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BUSINESS LAW 3: Did arbitrator exceed his powers by making a material error of law?

October 2013, plaintiff filed this lawsuit seeking the assessment of damages against defendant, his brother, for allegedly trespassing on a self-service car wash located in Detroit that was owned by plaintiff, and for breach of contractual and fiduciary duties. Plaintiff alleged that in mid-2012, plaintiff established the LLC and subsequently purchased the self-service car wash for $110,000 doing business as the LLC. Plaintiff appointed defendant as his agent to run the car wash, and instructed defendant to pay himself a salary from funds generated by the LLC and tender any excess funds to plaintiff as profits. After defendant failed to tender any funds to plaintiff, and after defendant declined to cease operation of the car wash, plaintiff filed this case.

Defendant gave a different rendition of the facts. Defendant contended that he established the LLC in 2011, and that he purchased the car wash at that time for $140,000. Defendant then put $60,000 of work into the property. However, while defendant was out of the country in 2012, plaintiff deceptively created an LLC bearing the name and convinced an agent of defendant to transfer title of the car wash to plaintiff’s LLC. As part of his answer to plaintiff’s complaint, defendant counterclaimed to quiet title to the property.

July 2015, the trial court entered a stipulated order for binding arbitration containing the following provision: IT IS HEREBY ORDERED AND ADJUDGED that the parties will engage in binding arbitration, pursuant to MCR 3.602 and MCL 691.1681 et seq. The Plaintiff will select an arbitrator; the Defendant will select an arbitrator; and the two arbitrators will select the third arbitrator.

The arbitration panel majority found that defendant was the owner of the car wash, that the parties agreed about that fact, and that the only real controversy was whether plaintiff also had an ownership interest. As such, plaintiff bore the burden of proof to establish by a preponderance of the evidence that he supplied money to defendant to assist in purchasing the car wash. Noting that the evidence was near equipoise, because plaintiff bore the burden of proof, the majority found that there was no evidence that would support or sustain a finding that [plaintiff had] an interest in the car wash. Accordingly, defendant was awarded a judgment of “no cause of action.” The dissenting arbitrator agreed with the majority as to the applicable burden of proof, but contended that plaintiff established co-ownership of the car wash by a preponderance of the evidence.

Plaintiff focuses on MCL 691.1703(1)(d) and MCR 3.602(J)(2)(c), contending that the trial court was required to vacate the arbitration award after it was shown that the arbitrators exceeded their powers by making an error of law.

An arbitrator may exceed his or her powers by making a material error of law that substantially affects the outcome of the arbitration. In order for a court to vacate an arbitration award because of an error of law, the error must have been so substantial that, but for the error, the award would have been substantially different.

Plaintiff primarily contends that the arbitration panel’s majority incorrectly found that plaintiff bore the burden of proof.

The arbitrators made an explicit factual finding that defendant was the owner of the car wash, that the parties agreed to that fact. The arbitrators believed that the burden of proof to establish that plaintiff was a co-owner of the property belonged to him, and after having already found defendant to undoubtedly have been the owner of the property, the appeals court found no error apparent on the face of that decision.

If you are a business owner facing litigation, obtaining the right legal representation is essential.

At Aldrich Legal Services, you will work with an attorney who has the extensive litigation experience necessary to help you reach an effective resolution that protects your interests.

Contact Aldrich Legal Services

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