Bates v. McQueen

Present: All the Justices

DAVID M. BATES
OPINION BY
v. Record Nos. 042228 & 042639 JUSTICE CYNTHIA D. KINSER
June 9, 2005
JOHN B. McQUEEN, D/B/A
CYPRESS SPRINGS LOGGING

FROM THE CIRCUIT COURT OF SURRY COUNTY
Samuel E. Campbell, Judge

The primary issue in these appeals concerns the

failure of arbitrators to conduct a hearing. The

appellant, David M. Bates, challenges both the circuit

court’s judgment affirming an arbitration award in favor of

the appellee, John B. McQueen, d/b/a Cypress Springs

Logging, and the circuit court’s award of attorney’s fees

to McQueen. Because we conclude that a hearing is required

by the terms of Code §§ 8.01-581.04 and -581.010(4), and

because the issue of attorney’s fees must be decided by

arbitrators, we will reverse the judgments of the circuit

court.

MATERIAL FACTS AND PROCEEDINGS

Bates and McQueen entered into a written “TIMBER SALE

AGREEMENT” (the Agreement) dated September 6, 2001, in

which McQueen agreed to purchase certain trees located on a

parcel of real estate situated in Surry County and owned by
Bates.1 As pertinent to the issue on appeal, the Agreement

contained the following provision regarding arbitration:

ARBITRATION: Should any disagreement arise under or
by virtue of this contract concerning the cutting
operation contemplated herein, each of the parties
hereto, his or its heirs, executors, administrators,
successors or assigns agree to arbitrate the
controversy and submit the controversy to two
disinterested arbitrators, one to be chosen by each of
the parties, and, in case they disagree, the two shall
choose a third disinterested arbitrator, and the
decision of two of the arbitrators shall be final and
binding upon all the parties after it has been
rendered in writing.

Soon after McQueen commenced the timber harvest, a

dispute arose between the parties about the “cutting

operation.” Pursuant to the terms of the Agreement, each

party selected an arbitrator. The two arbitrators, who

were both familiar with timber harvesting operations, were

unable to agree upon a resolution of the dispute, and each

therefore submitted a written report outlining their

respective determinations. While one report showed no

date, the other report was dated December 10, 2001. At

some point thereafter, the two arbitrators appointed a

third arbitrator as required by the terms of the Agreement.

Before the third arbitrator, a registered forester,

1
The name of the buyer listed in the Agreement is
Cypress Springs Logging, Inc., not John B. McQueen, d/b/a
Cypress Springs Logging. There is no issue before us
concerning this discrepancy. Thus, we will treat the
corporate entity and McQueen as one and the same, as do the
parties.

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submitted a written report, McQueen filed a motion for

judgment against Bates on January 30, 2002. More than a

year later, the third arbitrator sent a report to the other

two arbitrators. McQueen’s designated arbitrator

subsequently indicated in writing his agreement with the

third arbitrator’s recommendations.

In McQueen’s motion for judgment, he alleged that

Bates had breached the Agreement by blocking McQueen’s

access to the timber, thereby preventing McQueen from

completing the timber harvest and forcing him to expend

additional time to remove the timber that he had cut. In

response, Bates filed a grounds of defense and a

counterclaim. In the counterclaim, Bates alleged that

McQueen had breached the Agreement by clearing logging

decks in locations on the property that Bates had not

approved, by cutting timber that was not included in the

sale, and by damaging Bates’ property.

After the action was scheduled for trial, the circuit

court entered an order appointing a new third arbitrator.

According to the order, the two arbitrators originally

selected by the parties had agreed to the appointment of

Delmer D. Aylor as the new third arbitrator. The order

also set forth the following relevant directives:

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 Delmer Aylor shall advise the respective parties
of the hearing date of the arbitration, providing
the respective parties with a minimum of 10 days
prior notice of the hearing date, and that the
arbitration shall be conducted in accordance with
the provisions of Sections 8.01-581.01 through
8.01-581.016 of the Code of Virginia, 1950, as
amended.

Neither party objected to the order or its terms. In fact,

the order reflects that both parties asked for its entry.

The parties do not dispute that, after Aylor’s

appointment, he met with Bates for approximately two hours

and viewed areas on Bates’ property allegedly affected by

McQueen’s timber cutting. The parties further agree that

Bates also provided some information to the arbitrator whom

he had originally selected.

Approximately six months after Aylor’s appointment, he

and the arbitrator originally selected by McQueen issued a

joint letter setting forth their resolution of the dispute

between Bates and McQueen. In relevant part, the letter

stated:

It has been determined by two forestry
consultants that there is approximately
$20,000.00 of timber remaining under the above
mentioned agreement. We have agreed that Mr.
David M. Bates shall pay Mr. John B. McQueen
$14,000.00 for the uncut portion of the timber
covered under the above noted agreement. Mr.
David M. Bates may retain $6,000.00 of this
remaining settlement to repair the damaged game
trails and any other damage that he may want to
repair. Mr. Bates will also retain ownership of

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 the remaining timber covered under this agreement
after the $14,000.00 payment has been made.

Bates subsequently filed a motion to vacate the

arbitrators’ award and to appoint a new arbitrator or

arbitrators to hear and decide the dispute between the

parties. In his motion, Bates asserted that the

arbitrators had not conducted the arbitration in accordance

with the circuit court’s order and Virginia’s Uniform

Arbitration Act, Code §§ 8.01-581.01 through -581.016, (the

Act) because the arbitrators did not conduct a hearing; did

not give any notice of a hearing to Bates or his counsel;

and did not afford Bates an opportunity to be heard, to

present evidence, or to cross-examine witnesses.

At a hearing on Bates’ motion, the parties stipulated

that “there was no hearing, no opportunity to present

witnesses, no opportunity to cross-examin[e] witnesses or

be represented by counsel.” The circuit court denied the

motion and entered an order confirming the arbitrators’

award and directing Bates to pay McQueen the sum of

$14,000. The court also granted McQueen 60 days in which

to file a motion for his costs and attorney’s fees.

Despite Bates’ subsequent objection that only the

arbitrators could award attorney’s fees and did not do so,

the circuit court concluded McQueen was entitled to an

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award of attorney’s fees in the amount of $10,000 and

certain costs. The circuit court questioned whether the

Act “would permit [it] to go beyond the contract[]

[b]ecause it looks like the arbitrators could have done it

all” but nevertheless decided that the “contract was broad

enough for attorney’s fees.” These appeals ensued.

ANALYSIS

On appeal, Bates raises two issues: (1) whether the

circuit court erred in affirming the arbitrators’ award

that resulted from an arbitration proceeding that did not

comply with the provisions of the Act; and (2) whether the

circuit court erred in awarding attorney’s fees to McQueen.

We will address the issues in that order. In doing so, we

are mindful that the party attacking an arbitration award

“bears the burden of proving the invalidity of the award.”

Trustees of Asbury United Methodist Church v. Taylor &

Parrish, Inc., 249 Va. 144, 153, 452 S.E.2d 847, 852 (1995)

(citing Howerin Residential Sales Corp. v. Century Realty

of Tidewater, Inc., 235 Va. 174, 179, 365 S.E.2d 767, 770

(1988)).

As an initial matter, McQueen argues that, while the

Agreement required a dispute about the “cutting operation”

to be resolved by arbitration, it did not specify any

procedures for conducting the arbitration proceeding, such

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as a formal hearing. Thus, according to McQueen, the

circuit court had no authority to impose the requirement of

a hearing and the failure to conduct one was harmless

error. That argument has no merit in light of the terms of

the circuit court’s order appointing Aylor as the third

arbitrator and directing that the arbitration be conducted

in accordance with the provisions of the Act. Both parties

requested entry of that order. Thus, the arbitration of

the present dispute concerning the “cutting operation,”

irrespective of the terms of the Agreement, had to comply

with the provisions of the Act.2 See Code § 8.01-581.04

(setting out certain procedural requirements for an

arbitration proceeding “[u]nless otherwise provided by the

agreement”).

In pertinent part, the Act requires arbitrators,

unless otherwise provided by an agreement, to “appoint a

time and place for the hearing and cause notification to

the parties to be served personally or by registered mail

2
As a preliminary matter, McQueen also contends that
Bates’ motion to vacate the arbitrators’ award did not
comply with the procedural requirements of Code § 8.01-
581.010 because Bates styled his pleading as a “motion”
rather than as a “petition” and because he did not cite or
otherwise address any of the statutory criteria set forth
in that provision. This argument has no merit. Bates
stated in his motion that the arbitrators failed to follow
the provisions of the Act because there was no hearing; no
notice of a hearing; and no opportunity to be heard, to
present evidence, or to cross-examine witnesses.

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not less than five days before the hearing.” Code §8.01-

581.04(1). Continuing, “[t]he parties are entitled to be

heard, to present evidence material to the controversy and

to cross-examine witnesses appearing at the hearing.” Code

§ 8.01-581.04(2). A party also has the right to be

represented by an attorney at any hearing conducted under

the Act. Code § 8.01-581.05.

Despite these statutorily-mandated requirements, the

terms of the circuit court’s order, and the parties’

stipulation before the circuit court that there was no

hearing; no notice of a hearing; and no opportunity to be

heard, to present evidence, and to cross-examine witnesses,

McQueen contends that the circuit court did not err by

refusing to vacate the arbitrators’ award. This is so,

according to McQueen, because Bates failed to show that he

suffered any prejudice as a result of the informal manner

in which the arbitrators in this case conducted the

arbitration proceeding. McQueen also argues that Bates

“waived and/or is estopped” from complaining about the

arbitrators’ failure to conduct a formal hearing because

Bates participated in the informal process by meeting with

and/or supplying information to two of the three

arbitrators and by failing to request a formal hearing

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before the arbitrators. We do not agree with McQueen’s

arguments.

The provisions of Code § 8.01-581.010 provide the

exclusive circumstances under which a circuit court can

vacate an arbitration award. Lackman v. Long & Foster Real

Estate, Inc., 266 Va. 20, 26, 580 S.E.2d 818, 822 (2003);

see also Signal Corp. v. Keane Fed. Sys., Inc., 265 Va. 38,

45, 574 S.E.2d 253, 256 (2003) (“circuit court’s review of

an arbitration award is limited to the specific statutory

criteria contained in Virginia’s Uniform Arbitration Act”);

Trustees of Asbury United Methodist Church, 249 Va. at 153,

452 S.E.2d at 852 (same). As relevant to this case, a

circuit court shall vacate an arbitration award when “[t]he

arbitrators refused to postpone the hearing upon sufficient

cause being shown therefor or refused to hear evidence

material to the controversy or otherwise so conducted the

hearing, contrary to the provisions of § 8.01-581.04, in

such a way as to substantially prejudice the rights of a

party[.]” Code § 8.01-581.010(4).

The repeated use of the term “the hearing” in Code

§ 8.01-581.010(4) presupposes that the arbitrators

conducted a hearing. However, as the parties stipulated,

there was no hearing before the arbitrators in this case.

Without “the hearing” having taken place, it was not

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necessary for Bates to prove that his rights were

“substantially prejudice[d]” or that evidence he would have

presented was “material to the controversy” in order to

have the arbitration award vacated under Code § 8.01-

581.010(4). Nor did Bates waive his objection to the lack

of a hearing. He raised the issue in his motion to vacate

the arbitration award, which was the first opportunity to

do so after the arbitrators decided the dispute without

conducting a hearing. Thus, we conclude that the circuit

court erred by failing to vacate the arbitration award.

Cf. Cargill v. Northwestern Nat’l Ins. Co., 462 A.2d 833,

834-35 (Pa. 1983) (at common law, the denial of a hearing

is sufficient basis to vacate an arbitration award). In

short, the failure to conduct “the hearing” clearly

intended by the terms of Code § 8.01-581.04, unless

otherwise provided by an agreement, and by the provisions

of Code § 8.01-581.010(4) was tantamount to no arbitration.

Unless parties agree otherwise, a hearing is a fundamental

part of the arbitration process because “[t]he arbitrators

are the final judges of both law and fact, their award not

being subject to reversal for a mistake of either.” Id.;

see Signal Corp., 265 Va. at 46, 574 S.E.2d at 257

(refusing to adopt “manifest disregard of the law” as basis

to vacate arbitration award).

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 Turning now to Bates’ challenge to the circuit court’s

award of attorney’s fees to McQueen, we conclude that the

question whether McQueen is entitled to an award of

attorney’s fees under the terms of the Agreement, and if

so, the amount of that award, is a matter to be determined

by arbitration. Cf. Lee v. Mulford, 269 Va. 562, 567-68,

611 S.E.2d 349, 352 (2005) (“Absent agreement of the

parties with the concurrence of the court, or pursuant to

contract or statute with specific provisions, a litigant is

not entitled to bifurcate the issues and have the matter of

attorney’s fees decided by the trial court in post-verdict

proceedings.”). The parties agreed to arbitrate any

disagreement “concerning the cutting operation” under the

Agreement. The dispute between the parties entailed, in

part, the question of McQueen’s access to the property.

Among other things, Bates’ “representations and warranties”

to McQueen in the Agreement included “adequate vehicular

access from the sale area to a public road,” the breach of

which subjected Bates to payment of attorney’s fees

incurred by McQueen in connection with the default. We

note, however, that the provisions of Code § 8.01-581.012

provide that the “[c]osts of the application [to confirm,

modify, or correct an arbitration award] and of the

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proceedings subsequent thereto, and disbursements may be

awarded by the court.”

CONCLUSION

For the reasons stated, we will reverse the judgments

of the circuit court and remand for further proceedings

consistent with this opinion. Since the arbitration award

will be vacated on the grounds set forth in Code § 8.01-

581.010(4), the circuit court may order a hearing before

the original arbitrators or “their successors appointed in

accordance with § 8.01-581.03.” Code § 8.01-581.010(5).

Reversed and remanded.

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