Atreus Communities Grp. of Ariz. v. Stardust Dev., Inc.

229 Ariz. 503

277 P.3d 208

633 Ariz. Adv. Rep. 47

ATREUS COMMUNITIES GROUP OF ARIZONA, a Georgia corporation formerly known as Homelife Communities Group of Arizona, Inc., Plaintiff/Appellant,

v.STARDUST DEVELOPMENT, INC., an Arizona corporation, Defendant/Appellee.

No. 1 CA–CV 10–0129.

Court of Appeals of Arizona, Division 1, Department A.

May 1, 2012.

Berens, Kozub & Kloberdanz PLC, by William A. Kozub, Richard W. Hundley, Scottsdale, Attorneys for Appellant.

Quarles & Brady LLP, by Don P. Martin, Edward A. Salanga, Alison Pulaski, Phoenix, Attorneys for Appellee.

OPINION

KESSLER, Judge.

[229 Ariz. 504]¶ 1 Atreus Communities Group (“Atreus”) appeals the superior court's ruling confirming the arbitration award in favor of Stardust Development, Inc. (“Stardust”) on Atreus's claim for breach of contract and fraudulent concealment. Atreus contends that the award should not have been confirmed because the arbitrator exceeded his authority by granting summary judgment rather than conducting an oral evidentiary hearing. Addressing a question of first impression in Arizona, we hold that under the arbitration agreement and the applicable rules adopted by that agreement, the arbitrator was authorized to grant summary judgment. Accordingly, we affirm the superior court's confirmation of the arbitration award.

FACTUAL AND PROCEDURAL HISTORY

¶ 2 In 2004, Stardust entered into a Joint Development and Escrow Agreement (“JDA”) with several builders, including Atreus, for the construction of a residential development. Stardust was responsible for administering the construction and installation of certain improvements, including certain sewer and wells for water.

[229 Ariz. 505]¶ 3 The JDA provided for mandatory arbitration for any dispute arising under the agreement. Arbitrations were to be conducted in accordance with the Arbitration Rules for the Real Estate Industry of the American Arbitration Association (the “AAA Rules”).

¶ 4 After a delay occurred in the completion of the well facilities and other infrastructure, Atreus initiated arbitration against Stardust, alleging breach of contract, breach of the covenant of good faith and fair dealing, and fraudulent concealment. Atreus contended that it had entered into contracts for sale of its homes, but it could not close on the contracts because of the lack of water services. Atreus claimed that Stardust had knowledge of but had failed to notify it of the delay. It claimed that, had it known of the delay, it would not have built the homes or entered into the contracts for sale.

¶ 5 Stardust filed a motion for summary judgment as to the breach of contract claim. In response, Atreus argued that summary judgment was not permitted in the arbitration proceeding because Section 9 of the JDA and the AAA Rules entitled the parties to a hearing and the right to present evidence.

¶ 6 The arbitrator found that the JDA and AAA Rules did not preclude summary judgment:

[A]fter reading Section 9 of the JDA and the AAA Real Estate Industry Arbitration Rules I do not believe they preclude an arbitrator from deciding an issue as a matter of law if there are no genuine issues of material fact relating to that issue. Section 9(f) of the JDA reads that “[t]he arbitrator shall have the authority to award any remedy or relief that a court of the State of Arizona could order or grant....” Rule 45 of the AAA Rules reads that: “[t]he arbitrator may grant any remedy or relief that the arbitrator deems just and equitable and within the scope of the agreement of the parties....”

The arbitrator granted summary judgment to Stardust, finding that under the JDA, Stardust had the right, but not the obligation, to provide notice of an anticipated delay. The arbitrator also granted summary judgment on the breach of the covenant of good faith and fair dealing claim, finding that under the JDA, Atreus had expressly waived its right to seek indirect, consequential, punitive, or special damages caused by a breach under the JDA.

¶ 7 Stardust then moved for summary judgment on Atreus's claim for fraudulent concealment. The arbitrator granted the motion, finding:

[D]espite having conducted discovery and having obtained documents and taken depositions, [Atreus] has not been able to come forth with evidence from which a reasonable fact-finder could infer that [Stardust] took measures intended to prevent claimant from learning what it knew about whatever issues it was having with [the water utility]. This is especially true under the heightened clear and convincing standard....

¶ 8 The arbitrator awarded attorneys' fees to Stardust pursuant to the JDA in the amount of $150,000, plus costs in the amount of $26,727.60.

¶ 9 Pursuant to Arizona Revised Statutes (“A.R.S.”) section 12–1511 (2003), Stardust filed an application in superior court to confirm the arbitration award and for entry of judgment. Atreus objected to the confirmation. It argued the arbitrator exceeded his powers and failed to conduct the hearing as provided in A.R.S. § 12–1505 (2003).¹SeeA.R.S. § 12–1512(A)(3) and (4) (2003). Specifically, Atreus argued the arbitrator erred in concluding that he could rule by summary judgment under Section 9(f) of the JDA and Rule 45 of the AAA Rules because a summary judgment is a procedure and not a remedy or form of relief under those provisions.

¶ 10 Stardust replied that: (1) The superior court could not reverse the decision on the merits because refusal to confirm an award was limited to the grounds statutorily permitted in A.R.S. § 12–1512(A); and (2) The JDA and AAA Rules permitted summary judgment, noting that the arbitrator could grant “any remedy or relief” that a state court could order. Stardust noted that the AAA Rules gave the arbitrator the discretion to vary the hearing procedure and argued that other jurisdictions had found that an arbitrator can rule on summary judgment motions under AAA Rules, when no facts are in dispute.

¶ 11 Atreus moved for leave to file a supplemental brief, arguing that because it had the burden of proof in objecting to confirmation of the arbitration award, it should be given an opportunity to respond to Stardust's reply. Stardust objected, arguing that under A.R.S. § 12–1515 (2003), an application to confirm an arbitration award is treated as a motion and no authority supported allowing Atreus to file a surreply.

¶ 12 The superior court denied Atreus's motion to file a surreply and confirmed the arbitration award. The court entered a judgment in favor of Stardust, including attorneys' fees and costs in the amount of $176,727.60 for the arbitration proceedings and $13,175.90 for the confirmation proceedings. Atreus timely appealed.² We have jurisdiction pursuant to A.R.S. § 12–2101.01(A)(6) (Supp.2011).

STANDARD OF REVIEW

¶ 13 Because Arizona's public policy favors arbitration to obtain a speedy and inexpensive disposition of a dispute, judicial review of an arbitration award is severely limited by statute. Einhorn v. Valley Med. Specialists, P.C., 172 Ariz. 571, 572–73, 838 P.2d 1332, 1333–34 (App.1992). The “boundaries of [an] arbitrator['s] powers are defined by the agreement of the parties.” Smitty's Super–Valu, Inc. v. Pasqualetti, 22 Ariz.App. 178, 180, 525 P.2d 309, 311 (1974). In cases arbitrated subject to the parties' agreement and subject to the arbitrator not exceeding his or her powers, the arbitrator's decisions are final and binding as to both issues of fact and law, regardless of the correctness of the decision. Smitty's, 22 Ariz.App. at 180–81, 525 P.2d at 311–12. Just as the superior court reviews an arbitrator's award in the light most favorable to affirming, we review the superior court's decision in the light most favorable to upholding its decision regarding confirming the arbitrator's award and affirm unless we conclude that the superior court abused its discretion. Brake Masters Systems, Inc. v. Gabbay, 206 Ariz. 360, 364 n. 3, ¶ 12, 78 P.3d 1081, 1085 n. 3 (App.2003); Park Imperial, Inc. v. E.L. Farmer Constr. Co., 9 Ariz.App. 511, 513–14, 454 P.2d 181, 183–84 (1969).

¶ 14 The standard of review and procedure to review an arbitrator's interpretation of the parties' arbitration agreement and the arbitrator's decision as to his powers is less clear. When parties dispute the arbitrator's power in interpreting the arbitration agreement (at least to decide if an issue is arbitrable), the court must use the same standard used in resolving summary judgment motions: it must hold an evidentiary hearing unless the standard for granting summary judgment is met or neither of the parties requests an evidentiary hearing. Brake Masters, 206 Ariz. at 365, ¶¶ 14–15, 78 P.3d at 1086.Cf. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 947–48, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995) (in determining whether parties agreed if arbitrator could decide his or her own jurisdiction, court should require “clea[r] and unmistakabl[e] evidence that they did so” and appellate court will affirm findings of fact unless they are clearly erroneous but review a trial court's conclusion of law de novo ). However, if it is clear that the arbitration agreement or rules incorporated therein authorized the arbitrator to interpret the agreement, then the trial court must defer to the arbitrator's decision as to his power unless it is clearly erroneous. Brake Masters, 206 Ariz. at 367, ¶¶ 20–21, 78 P.3d at 1088. Such a deferential standard is consistent with the concept that when parties submit their dispute to arbitration they have “substituted a different tribunal and a differentmethod of determining their controversy in place of the tribunals provided by the ordinary processes of law” to “obtain an inexpensive and speedy final disposition” of their dispute. Smitty's, 22 Ariz.App. at 182, 525 P.2d at 313. To subject an arbitrator's decision to the “full range of ordinary judicial review” would largely defeat the objective of submitting one's dispute to arbitration....