982 N.W.2d 864
N.D.2022Background
- Shafer contracted with Diamond Development to build a house for $678,000 and later alleged major defects, mold, and untimely/unfinished work.
- The construction contract contained an arbitration clause; the district court compelled arbitration and stayed the lawsuit.
- The arbitrator found Diamond breached the contract and awarded Shafer $419,057.71 in damages, $26,702.13 prejudgment interest, and $21,226.31 in arbitration costs (total $466,986.15).
- Shafer asked the district court to modify the award to the full contract price under the substantial-performance doctrine; Diamond sought denial or reduction of the award.
- The district court confirmed the arbitration award, adopting the arbitrator’s findings; Shafer appealed, arguing (1) the court should have applied substantial-performance to award the full contract price and (2) the Court should adopt a manifest-disregard standard for reviewing arbitration awards.
- The Supreme Court affirmed: it declined to expand the statutory grounds for vacating awards and held the arbitrator’s choice of remedy (cost of repair) was not completely irrational.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the district court erred by not increasing the arbitration award to the full contract price under the substantial-performance doctrine | Shafer: Diamond did not substantially perform; under that doctrine he is entitled to the full contract price ($678,000) | Diamond: Arbitrator’s damages award is proper; Shafer’s requested relief is excessive or unsupported | Court: Arbitrator reasonably applied North Dakota law and selected cost-of-repair measure; award not completely irrational; affirmation of award |
| Whether this Court should adopt a manifest-disregard-of-law standard to review arbitration awards | Shafer: Court should narrowly expand review to include intentional or willful disregard of applicable law | Diamond: Review should be governed by statutory grounds in the Uniform Arbitration Act; no expansion | Court: Declined to expand review; bound by N.D.C.C. §§ 32-29.3-23/24 and the Uniform Arbitration Act’s rejection of a manifest-disregard ground; legislative change required |
Key Cases Cited
- Gratech Co., Ltd. v. Wold Eng’g, P.C., 729 N.W.2d 326 (discussing deference to arbitrators and considering—without deciding—manifest-disregard issues)
- John T. Jones Constr. Co. v. City of Grand Forks, 665 N.W.2d 698 (arbitrators afforded wide latitude; limited judicial review)
- Scherbenske Excavating, Inc. v. N.D. State Highway Dep’t, 365 N.W.2d 485 (public policy favors arbitration and deference)
- Swain v. Harvest States Coop., 469 N.W.2d 571 (recognizing cost-of-repair and diminution-in-value as measures of construction damages)
- Biteler’s Tower Serv., Inc. v. Guderian, 466 N.W.2d 141 (same; measures of damages in construction-contract breaches)
- Dittmer v. Nokleberg, 219 N.W.2d 201 (construction-damages principles)
- Dobler v. Malloy, 214 N.W.2d 510 (construction-damages principles)
- Lincoln Nat’l Life Ins. Co. v. Payne, 374 F.3d 672 (Eighth Circuit discussing manifest-disregard standard)
- Hoffman v. Cargill Inc., 236 F.3d 458 (Eighth Circuit adopting manifest-disregard language)
- Coors Brewing Co. v. Cabo, 114 P.3d 60 (declining to expand vacatur grounds beyond the Uniform Arbitration Act)
- Floor Solutions, LLC v. Johnson, 322 Or. App. 417 (same; courts refusing to add manifest-disregard ground)