Review of Michigan Appellate Decisions Concerning Arbitration Part 1 of 2

By Lee Hornberger,
Arbitrator and Mediator

Introduction

This article is the first of two parts reviewing selected Michigan Supreme Court and Court of Appeals cases concerning arbitration.

Michigan Supreme Court Decisions

Waiver of right to arbitration via case management order

Nexteer Auto Corp v Mando Am Corp.[i] Party waived right to arbitration when it stipulated in case management order that arbitration provision did not apply. In dissent, Justice Markman agreed COA correctly held party claiming opposing party had expressly waived contractual right to arbitration does not need to show it will suffer prejudice if waiver not enforced. Markman said COA erred by holding defendant expressly waived right to arbitration by signing case management order which contained checked box next to statement: “An agreement to arbitrate this controversy . . . exists . . . [and] is not applicable.” He would have reversed COA on express waiver and remanded for consideration of whether defendant’s conduct gave rise to implied waiver, waiver by estoppel, or no waiver. Lesson: Be careful when checking boxes.

Not all artwork invoice claims subject to arbitration

Beck v Park West Galleries, Inc,[ii] considered whether arbitration clause in invoices for artwork purchases applied to disputes arising from prior purchases when invoices for prior purchases did not refer to arbitration. MSC held that arbitration clause contained in later invoices cannot be applied to disputes arising from prior sales with invoices that did not contain clause. MSC reversed part of COA judgment that extended arbitration clause to parties’ prior transactions that did not refer to arbitration. MSC recognized policy favoring arbitration of disputes arising under CBAs but said this does not mean arbitration agreement between parties outside collective bargaining context applies to any dispute arising out of any aspect of their relationship.

Arbitrator can hear claims arising after referral to arbitration

Wireless Toyz Franchise, LLC v Clear Choice Commc’n, Inc,[iii] reversed COA and reinstated Circuit Court order denying defendants’ motion to vacate award and confirming award. Dissent in 303619 (May 31, 2012), said stipulated order intended arbitration includes claims beyond those pending because it allowed further discovery, gave arbitrator Circuit Court powers, and award would represent full and final resolution. Claims not pending at time order entered not outside scope of arbitrator’s powers. Lesson: Order to arbitrate language important.

Parental pre-injury waivers and arbitration

Woodman ex rel Woodman v Kera LLC,[iv] five (Justices Young, Hathaway, Kelly, Weaver, and Cavanaugh) to two (Justices Markman and Corrigan) decision authored by Justice Young, held parental pre-injury waiver unenforceable under common law.

MK v Auburnfly, LLC.[v] Parental indemnification agreement violated public policy as found in Woodman.

In 2011, Michigan Legislature enacted MCL 700.5109 which states:

(1) Before a minor participates in recreational activity, a parent or guardian of the minor may release a person from liability for economic or noneconomic damages for personal injury sustained by the minor during the specific recreational activity for which the release is provided.

(2) This section only applies to a recreational activity sponsored or organized by a nongovernmental, nonprofit organization. … .

Ex parte submission to employment arbitration panel inappropriate

Gates v USA Jet Airlines, Inc,[vi] vacated award and remanded case to Circuit Court because one of parties submitted to arbitration panel ex parte submission in violation of arbitration rules. Submission may have violated MRPC 3.4(c) (knowingly disobeying an obligation under the rules of a tribunal) and 3.5(b) (prohibiting ex parte communication regarding pending matter). Lesson: Do not make ex parte submissions in arbitration.

Failure to record DRAA hearing

Kirby v Vance[vii] in lieu of granting leave, reversed COA (278731) and held DRAA arbitrator exceeded authority when arbitrator failed to adequately tape record arbitration proceedings. Circuit Court erred when it failed to remedy arbitrator’s error by conducting its own evidentiary hearing. Supreme Court remanded for entry of order vacating award and ordering another arbitration before same arbitrator. Lesson: Make sure recorder working.

Formal hearing format not required in DRAA arbitration

Miller v Miller.[viii] DRAA does not require formal hearing concerning property issues similar to that which occurs in regular trial proceedings.

Michigan Court of Appeals –Published Decisions

COA reverses Circuit Court order asking question of arbitrator in prior case

Mahir D Elder, MD, PC v Deborah Gordon, PLC.[ix] Plaintiff sued former employer for wrongful termination and received large monetary award from arbitration proceeding. Award stated plaintiff should receive compensation as calculated by Chart B, but award then listed lower monetary amount from Chart A. Plaintiff’s attorney in termination action did not notice discrepancy and confirmed award. Prior case was then dismissed. When original plaintiff sued his attorney for legal malpractice, Circuit Court decided to send question to arbitrator to determine whether arbitrator meant to award plaintiff amount stated in award. Plaintiff appealed. COA reversed. “After you have reviewed the materials, please confirm whether you intended to award Dr. Elder $5,516,907 in back pay, front pay and exemplary damages, or some other amount?” MCL 691.1694(4) precludes “any statement, conduct, decision, or ruling occurring during the arbitration proceeding.” This prohibits compelling arbitrators from giving evidence as a witness regarding statements, conduct, decisions, or rulings that it may have made during arbitration proceeding. Lesson: Read award carefully.

Pre-dispute arbitration agreement in legal malpractice case

Tinsley v Yatooma[x] involved pre-dispute arbitration provision in legal malpractice case. COA held under MRPC 1.8(h)(1) and EO R-23 arbitration provision enforceable because client consulted with independent counsel. COA: “We suggest contemplation by the State Bar of Michigan and our Supreme Court of an addition to or amendment of MRPC 1.8 to specifically address arbitration clauses in attorney-client agreements.”

Michigan Rules of Professional Conduct, Rule 1.19, effective Sep 1, 2022, says,

Rule 1.19. Lawyer-Client Representation Agreements: Arb Provisions

A lawyer shall not enter into agreement for legal services with client requiring that any dispute between lawyer & client be subject to arb unless client provides informed consent in writing to arb provision, which is based on being:

(a) reasonably informed in writing regarding scope & advantages & disadvantages of arb provision, or

(b) independently represented in making agreement.

Lesson: Study RPC Rule 1.19 before entering into arbitration agreement with client.

DRAA award partially vacated

Eppel v Eppel.[xi] COA held arbitrator deviated from plain language of Uniform Spousal Support Attachment by including profit from ASV shares. Deviation held substantial error which resulted in substantially different outcome. Deviation readily apparent on face of award.

Pre-arbitration hearing email submission of exhibits

Fette v Peters Constr Co.[xii] Michigan Arbitration Act[xiii] controlled; not Uniform Arbitration Act.[xiv] Record did not support plaintiffs’ contention arbitrator considered exhibits defendant electronically shared before hearing in making award determination. Even if award against great weight of evidence or not supported by substantial evidence, COA precluded from vacating award. Allowing parties to electronically submit evidence prior to hearing did not affect plaintiffs’ ability to present evidence they desired. Lesson: Consider ramifications of emailing exhibits to arbitrator and whether exhibits are in evidence or not.

About the Author

Lee Hornberger is a member of the National Academy of Arbitrators, the Professional Resolution Experts of Michigan (PREMi), and a Diplomate Member of The National Academy of Distinguished Neutrals. He is a former Chair of the Alternative Dispute Resolution Section of the State Bar of Michigan, Editor Emeritus of The Michigan Dispute Resolution Journal, a former member the SBM Representative Assembly, a former President of the Grand Traverse-Leelanau-Antrim Bar Association, and a former Chair of the Traverse City Human Rights Commission. He has received the Distinguished Service Award, the George N. Bashara, Jr. Award, and Hero of ADR Awards from the SBM ADR Section.

[i] 500 Mich 955; 891 NW2d 474, 153413 (2017), lv den from 314 Mich App 391; 886 NW2d 906 (2016).

[ii] 499 Mich 40; 878 NW2d 804 (2016), partially reversed COA 319463 (2015).

[iii] 493 Mich 933, 825 NW2d 580 (2013).

[iv] 486 Mich 228; 785 NW2d 1 (2010).

[v] ___ Mich App ___, 364577 (Dec 17, 2024).

[vi] 482 Mich 1005; 756 NW2d 83 (2008),

[vii] 481 Mich 889; 749 NW2d 741 (2008),

[viii] 474 Mich 27; 707 NW2d 341 (2005).

[ix] 343 Mich App 388, 359225 (Sep 22, 2022).

[x] 333 Mich App 257, 349354 (Aug 13, 2020), lv den.

[xi] 322 Mich App 562 (2018).

[xii] 310 Mich App 535; 871 NW2d 877 (2015).