Summary
noting difference between standard award and reasoned award
Summary of this case from Norwalk Med. Grp. v. YeeOpinion
Nos. CV06-4006118-S, CV-06-4006130
February 1, 2007
MEMORANDUM OF DECISION ON APPLICATION TO CONFIRM ARBITRATION AWARD AND ON APPLICATION TO VACATE AND CORRECT ARBITRATION AWARD
John and Norma Sue Lawson (the "Lawsons")have brought an application to confirm an arbitration award against Privateer, Ltd, Richard Wilczewski and Anthony Petrillo ("Privateer") dated August 28, 2006 (the "Award") by Arbitrator, Thomas R. Long (the "Arbitrator"), which dismissed Privateer's claims and awarded damages to the Lawsons. Privateer has brought an application to vacate the Award.
Factual and Procedural History
The Lawsons were the sole shareholders of Privateer, a flexographic printing business located in Deep River, Connecticut. In December 2005, the Lawsons entered into a Plan and Agreement of Merger (the "Agreement") under the terms of which they sold their interest in Privateer to Wilczewski and Petrillo. The Agreement provided:
10. Breach of this Agreement
In the event of a claim by any party of a breach of any provision of this Agreement, before or after the Closing contemplated, including a claimed breach of the Consulting Agreement incorporated herein by reference, the party claiming a breach shall give Notice to the other parties as provided herein. If this dispute is not resolved within twenty (20) calendar days of receipt of said notice, any party may file a demand for arbitration to the American Arbitration Association, the arbitration to be conducted pursuant to its applicable rules then in effect. An alternative arbitration forum may be utilized if agreed by all parties to the dispute. The hearing shall be held in Middlesex County, Connecticut.
The arbitrator is empowered to determine if one or more parties are in breach of this Agreement and may award the prevailing party his/her/their damages and reasonable attorneys fees and costs, including those incurred in a proceeding pursuant to Conn. Gen Stat. Section 52-410.
After the closing of the transaction, a dispute arose between the parties concerning the Agreement. Thereafter Privateer filed a timely arbitration demand with the American Arbitration Association ("AAA") claiming that the Lawsons had breached the agreement by receiving salaries and misstating the value of Privateer's inventory before the closing. Thereafter the Lawsons filed a timely Answer, Special Defenses and Counterclaim.
The arbitration hearing took place on August 3, and 4, 2006 and included testimony from nine witnesses, hundreds of pages of documentary evidence and a site inspection by the Arbitrator of the inventory at issue. Thereafter, the Arbitrator issued the Award, which dismissed all of Privateer's claims and awarded the Lawsons monetary damages on their Counterclaim, including legal fees and costs.
After it received the Award Privateer filed a Motion to Vacate and Correct the Award, which it erroneously directed to the Arbitrator. The Arbitrator responded stating:
The Parties were given an opportunity to submit post-hearing briefs and both Parties declined to do so. The Parties were given the choice of a Reasoned Award or a Standard Award and chose a Standard Award. After seeing and hearing the witnesses, evaluating the credibility of their testimony and carefully considering Counsels' arguments and the exhibits, I made an Award in favor of the Respondents. The Award is clear and is not ambiguous in any way. The Claimants are understandably upset with the Award and have filed the above mentioned Motion. In my opinion the Motion does not seek to correct a clerical, typographical or computational error, but, rather seeks a re-determination of the merits of certain claims.
Accordingly, I find that I have no authority to consider the Motion on its merits.
Privateer seeks to vacate the Award on the grounds that the Arbitrator manifestly disregarded the law, ignored the language of the Agreement and capriciously awarded damages to the respondents.
Discussion of the Law and Ruling
The Connecticut Supreme Court "has consistently favored arbitration as an alternative method for resolving disputes because it avoids the "`formalities, delay, expense and vexation of ordinary litigation' . . . Hartford v. Board of Mediation Arbitration, 211 Conn. 7, 14, 557 A.2d 1236 (1989), quoting OG/O'Connell Joint Venture v. Chase Family Partnership No. 8, 203 Conn. 133, 145, 523 A.2d 1271 (1987); Waterbury Teachers Assn. v. Waterbury, 164 Conn. 426, 434, 324 A.2d 267 (1973). `[A]rbitration is a creature of contract and the parties delineate the power of the arbitrator by the terms of the submission and their agreement.' Bruno v. Department of Consumer Protection, 190 Conn. 14, 18, 458 A.2d 685 (1983); Carroll v. Aetna Casualty Surety Co., 189 Conn. 16, 20, 453 A.2d 1158 (1983). Therefore, judicial review of an arbitrator's award is limited in scope in a manner designed to minimize interference with an efficient and economical system of alternative dispute resolution." Blakeslee Arpaia Chapman, Inc. v. Dept of Transportation, 273 Conn. 746, 755, 873 A.2d 155, 166 (2005). "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 our 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 . . ." Id. at 754-55.
"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 legal questions involved." State v. New England Health Care Employees Union, Dist. 1199, 265 Conn. 771, 778, 830 A.2d 729, 735 (2003).
Where an arbitration award conforms to the submission, and the submission is unrestricted, a party seeking to vacate the award must prove (1) that the award rules on the constitutionality of a statute; (2) that the award violated clear public policy; or (3) that the award violated Connecticut General Statutes § 52-418. See Blakeslee, 273 Conn. at 756-57.
Connecticut General Statutes § 52-418(a) provides:
Upon the application of any party to an arbitration, the superior court for the judicial district in which one of the parties resides or, in a controversy concerning land, for the judicial district in which the land is situated or, when the court is not in session, any judge thereof, shall make at order vacating the award if it finds any of the following defects: (1) If the award has been procured by corruption, fraud or undue means; (2) if there has been evident partiality or corruption on the part of any arbitrator; (3) if the arbitrators have been guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown or in refusing to hear evidence pertinent and material to the controversy or of any other action by which the rights of any party have been prejudiced; or (4) if the arbitrators have exceeded their powers or so imperfectly executed them that a mutual, final and definite award upon the subject matter submitted was not made.
Privateer relies heavily on Bridgeport v. Kasper Group, Inc., 278 Conn. 466, 899 A.2d 523 (2006). In that case the applicant, City of Bridgeport, sought to vacate an arbitration award under § 52-418(a)(3) on the grounds that the arbitrators were guilty of misconduct in refusing to hear evidence concerning the respondent's conviction for procuring the contract at issue in the arbitration by engaging in a bribery and kickback scheme. However, this case involves neither a criminal conviction, nor a claim that the Arbitrator refused to hear evidence and Privateer does not seek to vacate the award under § 52-418(a)(3). Instead, it relies on § 52-418(a)(2), rather incredibly arguing that the arbitrator was "elderly" and for that reason alone is conclusively presumed to have been evidently partial to the Lawsons, described by Privateer as also being "elderly."
An allegation that an arbitrator was biased, if supported by sufficient evidence, may warrant the vacation of the arbitration award. Schwarzschild v. Martin, 191 Conn. 316, 327, 464 A.2d 774 (1983); Local 530, AFSCME, Council 15 v. New Haven, 9 Conn.App. 260, 267, 518 A.2d 941 (1986). The burden of proving bias or evident partiality pursuant to 52-418(a)(2) rests on the party making such a claim, and requires more than a showing of an "appearance of bias." Local 530, AFSCME, Council 15 v. New Haven, supra, 265, 274. Privateer has cited no authority to support the existence of a presumption that an arbitrator tends to favor a litigant who is in his or her similar age group and has failed to present any evidence whatsoever that the Arbitrator was biased in favor of the Lawsons.
Privateer also argues that the Award should be vacated based on a violation of § 52-418(a)(4) in that 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." The standard for vacating an award pursuant to § 52-418(a)(4) is "manifest disregard of the law." See Blakeslee, 273 Conn. at 754.
In this case the Award conforms to the Agreement, which provides, in relevant part, that "[i]n the event of a claim by any party of a breach of any provision of this Agreement before or after the Closing . . . [t]he Arbitrator is empowered to determine if one or more parties are in breach of this Agreement and may award the prevailing party his/her/their damages and reasonable attorneys fees and costs . . ." Award ¶ 1. The Arbitration demand demonstrates that the unambiguous issue presented to the Arbitrator was whether one or more parties were in breach of the Agreement.
In the Award the Arbitrator ruled that the Lawsons "made no specific representations or warranties regarding inventory, no provisions were contained in the Agreement for adjusting inventories as of the closing and the evidence presented at the hearing regarding the value of the inventory and damages was not persuasive." Id. With respect to Privateer's claim concerning the Lawsons' improper receipt of salaries, the Arbitrator found that "the Agreement permits payment of salary, the amounts were consistent with past practice, and the Claimants during negotiations prior to closing, tried and failed to persuade the [Lawsons] to not take salary."
The Arbitrator awarded the Lawsons $8,092.63 on their counterclaim for payment of legal fees owed in connection with the Agreement because "the Agreement provides for reimbursement of Professional fees incurred in connection with the Agreement through the closing and Claimants did not question the amount of $8,092.63 at the Hearing on this matter." Award ¶ 2. Finding that the Lawsons were the prevailing party, the Arbitrator awarded the Lawsons $35,339.90 for reasonable legal fees and costs incurred in connection with the Arbitration. The total amount awarded to the Lawsons was $43,432.53, plus interest at the rate of 8% per annum.
The Arbitrator's award conforms to the unrestricted submission and is not subject to de novo review by this court. See Blakeslee Arpaia Chapman, Inc. supra at 754-55.
Privateer's arguments for vacating the Award do not dispute that the Award conforms to the unrestricted submission. Rather, Privateer argues that the Arbitrator came to the wrong conclusion. This is precisely the type of attack on an arbitration award that is prohibited by Connecticut's well-established law governing the review of arbitration awards. See New England Health Care Employees Union, supra, at 780. Privateer seeks to have the court substitute its judgment for that of the Arbitrator.
In order to establish that an arbitration award should be vacated pursuant to Connecticut General Statutes § 52-418(a)(4), an applicant must show that the award "manifests an egregious or patently irrational application of the law" such that 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." Blakeslee, supra, at 757. To prove that an award constitutes manifest disregard of the law and should be vacated, a party must prove all of the following elements:
(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.
The grounds for vacating an arbitration award are "narrow and should be reserved for circumstances of an arbitrator's extraordinary lack of fidelity to established legal principles." Id.
Privateer argues that the Arbitrator manifestly disregarded the law governing fiduciaries and the law governing reliance on financial statements. Having declined the Arbitrator's invitation to file a brief, it is difficult to understand how Privateer can establish any of the three elements of proof set forth above. Moreover, the court does not find that the law concerning fiduciaries has any application whatsoever to the Agreement in question. It was an arms-length sale in which the applicants and the respondents were both represented by counsel. See, e.g. Hi-Ho Tower, Inc. v. Com-Tronics, Inc., 255 Conn. 20, 761 A.2d 1268 (2000). A review of the Agreement leads this court to conclude that the Arbitrator's decision is fully supported thereby.
As the Arbitrator found, the Agreement does not contain a provision for adjusting inventory at closing, contains nothing prohibiting the sellers to receive salary prior to closing and clearly permits the Arbitrator to award the prevailing party reasonable attorneys fees and costs.
Privateer has failed to prove that the Arbitrator manifestly or evenly slightly disregarded the law. The Arbitrator found that the Lawsons were entitled to receive their salaries and that the evidence concerning "the value of inventory and damages was not persuasive." Award ¶ 2. That Privateer does not like the Arbitrator's finding does not render it manifestly contrary to the law.
The Award conforms to the unlimited submission and, therefore, is not subject to de novo review for errors of fact or law. Privateer has not met its burden to establish that the Arbitrator manifestly disregarded the law in arriving at the Award. The Lawsons' Application to Confirm the Arbitration Award is granted. Privateer's Application to Vacate the Award is denied.
The Lawsons also seek the award of $10,682.86 in additional legal fees and costs pursuant to the terms of the Agreement, which provides that "the arbitrator is empowered to determine if one or more parties are in breach of this Agreement and may award the prevailing party his/her/their damages and reasonable attorneys fees and costs, including those incurred in a proceeding pursuant to Conn. Gen Stat. Section 52-410."
Privateer objects to the additional fees on the grounds that the language of the Agreement empowers only the Arbitrator, and not the court, to award attorneys fees. While the Agreement specifically references Connecticut General Statutes § 52-410, it does not reference § 52-417, the statute under which the Lawsons are proceeding in their Application to Confirm. The court finds that the amount of $10,682.86 in additional fees and costs is reasonable. However, the Lawsons have provided no law under which the court is permitted to make an award which the arbitration agreement allows to be made only by the arbitrator. Therefore, the court does not award the additional fees and costs, although the court believes they should be awarded as a reasonable addition to the arbitrator's award occasioned by the conduct of Privateer, Ltd., Richard Wilczewski and Anthony Petrillo.
Judgment in the amount of $44,619.48, which includes the amount awarded by the Arbitrator, $43,432.53, and $1,186.95 in interest, plus interest at the rate of 8 per cent per annum from the date hereof hereby enters against Privateer, Ltd., Richard Wilczewski and Anthony Petrillo in favor of John and Norma Sue Lawson.