R.E.M. Constr., Inc. v. Cleveland Constr., Inc.

876 S.E.2d 851

R.E.M. CONSTRUCTION, INC., Plaintiff,

v. CLEVELAND CONSTRUCTION, INC.; MHG Asheville TR, LLC; Asheville Arras Residences, LLC ; and Federal Insurance Company, Defendants,andUnited States Surety Company, Intervenor.

No. COA21-781

Court of Appeals of North Carolina.

Filed August 16, 2022

Erwin, Capitano & Moss, P.A., Charlotte, by Fenton T. Erwin, Jr., and Erin C. Huegel, for plaintiff-appellee R.E.M. Construction, Inc.

Chamberlain Hrdlicka White Williams & Aughtry, by Seth R. Price, pro hac vice, and Hamilton Stephens Steele + Martin, PLLC, Charlotte, by Tracy T. James and Carmela E. Mastrianni, for defendant-appellant Cleveland Construction, Inc.

Everett Gaskins Hancock LLP, Raleigh, by James M. Hash, and Thompson Law Group, LLC, by Kelley Herrin, pro hac vice, for intervenor-appellee.

ZACHARY, Judge.

¶ 1 Defendant Cleveland Construction, Inc., ("CCI") appeals from the trial court's judgment and order (1) granting the motion of Plaintiff R.E.M. Construction, Inc., ("REM") to confirm the arbitration panel's award, and (2) denying CCI's motion to modify or, in the alternative, to partially vacate the panel's award. After careful consideration, we affirm.

Background

¶ 2 This appeal arises out of an arbitration proceeding following CCI's termination of REM from a construction project in Asheville. CCI's appeal presents a narrow question of law concerning the arbitration panel's award of damages to REM. On appeal, CCI does not challenge the panel's conclusions that (1) CCI did not properly terminate REM for default under the terms of the parties’ subcontracts, and (2) REM was "entitled to monetary compensation from CCI[.]" Instead, CCI argues that the panel exceeded its authority by awarding damages that were not permissible under the express terms of the parties’ subcontracts, and that the trial court thus erred by confirming the panel's award. As CCI does not contest the panel's conclusions regarding the merits of REM's claims, we recite only those facts pertinent to the present dispute concerning the award of damages.

¶ 3 On 29 August 2017, CCI entered into a pair of substantially identical subcontracts ("the Subcontracts") with REM for work on the "exterior envelope" of a nineteen-story building in Asheville. Intervenor United States Surety Company ("USSC") issued performance bonds dated 25 January 2018 for both of the Subcontracts. REM began work in November 2017, but between May and September 2018 the project suffered several problems and resultant delays. On 5 October 2018, CCI terminated REM for default and notified USSC of the termination.

¶ 4 On 3 April 2019, REM filed suit against Defendants CCI, MHG Asheville TR, LLC, and Asheville Arras Residences, LLC in Buncombe County Superior Court.¹ CCI elected to arbitrate REM's claims pursuant to the terms of the Subcontracts, each of which provides in pertinent part that "[a]ny controversy or claim of ... [REM] against [CCI] shall, at the option of [CCI], be resolved by arbitration pursuant to the Construction Industry Arbitration Rules of the American Arbitration Association in effect on the date on which the demand for arbitration is made." Accordingly, on 3 May 2019, CCI filed a motion to stay pending arbitration alongside its motion to dismiss. On 26 June 2019, the trial court entered an order staying proceedings pending the arbitration.

¶ 5 A panel of arbitrators confirmed by the American Arbitration Association ("AAA") and approved by the parties heard this matter. On 15 March 2021, the panel issued its award, determining in pertinent part "that CCI did not properly terminate REM for default; ... and REM shall be entitled to monetary compensation from CCI in accordance with the terms of" the Subcontracts. To calculate the amount of the damage award, the panel first looked to the terms of the Subcontracts:

73. As stated above, the termination for default by [CCI] against REM was improper. In a case of an improper termination, the contract provides in Article 31.8 as follows:

"If after termination it is determined that, for any reason, [REM] was not in default or that [REM] is not properly terminated for default, then such termination shall have been deemed to be for the convenience of [CCI] and [REM] shall be entitled to the actual direct cost of all Subcontract Work satisfactorily performed and materials furnished prior to notification of termination. [REM] shall not be entitled to compensation for profit and overhead. [REM] shall not be entitled to compensation for work not performed or materials not furnished. [REM] shall not be entitled to recover exemplary, special or consequential damages, or anticipated profit on account of such termination or on account of [CCI's] breach of the subcontract agreement."

(Emphases added.)

¶ 6 The panel then reviewed the record, but found insufficient evidence on which to base a calculation of the "actual direct cost" to which REM was entitled under the Subcontracts. As such, the panel determined that it would fashion an equitable remedy pursuant to the AAA rules:

74. The contractual starting point for determining the damages or compensation for REM is the actual direct cost of all Subcontract Work prior to October 5, 2018. The problem is that there is no evidence of "actual direct cost" of all work. There was little evidence of the job costs of REM presented to the Panel.

75. It is unfair to deny any compensation to REM as a result of the improper termination of its subcontracts with [CCI]. Therefore, the Panel develops an equitable remedy pursuant to the AAA Rules. Specifically, Rule R-48 (a) of the Construction Industry Rules of the AAA states, "The arbitrator may grant any remedy or relief that the arbitrator deems just and equitable and within the scope of the agreement of the parties, including, but not limited to, equitable relief and specific performance of a contract."

¶ 7 Therefore, the panel set out to estimate REM's "actual direct cost" under Article 31.8 of the Subcontracts. The panel examined the evidence in the record to determine "the amount of the contract funds earned by REM at the time of termination." The panel identified a document provided by CCI as "the best source for contract funds earned by REM through September 30, 2018" and calculated a total of $211,151.00 in earnings for that period. Then, recognizing that this amount "d[id] not include the work of REM performed from October 1-5, 2018[,]" the panel determined that "the labor and equipment, including demobilization for October 1-5, 2018, is $25,000.00." Ultimately, the panel concluded that "REM is entitled to a total of $236,151.00 for contract work performed on this project." The panel added $926.00 for technical violations of the North Carolina Prompt Pay Act to its total award, and ordered that CCI pay the administrative costs and fees of arbitration as well as prejudgment interest; the panel rejected REM's other claims for additional payment and compensation.

¶ 8 Upon request from CCI, the panel entered a modified award on 30 April 2021, correcting a computation in the amount of prejudgment interest. Although CCI also "complain[ed] about the [p]anel's reliance" on the document that the panel used to calculate REM's actual direct cost when determining the damage award, the panel declined to otherwise modify its award.

¶ 9 The parties then returned to the trial court, where they filed a series of motions. On 10 May 2021, REM filed a motion to confirm the award. On 24 May 2021, USSC filed a motion to intervene and to modify the award. On 1 June 2021, CCI filed motions to lift the stay and to modify or, alternatively, to partially vacate the award. The matter came on for hearing on 12 July 2021 in Buncombe County Superior Court. On 10 September 2021, the trial court entered its judgment and order, in which it: (1) lifted the stay; (2) allowed USSC to intervene; (3) denied CCI's motion to modify or, alternatively, partially vacate the award; (4) granted REM's motion to confirm the award; and (5) entered judgment confirming the award. CCI timely filed notice of appeal.

Discussion

¶ 10 As stated above, CCI does not challenge the merits of the panel's conclusions that (1) CCI did not properly terminate REM for default under the terms of the Subcontracts, and (2) REM was "entitled to monetary compensation[.]" Further, CCI notes that it does not contest the award of costs and fees of arbitration and has already reimbursed REM for that amount.

¶ 11 Instead, CCI argues that the trial court erred by denying its motion to modify or, alternatively, to partially vacate the award because the panel "improperly applied Rule 48 of the AAA Construction Industry Rules ... to award [REM] money to which it was not entitled." Alternatively, CCI argues that the trial court should have vacated the panel's award "because the panel manifestly disregarded the law." We disagree.

I. Standard of Review

¶ 12 "Since this appeal arises from a decision on a motion to confirm an arbitration award, we first note that a strong policy supports upholding arbitration awards."

WMS, Inc. v. Weaver , 166 N.C. App. 352, 357, 602 S.E.2d 706, 709 (citation and internal quotation marks omitted), disc. review denied , 359 N.C. 197, 608 S.E.2d 330 (2004). "Judicial review of an arbitration award is confined to a determination of whether there exists one of the specific grounds for vacation of an award" under the Revised Uniform Arbitration Act, N.C. Gen. Stat. § 1-569.1 et seq. (2021). Dalenko v. Peden Gen. Contr'rs, Inc. , 197 N.C. App. 115, 125, 676 S.E.2d 625, 632 (2009) (citation omitted), notice of appeal dismissed , 363 N.C. 801, 690 S.E.2d 534, cert. denied , 363 N.C. 854, 694 S.E.2d 202 (2010).

¶ 13 "[E]rrors of law or fact or erroneous decisions of matters submitted to arbitration are not sufficient to invalidate an arbitration award fairly and honestly made." Carteret Cty. v. United Contr'rs of Kinston, Inc. , 120 N.C. App. 336, 346, 462 S.E.2d 816, 823 (1995), petition for disc....