Opinion
No. X06-CV04-4000308C
July 19, 2005
MEMORANDUM OF DECISION
The defendant C.R. Klewin Northeast, LLC, and its affiliates: Klewin Building Company, Inc.; C.R Klewin, Inc.; and EF Walsh Building Company (hereinafter "Klewin") have moved, pursuant to General Statutes § 52-409, for a stay of these proceedings as they relate to the second, fourth and sixth counts of the plaintiff's complaint on the grounds that those claims are subject to a written agreement to arbitrate. The plaintiff city of Bridgeport opposes the stay. The determinative issue is whether the court should grant a statutory stay of litigation where the parties' contract contains an arbitration clause which provides for non-binding arbitration. Under the circumstances of this case, I am persuaded that I should not grant such a stay.
Section 52-409 provides that: "If any action for legal or equitable relief or other proceeding is brought by any party to a written agreement to arbitrate, the court in which the action or proceeding is pending, upon being satisfied that any issue involved in the action or proceeding is referable to arbitration under the agreement, shall, on motion of any party to the arbitration agreement, stay the action or proceeding until an arbitration has been had in compliance with the agreement, provided the person making application for the stay shall be ready and willing to proceed with the arbitration."
In its complaint, Bridgeport contends that the contract, which it entered into with Klewin for construction of a baseball stadium, is illegal and void because it was procured by Klewin through the use of contingent fee lobbying agreements and through illegal payments to Joseph Ganim, the then Mayor of Bridgeport. The second, fourth and sixth counts of the plaintiff's complaint assert claims for declaratory and injunctive relief a claim of restitution, and violations of the Connecticut Unfair Trade Practices Act (CUTPA), respectively, in connection with the construction of the stadium.
I previously granted the defendants' motion for summary judgment with respect to the first, third and fifth counts of the plaintiff's complaint which assert similar claims concerning the construction of the Arena at Harbor Yard and its adjacent garage. See City of Bridgeport v. C.R. Klewin Northeast, LLC, Superior Court, complex litigation docket at Waterbury, Docket No. X06-CV04-4000308S (March 3, 2005) (Alander, J.).
Klewin contends that a stay of this litigation pursuant to General Statutes § 52-409 is warranted because the parties' contract contains an agreement to arbitrate and the issues involved in this litigation are the proper subject of arbitration under the agreement. Bridgeport maintains that a stay is not appropriate because the parties' arbitration provision provides for non-binding arbitration and reserves to each party additional legal remedies. I agree with Bridgeport that a stay of this court action pursuant to § 52-409 is not warranted because, under the circumstances of this case, arbitration is not reasonably likely to resolve the parties' dispute.
Neither the plaintiff nor the defendants have asserted that the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1 et seq., applies to this matter. Moreover, the defendants have moved for a stay of litigation pursuant to General Statutes § 52-409, not pursuant to the FAA's comparable stay provision, 9 U.S.C. § 3. Accordingly, I will decide the issues as they have been presented by the parties. See Merrill Lynch Co. v. Waterbury, 34 Conn.App. 11, 17 (1994).
Bridgeport has asserted further bases upon which it asserts that Klewin's request for a stay should be denied. Because I find the non-binding nature of the arbitration to be dispositive, it is not necessary for me to address these additional claims.
Klewin contends that section 9.2 of the parties' contract covers the plaintiff's claims in this case and mandates that such claims be submitted to arbitration. Bridgeport responds that the arbitration provision contained in section 9.2 expressly provides that the arbitration is not final and additional legal remedies may be pursued. It argues that a stay may be issued pursuant to § 52-409 only for arbitrations that are final and binding.
Bridgeport also disputes that the arbitration provision of section 9.2 applies to its claims. It asserts that section 9.1 of the parties' contract which is entitled "Dispute Resolution for the Preconstruction Phase" and which provides that the parties shall mediate such disputes is the applicable section. I assume, without deciding, for purposes of this decision that section 9.2 is the applicable section.
Section 9.2 of the parties' contract is entitled "Dispute Resolution for the Construction Phase." Subsection 9.2.1 provides in relevant part that: "Any other claim, dispute or other matter in question arising out of or related to this Agreement or breach thereof shall be settled in accordance with Article 4 of AIA Document A201 . . ." Article 4 of AIA Document A201 further provides in section 4.5.1 that "Any controversy or Claim arising out of or related to the Contract, or the breach thereof, shall be settled by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator or arbitrators may be entered in any court having jurisdiction thereof . . ." Section 4.5.7 further provides that: "The award rendered by the arbitrator or arbitrators shall not be final and additional legal remedies may be pursued." (Emphasis in original.)
The parties do not dispute that section 9.2 of the contract provides for non-binding arbitration. They disagree on the propriety of this court staying the pending litigation to require the parties to resort to non-binding arbitration. Since there are no Connecticut appellate cases directly on point, both sides martial out-of-state authority for their respective positions. Klewin cites two cases, Kelley v. Benchmark Homes, Inc., 250 Neb. 367, 550 N.W.2d 640 (1996) and Homes of Legend, Inc. v. McCollough, 776 So.2d 741 (2000), in support of its claim that a contract clause requiring non-binding arbitration should be enforced. In Kelly v. Benchmark Homes, Inc., the Nebraska Supreme Court held that a stay of litigation pursuant to the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1 et seq., should be granted with respect to an arbitration clause that mandated non-binding arbitration as an express condition precedent to litigation. In Homes of Legend, Inc. v. McCollough, the Supreme Court of Alabama held that a contractual provision which it interpreted as requiring non-binding arbitration should be enforced pursuant to the FAA through an order compelling arbitration. Although not cited by Klewin, the Ninth Circuit, in Wolsey LTD v. Foodmaker, Inc., 144 F.3d 1205 (9th Cir, 1998), also determined that non-binding arbitration was properly the subject of a motion to compel under the FAA. Bridgeport offers a number of decisions favorable to its view that non-binding arbitration provisions are not enforceable, including Godfrey v. Hartford Casualty Ins. Co., 142 Wash.2d 885, 16 P.3d 617 (2001) (The Supreme Court of Washington held that an arbitration provision which was not binding on the issue of damages was unenforceable under that state's arbitration statute) and Schaefer v. Allstate Ins. Co., 63 Ohio St.3d 708, 590 N.E.2d 2042 (1992) (The Ohio Supreme Court held that an arbitration clause in an uninsured motorist insurance policy which allowed an appeal if the arbitration award exceeded $12,500 was unenforceable because it was not final and binding). A number of federal courts have also held that alternative dispute resolution procedures which do not finally settle the parties' dispute do not constitute arbitration enforceable under the FAA. See Salt Lake Tribune Publishing Company, LLC v. Management Planning, Inc., 390 F.3d 684 (10th Cir., 2004) (The court held that an appraisal procedure was not arbitration under the FAA because the appraisal would not necessarily settle the parties' dispute) and Harrison v. Nissan Motor Corporation in U.S.A., 111 F.3d 343 (3d Cir., 1997) (The court held that dispute resolution procedures under the Pennsylvania Automobile Lemon Law were not arbitration under the FAA because a party is not required to pursue the procedure to completion).
Bridgeport also cites North Haven Assn. of Educational Support Staff v. Board of Education, 209 Conn. 280 (1988) in which our Supreme Court upheld the trial court's refusal to confirm an advisory arbitration award under General Statutes § 52-417. While supportive of the city's position, the case is not directly on point as Bridgeport is seeking a stay pursuant to General Statutes § 52-409.
The above-cited cases constitute the extreme ends of the spectrum with respect to the enforceability of non-binding arbitration procedures. One end, stressed by Klewin, recognizes non-binding arbitration provisions as categorically warranting enforcement through statutory provisions such as the FAA; while the other end, emphasized by Bridgeport, views non-binding dispute resolution procedures which fail to definitively settle the parties' dispute as not worthy of enforcement through the courts. A middle ground not advocated by either party has also garnered judicial support. Under this view, courts should enforce contractual provisions which provide for non-binding arbitration in those situations in which such arbitration is reasonably likely to settle the parties' dispute. The seminal case in this regard is AMF Incorporated v. Brunswick Corporation, 621 F.Sup. 456 (E.D.N.Y., 1985). In AMF Incorporated, AMF sought to compel Brunswick, a competitor in the manufacture of automatic machinery for bowling, to submit an advertising dispute to arbitration. The competitors had previously settled other litigation pending between them through a settlement agreement that required any future dispute involving an advertised claim of "data based comparative superiority" to be submitted to the National Advertising Division (NAD) of the Council of Better Business Bureaus for a nonbinding advisory opinion as to whether there was experimental support for the claim. Brunswick argued that the advisory NAD procedure was not "arbitration" entitled to enforcement under the FAA. U.S. District Court Judge Jack Weinstein held that, notwithstanding its non-binding nature, the NAD procedure constituted "arbitration" under the FAA and Brunswick should be compelled to submit to the agreed-upon procedure because it was "highly likely" that an advisory opinion issued by NAD will settle the parties' dispute. Id., 461. Since NAD would determine whether there is data supporting Brunswick's claims of superiority for its product, the court concluded that it was probable that Brunswick would change its advertising policy if a decision by the NAD were adverse to it. "Viewed in the light of reasonable commercial expectations the dispute will be settled by this arbitration." Id. Subsequent federal courts have cited with approval the approach taken in AMF Incorporated v. Brunswick Corporation. See, e.g., Dluhos v. Strasberg, 321 F.3d 365, 369-70 (3d Cir., 2003) (the court held that the dispute resolution procedure under the Internet Corporation for Assigned Names and Numbers' Uniform Domain Name Dispute Resolution Policy (UDRP) was not arbitration under the FAA because it did not prevent a party from filing suit before, after or during the administrative proceedings) and U.S. v. Banker Insurance Company, 245 F.3d 315, 322-24 (4th Cir., 2001) (the court held that the contractual administrative procedure mandated by the Federal Emergency Management Agency for certain flood insurance policies which was nonbinding on the Federal Insurance Administration was enforceable through the FAA because the court determined that "we are unable to conclude that arbitration proceedings would be futile").
I am persuaded by the language and purpose of this state's arbitration statutes, General Statutes §§ 52-408 et seq., that the stay provision of § 52-409 applies to contractual provisions which establish non-binding arbitration only to the extent that such arbitration is reasonably likely to settle the parties' dispute. As does the FAA, our statutes expressly apply to "An agreement in any written contract . . . to settle by arbitration any controversy thereafter arising out of such contract . . ." (Emphasis supplied.) § 52-408. In light of this statutory language, a contractual agreement to submit a dispute to an alternative dispute resolution procedure would be enforceable under our statutes only if it were reasonably likely that such a procedure would "settle" the dispute. See AMF Incorporated v. Brunswick Corporation, supra, 621 F.Sup. 461.
Moreover, Connecticut's arbitration statutes were enacted to make valid and enforceable agreements reached by parties to settle their disputes through arbitration. See § 52-408. They reflect a recognition, long held in this state, that arbitration should be favored as a means of resolving disputes because it is designed to secure prompt settlement and avoid the time and expense of litigation. A. Dubreuil Sons, Inc. v. Lisbon, 215 Conn. 604, 608 (1990). See also Waterbury Teachers Assn. v. Waterbury, 164 Conn. 426, 434 (1973) ("[A]rbitration is intended to avoid the formalities, the delay, the expense and the vexation of ordinary litigation"). The public policy undergirding our arbitration statues is not advanced by requiring parties to engage in arbitration proceedings that are not final and that have no reasonable likelihood of resolving their dispute. That policy is in fact turned on its head by staying pending litigation and mandating arbitration in such situations. Rather than lessening time and expense and avoiding litigation, an order to participate in non-binding arbitration with no reasonable likelihood of success simply adds the time and expense of the arbitration to the costs of the litigation.
In light of the above, the issuance of a stay of the pending litigation in this case turns on whether the non-binding arbitration proceeding contemplated by the parties' contract is reasonably likely to result in a settlement of the parties' dispute. I conclude that it is not. Bridgeport claims in this litigation that the parties' construction contract is void due to its illegality and the city demands full restitution of the entire $16 million paid to Klewin for construction of the ballpark. It is an all or nothing legal stance. Accordingly, it is highly unlikely that either party will accede to the arbitrator's decision should it be on the losing end of the non-binding arbitration. Moreover, the parties have a history of contentiousness that belies the likelihood of an agreement after arbitration. The parties engaged in binding arbitration of their dispute concerning the construction of the Arena at Harbor Yard. The subsequent decision of the arbitrators failed to settle that dispute as Bridgeport has filed both an appeal of that decision and this court action challenging the legality of the underlying contract. It is difficult to see how non-binding arbitration would put an end to litigation between the parties when binding arbitration has failed to do so. Finally, the nature of the parties' disagreement prevents it from being readily amenable to resolution through non-binding arbitration. Unlike the dispute in AMF Incorporated, which involved a factual dispute concerning the existence of data to support an advertising claim, this conflict involves primarily legal issues, such as whether the contract is void due to illegality. It is to be expected that one or both of the parties would prefer that a court decide such issues.
It is also important to note that the arbitration clause agreed to by the parties in this case does not expressly make resort to non-binding arbitration a condition precedent to litigation. Whatever the merit of requiring parties to adhere to such an agreement, see Kelley v. Benchmark Homes, Inc., 250 Neb. 367, 550 N.W.2d 640 (1996) (The Nebraska Supreme Court held that a stay of litigation pursuant to the Federal Arbitration Act, (FAA) 9 U.S.C. §§ 1 et seq., should be granted with respect to an arbitration clause that mandated non-binding arbitration as an express condition precedent to litigation), that is not the situation here.
Both parties apparently agree. At oral argument, both parties admitted that mediation, a non-binding alternative dispute resolution procedure, would be a waste of time.
For the aforementioned reasons, the defendants' motion for a stay of proceedings is denied.
BY THE COURT
Judge Jon M. Alander