Opinion
No. CV06 500 26 55 S
May 23, 2007
MEMORANDUM OF DECISION RE MOTION TO MODIFY ARBITRATION AWARD
This action to modify and/or vacate an arbitration award arises out of a home improvement contract between the plaintiffs, Brion and Kristin Tierney, and the defendants, Eric Murray and REM Architectural Services, LLC (REM). On May 10, 2006, the plaintiffs filed a four-count complaint sounding in breach of contract, fraudulent inducement, breach of warranty and violation of the Connecticut Unfair Trade Practices Act, General Statutes § 42-110a et seq. (CUTPA).
The plaintiffs had hired REM, of which Murray is the owner and sole member, to remodel and renovate their property at 263 Putting Green Road in Fairfield. They signed a home improvement contract on October 20, 2004, and work commenced on November 3, 2004. They allege that the defendants were not licensed as required by the Home Improvement Act, General Statutes § 20-418 et seq., when the contract was signed, and that there were significant defects in the work performed that required extensive and costly correction. The plaintiffs also claim that the work was not completed as stated in the contract. They made a number of periodic payments pursuant to the contract but, in response to the defects and incomplete performance, refused to pay the last several installments.
On May 19, 2006, the defendants filed a motion to stay the current action pending arbitration as provided by the contract, which was granted by the court, Radcliffe, J., on July 27, 2006. The plaintiffs submitted a request for arbitration on August 18, 2006, alleging the same four counts, and the defendants counterclaimed for breach of contract on September 15, 2006. The dispute was submitted to arbitration on November 28, 2006, and the arbitrator entered his award on January 22, 2007. The plaintiffs then filed the present motion to modify or vacate the award in part on the grounds that it was made with manifest disregard for clearly established law and is contrary to public policy.
"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 . . . 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." (Internal quotation marks omitted.) Industrial Risk Insurers v. Hartford Steam Boiler Inspection, 273 Conn. 86, 92-93, 868 A.2d 47 (2005). "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.) Economos v. Liljedahl Bros., Inc., 279 Conn. 300, 305, 901 A.2d 1198 (2006). "[I]n 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 arbitrator['s] acts and proceedings." (Internal quotation marks omitted.) State v. AFSCME, AFL-CIO, Council 4, Local 2663, 257 Conn. 80, 85, 777 A.2d 169 (2001).
The plaintiffs have moved to modify and/or vacate the award in part pursuant to General Statutes §§ 52-418 and 52-419. They argue that the arbitrator has exceeded his authority by finding that the defendants were not properly licensed as home improvement contractors, and yet allowing the defendants recovery on the contract. Since, they maintain, violation of the Home Improvement Act, General Statutes § 20-418, renders a contract unenforceable against the property owners, awarding the defendants damages for breach of contract exhibits a manifest disregard for the law. They also contend that awarding damages to a contractor who is unlicensed under § 20-420(a) violates public policy and, therefore, the arbitrator has exceeded his authority. Furthermore, they argue that the award should be modified to award them attorneys fees and costs because, pursuant to General Statutes § 20-427, a violation of the Home Improvement Act constitutes a per se violation of CUTPA, which in turn entitles them to attorneys fees and costs incurred as a result of the arbitration.
Section 52-418(a) provides in relevant part: "(a) Upon the application of any party to an arbitration, the [S]uperior [C]ourt . . . shall make an order vacating the award if it finds any of the following defects: (1) If the award has been procured by corruption, fraud or undue means; (2) if there has been evident partiality or corruption on the part of any arbitrator; (3) if the arbitrators have been guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown or in refusing to hear evidence pertinent and material to the controversy or of any 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."
Section 52-419 provides in relevant part: "(a) Upon the application of any party to an arbitration, the [S]uperior [C]ourt . . . shall make an order modifying or correcting the award if it finds any of the following defects: (1) If there has been an evident material miscalculation of figures or an evident material mistake in the description of any person, thing or property referred to in the award; (2) if the arbitrators have awarded upon a matter not submitted to them unless it is a matter not affecting the merits of the decision upon the matters submitted; or (3) if the award is imperfect in matter of form not affecting the merits of the controversy . . ."
Section 20-420(a) provides in relevant part: "No person shall hold himself or herself out to be a contractor or salesperson without first obtaining a certificate of registration from the commissioner as provided in this chapter . . ."
Section 20-427(c) provides in relevant part: "A violation of any of the provisions of this chapter shall be deemed an unfair or deceptive trade practice under subsection (a) of section 42-110b."
The defendants counter that arbitration awards are given great deference by courts and are only vacated in limited circumstances. They argue that the present submission was unrestricted and, as a result, the court is not permitted to review the arbitrator's findings of fact or law for error unless an exception applies, and that no such exception exists in the present case. They also point out that the arbitrator had no authority under the Home Improvement Act to award statutory damages to the plaintiffs, and that the damage award to the defendants is not inconsistent with a finding that the plaintiffs were not "owners" as defined in the act or that violation of the act was not the proximate cause of their damages. Lastly, the defendants argue that the award of attorneys fees and costs is a discretionary matter that is unreviewable by this court.
As a preliminary matter, it is noted that the plaintiffs have not argued that any of the three defects set forth in § 52-419, governing modification of arbitral awards, apply; instead, they argue that the arbitrator "manifestly disregarded" the law, one of the grounds for vacatur under § 52-418(a)(4). Section 52-419 only applies if there is a miscalculation of figures or misdescription of person or property, the award involves matters outside the submission, or there is a mistake not affecting the merits of the decision — that is, mistakes as to form only. See generally Milford v. Coppola Construction Co., 93 Conn.App. 704, 716-18, 891 A.2d 31 (2006) (only miscalculations evident from face of award may be modified; those requiring review of any evidence or determinations of law — such as where award does not contain underlying findings — may not). The plaintiffs' claim that the arbitrator manifestly disregarded the law goes to the heart of the arbitrator's findings of fact and law and cannot be considered a clerical miscalculation or defect in form; moreover, it is undisputed that the submission was unrestricted. In any event, then, § 52-419 would not apply, and this court has no authority to modify the award. Therefore, the motion is denied as to their request for attorneys fees. The other point of relief the plaintiff's request, however — vacatur of that portion of the award that grants the defendants recovery of the amounts due under the contract — may be granted if, as the plaintiffs maintain, the arbitrator exceeded his authority.
Additionally, it is noted that an award of attorneys fees and costs under CUTPA is a discretionary matter; Votto v. American Car Rental, Inc., 273 Conn. 478, 486, 871 A.2d 981 (2005); and "[c]ourts allow and encourage broad discretion for arbitrators." International Brotherhood v. New Milford, 81 Conn.App. 726, 729, 841 A.2d 706 (2004). As such, the arbitrator's decision to not award fees and costs under CUTPA is not subject to review. See also Staehle v. Michael's Garage, Inc., 35 Conn.App. 455, 459, 646 A.2d 888 (1994). ("The use of the word `may' indicates that [General Statutes § 42-110g] does not provide a mandatory award of fees to the plaintiff; rather, the court has discretion to award attorneys fees"). Therefore, even if the plaintiffs are correct in their assertion that a violation of the Home Improvement Act mandates a finding of a CUTPA violation, this does not automatically entitle them to attorneys fees and costs, which are within the arbitrator's discretion to deny.
An arbitration award incident to an unrestricted submission may be vacated if "(1) the award rules on the constitutionality of a statute . . . (2) the award violates clear public policy [or] (3) the award contravenes one or more of the statutory proscriptions of § 52-418." (Internal quotation marks omitted). Econonmos v. Liljedahl Bros., Inc., 279 Conn. 300, 305-06, 901 A.2d 1198(2006). The plaintiff contends both that the award exhibits a manifest disregard for the law because "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"; General Statutes § 52-418(a)(4); and that the award violates clearly defined public policy.
"All of the following three elements must be satisfied in order for a court to vacate an arbitration award . . . [for] manifest disregard: (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 panel is well defined, explicit, and clearly applicable." Industrial Risk Insurers, supra, 273 Conn. 95. "Even if an arbitrator misapplies the relevant law, such a misconstruction of the law [does] not demonstrate the [arbitrator's] egregious or patently irrational rejection of clearly controlling legal principles," as is required to overturn an arbitrator's decision. (Internal quotation marks omitted.) Lathuras v. Shoreline Dental Care, LLC, 65 Conn.App. 509, 514, 783 A.2d 83 (2000), cert. denied, 258 Conn. 936, 785 A.2d 231 (2001).
The plaintiffs claim that the arbitrator manifestly disregarded Connecticut law by finding a violation of the Home Improvement Act — as evidenced by his award of "statutory damages HIA" — and yet awarding the defendant contractual damages. They argue that since their only claim under the Home Improvement Act was that the defendants were unlicensed, the award under the act must have been premised on a finding that the defendants were unlicensed; therefore, since General Statutes § 20-429 and prevailing case law expressly render home improvement contracts unenforceable if the contractor is unlicensed, the award of contractual damages to die defendants was improper.
Section 20-429(a) provides: "No home improvement contract shall be valid or enforceable against an owner unless it: (1) Is in writing, (2) is signed by the owner and the contractor, (3) contains the entire agreement between the owner and the contractor, (4) contains the date of the transaction, (5) contains the name and address of the contractor and the contractor's registration number, (6) contains a notice of the owner's cancellation rights in accordance with the provisions of chapter 740, (7) contains a starting date and completion date, and (8) is entered into by a registered salesman or registered contractor. Each change in the terms and conditions of a contract shall be in writing and shall be signed by the owner and contractor, except that the commissioner may, by regulation, dispense with the necessity for complying with the requirement that each change in a home improvement contract shall be in writing and signed by the owner and contractor." (Emphasis added.)
In 1993, the legislature added subsection (f); Public Acts 1993, No. 93-215; which provides: "nothing in this section shall preclude a contractor who has complied with subdivisions (1), (2), (6), and (8) of subsection (a) of this section from the recovery of payment for work performed based on the reasonable value of services which were requested by the owner, provided the court determines that it would be inequitable to deny such recovery." General Statutes § 20-429(f).
The Supreme Court recently considered the effects of this subsection on a contractor's right to recover in quantum meruit against the property owners in Economos v. Liljedahl Bros., Inc., supra, 279 Conn. 300. The trial court had vacated an arbitration award that, inter alia, awarded a mechanic's lien to the defendant home improvement contractor while simultaneously finding a violation of the Home Improvement Act, § 20-429(a), in that a number of change orders were unsigned. Agreeing with the Appellate Court that the award was improperly vacated, the court held that the arbitrator had not "manifestly disregarded" the law because of subsection (f) of § 20-429, which had not previously been considered by the appellate courts. Id., 311. Reasoning that, since the arbitrator could have legitimately awarded damages to the contractor on a quantum meruit or restitution theory pursuant to this subsection, the court held that the award of contractual damages was not clear error and vacatur was improper, in effect recognizing that its holding in Barrett Builders v. Miller, 215 Conn. 316, 576 A.2d 455 (1990), had been superseded in part by § 20-429(f). Economos v. Liljedahl Bros., Inc., 279 Conn. 310-12.
In Barrett Builders, the court held that a contractor who had not complied with the provisions of § 20-429 could not recover in quasi-contract for the reasonable value of the work performed. This issue had not been reconsidered in light of § 20-429(f) until Economos v. Liljedahl Bros., Inc., supra, 279 Conn. 300.
Nevertheless, the present situation differs from that of Economos in that the plaintiffs claim a violation of § 20-429(a)(8), rather than the contention of the plaintiff in Economos that the defendant contractor violated the residual language of § 20-429(a) that "[e]ach change in the terms and conditions of a contract shall be in writing and shall be signed by the owner and contractor . . ." Subsection (f) only provides for recovery if the contractor "has complied with subdivisions (1), (2), (6), and (8) of subsection (a) of this section." General Statutes § 20-429(f); see also All American Custom Pools Spas v. Schwindeman, Superior Court, judicial district of Stamford-Norwalk at Stamford, Docket No. CV 04 4001335 (March 9, 2007, Downey, J.) ("Subject to subsection (f) of § 20-429, failure to execute a contract conforming to the requirements of the Act will preclude recovery by the contractor regardless of the theory on which recovery is premised"). The plaintiffs' contention is that, since the only ground alleged for violation of the act is that the defendants were unregistered when the parties entered into the contract, the arbitrator's award of "statutory damages HIA" must reflect a finding of violation of subdivision (a)(8), providing that "[n]o home improvement contract shall be valid or enforceable against an owner unless it . . . (8) is entered into by a registered salesman or registered contractor."
The matter is complicated by the absence of explanation in the arbitrator's decision. While the plaintiff's sole argument for violation of the act was the defendants' being unlicensed, this would not preclude a finding by the arbitrator of different grounds for violation of the act. The award of "statutory damages HIA" in the amount of $500 may reflect a misreading of General Statutes § 20-427, authorizes the commissioner of consumer protection to impose a civil penalty in that amount against "any person who engages in or practices the work or occupation for which a certificate of registration is required by this chapter without having first obtained such a certificate of registration . . ." General Statutes § 20-427(d). While this might indicate a finding that the defendant "offer[ed] to make or [made] any home improvement without having a current certificate of registration under this chapter . . ."; General Statutes § 20-427(b)(5); the basis for the award of "statutory damages HIA" is not expressly stated.
General Statutes § 20-427(b) provides: "(b) No person shall: (1) Present or attempt to present, as such person's own, the certificate of another, (2) knowingly give false evidence of a material nature to the commissioner for the purpose of procuring a certificate, (3) represent himself or herself falsely as, or impersonate, a registered home improvement contractor or salesman, (4) use or attempt to use a certificate which has expired or which has been suspended or revoked, (5) offer to make or make any home improvement without having a current certificate of registration under this chapter, (6) represent in any manner that such person's registration constitutes an endorsement of the quality of such person's workmanship or of such person's competency by the commissioner, (7) employ or allow any person to act as a salesman on such person's behalf unless such person is registered as a home improvement salesman, or (8) fail to refund the amount paid for a home improvement within ten days of a written request mailed or delivered to the contractor's last known address, if no substantial portion of the contracted work has been performed at the time of the request and more than thirty days has elapsed since the starting date specified in the written contract, or more than thirty days has elapsed since the date of the contract if such contract does not specify a starting date."
The defendant, in its post-arbitration brief, argued that the plaintiffs were not "owners" under the act; therefore, the act would not apply. This, the defendant claims, would permit recovery on the contract even in spite of a finding that the defendant was unlicensed when the contract was entered into. Additionally, it should be noted that arbitrator's award of "statutory damages HIA" may have been premised upon a different violation of the act that permits quantum meruit recovery, or from a finding of bad faith on the part of the plaintiffs. See, e.g., Habetz v. Condon, 224 Conn. 231, 618 A.2d 501 (1992) (plaintiff's bad faith dealings permitted recovery of contract damages by defendant even though defendant violated Home Improvement Act).
The plaintiff argues that the defendants never asserted claims of bad faith or quantum meruit, suggesting that the arbitrator could not have made these findings. This ignores the doctrine that "every reasonable presumption and intendment will be made in favor of the arbitral award and of the arbitrator's acts and proceedings." State v. AFSCME, AFL-CIO, Council 4, Local 2663, supra, 257 Conn. 85.
Given this ambiguity, the appropriate course of action is to remand the case to the arbitrator for clarification. The Connecticut Supreme Court recently held that, because the Federal Arbitration Act, 9 U.S.C. § 1 et seq., applies to all arbitration agreements, federal law applies to many aspects of arbitration. Hartford Steam Boiler Inspection Ins. Co. v. Underwriters at Lloyd's Cos. Collective, 271 Conn. 474, 857 A.2d 893 (2004). Consequently, it adopted the federal rule that "a court may remand without vacating a case to an arbitrator for clarification of a final award . . ." Id., 485. Indeed, "a court does not have the authority either to enforce an ambiguous award . . . or to resolve an ambiguity." (Citations omitted; internal quotation marks omitted.) All Seasons Services, Inc. v. Guildner, 94 Conn.App. 1, 13, 891 A.2d 97 (2006). "[W]hen a court remands an arbitration award for clarification, [t]he resolution of such an ambiguity is not within the policy which forbids an arbitrator to redetermine an issue which he has already decided, for there is no opportunity for redetermination on the merits of what has already been decided . . . On remand, the arbitrator is limited in his review to the specific matter remanded for clarification and may not rehear and redetermine those matters not in question . . . In such a circumstance, the arbitrators will act only to remove the cloud of doubt . . . and will in no way reopen the merits of the controversy." (Citations omitted; internal quotation marks omitted.) Hartford Steam Boiler Inspection Ins. Co. v. Underwriters at Lloyd's Cos. Collective, supra, 271 Conn. 486.
The plaintiff also argued that the arbitration award should be vacated because it violates public policy. For much the same reasons previously stated, the award's ambiguity precludes court from making such a determination.
In the present case, it is unclear what the basis for the arbitrator's finding of a violation, if any, of the Home Improvement Act was. Moreover, it is not clear whether the arbitrator made any findings — such as, for example, bad faith on the part of the plaintiffs — which would permit recovery by the defendant on the contract or in quantum meruit notwithstanding violation of the act. Absent clarification, it would be improper for this court to either confirm or vacate the award; these issues are determinative of whether the arbitrator has manifestly disregarded the law or whether the award violates public policy. Therefore, the dispute is remanded to the arbitrator for clarification: the arbitrator should specify which, if any, provisions of the Home Improvement Act the defendant violated, and whether he found any facts that would allow recovery by the defendant for work performed even in the event of such a violation.