Opinion
No. CV 04-4000358
February 2, 2005
The current proceedings concern the legality of arbitration award designating the status of proceeds from certain redevelopment property that had been conveyed and subsequently leased subject to an urban renewal agreement. In Docket No. CV 04-4000358, the plaintiff Young Men's Christian Association of Northern Middlesex County, Inc. ("YMCA") has filed an application to confirm the arbitration award. In Docket No. CV 04-4000549, the plaintiffs City of Middletown and the Middletown Redevelopment Agency (collectively "Middletown") seek to vacate the same award.
On July 15, 1969, the Common Council for the City of Middletown approved an urban renewal project known as the Metro South Urban Renewal Project (the Project) for the development of certain property located in Middletown. On August 1, 1979, the city conveyed two parcels of land within the designated project area to the YMCA. Subsequent to the conveyance, the redevelopment agency approved several development plans for the parcels, including the construction of a bank building and a three-level parking garage. Construction of the parking garage was pursuant to a five-year lease (the hospital lease) between the YMCA and Middlesex Memorial Hospital (the hospital), approved by the redevelopment agency on January 23, 1987.
On June 8, 1994, the city and the YMCA entered into a written escrow agreement under which the YMCA was required to deposit all rents received from the hospital lease in a separate escrow account to be held by the city. Paragraph five of that agreement provided that "[t]he City shall release the Escrow Funds with all interest accrued thereon . . . to the YMCA upon the signing of a construction contract for the implementation of the `Approved Development Plan' or the implementation of the `Long Range Development Proposal' . . ." The agreement continued: "If by March 31, 2002, there is no progress in the implementation of the `Approved Development Plan' or the `Long Range Development Proposal,' the City may claim the Escrow Funds and the interest accrued thereon, unless an extension is granted by the [redevelopment agency] or the City. The City shall not unreasonably withhold the use of the objectives of the `Approved Development Plan' or the Long Range Development Proposal.'" The escrow agreement between the parties also contained an arbitration clause which provided that any dispute arising out of the agreement was to be resolved by arbitration in accordance with the rules of the American Arbitration Association.
Paragraph six of the escrow agreement provides in relevant part: "Any dispute under this Agreement, including without limitation the choice of investment vehicle for the Escrow Funds under Paragraph 3 or the release of the Escrow Funds under Paragraph 5, shall be resolved by arbitration in accordance with the rules of the American Arbitration Association then in effect in Hartford, Connecticut."
On June 12, 2003, the YMCA served a "Notice of Intention to Arbitrate and Complaint for Arbitration" upon the city and the redevelopment agency. The parties submitted to arbitration, and, on July 30, 2004, the arbitrator rendered an award ordering the city to turn over to the YMCA the sum of $356,022.97 held in escrow by the city. The award further ordered the YMCA, upon receipt of the funds, to begin implementing a development plan approved by the city for the redevelopment property owned by the YMCA.
On August 4, 2004, the YMCA filed an application to confirm the arbitration award. On August 24, 2004, Middletown responded by filing its own application to vacate the arbitration award, arguing that the award contravenes public policy; that the arbitrator exceeded his authority; and that the award was in manifest disregard of the law. On November 8, 2004, this court heard argument as to both proceedings.
We begin with a recognition of the increasingly important role that arbitration . . . and, indeed, other forms of what is known as "alternative dispute resolution" . . . play in the administration of civil justice. "[T]he law in this state takes a strongly affirmative view of consensual arbitration . . . Arbitration is a favored method to prevent litigation, promote tranquility and expedite the equitable settlement of disputes . . . As a consequence of our approval of arbitral proceedings, our courts generally have deferred to the award that the arbitrator found to be appropriate." (Internal quotation marks omitted.) International Brotherhood of Police Officers, Local 361 v. New Milford, 81 Conn.App. 726, 729, 841 A.2d 706 (2004).
"Judicial review of arbitral decisions is narrowly confined . . . When the parties agree to arbitration and establish the authority of the arbitrator through the terms of their submission, the extent of [the courts'] judicial review of the award is delineated by the scope of the parties' agreement . . . When the scope of the submission is unrestricted, the resulting award is not subject to de novo review even for errors of law so long as the award conforms to the submission . . . Because [the courts] favor arbitration as a means of settling private disputes . . . judicial review of arbitration awards [is undertaken] in a manner designed to minimize interference with an efficient and economical system of alternative dispute resolution." (Citation omitted; internal quotation marks omitted.) State v. New England Health Care Employees Union, District 1199, 265 Conn. 771, 777, 830 A.2d 729 (2003).
"Where the submission does not otherwise state, the arbitrators are empowered to decide factual and legal questions and an award cannot be vacated on the grounds that . . . the interpretation of the agreement by the arbitrators was erroneous. Courts will not review the evidence nor, where the submission is unrestricted, will they review the arbitrators' decision of the legal questions involved." (Internal quotation marks omitted.) Id., 778; see also Stratford v. International Assn. of Firefighters, AFL-CIO, Local 998, 248 Conn. 108, 116, 728 A.2d 1063 (1999) ("[I]t is the arbitrator's judgment that was bargained for and contracted for by the parties, and we do not substitute our own judgment merely because our interpretation of the agreement or contract at issue might differ from that of the arbitrator.").
"Even in the case of an unrestricted submission, [the Supreme Court has], however, recognized three grounds for vacating an award: (1) the award rules on the constitutionality of a statute . . . (2) the award violates clear public policy . . . or (3) the award contravenes one or more of the statutory proscriptions of (General Statutes] § 52-418." Stratford v. International Assn. of Firefighters, AFL-CIO, Local 998, supra, 248 Conn. 116.
I
Middletown first claims that the arbitration award is inconsistent with the public policy codified in General Statutes § 8-137. That section provides in part that redevelopment property conveyed to a redeveloper "shall be developed and used in accordance with the redevelopment plan or such plan as modified with the approval of the redevelopment agency." General Statutes § 8-137. In accordance with this statutory mandate and the terms of the escrow agreement, the arbitration award orders that all escrow funds from the hospital lease be turned over to the YMCA for the purposes of implementing the approved redevelopment plan. The YMCA has presented, and the city and redevelopment agency have approved, a proposal to develop the land at an estimated cost of $104,162. This leaves a total of nearly $313,000 in escrow funds not allotted for redevelopment use. Middletown contends that these remaining funds should go to the city or be put to other redevelopment use, as public policy dictates that funds derived from redevelopment property be used for redevelopment purposes. Contrary to that assertion, however, neither statutory authority nor caselaw supports this proposition.
The amount of $313,000 includes $59,932.33 in escrow funds held in a separate account by the YMCA.
When the public policy exception is used to overturn an arbitration award, the objecting party must prove that the award contravenes a clear public policy. "The public policy exception applies only when the award is clearly illegal or clearly violative of a strong public policy . . . 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 [the parties' agreement] 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." (Citation omitted; internal quotation marks omitted.) State v. New England Health Care Employees Union, District 1199, supra, 265 Conn. 783-4.
An assessment of whether an arbitration award can be vacated on public policy grounds involves a two-step inquiry. Private Healthcare Systems, Inc. v. Torres, 84 Conn.App. 826, 835, 855 A.2d 987, cert. granted, 271 Conn. 939, 861 A.2d 513 (2004). "First, the court determines whether an explicit, well-defined and dominant public policy can be identified. If so, the court then decides if the arbitrator's award violated the public policy." State v. AFSCME, Council 4, Local 387, AFL-CIO, 252 Conn. 467, 476, 747 A.2d 480 (2000). In the present case, the plaintiffs do not rely on a clearly-defined public policy, but rather on one that is surmised from § 8-137, which holds that private property taken by a municipality for public use under a redevelopment plan must be used to carry out certain approved redevelopment activities. The city and agency are here attempting to expand the scope of the stated public policy to apply not only to land subject to a redevelopment plan, but also to rents collected from that land. Section 8-137, however, makes no mention of the use of funds derived from such property. So long as the redevelopment plan is carried out pursuant to the parties' agreement, the remaining hospital lease proceeds are no longer within the confines of the redevelopment statutory scheme. Accordingly, the first prong of the required inquiry cannot be satisfied.
Because Middletown has failed to satisfy the preliminary inquiry of the public policy analysis, the court need not consider whether, under the second prong of the analysis, "adherence to the award itself would violate public policy." Private Healthcare Systems, Inc. v. Torres, supra, 84 Conn.App. 835; see State v. AFSCME, Council 4, Local 387, AFL-CIO, supra, 252 Conn. 477. The court thus concludes that the arbitrator's award does not conflict with the public policy of this state pertaining to the use of redevelopment lands.
II
Middletown next argues that the arbitration award should be vacated on the ground that the arbitrator exceeded his authority by failing to issue an award in accordance with the parties' submission. In support of this argument, Middletown points to General Statutes § 52-418(a), which provides that "[u]pon 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: . . . (4) if the arbitrators have exceeded their powers or so imperfectly executed them that a mutual, final and definite award upon the subject matter was not made."
According to Middletown, the issue submitted before the arbitrator was a determination of which party was entitled to the escrow proceeds from the YMCA's parking lease agreement with the hospital. The arbitration award, however, only ruled on the escrow account maintained by the city, rather than on all funds earned from the hospital lease. Specifically, the arbitration award states that "[w]ho is entitled to rents collected by the Complainant YMCA after April 1, 2002 is beyond the scope of the arbitration clause."
The arbitration clause at issue, in paragraph six of the escrow agreement, defines the scope of disputes arising from the agreement: "Any dispute under this Agreement, including without limitation . . . the release of the Escrow Funds under Paragraph 5, shall be resolved by arbitration in accordance with the rules of the American Arbitration Association then in effect in Hartford, Connecticut." Middletown argues that this clause is broad enough to encompass the claims in the YMCA's amended complaint for arbitration, which seeks a declaratory judgment for the funds held in escrow by the YMCA and for future rents that would accrue under the hospital parking lease.
Paragraph five of the escrow agreement provides in relevant part: "The City shall release the Escrow Funds with all interest accrued thereon . . . to the YMCA upon the signing of a construction contract for the implementation of the `Approved Development Plan' or the implementation of the `Long Range Development Proposal' . . ."
Although the hospital parking lease expired on March 31, 2002, the YMCA and the hospital have continued to honor the lease on a month to month basis, with the YMCA depositing the proceeds into its own segregated account (the sequestered funds). Middletown contends that the arbitrator's failure to determine the status of funds never deposited into the escrow account is grounds for vacating the award.
The YMCA counters that the arbitrator acted within his authority in determining the arbitrability of the issues submitted by the parties. Furthermore, the YMCA argues that the arbitrator reasonably concluded that the disposition of the sequestered funds was beyond the scope of the arbitration clause. Inasmuch as the sequestered funds were collected after the expiration of the lease and were never deposited into the escrow account, the YMCA maintains that such funds are "outside of the purview of the Escrow Agreement."
As previously stated, our courts have recognized that the policy behind arbitration compels a deferential standard of review of arbitration awards. See International Brotherhood of Police Officers, Local 361 v. New Milford, supra, 81 Conn.App. 729. Based on this standard, Middletown has not met its heavy burden of proving that the arbitrator's award was not a "mutual, final and definite award upon the subject matter." General Statutes § 52-418(a). The arbitrator's decision to rule only on the status of the current escrow funds does not render his award beyond the scope of the arbitration clause. Rather, such a judgment comports with the terms of the escrow agreement. Accordingly, the court concludes that the arbitrator did not exceed his authority in rendering the award.
III
Finally. Middletown contends that the arbitration award is in manifest disregard of the law as articulated by the Connecticut Supreme Court in Garrity v. McCaskey, 223 Conn. 1, 612 A.2d 742 (1992). "In Garrity, [our Supreme Court] adopted the test enunciated by the United States Court of Appeals for the Second Circuit in interpreting the federal equivalent of § 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 principle 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." (Internal quotation marks omitted.) Economos v. Liljedahl Brothers, Inc., 86 Conn.App. 578, 585 (2004).
Our courts 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 . . . So delimited, the principle of vacating an award because of a manifest disregard of the law is an important safeguard of the integrity of alternate dispute resolution mechanisms." Id., 584-85.
In the present case, Middletown contends that the arbitrator manifestly disregarded the law by finding that the defendant properly established the existence of an enforceable contract to carry out the approved redevelopment plan. The purported agreement at issue, between the YMCA and the Hubert E. Butler Construction Company, was submitted by the YMCA to comply with the terms of the escrow agreement. Middletown argues that the agreement was not an enforceable contract in that it failed to demonstrate a mutuality of obligation between the parties. The agreement consists of two letters, the first of which is a quote from the construction company for the cost of building pursuant to the approved redevelopment plan. In the second letter, dated September 30, 2002, the YMCA replies: `We propose the work begin no earlier than April 1, 2003, and be completed no later than August 31, 2003. The YMCA reserves the right, on or before March 1, 2003, to cancel this agreement without further obligation upon forfeiture of our $1,000 deposit enclosed herein." Middletown thus argues that an arbitration award upholding the viability of this agreement contravenes a basic tenet of contract law — mutuality of obligation — inasmuch as the YMCA reserved the right to rescind.
On the facts of the present case, however, Middletown cannot satisfy the first element of the Garrity test, as they fail to demonstrate any obvious error in the arbitrator's application of the law regarding contract formation. While it correctly notes that "[t]o agree to do something and reserve the right to cancel the agreement at will is no agreement at all," R.F. Baker Co. v. P. Ballantine Sons, 127 Conn. 680, 683, 20 A.2d 82 (1941); it fails to acknowledge, nonetheless, that "the issue of contract formation is a question of fact . . . to be determined by the trier on the basis of all the evidence." (Internal quotation marks omitted.) Cheverie v. Ashcraft Gerel, 65 Conn.App. 425, 439, 783 A.2d 474, cert. denied, 258 Conn. 932, 785 A.2d 228 (2001). Because Middletown's claim involves a finding of fact, this court must "adhere to the long-standing principle that findings of fact are ordinarily left undisturbed upon judicial review." Id., 439-40, quoting Schoonmaker v. Cummings Lockwood of Connecticut, P.C., 252 Conn. 416, 432, 747 A.2d 1017 (2000). The court may not "substitute its judgment regarding the facts for that of the arbitrator." Id., 440. The court concludes, therefore, that the arbitrator did not misapply the law by finding that the YMCA had met its burden of proof in establishing the existence of an enforceable contract.
For the above reasons, the YMCA's application to confirm the arbitration award in Docket No. CV 04-4000358 is granted, and City of Middletown and Middletown Redevelopment Agency's application to vacate the same award Docket CV 04-4000549 is denied.
Jonathan E. Silbert, Judge