Opinion
CV186076809S
11-23-2018
MILFORD HOSPITAL, INC. v. RETIREMENT PLANNING GROUP, LLP et al.
UNPUBLISHED OPINION
Wilson, J.
STATEMENT OF CASE AND PROCEDURAL HISTORY
On January 26, 2018, the plaintiff, The Milford Hospital, Inc., as plan administrator and on behalf of the Milford Hospital Pension Plan, filed a five-count amended complaint alleging the following facts. Beginning in approximately 2000 and continuing until October 2016, the plaintiff engaged the defendant Retirement Planning Group, LLP (RPG), an employee benefits and actuarial consulting firm, and the defendant Stuart Schoenly, as RPG’s principal actuary, to provide advice, analyses, and recommendations concerning the Milford Hospital Pension Plan (plan). In the course of providing such services, RPG and Schoenly engaged in nearly one hundred miscalculations of the plan’s pension benefits, approved incorrect distributions from the plan because of those miscalculations, and approved improper lump sum distributions to restricted employees that did not comply with the plan document and applicable federal tax laws. RPG and Schoenly then inaccurately reported the plan’s liabilities and wrongly certified the plan’s compliance with the requirements of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq. The plan was further damaged as a result of the errors and failures of the defendant Marcum LLP (Marcum) relating to its annual audits of the plan, which began in 2010, and continued until 2016. After failing to discover or report RPG and Schoenly’s errors on an annual basis, Marcum then issued faulty opinions regarding the plan’s liabilities and compliance with ERISA. On the basis of these allegations, count one of the plaintiff’s amended complaint alleges professional negligence against RPG and Schoenly; count two alleges negligent misrepresentation against RPG and Schoenly; count three alleges breach of contract against RPG and Schoenly; count four alleges professional negligence against Marcum; and count five alleges negligent misrepresentation against Marcum.
On March 29, 2018, RPG and Schoenly filed the instant motion to dismiss, along with a supporting memorandum of law with exhibits attached. They argue that the plaintiff’s claims against them should be dismissed because their services were provided to the plaintiff pursuant to an agreement requiring the parties to arbitrate any disputes arising out of those services. On May 18, 2018, the plaintiff filed a memorandum of law in opposition to the defendants’ motion to dismiss, and a supporting affidavit. The defendants subsequently filed a reply brief in further support of their motion to dismiss. The court heard oral argument on the matter on August 13, 2018.
RPG and Schoenly will hereafter be referred to collectively as the defendants.
DISCUSSION
"[A] motion to dismiss ... properly attacks the jurisdiction of the court, essentially asserting that the plaintiff cannot as a matter of law and fact state a cause of action that should be heard by the court." (Internal quotation marks omitted.) Santorso v. Bristol Hospital, 308 Conn. 338, 350, 63 A.3d 940 (2013). "A motion to dismiss tests, inter alia, whether, on the face of the record, the court is without jurisdiction." (Internal quotation marks omitted.) MacDermid, Inc. v. Leonetti, 310 Conn. 616, 626, 79 A.3d 60 (2013). "A court deciding a motion to dismiss must determine not the merits of the claim or even its legal sufficiency, but rather, whether the claim is one that the court has jurisdiction to hear and decide." (Internal quotation marks omitted.) Hinde v. Specialized Education of Connecticut, Inc., 147 Conn.App. 730, 740-41, 84 A.3d 895 (2014).
I
MOTION TO DISMISS
The defendants argue that the court lacks subject matter jurisdiction over the plaintiff’s claims because they provided their services to the plaintiff pursuant to agreement requiring the arbitration of any disputes arising from such services. The plaintiff counters that the defendants’ motion is procedurally improper because the existence of an arbitration clause does not implicate the court’s subject matter jurisdiction, and thus, the defendants’ motion should be denied. The existence of a signed contract providing that the parties to an action would submit any disputes arising from the agreement to final and binding arbitration does not deprive a court of subject matter jurisdiction. Catrini v. Erickson, 113 Conn.App. 195, 196-98, 966 A.2d 275 (2009). In Catrini, the trial court granted the defendants’ motion to dismiss the action on the ground that the court lacked subject matter jurisdiction because the parties entered into a signed contract providing that they would arbitrate any disputes arising from the agreement. Id., 196. In reversing the judgment of the trial court, our Appellate Court cited to General Statutes § 52-409, explaining that "[i]f the existence of an arbitration agreement in a contract implicated the court’s jurisdiction to hear an action, then a court would, accordingly, not have jurisdiction to stay such a matter because, in the absence of jurisdiction, the court may only dismiss a matter. In short, because the power to order a stay implies that the court has jurisdiction over a matter, the legislature could not have empowered the court to enter a stay in such a matter unless the court has jurisdiction over it." Id., 197. "Similarly, courts have jurisdiction to enforce arbitration agreements and to enforce, modify or vacate arbitration awards, and are often called upon to interpret and construe the enforceability and scope of such agreements." Id., 197 n.2. The court remanded the case for further proceedings. Id., 198.
General Statutes § 52-409 provides: "If any action for legal or equitable relief or other proceeding is brought by any party to a written agreement to arbitrate, 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, 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."
In light of the court’s holding in Catrini, even assuming that the plaintiff entered into an arbitration agreement with the defendants covering the present dispute, the court would not be deprived of subject matter jurisdiction. See also, e.g., Burdett v. Oldani, Superior Court, judicial district of Stamford-Norwalk, Docket No. CV-11-5013562-S (May 24, 2011, Jennings, J.T.R.) ("[t]his court, under the rule of Catrini, then, has continuing subject matter jurisdiction over this case despite the existence of the arbitration clause of the retainer agreement, and the defendant’s motion to dismiss is therefore denied"). Accordingly, the defendants’ motion to dismiss is procedurally improper and therefore, it is denied.
The defendants further argue that the services they provided to the plaintiff involve commerce, and thus, implicate the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq. They assert that, even if disallowed by Connecticut state procedure, this court may dismiss the plaintiff’s action pursuant to 9 U.S.C. § 3.
Title 9 of the United States Code, § 3, provides: "If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration."
"Arbitration is essentially a creature of contract, a contract in which the parties themselves charter a private tribunal for the resolution of their disputes ... Arbitration agreements are contracts and their meaning is to be determined ... under accepted rules of [state] contract law ... Judicial construction of an arbitration agreement, however, is not guided solely by the principles of relevant state contract law. The [FAA] governs written arbitration agreements that pertain to contracts involving interstate commerce. 9 U.S.C. §§ 1 and 2. The [FAA] creates a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the [a]ct ..." (Citations omitted; footnote omitted; internal quotation marks omitted.) Hottle v. BDO Seidman, LLP, 268 Conn. 694, 701-02, 846 A.2d 862 (2004).
"While [the United States Supreme Court has] held that the FAA’s ‘substantive’ provisions-§§ 1 and 2-are applicable in state as well as federal court, see Southland Corp. v. Keating, 465 U.S. 1, 12, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984), [it has] never held that §§ 3 and 4, which by their terms appear to apply only to proceedings in federal court, see 9 U.S.C. § 3 (referring to proceedings ‘brought in any of the courts of the United States’); § 4 (referring to ‘any United States district court’), are nonetheless applicable in state court. See Southland Corp. v. Keating, supra, 16 n.10 (expressly reserving the question whether ‘§§ 3 and 4 of the [FAA] apply to proceedings in state courts’); see also id., 29 (O’Connor, J., dissenting) (§§ 3 and 4 of the FAA apply only in federal court)." Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior University, 489 U.S. 468, 477 n.6, 109 S.Ct.1248, 103 L.Ed.2d 488 (1989).
Although the FAA has been held to supersede state substantive arbitration law when applied to written arbitration agreements that pertain to contracts involving interstate commerce, "[t]he [FAA] has not been held to supersede state procedural laws." (Internal quotation marks omitted.) Hottle v. BDO Seidman, LLP, supra, 268 Conn. 698 n.5. "[T]he [FAA] does not preempt state procedural rules governing the conduct of arbitration, so long as the state procedural rule does not undermine the goals of the act." Doctor’s Associates, Inc. v. Searl, 179 Conn.App. 577, 585 n.7, 180 A.3d 996 (2018). "The [FAA] covers both substantive law and a procedure for federal courts to follow where a party to arbitration seeks to enforce or vacate an arbitration award in federal court. The procedural aspects are confined to federal cases." Sultar v. Merrill Lynch, Superior Court, judicial district of New Britain, Docket No. CV-04-0527411-S (October 13, 2004, Cohn, J.) (38 Conn.L.Rptr. 108, 109). Connecticut law "does not conflict with the primary purpose of the [FAA], which is to encourage arbitration to the fullest scope of the parties’ agreement to arbitrate." Id. "Therefore, when a cause of action related to an arbitration is heard in a Connecticut court, Connecticut procedural arbitration laws, as found in § 52-408 et seq., are normally applied." Ungerland v. Morgan Stanley & Co., Inc., 52 Conn.Supp. 164, 172, 35 A.3d 1095 (2010), aff’d, 132 Conn.App. 772, 35 A.3d 299 (2012).
In the present case, the defendants claim that the court may dismiss the plaintiff’s action pursuant to the FAA. Even where the substantive provisions of the FAA apply to a given contract, however, "[t]he procedural aspects are confined to federal cases." Sultar v. Merrill Lynch, supra, 38 Conn.L.Rptr. 109. Thus, even assuming that the defendants entered into a contract with the plaintiff that comes under the substantive provisions of the FAA, Connecticut procedural arbitration laws apply, as set forth in § 52-408 et seq. Accordingly, the rule set forth by the court in Catrini v. Erickson, supra, 113 Conn.App. 196-98, providing that the existence of an arbitration agreement does not deprive a court of subject matter jurisdiction over a dispute covered by such agreement, controls the instant matter and thus, dismissal is inappropriate.
II
MOTION TO STAY
The defendants argue that if this court finds that the plaintiff’s complaint cannot be dismissed, then it must stay the instant action and order the plaintiff to comply with its obligation to arbitrate. They claim that the evidence and argument presented thus far is sufficient to satisfy the requirements necessary for the granting of a motion to stay. The plaintiff argues that the defendants’ motion to dismiss should not be construed as a motion to stay pursuant to § 52-409 because the defendants have not requested such a stay or addressed its requirements.
A review of relevant case law shows that Connecticut trial courts have found it to be within their discretion whether to construe a motion to dismiss as a motion to stay brought pursuant to § 52-409. For example, in Kaman Aerospace Corp. v. TD Development, LLC, Superior Court, judicial district of Windham, Docket No. CV-17-6011107-S (August 25, 2017, Boland, J.) (65 Conn.L.Rptr. 103, 104-05), the court declined to construe a motion to dismiss as a motion to stay where an application to arbitrate was lacking. The court reasoned that "if a stay were issued ... without a hearing, confusion could well ensue since the court ha[d] previously entered pendente lite orders upon plaintiff’s application, and [the court] ha[d] before it an as-yet undetermined application for prejudgment remedies." Id., 105. In Burdett v. Oldani, supra, Superior Court, Docket No. CV-11-5013562-S, however, the court denied the defendant’s motion to dismiss but stayed all proceedings pending arbitration, although neither party had formally moved for a stay. It did so because of the existence of an arbitration agreement and because both parties had indicated to the court their desire to arbitrate. Id. See also Tarlow v. Gateway Country Store, Superior Court, judicial district of Stamford-Norwalk, Docket No. CV-99-0175198-S (May 2, 2000, D’Andrea, J.) (27 Conn.L.Rptr. 115, 116) ("this court notes that ... some decisions of the Superior Court treat motions to dismiss as motions to stay proceedings pending arbitration"); Handrinos v. Lathouris, Superior Court, judicial district of Stamford-Norwalk, Docket No. CV-97-0160692-S (November 13, 1997, Mintz, J.) ("[t]he court will assume ... that the defendant’s motion to dismiss is also intended to be a ... § 52-409 motion to stay the proceedings until an arbitration has occurred pursuant to the agreement").
In the present matter, the defendants have requested that, if the court does not grant their motion to dismiss, the court stay proceedings pending arbitration. Further, the parties’ memoranda of law and evidentiary submissions provided pursuant to the present motion also relate to the requirements of a motion to stay. Therefore, the court will address whether the present action should be stayed pursuant to § 52-409.
III
ARBITRATION AGREEMENT
The defendants argue that the instant matter should be stayed pending arbitration because their services were provided pursuant to an agreement requiring the parties to arbitrate disputes arising from such services. According to the defendants, such an agreement is evidenced by Schoenly’s affidavit, in which he attests that RPG sent out engagement letters to its clients in 2004 and 2005, and that, "[b]ased on [his] recollection of the process by which engagement letters were issued in 2004, an engagement letter would have been issued to [the plaintiff] in 2004." Schoenly Aff. ¶ 6. In further support of their argument, the defendants submit an unsigned draft engagement letter containing an arbitration clause, a spreadsheet, and several other engagement letters executed with other clients. The defendants claim that this evidence, as well as payments made by the plaintiff in accordance with the terms of the draft engagement letter, demonstrate the parties’ intent to be bound to the arbitration provision contained in the draft engagement letter.
The plaintiff counters that the parties never entered into a written agreement to arbitrate disputes, and that arbitration provisions are only valid when set forth in writing. The plaintiff asserts that, although the lack of a signature is not dispositive, fundamental contract principles still apply to arbitration agreements, which are not satisfied here. The plaintiff argues that Schoenly only attests to what the defendants "would have" done and, thus, there is no evidence that the draft engagement letter or a finalized version of it were ever conveyed to the plaintiff.
Further, the plaintiff argues that the draft engagement letter refers to a party other than the plaintiff and only applies to services concerning the 2006 plan years, and there is no provision for automatic renewal. Moreover, the plaintiff claims that because it has been making payments to the defendants since the 1970s, such payments do not demonstrate the plaintiff’s acceptance of the terms set forth in the draft engagement letter.
"To establish its right to a stay of proceeding under [§ 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.) Heritage Recruiting Group, LLC v. Penwest Pharmaceutic Co., Superior Court, judicial district of Danbury, Docket No. CV-08-5005183-S (November 24, 2008, Shaban, J.) (46 Conn.L.Rptr. 730, 730-31).
"It is well established that [a]rbitration is a creature of contract ... [A] person can be compelled to arbitrate a dispute only if, to the extent that, and in the manner which, he has agreed so to do ... No one can be forced to arbitrate a contract dispute who has not previously agreed to do so ... Courts of law can enforce only such agreements as the parties actually make ... Accordingly, because 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." (Citations omitted; emphasis omitted; internal quotation marks omitted.) Nussbaum v. Kimberly Timbers, Ltd., 271 Conn. 65, 72-73, 856 A.2d 364 (2004). "[T]he issue of whether the parties to a contract have agreed to arbitration implicates their intention, an issue of fact for the court’s determination." Salomon Smith Barney, Inc. v. Cotrone, 81 Conn.App. 755, 758, 841 A.2d 1199 (2004).
"It is a fundamental principle of contract law that the existence and terms of a contract are to be determined from the intent of the parties ... The parties’ intentions manifested by their acts and words are essential to the court’s determination of whether a contract was entered into and what its terms were ... Whether the parties intended to be bound without signing a formal written document is an inference of fact for the trial court that [the appellate court] will not review unless [the appellate court] find[s] that its conclusion is unreasonable ... In order for an enforceable contract to exist, the court must find that the parties’ minds had truly met ... If there has been a misunderstanding between the parties, or a misapprehension by one or both so that their minds have never met, no contract has been entered into by them and the court will not make for them a contract which they themselves did not make ... Parties are bound to the terms of a contract even though it is not signed if their assent is otherwise indicated." (Citations omitted; internal quotation marks omitted.) Aquarion Water Co. of Connecticut v. Beck Law Products & Forms, LLC, 98 Conn.App. 234, 239, 907 A.2d 1274 (2006).
If a court determines that a contract containing an arbitration clause exists among the parties to a dispute, the court must further determine whether the threshold requirements of §§ 52-408 and 52-409 have been met in order to grant a motion to stay. Beaulieu v. United Parcel Service, Superior Court, judicial district of New Haven, Docket No. CV-15-5036003-S (June 14, 2016, Wilson, J.) (finding that contract containing arbitration clause existed despite lack of signed document and that contract met threshold requirements of §§ 52-408 and 52-409). "[A]n agreement to arbitrate must meet the requirements of [General Statutes § 52-408], including the requirement that the agreement be in writing, or it is invalid." Bennett v. Meader, 208 Conn. 352, 364, 545 A.2d 553 (1988). "General Statutes § 52-409 provides that where an action is brought by any party to a written agreement to arbitrate, the court shall stay the action upon motion by any party to the agreement, provided that the issue involved is referable to arbitration and that the person seeking the stay is ready and willing to proceed with arbitration." KND Corp. v. Hartcom, Inc., 5 Conn.App. 333, 336, 497 A.2d 1038 (1985). "[A]n arbitrator’s power to arbitrate claims consists of the power to hear and determine issues that fall within the class of matters that the parties have agreed to resolve using this alternative forum." MBNA America Bank, N.A. v. Boata, 283 Conn. 381, 389, 926 A.2d 1035 (2007). "[I]t is the province of the parties to set the limits of the authority of the arbitrators, and the parties will be bound by the limits they have fixed." (Internal quotation marks omitted.) Nussbaum v. Kimberly Timbers, Ltd., supra, 271 Conn. 72.
In the present case, the defendants have not satisfied the court that a contract containing an arbitration clause exists among the parties to this dispute. Although the lack of a signature is not dispositive; Aquarion Water Co. of Connecticut v. Beck Law Products & Forms, LLC, supra, 98 Conn.App. 239; the defendants have submitted only a document claimed to be a draft of what might have been sent to the plaintiff. Defs.’ Mem. In Supp. Mot. Dismiss, Ex. C; Schoenly Aff. 6. Furthermore, despite mentioning the plaintiff in several parts of the draft, another entity that is not a party to this action is referred to as well. Defs.’ Mem. In Supp. Mot. Dismiss, Ex. C. The plaintiff, in support of its opposition, submits the affidavit of Joe Pelaccia, who has served in various executive capacities for the plaintiff. Pelaccia Aff. ¶¶ 3-4. Contrary to the defendants’ assertions, Pelaccia testifies that the plaintiff could not find any such document in its records, and that to the best of his knowledge neither he, nor anyone else employed by the plaintiff, received such document or negotiated the proposed terms contained within it. Pelaccia Aff. ¶¶ 9-13. Moreover, although the defendants argue that the plaintiff paid them in accordance with the terms of the draft engagement letter, Pelaccia testifies that the defendants provided services to the plaintiff beginning in the 1970s, and at all times, those services were provided pursuant to an oral agreement. Pelaccia Aff. ¶¶ 5, 8. Schoenly, in his affidavit, also testifies that he has been providing services to the plaintiff since the 1970s. Schoenly Aff. ¶ 2. The payments made by the plaintiff to the defendants therefore do not demonstrate the plaintiff’s acceptance of the terms set forth in the draft engagement letter. Moreover, even if the draft engagement letter were considered to be a contract, its terms refer only to "the plan years ending September 30, 2006 and the fiscal years ending September 30, 2005 and 2006," and do not provide for automatic renewal. Defs.’ Mem. In Supp. Mot. Dismiss, Ex. C. Thus, even if it were shown to be a valid contract, it would cover, at most, only a fraction of the time period in which the defendants’ alleged errors occurred. Accordingly, the defendants’ motion to dismiss, construed as a motion to stay, is denied.
CONCLUSION
On the basis of the foregoing, the defendants’ motion to dismiss is denied. Further, construing the defendants’ motion to dismiss as a motion to stay, such motion is also denied.
Such procedure is virtually identical to the one set forth by General Statutes § 52-409. See Peters v. Pillsbury Winthrop Shaw Pitman, LLP, Superior Court, judicial district of Stamford-Norwalk, Docket No. CV-11-6009039-S (October 17, 2011, Adams, J.T.R.) ("[t]he language of the two statutes relevant to the motion to stay proceedings is virtually identical and federal and Connecticut state law on arbitration are similarly in concert").