Opinion
No. AAN-CV-06-4006678
February 27, 2007
MEMORANDUM OF DECISION
This case arises from arbitration engaged in by the plaintiff, B'Nai Shalom Synagogue, and the defendant, Judah Harris. The arbitrator selected by the parties, Paul W. Orth, rendered his decision on June 14, 2006. Subsequently, on July 13, 2006, the plaintiff filed an application to vacate the award on the grounds that: (1) the "arbitrator exceeded his powers or so imperfectly executed them that a mutual, final and definite award upon the subject matter submitted was not made"; and (2) the award violates public policy. On January 19, 2007, the defendant filed an application to confirm the award pursuant to General Statutes § 52-417. Thereafter, on January 23, 2007, the defendant filed a memorandum in opposition to the plaintiff's application to vacate wherein he argues that the plaintiff's claims cannot survive because of the limited standard of review employed by courts when reviewing an award made pursuant to an unrestricted submission. In addition, the defendant argues that there is no conceivable public policy violation which would justify vacating the award.
Because the parties' joint motion to consolidate the motion to vacate and to confirm the arbitration award was previously granted, both motions are presently before this court.
The pertinent facts, as found by the arbitrator are as follows. The plaintiff and the defendant entered into an agreement, a portion of which stated: "For as long as the terms of this Agreement remain in effect [through December 31, 2005), the Rabbi [defendant] shall have the option to further negotiate with the Board of Trustees to purchase the parsonage at 94 Randolf Avenue at the prevailing market rate based upon an appraisal by an approved and professionally licensed residential real estate appraiser. If neither party can agree on the appraisal, they shall agree on a neutral professionally licensed residential real estate appraiser who shall render an appraisal to set the market value of the property. The option to purchase will expire one hundred and twenty (120) days prior to the conclusion of this agreement. This transfer shall be subject to congregational approval."
Immediately after the parties entered their agreement, the defendant sought to exercise his option to purchase the property and, therefore, he submitted a written request and an appraisal from a licensed appraiser, Dawn Cortina. The appraisal, dated December 8, 2004, valued the property at $160,000. Thereafter, in early 2005, the plaintiff's president appointed a committee to oversee the sale of the property and the committee hired Theresa DeLaurentis as an appraiser. DeLaurentis' appraisal, dated August 15, 2005, also valued the property at $160,000. Subsequently, however, the committee hired Eugene Holmquist to provide yet another appraisal. Holmquist's appraisal valued the property at $185,000.
According to the arbitrator, the "parties stipulated to the qualifications of all appraisers and that their appraisals should be introduced at the hearing, without their testimony."
Since the defendant was aware that the committee had hired appraisers, he requested their appraisals on August 25, 2005, and September 20, 2005. The committee, however, never provided the defendant with either the DeLaurentis or Holmquist appraisal. Instead, the plaintiff eventually provided the defendant with what the arbitrator deemed a, "questionable . . . $230,000 valuation." Then, on September 29, 2005, the plaintiff submitted to the defendant an offer to purchase the properly for $250,000.
Having never received any of the plaintiff's appraisals or any requests for approval of either DeLaurentis or Holmquist as a neutral, the defendant initiated arbitration. In the arbitration proceeding, the defendant sought recovery for the plaintiff's breach and frustration of the parties' contract. The plaintiff, on the other hand, claimed that the defendant could not succeed because he had not agreed on a neutral appraiser and he had not fulfilled a condition precedent to purchasing the property, namely, obtaining congregational approval of the transaction.
The arbitrator found that the plaintiff's committee formed its own ideas about the value of the property, concealed the DeLaurentis and Holmquist appraisals and went shopping for the highest appraisal value it could find. According to the arbitrator, by acting as such, the plaintiff abandoned the parties' agreement which emphasized professional appraisers and neutrality. Moreover, the arbitrator found that the plaintiff's actions frustrated the provisions of the contract and rendered the defendant's valuable and bargained for option to purchase worthless. Accordingly, the arbitrator awarded the defendant fair and equitable damages in the amount of $70,000. This amount was calculated by subtracting, $185,000, the amount the defendant testified that he would have accepted an offer to purchase the property, from $255,000, the unchallenged present market value of the property.
DISCUSSION CT Page 3446
Before addressing the parties' arguments, the court recognizes that "[a]rbitration is the voluntary submission . . . of an existing or future dispute to a disinterested person or persons for final determination . . . Arbitration is favored by the courts because it is intended to avoid the formalities, delay, expense and vexation of ordinary litigation . . . The autonomy of voluntary submission to arbitration requires a minimum of judicial intrusion." (Citations omitted; emphasis added; internal quotation marks omitted.) Total Property Services of New England, Inc. v. Q.S.C.V, Inc., 30 Conn.App. 580, 585-86, 621 A.2d 316 (1993). "[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." (Internal quotation marks omitted.) International Brotherhood of Police Officers, Local 361 v. New Milford, 81 Conn.App. 726, 729, 841 A.2d 706 (2004)."When the parties agree to arbitration and establish the authority of the arbitrator through the terms of their submission, the extent of our judicial review of the award is delineated by the scope of the parties' agreement." (Internal quotation marks omitted.) Industrial Risk Insurers v. Hartford Steam Boiler Inspection Ins. Co., 273 Conn. 86, 92-93, 868 A.2d 47 (2005). "[T]he submission tells the arbitrators what they are obligated to decide. The determination by a court of whether the submission was restricted or unrestricted tells the court what its scope of review is regarding the arbitrators' decision." (Internal quotation marks omitted.) Id., 94.
"If the parties have agreed in the underlying contract that their disputes shall be resolved by arbitration, the arbitration clause in the contract is a written submission to arbitration . . . The agreement for submission constitutes the charter for the entire ensuing arbitration proceedings." (Internal quotation marks omitted.) Milford v. Coppola Construction Co., 93 Conn.App. 704, 709, 891 A.2d 31 (2006). "If the submission does not contain limiting or conditional language, then the submission is unrestricted." (Internal quotation marks omitted.) Metropolitan District Commission v. AFSCME, Council 4, Local 3713, 35 Conn.App. 804, 808, 647 A.2d 755 (1994).
In this case, the parties' agreement states in relevant part: "The parties agree that should any dispute arise between them out of this Agreement . . . then such claims shall be arbitrated according to the rules of the State of Connecticut Board of Mediation and Arbitration by a Panel of Arbitrators appointed by the Board." Because there is no limiting or conditional language, the submission is unrestricted and this court's "analysis is guided by well established principles regarding a party's application to vacate a consensual arbitration award resulting from an unrestricted submission." National Assn. of Government Employees v. Bridgeport, 99 Conn.App. 54, 57, 912 A.2d 539 (2007).
"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 [our courts] favor arbitration as a means of settling private disputes, [courts] undertake judicial review of arbitration awards in a manner designed to minimize interference with an efficient and economical system of alternative dispute resolution." (Internal quotation marks omitted.) Id. "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 . . . 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." (Internal quotation marks omitted.) Id.
"Even in the case of an unrestricted submission, [however], [our courts] have . . . recognized three grounds for vacating an award: (1) the award rules on the constitutionality of a statute . . . (2) the award violates clear public policy . . . [and] (3) the award contravenes one or more of the statutory proscriptions of [General Statutes] § 52-418." (Internal quotation marks omitted.) Id. The plaintiff's first argument is limited to the third ground for vacatur, namely, noncompliance with § 52-418(a)(4).
"[A]n award that manifests an egregious or patently irrational application of the law is an award that should be set aside pursuant to § 52-418(a)(4) because the arbitrator has exceeded [his] powers or so imperfectly executed them that a mutual, final and definite award upon the subject matter submitted was not made. [Our courts have emphasized], 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." (Internal quotation marks omitted.) Id., 58-59.
"The 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, CT Page 3453 223 Conn. 1, 612 A.2d 742 (1992)], [our courts of appeal have] yet to conclude that an arbitrator manifestly disregarded the law." (Internal quotation marks omitted.) National Assn. of Government Employees, Local R1-200 v. Bridgeport, 99 Conn.App. 54, 59 n. 5, 912 A.2d 539 (2007).
"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. Judicial approval of arbitration decisions that so egregiously depart from established law that they border on the irrational would undermine society's confidence in the legitimacy of the arbitration process . . . Furthermore, although the discretion conferred on the arbitrator by the contracting parties is exceedingly broad, modern contract principles of good faith and fair dealing recognize that even contractual discretion must be exercised for purposes reasonably within the contemplation of the contracting parties." (Internal quotation marks omitted.) Id., 59.
"In Garrity [v. McCaskey, 223 Conn. 1, 9, 612 A.2d 742 (1992)], [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.) Id., 59-60.
The plaintiff argues that the arbitrator "wholly abandoned his obligation to interpret and apply the agreement as written." According to the plaintiff, the contract provides the defendant with a right to negotiate with the plaintiff to arrive at a potential purchase price for the property and the arbitrator's award does not reflect this limited right. In addition, the plaintiff argues that the arbitrator rewrote the contract by eliminating the plaintiff's right to have the final say on whether to sell the property at an agreed-upon price. While the plaintiff's argument does not appear to address the factors set forth in Garrity, the court nevertheless finds it is unpersuasive.
The arbitrator here addressed whether either party breached a paragraph of their agreement involving the valuation and potential sale of a particular piece of property. The arbitrator cited Connecticut law regarding the implied covenant of good faith and fair dealing inherent in every contract and determined that the plaintiff: (1) concealed information relevant to the defendant's ability to exercise his contractual rights; (2) abandoned the contractual process the parties agreed to perform; (3) frustrated the contract provisions; and (4) rendered part of the defendant's bargain worthless. Furthermore, the arbitrator recognized the committee's fiduciary duty to realize the most from the sale, however, he also determined that this fiduciary duty did not outweigh the plaintiff's primary duty to carry out valid contracts. Based on the entire record, this court cannot say any error is obvious, that the arbitrator appreciated but ignored a clearly governing legal principle or that if any governing law was ignored, it was well defined, explicit, and clearly applicable. Therefore, the award cannot be vacated on this ground.
The plaintiff's second ground for vacating the award is based on claimed violations of public policy. As set forth by the plaintiff, this argument is fourfold. First, the plaintiff argues that the "award violates public policy because it discourages fiduciaries of a religious organization — the committee and the Board of Directors — from doing due diligence in the performance of their duties." Second, the plaintiff argues that by awarding damages in the absence of the plaintiff's approval to transfer the subject property, the award violates the public policy embodied in General Statutes § 33-264c which provides the plaintiff with an ownership right in that property. In its third argument, the plaintiff claims that the award violates public policy because the damages are based upon an agreement which does not satisfy General Statutes § 52-550, Connecticut's statute of frauds. Finally, the plaintiff argues that the award violates public policy because there is no basis for the amount of damages awarded.
"When a challenge to the arbitrator's authority is made on public policy grounds . . . the court is not concerned with the correctness of the arbitrator's decision but with the lawfulness of enforcing the award." State v. New England Health Care Employees Union, 271 Conn. 127, 135, 855 A.2d 964 (2004). "The party challenging the award bears the burden of proving that illegality or conflict with public policy is clearly demonstrated." (Internal quotation marks omitted.) Id., 136. The rule allowing a court to vacate an arbitration award that violates clear public policy "is an exception to the general rule restricting judicial review of arbitral awards. The exception, however, is narrowly construed and . . . 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." (Citation omitted; internal quotation marks omitted.) MedValUSA Health Programs, Inc. v. Memberworks, Inc., 273 Conn. 634, 655, 872 A.2d 423 (2005); cert. denied sub nom. Vertrue, Inc. v. MedValUSA Health Programs, Inc., 126 S.Ct. 479, 163 L.Ed.2d 363 (2005). Moreover, our Supreme Court has "been wary about vacating arbitral awards on public policy grounds because 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." (Internal quotation marks omitted.) Id., 657.
In resolving challenges to arbitration awards on public policy grounds courts apply a two-step approach. "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. New England Health Care Employees Union, supra, 271 Conn. 137. With regard to the first query, "[r]ather than requiring that public policy be grounded on a particular type of source . . . in determining whether a party has satisfied its burden of demonstrating the existence of a well-defined public policy, [our Supreme Court has] instead focused [its] inquiry on whether the alleged public policy is in fact clearly discernable in the purported source." MedValUSA Health Programs, Inc. v. Member Works, Inc., supra, 273 Conn. 657-58.
Here, with regard to the first prong of the analysis, in attempting to meet its burden of showing an explicit public policy that is well defined and dominant, three of the plaintiff's arguments simply cite a statute and its provisions. There is little argument, however, as to the identity of the public policy supported by the particular statute cited or whether the alleged public policy is in fact clearly discernable in the purported source. Instead, the plaintiff seems to set forth arguments that could and most likely should have been presented to the arbitrator. Nevertheless, court will address each argument in turn.
With regard to the first argument, the plaintiff seeks to establish a clear public policy pursuant to General Statutes § 33-765(a), and argues that the award violates this policy by discouraging fiduciaries from doing due diligence. Section 33-765(a) provides: "A director shall discharge his duties as a director, including his duties as a member of a committee: (1) In good faith; (2) with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and (3) in a manner he reasonably believes to be in the best interests of the corporation." Even if this court were to extrapolate, based solely on this statute, a clear public policy in favor of fiduciaries discharging their duties in good faith, the plaintiff's argument fails to recognize that the award is actually in accord with such a policy. As expressly recognized by the arbitrator: "The trustees had a general duty to protect the congregation's assets and realize the most from their disposal, but they had the primary duty to carry out valid contracts." The arbitrator found that the plaintiff's balancing of these two concerns fell short on the good faith end and awarded damages accordingly. Enforcing the award, therefore, cannot be said to violate a public policy in favor of fiduciaries performing their duties with due diligence and in good faith because, if anything, enforcing the award arguably will persuade the committee to more carefully balance its fiduciary duties while recognizing its obligation of good faith in performing contractual obligations.
In its second argument, the plaintiff argues that the award violates clear public policy by "nullifying the rights of the congregation to decide whether or not to accept any proposed sale of the parsonage to" the defendant. In support, the plaintiff argues that § 33-264c(a) reflects a public policy in favor of the congregation's statutory right to decide whether or not to accept any sale of the property. Section § 33-264c(a) provides: "A religious society or a religious corporation formed under section 33-264a and any corporation or voluntary association formed under part II of this chapter may hold, manage, acquire, purchase, sell, convey and have and exercise any rights of ownership in real and personal property for the use and support of public worship or for any ecclesiastical, missionary, charitable or educational purpose. Grants, donations, devises and bequests of real and personal property may be received and held in trust or otherwise for such purposes." Standing alone and based solely on the statute's permissive language, the court is unpersuaded that the statute represents an "explicit public policy that is well defined and dominant"; (internal quotation marks omitted) State v. New England Health Care Employees Union, Dist. 1199, supra, 265 Conn. 785 n. 19; favoring an absolute statutory right of the congregation to decide whether or not to accept any sale of the property. Even if this court concluded otherwise, however, the award does not violate such a policy because it does not prevent the plaintiff from managing, selling, conveying and exercising any rights of ownership. The award simply recognizes the plaintiff's contractual duty of good faith with regard to its agreement with the defendant.
"[Our courts] have consistently held that may is directory rather than mandatory . . . The word may, unless the context in which it is employed requires otherwise, ordinarily does not connote a command. Rather, the word generally imports permissive conduct and the conferral of discretion." (Citation omitted; internal quotation marks omitted.) Waterbury v. Washington, 260 Conn. 506, 531, 800 A.2d 1102 (2002).
In the plaintiff's third public policy argument, it argues that "[a]n award of damages in a contract dispute for the sale of real property must be supported by a writing that satisfies the statute of frauds." This argument misconstrues this court's analysis of a challenge to an award on public policy grounds in that this court's review of the award is not concerned with the correctness of the arbitrator's decision but with the lawfulness of enforcing the award. In this case, enforcing the award of damages for the plaintiff's frustration of the contract provisions and its failure to act in good faith does not violate the statute of frauds because no transfer of real property will occur. Therefore, this argument is unavailing.
General Statutes § 52-550 provides: "(a) No civil action may be maintained in the following cases unless the agreement, or a memorandum of the agreement, is made in writing and signed by the party, or the agent of the party, to be charged: (1) Upon any agreement to charge any executor or administrator, upon a special promise to answer damages out of his own property; (2) against any person upon any special promise to answer for the debt, default or miscarriage of another; (3) upon any agreement made upon consideration of marriage; (4) upon any agreement for the sale of real property or any interest in or concerning real property; (5) upon any agreement that is not to be performed within one year from the making thereof; or (6) upon any agreement for a loan in an amount which exceeds fifty thousand dollars.
"(b) This section shall not apply to parol agreements for hiring or leasing real property, or any interest therein, for one year or less, in pursuance of which the leased premises have been or are actually occupied by the lessee, or any person claiming under him, during any part of the term."
In the plaintiff's last argument in support of vacating the award on public policy grounds it argues that "the arbitrator imperfectly executed his authority by awarding damages that are not only excessive, but which have no basis." As previously stated in this opinion, the arbitrator calculated damages by subtracting from the current market value the amount that the defendant testified he would have purchased the property for. The arbitrator expressly recognized that the current market value appraisal was unchallenged. Disregarding the plaintiff's failure to challenge this amount during arbitration, this last argument cannot succeed because it completely fails to set forth a public policy clearly discernable in a purported source. The plaintiff simply asserts that the arbitrator's damage computation "is inimical to common sense and public policy." This horse, however, will not carry the load that the plaintiff seeks it to bear.
CONCLUSION
Ultimately, this case does not give rise to vacating the award on any of the grounds offered by the plaintiff. Therefore, the application to vacate the arbitration award is denied because the award conforms to the issue submitted for arbitration, it does not manifest an egregious or patently irrational application of law, and it does not violate clear public policy. Accordingly, the defendant's motion to confirm the arbitration award is hereby granted.