Opinion
No. CV03 08 21 73
September 8, 2003
MEMORANDUM OF DECISION
BACKGROUND
The plaintiff, Latex Foam International Holdings, Inc., has filed an application to vacate an arbitration award pursuant to General Statutes § 52-418. The plaintiff claims that the award should be vacated as it violates a clear public policy of this state against forgery and document fraud. The defendant, Jonathan May, opposes the plaintiff's application and has moved to confirm the award pursuant to General Statutes § 52-417. The defendant also seeks post award simple interest under General Statutes § 37-3a. This matter was placed on the short calendar docket and heard by the court on July 14, 2003.
General Statutes § 52-418 (a) provides in relevant part: "Upon the application of any party to an arbitration, the superior court for the judicial district in which one of the parties resides . . . shall make an order vacating the award if it finds any of the following defects: (1) If the award has been procured by corruption, fraud or undue means; (2) if there has been evident partiality or corruption on the part of any arbitrator; (3) if the arbitrators have been guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown or in refusing to hear evidence pertinent and material to the controversy or of any otter action by which the rights of any party have been prejudiced; or (4) if 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 § 52-417 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 the judicial district in which one of the parties resides for an order confirming the award."
General Statutes § 37-3a provides in relevant part: "Except as provided in sections 37-3b, 37-3c and 52-192a, interest at the rate of ten per cent a year, and no more, may be recovered and allowed in . . . arbitration proceedings under chapter 909 . . . as damages for the detention of money after it becomes payable."
Through their briefs and at oral argument the parties made the following representations with respect to the background of this matter. On January 1, 1993, the parties executed a format employment agreement in which the defendant agreed to become the plaintiff's executive vice president and chief operating officer. Section 3 of the agreement provided for a one year term that would be "renewed automatically for succeeding periods of twelve (12) months each, upon the same terms and conditions, unless either the Employee or the corporation [gave] written notice of its intention not to renew this Agreement at least thirty (30) days prior to the expiration of any such period." Pursuant to Section 10(a), however, the plaintiff could "at any time terminate the Employee's employment for Cause. Cause shall include: (1) Willful, repeated or continued failure of the Employee to adhere to the provisions and policies established by the Board of Directors of the Corporation; (2) The conviction of the Employee of a felony; (3) Employee conduct which will bring himself or the Corporation into disrepute." Conversely, if the defendant was terminated without cause, Section 10(d) required the plaintiff to pay the defendant a termination benefit that, under Section 6(d), would be "equal to but not in excess of the amount of the Renewal Salary then in force and effect. Said benefit shall be payable in regular semi-monthly payments unless the parties mutually agree to some other schedule of payment of such amount."
The defendant continued to serve under the agreement until January 26, 2001, when the plaintiff terminated his employment without cause pursuant to a written notice of termination dated December 27, 2000. Under Section 6(d) of the agreement, the defendant was therefore entitled to a termination benefit equal in amount to the renewal salary then in force, or in this case, $310,000. Accordingly, the plaintiff made equal monthly installment payments to the defendant in February, March and April of 2001. In May of 2001, the plaintiff discontinued the payments after discovering that the defendant had submitted fraudulent documents in a mortgage application. The documents submitted by the defendant not only misrepresented the defendant's relationship with the plaintiff, but also included forged signatures of two of the plaintiff's executives.
Thereafter, the defendant initiated an action in the U.S. District Court for the District of Connecticut alleging, inter alia, that the plaintiff's failure to pay the termination benefits constituted a breach of contract. Because the employment agreement contained an arbitration clause, the plaintiff filed a motion to compel arbitration. The defendant subsequently agreed to dismiss the federal action and have the matter decided through arbitration.
Section 15 of the agreement provides: "Any controversy or claim arising out of or relating to this Agreement, whether or not this Agreement specifically provides for the determination of the matter by arbitration, shall be settled and finally determined by arbitration in accordance with the Rules of Commercial Arbitration of the American Arbitration Association . . . The judgment upon the award rendered in any arbitration shall be final and binding upon the parties and may be entered in any court having jurisdiction thereof; provided, however, that a court of competent jurisdiction shall have the jurisdiction and authority to review all questions of law."
On March 10, 2003, an evidentiary hearing was held before a panel of arbitrators. The parties submitted the following issue to the panel: "Did Mr. May's conduct after termination give the Company the right to terminate benefits under the Employment Agreement? If not, what will the remedy be?" On May 12, 2003, the panel issued an award in favor of May, finding "an insufficient demonstration that Claimant's conduct after termination gave the Company a right to terminate Claimant's benefits under the Agreement. No language m the Agreement so provides, and had the parties, both experienced in business matters, intended, they could have included a provision setting forth such a condition. Moreover, while Section 10(a) allows an `employee' to be terminated for cause it does not on its face apply after employment has been terminated. Similarly, Section 6(d) contains no provision regarding misconduct during the term of severance, nor does it contain a provision for liquidated or other damages. Further, the record does not support any implied right to terminate benefits." The panel, therefore, concluded that the defendant was entitled to his termination benefits, and thus, awarded him $246,342.33.
On June 13, 2003, the plaintiff filed the present application to vacate the arbitration award. The plaintiff asks this court to vacate the arbitration award on the ground that it contravenes Connecticut's well-defined and dominant public policy against forgery and fraud embodied in the criminal laws of this state as well as the common law. The plaintiff also filed a corresponding memorandum of law in support of its application to vacate the award.
On July 10, 2003, the defendant filed the present motion to confirm the award and for judgment. The defendant asks this court to confirm the panel's award and enter an order of final judgment. The defendant also requests that the court grant him post award simple interest at the rate of 10% per annum. The defendant filed a memorandum of law in support of its motion to confirm and in opposition to the plaintiff's application to vacate. The plaintiff has since filed a reply memorandum of law in opposition to the defendant's motion and in further support of its application.
DISCUSSION
Based on the parties' motions and corresponding memoranda, the court must determine two issues. First, the court must decide whether to vacate or confirm the underlying arbitration award. If the court concludes that the award should be confirmed, the court must then decide whether to grant the defendant post award simple interest under § 37-3a. The court now turns to address these issues in their respective order.
I
"The standard of review relative to arbitration awards depends on the nature of the challenge. With a voluntary, unrestricted submission to an arbitrator, as is the case before us, the court may only examine the submission and the award to determine whether the award conforms to the submission . . . In making such a comparison when the submission is unrestricted, the court will not review the evidence or legal questions involved, but is bound by the arbitrator's legal and factual determinations . . .
The parties do not dispute that the submission was unrestricted.
"Certain conditions do exist, however, under which we conduct a more searching review of arbitral awards. In Garrity v. McCaskey, 223 Conn. 1, 6, 612 A.2d 742 (1992), our Supreme Court reiterated that there are three grounds for vacating an award when the submission is unrestricted. These grounds arise when the award (1) rules on the constitutionality of a statute, (2) violates clear public policy or (3) contravenes one or more of the statutory proscriptions of General Statutes § 52-418." (Internal quotation marks omitted.) Metropolitan District Commission v. Local 184, 77 Conn. App. 832, 838, (2003). In the present case, the defendant's challenge implicates only the second exception; accordingly, it will be the focus of this court's analysis.
In Schoonmaker v. Cummings Lockwood of Connecticut, P.C., 252 Conn. 416, 747 A.2d 1017 (2000), our Supreme Court explained when an arbitral decision violates a clear public policy. That court stated: "Where there is no clearly established public policy against which to measure the propriety of the arbitrators award, there is no public policy ground for vacatur. If, on the other hand, it has been determined that an arbitral award does implicate a clearly established public policy, the ultimate question remains as to whether the award itself comports with that policy. We conclude that where a party challenges a consensual arbitral award on the ground that it violates public policy, and where that challenge has a legitimate, colorable basis, de novo review of the award is appropriate in order to determine whether the award does in fact violate public policy." Id., 429.
"Recently, this court had the opportunity to clarify the standard annunciated in Schoonmaker. In State v. AFSCME, Council 4, Local 2663, AFL-CIO, [ 59 Conn. App. 793, 796, 758 A.2d 387, cert. denied, 255 Conn. 905, 762 A.2d 910 (2000)], we held that Schoonmaker require[s] a two-step analysis in cases such as this one in which a party raises the issue of a violation of public policy in an arbitral award. First, we must determine whether a clear public policy can be identified. Second, if a clear public policy can be identified, we must then address the ultimate question of whether the award itself conforms with that policy." Metropolitan District Commission v. Local 184, supra, 77 Conn. App. 839.
Under the above analysis, this court must first determine whether a clear public policy can be identified. The plaintiff contends that there is a clear public policy against forgery and document fraud as evidenced in both our criminal statutes and common law. The defendant, however, maintains that there is not a clear public policy mandate against an employer paying an employee monetary amounts earned prior to his misconduct.
Connecticut's public policy may be found in our state statutes and case law. See South Windsor v. South Windsor Police Union, 41 Conn. App. 649, 654, 677 A.2d 464 (1996) (statutes and case law are sources of public policy). After reviewing those sources, the court finds that this state does indeed recognize a clear public policy against forgery and document fraud. This public policy is evidenced in our criminal statutes, which provide that "[a] person is guilty of forgery in the second degree when, with intent to defraud, deceive or injure another, he falsely makes, completes or alters a written instrument or issues or possesses any written instrument which he knows to be forged, which is or purports to be, or which is calculated to become or represent if completed . . . [a] contract, . . . commercial instrument or other instrument which does or may evidence, create, transfer, terminate or otherwise affect a legal right, interest, obligation or status . . ." General Statutes § 53a-139 (a). This public policy is also evidenced in our case law. In Board of Education v. Local 566, Council 4, AFSCME, 43 Conn. App. 499, 505, 683 A.2d 1036 (1996), our Appellate Court stated that "[o]ur criminal statutes evidence a clear public policy against . . . fraud . . . [and that] . . . [t]he public policy of discouraging fraud generally is firmly rooted in our common law as well." (Citation omitted; internal quotation marks omitted.) Thus, this court concludes that the defendant's conduct implicated this state's clear public policy against forgery and document fraud.
It is undisputed that the defendant's conduct — namely forging signatures on mortgage documents and misrepresenting his relationship with the defendant — falls squarely within the proscriptions of § 53a-139. See State v. Cooke, 42 Conn. App. 790, 682 A.2d 513 (1996) (defendant found guilty of forgery in second degree where he forged signature of wife on mortgage deed).
Having so concluded, this court must now decide whether the award violates the aforementioned policy. The plaintiff contends that the arbitral award violated the above policy by inherently rationalizing the defendant's conduct. It further argues that the court should treat the defendant as having been terminated for cause since the defendant's actions, if committed while an employee, would have constituted cause for termination under Section 10(a) of the agreement, and therefore, prevented the defendant from receiving the termination benefits.
The defendant, however, argues that to vacate the award would be to punish the defendant for misconduct committed after he had earned or was contractually due the termination benefits.
Our Supreme Court has stated that "[a] challenge that an award is in contravention of public policy is premised on the fact that the parties cannot expect an arbitration award approving conduct which is illegal or contrary to public policy to receive judicial endorsement any more than parties can expect a court to enforce such a contract between them . . . When a challenge to the arbitrator's authority is made on public policy grounds, however, the court is not concerned with the correctness of the arbitrator's decision but with the lawfulness of enforcing the award . . . Accordingly, the public policy exception to arbitral authority should be narrowly construed and [a] court's refusal to enforce an arbitrator's interpretation of [employment agreements] is limited to situations where the contract as interpreted would violate some explicit public policy that is well defined and dominant, and is to be ascertained by reference to the laws and legal precedents and not from general considerations of supposed public interests . . . The party challenging the award bears the burden of proving that illegality or conflict with public policy is clearly demonstrated . . . Therefore, given the narrow scope of the public policy limitation on arbitral authority, the plaintiff can prevail in the present case only if it demonstrates that the award clearly violates an established public policy mandate." (Citations omitted; internal quotation marks omitted.) South Windsor v. South Windsor Police Union Local 1480, Council 15, 255 Conn. 800, 815-16, 770 A.2d 14 (2001).
The plaintiff relies on two cases to support his position that the present award violates public policy, and thus, should be vacated. The first case, State v. AFSCME, Council 4, Local 387, AFL-CIO, 252 Conn. 467, 468-69, 747 A.2d 480 (2000), involved an on duty correctional officer who used a state owned telephone to leave a profane and racist message on a state senator's voice mail. As a result, the officer's employment was terminated and he was charged with harassment in the second degree. Id., 469. The issue in that case was whether an arbitral award reinstating the officer to employment violated public policy. Id., 473. The Supreme Court concluded that "in [reinstating the officer], the arbitrator minimized society's overriding interest m preventing conduct such as that at issue in this case from occurring. Thus the award — with its inherent rationalization of conduct stipulated to by [the officer], which is violative of statute and regulations is in itself violative of clear public policy. As the trial court aptly stated, the termination of [the officer] as provided for in the department of correction regulations is warranted . . . A lesser sanction — a progressive sanction, as suggested by the arbitrator — would, very simply, send the message that stress, or poor judgment, or other factors, somehow renders the conduct permissible or excusable." (Internal quotation marks omitted.) Id., 477. Thus, the court upheld the trial court's judgment vacating the award. Id. 478.
The second case relied upon by the plaintiff is Groton v. United Steelworkers of America, 254 Conn. 35, 757 A.2d 501 (2000). In that case, the issue presented to the court was "whether an arbitral award, which reinstated to employment an employee who had been convicted of embezzlement of his employer's funds following a plea of nolo contendere, violates public policy." Id., 36. The court held that the award did violate public policy, and therefore, should be vacated. Id., 48-49. The court stated that "the public policy against embezzlement encompasses he policy that an employer should not be compelled to reinstate an employee who has been convicted of embezzling the employer's funds, irrespective of whether the conviction followed a trial, a guilty plea or a nolo contendere plea. The employment context ordinarily involves a number of legitimate expectations on the part of the employer that such a conviction is likely to undermine, irrespective of the legal underpinning of the conviction. For example, the employer is entitled to expect that he be able to trust an employee who is in a position of financial responsibility. The employer is also entitled to expect that his other employees will be able to trust their co-employees, and that those other employees will feel sufficiently deterred from engaging in embezzlement. Finally, the employer is entitled to expect that members of the public who are required to deal with his employees will feel that they are being served in an honest and trustworthy manner. All of these legitimate expectations are severely threatened by a requirement that the employer reinstate an employee who has been convicted of embezzling the employer's finds." Id.
Despite the plaintiff's arguments, the present case is distinguishable from the aforementioned cases. First, the defendant's criminal conduct in this case did not lead to his termination from employment, but instead, his criminal conduct led to the termination of his benefits. Furthermore, he did not commit criminal acts while still an employee, but rather, after his termination, and thus, after he became entitled to the termination benefits. Finally, the defendant is not seeking reinstatement as an employee. Thus, the employer's "legitimate expectations" addressed in United Steelworkers of America are not implicated in this case. This court, therefore, finds that the cases cited by the plaintiff do not support the conclusion that the arbitral award violates this state's clear public policy against forgery and document fraud. Accordingly, this court finds that the plaintiff has not met its burden of proving that the arbitral award should be vacated on public policy considerations.
II
Having determined that the plaintiff has not met its burden, and thus that the award should be confirmed, the court now turns to determine whether the defendant is entitled to post award interest under § 37-3a. The defendant claims that § 37-3a entitles him to post award interest at the rate of 10% per annum from the date of the arbitrator's award to the date that the award is paid.
The plaintiff has not addressed this issue.
"The proceeding commenced by [the plaintiff] to vacate the arbitration award under General Statutes § 52-418, a provision contained in chapter 909 of the General Statutes, is unquestionably one in which the legislature intended that prejudgment interest might be recovered. In accordance with the permissive language of § 37-3a . . . we have stated that the allowance of interest as an element of damages is primarily an equitable determination and a matter within the discretion of the trial court . . . While the determination depends in part upon when the money involved is payable . . . the real question in each case is whether the detention of the money is or is not wrongful under the circumstances . . . The determination is one to be made in view of the demands of justice rather than through the application of any arbitrary rule." (Citations omitted; internal quotation marks omitted.) Middlesex Mutual Assurance Co. v. Walsh, 218 Corp. 681, 701-02, 590 A.2d 957 (1991).
In this case, the plaintiff has had the use of the money owed the defendant since May of 2001. In May of 2003, the arbitrators determined that the defendant was entitled to the termination benefits. Instead of paying these benefits to the defendant after the arbitrators issued the award, the plaintiff continued to keep the money. Although the plaintiff has held the money for such an extended period, the defendant only asks this court to grant post award simple interest at the rate of 10% per annum from the date of the award, May 12, 2003, until the date the award is payed. Our Supreme Court has stated that "a trial court has discretion, under General Statutes § 37-3a, to award prejudgment interest on an arbitration award retroactively to some date prior to the date of the trial court's judgment affirming the . . . [T]he prior date may be the date of the arbitration award." (Citation omitted.) Chmielewski v. Aetna Casualty Surety Co., 218 Corp. 646, 675-76, 591 A.2d 101 (1991). Under these circumstances, the court finds that the award, amounting to $246,342.33, was wrongfully withheld and that the defendant is entitled to simple interest on that award at the rate of 10% per annum from the date of the award to the date of full payment by the plaintiff.
For the foregoing reasons, the defendant's motion to confirm is granted, and the plaintiff's application to vacate is denied. Furthermore, the defendant is granted simple interest on the arbitration award at the rate of 10% per annum from the date of the award to the date of full payment by the plaintiff.
HOLDEN, J.