Opinion
No. X06-CV04-4000308S
March 3, 2005
MEMORANDUM OF DECISION
The city of Bridgeport has brought this action against C.R. Klewin Northeast, LLC, (Klewin) and its affiliates: Klewin Building Company, Inc.; C.R. Klewin, Inc.; and EF Walsh Building Company. Bridgeport asserts that the contracts which it entered into with Klewin for the construction of the Arena at Harbor Yard and its adjacent garage, and for construction of a baseball stadium, are illegal and void because they were procured by Klewin through the use of contingent fee lobbying agreements and through illegal payments to Joseph Ganim, the then Mayor of Bridgeport. The first, third and fifth counts of the complaint involve the Arena and assert claims for declaratory and injunctive relief, a claim of restitution, and violations of the Connecticut Unfair Trade Practices Act (CUTPA), respectively. The second, fourth and sixth counts assert similar claims with respect to the baseball stadium. Bridgeport seeks a declaratory judgment that its contracts with Klewin are illegal and void and requests restitution of all fees paid to Klewin under the contracts. Klewin has moved for summary judgment on all six counts of the complaint on the grounds that Bridgeport is barred by the principle of res judicata from asserting these claims in this action because they constitute an impermissible collateral attack on a judgment awarded Klewin in an arbitration proceeding between the parties involving the Arena construction project. In the alternative, Klewin has moved pursuant to General Statutes § 52-409 for an order staying further proceedings on the second, fourth, and sixth counts which involve construction of the ballpark on the grounds that those claims are subject to a written agreement to arbitrate. I agree with Klewin that it is entitled to the entry of summary judgment on the first, third and fifth counts of the complaint which relate to the Arena construction project. I do not agree that Klewin is entitled to summary judgment on the remaining counts of the complaint which relate to the construction of the baseball stadium. I also conclude that Klewin is not entitled at this time to a stay of the remaining portions of this action because it has failed to fulfill a condition precedent to the granting of such a stay.
Bridgeport alleges in its complaint in this action that Klewin procured its contract with Bridgeport for the construction of the Arena and its contract for the construction of the baseball stadium though corrupt means. Specifically, it alleges that Klewin entered into contingent fee lobbying agreements with Harbor Communications, which was owned and operated by Leonard Grimaldi, a close friend and business associate of the then Mayor, Joseph Ganim. Bridgeport further alleges that a substantial portion of the fees paid by Klewin to Grimaldi were given by Grimaldi to Ganim pursuant to an illegal conspiracy between Ganim, Grimaldi and Paul Pinto, another associate of the former Mayor, to steer municipal contracts to clients of Harbor Communications in exchange for cash. Bridgeport further alleges that Klewin was awarded the construction contracts for the Arena and the ballpark as a result of the contingent lobbying agreements with Harbor Communications and the illegal payments to Ganim. Bridgeport does not allege in its complaint that Klewin directly participated in or was aware of the illegal scheme between Grimaldi, Ganim and Pinto. Bridgeport requests in its prayer for relief a declaratory judgment that the construction contracts are illegal and void ab initio, an injunction requiring Klewin to reimburse it for all fees paid under the construction contracts and restitution of all fees paid.
Klewin contends that the claims asserted by Bridgeport in this lawsuit are barred by the principle of res judicata because these claims were or could have been asserted in an earlier arbitration proceeding between the parties. I agree that Bridgeport is precluded from raising in this action its claims for declaratory and injunctive relief and restitution regarding the parties' contract for the construction of the Arena project. I do not agree that Bridgeport is precluded by the doctrine of res judicata from asserting its claims with respect to the baseball stadium contract.
I The Counts Related to Construction of the Arena Project
A review of the history of the parties' dealings with each other with respect to the Arena construction project is necessary for the resolution of Klewin's res judicata claim. On June 1, 2001, Klewin filed a demand for arbitration pursuant to the arbitration provision of the parties' construction management services agreement for the Arena construction project. Klewin claimed that it was entitled to additional payments under the contract due to alleged design changes and unforeseen subsurface conditions. On October 31, 2001, the federal government issued an indictment against Ganim in which it alleged that Ganim had engaged in a criminal conspiracy with Pinto and Grimaldi to solicit and receive bribes, kickbacks, illegal gratuities and other things of value from individuals and businesses that had, or were seeking, business with the City of Bridgeport. The indictment specifically alleged that Grimaldi had entered into a contingent fee agreement with Klewin pursuant to which Grimaldi would receive a fee in the amount of $150,000 upon the selection of Klewin as the construction manager for the Arena at Harbor Yard. The indictment also specifically alleged that Ganim, Pinto and Grimaldi agreed that a portion of the payment Grimaldi received under the contract would be paid to Ganim in consideration of Ganim's support for and approval of the selection of Klewin as construction manager.
These undisputed facts are taken from this court's decision confirming the arbitration award. C.R. Klewin Northeast, LLC v. City of Bridgeport, Superior Court, complex litigation docket at Waterbury, Docket No. X06-CV04-40000306S (February 4, 2005) (Alander, J.).
On January 31, 2002, Klewin filed an amended demand for arbitration further detailing its contract claims. Bridgeport filed an answer and counterclaim in the arbitration on February 15, 2002. In its answer, Bridgeport simply denied Klewin's claims and, in its counterclaim, Bridgeport asserted its own claim for damages under the contract due to Klewin's alleged breach of its obligations under the contract. No mention was made by Bridgeport in its pleading that the contract was void due to illegality and Bridgeport did not object to the arbitration on that basis.
Preliminary hearings were held before the arbitrators, with evidentiary hearings beginning in June 2002. On May 19, 2003, after approximately 20 days of hearings, the city sought to amend its pleadings in the arbitration to assert for the first time a special defense that the parties' contract was illegal and void ab initio because it was corruptly procured. On May 21, 2003, the arbitrators denied the city's request to amend its pleadings. The arbitrators determined that the amendments were untimely because the city had had notice of the illegal conspiracy since October 31, 2001 when the federal government indicted Ganim. The arbitrators also held that they lacked jurisdiction to decide the issue presented by the proposed amendment.
On November 3, 2003, the city filed in the arbitration a motion to stay or bifurcate arbitration to allow the city to present the issue of the contract's illegality to court. The city's motion was denied by the arbitrators on November 18, 2003. On December 22, 2003, the evidentiary hearings in the arbitration were closed. On April 8, 2004, the city filed the subject action to declare the construction contracts for the Arena and the ballpark invalid due to illegality and for restitution of all sums paid Klewin under both contracts. On June 9, 2004, while this action was pending, the arbitrators issued the award in the arbitration proceeding concerning the Arena contract. In the award, the arbitrators ordered Bridgeport to pay Klewin the sum of $4,794,164 plus interest in the amount of $1,225,467 for a total award of $6,020,231.
The total award figure in the arbitration award is miscalculated. The damage award of $4,794,164 plus interest in the amount of $1,225,467 adds up to a total award of $6,019,631, not $6,020,231 as listed in the award.
"`Under the doctrine of res judicata, or claim preclusion, a former judgment on a claim, if rendered on the merits, is an absolute bar to a subsequent action on the same claim.' (Internal quotation marks omitted.) DeMilo Co. v. Commissioner of Motor Vehicles, 233 Conn. 281, 292, 659 A.2d 162 (1995); New England Rehabilitation Hospital of Hartford, Inc. v. Commission on Hospitals Health Care, 226 Conn. 105, 128, 627 A.2d 1257 (1993); see also 1 Restatement (Second), Judgments § 19 (1982). `[C]laim preclusion prevents the pursuit of any claims relating to the cause of action which were actually made or might have been made.' (Internal quotation marks omitted.) Commissioner of Environmental Protection v. Connecticut Building Wrecking Co., supra, 227 Conn. 188. The judicial doctrine of res judicata `express[es] no more than the fundamental principle that once a matter has been fully and fairly litigated, and finally decided, it comes to rest.' Carol Management Corp. v. Board of Tax Review, 228 Conn. 23, 32, 633 A.2d 1368 (1993); State v. Ellis, 197 Conn. 436, 464-65, 497 A.2d 974 (1985), on appeal after remand sub nom. State v. Paradise, 213 Conn. 388, 567 A.2d 1221 (1990)." Joe's Pizza, Inc. v. Aetna Life And Cas. Co., 236 Conn. 863, 871-72 (1996). The principle of res judicata applies to an arbitration award. Fink v. Golenbock, 238 Conn. 183, 196 (1996). It also applies, when two actions are initially pending at the same time, to a final judgment rendered before judgment is entered in the second action. Ammirata v. Zoning Board of Appeals of Redding, 81 Conn.App. 193, 203 (2004).
Bridgeport's failure to raise in a timely manner in the arbitration its defense to Klewin's contract claims that the contract was void due to illegality or its counterclaim for restitution due to the contract's illegality bar it from seeking in this action declaratory or injunctive relief or restitution on the grounds that the contract was illegal. As a general matter, in the absence of a compulsory counterclaim rule, a party is not precluded from subsequently maintaining an action on a claim where he failed, as a defendant, to interpose the claim as a counterclaim. 1 Restatement (Second), Judgments § 22 (1982). A party will be precluded from maintaining an action on a claim which could have been interposed as a counterclaim but was not if "the relationship between the counterclaim and the plaintiff's claim is such that successful prosecution of the second action would nullify the initial judgment or would impair rights established in the initial action." Id., § 22(2). See also DeMilo Co. v. Commissioner of Motor Vehicles, 233 Conn. 281, 293 (1995) in which our Supreme Court, citing § 22(2) of the Restatement on Judgments, held that the failure of the plaintiff to raise certain issues as special defenses in an enforcement action barred the plaintiff, pursuant to the doctrine of res judicata, from raising the same issues as affirmative claims in an administrative appeal. The commentary to the Restatement, comment (f), and its illustrations, illustration 9, specifically identify as examples of situations barred by this res judicata rule a defendant to a judgment seeking to enjoin enforcement of the judgment or to recover on a restitution theory the amount paid pursuant to the judgment. 1 Restatement (Second), Judgments § 22 (1982), comment (f) and illustration 9. The relief requested by Bridgeport in this action, restitution of all funds paid to Klewin under the Arena construction contracts, would nullify the judgment obtained by Klewin in the arbitration proceeding. Rather than receiving an additional $4.8 million pursuant to the construction contract, Klewin would be required to pay back the approximately $44 million it previously received under that contract.
Bridgeport argues that the arbitration award is not a bar to this action because the arbitration panel lacked subject matter jurisdiction to issue an award. Bridgeport contends that the arbitration panel lacked jurisdiction for two reasons: (1) the panel did not properly comprise three members, and (2) a court in the first instance must determine a claim that a contract is illegal and void ab initio. Both claims lack merit.
Bridgeport raised both of these issues in its motion to vacate the underlying arbitration award and each has been rejected by this court. See C.R. Klewin Northeast, LLC v. City of Bridgeport, Superior Court, complex litigation docket at Waterbury, Docket No. X06-CV04-40000306S (February 4, 2005) (Alander, J.). In C.R. Klewin Northeast, LLC v. City of Bridgeport, supra, I found that Klewin did not agree, as Bridgeport contends, that the arbitration would be decided by a panel of three arbitrators and, moreover, it was within the purview of the arbitrators to decide whether a vacancy should be filled. Id., 4-11. I also rejected Bridgeport's claim that exclusive jurisdiction to determine the enforceability of the parties' contract lay with a court thereby depriving the arbitrators of subject matter jurisdiction to render any award. Id., 19-20. Courts do not possess exclusive jurisdiction to determine the illegality of contracts containing arbitration provisions. Nussbaum v. Kimberly Timbers, Ltd., 271 Conn. 65 (2004). I also found that Bridgeport had waived its right to challenge the jurisdiction of the arbitrators by failing to object to the arbitration and by actively participating in the arbitration proceedings. C.R. Klewin Northeast, LLC v. City of Bridgeport, supra, 20.
Bridgeport further contends that res judicata does not apply to the arbitration award because it did not have an adequate opportunity to fully and fairly litigate the illegality of the contract before the arbitrators. The city points to its unsuccessful attempt on May 19, 2003 to amend its answer to assert the illegality of the construction contract as evidence of its lack of opportunity to litigate the issue before the arbitrators. This isolated fact fails to tell the whole story. First, Bridgeport missed the opportunity to assert its illegality claims at the beginning of the arbitration. The arbitrators found that the city had had notice of the illegal conspiracy since October 31, 2001 when the federal government indicted Ganim. Rather than raising its illegality claim at that time, Bridgeport participated in 20 days of evidentiary hearings over a period of one year before asserting its claim that the contract was illegal. It was based on this delay that the arbitrators found the proposed amendments to be untimely. Second, while the arbitrators initially ruled that they lacked jurisdiction to consider Bridgeport's claim of contract illegality, the arbitrators subsequently gave Bridgeport the opportunity to raise that very claim. On November 12, 2003, the arbitrators suggested to the parties that they would be willing to include in the arbitration the issues surrounding the alleged illegality of the parties' contract if the parties would agree in writing to give the panel subject matter jurisdiction and waive any claim of untimeliness. Klewin agreed. Bridgeport did not. See C.R. Klewin Northeast, LLC v. City of Bridgeport, supra, 26. In light of this record, Bridgeport cannot properly claim that it was not provided the opportunity before the arbitrators to litigate the issue of the contract's illegality.
Although the transcript of the arbitration proceeding is not crystal clear on this issue, Bridgeport does not dispute Klewin's factual assertion that Bridgeport objected to the arbitrators' offer to adjudicate Bridgeport's claim that the contract was illegal due to violations of public policy.
II. The Counts Related to Construction of the Baseball Stadium
Klewin also seeks the entry of summary judgment on the second, fourth, and sixth counts which involve construction of the baseball stadium. Klewin however fails to show that prosecution of these counts will in any way affect the award which it received in the arbitration proceedings involving the construction of the Arena and its adjacent garage. Accordingly, entry of summary judgment on these counts based on the doctrine of res judicata is not warranted.
Klewin further requests, pursuant to General Statutes § 52-409, a stay of these proceedings regarding the baseball stadium counts of the complaint on the grounds that the ballpark construction agreement contains an arbitration clause. "Under 52-409, when an action. is brought in the trial court by a party to a written agreement that includes provisions for arbitration, and the trial court is satisfied that an issue involved in the action is arbitrable, the court, on motion of any party to the agreement, shall stay the action until arbitration has been had in compliance with the agreement." Success Centers v. Huntington Learning Centers, 223 Conn. 761, 767 (1992). "As a condition precedent to the issuance of a stay order by the trial court, the moving party must be ready and willing to proceed with arbitration." Id. This requirement is not an idle one as the issuance of a stay based on the representation of the moving party that it is ready and willing to proceed with arbitration may preclude the party from contesting the arbitrability of the dispute or the timeliness of the arbitration. See Flynn v. Newington, 2 Conn.App. 230 (1984). In this instance, Klewin has not represented either by affidavit or within its motion for summary judgment that it is ready and willing to proceed with arbitration. For that reason, the motion for a stay is denied.
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."
For the aforementioned reasons, summary judgment shall enter on the first, third and fifth counts of the plaintiff's complaint. The remainder of the defendants' motion for summary judgment is denied. The defendants' motion for a stay of proceedings is also denied.
BY THE COURT
Judge Jon M. Alander