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In upholding an arbitration agreement in favor of a homebuyer, the Michigan Court of Appeals held that the arbitrator's award was sufficiently detailed to satisfy the "reasoned opinion" requirement in the parties' arbitration agreement.
In Demott v. McDonald, No. 266301, 2007 WL 486750 (Mich. Ct. App. Feb. 15, 2007), Demott contracted with McDonald to supervise the construction of a new home. During construction, McDonald spent the winter in Florida, forcing Demott to act as his own contractor.
Following construction, Demott sued McDonald for breach of contract. The parties later agreed to submit the dispute to arbitration. The arbitration agreement required that any award "be based on applicable law" and "accompanied by a reasoned opinion . . . specify[ing] the factual and legal bases for the award."
The arbitrator found that McDonald abandoned the project and that some of the work performed under McDonald's supervision was defective. Accordingly, the arbitrator awarded damages and attorney fees to Demott on various theories of recovery.
McDonald filed a motion to vacate the award, arguing that the arbitrator misapplied the law and that the arbitrator's award was not "reasoned" as required by the arbitration agreement. The trial court denied the motion.
On appeal, the Court rejected McDonald's argument that the arbitrator misapplied the law because the argument was focused primarily on contract interpretation, which is a question for the arbitrator. Moreover, there was a reasonable basis for the arbitrator's contract interpretation and his damages award.
In rejecting McDonald's argument that the arbitrator failed to issue a "reasoned" award, the Court concluded that "the arbitrator's opinion sufficiently specified the factual and legal bases for the award." As support for this conclusion, the Court explained that the arbitration agreement did not require "the copious degree of specificity demanded by" McDonald.
This case illustrates some of the procedural difficulties that arise from a reasoned award requirement. First, it would be exceedingly difficult to devise a workable standard for determining whether an award contains enough detail to satisfy the reasoned award requirement. Second, as the Court suggested, the requirement is largely unenforceable because the lack of a reasoned award is not a basis for vacatur.
Despite these procedural difficulties, state legislators in Minnesota and Tennessee have proposed bills that would impose some form of a reasoned award requirement on parties who have agreed to arbitrate. See H.F. 739, 85th Leg., Reg. Sess. (Minn. 2007); H.B. 2171, 105th Gen. Assem., Reg. Sess. (Tenn. 2007).
Setting aside the procedural difficulties, a statutory requirement is still problematic because it imposes the expense of a reasoned award on parties even if both of them prefer the finality and efficiency of a summary award. A better approach is allowing each party to request a reasoned award and imposing the expense on the party making the request. See Rule 37H of the National Arbitration Forum Code of Procedure.
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