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Michigan Supreme Court Lansing, Michigan

Opinion
WOLD ARCHITECTS and ENGINEERS, Plaintiff-Appellee, v THOMAS STRAT and STRAT and ASSOCIATES, INC., Defendants-Appellants. _______________________________ BEFORE THE ENTIRE BENCH KELLY, J.

Chief Justice:

Justices:

Clifford W. Taylor

Michael F. Cavanagh Elizabeth A. Weaver Marilyn Kelly Maura D. Corrigan Robert P. Young, Jr. Stephen J. Markman

FILED MAY 4, 2006

No. 126917

We granted leave in this case to determine: whether "common-law" arbitration should be deemed preempted by the Michigan arbitration act (MAA), MCL 600.5001 et seq. and, if common-law arbitration continues to exist, (1) what language must be included in an agreement to make it subject to the rules of statutory arbitration; (2) whether common-law arbitration agreements should be unilaterally revocable; and (3) whether the arbitration in this case, if it was common-law arbitration, became statutory arbitration because of the conduct of the parties during the arbitration process.

We hold that common-law arbitration is not preempted by the MAA and that common-law arbitration continues to exist in Michigan jurisprudence. In addition, common-law arbitration agreements continue to be unilaterally revocable before an arbitration award is made. And the common-law arbitration in this case was not transformed into statutory arbitration because of the conduct of the parties during the arbitration process. We affirm the Court of Appeals determination that the trial court erred in granting defendants' motion for summary disposition and in denying plaintiff's motion to vacate the arbitration award. THE UNDERLYING FACTS In June 2000, plaintiff Wold Architects and Engineers, an architectural engineering firm, entered into an agreement to purchase the assets of defendant Strat and Associates, Inc. (Strat, Inc.), an architectural firm specializing in government and institutional work. Defendant Thomas Strat (Strat) is the sole owner of Strat, Inc. As part of the purchase agreement, Strat entered into a fiveyear employment agreement with Wold. Under the agreement, he was expected to develop business and consult. His compensation was based primarily on the profitability of Wold's Troy, Michigan, office. included an arbitration provision: The parties agree to submit any disputes arising from this Agreement to binding arbitration. The arbitrator shall be selected through the mutual cooperation between the representatives or counsel for the respective parties, failing agreement on which may be referred by either party to the Detroit Regional Office of the 2
The employment agreement

American Arbitration Association for appointment of an arbitrator and processing under their Voluntary Labor Arbitration Rules. [Employment/Incentive Compensation Agreement, p 5.] The asset purchase agreement, unlike the employment agreement, did not include an arbitration agreement. The purchase agreement transferred, among other assets, the renovation then in progress of the Macomb County courthouse. At the time of contracting, Strat, Inc. had already billed the county for 53 percent of the total project fee. Wold's senior accounting staff carefully reviewed the books and status of the project. Also, Wold had the opportunity to inspect the status of the project. After the parties entered into the purchase agreement, Wold concluded that, rather than 47 percent of the project remaining in need of completion, 70 percent was incomplete. It began to withhold payments due under the employment

agreement on the basis that Strat, Inc. had overstated the percentage of completion of the courthouse project and other projects. Strat filed a demand for arbitration with the American Arbitration Association (AAA) on January 22, 2002, claiming that Wold owed him payments under the employment agreement. The AAA wrote both parties on February 12, 2002, indicating that its commercial dispute resolution procedures would govern all disputes rather than the voluntary labor arbitration rules specified in the contract. The AAA made the change because it deemed the commercial dispute procedures more apt for the situation at hand. They state that judgment on the arbitration award may be entered in the circuit court. The parties did not agree to 3


this change in writing, and no writing signed by the parties exists that contains such a provision. In March, Wold filed a counter-demand for arbitration claiming that Strat had billed too much for the courthouse project. The parties then selected an arbitrator who held a prehearing conference in July. Document exchanges and witness disclosures followed. Wold agreed to an administration schedule that included an evidentiary hearing in October 2002. Wold sent letters to the AAA in August and September questioning the scope of the arbitration. On October 8, it revoked its agreement to arbitrate, claiming that Strat had asserted claims that more properly fell under the asset purchase agreement, which contained no arbitration clause. It objected to use of the employment agreement arbitration clause because it created "a mess here that needs to be cleaned up." On October 11, the arbitrator decided that the arbitration hearing would proceed as scheduled. It was his opinion that the arbitration that was agreed to in the employment agreement could not be revoked unilaterally. Wold filed the instant action in Oakland Circuit Court seeking a declaratory judgment that (1) the pending arbitration was invalid because the asset purchase agreement did not contain an arbitration provision, and (2) the arbitration provision in the employment agreement was unilaterally revocable because it lacked the requisite language to be a statutory agreement that is nonrevocable. The complaint alleged that defendants either negligently or innocently 4


misrepresented the extent of the completion of the courthouse project, which amounted to fraud in the inducement. Wold also requested a preliminary

injunction to prevent the scheduled arbitration. At a hearing, the circuit court denied Wold's motion to enjoin the arbitration and for summary disposition. It found that each of the claims

submitted to the AAA could be arbitrated without irreparable harm to Wold. It ruled that the parties had included in their agreement all language required to qualify for statutory arbitration. The arbitration proceeded as scheduled. On November 27, the arbitrator issued an award of $104,559.27 to Strat and declared, "This award is in full settlement of all claims and counter-claims submitted to this arbitration. All claims not expressly granted herein are hereby denied." Defendants then brought a motion in circuit court for summary disposition pursuant to MCR 2.116(C)(10). They contended that there was no longer a

genuine issue of material fact concerning whether the parties had entered into a valid arbitration agreement. Wold moved to vacate the award, claiming that it had revoked the agreement to arbitrate. The trial court granted defendants' motion for summary disposition and denied Wold's motion to vacate the award. Wold appealed to the Court of

Appeals, contending, among other things, that the trial court had erred in finding that the employment agreement provided for binding statutory arbitration. The Court of Appeals held that the trial court had erred in enforcing the common-law 5


arbitration agreement that Wold had revoked before the award was announced. Accordingly, the Court of Appeals reversed the judgment of the trial court and remanded the case for further proceedings. Wold Architects & Engineers, Inc v Strat, unpublished opinion per curium of the Court of Appeals, issued June 17, 2004 (Docket No. 246874). We granted leave to appeal. 472 Mich 908(2005). STATUTORY ARBITRATION We review a trial court's determination regarding a motion for summary disposition de novo. Fane v Detroit Library Comm, 465 Mich 68, 74; 631 NW2d 678 (2001). This case presents questions of law that are also reviewed de novo. American Alternative Ins Co, Inc v York, 470 Mich 28, 30; 679 NW2d 306 (2004). Michigan has long recognized that a distinction exists between statutory and common-law arbitration. Clement v Comstock, 2 Mich 359 (1852); F J Siller & Co v Hart, 400 Mich 578, 581; 255 NW2d 347 (1977), citing Frolich v Walbridge-Aldinger Co, 236 Mich 425, 429; 210 NW 488 (1926). Statutory arbitration is provided for in MCL 600.5001 et seq. In order for an agreement to qualify for statutory arbitration, it must meet certain requirements: (1) All persons, except infants and persons of unsound mind, may, by an instrument in writing, submit to the decision of 1 or more arbitrators, any controversy existing between them, which might be the subject of a civil action, except as herein otherwise provided, and may, in such submission, agree that a judgment of any circuit court shall be rendered upon the award made pursuant to such submission. (2) A provision in a written contract to settle by arbitration under this chapter, a controversy thereafter arising between the parties to the contract, with relation thereto, and in which it is agreed 6


that a judgment of any circuit court may be rendered upon the award made pursuant to such agreement, shall be valid, enforceable and irrevocable save upon such grounds as exist at law or in equity for the rescission or revocation of any contract. Such an agreement shall stand as a submission to arbitration of any controversy arising under said contract not expressly exempt from arbitration by the terms of the contract. Any arbitration had in pursuance of such agreement shall proceed and the award reached thereby shall be enforced under this chapter. [MCL 600.5001 (emphasis added).] MCL 600.5011 divests parties of the power to unilaterally revoke agreements made pursuant to MCL 600.5001. It provides: Neither party shall have power to revoke any agreement or submission made as provided in this chapter without the consent of the other party; and if either party neglects to appear before the arbitrators after due notice, the arbitrators may nevertheless proceed to hear and determine the matter submitted to them upon the evidence produced by the other party. The court may order the parties to proceed with arbitration. [Emphasis added.] MCL 600.5025 provides: Upon the making of an agreement described in section 5001, the circuit courts have jurisdiction to enforce the agreement and to render judgment on an award thereunder. The court may render judgment on the award although the relief given is such that it could not or would not be granted by a court of law or equity in an ordinary civil action. Because MCL 600.5001(1) applies to agreements made when there is an existing controversy between the parties, it covers agreements to arbitrate that are made after a cause of action has accrued. By contrast, MCL 600.5001(2) covers agreements to arbitrate causes of action that have yet to accrue. The agreement in this case falls under MCL 600.5001(2), because that statute covers unaccrued claims. The agreement meets the first requirement of

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MCL 600.5001(2) because it is in writing. But, the agreement does not provide that a judgment of any circuit court may be rendered upon the award. Therefore, it does not qualify under MCL 600.5001(2) as an agreement providing for statutory arbitration, and it is not enforceable under MCL 600.5011 or MCL 600.5025. COMMON-LAW ARBITRATION When the parties' agreement to arbitrate does not comply with the requirements of MCL 600.5001, the parties are said to have agreed to a commonlaw arbitration. Frolich, supra at 429. What characterizes common-law

arbitration is its unilateral revocation rule. 4 Am Jur 2d, Alternative Dispute Resolution,

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Michigan Law