Are Arbitration Agreements the Final Say?

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Often in agreements the parties anticipate that there may be future disagreements regarding terms.  In an effort to avoid the costs that accompanies litigation, the parties may agree to take part in binding arbitration.  Arbitration usually consists of the parities utilizing an independent fact finder (arbitrator) who allows the parties to put on evidence and provide documentation in a less formal atmosphere than standard litigation.  The arbitrator makes a determination and the parties can have the arbitrator’s decision deemed final and accepted by a Court.  However, just because the parties have an arbitration clause in their agreement does not necessarily mean that the parities give up their right to bring an action in court and must arbitrate any disputes.  Some instructive Connecticut cases follow.

In Multi-Service Contractors, Inc. v. Town of Vernon, 181 Conn. 445 (1980), the plaintiff brought an action against the Town of Vernon for unpaid balances due under a building contract.  The contract contained an arbitration clause providing that, “all claims, disputes and other matters in question between the contractor and owner arising out of, or relating to, the Contract Documents or the breach thereof…shall be decided by arbitration.”  Based upon this clause, the Defendant filed a Motion to Dismiss the Court action.  The trial court granted the motion finding that the contract clearly provided that the disputes would be decided by arbitration and since arbitration was not pursued, the court lacked jurisdiction over the subject matter.  The plaintiff appealed.  The Connecticut Supreme Court disagreed and found that “where a contract contains a stipulation that the decision of the arbitrators on certain questions shall be a condition precedent to the right of the contract itself, such a stipulation will be enforced and, until arbitration has been pursued or some sufficient reason given for not pursuing it, no action can be brought on the contract.”  Id. at 447-48.  However, the Court noted that “whether an agreement makes arbitration a condition precedent to an action in court depends upon the language of the clause.  While it is true that in the absence of express language a provision for arbitration may be construed, by implication, to be a condition precedent to suit, that implication must be so plain that a contrary intention cannot be supposed.  It must be a necessary implication.  The mere agreement to arbitrate, standing alone, does not give rise to the necessary implication that arbitration is a condition precedent to an action in court.  For arbitration to be a condition precedent, the agreement must expressly so stipulate, or it must necessarily be implied from the language used.” Id. citing Kantrowitz v. Perlman, 156 Conn. 224, 227-28 (1968).  The Court found that the arbitration clause, as written, did not require, either by express language or by necessary implication, arbitration as a condition precedent to a court action and therefore found that the trial court erred in granting the motion to dismiss.

More recently, the Stamford Superior Court reiterated this opinion in Voight et al. v. Coldwell Banker, et al., 2007 WL1599122 (Conn. Super. Ct. May 7, 2007).  In that case, the plaintiffs filed a five count complaint regarding the plaintiffs’ purchase of a home in Greenwich.  The defendants filed a motion to dismiss on the grounds that the parties’ agreement required the arbitration of any disputes.  The defendants argued that the arbitration clause in the agreement evidenced the parties’ intent that arbitration serve as a condition precedent to any court action.  The defendant further argued that the plaintiffs’ claims were covered by the arbitration agreement which therefore deprived the Court from subject matter jurisdiction.  The plaintiffs objected arguing that the arbitration language contained within the agreement did not stipulate, expressly or by implication, that arbitration was a condition precedent to any court action.  The Court’s analysis began with a review with the reasoning previously set forth in Mutli-Service, supra at 447-48.

The Court thereafter referred directly to the arbitration clause at issue which provided that, “Disputes.  If we have any disagreements, Cronus, LLC, has the right to re-inspect.  If we are unable to reach a resolution, you agree to submit any and all of your disputes to arbitration pursuant to the rules of the American Arbitration Association (AAA) within six (6) months of the date of the report provided to you by Cronus, LLC.”  The Court found that this language did not expressly provided that arbitration was a condition precedent to litigation, and that therefore, the determination rested upon whether the language necessarily implied that arbitration was a condition precedent to litigation.

The Court found that the pending arbitration clause did not provide that the arbitrator’s decision was final or binding.  “It also lacked the specificity regarding the process found in many cases where arbitration was found to be a condition precedent to litigation.  Instead, the language of the arbitration clause in the present case is closely analogous to the Multi-Service arbitration clause, as well as to those clauses in many Superior Court cases that have determined that arbitration was not a condition precedent.”  Voight, supra at *3.  The court further found that because there was no meaningful distinction between the language of the Multi-Service arbitration clause and that in the present case, the court had to determine that the arbitration clause was not a condition precedent to litigation and that the motion to dismiss should be denied.

In 2007, the Court in Flanagan v. Toll CT, II Limited Partnership et al.¸2007 WL4571145 (Conn. Super. Ct. Nov. 5, 2007), was faced with an arbitration clause providing that, “buyer…hereby agrees that any and all disputes with seller…shall be resolved by binding arbitration in accordance with the rules and procedures of Construction Arbitration Services.”  In reviewing the arbitration clause, the Court found that there was no express language in the agreement, nor was there any necessary implication that arbitration was intended to be a condition precedent to litigation.  “In the absence of such precise language in a provision stating that the plaintiff must pursue arbitration prior to seeking a judicial remedy or court action, [defendant’s] motion to dismiss the complaint on the ground that the court lacks subject matter jurisdiction is denied.”  Id. at *3.  The Court further utilized the Multi-Service, analysis to substantiate its ruling.  However, the Court was receptive to possibly allowing a party to request a stay in the court proceedings pending arbitration as, “arbitration need not be a condition precedent to the action in court for the granting of a stay under General Statutes §52-409…the arbitration clauses are legally sufficient for the purpose of granting a stay…”  Flanagan, supra at *3.

In 2008, the Superior Court in Waterbury again reviewed the mandatory nature of an arbitration clause and utilized the Multi-Service, case analysis.  In Koenig v. Middlebury Land Associates, LLC et al., 2008 WL3308816 (Conn. Super. Ct. July 23, 2008), the parties had four contracts.  The first contract provided that, “[i]t is agreed that any dispute which may arise in connection with this agreement shall be submitted before Mechon L’Horah.  Judgment rendered by the aforesaid authority may be entered in any court having jurisdiction thereof.”  The remaining three contracts contained language that, “[i]t is agreed that any disputes which may arise in connection with this agreement shall be submitted before Bais Din or Mr. Koenig’s choosing.  Judgment rendered by the aforesaid authority may be entered in any court having jurisdiction thereof.”  Id. at *2.  The Court found that these clauses were arbitration clauses and viewed them in the light of Multi-Service.  In doing so, the Court ruled that, “the arbitration clauses in question do not expressly provide that arbitration is a condition precedent to litigation.  Furthermore, the clauses do not necessarily imply that arbitration is a condition present to the plaintiffs’ right to resort to litigation.  There are no meaningful distinctions between the language in the arbitration clauses and the arbitration clauses that the courts found to be inadequate to establish arbitration as a condition precedent in Multi-Service.”  Id. at *4.

The Koenig Court further provided a string citation of other examples of cases which held arbitration clauses were not conditions precedent to ligation.  These included, Roundhill Properties, Ltd. v. Cathlow Associates, LLC.¸ Superior Court, Judicial District of Stamford-Norwalk at Stamford, Docket No. CV 01 0183089 (Aug. 20, 2001, Resha J.) (arbitration not condition precedent where arbitration clause provided: Any controversy or claim arising out of or related to the Contract, or the breach therefore, shall be settled by arbitration in accordance with the …Rule of the American Arbitration Association…); Skolnick & Son Inc. v. First Baptist Church of Stratford, Inc.¸ Superior Court, Judicial District of Fairfield, Docket No. CV 95 322330 (July 25, 1995, Tobin J.) (arbitration not condition precedent where defendant failed to identify contract language directly stating or implying arbitration condition precedent); Henry v. Cardinal Business Media, Inc., Superior Court, Judicial District of Stamford-Norwalk at Stamford, Docket No. CV 95 147159 (Mar. 15, 1996, Tobin, J.) (arbitration not condition precedent based solely on mere existence of arbitration agreement).  The Court concluded its opinion with a statement regarding removing jurisdiction from the Courts.  Judge Tobin indicated that, “courts have held almost universally that under the common law, the parties to a dispute may not oust the jurisdictions of the courts by an agreement to arbitrate.”  Koenig, supra at *4.

In 2013 the Milford Superior Court, again found that an arbitration clause was not a condition precedent to litigation in Kuryla, et al. v. Coady, et al., 2013 WL1494223 (Conn. Super. Ct. Mar. 22, 2013).   In this case, the arbitration language provided that, “any controversy or claim arising out of or relating to this agreement or a claimed breach thereof which cannot be amicably settled shall be submitted to arbitration…”  Id. at *6.  In reviewing the analysis for Multi-Service, the Court found that the language was substantively the same as Multi-Service and was insufficient to compel arbitration.    As a result, the Court denied the Motion to Dismiss.

If you are preparing a contract which requires an arbitration clause, or are seeking information regarding the enforceability of an arbitration provision, please call the experienced employment counsel at Harlow, Adams & Friedman, P.C. today at 203-878-0661 for a free consultation.

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