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All opinions are subject to modification and technical correction prior to official publication in the North Carolina Reports and North Carolina Court of Appeals Reports. In the event of discrepancies between the electronic version of an opinion and the print version appearing in the North Carolina Reports and North Carolina Court of Appeals Reports, the latest print version is to be considered authoritative.
JEFFREY B. CARROLL, v. JAMES P. FERRO; DELPHIN PROPERTIES, LLC;
COMMUNITY LAND ASSOCIATES, LLC and ASSOCIATES HOUSING FINANCE,
Filed: 05 September 2006
1. Arbitration and Mediation_modification or vacation of award_grounds and
The trial court erred by modifying an arbitrator's award based on a ruling that the
arbitrator had exceeded his authority in making an award greater than the established cap. This is
a ground for vacating the award, but not for modifying or correcting the award.
2. Arbitration and Mediation_arbitration_untimeliness of award_waiver
Failure to object to the untimeliness of an arbitration award before entry constitutes a
waiver of such an objection regardless of whether defendants base their claim on 9 U.S.C. § 10
or N.C.G.S. § 1-567.13.
3. Arbitration and Mediation_arbitration_legal issue_arbitrator's decision not
An arbitrator is not bound by substantive law and legal arguments are not grounds for
vacating an arbitration award. The trial court here was without authority to disturb an arbitrator's
conclusions on the issue of a violation of the Unfair and Deception Trade Practices Act.
Appeal by plaintiff and defendants from order entered 28 July
2005 by Judge Timothy L. Patti in Mecklenburg County Superior
Court. Heard in the Court of Appeals 7 June 2006.
Harris, Flanagan & Hilton, P.A., by Nelson G. Harris, for
James, McElroy & Diehl, P.A., by Richard B. Fennell,
Preston O. Odom, III and J. Mitchell Aberman, for
Plaintiff and defendant James Ferro (Ferro) began a business
relationship in August of 1998, which involved the acquisition and
development of manufactured home communities. As part of thisrelationship, a number of limited liability companies were formed,
including defendant Delphin Properties, LLC (Delphin) and defendant
Community Land Associates, LLC (Community Land), who, along with
James Ferro are the defendants (defendants) for the purposes of
this appeal. Delphin and Community Land both had operating
agreements, signed by plaintiff and Ferro, which included
arbitration clauses. These arbitration clauses permitted any party
to require submission of a dispute to arbitration should good faith
attempts to resolve a dispute fail.
Plaintiff filed a complaint in Mecklenburg County Superior
Court on 2 October 2002 containing twenty-seven counts against
defendants, including breach of contract, breach of fiduciary duty
and unfair and deceptive trade practices. In response to a motion
to dismiss filed by defendants arguing that the matter should be
sent to binding arbitration, the trial court stayed the action
pending arbitration by order entered 22 January 2003. William B.
Sullivan (arbitrator) was the designated arbitrator in this matter.
Pursuant to the Rules of the American Arbitration Association for
Commercial Arbitration, parties are required to pay fees
correlating to the amount of the award sought. Plaintiff sent a
check to the AAA for $3,250.00, which constituted the fee for
arbitration when plaintiff had not yet estimated his damages at the
time of filing. The arbitrator subsequently informed plaintiff
that he required a more definite estimate of plaintiff's damages in
order to proceed with the arbitration, and plaintiff responded with
an estimate of $499,999.00. Plaintiff later increased his estimateof damages to $1,000,000.00, and payed AAA the amount necessary to
cover its fees for that amount. Plaintiff did not attempt to
increase his estimate of damages above $1,000,000.00 before the
award was rendered.
The arbitrator entered his award on 17 December 2004, finding
in favor of plaintiff with actual damages in the amount of
$876,408.00. This amount was trebled to $2,629,224.00 based upon
a finding that defendants' action constituted a violation of North
Carolina's Unfair and Deceptive Trade Practices Act. Additional
damages were assessed, raising the total award to $2,667,913.82.
On 28 March 2005, defendants filed a motion to vacate, or in
the alternative, modify or correct the arbitration award.
Defendants argued that the entire award should be vacated because
the arbitrator failed to make the award within the thirty days
required by the AAA Rules. Defendant argued in the alternative
that the award should be modified, because the arbitrator had no
authority to make an award in excess of $1,000,000.00, and because
defendants' actions did not constitute unfair and deceptive trade
practices as a matter of law.
On 28 July 2005, Judge Patti filed his Order Confirming
Partially Vacated, Modified, and Corrected Arbitration Award in
which he ruled that because plaintiff had only paid AAA a fee
supporting an award up to $1,000,000.00, the arbitrator was not
permitted to grant an award to plaintiff exceeding that amount.
Judge Patti then reduced the award from $2,667,913.82 to
$1,000,000.00, and confirmed the modified award. Judge Pattidenied defendants' request to vacate the award in toto, and ruled
that though he agreed with defendants' argument concerning the
applicability of the North Carolina Unfair and Deceptive Trade
Practices Act to this case, he was without authority to disturb the
arbitrator's ruling on that matter. From this order both plaintiff
and defendants appeal.
 In plaintiff's first argument, he contends that the trial
court erred in modifying the award of the arbitrator. We agree.
In its 20 July 2005 order, the trial court ruled that the
arbitrator had exceeded or imperfectly executed his powers and
authority in awarding [plaintiff] an amount greater than
$1,000,000.000 [sic], warranting vacatur, modification, and
correction of the Arbitration Award. The trial court based this
ruling on its determination that the arbitrator had established a
cap on the award of $1,000,000.00, based upon the AAA fees
plaintiff had paid, then improperly exceeded this cap by awarding
plaintiff $2,667,913.82. The trial court therefore concluded that
the Arbitration Award should be vacated, modified and corrected to
provide that [plaintiff] may only collect from Arbitration
Defendants, in the aggregate, the total principal sum of
$1,000,000.00, plus interest thereon at the legal rate from the
date of entry of this Order. Though the trial court includes the
word vacated in its order, it is clear to this Court that the
trial court's reduction of the award from $2,667,913.82 to$1,000,000.00 constituted a modification or correction of the
award, not vacatur.
The trial court did not rule on whether the arbitration
agreement in question is governed by the Federal Arbitration Act
(FAA) or the North Carolina Uniform Arbitration Act (NCUAA),
stating: This Court need not resolve the parties' choice-of-law
dispute because . . . . [the] disposition would be the same whether
the FAA or the NCUAA controls. We note that whether the FAA or
the NCUAA controls is generally a question of fact which this Court
should not decide for the first time on appeal.
Eddings v. S.
Orthopedic & Musculoskeletal Assocs., P.A.
, 147 N.C. App. 375, 385,
555 S.E.2d 649, 656 (2001), reversed, dissent adopted by
, 356 N.C.
285, 569 S.E.2d 645 (2002)
. The language of the relevant federal
and state statutes are, however, very similar. Under either
statute, the trial court may modify or correct an award only if:
there was an evident material
miscalculation of figures or an evident
material mistake in the description of any
person, thing, or property referred to in the
2) the arbitrators have awarded upon a matter
not submitted to them and the award may be
corrected without affecting the merits of the
decision upon the issue submitted, or
3) the award is imperfect in matter of form
not affecting the merits of the controversy.
and N.C. Gen. Stat. § 1-567.14 (2002)
(See footnote 1)
. The grounds for vacatur of an arbitration award are different.
The trial court may vacate an award upon grounds specified in 9
or N.C. Gen. Stat. § 1-567.13 (2002). One of these
grounds is a finding that the arbitrators exceeded their powers.
and N.C. Gen. Stat. § 1-567.13 (2002) (9 U.S.C.
includes this additional language: arbitrators exceeded their
powers, or so imperfectly executed them that a mutual, final, and
definite award upon the subject matter submitted was not made.).
As noted above, the trial court based its ruling on its
determination that the arbitrator exceeded or imperfectly executed
his powers and authority in making his award. This is a ground
for vacating an award under 9 U.S.C.
or N.C. Gen. Stat. § 1-
567.13 (2002), this is not a ground for modifying or correcting an
award. There is nothing in the 20 July 2005 order indicating that
the trial court considered the proper standard for modifying or
correcting the award of the arbitrator, and nothing in the order
indicating that the trial court determined there were grounds
pursuant to either 9 U.S.C.
or N.C. Gen. Stat. § 1-567.14
(2002) supporting modification or correction of the award. We
therefore remand this case to the trial court with instructions to
either make findings of fact and conclusions of law in support of
any modification of the arbitrators award, as permitted under 9
or N.C. Gen. Stat. § 1-567.14 (2002), or otherwise act
consistent with this opinion and the law. In light of this
holding, we do not address plaintiff's other arguments on appeal.
 In defendants' first argument, they contend the trial
court erred in not completely vacating the arbitration award
because the arbitrator exceeded his powers by failing to timely
enter the award. We disagree.
Rule 43 of the Arbitration Rules of the American Arbitration
Association in effect at the time the administrative filing
requirements in this matter were met states:
The award shall be made promptly by the
arbitrator and, unless otherwise agreed by the
parties or specified by law, no later than 30
days from the date of closing the hearing, or,
if oral hearings have been waived, from the
date of the AAA's transmittal of the final
statements and proofs to the arbitrator.
It is undisputed that the arbitrator made the award outside the 30
day period mandated by the AAA Rules. Defendants argue this
failure to enter the award in a timely manner constituted
exceeding the powers of the arbitrator, and warranted vacatur of
the award pursuant to either 9 U.S.C.
or N.C. Gen. Stat. § 1-
567.13 (2002). Defendants make no argument that violation of Rule
43 mandates per se vacatur of the award, and nothing in the AAA
Rules suggests such a mandate.
Defendants did not object to the untimeliness of the award
until after it was rendered (and they had determined that the award
was not in their favor). We hold that failure to object to the
untimeliness of the award before entry constitutes a waiver,
regardless of whether defendants base their claim on 9 U.S.C.
or N.C. Gen. Stat. § 1-567.13 (2002). See In re Arbitration No.
AAA13-161-0511-85 under Grain Arbitration Rules, 867 F.2d 130, 134-35 (2d Cir. 1989); Jones v. St. Louis-San Francisco Ry. Co., 728
F.2d 257, 266 (6th Cir. 1984); Huntington Alloys, Inc. v. United
Steelworkers of America, 623 F.2d 335, 339 (4th Cir. 1980); West
Rock Lodge, etc. v. Geometric Tool Co., etc., 406 F.2d 284, 287 (2d
Cir. 1968); N.C. Gen. Stat. § 1-567.9 (2002). This argument is
 In defendants' second argument, they contend that the
trial court erred in not eliminating the North Carolina Unfair and
Deceptive Trade Practices Act award from the arbitration award. We
The arbitrator found that Ferro violated the North Carolina
Unfair and Deceptive Trade Practices Act by his conduct as
managing member of Delphin and Community [Land] vis-a-vis
[plaintiff]. . . . Defendants argue that the arbitrator
improperly found Ferro's actions constituted unfair and deceptive
trade practices, because his actions were not in or affecting
commerce as required by N.C. Gen. Stat. § 75-1.1(a) (2005). The
trial court agreed with defendants that Ferro's actions did not
constitute unfair and deceptive trade practices, but ruled: The
Arbitrator's application of the NCUDTPA in this case, while
erroneous and unfortunate, is not correctable upon judicial
Without addressing whether the arbitrator was correct in his
application of our Unfair and Deceptive trade Practices Act to this
case, we agree with the trial court that it was without authority
to disturb the arbitrator's conclusions on this matter. [L]egalarguments are not grounds for vacating an arbitration award . . .
. Indeed, 'an arbitrator is not bound by substantive law or rules
of evidence, [and] an award may not be vacated merely because the
arbitrator erred as to law or fact. Where an arbitrator makes such
a mistake, it is the misfortune of the party.' Smith v. Young
Moving & Storage, Inc., 167 N.C. App. 487, 489-90, 606 S.E.2d 173,
175-76 (2004) (citations omitted). If the courts were to
invalidate awards based upon errors of law, it would '[open the]
door for coming into court in almost every case; for in nine cases
out of ten some mistake either of law or fact may be suggested by
the dissatisfied party. Thus . . . arbitration, instead of ending
would tend to increase litigation.' Carteret County v. United
Contractors, 120 N.C. App. 336, 347, 462 S.E.2d 816, 823-24 (1995)
(citations omitted). Assuming arguendo the arbitrator erred in his
application of the law, this does not constitute him exceeding his
authority warranting vacatur. Id., see also Cyclone Roofing Co. v.
LaFave Co., 312 N.C. 224, 236, 321 S.E.2d 872, 880 (1984). This
argument is without merit.
We reverse the trial court's ruling modifying the award to
plaintiff and remand for further action consistent with this
opinion. In all other respects, the order is affirmed.
AFFIRMED IN PART, REVERSED AND REMANDED IN PART.
Judges McGEE and ELMORE concur.
This section was repealed effective 1 January 2004, and
replaced by Article 45C of Chapter 1, N.C. Gen. Stat. § 1-569.1,
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