Appeal by plaintiff from order filed 5 November 1998 by Judge
B. Craig Ellis in Wake County Superior Court. Heard in the Court
of Appeals 26 October 1999.
Boxley, Bolton & Garber, L.L.P., by Ronald H. Garber, for
plaintiff-appellant.
Manning, Fulton & Skinner, P.A., by Charles E. Nichols, Jr.,
for defendant-appellees.
GREENE, Judge.
North Boulevard Plaza, a North Carolina General Partnership
(Plaintiff), appeals a 5 November 1998 order denying Plaintiff's
motion to confirm a Modification of Report of Arbitrators (Modified
Award), and granting a motion by North Boulevard Associates, A
North Carolina General Partnership, Seby B. Jones, Robert L. Jones,
and Keith R. Harrod (collectively, Defendants), to set aside the
Modified Award.
The evidence shows that on 31 December 1977, Plaintiff leaseda parcel of real estate located in Wake County to Defe
ndants, and
on 27 June 1996, Plaintiff filed an action against Defendants to
recover rent due under the parties' lease agreement. The dispute
was submitted to binding arbitration under the terms of the Uniform
Arbitration Act, N.C.G.S. ch. 1, art. 45A, as required by the lease
agreement, and the parties selected three arbitrators. On 15 June
1998, the arbitrators issued a Report of Arbitrators (Arbitration
Award) finding Defendants, based on a rent formula in the lease,
were entitled to an 8.5% return on certain investments made for
capital improvements to the property. The arbitrators then
determined "what adjustments were necessary for additional amounts
due either [Plaintiff] or [Defendants]," and calculated interest at
8.5% per annum on these amounts to "arrive at the total amount due
to the respective party for each year involved." Based on these
figures, the arbitrators awarded Plaintiff $80,712.00 in rent due
under the lease.
On 24 June 1998, Plaintiff submitted to the arbitrators an
Application to Modify or Correct the Arbitration Award pursuant to
N.C. Gen. Stat. §§ 1-567.14(a)(1) and 1-567.14(a)(3). Plaintiff
argued the arbitrators used an improper method to calculate the
amount of rent due. According to Plaintiff, the arbitrators
"front-end loaded" all funds due to Defendants, based on
Defendants' investments for capital improvements, into the year in
which the expenditures were made. Plaintiff stated in its
application:
[W]hen the eight and one-half percent per year
interest is not front-end loaded, there areless deductions from the rent due to . . .
[P]laintiff and a greater amount of rent is
due year by year; consequently, as the greater
amount of unpaid rent accrues interest from
the due date to the date of the [Arbitration
Award], . . . there is significantly more owed
from . . . [D]efendant[s] to . . .
[P]laintiff.
Plaintiff, therefore, sought to increase the Arbitration Award to
$166,123.00.
In their response to Plaintiff's application, Defendants
objected to any modification on the ground the arbitrators had no
authority under the Uniform Arbitration Act to award Plaintiff the
relief sought.
On 21 July 1998, the arbitrators issued the Modified Award,
which increased Plaintiff's award to $154,532.00. The Modified
Award stated, in pertinent part:
1. The [a]rbitrators have determined
that they committed an evident miscalculation
of figures when they included all interest
deductions through the date of arbitration for
the year in which the investment was made.
Instead, the [a]rbitrators should have allowed
a deduction or credit for each year from the
year in which the investment was made through
the date of arbitration.
Defendant then filed a motion in the superior court, pursuant
to N.C. Gen. Stat. § 1-567.13(a)(3), to set aside the Modified
Award on the ground the arbitrators "exceeded their authority under
[N.C. Gen. Stat.] § 1-567.10 and § 1-567.14," and Plaintiff filed
a motion in the superior court, pursuant to N.C. Gen. Stat. § 1-
567.12, to confirm the Modified Award. In an affidavit dated 29
October 1998, Richard E. Proctor (Proctor), one of the arbitrators,stated the Arbitration Award was modified because he had "inserted
the wrong formula [when determining the amount due Plaintiff in the
Arbitration Award] which did not achieve the intent of the
[a]rbitrators."
On 5 November 1998, the trial court entered an order setting
aside the Modified Award and confirming the Arbitration Award on
the ground the arbitrators did not have the authority to modify the
Arbitration Award.
___________________________
The dispositive issue is whether the arbitrators based their
determination of funds due to Plaintiff in the Arbitration Award on
an "evident miscalculation of figures," pursuant to N.C. Gen. Stat.
§ 1-567.14(a)(1).
The powers of arbitrators are set forth in the Uniform
Arbitration Act, N.C.G.S. ch. 1, art. 45A. This Act provides an
arbitrator may, upon the application of a party made within twenty
days of the delivery of an arbitration award or upon a court order,
modify or correct the award, in pertinent part, for the grounds
stated in N.C. Gen. Stat. § 1-567.14(a)(1).
(See footnote 1)
N.C.G.S. § 1-567.10
(1999). Section 1-567.14(a)(1) states an award may be modified or
corrected where "[t]here was an evident miscalculation of figuresor an evident mistake in the description of any person, thing or
property referred to in the award." N.C.G.S. § 1-567.14(a)(1)
(1999). This Court has defined an "evident miscalculation of
figures" as "mathematical errors committed by arbitrators which
would be patently clear."
Fashion Exhibitors v. Gunter, 41 N.C.
App. 407, 413, 255 S.E.2d 414, 419 (1979).
In this case, the Arbitration Award stated Defendants were
entitled to an 8.5% return on certain investments used to make
capital improvements to the property, and the arbitrators, based on
these investments, awarded Plaintiff $80,712.00. Plaintiff then
sought a modification of the Arbitration Award on the grounds
stated in N.C. Gen. Stat. §§ 1-567.14(a)(1) and 1-567.14(a)(3),
essentially arguing the arbitrators used the wrong formula to
calculate the award. The arbitrators subsequently issued the
Modified Award, stating they had "committed an evident
miscalculation of figures." The statement of the arbitrators that
they "committed an evident miscalculation of figures," however, is
not controlling. The record shows the Arbitration Award was
modified because the arbitrators used the wrong formula to
calculate the amount due to Plaintiff. Indeed, Proctor's affidavit
states he "inserted the wrong formula" when calculating the
Arbitration Award. The use of an incorrect formula to determine an
award is not an "evident miscalculation of figures."
See Fashion
Exhibitors, 41 N.C. App. at 413, 255 S.E.2d at 419 (use of improper
formula by arbitrators is not an "evident miscalculation of
figures");
Cyclone Roofing Co. v. LaFave, 312 N.C. 224, 235-36, 321S.E.2d 872, 880 (1984) (erroneous decisions made by arbitrat
ors
when calculating award is not an "evident mathematical error[]").
(See footnote 2)
The arbitrators, therefore, did not have the authority under
section 1-567.10 to modify the Arbitration Award. Accordingly, the
trial court properly denied Plaintiff's motion to confirm the
Modified Award and granted Defendants' motion to set aside the
Modified Award.
Affirmed.
Judge EDMUNDS concurs.
Judge TIMMONS-GOODSON dissents.
=========================
TIMMONS-GOODSON, Judge, dissenting.
This is a case of first impression. At issue is whether
arbitrators, on application of a party, have the authority to
modify their own award when the arbitrators are satisfied that they
employed the wrong mathematical formula to arrive at the award.
Pursuant to North Carolina General Statutes section 1-
567.14(a)(1), arbitrators may modify or correct an award where
“[t]here was an evident miscalculation of figures . . . in theaward[.]” N.C. Gen. Stat. § 1-567.14(a)(1) (1996). This Cour
t has
held that an “evident miscalculation of figures” occurs only when
the arbitrators have committed a mathematical error.
Fashion
Exhibitors v. Gunter, 41 N.C. App. 407, 413, 255 S.E.2d 414, 419
(1979);
Cyclone Roofing Co. v. LaFave Co., 312 N.C. 224, 236, 321
S.E.2d 872, 880 (1984).
In the present case, plaintiff argues that the arbitrators
used the wrong method to calculate the interest allowed to
defendants in preparing the Report of Arbitrators. According to
plaintiff, the arbitrators erroneously included all interest
deductions through the date of arbitration for the year in which
the investment was made. Clearly, plaintiff does not argue that
the arbitrators merely committed a mathematical error but instead
argues that the arbitrators employed the wrong mathematical
formula.
However, the line of cases holding that an “evident
miscalculation of figures” occurs only when there has been a
mathematical error does not control in the case at bar. While
previous cases have treated
judicial review of an award of
arbitrators, the present case concerns a modification by the
arbitrators of their own award.
The policies underlying
Gunter and
LaFave Co. have no bearing
on the case at bar. In
Gunter, this Court held that the trial
court may not substitute its interpretation of the evidence for
that of the arbitrators, who heard the testimony and reviewed the
exhibits. According to
Gunter, the true intent of the arbitratorsshould be given effect and reflected in the award because they
heard the evidence. The language of
Gunter makes it clear that it
is the reviewing court, and not the arbitrators themselves, whose
tendency to modify an award must be checked. “G.S. 1-567.14(a)(1)
is not an avenue for
litigants to persuade
courts to review the
evidence and then reach a different result because it might be
interpreted differently.”
Gunter, 41 N.C. App. at 413, 255 S.E.2d
at 419 (emphasis added). “[O]nly awards reflecting mathematical
errors . . . shall be modified or corrected
by the reviewing
courts.
Courts are not to modify or correct matters affecting the
merits which reflect the intent of the arbitrators.”
Id. at 414,
255 S.E.2d at 419 (emphasis added). Similarly, in
LaFave Co., our
Supreme Court held
that the trial court properly refrained from
revising the decision of the arbitrators in light of the fact that
the arbitrators are judges of the parties' choosing.
LaFave Co.,
312 N.C. 224, 321 S.E.2d 872.
In the present case, a reviewing court did not substitute its
will for that of the arbitrators. On the contrary, the arbitrators
settled the matter in controversy without judicial intervention by
modifying their report once they realized it was in error. The
Modification of Report reflected the true intent of the arbitrators
who reviewed the evidence. I do not believe that North Carolina
General Statutes section 1-567.14 (a)(1) requires arbitrators to
refrain from modifying an award which does not reflect their intent
and which the arbitrators themselves recognize to be erroneous and
unjust. Another policy underlying the decisions in
Gunter and
LaFave
Co. is to avoid litigation. According to
Gunter, the reviewing
court may modify an award of arbitrators in limited situations
because “[t]he purpose of arbitration is to settle matters in
controversy and avoid litigation.”
Gunter at 410, 255 S.E.2d at
417.
In the present case, the parties were not subjected to
litigation or any lengthy, costly review. The arbitrators, on
motion of a party, issued a Modification of Report, thereby
settling the matter in controversy without intervention from a
reviewing court. I would conclude that this Court's interpretation
in
Gunter of the statutory language “evident miscalculation of
figures” is not applicable in the case at bar.
Unlike the majority, I believe that North Carolina General
Statutes section 1-567.14(a)(1) permits arbitrators to modify their
own award on motion of a party when the arbitrators acknowledge
that they employed the wrong mathematical formula to arrive at the
award. Where the wrong mathematical formula is employed, and the
arbitrators modify the award so as to reflect their true intent,
the trial court commits reversible error in refusing to confirm the
modification of report. I would hold that the arbitrators in the
present case made an “evident miscalculation of figures” within the
meaning of North Carolina General Statutes section 1-567.14(a)(1),
because to hold otherwise would nullify the intent of the parties
to have the arbitrators decide the case.
Footnote: 1