Opinion
No. FST CV 07 4011311
October 30, 2007
MEMORANDUM OF DECISION RE MOTION TO DISMISS OR IN THE ALTERNATIVE FOR A STAY OF PROCEEDINGS (107.00)
The issues presented to the court are whether to grant or deny the defendants' motion to dismiss on the ground that the court lacks subject matter jurisdiction over the action, or, alternatively, whether to grant or deny the defendants' motion to stay the action pending arbitration.
I. FACTS
This action arises from a dispute between the plaintiff, Twin Lakes Indoor Tennis, Ltd., which owns and manages an inflatable indoor tennis structure, and the defendants, Twin Lakes, Inc., the entity that owns the property where the structure is located, and Kate Lombardo, the president of Twin Lakes, Inc. On March 30, 2007, the plaintiff filed a five-count verified complaint, alleging the following facts and claims. The arrangement between the parties is governed by a ten-year management agreement (agreement) which they entered into on August 21, 1998. Pursuant to the agreement, the plaintiff purchased the tennis structure and related equipment, and the structure was installed on Twin Lakes, Inc.'s property. The plaintiff manages, operates and maintains the structure, as well as a tennis program, and the plaintiff's facility and its tennis program are booked into the future. It is alleged the defendants tortiously interfered with the plaintiff's contractual relations and business expectancies when they allegedly padlocked the plaintiff's tennis structure, prevented its employees and clients from entering the facility, and directed the plaintiff to vacate the premises but to leave the structure and equipment behind. The plaintiff claims Twin Lakes, Inc., breached the contract between the parties, anticipatorily breached the contract, and breached the duty of good faith and fair dealing when it decided to close the club and sell the property prior to the termination of the contract.
On July 26, 2007, the defendants filed a motion to dismiss the action on the ground that the court lacks subject matter jurisdiction over the case because the agreement between the parties contains a provision requiring that the parties submit their disputes to arbitration. The defendants alternatively moved to stay the proceedings pending arbitration pursuant to General Statutes § 52-409. The defendants filed a memorandum of law in support of their motions, and the plaintiff timely filed a memorandum of law in opposition. The defendants filed a reply brief in support of their motions in court on August 13, 2007.
II. MOTION TO DISMISS
The court turns first to the motion to dismiss. The defendants rely on Section 10.3 of the agreement, which states somewhat disjointedly: "Any default made by any party other than that described in Section 10.1 above or where mutual agreement of the parties is required herein and a dispute arises, the matter will be referred to arbitration in accordance with the rules of the American Arbitration Association." The court determines that the motion to dismiss should be denied on the authority of Multi-Service Contractors, Inc. v. Vernon, 181 Conn. 445, 435 A.2d 983 (1980), and for the reasons described in detail by this court in Voights v. Coldwell Banker, Superior Court, judicial district of Stamford/Norwalk at Stamford, Docket No. CV 06 5001154 (May 7, 2007) (43 Conn. L. Rptr. 398). As stated in Multi-Service Contractors, Inc. v. Vernon, supra, 447-48: "Whether an agreement makes arbitration a condition precedent to an action in court depends on the language of the arbitration clause. While it is true that in the absence of express language a provision for arbitration may be construed, by implication, to be a condition precedent to suit that implication must be so plain that a contrary intention cannot be supposed. It must be a necessary implication. The mere agreement to arbitrate, standing alone, does not give rise to the necessary implication that arbitration is a condition precedent to an action in court. For arbitration to be a condition precedent, the agreement to arbitrate must expressly so stipulate, or it must necessarily be implied from the language used."
Section 10.1 of the agreement provides that if the plaintiff defaults on compensation due to the owner more than thirty days from the due date, then all of the plaintiff's operating equipment reverts to the defendant and the plaintiff is required to render title of the equipment to the defendant as liquidated damages.
The arbitration clause in question does not expressly provide that arbitration is a condition precedent to litigation. Furthermore, the clause does not necessarily imply that arbitration is a condition precedent to the plaintiff's right to resort to litigation. There are no meaningful distinctions between the language in the arbitration clause in this case and the arbitration clauses that the courts found to be inadequate to establish arbitration as a condition precedent to litigation in Multi-Service or Voights. Specifically, Section 10.3 of the agreement, like the clauses at issue in Multi-Service and Voights, does not provide for "final" or "binding" arbitration and it "lacks the specificity regarding process found in many cases where arbitration was found to be a condition precedent to litigation." Voights v. Coldwell Banker, supra, 43 Conn. L. Rptr. 399.
III. MOTION TO STAY
Having found that there is subject matter jurisdiction, the court must still consider the defendants' motion for a stay because "[a]rbitration need not be a condition precedent to the action in court for the granting of a stay under General Statutes § 52-409." KND Corp. v. Hartcom, Inc., 5 Conn.App. 333, 336, 497 A.2d 1038 (1985) [citing Kantrowitz v. Perlman, 156 Conn. 224, 229, (1968)]. "Under § 52-409, when an action is brought in the trial court by a party to a written agreement that includes provisions for arbitration, and the trial court is satisfied that an issue involved in the action is arbitrable, the court, on motion of any party to the agreement, shall stay the action until arbitration has been had in compliance with the agreement." Success Centers, Inc. v. Huntington Learning Centers, Inc., 223 Conn. 761, 767, 613 A.2d 1320 (1992). "[I]n granting or denying a stay under § 52-409 . . . the trial court must determine whether the contract between the parties provides for arbitration." Id., 768-69.
General Statutes § 52-409 provides in relevant part: "If any action for legal or equitable relief . . . is brought by any party to a written agreement to arbitrate, the court in which the action . . . is pending, upon being satisfied that any issue involved in the action or proceeding is referable to arbitration under the agreement, shall, on motion of any party to the arbitration agreement, stay the action or proceeding until an arbitration has been had in compliance with the agreement, provided the person making application for the stay shall be ready and willing to proceed with the arbitration."
The first question is whether the court, or an arbitrator, should determine the scope of arbitrability. "General Statutes § 52-409 has been recognized as a means by which a party to a pending suit may compel arbitration by gaining a judicial reconciliation of the threshold issue of arbitrability when the other party has refused to arbitrate voluntarily." (Internal quotation marks omitted.) KND Corp. v. Hartcom, Inc., supra, 5 Conn.App. 337 [citing Schwarzschild v. Martin, 191 Conn. 316, 323, 464 A.2d 774 (1983)]. "[A] gateway dispute about whether the parties are bound by a given arbitration clause raises a `question of arbitrability' for a court to decide . . . Similarly, a disagreement about whether an arbitration clause in a concededly binding contract applies to a particular type of controversy is for the court." (Citations omitted; internal quotation marks omitted.) Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002). "[T]he arbitrability of a dispute is a legal question for the court unless the parties have clearly agreed to submit that question to arbitration. The intention to have arbitrability determined by an arbitrator can be manifested by an express provision or through the use of broad terms to describe the scope of arbitration, such as `all questions in dispute and all claims arising out of the contract or any dispute that cannot be adjudicated.'. . . [W]hether the parties have agreed to submit to arbitration not only the merits of the dispute but the very question of arbitrability as well depends upon the intention manifested in the agreement they have made." (Citations omitted; internal quotation marks omitted.) Bridgeport v. Bridgeport Police Local 159, 183 Conn. 102, 104, 438 A.2d 1171 (1981).
The parties did not raise this issue in their memoranda to the court. The court addresses it because if it decides that the arbitrability of the dispute should be determined by an arbitrator, there is no need for further court action. Furthermore, the issue goes to the subject matter jurisdiction of the court. See Scinto v. Sosin, 51 Conn.App. 222, 230, 721 A.2d 552 (1998), cert. denied, 247 Conn. 963, 724 A.2d 1125 (1999); see also A-Z Auto Sound Systems, Inc. v. Infinity Systems, Inc., Superior Court, judicial district of Hartford, Docket No. CV 99 0591585 (December 16, 1999, Hale, J.) (case with similar fact pattern in which court first examines "which forum shall decide the arbitrability of this dispute, an arbitrator or a court").
In Bridgeport, the Connecticut Supreme Court concluded that a provision that contained the "all-inclusive" language that the parties would arbitrate "concerning any matter or condition arising out of the employee-employer relationship" was sufficiently broad to demonstrate that the parties intended an arbitrator to determine the issue of arbitrability. Bridgeport v. Bridgeport Police Local 1159, supra, 183 Conn. 105. In Bell v. Cendant Corp., 293 F.3d 563, 568 (2d Cir. 2002), the Second Circuit Court of Appeals applied the Bridgeport standard and concluded that a clause providing for arbitration of "[a]ny controversy arising in connection with or relating to this Agreement . . . or any other matter or thing" clearly indicated the parties' intention to have the arbitrator determine its scope. (Internal quotation marks omitted.) The court further noted that "[t]he language is not confined to disputes arising from the . . . [a]greement and does not exclude any category of dispute." Id.
In contrast, the Bridgeport court referred to language from an agreement that was "not sufficiently all-inclusive" to preclude the court from determining the issue of arbitrability in that it limited arbitration to "grievance[s] . . . based solely upon an alleged breach of [the] agreement." (Internal quotation marks omitted.) Bridgeport v. Bridgeport Police Local 1159, supra, 183 Conn. 104 (citing from arbitration clause in Board of Education v. Frey, 174 Conn. 578, 581, 392 A.2d 466 (1978)). Moreover, in Scinto v. Sosin, 51 Conn.App. 222, 226-30, 721 A.2d 552 (1998), cert. denied, 247 Conn. 963, 724 A.2d 1125 (1999), a case with issues similar to the one before this court, the Appellate Court determined that an arbitration clause that provided in relevant part, "[an]y controversy or Claim arising out of or related to the Contract, or the breach thereof, shall be settled by arbitration" did not deprive the court of jurisdiction to determine arbitrability.
In the present case, Section 10.3 of the Agreement does not explicitly address arbitrability, nor do its terms (i.e. "any default") approach the breadth of the Scinto clause (i.e. "any controversy or claim arising out of or related to the contract") or the clauses in Bridgeport or Bell. Section 10.3 limits arbitration to disputes arising from "defaults" and situations where "mutual agreement of the parties is required," rather than to "any matter or condition" or "any other matter or thing." Section 10.3 is more similar to the language that the courts determined was "not sufficiently all-inclusive" in Board of Education and Scinto, than to the language that the courts characterized as "all-inclusive" in Bridgeport and Bell. As the court noted in Scinto, "[u]nless the agreement shows [that the parties intended to arbitrate the issue of arbitrability], the determination of the question of arbitrability remains a function of the court." Scinto v. Sosin, supra, 51 Conn.App. 228. Therefore, this court finds it has the jurisdiction to determine the arbitrability of the issues in this dispute because the parties did not clearly manifest that they intended to submit the issue of arbitrability to the arbitrator.
The next issue is whether the defendants have established their right to stay the proceeding. "To establish its right to a stay of proceeding under [Section 52-409] a movant must establish the following facts: (1) that both it and the plaintiff in the action sought to be stayed are parties to a written arbitration agreement; (2) that at least one issue involved in the action sought to be stayed is referable to arbitration under the agreement; and (3) that the movant is ready and willing to proceed with the arbitration." (Internal quotation marks omitted.) American Materials Corp. v. Eagle Crusher Co., Inc., Superior Court, judicial district of Hartford, Docket No. CV 03 0827738 (December 16, 2003, Sheldon, J.). Neither party contests the validity of the agreement itself or that both the plaintiff and Twin Lakes, Inc. are parties to the agreement, so the court must address is the plaintiff's argument that Lombardo is not a party to the agreement.
"Arbitration is a creature of contract and without a contractual agreement to arbitrate there can be no arbitration . . . No one can be directed to arbitrate a dispute who has not previously agreed to do so." (Citations omitted; internal quotation marks omitted.) Scinto v. Sosin, supra, 51 Conn.App. 227. The plaintiff argues that its claims against Kate Lombardo should not be stayed in that she is not a party to the arbitration provision because she is not the person who signed the agreement on behalf of Twin Lakes, Inc., and thus the plaintiff cannot be compelled to arbitrate its claims against her. The defendants argue that Lombardo should be covered by the arbitration clause because she was acting in her capacity as an agent of Twin Lakes, Inc. at the time she allegedly took the actions that led to this lawsuit.
Both parties' arguments have merit, but the court need not address the arguments at this time if it finds that there is an arbitrable issue. This is so because § 52-409 expressly provides that "the court in which the action or proceeding is pending, upon being satisfied that any issue involved in the action or proceeding is referable to arbitration under the agreement, shall stay the action or proceeding until an arbitration has been had in compliance with the agreement." (Emphasis added.) See Success Centers, Inc. v. Huntington Learning Centers, Inc., supra, 223 Conn. 767. "[T]he remedy afforded to a successful movant under § 52-409 is a `stay of the action or proceeding,' not merely a stay of that part of the action or proceeding that involves [arbitrable] issues that pertain directly to the applicant. The key question presented for the [c]ourt's decision is thus whether or not [the movant] is entitled to a stay under § 52-409." (Internal quotation marks omitted.) American Materials Corp. v. Eagle Crusher Co., Inc., supra, Superior Court, Docket No. CV 03 0827738.
The court must next determine whether the language of Section 10.3, as read in the context of the rest of the agreement, encompasses any issues that are referable to arbitration. See General Statutes § 52-409. "The issue of whether the parties to a contract have agreed to arbitration is controlled by their intention . . . The parties' intent is determined from the language used interpreted in the light of the situation of the parties and the circumstances connected with the transaction . . . [T]he intent of the parties is to be ascertained by a fair and reasonable construction of the written words and . . . the language used must be accorded its common, natural, and ordinary meaning and usage where it can be sensibly applied to the subject matter of the contract . . . Where the language of the contract is clear and unambiguous, the contract is to be given effect according to its terms." (Citations omitted; internal quotation marks omitted.) State v. Philip Morris, Inc., 279 Conn. 785, 796-97, 905 A.2d 42 (2006). The Supreme Court has stated that, "because we favor arbitration, we will defer to this alternative method of dispute resolution if the contractual arbitration provisions fall within the grey area of arbitrability . . . An order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. Doubts should be resolved in favor of coverage." (Citation omitted; emphasis in original; internal quotation marks omitted.) Quigley-Dodd v. General Accident Ins. Co. of America, 256 Conn. 225, 246-47, 772 A.2d 577 (2001) [citing White v. Kampner, 229 Conn. 465, 472-73, 641 A.2d 1381 (1994), where the Connecticut Supreme Court adopted the positive assurance test as set out by the United States Supreme Court in United Steelworkers of America v. Warrior Gulf Navigation Co., 363 U.S. 574, 582-83, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960)].
The crux of the arguments in this case center on what the parties intended when they referred to "any default made by any party" in Section 10.3 of the agreement. The plaintiff argues that its claims against the defendant do not concern a "default" by the defendants, but rather the defendants'"breach" of the agreement. The plaintiff further argues that "default" generally involves the failure of a party to make a payment, while a "breach" involves a party's violation of a contractual obligation, monetary or otherwise. The defendants argue that the terms "breach" and "default" are interchangeable.
The key relevant provisions are the three subsections under Section 10 of the agreement. The term "default" is first used in Section 10.1, which states: "In the event that the MANAGER defaults on payment of compensation due OWNER as provided in Section Five. . ." Default as used in Section 10.1 correlates with the plaintiff's preferred interpretation of the term as generally involving failure to make a payment. The term "default" is used again in Section 10.2 of the agreement: "OWNER shall provide MANAGER with written notice of any default made by MANAGER and MANAGER shall have fifteen (15) days from receipt of said notice to cure the default." Default as used in Section 10.2 does not shed light on whether it was intended to encompass anything more than a failure to make a payment. It is noteworthy, however, that under each of these two sections the term "default" only refers to conduct by the plaintiff. In Section 10.3, the key phrase "any default made by any party" (emphasis added) indicates that either party may be capable of defaulting. Twin Lakes, Inc. does not, however, have any obligation to make payments under the agreement; accordingly, the only reasonable explanation for the use of the term "any party" in Section 10.3 is that Twin Lakes, Inc. is also capable of defaulting in a manner that does not contemplate the failure to pay money. The plaintiff's interpretation of the term "default" is not reasonable in this context.
In the agreement, the term "MANAGER" refers to the plaintiff, Twin Lakes Indoor Tennis, Ltd., and the term "OWNER" refers to the defendant, Twin Lakes, Inc.
The defendants' preferred interpretation of the term "default," as interchangeable with "breach," is likewise flawed. "Breach" and "default" can be distinct concepts depending on the context in which they are used. Black's Law Dictionary (6th Ed. 1990), which the plaintiff relies on in arguing that the two words are not synonymous, defines "breach" as: "The breaking or violating of a law, right, obligation, engagement, or duty, either by commission or omission. Exists where one party to contract fails to carry out term, promise, or condition of the contract." The same dictionary defines "default" as: "By its derivation, a failure. An omission of that which ought to be done . . . Specifically, the omission or failure to perform a legal or contractual duty,. . . to observe a promise or discharge an obligation . . . or to perform an agreement . . . The term also embraces the idea of dishonesty, and of wrongful act. . ." (Citations omitted.) Id. The defendants' alleged refusal to allow the plaintiff access to the tennis structure, as well as their alleged refusal to open for business in the summer 2007 season and beyond, could be considered to be defaults or breaches, or both. The court cannot determine with positive assurance that the parties did not intend this type of dispute to be resolved by arbitration, and therefore, pursuant to the positive assurance doctrine and the state's policy in favor of arbitration, the court finds that there are arbitrable issues under the agreement.
The 6th edition of Black's was the most recently published edition at the time the contract was formed in 1998.
The final consideration is whether the defendants are "ready and willing to proceed with arbitration." Success Centers, Inc. v. Huntington Learning Centers, Inc., supra, 223 Conn. 761. The plaintiff argues that the defendants are not ready and willing to proceed with arbitration because they have not demanded or commenced arbitration. The defendants counter that they are "ready and willing to proceed in arbitration" and that their filing of the motion to stay indicates their willingness to proceed with arbitration. Connecticut appellate courts have not specifically addressed this requirement, and a split of authority exists in Superior Court cases as to what a party seeking a stay must establish to fulfill the "ready and willing" requirement. Here, the defendants have demonstrated adequate willingness to arbitrate the dispute by repeatedly stating that they are ready and willing to do so. Although the plaintiff may be legitimately concerned that the defendants are attempting to stay the action solely to delay its resolution, their concern is not sufficient to refute the defendants' apparent satisfaction of this requirement. It should be obvious that the stay can be readily revoked if the arbitration proceeding is not soon commenced or is unduly delayed. The defendants have met all of the requirements to establish that the action should be stayed.
In the following cases the court found that the movant fulfilled the ready and willing requirement: Gallasso v. DEL Franchise Systems, Inc., Superior Court, judicial district of Hartford, Docket No. CV 07 5009321, (September 6, 2007, Satter, J.T.R.); Autori v. Arthur Andersen, LLP, Superior Court, judicial district of New Haven, Docket No. CV 03 0477909 (March 21, 2006, Robaina, J.) (motion to stay granted where movant repeatedly represented that it was ready and willing to proceed with arbitration); Watson Enterprises, Inc. v. Greenwich Cadillac-Oldsmobile, Inc., Superior Court, judicial district of Stamford-Norwalk at Norwalk, Docket No. 30243 (July 2, 2004, Hickey, J.T.R.) (motion to stay granted on grounds that filing demand for arbitration and moving the court to compel participation demonstrated a willingness to proceed with arbitration); American Materials Corp. v. Eagle Crusher Co., Inc., supra, Superior Court, Docket No. CV 03 0827738 (motion to stay granted where movant asserted that ready and willing to arbitrate); Lee v. Pathology Associates Consultants, P.C., Superior Court, judicial district of New Haven, Docket No. CV 03 0478695 (August 26, 2003, Hadden, J.T.R.) (35 Conn. L. Rptr. 302) (motion to stay granted when movants claimed that they were ready and willing to proceed with arbitration); Scalzo v. Sandvick Associates, Inc., Superior Court, judicial district of Danbury, Docket No. CV 98 0330379 (April 9, 1998, Radcliffe, J.) (21 Conn. L. Rptr. 661) (motion to stay granted where movant stated that it was ready and willing to proceed to arbitration); Tracy Alan Saxe, P.C. v. Anderson Kill Olick Oshinsky, P.C., Superior Court, judicial district of New Haven, Docket No. CV 96 0385479 (July 23, 1996, Meadow, J.T.R.) (17 Conn. L. Rptr. 389) (motion to stay granted on movant's assertion that ready and willing to arbitrate coupled with demand for arbitration).
In contrast, in the following cases the court determined that the movant had not satisfied the ready and willing requirement: Bridgeport v. C.R. Klewin Northeast, LLC, Superior Court, complex litigation docket at Waterbury, Docket No. CV 04 4000308 (March 3, 2005, Alander, J.) (motion to stay denied where movant did not represent either by affidavit or within its motion that it was ready and willing to proceed with arbitration); Keane v. Healy Ford Lincoln Mercurym, Superior Court, judicial district of Ansonia-Milford at Derby, Docket No. CV 00 0071501 (February 14, 2001, Radcliffe, J.) (motion to stay denied where movant did not indicate that it was ready and willing to arbitrate "in some tangible way"); Dewey v. Ryan, Superior Court, judicial district of Hartford, Docket No. 0085923 (April 12, 1996, DiPentima, J.) (16 Conn. L. Rptr. 610) (motion to stay denied where movant failed to indicate that they were ready and willing to arbitrate).
"An order staying proceedings does not terminate the action but merely postpones its disposition. It may be modified or vacated by the court whenever, in the exercise of a sound discretion, it is considered necessary or proper to do so. A stay order is thus an integral step in the underlying lawsuit, subject to the ongoing supervision of the trial court." (Internal quotation marks omitted.) Success Centers, Inc. v. Huntington Learning Centers, Inc., supra, 223 Conn. 771.
IV. CONCLUSION
For the foregoing reasons, the court denies the defendants' motion to dismiss for lack of subject matter jurisdiction, and grants the defendants' motion to stay the proceedings pending arbitration pursuant to General Statutes § 52-409.