Opinion
No. CV 09-5030599 S
April 1, 2010
MEMORANDUM OF DECISION ON MOTION TO STAY PROCEEDINGS AND COMPEL ARBITRATION
In this case the defendants have moved to compel arbitration, arguing that pursuant to § 52-409 the court must stay proceedings in this civil suit and order arbitration. That statute in relevant part reads: "§ 52-409. If any action for legal . . . relief . . . is brought by any party to a written agreement to arbitrate, the court . . . shall . . . stay the action or proceeding until an arbitration has been had in accordance with the agreement, provided the person making the application for the stay shall be ready and willing to proceed with the arbitration."
Section 52-410(a) of the general statutes provides that: "A party to a written agreement for arbitration claiming the neglect or refusal of another to proceed with arbitration thereunder may make an application to the superior court . . . for an order directing the parties to proceed with the arbitration in compliance with their agreement."
The plaintiff has objected to the motion for stay and to compel arbitration.
1.
The court will first briefly describe the procedural background, and the facts alleged in the complaint which describe the dispute. Paragraph 3 of the first count states the defendant Nutmeg Coatings and the defendant Final Coat "are limited liability companies" with a principal place of business in East Haven. In the preceding paragraph it is alleged that Mr. Caturano is "the owner and/or member/manager of both these companies. Nutmeg Coatings is alleged in paragraph 4 to be the manufacturer of a product called "Spray on Siding." Final Coat is an entity that engages in entering into contracts for Nutmeg Coating and Caturano and applies the product for the manufacturer Nutmeg Coating. A contract to apply this product to the plaintiff's home was entered into in March 2007.
The complaint in paragraph 7 of the first count describes the services and actions agreed to by the plaintiff and Final Coat. Paragraph 8 states the following:
8. The agreement also contained an arbitration provision in subparagraph E thereof stating that the parties agree to settle a dispute by arbitration. The defendants Gregory B. Caturano, Nutmeg Coating, LLC and/or Final Coat, LLC waived this provision in that they failed to respond to the plaintiff's written request date June 8, 2009. (Emphasis by Court.)
In the June 8th letter the plaintiff wrote to "Final Coat, LLC, Attn Gregory Caturano" at the common address for all the entities. The letter is addressed to "Mr. Caturano." The plaintiff attached this letter to his memorandum objecting to the stay of proceedings and arbitration.
The letter lists the ways in which he claims the contract was breached and unsatisfactory efforts to fix the problem. The last paragraph in the second sentence states that if Mr. Caturano wishes to arbitrate the matter he should identify his desire to do so through legal counsel. It goes on to say that in the event Caturano's legal representative does not contact the plaintiff within one week litigation will be commenced against Caturano personally "as well as against all other necessary parties immediately thereafter." The letter concludes by saying "any attempt to resolve this matter by arbitration shall not prevent the commencement of future litigation."
Paragraph 9 of the First Count refers to and relies on the Seventh Count which is entitled "Seventh Count — (Piercing Corporate Viel(s))." Based on this reliance paragraph 9 of the First Count reads as follows:
9. For the reasons and allegations set forth in the Seventh Count of this complaint the defendants Gregory B. Caturano, and/or the defendant Nutmeg Coatings, LLC, and/or the defendant, Final Coat, LLC are the alter ego of each other under the instrumentality rule and/or identity rule and for the purposes of this complaint are alleged to have one and the same identity.
Paragraph 10 then lists the various ways in which it is claimed all three defendants breached the March 2007 contract. Paragraph 11 of the Breach of Contract count then states how the negligent actions of the three defendants harmed the plaintiff's premises — bubbling and flaking paint, peeling, etc. The emphasized comments only reflect the allegations of paragraph 9 and are obviously made despite the fact that the actual contract to do the work involved was purportedly made with Final Coat.
In addition to the First and Seventh Count there are several other counts lying in Breach of Express Warranty, Breach of Implied Warranty, Negligent Representation, Unfair Trade Practices, and Fraud in the Inducement. They all allege the contract to apply the product was entered into between the plaintiff and Final Coat but each of these counts makes their various claims of wrongdoing against all three defendants. In line with this approach each one of these counts including the Seventh Count make the same "alter ego" argument which the court has noted in paragraph 9 of the First Count. Also each count incorporates the factual allegations supporting the alleged breach of contract claim with added verbal characterizations and facts necessary to support the separate legal theories being advanced.
2.
The objection to the motion to stay proceedings and compel arbitration is based on several grounds. To use the plaintiff's language:
(A) The defendants do not have standing to compel arbitration because none of the defendants are a "party" to a written agreement to arbitrate.
(B) The arbitration agreement is void based on fraud and misrepresentations committed by the defendant (s).
(C) The defendant(s) waived their right to compel arbitration.
(A)
The basic argument in the plaintiff's first contention is that none of the separately listed defendants are a party to the written agreement to arbitrate.
It is quite true that a stay pursuant to § 52-409 and a motion to compel arbitration pursuant to § 52-410 must be made by a "party." But by the fact of initiating this litigation the plaintiff has created three parties to it, Mr. Caturano, Nutmeg Coatings, and Final Coat. It is true that the motion to stay and compel does not indicate which of the parties is making the motion. The defendant Gregory Caturano et al makes the motion through his attorney. The motion in this respect is confusing since it uses the word "defendant" in the singular but states that it is being advanced in light of the contract entered into by the "parties." In fact the contract was a form contract prepared by the Final Coat entity and at oral argument defense counsel stated "Rich Champagne" who "presented" the contract which was signed by the plaintiff is in fact an authorized representative of Final Coat.
As discussed previously the complaint itself states in the Breach of Contract counts and in other counts that a contract was entered with Final Coat on March 17, 2007 and in fact attaches the contract, so dated, to the complaint; the very contract in which the printed name "Rich Champagne" appears. Common sense would dictate that as the contract is said to be "presented by" that gentleman and the contract itself is a form contract for Final Coat that this individual signed for that entity. How else could the plaintiff make a breach of contract claim against Final Coat; he relies on for this claim the very March 17, 2007 document attached to the complaint.
The fact that it is unclear which of the defendants is presenting the motion is irrelevant given the paragraph in all counts of the complaint to the effect that asserts each of the defendants are "alter egos of each other and that" for purposes of this complaint are alleged to have one and the same identity," in the plaintiff's own words.
The plaintiff is, because of the foregoing, precluded from making this standing argument. As noted, the complaint states Caturano is the owner and/or member manager of the two companies, Final Coat presents the contracts for Nutmeg Coatings which manufactures the product and then applies it. They are parties by the language of the complaint. And the arbitration clause is contained in the complaint which the plaintiff himself amended by crossing out certain language. The argument now made cannot be advanced because of the doctrine of judicial admissions.
It has been held that "factual allegations contained in pleadings upon which the case is tried are considered judicial admissions and hence irrefutable as long as they remain in the case," West Haven Sound Development Corp. v. West Haven, 201 Conn. 305, 312 (1986), Manudovski v. BIC Corp., 78 Conn.App. 715, 728 (2003). In Hirsh v. Thrall, 148 Conn. 202, 206-07 (1961) the court also said: "A party is bound by a judicial admission unless in the exercise of a reasonable discretion, allows the admission to be withdrawn, explained or modified." In Manudovski the court said, however, that: "For a factual allegation to be held to be a judicial admission, the fact admitted should be one within the speaker's particular knowledge and one about which the speaker is not likely to be mistaken." This observation would apply to testimony as well as to statements in a complaint, 78 Conn.App. at 728-29.
A complaint is of course a "pleading" as is an answer or a special defense. In Days Inn of America, Inc. v. VIGI Hotel Group, Inc., 55 Conn.App. 118 (1999) the plaintiff sued the defendant as guarantors of a license agreement. The complaint alleged the defendants were guarantors which the defendants admitted in their answer. At trial the defendants sought to present evidence contradicting the admission. The trial court was upheld in excluding this trial evidence because "they had admitted in their answer that they were personal guarantors," id., pp. 126-27.
In Cassidy v. Southbury, 85 Conn. 221 (1912), the court said that such a rule is necessary "in preserving a regularity and stability in a system of pleading and essential in securing fairness in a trial," id., page 224.
Furthermore the fact that Mr. Champagne's name on the contract is printed and there is no signature would not appear to be of any importance. As noted in Baum v. Sundstrom, 14 Conn.Sup. 426 (1946) at page 448: "Likewise has there been uniform judicial sanction for enforcing an agreement with a printed signature. Dressed Meat Wool Co. v. Standard Worsted Co., 165 Mass. 328, 331; California Canneries Co. v. Scatena, 117 Cal. 447, 449; Drury v. Young, 58 Md. 546, 554."
Also another factor makes it difficult to see how an argument can be advanced at this point to the effect that none of the defendants are a "party" to a written agreement to arbitrate. It does not appear to be disputed that a written letter was sent by the plaintiff to Mr. Caturano on June 8, 2009, see footnote 1. In the letter the plaintiff asserts that various defects in the product and damage to his home resulted because of "defective workmanship" and failure to "honor your contract." The letter goes on to state Caturano "will not be permitted additional opportunities to correct workmanship and/or product as per your agreement dated 3/17/07. In the event that you wish to arbitrate this matter, please identify your desire to do so through your legal counsel." On the issues at hand this would appear to qualify as an admission of a party opponent under § 8-3(1) of the Evidence Code and although such admissions are not conclusive no evidence has been offered to question the fact that contract formation took place here, see Tait Prescott, Conn. Handbook of Evidence, 4th Ed., § 8.16.2, § 8.16.4., cf generally as to assent to contractual terms Aquarion Water v. Beck Law Products, 98 Conn.App. 234 (2006) which at page 239 quoted from another case to the effect that: "Parties are bound to the terms of a contract even though it is not signed if their assent is otherwise indicated." By referring to the March 17, 2007 contract in his letter to Mr. Caturano and recognizing Caturano's right to seek arbitration the plaintiff recognized the existence of the contract and of necessity the inclusion of the arbitration provision within it, cf Schwarzchild v. Martin, 191 Conn. 316 (1983).
For the foregoing reasons the court does not accept the lack of standing to compel arbitration argument; Paranko v. State, 200 Conn. 51 (1980) and Scinto v. Sosin, 51 Conn.App. 222 (1998) and their general pronouncements are not applicable on the facts of this case.
(B.)
The plaintiff also argues the arbitration agreement is void because of fraud and misrepresentation. In his brief the plaintiff claims fraud and misrepresentation "in the performance of the work" but also "fraud in the inducement of the contract."
The arbitration clause in this case is a broad arbitration clause. It provides for arbitration of any dispute, cf A. Sangivanni Sons v. F.M. Floryan Co., 158 Conn. 467, 472 (1969). Clearly disputes over fraud and misrepresentation in the performance of the work are covered by arbitration or why else or what else would arbitration concern itself with. But a claim of fraud in the inducement would also be subject to arbitration, see A. Sangivanni Sons at 158 Conn. page 473; this seems to be the law as recognized in other jurisdictions, see Ben-Yishay v. Mastercraft Development, LLC, 553 F.Sup.2d 1360 (S.D.Fla., 2008); Nelson v. Roger J. Lange Co., 229 Ill.App.3d 909, 911, 912, 594, NE.2d 391 (1992), see generally "Enforcement of Arbitration" 29 COA 231, 257-60, Section 8. Also see C.R. Klewin Northeast v. Bridgeport, 282 Conn. 54, 72-75 (2007), which, following federal law, seems to say that where the fraud in the inducement claim goes not to the arbitration clause in particular but to the whole contract, the question of fraud in the inducement is a question for the arbitrators and not for the court.
(C.)
The plaintiff also argues that "the defendant(s) waived their right to compel arbitration." They failed to respond to the plaintiff's June 8, 2009 letter requesting "the defendant Final Coat, LLC evidence it's desire to arbitrate this matter through arbitration." The plaintiff cites Banks Building Co., LLC v. Malanza Family Real Estate Holdings, 102 Conn.App. 231, 239 (2007) to the effect that "waiver is the voluntary relinquishment of a known right . . . Intention to relinquish may appear, but acts and conduct inconsistent with (intention to assert a right) are sufficient." Temple v. New Britain, 127 Conn. 170, 173 (318) is also cited which said "waiver is a fact or a conclusion from facts where there is no express waiver, one may be implied." The plaintiff points to the failure of the defendant(s) to respond to the June 2009 letter and quotes from Stevens v. Hartford Accident Indemnity Co., 39 Conn.App. 429, 436 (1995) to the effect that: "It is well established that an arbitration clause may be waived by the parties or by one entitled to its benefit. The essential question is whether under the totality of the circumstances . . . (the party claiming arbitration has acted inconsistently with the arbitration right.)"
The failure of the defendant(s) to respond to the June 2009 letter "forced the plaintiff to endure the time and expense of commencing litigation."
There are not many Connecticut cases on the issue of waiver and its various aspects. A leading case appears to be Batter Bldg. Materials Co. v. Kirschner, 142 Conn. 1 (1954) which said that "it is of course true" that arbitration may be waived by a party otherwise entitled to its benefit. The court went on to say that "unjustifiable delay in seeking arbitration may warrant a finding of waiver" and the "same result follows from going to trial without insisting on the arbitration condition." The court also said that "that failure to follow the steps agreed upon as a prerequisite to the right to arbitrate may bring about waiver," id., pp. 11-12.
In Batter Bldg. Materials the trial court apparently decided the issue of waiver. The Supreme Court held a delay of 72 days in seeking arbitration from the arising of the dispute, did not constitute waiver. That aspect of waiver which involves a claim that a party failed to follow the steps prerequisite to arbitration under a broad arbitration clause should be decided by the arbitrator. Thus in Gary Excavating, Inc. v. North Haven, 2 Conn.App. 119, 125 (1972) the court said with such a clause "the appropriate body to hear claims regarding procedural prerequisites to arbitration must be the arbitration panel." Such issues lie within the purview of the arbitrators but issues of delay or prejudice to the party resisting an untimely request for arbitration such as claimed here would seem as with Batter Bldg. to be best left to the courts especially where litigation has commenced and the court may be in the best position to determine the issue of prejudice, cf Pueblo v. Pueblo Assn. of Gov. Employees, 839 P.2d 503, 506 (1992). The court will now try to decide these issues of delay and prejudice.
The general comments in two non-Connecticut cases would seem to be of some relevance. In Malarky Enterprises v. Healthcare Technology Ltd., 962 F.Sup. 1427, 1430 (D.Kan. 1997), the court said: "As a consequence of the strong state and federal policy favoring arbitration, a party asserting a waiver of arbitration has a heavy burden of proof." We also have a strong policy favoring arbitration. And Northwest Construction Co. v. Oak Partners L.P., 248 SCU 3d 837 (Tex.App., 2008) agrees with the foregoing comments in Malarky Enterprises but also adds the following truism which must be kept in mind: "Waiver may be express or implied but it must be intentional."
It is true that the defendant failed to respond to the plaintiff's June 8th letter requesting Final Coat to initiate arbitration but Malarky Enterprises has instructive comments on a claim of waiver due to a delay in seeking arbitration. In that case the plaintiff claimed waiver of arbitration by initially denying the underlying agreement, "engaging in activity reserved exclusively for litigation and waiting almost five months after the filing of the complaint before attempting to enforce the arbitration clause," 962 F.Sup. at page 1430. The court went on to say:
Nearly every case in which a party has been found to have waived its arbitration rights has involved a situation in which the party filed its motion to compel arbitration virtually on the eve of trial and/or after significant discovery had been conducted. See, e.g. Metz, 39 F.3d at 1489-90; Peterson, 849 F.2d at 467-68. In contrast, no discovery has been undertaken in the instant action and the trial date is five months away. Notwithstanding plaintiff's assertion, the parties' September 1996 scheduling conference does not constitute "substantial invocation of the litigation machinery." Although defendant initially denied the existence of the Distributor Agreement, it now concedes that a binding contract exists. Defendant's actions were not unduly dilatory; it raised the arbitration provision in its first responsive pleading. In sum, defendant's conduct does not evince an unequivocal intent to waive its arbitration rights, and plaintiff does not appear to have suffered any prejudice as a result of defendant's actions.
The court went on to dismiss the court litigation without prejudice and referred the matter to arbitration.
In this case, as noted, there is the plaintiff's June 8, 2009 letter referring the exercise of the defendant's right to arbitration. The writ in this civil case was served by the sheriff on July 13, 2009. The defendant perhaps surmising suit was about to be filed prepared the motion to stay proceedings and compel arbitration on July 8, 2009 — the date appears on the motion. And the motion was filed the day service of the writ and complaint was served on the defendant, July 13, 2009. Motions for default for failure to appear were filed. The objection to the motion to stay and compel was filed by the plaintiff August 5, 2009. That is all the activity reflected in the file to that date.
On these facts the court cannot find an intentional waiver of arbitration by the defendant(s) and the requisite prejudice that would support such a waiver or otherwise require denial of the motion.
The court therefore grants the motion to stay these proceedings and compel arbitration.