Opinion
HHDCV136042110S
01-17-2017
Benistar Employer Services Trust Company (BESTCO) et al. v. James J. Benincasa et al
UNPUBLISHED OPINION
MEMORANDUM OF DECISION
Cesar A. Noble, J.
The plaintiffs, Benistar Employer Services Trust Company (BESTCO) and Benistar Admin Services, Inc. (BASI) (petitioners), brought this action pursuant to General Statutes § 52-418 to vacate an arbitration award, dated May 15, 2013 and issued by Arbitrator Jeffrey G. Stein (Stein), through the auspices of the American Arbitration Association (AAA), in favor of James J. Benincasa and Jodi L. Benincasa (the Benincasas) and James J. Benincasa and Jodi L. Benincasa as participants in Mortgage$Unlimited, Inc.'s (MUI) Benistar 419 Plan & Trust (collectively, respondents). The respondents, thereafter, filed an application to confirm arbitrator Stein's May 15, 2013 arbitration award (Award) and his June 13, 2013 " Clarification of Arbitrator's Post-Hearing Decision and Award" (Clarification).
The dispute which brought the parties to arbitration involved the purchase of two $16 million individual whole life insurance policies on the lives of the Benincasas who were the president and vice president, respectively, and sole owners of MUI, an S corporation. The policies were purchased by the Benistar 419 Plan and Trust (the " Plan"), a multiple-employer welfare benefit plan. The funding for the purchase of the policies came from MUI's participation in, and contributions to, the Plan. BESTCO was the Plan sponsor, and BASI was the administrator of the Plan. The Plan was designed to comply with I.R.C. § 419A(f)(6). In its conception, the Plan was to provide tax deductions to participating employers, such as MUI, for contributions paid by them to the Plan's Trust Fund. The contributions, in turn, funded the premiums for preretirement life insurance policies for key employees under the Plan. The Plan issued a certificate of coverage to the employer, MUI, listing the participants as the Benincasas, each of whom was to receive $16 million in death benefits. In this case, MUI contributed $750,000 annually to fund the policies between 2001 and 2004, totaling $2.8 million. The contributions to the plans were, in fact, claimed as tax deductions by MUI.
The history of the parties' claims includes litigation in Minnesota and a collateral action in Florida which are not relevant to this decision for which reason will not be discussed.
In 2004, MUI transferred the benefits and life insurance policies from the Plan to the Grist Mill Trust Welfare Benefit Plan out of concern that the Plan would no longer support tax free contributions to the life insurance policies. Benistar 419 Plan Services, Inc. was the Grist Mill Plan's sponsor and administrator. The Benincasas--as participants--and MUI--as employer--shortly, thereafter, terminated their participation in the Grist Mill Trust, and the Benincasas took possession of the policies in their own name. The Benincasas were charged $33,546.90 for the surrender of the policies.
The Commissioner of Internal Revenue (" Commissioner") challenged the validity of the tax deductions and ultimately issued the Benincasas a notice of deficiency on their personal income taxes on the basis that the contributions to the Plan were payments on their personal behalf and were not ordinary and necessary business expenses of their employer, MUI, under 26 U.S.C. § 162(a). The Commissioner also asserted that the distribution of the two life insurance policies resulted in taxable income to the Benincasas, which they failed to report. In addition, the commissioner imposed underpayment penalties pursuant to 26 U.S.C. § 6662A. Attorney Thomas Brever was hired by the respondents to represent them in connection with these assessments.
26 U.S.C. § 6662A(a) authorizes the commissioner to impose a penalty of 20 percent of an underpayment of tax by reason of negligence or disregard of rules or regulations.
The respondents filed a claim for arbitration against the petitioners on November 29, 2007 asserting, among other theories of liability, breach of contract for their failure to provide a tax exempt vehicle to purchase the life insurance policies. The arbitration was sought in accordance with identical provision found in the Plan Administration Agreement and the Grist Mill Trust Welfare Benefit Plan Administration Fee Agreement, which provided in relevant part: " Any dispute or controversy arising under or in connection with this Agreement or with respect to the Employer's participation in the Plan shall be settled by Arbitration, conducted by a single arbitrator in New York City in accordance with the rules of the American Arbitration Association then in effect . . . The decision of the arbitrator shall be final and binding, and judgment may be entered on the arbitrator's award in any court having jurisdiction." The respondents submitted, inter alia, breach of contract and fiduciary duty claims to arbitration.
The respondents named other individuals and entities who are not parties to this action.
The parties have not disputed that the applicable rules are the AAA Employment Benefit Plan Claims Arbitration Rules (" AAA Rules").
Section 11, Plan Administration Agreement, Ex. 5 to Affidavit of Daniel P. Scapellati in Support of Bestco and Benistar Admin Services, Inc.'s Application to Vacate Arbitration Award, Entry #114, (Scapellati Affidavit), and Section 11, Grist Mill Administration Agreement, Ex. 13 to Scapellati Affidavit.
Evidence in the arbitration was taken on March 5, 2013 and March 6, 2013. The arbitrator's Award dated May 15, 2013 was transmitted to AAA on May 17, 2013. The Award recited a pre-arbitration request by the respondents to add a cross claim in the context of the pending arbitration submittal which Stein had denied on the basis that the AAA rules required them to file a separate arbitration and then consolidate the cases. Stein declared in the Award that " [o]n or about April 18, 2013 . . . the record was closed." Substantively, Stein made the specific finding that the petitioners " breached their promises and obligations to [respondents] in numerous ways." Pertinently, this included a breach of the petitioners' " contractual fiduciary duties [by] failing to provide a compliant 419A(f)(6) plan, and most specifically by not determining the maximum amount of contributions that could be contributed . . . They [petitioners] . . . failed to provide a tax-free transfer of the policy out of the Plan to the [respondents]." Stein awarded the respondents the following damages: (1) taxes, including 6662A taxes, as of the date of the Award attributable to " the transfer of the [life insurance] polic[ies] as part of the exit strategy from the failed Plan"; (2) " the $33,546.90 transfer fee" for the surrender of the policies; (3) the attorneys fees for " the legal defense of the IRS assessment" charged by Brever; and (4) any state taxes assessed for the transfer of the policies. Because the amount of the federal and state taxes and penalties had not yet been determined, and no findings as to such were made by Stein, he retained jurisdiction to interpret and resolve any disputes concerning the Award. The parties moved for clarification of the Award. In the Clarification Stein explained that the respondents had " not [yet] settled with the IRS and therefore there [could be] no set amount of taxes and penalties that could be awarded." Stein observed that his Award detailed " each component of the ultimate settlement Claimants [respondents] [would] reach with the IRS and which party is responsible for that component. [Stein] believe[d] that [the award was] specific and clear enough." Id. Further facts will be described as required below.
The petitioners filed their Application to Vacate Arbitration Award pursuant to § § 52-416(a) and 52-418 (" Application to Vacate") on May 24, 2013. The respondents filed their Application to Confirm the Award pursuant to § 52-421 on July 15, 2013. Thereafter, the undersigned undertook the resolution of the applications by agreement of the parties.
The petitioners advance several arguments why the Award should be vacated. First, the Award is clearly untimely and, thus, has no " legal effect, " because it was rendered more than thirty days from the close of the hearing. Second, the Award was based on a " manifest disregard [of] the law" because it " cannot be reconciled with the unambiguous terms of the contracts that it asserts were breached." Third, the Award violated " clear public policy" by " awarding damages for increased tax liability." Fourth, the Award was not a " final and definite award upon the subject matter submitted" because it did not fix, specifically, the amount of damages.
The respondents counter that the petitioners have not met the stringent standards required for vacatur of an arbitration award. In their view, the Award was, indeed, rendered within thirty days of the close of the hearing, the petitioners' arguments reflect mere disagreement with the arbitrator's findings of facts; and finally, the asserted public policy was not violated and the Award was finite and definite because it fixes sufficiently the rights and obligations of the parties.
The court agrees with the respondents that the petitioners have not met the high standards met for review of each of their claims. The court, therefore, denies the Application to Vacate and grants the Application to Confirm.
I.
STANDARD OF REVIEW
As a general proposition " [j]udicial review of arbitral decisions is narrowly confined." (Internal quotation marks omitted.) AFSCME, Council 4, Local 2663 v. Dept. of Children & Families, 317 Conn. 238, 249, 117 A.3d 470 (2015). " Because we favor arbitration as a means of settling private disputes, we undertake judicial review of arbitration awards in a manner designed to minimize interference with an efficient and economical system of alternative dispute resolution . . . Furthermore, in applying this general rule of deference to an arbitrator's award, [e]very reasonable presumption and intendment will be made in favor of the [arbitral] award and of the arbitrators' acts and proceedings." State v. Connecticut Employees Union Independent, 322 Conn. 713, 721, 142 A.3d 1122 (2016).
The standard to be applied in the review of an arbitral award is dependent upon the nature of the challenge. As an initial matter the court finds the submission to arbitration was unrestricted. The identical language requiring arbitration in both the Plan Administration Agreement and the Grist Mill Trust Welfare Benefit Plan Administration Fee Agreement typical of the broad, unconditional submittals found to be unrestricted. " Any dispute or controversy arising under or in connection with this Agreement or with respect to the Employer's participation in the Plan shall be settled by Arbitration." Similar clauses requiring " any controversy or claim arising out of or relating to this Agreement" to be settled by arbitration have been deemed to be unrestricted. See Bumbolow v. Foreman, 151 Conn.App. 307, 309, 312, 95 A.3d 1153, cert. denied, 314 Conn. 916, 100 A.3d 405 (2014) (parties agreement); Design Tech, LLC v. Moriniere, 146 Conn.App. 60, 63, 76 A.3d 712 (2013); cf. LaFrance v. Lodmell, 322 Conn. 828, 852-53, 144 A.3d 373 (2016) (lack of conditional language in submittal implicates an unrestricted submission).
Stein made no finding relative to whether the submission was restricted or unrestricted. The petitioners assert in their August 9, 2013 Memorandum in Opposition to Application to Vacate the Award, Entry #117, that the Award is unrestricted. The respondents appear not to have taken a position on this issue.
Exs. C and B, respectively, Application to Vacate, Entry #100.31.
" Where the submission does not otherwise state, the [arbitrator is] empowered to decide factual and legal questions and an award cannot be vacated on the grounds that . . . the interpretation of the agreement by the [arbitrator] 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." New Haven v. AFSCME, Council 15, Local 530, 106 Conn.App. 691, 697, 943 A.2d 494 (2008). " In other words, [u]nder 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." Bumbolow v. Foreman, supra, 151 Conn.App. 311.
Even where a submittal is unrestricted, the courts have the authority to vacate an arbitration award based on both common law and statute. The former permits judicial consideration of an award where (1) the " award rules on the constitutionality of a statute" and (2) where " the award violates clear public policy." Garrity v. McCaskey, 223 Conn. 1, 6, 612 A.2d 742 (1992). The statutory grant of authority for vacating an award is found in General Statutes § 52-418(a) which provides in relevant part: " Upon the application of any party to an arbitration, the superior court . . . shall make an order vacating the award . . . (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." Arbitration awards which either (1) " [fail] to conform to the submission, " or, in other words, fall outside of the scope of the [arbitral] submission, " or (2) are in" [manifest] disregard[d] [of the] law" are subject to being vacated under § 52-418. Harty v. Cantor Fitzgerald & Co., 275 Conn. 72, 85, 881 A.2d 139 (2005).
The respondents do not claim that Stein's Award ruled on the constitutionality of a statute.
The identification of whether a claim of error is asserted because of its failure to conform to the submission or manifest disregard of the law is significant because " when raised, the two issues require independent consideration." Harty v. Cantor Fitzgerald and Co., supra, 275 Conn. 88.
As previously stated, the court's specific standard of review of an arbitration award is dependent on the nature of the challenge. The differing standards are set forth below.
A.
Untimeliness
Central to the claim that the Award was untimely is a determination of the date on which the hearing or hearings were closed. General Statutes § 52-416 and the AAA rules generally require that an award be rendered within thirty days from the date the hearing or hearings are completed or closed. In the present case, the arbitrator, Stein, declared in the Award that the record was closed on or about April 18, 2013. Neither party, however, has identified a standard of the review of an arbitrator's decision of when a hearing is closed. The court, therefore, finds that the Appellate Court's decision in Carr v. Trotta, 7 Conn.App. 272, 276, 508 A.2d 799, cert. denied, 200 Conn. 806, 512 A.2d 229 (1986) is the appropriate standard for addressing the appropriateness of such a decision.
As a matter of first impression, the Trotta court applied a standard of reasonableness to review an arbitrator's decision to establish the completion date of a hearing. " At the close of the hearing, the arbitrator declared that the hearing would be completed when he received a transcript of the proceedings." (Footnote inserted.) Id., 273. While a decision was rendered " within thirty days of the [arbitrator's] receipt of the transcript, " it was ultimately rendered more than thirty days from the date evidence was last received. Id. The defendant asserted that the award was untimely because the arbitrator had no authority to extend the close of the arbitration. Id., 274. The Trotta court found that the arbitrator's decision to extend the completion date was " reasonable" because, similar to briefs, the transcript was in aid of the trier's decision. Id., 276. The arbitrator, therefore, " had the authority to declare that the hearing would be deemed completed upon his receipt of the transcript." Id., 277.
The court appears to use the word " hearing" in two different senses. The first apparently denotes the day on which evidence was received and argument heard. The second apparently refers to the completion of the arbitral process from which date the time limit relative to rendering of a decision is implicated. The latter is admittedly tautological, begs a specific definition of the term " hearing" or " hearings" as used in § 52-416 and AAA Rules 28 and 30 and is discussed below.
In Shore v. Haverson Architecture & Design, P.C., 92 Conn.App. 469, 475, 886 A.2d 837 (2005), cert. denied, 277 Conn. 907, 894 A.2d 988 (2006), the Appellate Court held that the arbitrator's selection of a closing date after the date briefs were transmitted did not exceed his powers. The challenge to the arbitration in Shore was, as in the present case, to the timeliness of the award. Id., 474. In that case, post-hearing briefs were submitted on March 16, 2004. The parties were informed that the arbitrator declared the hearings would be closed as of March 29, 2004 and, further, that a decision would be rendered within thirty days thereafter, April 28, 2004. I d., 471. The court held that " it was reasonable for the arbitrator to choose March 29, 2004 as the closing date." (Emphasis added.) Id., 475. The decision was reasonable because the arbitrator had granted, during the hearings, additional unspecified time for the submission of additionally documentary evidence. Id. 475, n.5. This act did not extend the thirty-day time frame for rendering the award, but represented a setting of the closing date to allow for the submission of additional documents. The Appellate Court concluded such was not an act in excess of the arbitrator's powers. Id., 475-76.
The arbitration was governed by the construction industry arbitration rules of the American Arbitration Association which pertinently provided that " [t]he award shall be made promptly by the arbitrator and, unless otherwise agreed by the parties or specified by law, no later than 30 calendar days from the date of closing the hearing, or, if oral hearings have been waived, from the date of the [association's] transmittal of the final statements and proofs to the arbitrator." Shore v. Haverson Architecture and Design P.C., supra, 92 Conn.App. 475.
Similarly, in Bumbolow v. Foreman, supra, 151 Conn.App. 318, the Appellate Court agreed with the trial court that an arbitrator's decision to hold open a hearing was " reasonable." Following the conclusion of an evidentiary hearing, briefs were ordered to be field by [a date certain]. Id., 314. While a hearing is generally closed upon submittal of the briefs; see § 52-416(a); the Foreman arbitrator indicated in the award that he did not close the hearing until the end of the following month. Id., 314. The court explained that the arbitrator needed further evidentiary material in the form of the state Medicaid audit results to render an accurate award that reflected the value of the corporation. Id., 315-16.
The application of a " reasonable interpretation" standard is consistent with the Second Circuit's policy of deference to an arbitral body's interpretation of its own rules " so long as they are within reasonable limits." Appel Corp. v. Katz, 217 Fed.Appx. 3, 4 (2d Cir. 2007). " The Second Circuit Court of Appeals has explained that parties must abide by an arbitral panel's reasonable interpretation of the rules governing arbitration when the parties have adopted rules conferring the authority to interpret the rules governing arbitration on the arbitral panel." (Emphasis added.) Ecopetrol S.A. v. Offshore Exploration & Production, LLC, 46 F.Supp.3d 327, 344 (S.D.N.Y. 2014).
The standard applicable to a review of the validity of an arbitrator's setting of the closing date of a hearing is, thus, one of reasonableness.
B.
Manifest Disregard for the Law
The respondents claim that Stein's Award demonstrates a manifest disregard for the law and should be vacated pursuant to § 52-418(a)(4). An award may be vacated on this ground only if it involves " an egregious or patently irrational application of the law." Garrity v. McCaskey, supra, 223 Conn. 10. The standard is sufficiently stringent that the Supreme Court emphasized that it is extremely narrow and " should be reserved for circumstances of an arbitrator's extraordinary lack of fidelity to established legal principles." Id. An arbitrator's decision is not subject to being vacated for mere errors of law." See Id., 11. A misapplication of the law, alone, does " not demonstrate [an] arbitrator's egregious or patently irrational rejection of clearly controlling legal principles." Id., 11-12. Similarly, a " disagreement with the arbitrator's interpretation and application of established legal principles" is a " far cry from the egregious or patently irrational" application of the law required to vacate an award. Id., 13. Otherwise, our Supreme Court cautioned, " every disagreement with [an] arbitrator's rulings of law [would be elevated to a] manifest disregard of the law"; Id. ; and the exception would subsume the rule.
The test for determining whether an award is rendered in " [manifest] disregard of the law" is whether: " (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." McCann v. Dept. of Environmental Protection, 288 Conn. 203, 221, 952 A.2d 43 (2008). It bears emphasis that " [t]he exceptionally high burden for proving a claim of manifest disregard of the law under § 52-418(a)(4) is demonstrated by the fact that, since the test was first outlined in [ Garrity v. McCaskey, supra, 223 Conn. 1], this court has yet to conclude that an arbitrator manifestly disregarded the law." (Citation omitted, internal quotation marks omitted.) AFSCME, Council 4, Local 2663 v. Dept. of Children & Families, supra, 317 Conn. 251, n.7 (2015); SBD Kitchens, LLC v. Jefferson, 157 Conn.App. 731, 742-43, 118 A.3d 550, cert. denied, 319 Conn. 903, 122 A.3d 638 (2015).
C.
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." (Internal quotation marks omitted.) South Windsor v. South Windsor Police Union Local 1480, Council 15, 255 Conn. 800, 815, 770 A.2d 14 (2001). " A two-step analysis . . . [is] often employed [in] deciding cases [involving public policy challenges]. 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 . . . We note that [t]he 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 . . . only if it demonstrates that the [arbitrators'] award clearly violates an established public policy mandate . . . It bears emphasizing, moreover, that implicit in the stringent and narrow confines of this exception to the rule of deference to arbitrators' determinations, is the notion that the exception must not be interpreted so broadly as to swallow the rule." (Citations omitted; internal quotation marks omitted.) State v. Connecticut State Employees Ass'n, SEIU Local 2001, 287 Conn. 258, 273-74, 947 A.2d 928 (2008); AFSCME, Council 4, Local 1565 v. Dept. of Correction, 298 Conn. 824, 836, 6 A.3d 1142 (2010).
D.
Lack of Finality
Section 52-418 requires that awards be '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." Board of Education v. Local R1-126, National Ass'n of Government Employees, 108 Conn.App. 35, 42, 947 A.2d 371 (2008). In making such an evaluation, a trial court may not " substitute its judgment for that of the arbitrator because of a perceived lack of evidence and the imprecise nature of the award." Id., 44.
III.
ANALYSIS
A.
Untimeliness
The petitioners rely upon the applicable AAA Arbitration Rule 30 and General Statutes § 52-416(a). The petitioners argue that the hearings concluded on March 6, 2013 or at the latest March 14, 2013, which was the date set for post-hearing submissions. Thus, the thirty-day period mandated for the rendering of the decision expired on April 14, 2013. The respondents counter that the Award was timely because the hearing was closed on April 17, 2013, which was the date of the e-mail in which Stein indicated that he would proceed with issuing a ruling. Thus, according to the respondents, the Award, which in their view was rendered on May 15, 2013, was timely as falling within the thirty-day period mandated by Rule 30 of the AAA Rules.
" Unless otherwise agreed to by the parties, the award shall be made promptly and no later than thirty days from the date of closing the hearings or, if the hearing has been on documents only, from the date of transmittal of the final statements and proofs to the arbitrator." Rule 30, Employee Benefit Plan Claims Arbitration Rules.
General Statutes § 52-416(a) provides in relevant part: " If the time within which an award is rendered has not been fixed in the arbitration agreement, the arbitrator or arbitrators or umpire shall render the award within thirty days from the date of the hearing or hearings are completed, or, if the parties are to submit additional material after the hearing or hearings, thirty days from the date fixed by the arbitrator or arbitrators or umpire for the receipt of the material . . ."
The following additional facts are necessary to the resolution of the petitioners' claim of untimeliness. Rulings on dispositive motions were issued by Stein on October 23, 2012. Joseph M. Pastore, III, counsel for the respondents, wrote to Stein to advise him that the respondents were going to file a counterclaim against the respondents and a third party claim against MUI for indemnification. Stein replied by email on November 7, 2012. While he deferred to Veneda Edenfield, AAA Senior Case Manager, as to the application of the AAA rules, Stein expressed his belief that the respondents would need to file an arbitration demand and commence an action which would, thereafter, be joined with the arbitration before him. The record does not disclose whether Edenfield provided a ruling on this issue.
Ex. 56 to Scapellati Affidavit.
Ex. 57 to Scapellati Affidavit.
On February 28, 2003, Pastore wrote again to Stein indicating that the respondents intended to initiate a separate arbitration against the petitioners to assert a variety of claims which arose out of the same facts and circumstances at issue in the arbitration before Stein. Pastore asked for a formal affirmation from Stein that the respondents would not be precluded from asserting such a counterclaim in a subsequent AAA proceeding or in a court of law. In the alternative, Pastore asked that Stein keep the matter open after the hearings scheduled for the following week and to refrain from issuing any award in order to allow the respondents to assert their intended counterclaims, including a claim for attorneys fees, against the petitioners in a separate AAA arbitration, which could then be consolidated with the pending action to allow further hearings on the Benistar Respondents' claims against the Benincasas and/or MUI.
Ex. 60 to Scapellati Affidavit.
Stein replied on March 1, 2013 by e-mail. " I did not preclude anyone from doing anything. What I said in November is that in arbitration you don't file a counterclaim or cross claim, you file a demand for arbitration. I am not going to opine on the consequences that stem from your failure to do so. I assume that if you file a demand for arbitration in 2013 for a breach in 2004 your adversary will assert a SOL defense. Just guessing. As to claims for attorneys fees, let's wait and see." On March 4, 2013, the respondents filed such separate claims with the American Arbitration Association naming the Benincasas and MUI as respondents.
Ex. 61 to Scapellati Affidavit.
The hearing on the petitioner's claims in this arbitration took place on March 5, 2013 and March 6, 2013. On March 7, 2013, Stein wrote via e-mail that he thought the facts were clear and the law already fully briefed and resolved. " Unless you all strenuously object, I am ready to issue an award and can do so in a matter of weeks. If anyone still wants to send me something, let me know, but otherwise lets close this and get it resolved quickly." By a later e-mail that day, Stein provided the parties with an opportunity to file post hearing briefs through March 14, 2013. Although the record is not clear, apparently later that day, Mark Kallenbach, counsel for the Benincasas, advised Stein that he had received the respondent's arbitration claims and asked if Stein would hear a motion to dismiss the claims. Stein replied, on that same date, that he had not been assigned the case and would have no authority to rule on such a motion. Pastore e-mailed Kallenbach and Stein commenting that Stein did not procedurally have the authority to rule on the new matter. In response, Stein replied to all that he was aware of the intent of the respondents to consolidate their claims, asked Edenfield as to the procedure for consolidation and indicated that he would delay his decision. " I will hold my hearing determination in abeyance awaiting guidance from AAA." Stein, thereafter, e-mailed the parties on March 15, 2013 to advise them that AAA informed him that the respondents' claim was not " a labor/benefits case but rather a commercial case" and that the parties would receive a list of arbitrators from which they would choose. Stein indicated that he believed he would be on that list and that any motions made in that file would be made to the chosen arbitrator. The petitioners never informed Stein that, contrary to the request contained in Pastore's e-mail of February 28, 2012, they would not in fact move to consolidate the cases.
Ex. I to Application to Vacate.
Ex. J to Application to Vacate.
Ex. K to Application to Vacate.
Id.
Ex. L to Application to Vacate.
On April 17, 2013, Stein again e-mailed Kallenbach and Pastore indicating that he was informed by AAA that another arbitrator had been selected in the new case and he would therefore, be issuing an opinion in the case before him. On May 13, 2013, Pastore e-mailed a letter to the AAA case manager noting that the arbitration award had not been issued within thirty days as required by AAA Rule 30 and Connecticut law, that his clients did not consent to the length of time it is taking for the award to be rendered, and that Pastore had not waived any future objection that the award is untimely. In response to Pastore's letter, Stein replied that he had " told the parties that [he] was waiting on assignment regarding the new arbitration and that [he] would not begin to write the award until [he] heard from the parties about possible assignment and consolidation. No one objected to that." The Award was dated May 15, 2013 and e-mailed to Edenfield and counsel for the parties on May 17, 2013. The Award makes a specific finding that " [a]t that time, on or about April 18, 2013, just before my scheduled trip to Europe, the record was closed." This comment likely refers to Stein's e-mail of April 17, 2013 where he indicated that he would be issuing an opinion.
Ex. 67 to Scapellati Affidavit.
The respondents argue that the Award has " no legal effect" because it was rendered more than thirty days from the date the hearing or hearings were completed. General Statutes § 52-416 governs the timing of the Award. It states:
(a) If the time within which an award is rendered has not been fixed in the arbitration agreement, the arbitrator or arbitrators or umpire shall render the award within thirty days from the date the hearing or hearings are completed, or, if the parties are to submit additional material after the hearing or hearings, thirty days from the date fixed by the arbitrator or arbitrators or umpire for the receipt of the material. An award made after that time shall have legal effect unless the parties expressly extend the time in which the award may be made by an extension or ratification in writing.
(b) The award shall be in writing and signed by the arbitrator or arbitrators or a majority of them, or by the umpire. Written notice of the award shall be given to each party.
The statutory language is clear. In the absence of a written waiver of the thirty-day mandate an award rendered outside of that time is of no legal effect. Remax Right Choice v. Aryeh, 100 Conn.App. 373, 388, 918 A.2d 976 (2007). The petitioners do not claim that there was an express extension of time for the decision or a ratification thereof. Not only must the award be rendered within thirty days but notice of the award must be given to the parties within this time. The " time limit for the rendering of an award is equally applicable to the notification of the same." Hayes v. Travelers Indem. Co., 26 Conn.App. 418, 421, 601 A.2d 555 (1992). The Award, although dated May 15, 2013, was e-mailed to Edenfield and the parties on May 17, 2013. Thirty days preceding May 17, 2013 is April 17, 2013. Unless the hearings were completed on or after April 17, 2013, the Award would be untimely and of no legal effect.
Resolution of the respondents' challenge, thus, requires a determination of when the hearings were closed. Guidance is provided by the Appellate Court's decision in Dept. of Utilities v. Carothers, 28 Conn.App. 674, 680, 613 A.2d 316 (1992), which construed the phrase " close of the hearing" in the context of General Statutes § 22a-373. This statute requires the Commissioner of Environmental Protection to render a decision on a water diversion permit application not later than one hundred twenty days after the " close of the hearing." Id. The statute provides in relevant part: " (a) The commissioner shall, not later than one hundred twenty days after the close of the hearing, make a decision either granting or denying the application as deemed complete in section 22a-371 . . . (d) If a decision is not made in the time required pursuant to subsection (a) of this section, the application shall be deemed granted."
The plaintiff in Carothers appealed a commissioner's decision denying an application for a water diversion permit on the basis that the award was untimely. The plaintiff argued that the one hundred twenty day time period for a decision commenced when the hearing officer declared the hearing closed on June 26, 1989. Id., 680-81. The commissioner's decision dated November 21, 1989 was more than one hundred twenty days from the date the hearing closed. Id. According to the plaintiff the award was untimely and as a consequence granted by operation of the statute. Id. The commissioner countered that the one hundred twenty day period did not commence until the conclusion of oral argument on September 25, 1989 rendering the decision timely. Id. The appellate court agreed with the commissioner. Id.
While the Carothers decision was, in part, governed by consideration of a regulation which provided direction for when " the record shall be deemed closed, " the broad language employed by the Carothers court governs the resolution of the present case. " We are unable to discern any reasonable distinction between the duties of a decision maker following an administrative hearing, an arbitrator after an arbitration proceeding, or a judge following a trial to the court. In all of these situations, the time limit for rendering a decision should not begin to run until the presentation of all of the elements to be considered in rendering the decision is completed." Dept. of Utilities v. Carothers, supra, 28 Conn.App. 683.
The Regulations of Connecticut State Agencies § 22-3a-1(a)(5)(C) provided: " In a contested case, the record shall be deemed closed (I) upon the close of oral arguments and the expiration of any time period granted by the commissioner to submit briefs or other documents . . ." The regulation has been subsequently repealed.
As previously discussed, this court applies a standard of reasonableness for its review of Stein's finding that the hearing was closed on or about April 18, 2013. In the present case, Stein's decision to keep the hearing open until April 17, 2013 was reasonable. He had been asked to do so by Pastore in his letter of February 28, 2013 so he could initiate a separate AAA arbitration and then move for consolidation of both matters. This court finds that Stein reasonably awaited the closing of the hearings in expectation of the submission of this additional element of the arbitration. Once Stein became aware that no such consolidation was to be attempted he issued his e-mail of April 17, 2013 which was in essence a declaration that the hearing was closed. This is consistent with the finding in the Award that the hearings were closed on or around April 18, 2013. The Award transmitted to the parties on May 17, 2013 is within thirty days of April 17, 2013 and is, therefore, timely pursuant to § 52-416.
Both parties refer the court to AAA rules 28 and 30. The latter provides that " unless otherwise agreed to by the parties, the award shall be made promptly and no later than thirty days from the date of closing the hearings . . ." Rule 28 addresses the closing of hearings and provides in relevant part:
The arbitrator shall specifically inquire of all parties whether they have any further proofs to offer or witnesses to be heard. Upon receiving negative replies or if satisfied that the record is complete, the arbitrator shall declare the hearings closed and a minute thereof shall be recorded. If briefs are to be filed, the hearings shall be declared closed as of the final date set by the arbitrator for the receipt of briefs . . . The time limit within which the arbitrator's is required to make the award shall commence to run, in the absence of another agreement by the parties, upon the closing of the hearings.
Finally, AAA Rule 37 authorizes the arbitrator to " interpret and apply [the] rules insofar as they relate to the powers and duties of the arbitrator." The declaration of when a hearing is closed is both a power and a duty within the province of the arbitrator to reasonably to declare. Stein did so in the present case and the Award was timely under the AAA rules.
B.
Manifest Disregard of the Law
The petitioners argue that there is no contractual provision in the arbitration record to support Stein's findings of a breach of contract or breach of contractual fiduciary duty. The petitioners specifically challenge the findings in the Award: That the petitioners promised to provide the respondents with unlimited tax deductions and a tax free transfer of the policies out of the 419 Plan to the respondents and that they breached their contractual fiduciary duties in failing to provide a compliant 419A(f)(6) plan. Similarly, they claim error in Stein's interpretation of a letter from petitioners to respondents stating " in the event that your firm is audited and the tax deduction taken for a contribution to the Benistar 419 Plan is disallowed, we agree to assist you at all levels of the defense of that deduction up and including the U.S. Tax Court." Petitioners argue this letter cannot form the basis to award attorneys fees to the respondents.
Ex. 54 to Scapellati Affidavit.
The petitioners, essentially, argue that the Award is in manifest disregard of the law because there are no factual grounds upon which it could possibly be justified. The argument ignores the principle that " [a] court does not sit to review the factual findings of an arbitrator." AFSCME, Council 4, Local 2663 v. Dept. of Children & Families, supra, 317 Conn. 257.
In Industrial Risk Insurers v. Hartford Steam Boiler Inspection & Ins. Co., 273 Conn. 86, 87, 868 A.2d 47 (2005), the defendant appealed the trial court's denial of its motion to vacate an arbitration award and granting the plaintiff's application to confirm. The court rejected the validity of a the claim " that the award manifests an egregious or patently irrational application of the law because the award rests on factual findings that, according to [the defendant], are wholly unsupported by the undisputed evidence" because " courts do not review the evidence or otherwise second-guess an arbitration panel's factual determinations when the arbitration submission is unrestricted ." (Emphasis added.) Id., 96. " We are bound by the arbitrator's factual findings." Ippolito v. Olympic Construction, LLC, 163 Conn.App. 440, 455, 136 A.3d 653, cert. denied, 320 Conn. 934, 134 A.3d 623 (2016). Additionally, the manifest disregard of the law basis for vacating an award is not applicable for mere errors of law or misapplication. See Garrity v. McCaskey, supra, 223 Conn. 10.
As in Garrity, the Award is clear that Stein considered all of the contracts and communications between the parties. The Award incorporated Stein's review of the Plan which claimed to provide " Virtually Unlimited [tax] Deductions for the Employer" and asserted that deductions to the Plan were tax deductible as ordinary and necessary expenses of the business pursuant to 26 U.S.C. 162(a). Although Stein did not expressly state the basis for his determination that the petitioners failed to provide a tax free transfer of the policy out of the Plan to the respondents, the parties have submitted a letter from the Plan to participating employers, which described the ability of the Plan to distribute a policy to a covered employee upon the participating employer's termination of participation in the plan. The award is clear that Stein considered the petitioners' argument that the respondents had no evidence of a contract that was breached. He simply disagreed. As such, these are findings of fact which the court is not at liberty to reverse. The petitioners' application to vacate the Award on this basis is denied.
C.
Public Policy
The petitioners argue that an award of back taxes for which the respondents would have been responsible, whether they purchased the policies from the Grist Mill Trust or not, violates the public policy of Connecticut. The petitioners have the burden of clearly demonstrating that the Award violates " an explicit, well-defined and dominant public policy." State v. Connecticut Employees Union Independent, supra, 322 Conn. 723.
The petitioners have not cited a Connecticut case for this proposition.
In the present case, Stein essentially concluded that the transfer of the life insurance policies to the Benincasas created a tax liability that would not have otherwise been imposed but for the transfer. " 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." AFSCME, Council 4, Local 1565 v. Dept. of Correction, supra, 298 Conn. 836. A court reviewing a violation of public policy challenge to an arbitration award " is bound by the arbitrator's factual findings in making such a determination." Ippolito v. Olympic Construction, LLC, supra, 163 Conn.App. 447. Stein's conclusion, therefore, as to the creation of a tax liability that would not otherwise have been imposed but for the transfer is a factual finding this court may not reverse.
D.
Lack of a Definite and Final Award
In the view of the petitioner, the Award's lack of a specific monetary award renders it indefinite and lacking in finality. The petitioners point to the request by the respondents following the Award to quantify the amount of the federal and state taxes as well as the penalty and interest related to the transfer of the policies to the respondents as a concession that the Award is neither final or definite. The petitioners refer the court to Rocky Hill Teachers Ass'n v. Board of Education, 72 Conn.App. 274, 804 A.2d 999 (2002) for the proposition that an award has been held not to be final or definite where further negotiations are required. While this is true, it does not govern this decision. The decisions of the Appellate Court in Board of Education v. Local R1-126, National Ass'n of Government Employees, supra, 108 Conn.App. 35; State v. Connecticut Employees Union Independent, Inc., 46 Conn.App. 520, 699 A.2d 307 (1997), cert. denied, 243 Conn. 948, 704 A.2d 801 (1997) and State v. Connecticut Employees Union Independent, Inc., 33 Conn.App. 737, 638 A.2d 619 (1994) are more applicable to the present matter.
The governing principle is that an " award must be final as to the matters submitted so that the rights and obligations of the parties may be definitely fixed." Board of Education v. Local R1-126, National Assn. of Government Employees, supra, 108 Conn.App. 42. An arbitrator does not need to " present a detailed explanation as to how [a grievant] should be made whole" but must provide " sufficient guidance for the parties to satisfy the award." State v. Connecticut Employees Union Independent, Inc., supra, 46 Conn.App. 524.
For example, in State Connecticut Employees Union Independent, Inc., supra, 33 Conn.App. 742., the Appellate Court found an arbitrator's award that the grievant should receive any lost wages and benefits was sufficiently definite because wage tables were available for calculating the differential in wages. Thereafter, in State v. Connecticut Employees Union Independent, Inc., supra, 46 Conn.App. 522, the Appellate Court reversed a trial court's decision vacating an award, which in its view was not definite, that ordered the state to " provide additional overtime opportunities . . . to those employees who were given fewer overtime opportunities . . . but [did not] identify those employees or a means by which the state can determine who those individuals [were]." Where the arbitrator had listed the names of employees involved and their overtime records, the Appellate Court reversed the trial court's vacatur finding that the trial court had " improperly substituted its judgment for that of the arbitrator because of a perceived lack of evidence and the imprecise nature of the award" " [which was] sufficiently definite because the parties have adequate information from the arbitrator's memorandum to effectuate the award." Id., 525.
Finally, in Board of Education v. Local R1-126, National Association of Government Employees, supra, 108 Conn.App. 38, the Appellate Court noted the trial court's response to an argument by the plaintiff that it didn't have the information necessary to implement the arbitration award: " If this information is indeed unavailable, and the superintendent so testified at the hearing, then there may be future disputes about the payments due. This is a far different matter from an arbitration which orders future negotiation. This arbitration award is final." Id., 39. The Appellate Court dispensed with the argument of a lack of finality by its holding that " [a] party's putative inability to implement an award does not necessarily compel the conclusion that the award in question either is indefinite or somehow fails to fix definitively the rights and obligations of the parties. The two issues are not necessarily related. Because, pursuant to § 52-418(a)(4) this court has the power to order that an award be vacated only when the second of those issues is implicated, the trial court properly denied the board's application to vacate the award." Id., 45.
Viewed in the context of these decisions, the Award is sufficiently mutual, final and definite to survive the scrutiny required by § 52-418(a)(4). The damages relevant to the parties in the present matter are: (1) any taxes, as of the date of the Award undetermined, attributable to the transfer of the life insurance policies as part of the exit strategy from the failed Plan and 6662A penalties; (2) the $33,546.90 transfer fee for the surrender of the policies; (3) the costs of the legal defense of the IRS assessment charged by Brever; and (4) any state taxes assessed for the transfer of the policies.
The first element of damages definitely fixes the rights and obligations of the parties with respect to taxes and penalties owed by the respondents for the transfer of the policies from the Grist Mill Trust Welfare Benefit Plan and its termination. The Award clearly does not identify a specific amount of damages, but as the respondents assert, " [w]hatever resulting amount is what it is, " the petitioners are obliged to pay it as damages. The second element of damages, the $33,546.90 transfer, admits of no ambiguity. The obligation to pay the respondents' legal defense costs for the IRS assessment is unambiguously fixed as the legal responsibility of the petitioners. Similarly, any assessment of state taxes for the transfer of the policies, whatever the amount, must be paid by the petitioners as damages. The absence of a specific dollar figure does not render the " rights and obligations" in doubt as to who is entitled to receive or pay the damages. The Award provides sufficient guidance from which the parties may identify the specific amounts of payments. The amounts are those sums assessed by the IRS and the appropriate state agency as well as the legal defense costs of the IRS assessment charged by Attorney Brever. The petitioners, therefore, have adequate information from Stein's decision to effectuate the Award. The submission of the arbitration to Stein authorized him to use his " own judgment and discretion and to render an appropriate award." See State v. Connecticut Employees Union Independent, Inc., supra, 46 Conn.App. 525. Stein exercised his judgment in effecting an award this court finds to be final and definite. The petitioners' application to vacate the Award on this ground is denied.
III.
CONCLUSION
Because the Award was rendered timely pursuant to General Statutes § 52-416 and the AAA Rules, did not represent a manifest disregard of the law, a violation of public policy, or lack a mutual, final and definite fix of the parties rights and obligations, the petitioners' Application to Vacate is denied, and the respondents' Application to Confirm is granted.