United States District Court, D. South Dakota, Northern Division
PRIMROSE RETIREMENT COMMUNITIES, L.L.C., AND RACINE RETIREMENT, L.L.C., Plaintiffs,
OMNI CONTRUCTION COMPANY, INC., Defendant.
OPINION AND ORDER CONFIRMING ARBITRATION
ROBERTO A. LANGE, UNITED STATES DISTRICT JUDGE
Primrose Retirement Communities, LLC and Racine Retirement,
LLC (collectively "Primrose") filed this action in
state court together with a Motion to Confirm Arbitration
Award and Enter Judgment Thereon, Doc. 1-1. Defendant Omni
Construction Company, Inc. (Omni) removed the action to this
Court. Doc. 1. Jurisdiction exists under the Federal
Arbitration Act, 9 U.S.C. § 1-10, and under 28 U.S.C.
§ 1332, diversity of citizenship jurisdiction. Omni
resisted the Motion to Confirm Arbitration Award and filed a
Motion to Either Vacate or Modify the Arbitration Award,
Docs. 7, 8, 9, 21. Primrose opposed that motion. Docs. 19,
20. This Court held oral argument on the motion and requested
filing of the transcript and exhibits of the arbitration to
more fully consider Omni's arguments in the context of
the entire case. Doc. 22. The transcript and exhibits of the
arbitration hearing then were filed. Docs. 23, 24. For the
reasons explained herein, this Court confirms the arbitration
award in favor of Primrose and denies Omni's motion to
vacate or modify the award.
I. Summary of Material Facts
which are being jointly referred to as "Primrose"
in this Opinion and Order, are South Dakota limited liability
corporations with their principal places of business in
Aberdeen, South Dakota. Doc. 1-1 at ¶ 2. Primrose
entered into a Form Agreement Between Primrose and Contractor
(the Contract) with Omni on July 26, 2013, for the
construction in the Village of Mount Pleasant, Wisconsin, of
a 76-unit independent and assisted living facility and a four
building, eight-unit independent living villas (the Project).
Doc. 1-1 at 6-59. The Contract required Omni to achieve
substantial completion of the entire work no later than 52
calendar weeks from date of commencement, Doc. 1-1 at 7,
¶ 3.3, and had a fixed contract sum of $7, 809, 540,
Doc. 1-1 at 8, ¶ 4.1. The contract attached and
referenced General Conditions of Contract for Construction
(General Conditions). Doc. 1-1 at 6, ¶ 1; Doc. 1-1 at
13-53. Section 4.6 of the General Conditions contained valid
and enforceable arbitration provisions, including §
Claims not resolved by mediation shall be decided by
arbitration which unless the parties mutually agree
otherwise, shall be in accordance with the Construction
Industry Arbitration Rules of the American Arbitration
Association currently in effect. The agreed hearing locale of
any arbitration proceeding shall be at Aberdeen, South Dakota
unless the parties mutually agree otherwise...
Doc. 1-1 at 31. Section 4.6.6 of the General Conditions makes
any arbitration award final, allows judgment to be entered
thereon, and selects South Dakota state or federal court for
any action to confirm or challenge any arbitration award.
Doc. 1-1 at 32.
date of commencement of the Project was on or about August
12, 2013. Disputes arose between Primrose and Omni during
construction. Omni fell behind schedule, which it blamed on
the weather, other excusable neglect, and Primrose's
withholding of some progress payments. Primrose and Omni
discussed the importance of Omni making up time. Primrose
became deeply concerned about Omni's delays, Omni's
personnel turnover, days when little to no work was being
done, and Omni's varying excuses for being behind
schedule. Primrose and Omni discussed as early as January of
2014 whether termination of the Contract for cause should
occur, and Omni at that time assured Primrose that it could
make up lost time. The parties adjusted the completion
deadline. In the summer of 2014, it became clear that Omni
would not complete the Project by the adjusted completion
deadline. Primrose delivered its first Notice to Cure to
Omni, which prompted Omni to forecast "a new and
unlikely completion date" as the arbitration award put
it. See Doc. 1-1 at 57. That schedule also was adjusted
again. Primrose's representatives visited the Project
site on October 27, 2014; found no one from Omni on site; and
learned that Omni's latest of four superintendents had
quit the job the previous Friday. On October 28, 2014,
Primrose chose to terminate Omni's contract for cause
based on Omni's breach and hired other contractors to
complete the project.
then filed a demand for arbitration under Section 4.6 of the
General Conditions seeking various damages and relief. Omni
answered and counterclaimed seeking damages from Primrose
under a number of claims and theories. The parties conducted
discovery, including depositions taken of each other's
key witnesses and experts.
arbitration panel-James Duffy O'Connor, an attorney and
the chair of the Construction Law Group of Maslon Edelman
Borman & Brand, LLP; John G. Patterson, an attorney in the
construction law practice of Fredrikson & Byron, P.A.; and
William M. Beadie, a construction, contracts and construction
surety lawyer at Moore, Costello & Hart, P.L.L.P- convened in
Aberdeen for a five day evidentiary arbitration hearing from
December 6 to December 10, 2016. The arbitrators heard from
nine witnesses testifying live at the hearing, considered
three video depositions together with deposition transcripts,
and received thousands of pages of exhibits contained in some
ten three-ring binders. The transcript of the arbitration
hearing is 1, 676 pages long. Review of the transcript and
materials from the arbitration makes clear that both sides
were given an ample opportunity to present their evidence,
case and arguments.
Scheduling Order issued by the arbitrators on December 3,
2015, prior to the arbitration stated in Paragraph 17:
The arbitrators shall issue reasoned awards for both
cases unless the parties agree otherwise. A
"reasoned" award means that the arbitration will
set out a brief summary of the principal reasons supporting
their award(s), but shall not include findings of fact or
conclusions of law.
Doc. 9-3 at ¶ 17. On March 15, 2017, the arbitrators
issued a six-page Final Award of Arbitrators. Doc. 1-1 at
54-59. The Final Award found that "Omni breached the
Contract by substantially falling short of completing their
work within the Contract time, and that Primrose was
justified in terminating Omni for cause." Doc. 1-1 at
55. The arbitrators addressed and rejected Omni's excuses
for its delays. Doc. 1-1 at 55-57. Although the arbitrators
found that "Omni suffered some excusable delay because
of unusually severe weather, the extent of the delay falls
substantially short of the number of days Omni claims."
Doc. 1-1 at 56. The arbitrators found Omni's final
forecasted completion date to be unrealistic and that
"[t]he percentage of completion referenced in the Pay
Applications leading up to the date of Omni's
termination, were not binding on the parties, were disputed
and were not the most reliable measure of the remaining
Work." Doc. 1-1 at 57-58. The arbitrators rejected some
of Primrose's arguments, including that Omni's claims
were untimely and that Primrose sustained damage from Omni
filing an incorrect and overstated lien claim. Doc. 1-1 at
58. The arbitrators did not grant Omni relief on any of its
counterclaims. Doc. 1-1 at 54.
arbitrators awarded Primrose "$767, 119.14 for
Primrose's excess costs to complete the Project plus
interest at the [contractual] rate of 18% per annum from
September 26, 2015 until paid" and "Primrose's
attorney's fees of $224, 443.58 plus its costs and
disbursements of $61, 509.63 for [a] total of $285,
953.21." Doc. 1-1 at 54. Omni was ordered to promptly
satisfy, remove and discharge its mechanics lien filed
against Primrose's property for this Project. Doc. 1-1 at
54. The AAA administrative fees and arbitrators' fees
were to be split between the parties. Doc. 101 at 54.
has filed a motion to confirm the arbitration award. Doc.
1-1. Omni has filed a motion to either vacate or modify the
arbitration award. Doc. 7. Omni asserts that the arbitration
award should be vacated because the arbitrators "were
guilty of misconduct ... in refusing to hear evidence
pertinent and material to the controversy" under 9
U.S.C. § 10(a)(3). Specifically, Omni first complains
that on the final day of the arbitration, the arbitrators
refused to hear evidence from Primrose's expert Robert
Sniegowski; after Omni had rested its case and Primrose chose
not to call its construction scheduling expert Sniegowski in
rebuttal, the arbitrators chose not to allow Omni to call
Sniegowski adversely but instead considered Sniegowski's
deposition testimony offered by Omni. Second, Omni contends
that the arbitrators refused to hear evidence when sustaining
objections during Omni's cross-examination of
Primrose's witness Joe Hawkins. Third, Omni considers it
a refusal to hear evidence that the arbitrators did not
account for Omni having paid bond claims. And, fourth, Omni
argues that the arbitrators ignored or refused to consider
improper completion cost claims of Primrose. Docs. 7, 8. Omni
also asserts that the arbitrators failed to make a
"mutual, final and definite award" under 9 U.S.C.
§ 10(a)(4) and committed computational errors under 9
U.S.C. § 11(a) when not discounting the award by
Omni's payments on bond claims or amounts Omni considers
to be excessive completion costs. Doc. 7, 8.
Standard of Review Under Federal Arbitration Act
the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et
seq.. the district court "'must' confirm an
arbitration award 'unless' it is vacated, modified,
or corrected 'as prescribed'" in the FAA.
Hall Street Assocs.. L.L.C. v. Mattel. Inc., 552
U.S. 576, 582 (2008) (quoting 9 U.S.C. § 9). An
arbitration award can be vacated only if (1) the award
"was procured by corruption, fraud, or undue
means"; (2) the arbitrator was impartial or corrupt; (3)
the arbitrator was "guilty of misconduct in refusing to
postpone the hearing, upon sufficient cause shown, " or
refuses to hear certain evidence, or otherwise prejudices the
rights of a party; or (4) the arbitrator exceeded his own
power. 9 U.S.C. § 10. These four grounds constitute the
exclusive justifications for vacating an award. Medicine
Shoppe Int'l. Inc. v. Turner Invs.. Inc., 614 F.3d
485, 489 (8th Cir. 2010).
district court "affords the arbitrator's decisions
an extraordinary level of deference and confirms so long as
the arbitrator is even arguably construing or applying the
contract and acting within the scope of his authority."
Wells Fargo Bank. N.A. v. WMN e-PPN. LLC, 653 F.3d
702, 710 (8th Cir. 2011) (quoting Crawford Group. Inc. v.
Holekamp, 543 F.3d 971, 976 (8th Cir. 2008)).
"Courts have no authority to reconsider the merits of an
arbitration award, even when the award rests on factual
errors or on a misinterpretation of the underlying
contract." Medicine Shoppe, 614 F.3d at 488.
Because this Court lacks authority to review the merits of
the arbitration award, review is limited to whether any
grounds to vacate or modify exist under 9 U.S.C. §
Omni's Arguments to Vacate or Modify
Robert Sniegowski Testimony
Sniegowski was Primrose's expert on construction
scheduling matters. Sniegowski had written an expert report
disclosed to Omni and underwent a deposition conducted by
Omni's counsel. The arbitration which had begun on
Tuesday, December 6, had stretched into the morning of
Saturday, December 10, with Omni still presenting its case in
chief. When Omni rested, Primrose, which had planned to call
Sniegowski as a rebuttal witness, opted to introduce
Sniegowski's report in lieu of calling him. By that
point, Sniegowski had a plane to catch and a winter storm was
threatening. Upon hearing that Sniegowski was not going to
testify, Omni then wanted to call Sniegowski as an adverse
witness in what would be either the re-opening of its case in
chief or its rebuttal case. Primrose had presented one brief
rebuttal witness, but Omni's apparent interest in calling
Sniegowski appears to have had little connection to
Primrose's rebuttal case. Primrose objected to Omni
calling Primrose's expert under those circumstances. The
arbitrators probed why Omni wished to call Primrose's
expert under the circumstances and chose to receive as
evidence, over Primrose's objection, the transcript of
Omni's deposition of Sniegowski. Omni believed that
Sniegowski made concessions during that deposition helpful to
Omni's case. Before this Court, Omni asserts that
Sniegowski if questioned in the arbitration by Omni might
have given further testimony helpful to Omni. Thus, Omni
argues that the arbitrators "refus[ed] to hear evidence
pertinent and material to the controversy" contrary to 9
U.S.C. § 10(a)(3).
arbitration award may be vacated under 9 U.S.C. §
10(a)(3) when an arbitrator "refus[ed] to hear evidence
pertinent and material to the controversy." However,
"[e]very failure of an arbitrator to receive relevant
evidence does not constitute misconduct requiring vacatur of
an arbitrator's award." Hoteles Condado Beach v.
Union De Tronquistas Local 901, 763 F.2d 34, 40(1stCir.
1985); see also, Lunsford v. RBC Pain Rauscher.
Inc., 590 F.Supp.2d 1153. 1156 (D. Minn. 2008) ("To
warrant vacation of an award, an arbitrator's refusal to
hear evidence must either be in 'bad faith or so gross as
to amount to affirmative misconduct.'" (quoting
United Paperworks Int'l Union v. Misco. Inc.,
484 U.S. 29, 40 (1987))). In conducting arbitration hearings,
"[arbitrators must be given discretion to determine
whether additional evidence is necessary or would simply
prolong the proceedings." Tempo Shain Corp. v.
Bertek, Inc., 120 F.3d 16, 19 (2d Cir. 1997). "In
making evidentiary determinations, an arbitrator need not
follow all the niceties observed by the federal courts."
Id. at 20 (internal quotations and citations
omitted). Indeed, the United States Court of Appeals for the
Eighth Circuit has stated "an error that requires the
vacation of an award must be one that is not simply an error
of law, but which so affects the rights of a party that it
may be said that he was deprived of a fair hearing."
Grahams Serv., Inc. v. Teamsters Local 975, 700 F.2d
420, 422 (8th Cir. 1982) (internal quotation marks and
review of the record reveals that Primrose and Omni both
received a fair arbitration hearing. The arbitrators'
decision to receive the transcript of Sniegowski's
deposition taken by Omni's counsel (as Omni had offered
and over Primrose's objection) in lieu of live testimony
did not so adversely affect the rights of Omni such that Omni
"was deprived of a fair hearing." See Grahams
Serv., 700 F.2d at 422. Indeed, Omni was able to point
to matters in Sniegowski's deposition testimony that Omni
believed was helpful to it. The arbitrators did not truly
refuse to hear evidence in that the arbitrators received
Sniegowski's report and deposition testimony of
Sniegowski conducted by Omni's counsel. Rather, the
arbitrators refused to let Omni prolong the arbitration by
calling Primrose's expert in a rebuttal case (though
Sniegowski's testimony was truly not rebuttal of
Primrose's brief rebuttal witness) in the speculative
hope that Omni could elicit some other admission to turn
around an arbitration where Omni was losing. With bad weather
approaching, the expert having a plane to catch, and the
receipt into evidence of the deposition transcript from which
Omni could make its arguments, the decision of the
arbitrators was not the sort of misconduct to justify vacatur
of the award under 9 U.S.C. § 10(a)(3).
argues that had the arbitrators considered Sniegowski's
deposition, they could not have found: 1) that Primrose had
substantial work to do on the Project after Omni's
termination; 2) that state inspection issues did not
contribute to delaying the Project along its critical path;
or, 3) that Primrose was entitled to all of its claimed
completion costs. Doc. 8 at 17. However, Omni's
contention that Sniegowski's deposition testimony would
foreclose such findings is incorrect. First, Sniegowski
testified that in his opinion the project completion estimate
in Omni's Pay Application No. 14 (described as 89
percent, and a central component of Omni's argument it
had completed much more of the project than as alleged by
Primrose) was overstated. In fact, Sniegowksi believed that
the project completion was closer to 81 percent as of
September 30th, 2014. Doc. 24 (Sniegowski Dep. Tr. at 33-34).
Second, Sniegowski's testimony was that the delays that
arose from inspection issues were all concurrent with delays
for which Omni was responsible. Doc. 24 (Sniegowski Dep. Tr.
at 79-80). Finally, Sniegowski's testimony does not
provide evidence which would require a finding by the
arbitrators that Primrose's claimed costs of completion
BY [Omni's counsel]:
Q. So for the work that we just listed, Primrose incurred
roughly $2.3 million. Does that sound reasonable to you?
That's over a third of the total contract sum, of the
initial contract sum. And by your own admission the project
was 81 percent complete as of September 30.
[Primrose's counsel]: I have to object to the form of
that question or questions.
[Omni's counsel]: Yeah, it got kind of long-winded.
Unfortunately, I think Mr. Sniegowski was following me.
THE WITNESS: That certainly does sound like a lot of money.
However, whenever I have been involved in projects that were
I'm going to say difficult projects or terminations,
those costs of completing the project tend to be more than
they would be had the contractor finished the project
Doc. 24 (Sniegowski Dep. Tr. at 54-55).
some of Sniegowski's deposition testimony may have
arguably been helpful to Omni in some respects, contending
that it precludes the arbitrators' findings, as Omni has
done, is simply incorrect. Sniegowski's deposition
testimony certainly did not foreclose the arbitrators from
making the findings that they did, and provides no basis for
this Court to conclude that those arbitrators engaged in
misconduct that would justify vacatur of the award.
Sustaining Objections During Hawkins Testimony
next argues that the arbitrators refused to hear evidence
pertinent and material to the controversy by sustaining
objections to questions Omni asked Primrose's witness Joe
Hawkins. Hawkins, Primrose's Director of Construction
Services, testified in Primrose's case in chief and was
cross-examined for several hours by Omni. The transcript of
Hawkins's cross-examination extends for more than 100
pages. Omni during the arbitration asserted that the Project
was more complete at the time Omni was terminated than
Primrose contended, and Omni relied on Omni's Payment
Application No. 14, on which Hawkins had signed, as evidence
that the Project was 89% complete prior to Omni's
termination. The parts of Hawkins' cross-examination
pertinent to Omni's arguments read:
BY [Omni's counsel]:
Q. And according to payment application 14, despite all the
delays which you claim were exclusively OMNI's fault,
OMNI say it was 89 percent complete as of September 30, 2014,
A. That's what they stated, yes.
Q. Okay. Now, before Primrose and/or its architect would sign
off on a payment application, it would undertake its own