Opinion
No. X06-CV04-4000306S
February 4, 2005
MEMORANDUM OF DECISION
Pending before the court are cross-motions to vacate and to confirm an arbitration award which awarded slightly over $6 million to the plaintiff for its work in connection with the construction of the Arena at Harbor Yard in Bridgeport, Connecticut.
On July 16, 1999, C.R. Klewin Northeast, LLC (Klewin) was provided the construction management contract by the city of Bridgeport for the construction of the Southend Development Program, which included the project known as the Arena at Harbor Yard (Arena). The Arena is a multipurpose facility with a maximum seating capacity of 10,500 seats. It contains a hospitality suite, luxury suites, lounges, retail and office space, locker rooms, concession areas and lavatory facilities. Klewin entered into a construction management services contract with the city pursuant to which Klewin was to furnish all labor and materials for the construction of the Arena for the price of $44,524,515. Construction of the Arena was completed in the fall of 2001. Bridgeport paid Klewin the sum of $43,939,771. The parties disputed whether additional sums were owed to Klewin under the contract, including whether sums were owed Klewin for work it performed due to alleged changes in the plans and specifications of the contract and whether sums were owed to Bridgeport due to alleged breaches of the contract by Klewin.
Pursuant to the parties' contract, the matter was submitted to arbitration before the American Arbitration Association (AAA). After extensive hearings held over a two-year period, the arbitrators issued their decision on June 10, 2004. Pursuant to that decision, the arbitrators ordered Bridgeport to pay Klewin the sum of $4,794,164 plus interest in the amount of $1,225,467 for a total award of $6,020,231.
The total award figure in the arbitration award is miscalculated. The damage award of $4,794,164 plus interest in the amount of $1,225,467 adds up to a total award of $6,019,631, not $6,020,231 as listed in the award.
Klewin has moved to confirm the arbitration award. The city of Bridgeport has moved to vacate the arbitration award on the following grounds: (1) the award violated the parties' agreement to have a panel of three arbitrators; (2) the construction management agreement was void ab initio due to corruption surrounding the procurement of the agreement; (3) the arbitrators engaged in misconduct by refusing to consider issues or admit evidence material and pertinent to the proceedings; and (4) the arbitrators demonstrated bias against the city.
It is undisputed that the parties' submission to the arbitrators in this case was unrestricted. Generally, the scope of a court's review of arbitral decisions concerning an unrestricted submission is exceedingly limited. "`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. Hartford v. Board of Mediation Arbitration, 211 Conn. 7, 14, 557 A.2d 1236 (1989); New Haven v. AFSCME, Council 15, Local 530, 208 Conn. 411, 415-16, 544 A.2d 186 (1988). 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. Middletown v. Police Local, No. 1361, 187 Conn. 228, 230, 445 A.2d 322 (1982); State v. Connecticut Employees Union Independent, 184 Conn. 578, 579, 440 A.2d 229 (1981).' Garrity v. McCaskey, 223 Conn. 1, 4-5, 612 A.2d 742 (1992). `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 construction placed upon the facts or 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.' (Internal quotation marks omitted.) Caldor, Inc. v. Thornton, 191 Conn. 336, 340-41, 464 A.2d 785 (1983), aff'd, 472 U.S. 703, 105 S.Ct. 2914, 86 L.Ed.2d 557 (1985)." Stratford v. Intl. Assn. of Firefighters, 248 Conn. 108, 114 (1999).
These well-established principles are tempered by the recognition that a court may vacate an arbitration award on the following grounds: (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 General Statutes § 52-418. Id., 116. Bridgeport argues that the arbitration award violates a clear public policy and it violates the provisions of § 52-418(a) in that there has been evident partiality on the part of the arbitrators; the arbitrators have been guilty of misconduct in refusing to hear evidence pertinent and material to the controversy; and 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. I will address in turn each of the city's claims for overturning the arbitration award.
Section 52-418(a) provides that: "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 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."
The respective claims of the parties regarding the validity of arbitration award are based entirely on state law. Neither party has asserted that the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq., applies to this matter. Although the FAA applies in both state and federal court with respect to arbitration agreements in contracts evidencing a transaction "involving commerce," Southland Corp. v. Keating, 465 U.S. 1, 15, (1984), it is unclear on the face of the record submitted here whether the parties' construction management agreement evidences a transaction "involving commerce." See Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 273-74 (1995) in which the court broadly interpreted the phrase to mean "affecting commerce." Accordingly, I will decide the issues as they have been presented by the parties.
I Failure to Have Three arbitrators
The city of Bridgeport asserts that the arbitration award should be vacated because the decision was rendered by only two arbitrators in violation of an alleged agreement by the parties to have the arbitration proceed under the AAA procedures for Large, Commercial Disputes, which Bridgeport contends, require a decision by a panel of three arbitrators. Klewin does not dispute that it agreed to the initial selection of a three-arbitrator panel. It maintains however that it never agreed that the dispute must be decided by a panel of three arbitrators. Klewin further maintains that the arbitration award is valid because it was rendered in accordance with the commercial rules of the American Arbitration Association as required by the parties' agreement. I concur with Klewin.
A review of the record reveals the following facts. The construction management services agreement between Klewin and Bridgeport provided in section 11.7 of Article 11 that "The parties agree that all disputes between them in connection with this Agreement or the interpretation thereof, if they cannot be resolved by mutual agreement, . . . shall be submitted to the American Arbitration Association for resolution in accordance with its commercial rules of arbitration then in effect." On June 1, 2001, Klewin filed a demand for arbitration pursuant to the construction management services agreement with the American Arbitration Association (AAA). The hearing on the arbitration began on January 17, 2002 before a panel of three arbitrators. On February 8, 2002, after the arbitration's first preliminary hearing, the parties were informed by AAA that one of the arbitrators needed to withdraw from the panel due to illness. On March 12, 2002, the parties by agreement selected a replacement arbitrator to fill the vacancy. Additional hearings were then held before the three-arbitrator panel. On September 3, 2002, the AAA again notified the parties that one of the arbitrators was no longer able to fulfill his duties due to illness. Klewin objected to Bridgeport's request that a third arbitrator be appointed to fill the vacancy. On September 16, 2002, the remaining two arbitrators decided that a third arbitrator would not be appointed and the arbitration would continue before the two remaining arbitrators.
Bridgeport contends that the decision by the arbitrators to proceed with a two-arbitrator panel violated an agreement of the parties to have the arbitration decided by three arbitrators under the AAA procedures for Large, Complex Commercial Disputes. Bridgeport further asserts that the issue of whether the arbitration must be heard by a panel of three arbitrators was a jurisdictional one that needed to be decided by a court and could not be determined by the remaining two arbitrators.
The issue of whether the AAA procedures for Large, Complex Commercial Disputes applies to the arbitration is critical to Bridgeport's claim. If those procedures do not apply, it is clear that the arbitrators had the authority under AAA commercial rule R-21 to decide not to fill the vacancy.
In keeping with its position that the arbitrators lacked the authority to determine the issue of the required number of arbitrators, Bridgeport filed, on September 27, 2002, an application for a temporary injunction with the superior court seeking to enjoin the continuation of the arbitration. The application was denied by the court (Sheedy, J.) on September 30, 2002.
Klewin does not dispute that it agreed to Bridgeport's initial request that three arbitrators be selected to hear the arbitration. It does dispute that it agreed to Bridgeport's request that the AAA procedures for Large, Complex Commercial Disputes apply to the arbitration.
As support for its assertion that the parties agreed that the arbitration would be decided under the AAA procedures for Large, Complex Commercial Disputes by a panel of three arbitrators, Bridgeport relies on a letter dated June 12, 2001 from Brian J. Donnell, its attorney, to Sandy LaBella of the American Arbitration Association. Bridgeport maintains that the letter evidences an agreement by the parties that the arbitration would be governed by the AAA procedures for Large, Complex Commercial Disputes which the city asserts require a three-arbitrator panel. Bridgeport also asserts that Klewin's conduct in agreeing to fill the initial vacancy in the arbitration panel is evidence of such an agreement. I do not agree.
At the outset, it is important to review the precise language of the arbitration provision of the parties' construction management agreement. The arbitration provision provides that the dispute "shall be submitted to the American Arbitration Association for resolution in accordance with its commercial rules of arbitration then in effect." The provision does not say that the arbitration shall be heard and decided by a panel of three arbitrators. The absence of such language makes this case very different from the cases cited by Bridgeport in support of its position that the issue of the make-up of the arbitration panel is beyond the jurisdiction of the arbitration panel and that the failure to have three arbitrators invalidates the arbitration award.
Bridgeport points to Hartford Steam Boiler Inspection v. Industrial Risk Insurers, Superior Court, judicial district of Hartford-New Britain, at Hartford, Docket No. CV94-705105 (Sept. 21, 1994) (Corradino, J.) ( 12 Conn. L. Rptr. 464), for the proposition that the composition of the arbitration panel is a jurisdictional issue for the court, not the arbitrators, to decide. In Hartford Steam Boiler Inspection, the plaintiff sought an injunction enjoining arbitration and the defendant sought an order from the court to stay court proceedings and compel arbitration. The plaintiff claimed that the arbitrators had not been selected in the manner spelled out in the parties' arbitration agreement. The defendant argued that the issue of the composition of the arbitration panel should be resolved by the arbitrators. The trial court rejected the defendant's claim. The court held that "in the narrow case where it is claimed arbitrators are not chosen in the specific manner agreed to by the parties," the court should resolve the issue. The lynchpin of the court's decision was that the parties' arbitration agreement itself expressly established the specific composition of the arbitration panel. That is not the case here.
The arbitration agreement at issue provided that the arbitration panel "shall consist of five members, two of whom shall be representatives of FIA Members who do not maintain inspection service for boiler and machine insurance; and two of whom shall be representatives of FIA members which maintain inspection service for boiler and machinery insurance; the fifth member shall be a representative of Reinsurer involved in the loss."
Bridgeport also relies on Szuts v. Dean Witter Reynolds, Inc., 931 F.2d 830 (11th Cir. 1991), for the proposition that an arbitration award rendered by two arbitrators in violation of the parties' agreement that the arbitration be heard by three arbitrators must be vacated. Szuts is inapposite because the arbitration provision of the parties' agreement in that case expressly provided that "any arbitration hereunder shall be before at least three arbitrators." See also Avis Rent a Car System, Inc. v. Garage Employees Union, Local 272, 791 F.2d 22 (2d Cir. 1986) in which the court vacated an arbitration award rendered by the New York State Board of Mediation when the arbitration agreement of the parties expressly provided that arbitration would be before the American Arbitration Association unless both parties consented to the Mediation Board and both parties did not so consent. Each of the cases cited by Bridgeport recognizes a limited exception to the reluctance of courts to interfere with arbitration proceedings, that is, that a court will step in where the composition of an arbitration panel violates the express provisions of the arbitration provisions of the parties' agreement.
Bridgeport also cites Amalgamated Assn. v. Connecticut Company, 142 Conn. 186 (1955) as support for its position that the subject arbitration could not be decided by less than three arbitrators. I do not agree that Amalgamated Assn. supports the city's claim. In Amalgamated Assn., our Supreme Court held that even where the arbitration agreement expressly calls for hearing and decision by three arbitrators and mandates the filling of a vacancy it is not necessary that a successor arbitrator be appointed in order for the arbitration to be valid once all the arbitrators have heard the evidence and claims of the parties and had the opportunity to discuss the issues. The court's recognition that even an express agreement for a panel of three arbitrators has its limits does not provide support for the city's claim.
Bridgeport does not and cannot argue that arbitration provision of the parties' written contract expressly establishes the composition of the arbitration panel. Rather, Bridgeport contends that, after a dispute arose concerning their contract, the parties subsequently agreed, after a request for arbitration had been filed by Klewin, that the arbitration would be heard and decided by a panel of three arbitrators under the AAA procedures for Large, Complex Commercial Disputes which require a three-arbitrator panel. Bridgeport asserts that the parties' agreement was memorialized in the city's June 12, 2001 letter to Sandy LaBella of the American Arbitration Association.
A review of Bridgeport's June 12, 2001 letter does not support its claim that Klewin agreed that the arbitration must be decided by three arbitrators under the AAA procedures for Large, Complex Commercial Disputes. The letter which is from Brian J. Donnell, the city's attorney, to Sandy LaBella of the American Arbitration Association states in relevant part: "This will serve to confirm that we are representing the Respondent, the city of Bridgeport, with respect to the above-captioned matter . . . Given that this will be a very involved construction case with claims and counterclaims that will be in excess of $1,000,000, we would request that a panel of three (3) arbitrators be selected in accordance with the Commercial Arbitration Rules for Large, Complex Commercial Disputes, including on the panel an experienced construction attorney, an experienced design professional, and an experienced contractor. By agreement with Attorney Tim Corey, we request that you use the Construction Industry Panel for purposes of selection of the panel. We also request that the lists of potential arbitrators be issued to each of us in each of these three categories with their biographies at your earliest opportunity." A copy of the letter was sent to Attorney Tim Corey, who was Klewin's attorney in the matter.
The only portion of the letter that expressly refers to an agreement with Klewin's attorney is the request that the Construction Industry Panel be used for the selection of the panel. The remainder of the letter, including the statement concerning the AAA procedures for Large, Complex, Commercial Disputes, is phrased as a request by Bridgeport, rather than an agreement by both parties. ("We would request a panel of three arbitrators be selected in accordance with the Commercial Arbitration Rules for Large, Complex Commercial Disputes . . ." with the "we" referring, as it does in the letter's introduction, to the law firm representing Bridgeport.) Moreover, the letter by its terms simply states a request that the panel be selected in accordance with the AAA procedures for Large, Complex Commercial Disputes. It does not say that the entire arbitration should be governed by those procedures.
Bridgeport also contends that an agreement to use the AAA procedures for Large, Complex Commercial Disputes should be implied due to Klewin's failure to object to Bridgeport's request. I do not agree. Given that Bridgeport's letter merely contained a request by Bridgeport that the panel be selected in accordance with the AAA procedures for Large, Complex Commercial Disputes and the AAA rules mandate the optional procedures for Large, Complex Commercial Disputes would only apply if "all parties have elected to have the Procedures apply to the resolution of their dispute," Rule L-1, it would not be reasonable to imply an agreement to have the procedures apply in their entirety from the failure by counsel for Klewin to object to such a request. Moreover, any sub silentio agreement by Klewin to the initial selection of a three-arbitrator panel does not necessarily include an agreement that the arbitration should be conducted pursuant to the AAA procedures for Large, Complex Commercial Disputes as the AAA commercial rules allow the parties to request that three arbitrators be appointed to hear the arbitration. See Rule R-17.
I also do not find persuasive Bridgeport's contention that Klewin's acquiescence to filling the first vacancy on the panel corroborates the existence of an agreement that the arbitration must be decided by three arbitrators. Klewin's agreement to fill the initial vacancy on the panel simply evidences that on that occasion Klewin agreed that the vacancy should be filled. It is not evidence that Klewin agreed that all vacancies whenever they occur must be filled.
Finally, given the express language of the arbitration provision of the parties' contract, it was within the purview of the arbitrators to decide whether the vacancy should be filled. As noted, the contract provided that the dispute "shall be submitted to the American Arbitration Association for resolution in accordance with its commercial rules of arbitration then in effect." Rule R-8 of the AAA commercial rules state that "The arbitrators shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement." Rule R-55 provides that "The arbitrator shall interpret and apply these rules insofar as they relate to the arbitrator's powers and duties." In this case, the arbitrators interpreted Rule R-21b to allow them to proceed with the hearing and determine the dispute without filling the vacancy. The parties bargained in their contract for resolution of their dispute in accordance with the AAA commercial rules of arbitration. Since the AAA commercial rules of arbitration authorized the arbitrators to interpret the rules governing the proceeding, including the rules on filling vacancies, the parties received what they bargained for. See In re Bernstein v. On-Line Software International, Inc., 232 App.Div.2d 336, 648 N.Y.S.2d 602 (N.Y.App.Div., 1996) (The AAA rules on filling vacancies are properly the subject of interpretation by the arbitrators.) Moreover, where a submission is unrestricted, as was the submission here, determination of the appropriate number of arbitrators is a matter for the arbitrators. Greater Bridgeport Transit Dist v. Local 1336, 28 Conn.App. 337, 341 (1992).
R-21b provides that "In the event of a vacancy in a panel of neutral arbitrators after the hearings have commenced, the remaining arbitrator or arbitrators may continue with the hearing and determination of the controversy, unless the parties agree otherwise."
II Unenforceable Contract
The city of Bridgeport also asserts that the arbitration award must be vacated because the arbitrators lacked subject matter jurisdiction to hear and decide the city's claim that the parties' construction management services agreement was void due to the alleged corruption surrounding the procurement of the contract. Since subject matter jurisdiction was lacking, the arbitrators exceeded their powers or so imperfectly executed them that a mutual, final and definite award upon the subject matter submitted was not made in violation of General Statutes § 52-418(a)(4). Bridgeport also contends that the arbitrators' award in this case must be vacated because it violates clear public policy. Specifically, Bridgeport asserts that, since the construction management services agreement was procured through a contingent lobbying agreement, enforcement of the award would violate a clear public policy against contingent lobbying agreements. The city further asserts that the construction management agreement violated the Bridgeport ethics ordinances because it resulted from illegal payments to the Mayor.
Klewin argues that the city's claim that the parties' contract void due to corruption was arbitrable and the city waived its right to arbitrate the issue by not timely submitting the issue to the arbitrators for their consideration. Klewin also asserts that Bridgeport has waived its right to claim that parties' dispute was not arbitrable by failing to timely raise that issue either before the arbitrators or before a court. I conclude that Bridgeport, through its conduct in fully participating in the arbitration proceedings and failing to object to those proceedings, waived its right to now object to the arbitration award on the grounds that the underlying contract is illegal or violative of public policy.
Bridgeport alleges, in its motion to vacate the arbitration award, the following facts. On June 11, 1999, Bridgeport advertised for a construction manager for the construction of the Arena at Harbor Yard and an adjacent garage. On June 21, 1999, Leonard Grimaldi, a close friend and confidant of Joseph P. Ganim, the Mayor of Bridgeport, entered into a written agreement with Klewin for Grimaldi's company, Harbor Communications, Inc., to provide marketing services for Klewin for $150,000 contingent on Klewin procuring the Arena contract. The agreement also called for payment of an additional $10,000 per month "as paid by project." Klewin did not disclose its relationship with Grimaldi to the city.
Klewin disputes the factual allegations supporting the city's claim that the parties' contract was corruptly procured.
Ganim was subsequently indicted on federal corruption charges related to his tenure as Mayor. Grimaldi admitted that he had entered into an illegal conspiracy with Paul Pinto and Ganim to steer municipal contracts to clients of Harbor Communications, Inc. and share the fees with Ganim. Klewin paid Harbor Communications, Inc. $370,000 pursuant to their agreement involving the Arena contract. A substantial portion of these fees was paid by Grimaldi to Ganim.
Bridgeport contends that its construction management services contract with Klewin is void due to its illegality. The city further asserts that the arbitration award should be vacated because its enforcement would violate a clear public policy. It cites two sources for its claims of illegality and violation of public policy: (1) a public policy prohibiting contingent fee lobbying agreements; and (2) provisions in the ethics ordinances enacted by the city which prohibit an official or employee from engaging in any business transaction or having a financial interest in conflict with his official duties and which prohibits an official or employee from financially benefitting from his office. Bridgeport contends that the parties' contract is illegal and its enforcement would violate public policy because the contract was the product of a contingent fee lobbying agreement between Klewin and Grimaldi and because the contract was procured through improper payments by Grimaldi to Ganim in violation of provisions of the city's ethics ordinances. Klewin maintains that Bridgeport has waived its right to assert these claims because it failed to object to the arbitration proceedings or to promptly present its claims to a court.
Bridgeport Code of Ordinances § 2.38.030B3 provides that "No official or employee shall engage in any business transaction or activity or have a financial interest, direct or indirect, which is incompatible with the proper discharge of his duties or employment in the public interest or which may impair his independence of judgment in the performance of such duties or employment."
Section 2.3803D of the Bridgeport Code of Ordinances provides that "No official or employee shall use his position to secure or to grant special consideration, treatment, advantage, privilege or exemption to himself or any person beyond that which is available to every other person . . ."
Although Bridgeport advances as separate claims its claims of illegality and violation of public policy, the claims essentially embody the single postulate that the contract is not enforceable because it is the product of a contingent fee arrangement and illegal payments to the mayor.
Additional facts are necessary for the proper resolution of these competing claims. On June 1, 2001, Klewin filed its initial demand for arbitration in this matter in which it claimed that it was entitled to an adjustment of the Guaranteed Maximum Price under the contract due to alleged design changes and unforeseen subsurface conditions. On October 31, 2001, the federal government issued an indictment against Ganim in which it alleged that Ganim had engaged in a criminal conspiracy with Pinto and Grimaldi to solicit and receive bribes, kickbacks, illegal gratuities and other things of value from individuals and businesses that had, or were seeking, business with the City of Bridgeport. The indictment specifically alleged that Grimaldi had entered into a contingent fee agreement with Klewin pursuant to which Grimaldi would receive a fee in the amount of $150,000 upon the selection of Klewin as the construction manager for the Arena at Harbor Yard. The indictment also specifically alleged that Ganim, Pinto and Grimaldi agreed that a portion of the payment Grimaldi received under the contract would be paid to Ganim in consideration of Ganim's support for and approval of the selection of Klewin as construction manager.
On January 31, 2002, Klewin filed an amended demand for arbitration further detailing its contract claims. Bridgeport filed an answer and counterclaim in the arbitration on February 15, 2002. In its answer, Bridgeport simply denied Klewin's claims and, in its counterclaim, Bridgeport asserted its own claim for damages under the contract due to Klewin's alleged breach of its obligations under the contract. No mention was made by Bridgeport in its pleading that the contract was void due to illegality and Bridgeport did not object to the arbitration on that basis.
Preliminary hearings were held before the arbitrators, with evidentiary hearings beginning in June 2002. On May 19, 2003, after approximately 20 days of hearings, the city sought to amend its pleadings in the arbitration to assert for the first time a special defense that the parties' contract was illegal and void ab initio because it was corruptly procured. On May 21, 2003, the arbitrators denied the city's request to amend its pleadings. The arbitrators determined that the amendments were untimely because the city had had notice of the illegal conspiracy since October 31, 2001 when the federal government indicted Ganim. The arbitrators also held that they lacked jurisdiction to decide the issue presented by the proposed amendment.
On November 3, 2003, the city filed in the arbitration a motion to stay or bifurcate arbitration to allow the city to present the issue of the contract's illegality to court. The city's motion was denied by the arbitrators on November 18, 2003. On December 22, 2003, the evidentiary hearings in the arbitration were closed. On March 19, 2004, the city filed a declaratory judgment action in court to declare the construction management services contract invalid. On June 9, 2004, while the action was pending, the arbitrators issued the subject award.
These facts compel the conclusion that Bridgeport waived its right to assert that the Klewin's claims were not arbitrable because the underlying contract was void due to illegality. "Waiver is the intentional relinquishment or abandonment of a known right or privilege." (Internal quotation marks omitted.) City of New Haven v. Local 884, Council 4, supra, 237 Conn. 385. "Waiver is a question of fact." AFSCME, Council 4, Local 704 v. Department of Public Health, 272 Conn. 617, 623 (2005). "Waiver does not have to be express, but may consist of acts or conduct from which waiver may be implied. In other words, waiver may be inferred from the circumstances if it is reasonable to do so." Id.
Bridgeport contends now that Klewin's contract claims were not arbitrable because the contract was void due to the corruption surrounding its procurement. "An objection to the arbitrability of a claim must be made on a timely basis or it is waived." Conntech Development v. University of Conn., 102 F.3d 677, 685 (2d Cir. 1996). See also Fortune, Alsweet Eldridge, Inc. v. Daniel, 724 F.2d 1355, 1357 (9th Cir. 1983). Where a party participates in an arbitration, without objecting to the arbitrability of the dispute or reserving in the submission any question as to arbitrability, any claims contesting arbitrability are deemed to have been waived. New Britain v. Conn. St. Bd. of Med. Arbitration, 178 Conn. 557, 561 (1979). See also White v. Kampner, 229 Conn. 465, 477 (1994) ("We have held that a party who voluntarily submits a dispute to arbitration without objecting to the arbitrability of the dispute waives judicial review of that issue.") Bridgeport failed to promptly object to the arbitrability of Klewin's claims. Rather, Bridgeport fully participated in the arbitration proceedings. It also sought to submit to the arbitrators for their determination the very issue of the contract's illegality that it now claims is not arbitrable. It was not until November 3, 2003, almost two and one-half years after the initial demand for arbitration was filed, and over two years after Ganim was indicted, that the city first raised the issue that the arbitrators lacked jurisdiction to hear the arbitration. It did so only after it had participated in over twenty days of evidentiary hearings and on the eve of those hearings being closed. It was not until March 19, 2004, that the city first filed an action in court to declare the contract invalid. This unjustified failure by the city to timely object to the arbitrability of Klewin's claims necessitates a finding that it is too late to do so now. It would be "unreasonable and unjust" to allow a party to challenge, shortly before the arbitrators announced their decision, the legitimacy of the arbitration process, in which it had voluntarily participated over a lengthy period of time. Fortune, Alsweet Eldridge, Inc. v. Daniel, supra, 724 F.2d 1357.
At the outset of the dispute, Bridgeport had a number of avenues open to it. It could have filed in the arbitration an objection to the arbitration on the grounds that Klewin's claims were not arbitrable, White v. Kampner, supra, 229 Conn. 478; it could have refused to arbitrate thereby forcing Klewin to file an application in court for an order to proceed with arbitration pursuant to General Statutes § 52-410 at which time Bridgeport could contest arbitrability, Schwarzschild v. Martin, 191 Conn. 316, 323 (1983); or it could have filed in court an action for declaratory and injunctive relief. Having failed to avail itself of any of these options and having fully participated in the arbitration proceedings, Bridgeport cannot now complain that Klewin's claims are not arbitrable. See Gvozdenovic v. United Air Lines, Inc., 933 F.2d 1100, 1105 (2d Cir. 1991), in which the court rejected an objection to an arbitration award on the grounds that the arbitration agreement was void because the complaining party actively and voluntarily participated in the arbitration and took no steps to object to the process, refuse to arbitrate or seek judicial relief.
Application of the waiver doctrine to the failure of the city to timely object to the arbitrability of the parties' dispute is warranted in this case. To do otherwise would undermine the essential purpose of arbitration, namely, the speedy and inexpensive resolution of disputes. Connecticut has adopted a clear public policy in favor of arbitrating disputes. Nussbaum v. Kimberly Timbers, Ltd., supra, 271 Conn. 71. "Arbitration is [a] favored [method of dispute resolution] because it is intended to avoid the formalities, delay, expense and vexation of ordinary litigation." New England Pipe Corp. v. Northeast Corridor Found., 271 Conn. 329, 337 (2004). Bridgeport was unquestionably aware at the outset of the arbitration of its claims that the contract was illegal and void due to the corruption surrounding its procurement. To allow Bridgeport to now assert these claims in court long after it fully participated in the arbitration proceedings would frustrate the very purpose behind this state's policy favoring the arbitration of disputes, that is, the speedy resolution of disputes. It would also violate the fundamental principle which underlies the waiver doctrine of not permitting parties to await a hoped-for favorable decision on the merits, reserving the right to attack it should it go against them. AFSCME, 704 v. Dept of Public Health, 80 Conn.App. 1, 8 (2003). See also Capozzi v. Liberty Mutual Fire Ins. Co., 32 Conn.App. 250, 256 (1993) ("Our Supreme Court has made it clear that we will not permit parties to anticipate a favorable decision, reserving a right to impeach it or set it aside if it happens to be against them, for a cause which was well known to them before or during the trial.") Bridgeport is seeking two bites at the apple. It was unsuccessful before the arbitrators on claims based on the contract. It now seeks to prevail in court by attacking the validity of the contract itself. The waiver doctrine has evolved to foreclose such tactics.
Bridgeport contends that the waiver doctrine does not apply to its claim of contract illegality because it is a claim involving subject matter jurisdiction and cannot be waived. Bridgeport contends that exclusive jurisdiction to determine the enforceability of the parties' contract lay with a court thereby depriving the arbitrators of subject matter jurisdiction to render any award. I do not agree.
First, courts do not possess exclusive jurisdiction to determine the illegality of contracts containing arbitration provisions. Nussbaum v. Kimberly Timbers, Ltd., 271 Conn. 65 (2004). In Nussbaum, the plaintiffs sought to stay arbitration proceedings instituted by the defendant following the plaintiff's failure to pay the balance allegedly due on a contract between the parties for the construction of a new home. The plaintiffs claimed that the parties' contract violated the New Home Contractors Act, General Statutes § 20-417a et seq., because the defendant contractor failed to provide the mandated disclosures. The plaintiffs further claimed that, because they alleged that the underlying contract was illegal, the court, rather than the arbitrator, had sole jurisdiction to decide whether there was a valid and enforceable agreement to arbitrate pursuant to § 52-408. Our Supreme Court rejected this claim and held that the arbitrator was required in the first instance to decide the issue of whether the contract was enforceable. Id., 72.
The Connecticut Supreme Court did recognize a distinction between claims that attack the arbitration clause itself, which are reviewable by a court in the first instance, and claims that assert the illegality or unenforceability of the underlying contract which may be arbitrable. Id., 74. See also Prima Paint v. Flood Conklin, 388 U.S. 395, 403-04 (1967), in which the U.S. Supreme Court held that claims of fraud not directed to the arbitration provision itself but to the contract generally were arbitrable under the Federal Arbitration Act, 9 U.S.C. § 1 et seq.
Moreover, the city misunderstands the nature of the subject matter jurisdiction of an arbitrator. "[T]he nature and scope of an arbitration panel's authority is determined by the language of the arbitration clause." Lupone v. Lupone, 83 Conn.App. 72, 74 (2004). The parties bestow jurisdiction on the arbitrators through their agreement to arbitrate. Millan v. Richardson Greenshields of Canada, Limited, 108 F.3d 1386 (9th Cir. 1997) ("The jurisdiction of the arbitrators, unlike that of the courts, is rooted in the agreement of the parties"). Because arbitrators derive their authority from the agreement of the parties, a party may waive its right to challenge an arbitrator's authority to decide a matter by voluntarily participating in an arbitration. United Indus. Workers v. Gov't of the Virgin Islands, 987 F.2d 162, 169 (3d Cir. 1993) ("Because the [party] participated in the arbitration hearing without voicing objection to the arbitrator's authority to decide the matter, the [party] waived its right to challenge the arbitrator's jurisdiction"). See also Millan v. Richardson Greenshields of Canada, Limited, supra, 108 F.3d 1386 in which the court held that a party could not challenge the jurisdiction of the arbitrators after having submitted the controversy to the arbitrators and fully participating in the hearings. Bridgeport waived any claims contesting the jurisdiction of the arbitrators to hear its contract dispute with Klewin by failing to object to the arbitration and by actively participating in the arbitration proceedings.
Bridgeport cites Total Property Servs. of New England v. Q.S.C.V, 30 Conn.App. 580 (1993), for the proposition that a claim by a party to an arbitration agreement that the contract containing the arbitration clause is void and unenforceable cannot be waived and can be raised even after the issuance of the arbitration award. The decision in Total Property Servs., however, is inapposite to the circumstances here. In Total Property Servs., the Appellate Court determined that a claim by a party that the arbitrator lacked subject matter jurisdiction because the party was a non-signatory to the arbitration agreement could be raised for the first time in the trial court. Id., 591. This decision simply affirms the well-established principle that a court, not an arbitrator, is the appropriate forum for determining the threshold issue of the existence between the parties of an agreement to arbitrate. See Nussbaum v. Kimberly Timbers, Ltd., supra, 271 Conn. 72-73. ("[B]ecause an arbitrator's jurisdiction is rooted in the agreement of the parties . . . a party who contests the making of a contract containing an arbitration provision cannot be compelled to arbitrate the threshold issue of the existence of an agreement to arbitrate. Only a court can make that decision.") The parties in this case do not dispute the existence between them of an agreement to arbitrate. Moreover, the complaining party in Total Property Servs. did not participate in the arbitration proceedings and, in fact, claimed that it did not receive notice of those proceedings.
Bridgeport also maintains that Board of Trustees v. Fed. of Tech. College Teachers, 179 Conn. 184 (1979) supports its contention that a claim that enforcement of an arbitration award violates public policy is not subject to waiver. Again, I do not find Board of Trustees v. Fed. of Tech. College Teachers applicable to the issue before me. In Board of Trustees, our Supreme Court vacated the arbitrator's decision that the collective bargaining agreement with the union entitled a state employee to fifteen sick days because it conflicted with a state statute which specifically authorized only twelve and one-half sick days. The court rejected the claim that the Board of Trustees for State Technical Colleges had waived its right to contest the arbitration award as violative of the statute by submitting to the arbitration. The court distinguished between the issue of the arbitrability of a contract dispute, which is subject to waiver by the submission to arbitiation, and a claim that an arbitrator's award violates the mandates of specific statutory and regulatory provisions, which is not. Id., 192. Our Supreme Court also found that the arbitration submission did not include the issue of whether the sick leave provision of the contract was in conflict with the statute because the Board of Trustees in the submission to arbitration had expressly reserved its right and refused to waive its claim that the union's position conflicted with state statutes and the arbitrator agreed that submission was limited to the contractual interpretation of the sick leave provision and did not extend to a construction of state statutes. Id., 193. Unlike the situation in Board of Trustees, here, the city is claiming that Klewin's contract claims were not arbitrable because the underlying contract is illegal; it is not claiming that the terms of the parties' contract conflict with the express provisions of a statute. Also, unlike the situation in Board of Trustees, the city did not expressly reserve its illegality claims in the submission.
III Arbitrator Misconduct Regarding Evidentiary Rulings
Bridgeport also asserts that the arbitration award should be vacated pursuant to General Statutes § 52-418(a)(3) due to the panel's refusal to consider evidence pertinent and material to the proceeding and for other prejudicial missteps. Bridgeport contends that the arbitration panel was guilty of misconduct warranting vacating the award by improperly excluding the following evidence: (1) evidence regarding Klewin's preparation of the Guaranteed Maximum Price; and (2) evidence surrounding the contract's illegality, including evidence establishing that the contract was corruptly procured. I am not persuaded.
Section 52-418(a)(3) provides that an arbitration award may be vacated "if the arbitrators have been guilty of misconduct . . . 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." "The application of [§ 52-418(a)(3)] does not result in the vacation of an award merely because an arbitration panel may have made incorrect evidentiary rulings. To the contrary, a party challenging an arbitration award on the ground that the arbitrator refused to receive material evidence must prove that, by virtue of an evidentiary ruling, he was in fact deprived of a full and fair hearing before the arbitration panel. (Internal quotation marks omitted.) Saturn Construction Co. v. Premier Roofing Co., 238 Conn. 293, 299, 680 A.2d 1274 (1996)." AFSCME, Council 4, Local 3144 v. New Haven, 81 Conn.App. 532, 536 (2004). See also OG/O'Connell v. Chase Family Ltd. Part. #3, 203 Conn. 133, 148-50 (1987). In addition, a party claiming evidentiary misconduct must prove that as a result of the improper ruling, it suffered substantial prejudice. CT Page 2316 South Windsor v. South Windsor Po. Un. Lcl. 1480, 57 Conn.App. 490, 506 (2000). These well settled principles governing evidentiary issues in arbitration proceedings guide the consideration of Bridgeport's claim that the arbitrators committed misconduct in their evidentiary rulings.
First, Bridgeport contends that the panel committed misconduct by excluding evidence regarding the development by Klewin of the Guaranteed Maximum Price (GMP) set forth in the contract. Bridgeport maintains that such evidence was necessary to determine whether the work for which Klewin was seeking additional compensation through the arbitration was consistent with or could be reasonably inferred from the plans and was therefore not eligible under the contract for additional compensation. I do not agree that the exclusion of such evidence by the arbitrators constituted misconduct for which the arbitration award should be vacated.
The parties' construction management agreement required Klewin to propose a GMP for the project based upon drawings and specifications that were 70% complete. The GMP was to provide for further development of the project that was "consistent with the Contract Documents and reasonably inferable therefrom." Klewin was claiming in the arbitration that it was entitled to additional compensation for work that it was required to perform which resulted from design changes that were not consistent with the contract documents or reasonably inferable therefrom. Bridgeport sought to admit evidence as to how Klewin developed the GMP, arguing that it was necessary to serve as a baseline for determining whether the work for which Klewin sought additional compensation was truly an extra. The arbitrators disagreed, ruling that, under the terms of the contract, once the parties agreed on a GMP, the sole issue was whether the disputed work was consistent with or reasonably inferable from the contract plans and specifications. This court may not substitute its judgment for that of the arbitrators as to how the contract should be interpreted. Stratford v. Intl. Assn. of Firefighters, 248 Conn. 108, 116 (1999). ("[I]t is the arbitrator's judgment that was bargained for and contracted for by the parties, and we do not substitute our own judgment merely because our interpretation of the agreement or contract at issue might differ from that of the arbitrator.") The record also reflects that Bridgeport was given substantial opportunity to submit evidence in support of its claim that the disputed change orders were consistent with or reasonably inferable from the 70% complete plans and specifications. Accordingly, the city has not established that it was in fact deprived of a full and fair hearing before the arbitration panel, OG/O'Connell v. Chase Family Ltd. Part. #3, supra, 203 Conn. 148-50, or that it suffered substantial prejudice, South Windsor v. South Windsor Po. Un. Lcl. 1480, supra, 57 Conn.App. 506.
Bridgeport further argues that the arbitration panel committed misconduct by initially excluding evidence of the manner in which the contract was corruptly procured, Klewin's knowledge of the illegality and Klewin's failure to insure compliance with the law. These claims lack merit.
As noted previously, Bridgeport filed its answer and counterclaim in the arbitration on December 20, 2001. Evidentiary hearings began in June 2002. After 20 days of hearings, on May 19, 2003, the city sought to amend its pleadings in the arbitration to assert a special defense that the parties' contract was illegal and void ab initio because it was corruptly procured. The arbitrators denied the city's request to amend its pleadings, in part, on the grounds that the amendments were untimely. Bridgeport now seeks, in effect, to have this court overrule the arbitrators' decision that its attempt to present evidence of illegality in the contracting process was untimely. This I cannot do. "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 construction placed upon the facts or 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." (Internal quotation marks and citations omitted.) Industrial Risk Ins. v. Hartford Steam Boiler I.I., 258 Conn. 101, 115 (2001). See also Hartford v. Local 308, 171 Conn. 420, 424-25 (1976) ("If the question has been entrusted to the arbitration tribunal, then the court should not rule upon the merits of the issue and it should not usurp the function conferred upon that tribunal by the parties to the agreement.")
It would also not be appropriate to vacate the arbitration award on the grounds that the arbitrators initially refused to hear evidence of the illegality surrounding the contract because the city was subsequently given the opportunity by the arbitrators to raise its claims of illegality and the city waived its right to assert such claims by its failure to take advantage of that opportunity. The record reflects that, on November 12, 2003, the arbitrators suggested to the parties that they would be amenable to including in the arbitration the issues surrounding the alleged illegality of the parties' contract if the parties would agree in writing to give the panel subject matter jurisdiction and waive any claim of untimeliness. Klewin agreed. Bridgeport did not. By refusing to agree that the arbitrators could decide the very claims that it had previously sought to submit to the arbitrators, Bridgeport waived its right to present those claims. See National Wrecking Co. v. International Bhd. of Teamsters, Local 731, 990 F.2d 957, 960 (7th Cir., 1993). ("Failure to present an issue before an arbitrator waives the issue in an enforcement proceeding.")
Although the transcript of the arbitration proceeding is not crystal clear on this issue, Bridgeport does not dispute Klewin's factual assertion that Bridgeport objected to the arbitrators' offer to adjudicate Bridgeport's claim that the contract was illegal due to violations of public policy.
On the one hand, Bridgeport asserts that the arbitration award should be vacated because the courts have exclusive jurisdiction over its contract illegality and public policy claims. On the other hand, Bridgeport contends that the award should be vacated because it was not given the opportunity to present these claims to the arbitrators. The fatal flaw in both positions is that Bridgeport disdained both avenues, the courts and the arbitration, when each was available to it. Bridgeport did not object to arbitration and seek judicial relief at the outset of the arbitration nor did present its claims to the arbitrators when they offered to adjudicate them. It appears that the city was trying to hedge its bets. It was willing to present all issues to the arbitrators until it appeared to Bridgeport that the arbitrators were not being receptive to its contract illegality claims so it belatedly sought to preserve those claims for judicial resolution.
Bridgeport argues that the opportunity given to it by the arbitrators to submit its public policy claims was inadequate because it came late in the hearing and the arbitrators had previously indicated their lack of impartiality with respect to the claims. The appropriate procedure was for the city to submit its claims to the arbitrators and subsequently move in superior court to vacate the arbitrators' decision should the opportunity in fact proved to have been inadequate or the arbitrators shown a bias. See General Statutes § 52-418(a) which provides that an arbitration award may be vacated if there has been evident partiality on the part of any arbitrator or if the arbitrators refused to hear evidence pertinent and material to the controversy or "of any other action by which the rights of any party have been prejudiced."
Bridgeport also asserts that the arbitration award should be vacated because the arbitrators failed to prepare an itemized award. The gist of the city's claim is that the parties requested "a line item" award and the arbitrators failed to provide one. The city asserts that the failure to do so results in the award failing to conform to the submission. I am not persuaded.
In support of its claim that the need for a line item award was included in the submission, the city refers to a "Report of Preliminary Hearing and Scheduling Order" issued by the arbitrators which notes that the parties request a "line item" award, the specific structure of which the parties will set forth in their Pre-Hearing Briefs. The mere fact that the parties requested a line item award during a preliminary hearing before the arbitrators does not transform that request into a mandated aspect of the submission.
Bridgeport also attacks the award because it fails to conform to the "proposed form of award" that it subsequently submitted to the arbitrators. The city has cited no authority for its position that the failure of an arbitration award to conform to a form of award proposed by one of the parties is a fatal defect for which an arbitration award must be vacated. The well-established rule is that arbitrators are not even required to provide the reasons for their decisions. United Steelworkers of America v. Enterprise Wheel Car Corp., 363 U.S. 593, 598 (1960). See also Folkways Music Publishers, Inc. v. Weiss, 989 F.2d 108, 112 (2d Cir. 1993). The city's claim is particularly lacking in merit in this case as the city has failed to establish that it has been prejudiced by the form of the arbitration award provided here. See § 52-418(a)(3) which authorizes the vacating of an arbitration award for those actions "by which the rights of any party have been prejudiced."
The city further contends that the arbitrators committed misconduct by accepting certain evidence in summary form. The arbitrators however are not bound by strict rules of evidence and retain the flexibility to fashion their evidentiary rules to further the interest of an expeditious proceeding. Saturn Construction Co. v. Premier Roofing Co., supra, 238 Conn. 298. Bridgeport has not established that it was in fact deprived of a full and fair hearing before the arbitration panel by the limited admission of the summary evidence of which it complains. Id., 299.
IV Arbitrators' Evident Partiality
Bridgeport lastly contends that the arbitration award must be vacated pursuant to General Statutes § 52-418(a)(2) because the arbitrators displayed evident partiality. The city asserts that the arbitrators demonstrated prejudicial bias against it and its counsel throughout the proceedings for the following reasons: (a) because the city declined to change the site of the hearings to accommodate one of the arbitrators; (b) because the city challenged the make-up of the arbitration panel; (c) because the city endeavored to present evidence of illegal contract steering; (d) because the city sought to obtain electronic discovery from Klewin; and (e) because the city filed a declaratory judgment action. Bridgeport further maintains that the arbitrators demonstrated bias by (a) issuing a "gag order;" (b) their conduct during the hearings in interrupting the city's counsel, making sua sponte objections, and advocating against the city's assertions; and (c) their unequal treatment of the city's counsel. After reviewing the record submitted by the city in support of its assertions, I am not persuaded. The portions of the record cited by the city are not sufficient to support a finding of evident partiality on the part of the arbitrators.
Section § 52-418(a)(2) provides that an arbitration award shall be vacated "if there has been evident partiality or corruption on the part of any arbitrator." Evident partiality is found "where a reasonable person would have to conclude that an arbitrator was partial to one party to the arbitration." Local 530, AFSCME, Council 15 v. New Haven, 9 Conn.App. 260, 274 (1986). "The party attacking an arbitration award on the ground of arbitrator bias must produce sufficient evidence to invalidate it. Where the plaintiff cannot produce sufficient evidence to support a finding of partiality, the court should not overturn the award." (Citations omitted.) Emonds v. Lumberman's Mutual Casualty Company, 49 Conn.App. 374, 377 (1998).
Bridgeport first declares that the arbitrators were biased against the city because of certain actions the city took during the course of the arbitration proceedings. With respect to its claims that the arbitrators were biased because it challenged the propriety of a two-person panel and because it filed a declaratory judgment action, the city fails to point to any statements or actions by the arbitrators in the record which evidences a bias on the part of the arbitrators for the reasons alleged. With respect to its claim that the arbitrators were biased because the city refused to change the site of the arbitration, the city cites a number of statements by one of the arbitrators which show his concern with the amount of traffic and corresponding substantial time involved in commuting to Bridgeport and statements by both arbitrators on one occasion which could be interpreted as expressing displeasure with the city's insistence on the arbitration being held in Bridgeport. The city also identifies a few statements by the arbitrators voicing skepticism concerning Bridgeport's claim that the contract was void due to illegality. These limited statements are simply insufficient to establish bias.
Bridgeport's remaining claims of bias suffer from a similar lack of evidentiary support. The city asserts that the issuance of an order by the arbitrators that counsel not discuss the arbitration proceedings with the press evidences bias. I do not agree that the mere issuance of such an order, without more, supports a finding of bias. Bridgeport also argues that the arbitrators engaged in specific conduct during the hearings that exhibited a bias against the city, such as interrupting the city's counsel, making sua sponte objections, and taking positions adverse to the city and its counsel. In support of this claim, the city points to a small number of statements in the record. A few isolated statements over the course of thirty-eight days of hearings and thousands of pages of transcript does not prove bias.
For the aforementioned reasons, Bridgeport's application to vacate the arbitration award is denied and Klewin's application to confirm the award is granted.
BY THE COURT
Judge Jon M. Alander