Engineer’s Decision Did Not Constitute an Arbitration Award

City of Ferndale v. Florence Cement Co
2006 Mich. App. LEXIS 129, No. 254572 (January 17, 2006)

In City of Ferndale v. Florence Cement Co. and Hartford Casualty Insurance Co., 2006 Mich. App. LEXIS 129, No. 254572 (January 17, 2006), the Court held that the engineer’s decision under the disputes resolution provision of the contract did not constitute a final and binding arbitration award.

Plaintiff, City of Ferndale entered into a contract with Defendant, Florence Cement Company to install new concrete for a roadway in the City of Ferndale. The contract contained a dispute resolution clause which authorized the engineer to interpret the contract’s requirements and issue written decision on claims and disputes. In relevant part, the dispute resolution clause provided:

“ENGINEER’s written decision on such claim, dispute or other matter will be final and binding upon OWNER and CONTRACTOR unless…a written notice of intention to appeal from ENGINEER’s written decision is delivered by OWNER or CONTRACTOR to the other and to ENGINEER within thirty days after the date of such decision and a formal proceeding is instituted by the appealing party in a forum of competent jurisdiction …”

During the course of the project, the project Engineer notified Contractor that it was seeking replacement of 300 yards of defective concrete. Contractor denied responsibility for the defect and proposed an alternative remedy to replacing the defective concrete. The Engineer, however, continued to require full replacement of the concrete. When Contractor refused to perform the remedial work, Owner hired another cement company to perform the replacement. After Contractor refused to pay Owner’s invoice for the costs of replacement, Owner filed suit alleging breach of contract.

Contractor filed a motion for summary judgment, arguing that the under the disputes clause of the contract, the engineer’s decision constituted an arbitration award which Owner did not seek to enforce within the one year statutory period for compelling enforcement, and thus the claim was time barred. Among other arguments, Owner countered that the provision was not an arbitration clause. The trial court ruled for the Contractor, holding that the engineer’s decision was final and binding, and therefore was an arbitration award subject to the one year statute of limitations.

On appeal, the Circuit Court reversed. Specifically, the Court held that the parties’ agreement did not reflect a valid agreement for common-law arbitration. “Consistent with the rule of finality, ‘an arbitration agreement is a contract by which the parties forego their rights to proceed in civil court in lieu of submitting their dispute to a panel of arbitrators.’” The dispute provision at issue allowed either party to exercise rights and remedies in a forum of competent jurisdiction. The Court held that because the parties’ agreement did not limit the scope of judicial review, the parties did not intend the engineer’s decision to be a final and binding arbitration award.

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