Opinion
No. 61606-4-I.
March 2, 2009.
Appeal from a judgment of the Superior Court for King County, No. 04-2-03378-1, Bruce E. Heller, J., entered April 7, 2008.
Affirmed by unpublished opinion per Agid, J., concurred in by Cox and Appelwick, JJ.
Taluswood Townhomes, LLC (Taluswood), a real estate development company, hired Sacotte Construction, Inc. (SCI), a general contractor, to build condos. After a dispute about payment and performance, SCI sued Taluswood, which counterclaimed and sued SCI's president, Joe Sacotte (Sacotte). The trial court confirmed the arbitrator's decision that Sacotte was personally liable for tortious conduct and Consumer Protection Act (CPA) violations. Sacotte appeals, arguing that the arbitrator did not have the authority to find him personally liable under the CPA. We hold that Sacotte waived his objections to the arbitrator's authority by failing to timely object once he knew the arbitrator was considering the issue. Because this holding is an independent basis for confirming the arbitrator's award, we affirm the trial court's decision without determining whether the arbitrator's award violates the economic loss rule.
FACTS
In March 2001, SCI agreed to build 85 condominium units in Redmond, Washington, and Taluswood agreed to pay SCI. Joe Sacotte signed the contract with Taluswood in his capacity as president of SCI. The contract contained an arbitration provision that required the parties to arbitrate any claims or disputes arising out of or relating to the contract.
At some point, Taluswood stopped paying and SCI stopped construction. SCI sued Taluswood and the individual Taluswood Townhomes owners on February 14, 2004, claiming breach of contract. Taluswood answered SCI's complaint, asserted counterclaims against SCI, and added a third-party complaint against Sacotte. In its counterclaim and third-party complaint, Taluswood pled breach of contract, fraud, breach of fiduciary duty, CPA violations, and conversion under the heading, " COUNTERCLAIM and THIRD PARTY COMPLAINT AGAINST SACOTTE CONSTRUCTION, JOE SACOTTE and JANE DOE SACOTTE." Under the CPA claim heading, paragraph 6.1 states "[f]or additional claim of relief against Sacotte Construction, Taluswood re-alleges the allegations in paragraphs 1.1 through 5.5." Paragraphs 6.2 and 6.4 of the complaint state that the actions of SCI and Sacotte violated the CPA and that Sacotte violated the CPA through his acts as a corporate official. In the facts section of the counterclaim and third-party complaint, Taluswood used the defined term that included both Sacotte and SCI to describe the actors whose actions incurred liability. In the prayer for relief section, Taluswood asked for a $1,917,518 judgment against "Joe Sacotte and Jane Doe Sacotte and the marital community comprised thereof," which is the same amount that Taluswood sought from SCI.
The defined term "Sacotte Construction" does not include Sacotte personally.
To differentiate between Joe Sacotte and Sacotte Construction, Inc., Taluswood defined Sacotte Construction, Inc., as "'Sacotte Construction'" and said that "[a]ny reference to 'Sacotte' herein is intended to refer to both Sacotte Construction and to Joe Sacotte individually and the martial [sic] community comprised of Joe Sacotte and Jane Doe Sacotte."
SCI, Taluswood, and Sacotte agreed to stay the lawsuit pending arbitration. Then the parties signed an arbitration agreement stating that the
Parties are involved [in] a dispute arising from a construction contract dated March 29, 2001 and a related dispute arising from a Condominium Purchase and Sale Agreement dated January 16, 2002 (collectively referred to as the "Dispute"). The Dispute is now pending in the King County Superior Court, Cause No. 04-2-03378-1SEA, as more fully described in the Complaint filed in that case.
In an e-mail to Sacotte's lawyer, Taluswood stated that "[a]s to Taluswood's [arbitration] claims, they are as presented in our Answer, Counterclaim and Third-Party Complaint which was filed in the lien foreclosure action in January of last year."
In addition to ruling for Taluswood on its breach of contract claim, the arbitrator found that Sacotte committed tortious acts as an officer of SCI and that Sacotte was responsible for SCI's unfair business practices in violation of the CPA. The arbitrator awarded Taluswood $629,620 and determined that Sacotte was jointly and severally liable with SCI for $591,871 of the award because of either his tortious conduct or his CPA violations. Although the arbitrator did not differentiate between the damages caused by Sacotte's CPA violations and his tortious acts, the award shows that each theory provides an independent basis for recovery. The award does not explain or itemize the damages caused by Sacotte's CPA violations, other than stating that those unfair and deceptive acts caused Taluswood to pay SCI more than it was entitled to receive.
The arbitrator lists 10 major unfair and deceptive acts under the CPA.
The arbitrator ruled:
There are two relevant legal arguments for personal liability of Joe Sacotte and his marital community for the obligations of SCI. The first is based on tortuous [sic] acts committed by Joe Sacotte as [an] officer of SCI. The second is based on unfair business practices of SCI for which Joe Sacotte was responsible. Taluswood is entitled to recover from Joe Sacotte and his marital community on either theory.
Taluswood moved to confirm the arbitrator's award. SCI and Sacotte moved to vacate or modify the award. The trial court granted Taluswood's motion, denied SCI and Sacotte's motion, and entered judgment on the award. Sacotte appeals.
DISCUSSION
Sacotte argues that Taluswood did not submit a claim that he was personally liable under the CPA to arbitration and that the arbitrator exceeded his powers by awarding tort damages for economic losses arising from a contract-based dispute. Accordingly, Sacotte argues the trial court erred when it confirmed the arbitration award instead of vacating or modifying it. Trial court review of arbitration awards is limited by statute. Former RCW 7.04.150 provides that "any party to the arbitration may apply to the court for an order confirming the award, and the court shall grant such an order unless the award is beyond the jurisdiction of the court, or is vacated, modified, or corrected, as provided in RCW 7.04.160 and 7.04.170." Former RCW 7.04.170(2) requires the court to modify or correct the award "[w]here the arbitrators have awarded upon a matter not submitted to them." Former RCW 7.04.160(4) requires vacation of an arbitration award "[w]here the arbitrators exceeded their powers." Arbitrators exceed their powers when they commit an error of law that the court can recognize from the language of the award. Former RCW 7.04 also limits appellate court review of an arbitration award to "'that of the court which confirmed, vacated, modified or corrected that award.'"
See Barnett v. Hicks, 119 Wn.2d 151, 156-57, 829 P.2d 1087 (1992).
Former RCW 7.04.150 (2004). This lawsuit is subject to the former uniform arbitration act, chapter 7.04 RCW, because it was filed before the revised uniform arbitration act, chapter 7.04A RCW, took effect. RCW 7.04A.903 ("This act does not affect an action or proceeding commenced or right accrued before January 1, 2006.").
Former RCW 7.04.170(2) (2004). See also Price v. Farmers Ins. Co. of Wash., 133 Wn.2d 490, 500, 946 P.2d 388 (1997) ("[A]ny action by the arbitration panel beyond that which is submitted is subject to vacation by the court.").
Former RCW 7.04.160(4) (2004).
See Federated Servs. Ins. Co. v. Pers. Representative of Estate of Norberg, 101 Wn. App. 119, 123-27, 4 P.3d 844 (2000) (holding that arbitration award showed that arbitrator exceeded powers by awarding damages beyond those authorized by the survival of actions statute), review denied, 142 Wn.2d 1025 (2001). See also Kennewick Educ. Ass'n v. Kennewick Sch. Dist. No. 17, 35 Wn. App. 280, 282, 666 P.2d 928 (1983) (affirming trial court vacation of punitive damages awarded by arbitrator because Washington law does not allow punitive damages where not authorized by statute).
ACF Prop. Mgmt., Inc. v. Chaussee, 69 Wn. App. 913, 918-19, 850 P.2d 1387 (quoting Barnett, 119 Wn.2d at 157), review denied, 122 Wn.2d 1019 (1993).
Sacotte contends that the arbitrator was not authorized to find him personally liable for violating the CPA because the parties had not agreed to arbitrate that claim. Taluswood argues that Sacotte waived his right to challenge the arbitrator's authority because he was aware that his personal liability under the CPA was before the arbitrator and did not timely object. Sacotte counters that he did not clearly indicate a willingness to waive his right to challenge the arbitrator's authority and explains that he did not object during arbitration because he did not believe that Taluswood had submitted a claim for personal liability under the CPA. While arbitrators may only issue an award on claims submitted to them, parties can intentionally and voluntarily relinquish known rights through unequivocal acts or conduct.
The trial court upheld the arbitration award on these grounds.
Former RCW 7.04.170 (2004); Price, 133 Wn.2d at 499 ("'The arbitration award must concern only those matters included within the agreement for submission and must not exceed the powers established by the submission."') (quoting Sullivan v. Great Am. Ins. Co., 23 Wn. App. 242, 246, 594 P.2d 454 (1979)).
Jones v. Best, 134 Wn.2d 232, 241, 950 P.2d 1 (1998); Voelker v. Joseph, 62 Wn.2d 429, 436, 383 P.2d 301 (1963) ("Silence, alone, is never a waiver.") Bowman v. Webster, 44 Wn.2d 667, 669, 269 P.2d 960 (1954) (defining "waiver").
Here, the right at issue is Sacotte's right to have a court decide whether the arbitration agreement authorized the arbitrator to find him personally liable under the CPA. Although Sacotte agrees that a party who voluntarily submits and litigates the merits of an issue not covered by the arbitration agreement waives the agreement's limitations, he protests that he did not submit the issue of his personal liability for arbitration. Unless a party challenging arbitrability clearly indicated his willingness to forgo judicial review of an issue, waiver will not apply. Because we agree that Sacotte did not expressly waive his right to have a court decide whether the arbitrator had the authority to find him personally liable under the CPA, the question is whether he clearly waived this right through his unequivocal acts or conduct. A party who has notice of alleged arbitral overreach and fails to object during arbitration waives his right to object in court. The rationale behind this rule is that a party cannot wait to see whether they will prevail in arbitration before raising a challenge to the arbitrator's authority.
See ML Park Place Corp. v. Hedreen, 71 Wn. App. 727, 736, 862 P.2d 602 (1993), review denied, 124 Wn.2d 1005 (1994).
Id.
See Puget Sound Bridge Dredging Co. v. Lake Wash. Shipyards, 1 Wn.2d 401, 410-11, 96 P.2d 257 (1939) (party waived right to challenge arbitrator's alleged misconduct by participating, without objection, in arbitration with full knowledge of the allegedly unlawful conduct).
See Hanson v. Shim, 87 Wn. App. 538, 547-48, 943 P.2d 322 (1997) (objection to arbitrator's conflict of interest waived because party failed to object after learning of alleged conflict during arbitration), review denied, 134 Wn.2d 1017 (1998); Kempf v. Puryear, 87 Wn. App. 390, 393, 942 P.2d 375 (1997) (right to vacate arbitration award based on alleged arbitrator misconduct waived by failing to object to alleged misconduct during arbitration); Ebasco Constructors, Inc. v. Ahtna, Inc., 932 P.2d 1312, 1317 (Alaska 1997) (failure to object to introduction of new theory of liability on the first day of arbitration proceedings waives objection that theory should not have been considered).
See Hanson, 87 Wn. App. at 548.
Here, Taluswood's opening brief made it clear that Taluswood was seeking damages against him under the CPA in his personal capacity. Taluswood's arbitration brief stated:
Joe Sacotte's individual acts, in contravention of his fiduciary obligation to Taluswood, are torts for which he and his marital community are personally liable. Moreover, this is not the first time Mr. Sacotte has utilized such tactics to hijack a project and its owner. As such, his repeated actions violate the Washington Consumer Protection Act.
In Sacotte's arbitration brief, he requested "that all claims against Joe Sacotte, Jane Doe Sacotte and their marital community by Taluswood Townhomes, LLC, be dismissed without prejudice." Sacotte should have known Taluswood sought CPA damages against him personally at this point.
Even if the opening briefing failed to alert Sacotte to the scope of the arbitrator's charge, Sacotte's own briefs show that he received notice during the course of arbitration. After the hearing, Sacotte challenged personal liability on the merits, arguing that " TALUSWOOD FAILS TO ESTABLISH A CONSUMER PROTECTION ACT CLAIM AGAINST EITHER JOE SACOTTE OR SACOTTE CONSTRUCTION, INC." And in his post-hearing reply brief, Sacotte stated that "Taluswood argues that Joe Sacotte should be held individually liable for 'tortious conduct,' 'breach of fiduciary duty,' and violation of the Consumer Protection Act" under a heading declaring that " Taluswood Fails To Establish Conduct To Justify Individual Liability." Finally, in Sacotte's motion for reconsideration of the arbitrator's preliminary award, he argues that "Taluswood failed to meet its lofty burden to prove Mr. Sacotte's liability under either the CPA or the standard set forth in the Harrigan-Peach case." These arguments on the merits of the claim made to the arbitrator during and after the hearing establish that Sacotte was aware of the arbitrator's alleged overreaching. And none of the evidence submitted shows that he raised any objection to the arbitrator's authority to issue an award against him personally under the CPA. Accordingly, even if the arbitrator did not initially have the authority to find Sacotte personally liable, Sacotte waived his right to challenge the arbitrator's authority because he failed to object once he knew the arbitrator would consider and decide the issue.
As additional support for its waiver argument, Taluswood cites an American Arbitration Association rule that "[a] party must object to the jurisdiction of the arbitrator or to the arbitrability of a claim or counterclaim no later than the filing of the answering statement to the claim or counterclaim that gives rise to the objection." While this rule supports the general proposition that a party must raise objections during arbitration, it does not address a situation like this one, where the complaint standing by itself did not give rise to Sacotte's obligation to object.
Taluswood did not raise this issue for the first time on appeal.
Sacotte argues that the arbitrator violated the economic loss rule by awarding Taluswood tort-based damages for economic losses caused by Sacotte in a contractual setting. Arbitrators exceed their powers when they commit an error of law that is recognizable from the face of the award. The economic loss rule, developed out of a concern that traditional tort-based remedies result in excessive liability where parties have allocated risk by contract, "bars recovery for an alleged breach of tort duties where a contractual relationship exists and the losses are economic losses." The "rule does not bar recovery for personal injury or damage to property other than a defect in the property." The economic loss rule does not bar recovery of economic losses caused by CPA violations. Here, Sacotte's liability rested on both his tortious conduct and his unfair business practices. Because Sacotte's CPA violations provide an independent basis for recovery from what we can determine from the face of the award, we do not address whether an award for tort-based damages would have violated the economic loss rule. Attorney Fees
Taluswood argues that Sacotte waived his economic loss rule defense by failing to raise it during arbitration. That may be true, but Taluswood never argued below that Sacotte waived review of the arbitrator's alleged economic loss rule error. Thus, Taluswood waived its argument that Sacotte waived the economic loss rule defense by raising the issue for the first time on appeal. See RAP 2.5.
See Federated Serv. Ins. Co., 101 Wn. App. at 123-27; Kennewick Educ. Ass'n, 35 Wn. App. at 282.
Berschauer/Phillips Constr. Co. v. Seattle Sch. Dist. No. 1, 124 Wn.2d 816, 822, 881 P.2d 986 (1994) ("The economic loss rule was developed to prevent disproportionate liability and allow parties to allocate risk by contract. . . . Economic loss is a conceptual device used to classify damages for which a remedy in tort or contract is deemed permissible, but are more properly remediable only in contract.") (citation omitted).
King v. Rice, 146 Wn. App. 662, 671, 191 P.3d 946 (2008) (citing Alejandre v. Bull, 159 Wn.2d 674, 683, 153 P.3d 864 (2007)).
Id.
See Griffith v. Centex Real Estate Corp., 93 Wn. App. 202, 969 P.2d 486 (1998), review denied, 137 Wn.2d 1034 (1999).
Corporate officials who participate in wrongful conduct that violates the CPA are liable for the penalties. Grayson v. Nordic Constr. Co., 92 Wn.2d 548, 553-54, 599 P.2d 1271 (1979).
Attorney fees may be awarded to a successful litigant when authorized by contract, statute, or a recognized ground in equity. RCW 19.86.090 provides for attorney fees on appeal for prevailing parties on a CPA claim. Taluswood prevailed before this court on its CPA claim and properly requested attorney fees under RAP 18.1. Therefore, Taluswood is entitled to attorney fees on appeal.
Seattle Sch. Dist. No. 1 v. State, 90 Wn.2d 476, 540, 585 P.2d 71 (1978).
Wilkinson v. Smith, 31 Wn. App. 1, 15, 639 P.2d 768, review denied, 97 Wn.2d 1023 (1982).
Although the contract at issue in this case also provides for attorney fees, Sacotte did not sign that contract in his personal capacity.
We affirm.