Domestic Uniform Rental v. A2 Auto Center ( 2022 )

If this opinion indicates that it is “FOR PUBLICATION,” it is subject to
revision until final publication in the Michigan Appeals Reports.
STATE OF MICHIGAN
COURT OF APPEALS
DOMESTIC UNIFORM RENTAL, UNPUBLISHED
February 17, 2022
Plaintiff-Appellee,
v No. 355780
Oakland Circuit Court
A2 AUTO CENTER, A2 AUTO CENTER MAIN, LC No. 2020-182065-CB
LLC, A2 AUTO CENTER, INC., and MAJED
KAHALA,
Defendants-Appellants.
Before: K. F. KELLY, P.J., and SAWYER and GADOLA, JJ.
PER CURIAM.
In this commercial contract dispute, defendants appeal as of right the trial court’s judgment
confirming an arbitration award for plaintiff. Defendants argue the trial court erred by confirming
the arbitration award because (1) two of defendants were not party to the agreement; (2) the
arbitrator used expedited procedures without agreement of defendants; and (3) the trial court
inappropriately referred to the arbitrator the question whether defendants were properly served
notice of the arbitration. We agree the trial court erred only insofar as it confirmed, without
explanation, the arbitration award against A2 Auto Center Main, LLC. Accordingly, we vacate
the trial court judgment only insofar as it relates to A2 Auto Center Main, LLC, remand for further
proceedings, and affirm in all other respects.
Plaintiff signed a contract (or “rental agreement”) to provide “A2 Auto Center”—listed as
the “customer” and the contracting party—with uniforms, shop towels, and mats. The rental
agreement was also signed by Majed Kahala, identified as “Owner.” The address listed for A2
Auto Center was “1500 E Stadium,” Ann Arbor, Michigan. The agreement contained an
arbitration provision. A dispute arose, and plaintiff mailed a demand for arbitration to the
American Arbitration Association (AAA), indicating “A2 Auto Center” and Kahala were copied
on the demand. Various notices were then sent directly from the AAA to defendants at several
addresses, including 1500 East Stadium, Ann Arbor, Michigan. Defendants did not appear in the
arbitration proceedings until after an award was issued and they were served with notice of
plaintiff’s circuit court action for confirmation of the award.
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In the trial court, plaintiff moved for confirmation of the award, and defendants moved to
vacate the award, making various arguments, including that they were not given proper notice of
the arbitration process. The trial court referred the question whether notice was properly given
under the AAA rules to the arbitrator. The arbitrator determined notice was properly given under
the AAA rules, and the trial court entered judgment confirming the award.
“A trial court’s decision to enforce, vacate, or modify an arbitration award is reviewed de
novo.” Nordlund & Assoc, Inc v Hesperia, 288 Mich App 222, 226; 792 NW2d 59 (2010).1 This
Court reviews “the legal issues presented without extending any deference to the trial court.
Whether an arbitrator exceeded his or her authority is also reviewed de novo.” Radwan v
Ameriprise Ins Co, 327 Mich App 159, 164; 933 NW2d 385 (2018) (quotation marks and citations
omitted). The reviewing court’s role is generally limited to correcting errors of law which
significantly affected the award, and which are evident from the face of the award or the “reasons
for the decision as stated.” TSP Servs, Inc v Nat’l-Standard, LLC, 329 Mich App 615, 620; 944
NW2d 148 (2019). However, certain “threshold question[s]” may be for the trial court in the first
instance. See Altobelli v Hartmann, 499 Mich 284, 294-305; 884 NW2d 537 (2016) (analyzing
“threshold question of whether a dispute is arbitrable” without reference to correction of only
errors apparent on face of award).2
I. PARTIES TO THE RENTAL AGREEMENT
Defendants first argue confirmation of the award was error with regard to A2 Auto Center,
Inc., and A2 Auto Center Main, LLC, because those two defendants were not party to the rental
agreement, and thus never agreed to arbitrate any disputes.
1
While Nordlund predated the current arbitration statutory regime, the Uniform Arbitration Act
(“UAA”), MCL 691.1681 et seq., the standard of review is unchanged. See Radwan v Ameriprise
Ins Co, 327 Mich App 159, 164; 933 NW2d 385 (2018) (“This Court reviews de novo a trial
court’s ruling on a motion to vacate or modify an arbitration award.” (quotation marks and citations
omitted)).
In general, we recognize some cases cited in this opinion predate the UAA or arose in other
contexts. We cite such cases as persuasive authority, or because they relate to principles consistent
with the UAA. See Wold Architects & Engineers v Strat, 474 Mich 223, 236; 713 NW2d 750
(2006) (noting common-law principles generally remain in force unless clearly modified by the
Legislature).
2
While not challenging this Court’s jurisdiction to hear the case under MCR 7.202(6)(a) or MCL
691.1708, plaintiff argues we have no subject-matter jurisdiction over the issues raised by
defendants. All of defendants’ issues present, at least in part, legal questions. Legal errors by the
arbitrator can be corrected by the courts under certain circumstances. See Altobelli, 499 Mich at
294-305; TSP Servs, Inc, 329 Mich App at 620. Plaintiff makes no persuasive argument that this
Court would lack subject-matter jurisdiction to review the issues in this case under the appropriate
deferential legal standards for arbitration proceedings. See Radwan, 327 Mich App at 164-165.
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The parties all recognize the rental agreement is governed by the Uniform Arbitration Act
(“UAA”), MCL 691.1681 et seq. Under the UAA, the trial court “shall vacate” an arbitration
award on motion if:
(d) An arbitrator exceeded the arbitrator’s powers.
(e) There was no agreement to arbitrate, unless the person participated in the
arbitration proceeding without raising the objection under section 15(3) not later
than the beginning of the arbitration hearing. [MCL 691.1703(1)(d) and (e).]
The provisions of MCL 691.1703 cannot be modified by the parties to an arbitration agreement.
MCL 691.1684(3).
In terms of which entity is to decide the foundational issues in an arbitration case, the
default rule is:
(2) The court shall decide whether an agreement to arbitrate exists or a controversy
is subject to an agreement to arbitrate.
(3) An arbitrator shall decide whether a condition precedent to arbitrability has been
fulfilled and whether a contract containing a valid agreement to arbitrate is
enforceable. [MCL 691.1686(2) and (3).]
These provisions may be modified by contract. MCL 691.1684. The rental agreement in this case
does contain provisions which might give the arbitrator power to rule on the existence of an
arbitration agreement and related issues. However, only a party to the rental agreement can be
said to have agreed to such terms, so they cannot confer power on the arbitrator with regard to
nonparties to the rental agreement.
“[A] party cannot be required to arbitrate an issue which [it] has not agreed to submit to
arbitration.” Altobelli, 499 Mich at 295 (quotation marks and citation omitted). Moreover, “a
party cannot be required to arbitrate when it is not legally or factually a party to the agreement.”
Hetrick v Friedman, 237 Mich App 264, 267; 602 NW2d 603 (1999) (quotation marks and citation
omitted), overruled on other grounds by Wold Architects & Engineers v Strat, 474 Mich 223, 236;
713 NW2d 750 (2006); see also St Clair Prosecutor v American Federation of State, Co & Muni
Employees, 425 Mich 204, 208, 222-224; 388 NW2d 231 (1986) (discussing, in collective
bargaining context, the issue of proper parties to the agreement as a threshold question).
The governing law and statutory provisions require the trial court to determine whether the
disputed defendants were parties to the arbitration agreement—i.e., whether an agreement exists
with respect to those defendants. See MCL 691.1686(2). Because this is a threshold issue and
properly for the trial court to decide, our review is not limited to correction of only significant
legal errors apparent on the face of the award. See Altobelli, 499 Mich at 294-305 (analyzing
“threshold question of whether a dispute is arbitrable” without reference to correction of only
errors apparent on face of award); cf Radwan, 327 Mich App at 165 (analyzing whether arbitrator
exceeded his powers by making legal error regarding collateral estoppel under deferential
standard).
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The rental agreement lists “A2 Auto Center” as the customer, and lists 1500 East Stadium,
Ann Arbor, Michigan, as its address. With regard to A2 Auto Center, Inc., though on appeal
defendants argue it was not a party to the contract, this represents a change of position. On
November 16, 2020, defendants, including A2 Auto Center, Inc., submitted an affidavit by Kahala,
in which he averred the rental agreement related to supplies for A2 Auto Center, Inc., and that
Kahala signed the rental agreement “in [his] capacity as manager of A2 Auto Center, Inc.”
Furthermore, Kahala averred A2 Auto Center, Inc., operated at the 1500 East Stadium address,
while A2 Auto Center Main, LLC, operated at 907 North Main Street. “A party may not take a
position in the trial court and subsequently seek redress in an appellate court that is based on a
position contrary to that taken in the trial court.” Kloian v Domino’s Pizza LLC, 273 Mich App
449, 455 n 1; 733 NW2d 766 (2006) (quotation marks and citation omitted). Accordingly, there
was no error in confirming the award against A2 Auto Center, Inc.
This leaves the question whether A2 Auto Center Main, LLC, was also a party to the
contract. The trial court did not address the question which defendants were parties to the rental
agreement, instead referring at times to a single “defendant,” as if all defendants were the same
entity. However, Michigan law respects the separate existences of corporate entities—and limited-
liability companies—even when one entity owns another, or when a single individual owns an
entire entity. See Wells v Firestone Tire & Rubber Co, 421 Mich 641, 650; 364 NW2d 670 (1984)
(“We recognize the general principle that in Michigan separate entities will be respected.”);
Gledhill v Fisher & Co, 272 Mich 353, 357-359; 262 NW 371 (1935) (in contract case, discussing
circumstances under which owner of corporate entity might be held liable for subsidiary’s actions);
Rymal v Baergen, 262 Mich App 274, 293; 686 NW2d 241 (2004) (“The law treats a corporation
as an entirely separate entity from its shareholders, even where one individual owns all the
corporation’s stock.”); Salem Springs, LLC v Salem Twp, 312 Mich App 210, 222-223; 880 NW2d
793 (2015) (applying these principles to a limited-liability company). As such, it cannot simply
be assumed that all the A2 Auto Center entities were parties to the contract, or can be held
responsible for each other’s contracts.
We conclude the trial court erred by confirming the award against A2 Auto Center Main,
LLC, without any indication the trial court considered whether this defendant was a party to the
rental agreement. Rather than determining on appeal whether A2 Auto Center Main, LLC, was a
party to the rental agreement, we remand so that the trial court may make this determination in the
first instance. See Gottesman v City of Harper Woods, ___ Mich ___, ___; 964 NW2d 365, 366
(2021) (noting this Court has discretion to remand issue not previously addressed to trial court for
decision in first instance); ER Zeiler Excavating, Inc v Valenti Trobec Chandler, Inc, 270 Mich
App 639, 649; 717 NW2d 370 (2006) (remanding for trial court to determine whether summary
disposition should be granted to the plaintiff because, even though the plaintiff’s position appeared
correct, the trial court had not yet addressed plaintiff’s argument).
II. USE OF EXPEDITED PROCEDURES
Defendants next argue the trial court erred by confirming the arbitration award despite the
arbitrator’s use of expedited procedures, contrary to AAA rules. Defendants admit this issue is
unpreserved. Even were we to overlook the preservation requirement and review this issue, Smith
v Foerster-Bolser Constr, Inc, 269 Mich App 424, 427; 711 NW2d 421 (2006), defendants would
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not be entitled to relief under the general standard for reviewing confirmation of an arbitration
award, let alone under plain error review.3
As a general rule, “[b]ecause arbitrators are comparatively more expert about the meaning
of their own rule[s], arbitrators, and not the courts, should resolve procedural matters.” Fette v
Peters Constr Co, 310 Mich App 535, 546; 871 NW2d 877 (2015) (quotation marks and citation
omitted). Moreover, generally, an arbitrator’s legal errors are only subject to correction if they are
“so substantial that, but for the error, the award would have been substantially different.” Radwan,
327 Mich App at 165 (quotation marks and citation omitted). Likewise, under the plain error
standard, errors may generally only be corrected if they affected the outcome of the proceeding.
Bennett v Russell, 322 Mich App 638, 643; 913 NW2d 364 (2018). Defendants have offered no
explanation of how they were prejudiced by the use of expedited procedures in the underlying
arbitration, and their argument thus clearly fails.
III. NOTICE
Finally, defendants argue the trial court impermissibly referred to the arbitrator the question
whether notice of the arbitration proceeding was properly given. We disagree.
Under the UAA, an arbitration award shall be vacated, on motion, if “[t]he arbitration was
conducted without proper notice of the initiation of an arbitration as required in [MCL 691.1689]
so as to prejudice substantially the rights of a party to the arbitration proceeding.” MCL
691.1703(1)(f). MCL 691.1689(1), in turn, states that notice must be given “in the agreed manner
between the parties or, in the absence of agreement, by certified or registered mail, return receipt
requested and obtained, or by service as authorized for the commencement of a civil action.” The
rental agreement in this case stated arbitration would be “held in accordance with” the AAA rules,4
and had other specific notice requirements for “deficiencies in service, termination of this
agreement, or cancellation of the automatic renewal clause.” The AAA rules allow notice of the
initiation of arbitration to be given “by mail.” 2013 AAA Commercial Arbitration Rules and
Mediation Procedures, Rule 43(a).
Defendants argue the trial court wrongly relied on the arbitrator to decide whether service
of the initiation of arbitration in this case was governed by the AAA rules. However, the trial
court in fact referred to the arbitrator the question “if the Defendant, Respondent, received notice
as required by the Rules of the American Arbitration Association of the pending Arbitration
3
“To avoid forfeiture under the plain error rule, three requirements must be met: 1) the error must
have occurred, 2) the error was plain, i.e., clear or obvious, 3) and the plain error affected
substantial rights.” Bennett v Russell, 322 Mich App 638, 643; 913 NW2d 364 (2018) (citation
and quotation marks omitted). “Generally, an error affects substantial rights if it caused prejudice,
i.e., it affected the outcome of the proceedings.” In re Utrera, 281 Mich App 1, 9; 761 NW2d 253
(2008).
4
Parties to an arbitration agreement may not “unreasonably restrict the right . . . to notice of the
initiation of an arbitration proceeding.” MCL 691.1684(2)(b). However, there is no suggestion
by the parties that this provision would be relevant in this case.
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hearing” (emphasis supplied). The trial court specified that if the arbitrator determined there was
proper notice, the award would be confirmed. The trial court thus itself decided that notice under
the AAA rules would be sufficient, and asked the arbitrator to determine if such notice was given.
The trial court’s oral remarks after the arbitrator issued findings of fact on notice confirm this
understanding of the trial court’s actions.
Defendants’ argument is thus based on a mistaken interpretation of the trial court’s actions.
The arbitrator did address the question whether notice given in accordance with the AAA rules
would be sufficient, and came to the same conclusion as the trial court, but the record indicates the
trial court had already independently reached that conclusion.5
The arbitrator was only tasked with deciding whether the AAA service rules were complied
with. There was no error in allowing the arbitrator to make this determination.6 First, proper
notice may be considered a “condition precedent to arbitrability,” and “[a]n arbitrator shall decide
whether a condition precedent to arbitrability has been fulfilled and whether a contract containing
a valid agreement to arbitrate is enforceable.” MCL 691.1686(3). See BG Group, PLC v Republic
of Argentina, 572 US 25, 34-35; 134 S Ct 1198; 188 L Ed 2d 220 (2014) (holding, in federal
arbitration context, that arbitrators are presumed to be the appropriate entity to decide “procedural
preconditions for the use of arbitration,” including “notice . . . and other conditions precedent to
an obligation to arbitrate” (quotation marks and citation omitted)).
Second, the AAA rules, which were incorporated into the rental agreement, also allow the
arbitrator to rule on “his or her own jurisdiction,” as well as to “interpret and apply these rules
insofar as they relate to the arbitrator’s powers and duties.” 2013 AAA Commercial Arbitration
Rules and Mediation Procedures, Rules 7(a) and 8. Moreover, as already noted, generally,
“arbitrators, and not the courts, should resolve procedural matters.” Fette, 310 Mich App at 546.
IV. CONCLUSION
We vacate the trial court judgment confirming the arbitration award only with respect to
A2 Auto Center Main, LLC, remand for further proceedings, and affirm in all other respects. We
do not retain jurisdiction. Appellant A2 Auto Center Main, LLC, may tax costs. Appellee may
tax costs against remaining appellants.
/s/ Kirsten Frank Kelly
/s/ David H. Sawyer
/s/ Michael F. Gadola
5
On appeal defendants do not directly challenge the determination that notice in compliance with
the AAA rules was all that the rental agreement required—instead focusing on their argument that
the arbitrator could not make such a determination.
6
Again, defendants do not directly challenge the arbitrator’s conclusion that proper service was
made under the AAA rules. They only challenge the arbitrator’s power to make such a
determination.
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