Thursday, May 24, 2018

In a Matter of First Impression, the Supreme Court Reverses Trial Court: No "Evident Miscalculation" in Arbitration Award

The Supreme Court of Mississippi in D. W. Caldwell, Inc. v. W.G. Yates & Sons Constr. Co., No. 2017-CA-00116-SCT, -- So.3d.-- (Miss. May 10, 2018) reversed and remanded a trial court's modification of an arbitration award for "evident miscalculation."  The Supreme Court held that "evident miscalculation of figures was not apparent from face of arbitration award, and thus, modification of the award was not warranted." The Supreme Court remanded for the trial court to confirm the award.

The underlying dispute concerned a roofing subcontract for a dormitory at Auburn University.  After the subcontractor started work, it discovered structural issues that needed to be addressed before roofing could begin.  The general contractor and the subcontractor agreed that the subcontractor would perform the structural repairs and then complete the roofing.  However, subcontractor was not paid in full for both the repair change order and the original roofing scope.  A dispute arose and the parties arbitrated.  The arbitrator issued a reasoned award in favor of the subcontractor. The general contractor requested clarification of this award, which the arbitrator denied, and then proceeded to Mississippi trial court on a motion to "alter, amend, or vacate the award." The subcontractor, for its party, moved to confirm the award. 

In Mississippi, like many other states, the grounds justifying an amendment or correction to an arbitration award are quite limited including only: "(a) an evident miscalculation of figures or an evident mistake in the description of any person, thing or property referred to in the award; (b) The arbitrators have awarded upon a matter not submitted to them and the award may be corrected without affecting the merits of the decision upon the issues submitted; or (c) The award is imperfect in a matter of form, not affecting the merits of the controversy."  Miss. Code. Ann. § 11-15-135.

The trial court "believing that an evident miscalculation was present as it related to the retainage amounts" denied the subocontractor's motion to confirm the award and instead allowed the general contractor to introduce new evidence and witness testimony as to the miscalculation.  The trial court held that there was a "facially evident miscalculation" as "the arbitrator had duplicated the labor costs for shingle installation in its award–once under the original subcontract and once under the oral agreement to repair the structural damage [and] amended the award, reducing the total by $104,507."

The subcontractor appealed the trial court decision and the Mississippi Supreme Court reversed holding that "arbitrator's award contained no evident miscalculations which would merit modification." The Court first focused on the extreme narrowness of arbitration review, but also acknowledged that "what amounts to an evident miscalculation" had not previously been decided by this Court.  After reviewing cases from other jurisdictions it decided on this definition: an "evident (plain, obvious, or clearly understood) miscalculation must be apparent from nothing more than the four corners of the award and the contents of the arbitration record." Indeed the moving party must be able to show "[w]ithout looking outside the undisputed facts or relying upon testimony from a witness in the trial court" that "a different, but correct, calculation could be made."  In the instant case, the Court examined "the thirteen-page award for any facially evident miscalculations or computational errors. In doing so, [it found] that no such errors [were] present. Looking next to the attorney-written arguments, oral arguments, and agreed-upon record evidence, [it] likewise failed to find such errors."  In sum, the court "fail[ed] to find that the arbitrator erroneously duplicated costs of labor and relied on such a duplication in making his award. Nor [did the Court] ascertain that the arbitrator erred by excluding the retainage totals."

In reaching this holding, the Mississippi Supreme Court also held that the trial court had abused its discretion by hearing and crediting witness testimony during the award modification hearing.  The trial court took additional testimony regarding the cost of the structural repairs in order to determine whether and to what extent there was an evident miscalculation of figures in the award. The Supreme Court emphasized that "arbitration is meant to supplant litigation, not supplement it" and that the trial court's error "transformed . . . the very narrow and limited purpose of its review [impermissibly]  imbu[ing] it with the responsibility of the factfinder." Note that trial court's abuse of discretion was not the linchpin of its evident miscalculation decision.
The author, Katharine Kohm, Esq. is a committee member for The Dispute Resolver.  She practices construction law at Pierce Atwood, LLP in Providence, Rhode Island. 

Saturday, May 19, 2018

Should You Sign an Owner’s Final Release before Settling with Subs? Federal Court Denies Contractor’s Claim for Missed Subcontractor Costs After Signing General Release

Merrick Construction (Merrick) was awarded a task order by the U.S. Army Corps of Engineers (USACE) in April of 2009 for work on a hurricane protection levee near New Orleans.  The contract incorporated the Federal Acquisition Regulation (FAR) Changes clause which stated, "[n]o proposal by the Contractor for an equitable adjustment shall be allowed if asserted after final payment under this contract."  Nearly two years later in March of 2011, USACE issued a unilateral change order to Merrick for the installation, operation, and monitoring of a temporary bypass pumping system (System).  The change order stipulated the System would be paid for on a monthly unit price basis with a formal Modification to be issued at a later time.  The pumps were delivered in July and fully accepted and operational in August.  Modification No. 3 was issued in July which included costs for the mobilization, three months rent for the System, and identified the monthly unit cost as $208,015.82.  Another Modification was issued in March of 2012 for an additional seven months of System rental and in September of that year, USACE directed the shutdown of the System. 

A final Modification was issued in January of 2013 for an additional three months of System rental which contained language that stated, “This adjustment constitutes compensation in full on behalf of the contractor and its subcontractors and suppliers for all costs and markups...”  This brought the total number of rental payment to thirteen months, but the System had been on site for a total of fourteen months. During the course of the project after the pumps had been removed, Merrick believed that an accounting discrepancy had occurred, and the System supplier had overcharged Merrick and it filed suit to recover those costs.  In July of 2015, Merrick submitted its final payment request to USACE and Merrick’s vice president signed a general release which stated:

"[Merrick] hereby releases the United States, its officers, agents, and employees from any and all claims arising under or by virtue of said contract or any modification or change thereof, except with respect to those claims, if any, listed below…”
Merrick did not provide any claims or reservations and final payment was issued in the requested amount. Later in September of 2015, Merrick became aware that the supposed over-payment to the System supplier was in fact an underpayment by the USACE.  Merrick submitted a claim to the USACE in May of 2016 for a one-month rental of the System and the USACE contracting officer denied the claim citing the general release.  Merrick appealed the decision to the Armed Services Board of Contractor Appeals (Board) and USACE moved for summary judgement.

The Board begins it analysis by presenting USACE’s argument that the signature of the general release bars any claims by Merrick after the fact.  The Board points to Clean by Lucy, Inc., ASBCA No. 58432, which states a release, "abandons a claim or relinquishes a right that could be asserted against another" and “[as] a rule, a general release, whether associated with final payment or not, which is not qualified on its face, bars any claims based upon events occurring before execution of the release.” However, the Board then identified that there are exceptions to the release such as fraud, mutual mistake, economic duress, or consideration of a claim after release.

Merrick argued that the general release should not bar its claim because USACE had superior knowledge of the discrepancy in payments for the System because of Merrick's mistake.  Merrick’s superior knowledge argument was centered around the fact that before the final release was signed, but after the final Modification for the System’s rental was executed, there was a change in project management by Merrick and USACE knew that the new project manager was not involved in any prior negotiations.  Merrick further argued USACE took advantage of this because it knew of the discrepancy between rental months paid and actual rental months onsite. Merrick further argued that through the act of bringing a suit against the System supplier, USACE knew or should have known that Merrick intended to preserve a claim against it. The Board rejected the superior knowledge argument because it was highly speculative and Merrick itself was not aware of the discrepancy until nearly three months after the general release was signed.

The Board next reviewed Merrick’s argument against summary judgement because of mutual or unilateral mistake.  The Board stated that Merrick’s ignorance of its own claim is not the type of mistake that would constitute an exception to general releases and quoted J. G. Watts Construction Co. v. United States, 161 Ct. Cl. 801, 806 (1963) which stated, "where it is shown that, by reason of a mutual mistake, neither party intended that the release cover a certain claim, the court will reform the release." Merrick admits that it did not know of the claim until after it signed the release and consequently could not have intended it to be exempt from the general release.  Furthermore, the Board pointed to Mingus Constructors, Inc.,  v. the United States,  812 F.2d 1387 (Fed. Cir. 1987) that held:

"failure by the contractor to keep adequate records to at least know the source and the amounts of its cost overruns is not a sufficient reason to entertain suits on claims otherwise released, especially when the terms of the contract require such information on the mandatory release at the end of the project."
The Board found that Merrick had not provided the basic facts which established entitlement to an equitable remedy for a unilateral mistake and the general release is enforceable.

Accordingly, the Board granted USACE’s motion for summary judgement.

The author, Brendan Carter, Esq., is the Director of Industry Advancement & Labor Relations with the AGC of Massachusetts based in Wellesley, MA. He is a monthly contributor to The Dispute Resolver and a former Student Division Liaison to the Forum on Construction Law.  He may be contacted at 781.786.8916 or