Roberts v. Del Webb Cmtys., Inc.

DAVID and ROBIN ROBERTS, Trustees of the Roberts Family Trust JointLiving Trust dated February 12, 1999; et al., Plaintiffs/Appellees, v. DEL WEBB COMMUNITIES, INC., an Arizona corporation; DEL WEBBHOME CONSTRUCTION, INC., an Arizona corporation; DEL WEBBCORPORATION, a Delaware corporation; and PULTE HOMECORPORATION, a Michigan corporation; PULTE DEVELOPMENTCORPORATION, a Michigan corporation, Defendants/Appellants.

No. 1 CA-CV 13-0119

ARIZONA COURT OF APPEALS DIVISION ONE

February 24, 2015

NOTICE: NOT FOR OFFICIAL PUBLICATION. UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

Appeal from the Superior Court in Maricopa County

No. CV2012-003956

The Honorable Katherine M. Cooper, Judge

AFFIRMED

COUNSEL

Kasdan Weber Turner, L.L.P., Phoenix

By Stephen L. Weber, Michael J. White, James W. Fleming

Osborn Maledon, P.A., Phoenix

By Thomas L. Hudson

Counsel for Plaintiffs/Appellees

Koeller Nebeker Carlson & Haluck, L.L.P., Phoenix

By William A. Nebeker, Troy G. Allen

Counsel for Defendants/Appellants

MEMORANDUM DECISION

Judge Maurice Portley delivered the decision of the Court, in which Presiding Judge Donn Kessler and Judge Patricia K. Norris joined.

PORTLEY, Judge:

¶1 Del Webb¹ appeals from the superior court's confirmation of an arbitration award in favor of 460 claimants (the "homeowners"). For the reasons that follow, we affirm.

BACKGROUND

¶2 Sun City Grand residents who had purchased their homes from Del Webb reported a variety of problems with their homes, ranging from the expanding and collapsing of soils beneath the slab to defective window seals. They requested arbitration pursuant to their sales contracts² and ultimately the homeowners brought a consolidated claim against Del Webb for breach of the sales agreement, breach of express warranty, andbreach of the implied warranty of workmanship and habitability, though the claimants only proceeded on the breach of implied warranty claim.

¶3 Following fifty-two days of hearings, the unanimous three-person panel issued an interim award to the homeowners of $7,884,534.87 on November 17, 2011. After briefing on the issues of fees and costs, the panel included $5,774,144 for attorneys' fees, expert witness fees, and costs in the award. The homeowners then sought confirmation of the final arbitration award in superior court and requested prejudgment and post-judgment interest. Del Webb moved to vacate the award, but after an evidentiary hearing the court confirmed the final award and included pre-and post-judgment interest. Del Webb filed an appeal and we have jurisdiction pursuant to Arizona Revised Statutes ("A.R.S.") sections 12-2101.01(A)(6) and (B).³

DISCUSSION

¶4 This court reviews the superior court's confirmation of the arbitration award in the light most favorable to upholding the decision and we will affirm absent an abuse of discretion. Atreus Cmtys. Grp. of Ariz. v. Stardust Dev., Inc., 229 Ariz. 503, 506, ¶ 13, 277 P.3d 208, 211 (App. 2012). We review the court's construction of statutes de novo, mindful that judicial review of arbitration awards is severely restricted. Nolan v. Kenner, 226 Ariz. 459, 461, ¶ 4, 250 P.3d 236, 238 (App. 2011).

¶5 The Federal Arbitration Act ("FAA") provides that a court must confirm an arbitration award unless the award is otherwise vacated, modified, or corrected. 9 U.S.C. § 9; see Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 582 (2008). The FAA provides the following grounds for vacating an award:

(1) where the award was procured by corruption, fraud, or undue means;

(2) where there was evident partiality or corruption in the arbitrators, or either of them;

(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior

by which the rights of any party have been prejudiced; or

(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

9 U.S.C. § 10(a) (2002). Unless a court finds grounds to vacate or modify, "confirmation is required even in the face of erroneous findings of fact or misinterpretations of law." Lagstein v. Certain Underwriters at Lloyd's, London, 607 F.3d 634, 640 (9th Cir. 2010), cert. denied, 131 S. Ct. 832 (2010) (quoting Kyocera Corp. v. Prudential-Bache Trade Servs., Inc., 341 F.3d 987, 997 (9th Cir. 2003) (en banc)).

I. Expert Testimony

¶6 Del Webb first contends that the arbitrators exceeded their authority by admitting evidence from John Bardin, the homeowners' primary expert, in violation of 9 U.S.C. § 10. Specifically, Del Webb argues that because Barden was not paid on an on-going basis he was working on a contingent fee basis and, as a result, had a financial stake in the arbitration. In making this argument, Del Webb relies on Laos v. Soble, where we held that a "contract providing for compensation of a witness contingent on the success of the litigation is subversive of public justice" and "[p]ublic policy considerations brand such contract illegal." 18 Ariz. App. 502, 503, 503 P.2d 978, 979 (1972); see also, Westin Tucson Hotel Co. v. State Dept. of Revenue, 188 Ariz. 360, 367, 936 P.2d 183, 190 (App. 1987) (holding that the Tax Court properly denied taxpayer's motion for sanctions after Pima County moved to strike the affidavit of the witness for the taxpayer because his fee was contingent on the outcome of the case).

¶7 A court may vacate an arbitration award "where the arbitrators exceeded their powers[.]" 9 U.S.C. § 10(a)(4). An arbitration panel exceeds its powers not by "merely interpret[ing] or apply[ing] the governing law incorrectly," but must "exhibit[] a manifest disregard of law[.]" Kyocera, 341 F.3d at 997 (citations and internal quotation marks omitted). Or stated differently, (1) "[t]he governing law alleged to have been ignored by the arbitrators must be well defined, explicit, and clearly applicable[,]" and (2) the record clearly shows that "the arbitrators recognized the applicable law and then ignored it." Collins v. D.R. Horton, Inc., 505 F.3d 874, 879-80 (9th Cir. 2007) (quoting Carter v. Health Net of Cal., Inc., 374 F.3d 830, 838 (9th Cir. 2004)).

¶8 Here, the issue - was Bardin a "contingent fee" expert - was not one of law, but of fact as the panel had to determine the circumstances of his retention. Thus, the issue was clearly within the province of the arbitrators. See Smitty's Super-Valu, Inc. v. Pasqualetti, 22 Ariz. App. 178, 182, 525 P.2d 309, 313 (1974) ("decisions of the arbitrators on questions of fact . . . are final and conclusive"). Del Webb raised the issue and the panel received briefs, including conflicting expert declarations, and heard Bardin's testimony on the issue. The panel did not find, as the trial courts had in Laos and Westin, see Laos, 18 Ariz. App. at 502, 503 P.2d at 978 (noting that the handwritten contract demonstrated that the appraisal witness had a contingent fee agreement based on the outcome of the condemnation proceeding); Westin, 188 Ariz. at 366-67, 936 P.2d at 189-90 (noting that Pima County's motion to strike was properly based on the fact that the taxpayer's witness fee was contingent on the outcome of the case), that Bardin had a contingent fee contract based on the outcome of the litigation. Instead, the panel concluded that Del Webb's objections to the payment of Bardin's hourly fee went "to the weight and credibility of his testimony, not its admissibility." Accordingly, the panel did not disregard the pertinent law after considering the facts as they found them, and the superior court properly declined to disturb its ruling. See Collins, 505 F.3d at 884 ("In short, the arbitrators could not manifestly disregard the law because no binding precedent existed . . . .").

¶9 Del Webb also argues that admission of Bardin's testimony violated public policy. Even if we assume the non-statutory ground survives Hall Street, 552 U.S. at 582,⁴ we disagree. Given the determination of the arbitration panel, Del Webb cannot rely merely on an allegation that public policy was violated, but must show "an overriding public policy rooted in something more than 'general considerations of supposed public interests' and, of equal significance, it must demonstrate that the policy isone that specifically militates against the relief ordered by the arbitrator." Stead Motors of Walnut Creek v. Auto. Machinists Lodge No. 1173, 886 F.2d 1200, 1212-13 (9th Cir. 1989) (citation omitted). Given that the issue was fully briefed and the panel heard testimony before making its ruling, we perceive no "overriding public policy violation" that now requires the award to be vacated because the panel allowed Bardin to testify.

II. Fair Hearing

¶10 Del Webb argues that the superior court should not have confirmed the award because the homeowners' counsel employed undue means in procuring the award and deprived Del Webb of a fair hearing. Specifically, Del Webb contends opposing counsel improperly solicited homeowners, used expert witnesses to develop a large-scale construction defect case, and owned Tiger Labs, which took pictures in preparation for the arbitration. Del Webb bears the burden to prove undue means with clear and convincing evidence. Barcume v. City of Flint, 132 F. Supp. 2d 549, 556 (E.D. Mich. 2001).

¶11 "Undue means," as interpreted by both federal and Arizona courts, requires proof of intentional misconduct amounting to bad faith. PaineWebber Grp., Inc. v. Zinsmeyer Trusts P'ship, 187 F.3d 988, 991-94 (8th Cir. 1999), cert. denied, 529 U.S. 1020 (2000); FIA Card Servs., N.A., v. Levy, 219 Ariz. 523, 525, ¶ 7, 200 P.3d 1020, 1022 (App. 2008). The term "clearly connotes behavior that is immoral if not illegal[,]" but excludes "sloppy or overzealous lawyering." A.G. Edwards & Sons, Inc. v. McCollough, 967 F.2d 1401, 1403 (9th...