Opinion
No. CV04-4000119
March 11, 2005
MEMORANDUM OF DECISION
FACTS
On June 3, 2004, the defendants, Kenneth O. Zelvin and Steven Zelvin, filed an application to vacate the arbitration award rendered against them on April 29, 2004. On July 13, 2004, the plaintiff, JEM Builders, Inc., filed a motion to confirm the arbitration award of the arbitration panel. The court heard oral argument concerning both motions on October 7, 2004.
In Docket No. CV 04 0569609, Zelvin v. JEM Builders, Inc., Steven Zelvin and Kenneth O. Zelvin filed an application to vacate the arbitration award (#101). On July 15, 2004, the plaintiff JEM Builders, Inc. filed a motion to consolidate this action with Docket No. CV 04 0569609. On August 5, 2004, the court, Hurley, J.T.R., granted the plaintiff JEM Builders, Inc. motion to consolidate. For purposes of this memorandum, JEM Builders, Inc. is referred to as the plaintiff and Kenneth O. Zelvin and Steven Zelvin are referred to as the defendants, although, it is noted, their positions are switched in CV 04 0569609.
The dispute in this case arises over a purchase and sale agreement (contract) for the purchase and sale of a building lot (Lot 6) in the Mystic Shores subdivision in the Mystic section of the town of Groton. The contract contained a broad arbitration clause, providing: "The Buyer and Seller agree any controversy or claim arising from or relating to this Agreement or the breach thereof be settled by binding arbitration administered by the American Arbitration Association ("AAA") pursuant to their rules for the Real Estate Industry." (Purchase and Sale Agreement for Residential Lot, Application to Vacate, Exhibit D.) On March 17, 2003, the plaintiff, pursuant to the arbitration clause in the contract, submitted a demand for arbitration to the AAA in order to arbitrate whether the defendants breached the contract and, if so, to award damages.
In its description of the nature of the dispute attached to its demand for arbitration, the plaintiff claimed that the defendants breached the contract with the plaintiff by failing to convey Lot 6. (Demand for Arbitration, Application to Vacate, Exhibit F.) The plaintiff also claimed that it had "lost a large budget new home construction customer on account of Defendant's breach of contract." Id. Therefore, the plaintiff requested that the arbitrators award (1) specific performance of the contract, i.e., the conveyance of Lot 6 to the plaintiff; (2) damages for lost profits on the new home construction sale that was lost on account of the defendants' breach of the contract; (3) punitive damages on account of the defendants' deceptive practices and bad faith as exhibited by the breach of contract; (4) reasonable attorneys fees; and (5) any other remedies deemed necessary by the arbitration board. Id.
On May 9, 2003, the plaintiff filed a revised complaint in the arbitration proceeding. The revised complaint stated in greater detail the nature of the dispute. The prayer for relief in the revised complaint sought (1) specific performance; (2) money damages in excess of $15,000; (3) punitive damages; (4) reasonable attorneys fees and costs; and (5) such other remedies as the arbitration panel may deem necessary. (Revised Complaint, Application to Vacate, Exhibit H.)
In the present case, the matter proceeded to hearings before an arbitration panel over several days in October 2003 and January 2004. At the conclusion of the evidentiary hearings, the parties filed extensive briefs and reply briefs to the panel. The complete record of those proceedings is not before this court. The arbitrators' award is sparse and does not provide a detailed explanation as to how their decision was reached. Therefore, the court's review is severely limited, as the record is incomplete.
The arbitration panel rendered a decision on April 29, 2004, in favor of the plaintiff, finding that the defendants had breached the contract regarding Lot 6 by "violating the covenant of good faith and fair dealing that is implicit in every contract." (Arbitration Award, Application to Vacate, Exhibit A.) The panel awarded the plaintiff $80,000 for the "damages relating to the appreciation of the value of Lot No. 6" but found "the evidence was not sufficient to support a finding of damages relating to plaintiff's lost profits." Id. The panel further stated that the defendants could not recover attorneys fees or participation expenses as "[t]he claim initially made by the [plaintiff] did not assert damages in a particular dollar amount. Rather, it sought equitable relief in the form of specific performance. Although this panel found that specific performance was not available in these proceedings, that finding does not change the fact that the [plaintiff's] initial demand was for equitable relief and not a specified dollar amount." Id. The panel awarded no attorneys fees to the plaintiff and denied the defendants' counterclaim.
The panel's decision further provided that the liquidated damages provision of the contract was "unenforceable and not applicable" as the "amount assigned as liquidated damages is greatly disproportionate to, and not reasonably reflective of, the amount of damages that the buyer would sustain upon a breach of the contract by the seller." (Arbitration Award, Application to Vacate, Exhibit A.)
On June 3, 2004, the defendants filed an application to vacate the arbitration award on the grounds that it (1) exceeds the scope of the submission; (2) awards relief not requested; and (3) "manifestly disregards the law and so incorrectly and inconsistently applies the award to the facts that the award should be vacated." The defendants in their memorandum in support of their motion to vacate and/or correct the award claim that the arbitrators exceeded their powers or so imperfectly executed them that a mutual, final and definite award upon the subject matter submitted was not made pursuant to General Statutes § 52-418(a)(4). In the alternative, the defendants claim that the award should be corrected to delete that portion of the award concerning the increase in the value of Lot 6. The defendants argue that this portion should be deleted because the arbitrators have awarded upon a matter not submitted pursuant to General Statutes § 52-419(a)(2) by granting a monetary award for damages not submitted to them as part of the submission to arbitration. The defendants further claim that the arbitrators completely ignored the law applicable to contract interpretation and that this renders the award defective and subject to an order to vacate. In support of their claim that the arbitrators exceeded their powers and/or awarded upon a matter not submitted the defendants argue that the award does not conform to the submission because: (1) the appreciation of Lot 6 was never part of the issues submitted; (2) the specific findings in the award prove that the monetary award was outside the scope of the submission; and (3) any claim for bad faith had been withdrawn by the plaintiff prior to the arbitration hearing. In support of their claim that the arbitrators completely ignored the law applicable to contract interpretation the defendants argue that, pursuant to paragraph 19 of the parties' contract, they are entitled to participation costs as the plaintiff made a claim for a specified dollar amount in its initial demand for arbitration.
General Statutes § 52-418(a) provides in relevant part: "Upon the application of any party to an arbitration, the superior court . . . shall make an order vacating the award if it finds . . . the arbitrators have exceeded their powers or so imperfectly executed them that a mutual, final and definite award upon the subject matter submitted was not made."
General Statutes § 52-419(a) provides in relevant part: "Upon the application of any party to an arbitration, the superior court . . . shall make an order modifying or correcting 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 . . ."
On July 13, 2004, the plaintiff filed an application to confirm the arbitration award pursuant to General Statutes § 52-417. In the plaintiff's memorandum in support of its motion to confirm the arbitration award the plaintiff makes two arguments supporting its claim that the monetary damages award does not exceed the arbitrators' authority and does conform to the submission. The plaintiff's first argument is that it clearly requested monetary damages in the revised complaint as well as "any" or "such other remedies" as deemed necessary by the arbitration panel in both the demand for relief and the revised complaint. The plaintiff's second argument is that the plaintiff never withdrew its request for monetary damages. Accordingly, the plaintiff contends that the forms of relief requested are consistent with the arbitrators' award of $80,000 for the appreciation of the value of Lot 6.
General Statutes § 52-417 provides in relevant part: "At any time within one year after an award has been rendered and the parties to the arbitration notified thereof, any party to the arbitration may make application to the superior court . . . for an order confirming the award. The court or judge shall grant such an order confirming the award unless the award is vacated, modified or corrected as prescribed in sections 52-418 and 52-419."
On November 12, 2004, the defendants filed a supplemental memorandum in support of their application to vacate the arbitration award. In their supplemental memorandum the defendants elaborate on their argument that the award of monetary damages is outside of the scope of the arbitrators' authority because it is beyond the plaintiff's submission to arbitration. Specifically, the defendants argue that (1) the failure to specifically plead monetary damages limits the scope of the arbitrators' authority and (2) the plaintiff cannot rely on the language contained in its demand for relief as adequate to encompass a claim for monetary damages.
DISCUSSION Standard of Review
Connecticut's public policy in favor of arbitrating disputes is well established:
We begin by noting that Connecticut has adopted a clear public policy in favor of arbitrating disputes. The policy is expressed in General Statutes § 52-408, which provides in relevant part: An agreement in any written contract, or in a separate writing executed by the parties to any written contract, to settle by arbitration any controversy thereafter arising out of such contract, or out of the failure or refusal to perform the whole or any part thereof . . . shall be valid, irrevocable and enforceable, except when there exists sufficient cause at law or in equity for the avoidance of written contracts generally.
Nussbaum v. Kimberly Timbers, Ltd., 271 Conn. 65, 71 (2004).
Under Connecticut law arbitration awards are given a deferential standard of review by the courts:
[T]he law in this state takes a strongly affirmative view of consensual arbitration . . . As a consequence of our approval of arbitral proceedings, our courts generally have deferred to the award that the arbitrator found to be appropriate . . . The scope of review for arbitration awards is exceedingly narrow . . . Additionally, every reasonable inference is to be made in favor of the arbitral award and of the arbitrator's decisions . . .
Awards resulting from erroneous interpretations of the agreement or the law generally will not be vacated where the submissions are unrestricted. With unrestricted submissions . . . arbitrators are not required to resolve the issues presented according to the law, and courts may not review the evidence that the arbitrators used as the basis for their awards . . . Despite the wide berth given to arbitrators and their powers of dispute resolution, courts recognize three grounds for vacating arbitration awards. As a routine matter, courts review de novo the question of whether any of those exceptions apply to a given award . . . The first ground for vacating an award is when the arbitrator has ruled on the constitutionality of a statute . . . The second acknowledged ground is when the award violates clear public policy . . .
The third recognized ground for vacating an arbitration award is that the award contravenes one or more of the statutory proscriptions of [General Statutes] § 52-418.
International Brotherhood of Police Officers, Local 361 v. New Milford, 81 Conn.App. 726, 729-30 (2004).
I. Award Conforms to the Submission
The defendants first claim that by awarding monetary damages the arbitrators exceeded their powers or so imperfectly executed them that a mutual, final and definite award upon the subject matter was not made and/or they awarded upon a matter not submitted. See General Statutes §§ 52-418, 52-419. Specifically, the defendants argue in support of this claim that the award does not conform to the submission because (1) the appreciation of Lot 6 was never part of the issues submitted; (2) the specific findings in the award demonstrate that the monetary award was outside the scope of the submission; and (3) any claim for bad faith had been withdrawn by the plaintiff prior to the arbitration hearing. Moreover, in their supplemental memorandum the defendants expand on their argument that the monetary award was outside the scope of the submission. The defendants argue that the failure to specifically plead monetary damages limits the scope of the arbitrators' authority and that the plaintiff cannot rely on the language contained in its demand for relief as adequate to encompass a claim for monetary damages.
This case appears to present an issue of first impression before this court: whether an arbitrator may award monetary damages if a plaintiff in its demand for relief requests "other relief," or does such an award exceed the arbitrator's authority because it does not conform to the submission. This court finds that an arbitrator may award monetary damages when "other relief" is requested in a plaintiff's demand for relief. Moreover, this court finds that the award conforms to the submission because the submission was unrestricted and the issue submitted by the plaintiff was the same issue framed and answered by the panel. Accordingly, the defendants' claim fails. The controlling legal standards are well established:
In assessing whether an arbitrator has exceeded his or her powers, the basic test has become the comparison of the award with the submission to determine whether the award conforms to the submission . . . Conformity with § 52-418 also requires that the award meet the minimum requirements of being mutual, final and definite. [A]n award must be final as to the matters submitted so that the rights and obligations of the parties may be definitely fixed.
(Emphasis in original.) International Brotherhood of Police Officers, Local 361 v. New Milford, supra, 81 Conn.App. 730-31.
Further, if the submission is unrestricted, the court's review is significantly limited.
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.) Industrial Risk Insurers v. Hartford Steam Boiler Inspection Ins. Co., 258 Conn. 101, 110 (2001). Moreover, "[t]he party challenging the award bears the burden of producing evidence sufficient to demonstrate a violation of § 52-418." (Internal quotation marks omitted.) Id., 115.
"The arbitration clause in a contract constitutes the written submission to arbitration . . . If the parties have agreed in the underlying contract that their disputes shall be resolved by arbitration, the arbitration clause in the contract is a written submission to arbitration." (Citations omitted; internal quotation marks omitted.) Exley v. Connecticut Yankee Greyhound Racing Inc., 59 Conn.App. 224, 229, cert. denied, 254 Conn. 939 (2000).
In the present case, the submission to arbitration was made pursuant to the "Dispute Resolution" clause contained in the contract, which stated that "[t]he Buyer and Seller agree any controversy or claim arising from or relating to this Agreement or the breach thereof be settled by binding arbitration administered by the American Arbitration Association ("AAA") pursuant to their rules for the Real Estate Industry." (Emphasis added.) (Purchase and Sale Agreement for Residential Lot, Application to Vacate, Exhibit D.) Furthermore, our Supreme Court has held:
Where the language of the arbitration clause indicates an intention on the part of the parties to include all controversies which may arise under their agreement, and where the record reveals no specific questions which the parties submitted to the arbitrator, the submission will be construed as unrestricted . . . A submission is deemed restricted only if the agreement contains express language restricting the breadth of issues, reserving explicit rights, or conditioning the award on court review.
(Citations omitted; emphasis added; internal quotation marks omitted.) United States Fidelity Guaranty Co. v. Hutchinson, 244 Conn. 513, 519 (1998).
This is an unrestricted submission to arbitration because it contains no "express language restricting the breadth of issues, reserving explicit rights, or conditioning the award on a court review." In addition, Paragraph 6 of the "Introduction" to the Arbitration Rules for the Real Estate Industry (ARREI) (Arbitration Rules for the Real Estate Industry, Application to Vacate, Exhibit J), provides in pertinent part: "Issues to be arbitrated under the terms of legal agreements regarding real estate or by subsequent mutual agreement of the parties include but are not limited to . . . [Paragraph] 6. the appropriate remedy concerning disputes about the terms and conditions of real estate contracts." (Emphasis added.) The issue submitted by the plaintiff in its demand for relief, breach of contract for failure to convey Lot 6, clearly falls within the settlement authority of the arbitration panel as provided in the "Introduction" to the ARREI. The arbitration clause, read together with the plaintiff's demand for relief and the ARREI, explicitly granted the arbitrators the power to resolve the issue of the breach of contract for bad faith and deceptive practices.
The defendants have not demonstrated that the parties, by means of their submission, limited in any way the arbitrators' authority to award monetary damages of $80,000 for breach of contract. This court finds no such limitation in the contract or under the ARREI. Furthermore, Section 45 of the ARREI, entitled "Scope of Award," provides in pertinent part: "The arbitrator may grant any remedy or relief that the arbitrator deems just and equitable and within the scope of the agreement of the parties, including, but not limited to, specific performance of a contract." (Emphasis added.) Therefore, this court finds that "other relief" as requested in the plaintiff's demand for relief clearly falls within the arbitrators' broad powers to award "any remedy or relief" within the scope of the agreement.
The defendants argue that the Appellate Court's reasoning in Solomon v. Hall-Brooke Foundation, Inc., 30 Conn.App. 129 (1993), holds that an arbitration panel cannot award monetary damages when a complaint requests other relief from an arbitration panel. In Solomon, the court determined that the plaintiff's request for "such other relief as the court deems necessary and just" was too amorphous to constitute a claim for money damages. (Internal quotation marks omitted.) Id., 134. In reaching that conclusion, the court relied on Practice Book § 285A now § 5-2, which provides in relevant part:
Although the wording of § 285A, now § 5-2, has changed, there is no change in the substantive law.
Any party intending to raise any question of law which may be the subject of an appeal must either state the question distinctly to the judicial authority in a written trial brief . . . or state the question distinctly to the judicial authority on the record . . . If the party fails to do this, the judicial authority will be under no obligation to decide the question. The court observed that "[a] claim is distinctly raised if it is so stated as to bring to the attention of the court the precise matter on which its decision is being asked . . . A claim briefly suggested is not distinctly raised."
(Internal quotation marks omitted.) Solomon v. Hall-Brooke Foundation, Inc., supra, 30 Conn.App. 134. The court ultimately concluded that the trial court's failure to award money damages to the plaintiff was proper because she failed to include in her complaint a specific request for such damages. Id., 134-35.
This court finds the Appellate Court's reasoning in Solomon is inapplicable here. In Fishman v. Middlesex Mutual Assurance Co., 4 Conn.App. 339, cert. denied, 197 Conn. 806, 807 (1985), the Appellate Court concluded that special statutory proceedings brought pursuant to General Statutes § 52-410, a sister statute to the statutes involved in this matter, are not controlled by the formalities of a civil action. The court held that the trial court did not err in refusing to dismiss the plaintiff's complaint on the basis of the plaintiff's failure to file a recognizance because arbitration proceedings are not civil actions which require a recognizance pursuant to Practice Book §§ 51, 52 and 53." Id., 344. Accordingly, the court stated that "[a]rbitration proceedings . . . are creatures of statute in Connecticut and are not common law actions . . . These statutes are enacted to create an arrangement for taking and abiding by the judgment of selected persons in some disputed matter, instead of carrying it to the established tribunals of justice; and is intended to avoid the formalities, the delay, the expense and vexation of ordinary litigation." (Citations omitted; internal quotation marks omitted.) Id., 345. The defendants' reliance upon Solomon is misplaced because in the context of arbitration proceedings the plaintiff is not required to plead money damages with specificity pursuant to Practice Book § 5-2. Moreover, "[o]ur courts favor arbitration as a means of settling differences and uphold the finality of arbitration awards except where an award clearly falls within the proscriptions of § 52-418 of the General Statutes." (Internal quotation marks omitted.) Exley v. Connecticut Yankee Greyhound Racing, Inc., supra, 59 Conn.App. 228.
General Statutes § 52-410 provides in pertinent part: "(a) A party to a written agreement for arbitration claiming the neglect or refusal of another to proceed with an arbitration thereunder may make application to the superior court . . . for an order directing the parties to proceed with the arbitration in compliance with their agreement."
Based on the foregoing, this court finds that the defendants' claim that the arbitrators exceeded their powers or so imperfectly executed them fails as the relief granted conforms to the submission. Thus, the award is final as to the matter submitted.
II. Manifestly Disregards the Law — Participation Costs
In support of the defendants' claim that the arbitrators manifestly disregarded the law applicable to contract interpretation the defendants argue that they are entitled to participation costs pursuant to Section 19 of the parties' contract as the plaintiff made a dollar claim in its initial demand for arbitration. Specifically, the defendants assert that the demand for relief included "[d]amages for lost profits on the new home construction customer that was lost on account of the Defendant's breach of contract." (Demand for Relief, Application to Vacate, Exhibit F.) The defendants further argue that "[t]he dollar amount claimed by JEM solely for lost profits on this alleged new home construction contract was specifically identified as Two Hundred Thirty Thousand Dollars ($230,000.00) in the pleadings filed contemporaneously with the demand for arbitration by JEM in the New London Superior Court." (Defendants' Memorandum of Law in Support of Application to Vacate Arbitration Award.)
Section 19 of the contract provides: "Each party shall bear the expense of its participation in the arbitration proceedings, including but not limited to attorneys fees, and no portion of any award from the panel shall provide for payment, in whole or part, by one party to the other for reimbursement of such expense, except the non-initiating party may request and receive payment for its participation expenses should the arbitrators award the initiating party less than seventy-five percent (75%) of the dollar claim initially made by the initiating party." (Emphasis in original.)
The Appellate Court has held:
So delimited, the principal of vacating an award because of a manifest disregard of the law is an important safeguard of the integrity of alternative dispute resolutions mechanisms. Judicial approval of arbitration decisions that so egregiously depart from established law that they border on the irrational would undermine society's confidence in the legitimacy of the arbitration process . . . Furthermore, although the discretion conferred on the arbitration by the contracting parties is exceedingly broad, modern contract principles of good faith and fair dealing recognize that even contractual discretion must be exercised for purposes reasonably within the contemplation of the contracting parties . . .
In Garrity [ Garrity v. McCaskey, 223 Conn. 1 (1992)] we adopted the test enunciated by the United States Court of Appeals for the Second Circuit in interpreting the federal equivalent of Section 52-418(a)(4) . . . The test consists of the following three elements, all of which must be satisfied in order for a court to vacate an arbitration award on the ground that the arbitration panel manifestly disregarded the law: (1) the error was obvious, and capable of being readily and instantly perceived by the average person qualified to serve as an arbitrator; (2) the arbitration panel appreciated the existence of a clearly governing legal principal but decided to ignore it; and (3) the governing law alleged to have been ignored by the arbitration panel is well defined, explicit and clearly applicable.
(Citations omitted.) Preston v. State Division of Criminal Justice, 60 Conn.App. 853, 862-63 (2000), cert. denied, 255 Conn. 936 (2001).
[A]n award that manifests an egregious or patently irrational application of the law is an award that should be set aside pursuant to § 52-418(a)(4) because the arbitrator has "exceeded [his] powers or so imperfectly executed them that a mutual, final and definite award upon the subject matter submitted was not made." We emphasize, however, that the" manifest disregard of the law" ground for vacating an arbitration award is narrow and should be reserved for circumstances of an arbitrator's extraordinary lack of fidelity to established legal principles.
Saturn Construction Co. v. Premier Roofing Co., 238 Conn. 293, 304 (1996).
Clearly, the defendants are attempting to bring the present case within the guidelines of Garrity. The defendants argue that contract interpretation begins with the plain and ordinary meaning of the contract language. In effect, the defendants argue that the arbitrators ignored the normal rules of contract interpretation in arriving at the meaning of Section 19 of the contract.
The parties agreed that disputes would go to arbitration and this court is bound by the results of that arbitration unless there is manifest disregard of the law. The defendants do not argue that the arbitrators ignored the law but rather that they ignored rules of contract interpretation. Our Appellate Court has held that "[a] mere difference of opinion as to the construction of the contract does not establish that the arbitrators exceeded their authority." AFSCME, Council 4, Local 1522, AFL-CIO v. Bridgeport, 53 Conn.App. 702, 706 (1999). Moreover, even if this court were to find that the interpretation of the contract should be other than what the arbitrators decided, in such a voluntary arbitration with an unrestricted submission, the court is not entitled to substitute its judgment for that of the arbitrators. This is true even if the arbitrators are wrong as regarding questions of law. See Industrial Risk Insurers v. Hartford Steam Boiler Inspection Ins. Co., supra, 258 Conn. 115.
It is evident that the defendants do not and cannot meet the Garrity test. On the basis of this court's review of the award, this court finds that, in formulating their award, the arbitrators did not manifestly disregard the clear law pertinent to the issues they were required to decide. Furthermore, this court refuses to substitute its judgment for that of the arbitration panel merely because a party to the arbitration did not agree with the panel's contractual interpretation conclusions.
Therefore, for the foregoing reasons, the application to confirm the arbitration award filed by the plaintiff is hereby granted and the application to vacate the arbitration award filed by the defendants is hereby denied.
Seymour L. Hendel, J