Nappa Constr. Mgmt., LLC v. Flynn

152 A.3d 1128

NAPPA CONSTRUCTION MANAGEMENT, LLC et al.

v.Caroline FLYNN et al.

Caroline Flynn et al.

v.Nappa Construction Management, LLC et al.

No. 2015–211–Appeal

WM 15–148

No. 2015–211–Appeal

WC 13–629

Supreme Court of Rhode Island.

January 23, 2017

Patrick J. Dougherty, Esq., for Plaintiffs.

Roger N. LeBoeuf, Esq., CharCretia V. Di Bartolo, Esq., Thomas W. Heald, Esq., Joseph P. Carnevale, Esq., Kevin F. Bowen, Esq., for Defendants.

Present: Suttell, C.J., Goldberg, Flaherty, Robinson, and Indeglia, JJ.

OPINION

Chief Justice Suttell, for the Court.

Caroline Flynn and Vincent Flynn (the Flynns) appeal from a Superior Court order denying their motion to vacate an arbitration award and granting a joint application of Nappa Construction Management, LLC (Nappa) and Service Insurance Company, Inc. (Service Insurance) to confirm the award. The Flynns also appeal from a correlative judgment in favor of Nappa and Service Insurance. This case came before the Supreme Court pursuant to an order directing the parties to appear and show cause why the issues raised in this appeal should not be summarily decided. After considering the parties' written and oral submissions and reviewing the record, we conclude that cause has not been shown and that this case may be decided without further briefing or argument. For the reasons set forth in this opinion, we reverse the order of the Superior Court and vacate the judgment.

IFacts and Procedural History

On September 18, 2012, Nappa and the Flynns entered into an American Institute of Architects form of contract (A101–2007 Standard Form of Agreement Between Owner and Contractor) for a commercial construction project (the AIA contract). Nappa was engaged to construct an automobile repair facility in Narragansett for $360,000 (the project). Service Insurance furnished a performance bond on the project.

The contract between Nappa and the Flynns provided that the owner, i.e., the Flynns, could terminate the contract for cause, and they could also order Nappa in writing to suspend, delay, or interrupt the work without cause "for such period of time as the [o]wner may determine." Further, § 14.4 of the contract allowed the Flynns to terminate the contract for convenience and without cause.¹ The arbitrator found that "[w]ork commenced on the project in late December 2012" and that it "proceeded in a somewhat desultory manner throughout the winter of 2012–2013, not without complaints at the pace of construction by [the] Flynn[s]."

On June 24, 2013, the Flynns directed Nappa "to immediately cease from any further work on the project," stating that the "project [was] not being constructed according to the building plans * * * nor according to industry standards." This directive was conveyed in a letter from the Flynns' counsel to Nappa's counsel and specified the foundation and the cement flooring as the evidence of the alleged noncompliance. Thereafter, Nappa submitted an application for payment, including expenses for the disputed flooring, which the Flynns declined to pay. Accordingly, on July 29, 2013, Nappa notified the Flynns that they were in breach of the contract, and it filed for mediation. On September 4, 2013, Nappa terminated the contract due to nonpayment. The Flynns then filed an action in Superior Court alleging that Nappa had wrongfully terminated the contract.² In accordance with § 6.2 of the contract, which required that all disputes be resolved through arbitration, Nappa filed a demand for arbitration. In that demand, Nappa also named Service Insurance as a party to the arbitration pursuant to G.L. 1956 § 10–3–21.³ The demand for arbitration specified the nature of the dispute as "[b]reach of [c]ontract, [i]mproper stoppage of work by owner, failure to make payment, [and] resolution of * * * performance bond claim."⁴ The Flynns responded by denying each allegation against them and counterclaiming against Nappa and Service Insurance for "damages arising out of breach of contract and negligence in the performance of their duties * * *."

The matter proceeded to arbitration; and, on March 13, 2015, the arbitrator issued his award, finding, inter alia, that "[t]here [was] considerable fault to be found with both [p]arties." He concluded that, although "[t]here were indeed problems with the cement floor that would require substantial remediation[,]" the stop-work order issued by the Flynns "was not a satisfactory way to address these problems, and only served to exacerbate the deteriorating situation." The arbitrator also found that Nappa "failed to act in the best interest of the project" by submitting a payment application which included sums for the cement flooring, "while at the same time acknowledging that [sic] floor to be deficient." Accordingly, he found that "Nappa was not justified in declaring [the] Flynn[s] in breach of contract, and terminating the [c]ontract for failure to pay Nappa's [p]ayment [a]pplication * * *."

Having found that Nappa was "not justified" in terminating the contract, the arbitrator then went on to invoke the termination-for-convenience clause, stating:

"At the same time, it seems obvious that the combative, contentious, dysfunctional relationship between [the] Flynn[s] and Nappa had to be brought to a conclusion. The most practical method to accomplish that end, I have determined, is to consider the [c]ontract to have been terminated according to Para. § 14.4 of the [g]eneral conditions; TERMINATION BY THE OWNER FOR CONVENIENCE: Under this interpretation, neither Nappa nor [the] Flynn[s] [are] in breach of the [c]ontract; and the contractor is entitled to the best measure of the fair and reasonable value of the work done."

Finally, the arbitrator calculated payments due to Nappa, including overhead and profit for work not executed, from which he offset the cost to remediate the defective floor slab and certain back charges properly payable by Nappa, and he awarded Nappa the sum of $37,979.97. Nappa and Service Insurance then filed a petition in Superior Court to confirm the arbitrator's award. The Flynns countered by filing a motion to vacate the arbitration award, asserting that the arbitrator exceeded the scope of his powers and manifestly disregarded a contractual provision by holding that the contract was terminated for convenience pursuant to § 14.4 of the contract. In response, Nappa argued that the arbitrator did not exceed his powers or manifestly disregard a contractual provision because the contract included a broad arbitration provision and because a court can judicially convert a "termination for cause" into a "termination for convenience" when both clauses appear in the contract.

On May 8, 2015, the hearing justice denied the Flynns' motion to vacate and granted Nappa's petition to confirm the arbitration award. She reasoned, "the arbitrator unmistakably attempted to ground his analysis in the contract itself citing various provisions of the contract," which showed that the arbitrator "administered his duties as an arbitrator with all due regard to the contract and the ability to terminate the contract under its terms." The hearing justice also held that the arbitrator did not exceed his power in "determining that it was a termination for * * * convenience as opposed to [a] termination for cause * * *."

The hearing justice also held that the Flynns had not met their burden in demonstrating a manifest disregard for the law as no evidence had been put forth establishing "that the arbitrator knew what the law was and purposefully disregarded it." The Superior Court concluded by explaining that there is a strong policy in favor of the finality of an arbitrator's award and determined that the Flynns' negligence claim was sufficiently addressed by the arbitrator in the catchall statement at the end of the arbitrator's award, which stated, "[a]ll claims not expressly granted are hereby denied." Final judgment entered on May 29, 2015, and the Flynns filed a timely notice of appeal.⁵

IIStandard of Review

"In this jurisdiction, the authority of the Courts ‘to review an arbitral award is statutorily prescribed and is limited in nature.’ " Buttie v. Norfolk & Dedham Mutual Fire Insurance Co., 995 A.2d 546, 549 (R.I. 2010) (quoting North Providence School Committee v. North Providence Federation of Teachers, Local 920, American Federation of Teachers, 945 A.2d 339, 344 (R.I. 2008) ). "[J]udicial reversal of an arbitrator's award solely on the ground of a reviewing court's disagreement with [the arbitrator's] construction of the contract is prohibited." Id.(quoting Council 94, American Federation of State, County, and Municipal Employees AFL–CIO v. State, 475 A.2d 200, 203 (R.I. 1984) ). This standard of review requires "something beyond and different from a mere error in the law or failure on the part of the arbitrators to understand or apply the law." Purvis Systems, Inc. v. American Systems Corp., 788 A.2d 1112, 1115 (R.I. 2002) (quoting Westminster Construction Corp. v. PPG Industries, Inc., 119 R.I. 205, 211, 376 A.2d 708, 711 (1977) ).

Notwithstanding this deferential standard of review, a court must vacate an arbitrator's award "[w]here the arbitrator or arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final, and definite award upon the subject matter submitted was not made." State Department of Corrections v. Brotherhood of Correctional Officers, 867 A.2d 823, 828 n. 2 (R.I. 2005) (quoting G.L. 1956 § 28–9–18 ). "It is well settled that an arbitrator exceeds his or her powers under § 28–9–18(a)(2)^{[6 ]}if the arbitration award fails to ‘draw its essence from the agreement, if it was not based upon a passably plausible interpretation thereof, if it manifestly disregarded a contractual provision, or if it reached an irrational result.’ " State v. Rhode Island Employment Security Alliance, Local 401, SEIU, AFL–CIO, 840 A.2d 1093, 1096 (R.I. 2003) (Employment Security Alliance) (quoting State Department of Children, Youth...