Opinion
No. CV-03-0523112
December 1, 2004
MEMORANDUM OF DECISION RE: APPLICATION TO MODIFY AND CORRECT ARBITRATION AWARD
The city of Milford applies for a modification and correction of an arbitration award issued in favor of Coppola Construction Co., Inc. For the reasons given below, the application must be denied.
The record reveals the following basic facts. The city entered into a contract with Coppola on December 11, 2000 to elevate six residential structures. On May 17, 2002, the city terminated the contract. The parties submitted their contract dispute to arbitration, and on August 8, 2003, an arbitrator awarded Coppola $136,787.50 in damages for lost profits, idle equipment and materials.
The city timely filed an application to modify and correct the arbitration award; Coppola filed a memorandum of law in opposition to the city's application and in support of confirming the award. The city claims that the scope of the arbitration award exceeded the scope of the parties' submission to the arbitrator as provided in the contract. In the city's view, the submission did not cover idle equipment and materials. The city also claims that the arbitrator miscalculated the award for lost profits.
"Because [courts] favor arbitration as a means of settling private disputes, [courts] undertake judicial review of arbitration awards in a manner designed to minimize interference with an efficient and economical system of alternative dispute resolution." (Internal quotation marks omitted.) State v. New England Health Care Employees Union, District 1199, AFL-CIO, 265 Conn. 771, 777, 830 A.2d 729 (2003). The extent of judicial review is therefore limited. When a party applies for a modification and correction of an arbitration award, the court must grant the application "if it finds any of the following defects: (1) If there has been an evident material miscalculation of figures or an evident material mistake in the description of any person, thing or property referred to in the award; (2) if the arbitrators have awarded upon a matter not submitted to them unless it is a matter not affecting the merits of the decision upon the matters submitted; or (3) if the award is imperfect in matter of form not affecting the merits of the controversy." General Statutes § 52-419(a).
The city seeks to modify and correct the arbitration award first on the ground that idle equipment and materials were not matters submitted to the arbitrator. If the arbitrator was powerless to award Coppola damages for idle equipment and materials, then the court must invalidate that portion of the award under § 52-419(a)(2). To determine the extent of the arbitrator's power, the court looks to the parties' contractual provisions regarding arbitration. "When the parties agree to arbitration and establish the authority of the arbitrator through the terms of their submission, the extent of . . . judicial review of the [arbitration] award is delineated by the scope of the parties' agreement." (Internal quotation marks omitted.) State v. New England Health Care Employees Union, District 1199, AFL-CIO, supra, 265 Conn. 777.
In analyzing an agreement to arbitrate, the court inquires whether the parties intended to arbitrate all matters in dispute or whether the parties intended to arbitrate only selected matters in dispute. When the parties agree to arbitrate all matters in dispute, they make an unrestricted submission to the arbitrator. When the parties limit the matters intended for arbitration, they make a restricted submission to the arbitrator. "The authority of an arbitrator to adjudicate the controversy is limited only if the agreement contains express language restricting the breadth of issues, reserving explicit rights, or conditioning the award on court review. In the absence of any such qualifications, an agreement is unrestricted." (Internal quotation marks omitted.) Industrial Risk Insurers v. Hartford Steam Boiler Inspection Ins. Co., 258 Conn. 101, 109, 779 A.2d 737 (2001).
The court's standard of review of the arbitration award depends on whether the court finds that the arbitration agreement was restricted or unrestricted. "Under an unrestricted submission, the arbitrators' decision is considered final and binding; thus the courts will not review the evidence considered by the arbitrators nor will they review the award for errors of law or fact . . . The resulting award can be reviewed, however, to determine if the award conforms to the submission . . . Such a limited scope of judicial review is warranted given the fact that the parties voluntarily bargained for the decision of the arbitrator and, as such, the parties are presumed to have assumed the risks of and waived objections to that decision . . . It is clear that a party cannot object to an award which accomplishes precisely what the arbitrators were authorized to do merely because that party dislikes the results . . . The significance, therefore, of a determination that an arbitration submission was unrestricted or restricted is not to determine what the arbitrators are obligated to do, but to determine the scope of judicial review of what they have done. Put another way, the submission tells the arbitrators what they are obligated to decide. The determination by a court of whether the submission was restricted or unrestricted tells the court what its scope of review is regarding the arbitrators' decision." (Citations omitted; internal quotation marks omitted.) Id., 110.
To summarize the above standards, the court's first task is to decide whether the parties made a restricted or an unrestricted submission to the arbitrator. If the court finds that the submission was restricted, the court then examines whether the arbitrator exceeded the scope of the submission in issuing the arbitration award. If the court finds that the arbitrator did indeed exceed the scope of the submission, then the court must grant an application to modify and correct the arbitration award. If, on the other hand, the court finds that the submission was unrestricted, the court's review is limited to comparing the submission to the arbitration award. As long as the award conforms to the submission, the court must confirm it and reject an application to modify and correct it. The court may not review the arbitrator's factual or legal conclusions.
Applying these standards to the present case, the first question is whether the city and Coppola made a restricted or an unrestricted submission to the arbitrator. The parties signed a standard contract drafted by the American Institute of Architects for construction projects of limited scope with a stipulated sum as payment. That contract provides in paragraph 9.10.4: "Claims, disputes and other matters in question arising out of or relating to the Contract that are not resolved by mediation, except matters relating to aesthetic effect and except those waived as provided for in Paragraph 9.11 . . . shall be decided by arbitration . . ." This paragraph indicates that matters regarding aesthetic effect and those described in paragraph 9.11 are not subject to arbitration. Paragraph 9.11 provides: "The Contractor and Owner waive claims against each other for consequential damages arising out of or relating to this Contract." This paragraph indicates that consequential damages are waived and are not subject to arbitration. (The general instructions for the contract note that consequential damages are also known as indirect damages.) Subparagraph 9.11.2 specifies that consequential damages include those "incurred by the Contractor for principal office expenses including the compensation of personnel stationed there, for losses of financing, business and reputation, and for loss of profit except anticipated profit arising directly from the Work." The types of damages listed in this paragraph are therefore not subject to arbitration, except for the anticipated profit from the entire project. Paragraph 9.11 then continues on, providing that the waiver "is applicable, without limitation, to all consequential damages . . . [The waiver does not] preclude an award of liquidated direct damages . . ." This language indicates that all consequential damages are waived and are not subject to arbitration. Liquidated direct damages, on the other hand, are subject to arbitration.
Because the contract provisions above indicate that not all types of damages are amenable to arbitration, the court concludes that the parties made a restricted submission to the arbitrator. In the case of a restricted submission, the court next inquires whether the arbitrator exceeded his authority in issuing the arbitration award. A modification and correction of the award is warranted only when the court finds that the arbitrator transcended the scope of the parties' submission. The arbitrator awarded Coppola damages for lost profits, idle equipment and materials. As the terms of the contract indicated, and as both parties agree, lost profits were subject to arbitration under subparagraph 9.11.2. The question is whether the idle equipment and materials were consequential damages, and therefore not arbitrable, or whether they were other than consequential damages, such as liquidated direct damages, and therefore properly arbitrable.
"It has traditionally been held that a party may recover general contract damages for any loss that may fairly and reasonably be considered [as] arising naturally, i.e., according to the usual course of things, from such breach of contract itself." (Internal quotation marks omitted.) Chila v. Stuart, 81 Conn.App. 458, 467, 840 A.2d 1176, cert. denied, 268 Conn. 917, 847 A.2d 311 (2004). "If loss results other than in the ordinary course of events, there can be no recovery for it unless it was foreseeable by the party in breach because of special circumstances that he had reason to know when he made the contract." 3 Restatement (Second), Contracts § 351, comment (b) (1981). The latter type of damages is called consequential; such damages are special, unusual, indirect and not ordinarily foreseeable, unlike general damages. See 11 A. Corbin, Contracts (Interim Ed. 1964) § 1011, p. 75; 24S. Williston, Contracts (4th Ed. 2002) § 64:12, pp. 122-33. In order to qualify as consequential damages, therefore, the idle equipment and materials would have to have been special, unusual, indirect and not ordinarily foreseeable to the city.
Coppola alleged that it sustained $79,100 in damages due to the idle equipment, which included a backhoe, trailer, compactor and generator. In its March 27, 2003 arbitration statement, Coppola alleged that it "bought [the] specialized equipment for the project for the particular use of lifting the houses. The equipment sat idle for 7 months while Milford corrected the plans to allow a permit to be obtained." The arbitrator ultimately awarded Coppola one third of the damages it alleged for the idle equipment, $26,366.67.
This award was proper because Coppola's loss from the idle equipment arose in the usual course of the performance of the contract. The city had reason to know that Coppola would need to use certain equipment in order to elevate the six residential structures. The city also had reason to know that Coppola would incur losses related to the equipment if the city was not ready to allow Coppola to begin working on the agreed date. The losses due to the idle equipment were a direct result of the city's breach; the losses were not unusual and unforeseeable. Because the losses from the idle equipment are best classified under general contract damages, not consequential damages, the arbitrator had the authority to award Coppola these damages. The court accordingly confirms the arbitrator's award for the idle equipment.
Coppola's claim regarding the materials totaled $8384.50. This claim consisted of three items. First, Coppola spent $4185.83 for permanent steel I-beams to be placed underneath the elevated houses. Coppola alleged that these I-beams were not resalable or salvageable after the city breached the contract. Second, Coppola spent $2130 for a steel re-bar with a specific length and configuration. This item according to Coppola, was intended for the masonry foundation and could not be reused elsewhere. Third, Coppola spent $2068.67 for lumber to be used as wood cribbing. This lumber would have been discarded upon the completion of the project. The arbitrator ultimately awarded Coppola $6315.83 for the materials. Because this number is the sum of the alleged damages for the I-beams and re-bar, the court concludes that the arbitrator awarded Coppola its claimed damages in full for those items and denied Coppola any recovery for the lumber.
This award was also proper because Coppola's losses from the I-beams and re-bar arose in the usual course of the performance of the contract. The city had reason to know that Coppola would need to use certain materials in order to elevate the six residential structures. The city also had reason to know that Coppola would incur losses related to the materials if the city breached the contract. The losses due to the materials were a direct result of the city's breach; the losses were not unusual and unforeseeable. Coppola alleged that the I-beams and re-bar could be used only in this project. The lumber, by contrast, was not used at all and presumably could be used in a different project. Therefore, Coppola suffered losses with respect to the I-beams and re-bar, but not the lumber. Because the losses from the materials are best classified under general contract damages, not consequential damages, the arbitrator had the authority to award Coppola these damages. The court also concludes that the arbitrator properly distinguished the I-beams and re-bar from the lumber. Accordingly, the court confirms the arbitrator's award for the materials.
Next, the city applies for a modification and correction of the arbitration award on the ground that the arbitrator miscalculated the award for lost profits. The city argues that the award for lost profits should be reduced to $27,492 from $104,105 in order to reflect updated cost estimates and the city's alleged initial payments. The city offers the court a lengthy explanation of what it considers to be the appropriate methodology for the calculation of lost profits in this case. The arbitrator rejected the city's methodology. For this court to entertain the city's detailed proposal for recalculation, it would be necessary to disregard the confines of § 52-419(a)(1) (3), which limit judicial review to an "evident material miscalculation of figures or an evident material mistake" and an "[imperfection] in matter of form," respectively. In a voluntary arbitration such as this case, the court construes this statutory language narrowly, not expansively. See Chmielewski v. Aetna Casualty Surety Co., 218 Conn. 646, 678-79, 591 A.2d 101 (1991) (distinguishing compulsory arbitration from voluntary arbitration in construing the statutory language). Therefore, the court limits an evident material miscalculation or mistake to an obvious mathematical error. Similarly, the court limits an imperfection in matter of form to an obvious error affecting form rather than substance. The city's intricate approach to the calculation of lost profits is neither obvious nor a mere matter of form. The court thus rejects the city's arguments concerning the award for lost profits. The arbitrator's award of $104,105 for lost profits is accordingly confirmed.
For the reasons given above, the city's application to modify and correct the arbitration award is denied. The arbitration award of $136,787.50 is confirmed, with 10 percent interest per year from August 1, 2002. So ordered.
Richard E. Burke, J.