference. They shall in no way define, limit, extend or aid in the construction, extent or intent of this Agreement." Accordingly, the heading of the arbitration clause is irrelevant and does not create any ambiguity in regard to the interpretation of the arbitration clause. With respect to the final sentence in the arbitration clause, if read standing alone or independently from the remainder of the clause, it would indicate that any controversies or disputes arising between the contracting parties were subject to arbitration. However, the final sentence must be read in conjunction with the preceding language in the clause, including the language carving out the exception to arbitration. The final sentence was clearly intended to encompass any controversies or disputes arising under the contract as framed by the introductory sentence in the arbitration clause, which set the scope of arbitration. Any other interpretation would render completely meaningless and nugatory the arbitration exception that was expressly agreed to by the parties. Klapp, 468 Mich at 468 ("[C]ourts must . . . give effect to every word, phrase, and clause in a contract and avoid an interpretation that would render any part of the contract surplusage or nugatory."). Accordingly, we hold that there was no ambiguity in regard to the arbitration clause and its explicit exception to arbitration.
Given our holding and, ostensibly, the circuit court's refusal to base its decision on the doctrines of res judicata and collateral and judicial estoppel, there is no need for us to address these doctrines.
Affirmed. Having fully prevailed on appeal, defendants are awarded taxable costs pursuant to MCR 7.219.