William Beaumont Hospital v. West Bloomfield Mob LLC
327238
| Mich. Ct. App. | Jul 26, 2016Background
- WBMOB was an LLC formed in 2006 with members Beaumont (a hospital) and Winfireco; WBMOB owned a medical building Beaumont leased and later lost to foreclosure.
- Beaumont demanded arbitration in 2012 under the Operating Agreement after disputes among members; the AAA arbitrator issued an award in Beaumont’s favor for $1,871,648.88.
- The Operating Agreement and a separately executed Put Option Agreement (plus a Winfireco guarantee) each contained distinct arbitration clauses and governed Beaumont’s put option right.
- Defendants argued the AAA arbitrator (appointed under the Operating Agreement) lacked authority to decide claims arising under the Put Option Agreement, because that agreement prescribed a different arbitrator-selection method.
- Defendants also argued the net award to Beaumont effectively constituted an improper member distribution in violation of the Michigan LLC Act by rendering WBMOB insolvent.
- The circuit court confirmed the arbitration award and entered judgment for Beaumont; defendants’ motion for reconsideration was denied and they appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether arbitrator exceeded authority by deciding Put Option claims despite separate Put Option arbitration clause | Beaumont: Operating Agreement incorporated Put Option and its arbitration clause covered disputes under the Operating Agreement, so AAA arbitration was proper | WBMOB/Winfireco: Put Option Agreement had its own arbitration selection method (accountant-selected attorney); AAA arbitrator lacked authority over Put Option issues | Court: Arbitrator arguably construed contracts and acted within authority; Operating Agreement arbitration covered these disputes, so award stands |
| Whether the award constituted an improper member distribution under the Michigan LLC Act (MCL 450.4307) | Beaumont: Award does not facially show it will render WBMOB insolvent; Beaumont may be a creditor upon exercising put option, entitled to payment | Defendants: Netting of mutual claims produced a payment to Beaumont that left WBMOB unable to pay creditors, violating distribution restrictions | Court: No facial evidence in award that payment will make WBMOB insolvent or usurp creditor rights; cannot revisit arbitrator’s factual path; denial to vacate affirmed |
| Whether defendants waived the challenge to arbitrator’s authority by failing to timely object | Beaumont: Defendants participated and did not timely object | Defendants: Repeatedly objected at multiple stages; did not waive | Court: Defendants repeatedly objected pre- and intra-arbitration; issue not waived, but merits fail under limited review |
Key Cases Cited
- Washington v. Washington, 283 Mich. App. 667 (review of arbitration confirmation is de novo but limited)
- Fette v. Peters Constr. Co., 310 Mich. App. 535 (judicial review of arbitrator’s factual findings and merits is extremely limited)
- Konal v. Forlini, 235 Mich. App. 69 (courts may not revisit arbitrator’s contract interpretation)
- Gordon Sel‑Way, Inc. v. Spence Bros., Inc., 438 Mich. 488 (award may be vacated only for errors apparent on the face of the award)
- Ann Arbor v. AFSCME Local 369, 284 Mich. App. 126 (arbitrator’s decision will not be overturned if even arguably construing or applying the contract)
- Bell v. Seabury, 243 Mich. App. 413 (deference to arbitrator’s procedural and contract determinations)
- Saveski v. Tiseo Architects, Inc., 261 Mich. App. 553 (arbitrators exceed power when acting beyond material contract terms)