Herricane Graphics, Inc. v. Blinderman Construction Co.

Case Date: 12/13/2004
Court: 2nd District Appellate
Docket No: 2-04-0125 Rel

 

No. 2--04--0125


IN THE
   
APPELLATE COURT OF ILLINOIS
    
SECOND DISTRICT

HERRICANE GRAPHICS, INC.,

          Plaintiff-Appellee and
          Cross-Appellant,

v.

BLINDERMAN CONSTRUCTION
COMPANY, INC.,

          Defendant-Appellant and
          Cross-Appellee.

)
)
)
)
)
)
)
)
)
)
)
)
Appeal from the Circuit Court
of DeKalb County.



No. 02--LM--558



Honorable
Kurt P. Klein,
Judge, Presiding.

JUSTICE BYRNE delivered the opinion of the court:

Defendant, Blinderman Construction Company, Inc., appeals the judgment of the circuitcourt of DeKalb County denying its motion to confirm an arbitration award in its favor andgranting the motion of plaintiff, Herricane Graphics, Inc., to vacate the award and enter judgmentin its favor in the amount of $47,163. Defendant contends that the trial court exceeded itsauthority in vacating the arbitrator's decision. Plaintiff cross-appeals the trial court's failure toaward plaintiff interest under the State Prompt Payment Act (Payment Act) (30 ILCS 540/0.01 etseq. (2002)) and the court's failure to compensate plaintiff for the labor-related component of itswork. We reverse the trial court's judgment and confirm the arbitrator's award.

 

FACTS

Plaintiff and defendant entered into contract negotiations for plaintiff to furnish and installsigns for defendant at a construction project at Northern Illinois University (NIU). Defendant wasto be the general contractor for the project, and plaintiff was to be the subcontractor.

On July 7, 1998, defendant faxed plaintiff the initial draft of its subcontract agreement. Plaintiff acknowledged receipt of the contract and agreed to the terms by letter dated July 9, 1998. However, plaintiff never sent defendant a signed version of the contract or any subsequentcontract. The initial contract contained several terms of importance to the proceedings: anarbitration clause and two clauses regarding certified payrolls. The arbitration clause provided,in relevant part, that any controversy or claim arising out of or relating to the subcontract, orbreach thereof, was to be settled by arbitration. The clauses regarding certified payrolls provided,in relevant part:

"Payment will be made once each month equal to 90% of the value of the worksatisfactorily completed as received from the Owner. Written request for payment mustbe in the hands of the Contractor not later than the 1st of each month covering worksatisfactorily completed during the previous month, in a form as required by theContractor. *** The Subcontractor shall furnish to the Contractor a breakdown of costsof said Subcontract, showing monetary value of each item of labor and material, inaccordance with terms of the General Contract, and in a form acceptable to the Contractor.

 

* * *

Compliance with Applicable Laws[.] *** Subcontractor will submit requiredcompliance reports, including weekly certified payrolls as required by federal law."

The parties modified the contract terms between the time defendant sent plaintiff the initialproposal and August 25, 1998. However, defendant alleged that the arbitration and payroll termswere never revised, amended, or excluded. During the contract modification period, plaintiffcommenced installation of the signs. A significant portion of the work was fully performed priorto receipt of the August 25, 1998, contract modification. Plaintiff points out that this contractcontains a rider entitled "Instructions For Subcontractors," which provides the followinginstruction regarding payroll certification and Equal Employment Opportunity reportingrequirements:

"You are advised that the Owner has a right to order funds withheld from paymentsequal to the amount of the labor expended in the event that these records are notcompleted." (Emphasis added.)

By letters dated September 9, 1998, November 16, 1998, and March 22, 1999, defendantacknowledged to plaintiff that the owner ,NIU, had approved all of plaintiff's work and had paiddefendant for that work. Plaintiff alleged that approximately 90% of that work, or $47,163,represented the selling price of hardware and other goods that plaintiff had installed at the jobsite. Plaintiff alleged that the balance, $5,240, represented the labor component of plaintiff's work.

Plaintiff believed that its performance was based on a bid contract that was accepted bydefendant, and plaintiff objected to the execution of the August 25, 1998, contract because it did notcontain the correct scope of work. Plaintiff acknowledged that defendant was withholding the fundsthat defendant had received from NIU until defendant received a certified payroll from plaintiff. Plaintiff also acknowledged that the execution of the contract was a condition of payment.

Defendant alleged that, during plaintiff's performance of the contract, defendant repeatedlyattempted to obtain certified payrolls from plaintiff. Defendant also alleged that it repeatedly advisedplaintiff that payment would be issued only upon receipt of those certified payrolls. However,plaintiff never delivered certified payrolls to defendant. As a result, defendant refused to pay plaintiff.

In December 2002, four years after the project was completed, plaintiff sued defendant for,inter alia, breach of contract to recover for the work it performed and the material it expended on theproject. Defendant subsequently filed a motion requesting the trial court to stay the suit pendingarbitration. The trial court granted defendant's motion and the matter was submitted to arbitration.

The arbitrator entered an award in defendant's favor, finding that the submission of certifiedpayrolls was a condition of payment and the failure to provide the certified payrolls preventedplaintiff's recovery of any money for either wages or material expended under the contract. Neitherplaintiff nor defendant supplied this court with a record of the arbitration hearing or the memorandumof decision. We note that the materials used by plaintiff for the project constituted 90% of the totalamount requested for reimbursement.

On September 8, 2003, defendant filed a motion with the trial court to confirm thearbitration award and enter judgment in its favor. Thereafter, plaintiff filed a motion objecting tothe confirmation of the award. Plaintiff sought to vacate the award under section 12(a)(3) of theUniform Arbitration Act (Arbitration Act) (710 ILCS 5/12(a)(3) (West 2002)), or in thealternative, to modify the award pursuant to section 13 of the Arbitration Act (710 ILCS 5/13(West 2002)).

On January 29, 2004, the trial court denied defendant's motion to confirm the award, andgranted plaintiff's motion to vacate the award. The trial court noted in its order that it specificallydisagreed with the arbitrator's decision with respect to the materials furnished on the project andfound that the value of the materials furnished by plaintiff to defendant on the construction projectwas 90% of the total amount of plaintiff's claim. Accordingly, the trial court entered judgment inplaintiff's favor in the amount of $47,163, representing 90% of $52,403 sought by plaintiff.

Defendant timely appeals, contending that the trial court exceeded its authority in vacatingthe arbitrator's decision. Plaintiff timely cross-appeals, contending that the trial court erroneouslyfailed to award plaintiff interest under the Payment Act and failed to compensate plaintiff for thelabor-related component of its work.

 

ANALYSIS

It is well settled that a court's review of an arbitrator's award is extremely limited(American Federation of State, County & Municipal Employees v. The Department of CentralManagement Services, 173 Ill. 2d 299, 304 (1996)), in fact, more limited than appellate reviewof a trial court's decision. Cook County v. American Federation of State, County & MunicipalEmployees, District Counsel 31, Local 3315, 294 Ill. App. 3d 985, 988 (1998). Because theparties have agreed to have their dispute settled by an arbitrator, it is the arbitrator's view that theparties have agreed to accept, and the court should not overrule an award simply because itsinterpretation differs from that of the arbitrator. Everen Securities, Inc. v. A.G. Edwards & Sons,Inc., 308 Ill. App. 3d 268, 273 (1999). Furthermore, there is a presumption that the arbitrator didnot exceed his authority. Tim Huey Corp. v. Global Boiler & Mechanical Inc., 272 Ill. App. 3d100, 106 (1995). Thus, a court must construe an award, if possible, so as to uphold its validity. Everen Securities, 308 Ill. App. 3d at 273. A court has no power to determine the merits of theaward simply because it strongly disagrees with the arbitrator's contract interpretation. CanteenCorp. v. Former Foods, Inc., 238 Ill. App. 3d 167, 179 (1992). Also, a court cannot overturn anaward on the ground that it is illogical or inconsistent. Perkins Restaurants Operating Co., L.P.v. Van Den Bergh Foods Co., 276 Ill. App. 3d 305, 309 (1995). In fact, an arbitrator's award willnot even be set aside because of errors in judgment or a mistake of law or fact. Roubik v. MerrillLynch, Pierce, Fenner & Smith, Inc., 181 Ill. 2d 373, 381 (1998).

The limited circumstances under which we may modify or vacate an arbitration award areset forth in the Arbitration Act (710 ILCS 5/1 et seq. (West 2002)). Section 13(a) of theArbitration Act (710 ILCS 5/13(a) (West 2002)) allows a court to modify or correct an awardwhere: (1) there was an evident miscalculation or an error in a description; (2) the arbitratorsruled on a matter not submitted to them, and the court is able to correct the award withoutaffecting the merits of the decision upon the issues submitted; or (3) the award is imperfect inform.

Under section 12(a) of the Arbitration Act (710 ILCS 12(a) (West 2002)), a court canvacate an award in the following circumstances: (1) the award was obtained by corruption orfraud; (2) the arbitrator was partial; (3) the arbitrator exceeded his powers; (4) the arbitratorunreasonably refused to postpone the hearing or hear material evidence; or (5) there was noarbitration agreement.

Although a court cannot vacate an award due to errors in judgment or mistakes of fact orlaw, a court can vacate an arbitration award where a gross error of law or fact appears on theaward's face, or where the award fails to dispose of all matters properly submitted to the arbitrator. Edward Electric Co. v. Automation, Inc., 229 Ill. App. 3d 89, 97-98 (1992). To vacate an awardbased on a gross error of law, a reviewing court must be able to conclude, from the award's face,that the arbitrator was so mistaken as to the law that, if apprised of the mistake, he would haveruled differently. Lee B. Stern & Co. v. Zimmerman, 277 Ill. App. 3d 423, 428 (1995). Theburden is placed on the challenger to prove by clear and convincing evidence that an award wasimproper. Thomas v. Leyva, 276 Ill. App. 3d 652, 654 (1995).

On appeal, defendant contends that the trial court erred in vacating the arbitrator's decision. Specifically, defendant asserts that by invading the province of the arbitrator and substituting itsown construction of the contract and interpretation of the facts, the court failed to apply the properstandard of review . Plaintiff counters that the rider to the August 25 contract expressly providesthat defendant has a right to withhold payments equal to the amount of labor expended but notmaterial used, and that the contract cannot be reasonably interpreted to cover amounts beyondlabor expended. Plaintiff contends that the arbitrator exceeded his jurisdiction in interpreting thecontract to find that plaintiff was not entitled to any funds expended. Therefore, plaintiff arguesthat the trial court correctly vacated the award. We review the trial court's ruling de novo, as onlythe trial court's legal conclusions are at issue. Hawrelak v. Marine Bank, Springfield, 316 Ill.App. 3d 175, 179 (2000).

We find that the trial court did not have the authority to vacate the award under section12(a)(3) of the Arbitration Act. In determining the proper standard to be applied in construingsection 12(a)(3) of the Arbitration Act, we have looked to the explanation of the chairman of thecommittee that drafted the Arbitration Act, which Illinois adopted in 1961:

" '[T]he question for the court is whether the construction of the contract made by thearbitrator is a reasonably possible one that can seriously be made in the context in whichthe contract was made. Stated affirmatively, if all fair and reasonable minds would agreethat the construction of the contract made by the arbitrator was not possible under a fairinterpretation of the contract, then the court would be bound to vacate or refuse to confirmthe award.' " Rauh v. Rockford Products Corp., 143 Ill. 2d 377, 391-92 (1991), quotingM. Pirsig, Some Comments on Arbitration Legislation and the Uniform Act, 10 Vand. L.Rev. 685, 706 (1957).

Although the trial court disagreed with the arbitrator's decision, we see no principled wayfor the trial court to inject itself into this case. While the record does not include a transcript ofthe arbitration hearing or the memorandum of decision, it is clear that the arbitrator heard thetestimony, assessed the credibility of the witnesses, and considered the exhibits and evidencepresented. The arbitrator then determined whether the July or August contract controlled, andwhich terms applied. There is no indication that the arbitrator acted in bad faith, was guilty offraud, or chose not to follow the law. Perhaps the arbitrator concluded that the "Instructions forSubcontractor" provision ultimately was waived by the parties and, thus, the relevant payrollprovisions could be read in such a manner as to sustain the arbitrator's interpretation. Perhaps thearbitrator believed that the parties, by their actions, interpreted the payment and payroll provisionsas expecting full payment to be issued only upon receipt of certified payrolls. We find that thearbitrator's interpretation of the parties' contract is potentially reasonable in light of the contextof the contract.

Even if, as plaintiff asserts, the arbitrator misinterpreted the instruction provision regardingdeducting only labor and not materials, the court's interpretation fails to meet the test in Garver v.Ferguson, 76 Ill. 2d 1 (1979), for vacating an award. Gross errors in judgment or gross mistakes oflaw or fact are not grounds for vacating an award unless the errors are apparent upon the face of theaward. Garver, 76 Ill. 2d at 7-8. Further, the parties bargained for the arbitrator's interpretationof their final agreement, and a court must not impose its own view.

As the Garver court succinctly quoted:

" 'Arbitrators are judges chosen by the parties to decide the matters submitted to them,finally and without appeal. As a mode of settling disputes it should receive everyencouragement from courts of equity. If the award is within the submission, and contains thehonest decision of the arbitrators, after a full and fair hearing of the parties, a court of equitywill not set it aside for error either in law or fact. A contrary course would be a substitutionof the judgment of the Chancellor in place of the judges chosen by the parties, and wouldmake an award the commencement, not the end, of the litigation.' " Garver, 76 Ill. 2d at9, quoting Burchell v. Marsh, 58 U.S. (17 How.) 344, 349, 15 L. Ed. 96, 99 (1854).

See also Hawrelak, 316 Ill. App. 3d at 181 ("Once parties bargain to submit their disputes to thearbitration system (a system essentially structured without due process, rules of procedure, rulesof evidence, or any appellate procedure), we are disinclined to save them from themselves"). Since we do not find any gross errors in judgment or gross mistakes of law or fact on the face of theaward, and for the other reasons stated above, we find no grounds for vacating the arbitrator's award. Accordingly, the arbitrator in this case did not exceed his authority and the trial court erred invacating his decision. As such, the award should be reinstated.

In plaintiff's cross-appeal, it contends that the trial court erred in failing to award plaintiffinterest under the Payment Act and in failing to compensate plaintiff for the labor-relatedcomponent of its work. We note that plaintiff first raised the issue that it was entitled to interestunder the Payment Act in its motion to the trial court to vacate or modify the arbitrator's award. However, after the trial court issued its opinion vacating the arbitrator's award, plaintiff neverrequested the trial court to render an opinion regarding whether plaintiff was entitled to interestunder the Payment Act. The party filing a motion has the responsibility to bring it to the trialcourt's attention. Prather v. McGrady, 261 Ill. App. 3d 880, 885 (1994), citing Gordon v. Bauer,177 Ill. App. 3d 1073, 1085 (1988). Unless circumstances indicate otherwise, where no rulingappears to have been made on a motion, the presumption is that the motion was waived orabandoned. Prather, 261 Ill. App. 3d at 885, citing City National Bank v. Langley, 161 Ill. App.3d 266, 274 (1987).

Even without waiver, we reject both of plaintiff's arguments on cross-appeal. Section 7 ofthe Payment Act provides that if a contractor, without reasonable cause, fails to make anypayment to his subcontractor within 15 days after receipt of payment under a public constructioncontract, the contractor shall pay to his subcontractor, in addition to the payment due, interest inthe amount of 2% per month. 30 ILCS 540/7 (West 2002). The arbitrator held that defendantwithheld payment because plaintiff materially breached the contract, and therefore, the contractorhad reasonable cause to withhold payment. Because defendant withheld payment for reasonablecause, plaintiff has no basis for recovery under section 7 of the Payment Act.

Similarly, because the arbitrator found that plaintiff's breach of the contract did not entitleit to any recovery, plaintiff has no basis to argue that the trial court erred in failing to award it thelabor-related component of its work.

Accordingly, based on the foregoing, the judgment of the circuit court of DeKalb Countyis reversed and the arbitrator's decision is reinstated and confirmed.

Reversed.

KAPALA and GILLERAN JOHNSON, JJ., concur.