Opinion
No. X 09 CV 08 5017709
December 17, 2008
MEMORANDUM OF DECISION
Bacon Construction Co. (Bacon) is one of ten defendants who the state of Connecticut (state) alleges are responsible for substantial defects in the design and construction of the correctional facility for women (York) at Niantic. Pursuant to Conn. General Statutes § 52-278c(a)(1), the state has filed an application for a prejudgment remedy (application) against Bacon, seeking to attach real and personal property to secure a judgment in the approximate amount of $15,000,000. The state claims that there is probable cause that a judgment in that amount or greater will be rendered, taking into account any known defenses, counterclaims or setoffs which Bacon may assert. See § 52-278c(a)(2).
Bacon objected to the application on four grounds: (1) res judicata and/or collateral estoppel bar the state from raising any of the causes of action set forth in its complaint because all of the state's claims were or could have been addressed in an arbitration proceeding initiated by Bacon (arbitration) under Conn. General Statutes § 4-61 ; (2) the state lacks standing to pursue a prejudgment remedy because it is not a "person" as that term is defined in § 52-278a(c); (3) the state's claims are barred by the applicable statutes of limitations; and (4) the affidavit filed in support of the state's application is an insufficient statement of facts as a matter of law under § 52-278c(a)(2).
"(a) Any person, firm or corporation which has entered into a contract with the state . . . for the design, construction, construction management, repair or alteration of any . . . building . . . may, in the event of any disputed claims under such contract . . ., bring an action against the state to the superior court for the judicial district of Hartford for the purpose of having such claims determined . . .
(b) As an alternative to the procedure provided in subsection (a) of this section, any such person, firm or corporation having a claim under said subsection (a) may submit a demand for arbitration of such claim . . .
The court notes in passing that the prejudgment remedy statutes; § 52-278a et seq.; make no provision for an "objection" to the application. The state has not made an issue of this, and it seems to the court a sensible and efficient way to raise legal issues that would obviate a hearing on the application if sustained.
I
The allegations of the complaint filed along with the application, very briefly stated, are as follows. Bacon, a Rhode Island corporation, performed masonry and related services on a project which involved the design and construction of twenty-two buildings at York (project) . The project began in 1990 with design activities; construction commenced in 1991 and was completed in 1996. Over time the state experienced problems with water intrusion into the buildings, cracks in the masonry facade and efflorescence and organic growth on the masonry facade, which problems continued and worsened. Engineers retained by the state identified numerous defects in the design, construction and installation of the masonry work.
In its first two counts the complaint alleges that these defects were proximately caused by Bacon's breach of its contract with the state and its negligence in performing under the contract. In the third and fourth counts the state claims that, in order to receive partial payments for its work, Bacon either intentionally or negligently made misrepresentations when it filed periodic certifications that it had performed its work in compliance with the plans, specifications and contract documents. As a result, the state claims to have incurred costs to correct the defects and to repair or replace damaged furnishings and equipment, suffered a diminution in the value and service life of York, lost the beneficial use of York or portions of it and experienced increased operating costs and inefficiencies in its operation of York.
The remaining counts of the complaint make similar allegations against nine other defendants and seek recovery on performance bonds issued by three insurers.
II
At oral argument on the objection Bacon declined to pursue its argument that the state's affidavit was insufficient. Its claim that the applicable statutes of limitations bar the state's causes of action has been conclusively resolved against Bacon by prior decisions of the Supreme Court, which have been followed in cases comparable to this one. And, the objection that the state is not a "person" under the prejudgment remedy statute has been addressed and refuted by a decision of the Superior Court which this court finds to be persuasive. The objection based on concepts of res judicata and collateral estoppel, however, raises issues of greater significance.
See Transcript of proceedings, Oct. 24, 2008, 50-51. On June 23, 2008 the state had filed an amended affidavit in support of its application, apparently intended to cure the alleged defect in the original affidavit of Feb. 23, 2008.
See, e.g., State v. Shelton, 47 Conn. 400 (1879); State v. Goldfarb, 160 Conn. 320, 323-24 (1971); Joyell v. Comm. of Transportation, 45 Conn.App. 476, 485 (1997); Dept. of Transportation v. Canevari, 37 Conn.Sup. 899, 900 (1982). Whatever may be the court's personal view as to the wisdom of applying a rule that "time does not run against the king" ( nullurn tempus occurit regi) in a 21st Century democracy, any change in that rule will have to come from a higher authority.
See State v. Philip Morris, Inc., Superior Court, judicial district of Waterbury, Docket No. X02 CV 96 148414 (Oct. 27, 1988). Comm. of Environmental Protection v. Mellon, 286 Conn. 686 (2008), is not authority to the contrary, based as it is on an analysis of the text of a different statute, Conn. General Statutes § 22a-18(e), and the extratextual evidence of the legislative intent to exclude state and local governmental entities from the definition of "persons" entitled to recover attorneys fees for bringing actions under the Connecticut Environmental Protection Act.
III
Bacon's demand for arbitration was filed with the American Arbitration Association (AAA) on August 1, 2005, and it sought to resolve a "dispute over payment of contract balance and payment for additional work." Memorandum of Law in Response to Bacon's Objection to the State's Application for Prejudgment Remedy (state's response), exhibit B (June 2, 2008). It was stated in two counts, one for breach of contract; the other, unjust enrichment. Id. Paragraph 8 of both counts alleged that "Bacon undertook the performance of its obligations under the Contract in strict and full accordance with the plans, specifications, and general and special conditions of the contract and amendments thereto, and did completely and fully satisfy the obligations of the contract". Id.
In its "answering statement" of Oct. 12, 2006 the state stipulated to that allegation; Id., exhibit J; and in an amended answering statement of Nov. 1, 2006 the state made clear that it so stipulated "for the limited purposes of this arbitration only". Id., exhibit K.
The state also stipulated that, as alleged in paragraph 9 of the complaint, "the work under the contract is substantially complete", but again specified that its stipulation was "for the limited purposes of this arbitration only". Id., exhibit K.
In between these two pleadings Bacon attempted to file an amended demand for arbitration which added a third count alleging that its work under the contract was "performed in accordance with the plans and specifications and free from defect". (Emphasis added.) Id., exhibit C. In its prayer for relief on this proposed amendment it sought, in effect, a declaratory judgment that it had performed its work in accordance with the plans and specifications and free from defects. Id. The state objected to this attempt on the ground that the requested declaratory relief was not permitted under § 4-61. It made it clear that it might, indeed, have claims against Bacon and others involved in the construction of York for allegedly defective construction, which it intended to bring "in a different jurisdiction". Id., exhibit D, 5. After the state filed a notice of its election not to file counterclaims against Bacon in the arbitration, reserving its rights to assert such claims in "another forum and/or action"; Id., exhibit E, 1; the arbitrator ruled that he lacked jurisdiction to consider the claim for declaratory relief because it was not a claim "under the contract", as required by § 4-61. See footnote 1, supra, Dept. of Public Works v. ECAP, 250 Conn. 553, 559 (1999). See also Capital Property Assoc. v. CCEDA, Superior Court, judicial district of Tolland, Docket No. X 07 CV 04 4001923, 2006 Ct.Super. 1059, 1062 (Jan. 17, 2006). Id., F, 3-4. He "denied" Bacon's amended complaint, and ordered that the arbitration proceed under its original demand. Id., 5.
The arbitrator also found that Bacon had not given the state timely notice of this claim, as required by § 4-61.
The arbitrator rendered his decision on January 25, 2008. Defendant Bacon Construction Co., Inc. Objection to Plaintiff State of Connecticut's Application for Prejudgment Remedy (Bacon's objection), exhibit B (May 7, 2008). He summarized Bacon's claims as follows: "Bacon alleges that it is entitled to damages on account of unpaid contract balance, additional work and costs incurred as a consequence of delays and disruptions attributable to [the state] and/or its project construction manager . . ." Id., 1. The major portion of the decision analyzed Bacon's claims for damages due to alleged delays and disruptions of the construction schedule caused by the state and/or its construction manager. Id., pp. 2-12. Its allegation, admitted by the state for purposes of the arbitration, that it had performed in accordance with its contract with the state played no role in the arbitrator's determination of those claims.
The arbitrator did find that Bacon was entitled to payment of an outstanding balance of $82,812.81, known as the "retainage" on the contract. Id., 13. He made no findings as to whether Bacon had proved its allegation that it had performed "in strict and full accordance with the plans, specifications and general and special conditions of the contract and amendments thereto", noting simply that the state "has not challenged" that assertion. Id. "In light of that admission . . ., I see no legal basis why Bacon would not be entitled to its retainage . . ." Id.
The conduct of the arbitration and its resolution by the arbitrator demonstrates that the state never asserted in arbitration the claim of defective construction it makes in the complaint here. Furthermore, when Bacon attempted to force the issue by its proposed amendment of the arbitration complaint, the arbitrator refused to entertain the amendment because he lacked jurisdiction to do so. Finally, whether or not Bacon's performance was in conformity with its contract with the state was never litigated in the arbitration, the arbitrator ordering payment of the retainage based on the state's admission of that allegation for purposes of the arbitration.
IV
"Claim preclusion (res judicata) and issue preclusion (collateral estoppel) have been described as related ideas on a continuum. Claim preclusion prevents a litigant from reasserting a claim that has already been decided on the merits . . . Issue preclusion prevents a party from relitigating an issue that has been determined in a prior suit . . . Both doctrines protect the finality of judicial determinations, conserve the time of the court, and prevent wasteful relitigation . . . and express no more than the fundamental principle that once a matter has been fully and fairly litigated, and finally decided, it comes to rest." (Internal quotation marks and citations omitted.) Dowling, Sr. v. Finley Assoc., Inc., 248 Conn. 364, 373 (1999). These related doctrines apply in cases where an arbitration is followed by a civil action. Fink v. Golenbock, 238 Conn. 183, 195-96 (1996).
"The doctrine of res judicata, or claim preclusion, [provides that] a former judgment on a claim, if rendered on the merits, is an absolute bar to a subsequent action on the same claim . . . not only as to every matter which was offered to sustain the claim, but also as to any other admissible matter which might have been offered for that purpose . . . The rule of claim preclusion prevents reassertion of the same claim regardless of what additional or different evidence or legal theories might be advanced in support of it." Milford v. Andresakis, 52 Conn.App. 454, 462-63, cert. denied, 248 Conn. 922 (1999). From Bacon's point of view the problem with applying res judicata here is that the state made no claim in the arbitration. In fact, it explicitly eschewed making any claims about allegedly defective construction, reserving them for this forum. State's response, exhibit E. Essentially, the rule is one against the splitting of claims by plaintiffs. Gagne v. Norton, 189 Conn. 29, 32 (1983) ("[A] plaintiff cannot split his cause of action. He cannot sue for part of his claim in one action and then sue for the balance in another action.")
That fact distinguishes this case from Dept. of Transportation v. White Oak Corp., 287 Conn. 1 (2008), in which the Supreme Court held that a state contractor may not pursue multiple arbitrations under § 4-61 but must bring all its claims in one such proceeding.
Nor was the state required to bring a counterclaim for defective construction. "Where the defendant may interpose a claim as a counterclaim but fails to do so, he is not thereby precluded from subsequently maintaining an action on that claim, except as stated in Subsection (2)." 1 Restatement (Second), Judgments § 22, p. 185 (1982) (Restatement). The justification for the rule is that "the defendant should not be required to assert his claim in the forum or the proceeding chosen by the plaintiff but should be allowed to bring suit at a time and place of his own selection." Id., Comment a.
Section 4-61 makes no mention of counterclaims by the state in an arbitration proceeding initiated under that statute, but the state concedes that it could have brought a counterclaim for defective construction before the arbitrator if it chose to do so. State's response, 25 n. 8.
Subsection (2) precludes a subsequent claim which a defendant could have asserted as a counterclaim where the state, unlike Connecticut, is a compulsory counterclaim state or where "successful prosecution of the second action would nullify the initial judgment or would impair rights established in the initial action." Id. See text at pp. 14-15, infra.
A review of the arbitrator's decision demonstrates that most of Bacon's claims had to do with delays and disruptions in the construction schedule, who was responsible for them and what were their consequences for Bacon. Bacon's objection, exhibit B, 2-12. These were not the kinds of claims which required the arbitrator to determine whether Bacon performed its work negligently and, therefore, not the kind of claims to which the state would be expected to assert its claim for allegedly defective construction. Bacon's claim for the retainage on the ground that it had performed in conformity with the construction contract would have permitted the state to claim in response that it had performed negligently, but it did not require the state to do so. Restatement § 22, p. 185. The state did raise as special defenses a jurisdictional claim of sovereign immunity due to alleged untimely notice and one of accord and satisfaction; state's response, exhibit K; both of which the arbitrator rejected. State's response, exhibit L. Certain performance-related claims which the state attempted to raise in its post-hearing brief; viz., that Bacon had failed to pay prevailing wages on the project, to provide a ten-year warranty against moisture intrusion and to deliver as-built drawings; Bacon's Memorandum of Law in Reply to the State's Memorandum of Law in Response to Bacon's Objection, 10 (June 16, 2008) (Bacon's reply), exhibit 1, 26-27; did not go to the quality of Bacon's work on the project and were not considered by the arbitrator. Bacon's objection, exhibit B, 13.
Bacon argues that a claim that its performance under the contract was defective was a matter of defense in the arbitration not a counterclaim, and the state was obligated to assert that defense. Bacon's reply, 10. But, a claim of defective construction by the state is inconsistent with Bacon's claim of performance in conformity with the contract. Thus, it is not a matter of special defense: a simple denial would have been enough to allow the state to raise the issue. See Practice Book §§ 10-46, 10-50. The state, however, did not deny it; rather, it admitted it for the purposes of the arbitration, thereby obviating the need for litigation on the point.
Furthermore, when a party seeks damages arising out of its claim against another party, as the state does here, that is far more than a defense. See Mercoid Corp. v. Mid-Continent Investment Co., 320 U.S. 661, 671 (1944) ("Though Mercoid were barred in the present case from asserting any defense which might have been interposed in the earlier litigation, it would not follow that its counterclaim for damages would likewise be barred. That claim for damages is more than a defense; it is a separate statutory cause of action. The fact that it might have been asserted as a counterclaim in the prior suit . . . does not mean that the failure to do so renders the prior judgment res judicata as respects it.") To accept Bacon's argument would be to force the state to litigate its claim for damages in arbitration and would negate the policy of the Restatement that "(t)he defendant, in short, is entitled to his day in court on his own claim." Restatement, § 22, Comment b., p. 186. See also Battista v. DeNegris, Superior Court, judicial district of Hartford, Docket No. CV 94 0525774 (Sept. 16, 1994) [ 12 Conn. L. Rptr. 453] (Legal malpractice claim may be brought against attorney even after attorney has recovered judgment for non-payment of fees against the same client). Indeed, the Restatement is explicit that, where facts which constitute a defense to a claim are also ground for a counterclaim, the defendant's failure to allege them in defense "does not normally preclude him from relying on those facts in an action subsequently brought by him against the plaintiff." Restatement, § 22, Comment b., p. 186.
The parties agree that Connecticut is a permissive counter claim state. Practice Book § 10-10. See, e.g., Moye v. Credit Acceptance Corp., Superior Court, judicial district of Waterbury, Docket No. X 01 CV 99 0157073 (May 15, 2001). So, the first exception to the general rule concerning counterclaims does not apply here. See fn.11, supra. Nor would successful prosecution of this action "nullify" Bacon's arbitration judgment. The judicial decision confirming the arbitrator's award is presently on appeal. Assuming the award is upheld, Bacon will be entitled to a dollar-for-dollar setoff in the amount of its judgment against any prejudgment remedy the state may obtain as a result of its pending application.
Bacon's reliance on C.R. Klewin Northeast v. Bridgeport, 282 Conn. 54 (2007), is to no avail either on the facts or on the law. Klewin arbitrated with the city of Bridgeport its claim for payments under a municipal public works contract to build a sports arena. After twenty days of hearings by the arbitration panel Bridgeport sought to amend its answer to assert for the first time a claim of contract illegality, based on alleged corruption in its procurement. Id., 83. The panel denied its motion to amend, ruling that it had waived its right to raise that issue by its delay in doing so. Id., 84. On the consolidated proceedings to confirm or vacate the arbitration award in Klewin's favor, the court agreed with the panel's conclusion. Id., 86. Further, the court ruled that the city's waiver of the contract illegality claim before the panel also amounted to a waiver of a claim it attempted to assert before the court that enforcement of the arbitration award would violate the public policy against corruption in governmental contracting. Id., 92. The Supreme Court affirmed the trial court on both counts. Id., 89-90, 93.
The factual distinction between that case and this one is obvious. Unlike Klewin, the state in this case gave notice early and often that it would assert no claims in the arbitration regarding alleged defects in construction, and that its agreement that Bacon performed in accordance with its contract was for purposes of the arbitration proceedings only. So, the arbitration proceeded only on Bacon's claims for extra work, damages from disruption and delay in the construction schedule and payment of the retainage. There was nothing untimely about the state's delineation of what it was claiming and what it was not.
Further, the Supreme Court's decision was based not on principles of res judicata but on principles of waiver and the lack of an adequate record. Because, by its conduct the city had waived its right to raise the contract illegality issue in arbitration, the factual record necessary for the trial court to review the allegations of municipal corruption had not been created. Thus, Klewin v. Bridgeport furnishes no support for Bacon's claims in this case.
The trial court decision in Klewin v. Bridgeport did find that the city's action to void Klewin's contract to construct the sports arena on grounds of municipal corruption was barred by res judicata because it could have but did not raise that issue in a timely fashion in the arbitration. City of Bridgeport v. C.R. Klewin Northeast, LLC, Superior Court, judicial district of Waterbury, Docket No. X 06 CV 04 4000308 (Mar. 3, 2005). It did so because the city sought restitution of all funds it had paid on the sports arena contract, which would nullify Klewin's arbitration award for extra work. "Rather than receiving an additional $4.8 million pursuant to the construction contract, Klewin would be required to pay back the approximately $44 million it previously received under the contract." Id., 11. Here Bacon would be entitled to a setoff against the state's prejudgment remedy, if any, in the full amount of its arbitration award. Thus, that award would not be nullified. See Int'l Ambassador Programs v. Archexpo, 68 F.3d 337, 341 (9th Cir. 1995).
Since the state did not assert its claim of defective construction in Bacon's arbitration and was not required to do so, res judicata does not bar this action on that claim.
V
"Collateral estoppel, or issue preclusion, is that aspect of res judicata which prohibits the relitigation of an issue when that issue was actually litigated and necessarily determined in a prior action between the same parties upon a different claim . . . For an issue to be subject to collateral estoppel, it must have been fully and fairly litigated in the first action. It also must have been actually decided and the decision must have been necessary to the judgment . . . An issue is actually litigated if it is properly raised in the pleadings or otherwise, submitted for determination, and in fact determined . . ." (Emphasis in original. Internal quotation marks and citations omitted.) RR Pool Patio, Inc. v. Zoning Board of Appeals, 257 Conn. 456, 466 (2001).
For two Connecticut cases applying this rule strictly see Freda v. Freda, 39 Conn.Sup. 230, 232 (1984), and Home Insurance Co. v. Aetna Life Casualty Co., Superior Court, judicial district of New Haven, Docket No. 285504, 2 (Oct. 16, 1990).
Bacon's protestations that the issue of its contractual performance was "actually litigated" in the arbitration; Bacon's reply, 4-5; are stated in conclusory fashion, unsupported by any references to the arbitration record and contradicted by the arbitrator's decision. In the only reference to that issue in his decision, the arbitrator makes it clear that he is relying solely on the state's stipulation to Bacon's performance of the contract and not on any evidence introduced before him. Bacon's objection, exhibit B, 13.
Moreover, three decisions made by the arbitrator demonstrate that the issue of Bacon's performance was not litigated in the arbitration. First is his denial of Bacon's request to amend its complaint to seek a declaration that it had performed in accordance with the contract and "free from defect." See pp. 6-7, supra. Second, he denied a request by Bacon to inspect York to show that "[the state's] allegations of defective and incomplete work have no merit"; state's response, exhibit G, 1; because he did not believe that "the evidence that is proposed to be developed by way of the inspection would be material or relevant to the issues that I must decide," in view of the state's stipulation for purposes of the arbitration that Bacon had performed in accordance with the contract. Id., exhibit I, 1-2. Third, he specifically declined to consider certain performance-related claims which the state attempted to raise in its post-hearing brief; viz., that Bacon had failed to pay prevailing wages on the project, to provide a ten-year warranty and to deliver as-built documents. Bacon's reply, exhibit 1, 26-27; Bacon's objection, exhibit B, 13.
Much of Bacon's argument that principles of collateral estoppel should bar this action by the state rests on allegations that the state could have or should have raised the issue of defective construction as a defense in the arbitration. As the Restatement puts it, however, "(a)n issue is not actually litigated if the defendant might have interposed it as an affirmative defense but failed to do so; nor is it actually litigated if it is raised by a material allegation of a party's pleading but is admitted . . . in a responsive pleading; nor is it actually litigated if it is raised in an allegation by one party and is admitted by the other before evidence on the issue is adduced at trial . . ." Restatement, § 27, comment e, pp. 256-57.
The record of the arbitration and the decision of the arbitrator belie Bacon's claim that the issue of allegedly defective construction was "fully and fairly litigated" in the arbitration. Therefore, the state is not estopped to raise that issue via this litigation.
VI
For all of the reasons discussed in this decision Bacon's objection to the state's application for a prejudgment remedy is OVERRULED. The hearing on the state's application will proceed in accordance with the procedures established by chapter 903a of the General Statutes on February 9, 2009, as previously agreed by the parties.