TSP Services, Inc. v. National-Standard, LLC

          Berrien Circuit Court LC No. 2016-000018-CB

          Before: Swartzle, P.J., and Gleicher and M. J. Kelly, JJ.

          Swartzle, P.J.

         With respect to a dispute over a construction contract, Michigan law limits a construction lien to the amount of the contract less any payment already made. Although a party suing for breach of contract might recover consequential damages beyond the monetary value of the contract itself, those consequential damages cannot be subject to a construction lien. The arbitrator in this case concluded otherwise, and this clear legal error had a substantial impact on the award. Accordingly, we reverse with respect to this portion of the award, but affirm in all other respects.

         I. BACKGROUND

         Defendants, National-Standard, LLC, and DW-National Standard-Niles, LLC (collectively, National-Standard), appeal by leave granted the trial court's order denying their motion to vacate an arbitration award and confirming the arbitration award and money judgment in favor of plaintiff, TSP Services, Inc. See TSP Servs, Inc v National-Standard, LLC, unpublished order of the Court of Appeals, entered August 8, 2018 (Docket No. 342530). Although the parties raised several issues during arbitration, this appeal centers primarily on whether TSP's inability and failure to remove steel from a construction site, and the potential lost profits from the sale of that unrecovered steel, may properly be the subject of a construction lien. Because the appeal involves a discrete question, and because the nature of arbitration disfavors this Court's review of the facts and merits of the case, we will only briefly review the facts underlying this dispute.

         The parties entered into a contract on August 30, 2013, under which TSP was to perform asbestos abatement, demolition and disposal of scrap steel and other waste, and site restoration work at a National-Standard facility in Niles, Michigan. The total price listed in the contract is $414, 950.00, to be paid in installments-one third as a down payment and the balance due "upon completion of abatement." Critical to this appeal, the contract does not mention the sale of scrap steel or TSP's potential profits from the sale of scrap steel. Although it is clear from the arbitration proceedings that both parties recognized that the sale of scrap steel was a major part of the project, the subject is not outlined in the contract, which provides for a total payment of $414, 950.00 and includes an integration clause.

         The project encountered various delays. Asbestos removal did not begin until May 2014. Because the asbestos removal was delayed, extraction of steel was also delayed. TSP completed the asbestos-abatement work and was paid $273, 867.00, but after several disputes, National-Standard requested that TSP suspend all work on the project. At that point, TSP had extracted only 9% of the available steel from the job site. In April 2015, TSP filed a claim of lien in the amount of $141, 083.00, the amount still unpaid under the contract, plus additional damages, including the net value of the steel that TSP was unable to extract from the site.

         The parties attended arbitration, and the arbitrator concluded that National-Standard breached the contract. The arbitrator awarded $782, 469.05 in damages to TSP, broken out as follows-$141, 083.00 for the unpaid invoice under the contract; $46, 557.39 for interest on that unpaid invoice; $391, 809.00 for lost profits on steel inventory; $33, 793.00 for interest on those lost profits; and $169, 226.13 for attorney fees and costs. (There is a discrepancy of 53 cents between the total amount awarded by the arbitrator and the sum of the components awarded, though neither party takes issue with this de minimis discrepancy.) The arbitrator further determined that TSP's construction lien was valid as filed and could be enforced on the entire award.

         National-Standard subsequently moved the trial court to vacate the arbitration award, arguing that the arbitrator committed clear legal error. The trial court denied National-Standard's motion, and this appeal followed.

         II. ANALYSIS

         A. LIMITED JUDICIAL REVIEW OF ARBITRATION AWARD

         In general, courts have a limited role in reviewing arbitration awards. This Court reviews de novo a circuit court's decision whether to vacate an arbitration award. Hope-Jackson v Washington, 311 Mich.App. 602, 613; 877 N.W.2d 736 (2015). "A court may not review an arbitrator's factual findings or decision on the merits." Ann Arbor v American Federation of State, Co, & Muni Employees (AFSCME) Local 369, 284 Mich.App. 126, 144; 771 N.W.2d 843 (2009) (citations omitted). Instead, a court may only review an arbitrator's decision for clear errors of law. Detroit Auto Inter-Insurance Exch v Gavin, 416 Mich. 407, 433; 331 N.W.2d 418 (1982) (DAIIE); Saveski v Tiseo Architects, Inc, 261 Mich.App. 553, 554-555; 682 N.W.2d 542 (2004).

         Not every error of law by an arbitrator, however, merits subsequent court intervention. Rather, the error must be particularly egregious, have a material effect on the outcome, disregard fundamental principles, or otherwise "unequivocally generate a legally unsustainable result." DAIIE, 416 Mich. at 430. Moreover, in determining whether there is legal error, the court cannot engage in a review of an arbitrator's mental process, Hope-Jackson, 311 Mich.App. at 614, but instead must limit ...