State of Connecticut Department of Transportation v. White Oak Corporation (2011)

MEMORANDUM OF DECISION

FACTS:

This is an Application to vacate, correct or modify an Arbitration Award the Application being dated November 30, 2009 filed by the plaintiff (hereinafter also the “State”).   On March 15, 2010, the defendant (hereinafter also “WOC”) filed an Application to Confirm the Arbitration Award.

On March 30, 2001 the defendant sent the State a notice of claim pursuant to C.G.S. § 4–61 seeking compensation for delays in the project, nonpayment of contract amounts owed and wrongful termination.   WOC also included damages in which it stated that it sought $45,205,336.30 in damages including withheld liquidated damages.   On December 4, 2001 WOC submitted a demand for arbitration to the American Arbitration Association.   The allegations were substantially the same as the allegations made in WOC's notice of claim but added a claim for prejudgment interest.

On October 31, 2009 the Arbitration Panel made its Award finding that the claims of WOC were arbitrable, that it had jurisdiction and awarded as follows:

1.  Against WOC in the claim of wrongful termination.

2. Return of liquidated damages of $5,343,000 to WOC.

3. Against this was liquidated damages which had been retained by the insurance carrier. ($614,244.00)

4.  Prejudgment interest to WOC for money wrongfully withheld of $4,903,930.41.   Total $9,632,686.41.

It awarded to the State as follows:

1.  Liquidated damages $0.00.

2. Actual damages $1,270,378.

3. Prejudgment interest $0.00

Total $1,270,378.

The Panel ordered the State of Connecticut to pay to WOC the resulting balance of $8,362,308.41 to be paid within 60 days of the date of the Award with interest on the Award in the per diem amount of $2,291.04 commencing on the 61st day after the date of this Award.

On April 11, 1997 the parties entered into a contract for the reconstruction project of Interstate 95 from the interchange between routes 8 and 25 to the Yellow Mill Pond Bridge in Bridgeport, Connecticut.   Work was supposed to begin in the Spring of 1997 and be completed no later than September 17, 1999.   The project was plagued by several delays and conflicts between the parties, and in a meeting on January 4, 2000 the State informed WOC and AIG its insurer that WOC would not be permitted to complete the contract.   On March 9, 2000 the parties including AIG and O & G Industries entered into an assignment of contract and agreement whereby O & G Industries contractually replaced WOC as contractor.

Oral argument was held before this Court on October 29, 2010 and briefs were subsequently filed by the parties with the final brief being dated January 13, 2011.

STANDARD OF REVIEW:

“In deciding whether an Arbitrator has exceeded his power, we need only examine the submission and the Award to determine whether the Award conforms to the submission.”  Alderman & Alderman v. Pollack, 100 Conn.App. 80, 89 (2007).

The second issue to be determined is whether a submission is unrestricted, and for that we look at the authority of the Arbitrator.  “The authority of an Arbitrator to adjudicate the controversy is limited only if the agreement contains express language restricting the breadth of issues, reserving explicit rights, or conditioning the Award on court review.   In the absence of any such qualifications, an agreement is unrestricted in the present case, the agreement does not limit or condition the Arbitrators' authority in a manner that would make this a restricted submission.   Thus, we conclude that the submission is unrestricted and our review, therefore, is limited.”  Alderman & Alderman v. Pollack, supra, Id. 85.

“․ When the submission is unrestricted, the Arbitrator is empowered to decide factual and legal questions.   The submission tells the Arbitrator what he or she is obligated to decide.   See Harty v. Cantor Fitzgerald, 275 Conn. 72, 80 (2005).  “Judicial review of arbitral decisions is narrowly confined ․ When the parties agree to arbitration and establish the authority of the arbitrator through the terms of their submission, the extent of our judicial review of the Award is delineated by the scope of the parties' agreement ․ 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 ․ 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 ․”

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 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 ․ In other words, [u]nder an unrestricted submission, the Arbitrators' decision is considered final and binding;  thus the courts will not review the evidence considered by the Arbitrators nor will they review the Award for errors of law or fact ․” (Emphasis added.)  Id. P. 80.

“Even in the case of an unrestricted submission, we have, however, recognized three grounds for vacating an award:  (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 C.G.S. § 52–418 ․” (Citations omitted.)  Garrity v. McCaskey, 223 Conn. 1, 6, 612 A.2d 742 (1992).   Pursuant to § 52–418(a)(4), “an award that manifests an egregious or patently irrational application of the law is an award that should be set aside ․ because, [in that case], the arbitrator has exceeded [his] powers or so imperfectly executed them that a mutual, final and definite award upon the subject matter submitted was not made.   We emphasize, however, that the manifest disregard of the law ground for vacating an arbitration award is narrow and should be reserved for circumstances of an arbitrator's extraordinary lack of fidelity to established legal principles.”  (Internal quotations marks omitted.)  Garrity v. McCaskey, supra, 10.   Thomas I. Knox v. Robert M. Smith, M.D. LLC et al. v. Robert M. Smith LLC et al. v. Thomas I. Knox (AC 31608) March 29, 2011 127 Conn.App. 593, 596–7.  (Emphasis added.)

ISSUES AND FINDINGS:

1. Did the Arbitration Panel Have Jurisdiction to Hear the Arbitration and Make a Decision?

The short answer is Yes.

Rather than waiting for the Arbitration Panel to commence its proceedings, the State brought an injunction action to permanently enjoin the arbitration on the ground that the panel lacked jurisdiction over the arbitration.   In Dept. of Transporation v. White Oak Corp., Superior Court, judicial district of Hartford, Docket No., 02–0819031 (April 3, 2006, Sheldon, J.), the Court denied the State's request for an injunction.   In the Panel's decision it stated that it agreed with Judge Sheldon's decision and found that the panel did have jurisdiction and the matters before it were arbitrable.

The Court, Sheldon, J., found that WOC properly pleaded a claim of wrongful termination, that it had satisfied the requirements of C.G.S. § 4–61, that the notice of claim sufficiently informed the State of the general nature of WOC's wrongful termination claim.   The Court also stated that although WOC's notice of claim was divided into four different sections and its demand for arbitration was not similarly formatted, all the allegations in the demand flowed into a single claim of wrongful termination.   The Court held that WOC need not state a particular contract provision in order to satisfy C.G.S. § 4–61 because its claim for wrongful termination was substantive, not procedural, in nature.   Finally, the Court stated that because WOC brought a single claim of wrongful termination, WOC properly listed a single amount of damages in its demand for arbitration.  “Finally, turning to the DOT's challenge to the Bridgeport Demand, in so far as it listed only a single amount of damages to be sought upon the arbitration of its wrongful termination claim, the Court is persuaded that that challenge must also be rejected.   What was implicit in WOC's Bridgeport Notice was made explicit in its Bridgeport Demand, to wit:  that its wrongful termination claim is based upon and subsumes within it the entire, allegedly unreasonable course of conduct that lead up to it, including all of the costly, damaging, unreasonable acts by which WOC claims it was forced to endure and not be compensated for substantial project delays, to experience non-payment of monies due it under the Contract, and ultimately to lose the Contract and incur the obligation to indemnify its surety for the completion of the Contract by O & G. Since that claim, those supported by multiple acts of alleged misconduct, is a single claim, it is appropriate to list for it a single amount of claimed damages in the demand for arbitration required by § 4–61(b) sentences for all of the foregoing reasons, the Court rejects in its entirety the DOT's second challenge to the subject-matter jurisdiction of the AAA over WOC's claim of wrongful termination of its Bridgeport Contract.”  (Emphasis added.)  Id. pages 41–2.   This Court finds that Judge Sheldon's decision as to jurisdiction and arbitrability is the law of the case and agrees with same.   The State cannot now challenge the arbitrability or the jurisdiction of the panel when it did so seeking an injunction on that claim which was denied.   Further, under Dept of Transportation v. WOC, 287 Conn. 1, 13–14 “․ all existing disputed claims arising under a Public Works contract must be pursued and resolved ․” ¹

2. Does the Award Conform to the Submission?

The short answer is Yes.

The Arbitration Panel did decide the issues put before it by the parties.   See Alderman & Alderman v. Pollack 100 Conn.App. 80, 89 (2007).

3. Was the Submission Unrestricted?

The short answer is Yes.

“The authority of an Arbitrator to adjudicate the controversy is limited only if the agreement contains express language restricting the breadth of issues, reserving explicit rights, or conditioning the Award on court review.”

As noted above in Standard of Review no qualifications or restrictions were placed upon the submission to the Arbitration Panel.   Therefore, the agreement and submission to the Panel are unrestricted.

4. Did the Arbitration Panel Exceed its Powers or so Imperfectly Execute them, that a Mutual, Final and Definite Award Upon the Subject Matter Submitted was not Made?

The short answer is No.

1. Connecticut General Statutes § 52–418(a)(4) provides that “an Arbitration Award shall be vacated 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.”   As stated in the Standard of Review, “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 interpretation of the agreement by the Arbitrators was erroneous.”  (Emphasis added.)  Harty v. Cantor Fitzgerald, 275 Conn. 72, 80 (2005).   As stated in Standard of Review “․ an Award that manifests an egregious or patently irrational application of the law is an Award that should be set aside ․ because [in that case], the arbitrator has exceeded [his] powers or so imperfectly executed them that a mutual, final and definite Award upon the subject matter submitted was not made.”  Garrity v. McCaskey, 223 Conn. 1, 6 (1992).

This Court concludes that it is clear that the Panel's Award of wrongfully withheld liquidated damages in the amount of $5,343,000 does not amount to a manifest disregard of the law, particularly based upon the Panel's authority to make findings of fact and law.   The decision by Judge Sheldon specifically held that the “․ wrongful termination claim is based upon and subsumes within it the entire allegedly unreasonable course of conduct that lead up to it, including all the costly, damaging, unreasonable acts by which WOC claims it was forced to endure.”  (Emphasis added.)

Further, there is no argument that the State be credited with liquidated damages retained by AIG in the amount of $614,244.   Further, there is no credible challenge to the damages awarded to the State against WOC in the amount of $1,270,378.

The $5,343,000 minus the $614,244 and the $1,270,378 results in a net amount due to WOC in the amount of $3,458,378.   As to that Award, the motion to confirm same is granted, and to vacate same is denied.

2. Is WOC Entitled to Prejudgment Interest of $4,903,930.41?

The short answer is Yes.

The Arbitration Panel found that the liquidated damages amounted to a penalty and were wrongfully withheld and awarded prejudgment interest.   The claim against the prejudgment interest is found in C.G.S. § 4–61(a) as follows:  “․ interest under § 37–3a shall not begin to accrue to a claimant under this section until at least 30 days after the claimant submits a bill or claim to the agency for the unpaid debt upon which such interest is to be based, along with appropriate documentation of the debt when applicable ․”

The question then becomes when WOC made its demand for interest.  Killion v. Davis, 69 Conn.App. 366, 375, 793 A.2d 1237 (2002), states:  “Prejudgment interest is awarded in the discretion of the trial court to compensate the prevailing party for a delay in obtaining money that rightfully belongs to him.” ²

At the very least the demand for arbitration by WOC dated December 4, 2001 stated in pertinent part “․ demands an award of damages in an amount not less than $45,205,336.30 plus interest and the cost and fees of this Arbitration.”   (Emphasis added.)

The Arbitrators interpreted the interest in the demand for Arbitration as a demand for prejudgment interest because they made a specific Award of same in the amount of $4,903,930.41 up to their Award/decision as well as specific per diem postjudgment interest until the amount is paid in the future.   Under the aforementioned principle that Arbitrators are empowered to make decision/interpretations of facts and law, they had a right to make this interpretation and distinction.  (Emphasis added.)

Accordingly, WOC is entitled to prejudgment interest for money wrongfully withheld commencing thirty days following the date of the demand of December 4, 2001 to date at the rate of 10% per annum on the amounts found above in its net favor, and is entitled to 10% postjudgment interest following the Award of the Arbitration Panel.³

This Court concludes that the demand for Arbitration dated December 4, 2011 complied with the aforementioned interest (C.G.S. § 37–3a) provision of C.G.S. § 4–61(a) and that the Arbitrators' Award as to prejudgment interest does not amount to a manifest disregard of the law.⁴

CONCLUSION:

For the above reasons, the Motion to Vacate the Arbitration Award is denied.   The application to confirm the Arbitration Award by WOC is granted.

Rittenband, JTR

FOOTNOTES

FN1. The State cannot now raise additional challenges to arbitrability if it could have raised the issue in the earlier injunction proceeding.   The State's challenge to the liquidated damages and payment of prejudgment interest could have been raised in the earlier proceeding..  FN1. The State cannot now raise additional challenges to arbitrability if it could have raised the issue in the earlier injunction proceeding.   The State's challenge to the liquidated damages and payment of prejudgment interest could have been raised in the earlier proceeding.

FN2. Based upon the ruling by Sheldon, J., all claims, including liquidated damages and prejudgment interest, were included in and subsumed in the claim for wrongful termination..  FN2. Based upon the ruling by Sheldon, J., all claims, including liquidated damages and prejudgment interest, were included in and subsumed in the claim for wrongful termination.

FN3. Prejudgment interest is from 30 days after the date of the demand to the date of the Award..  FN3. Prejudgment interest is from 30 days after the date of the demand to the date of the Award.

FN4. The Court will not review the calculations just as it will not review the calculations of the amount awarded under the counterclaim.   These are issues of fact which the Arbitrators are empowered to make as noted in Standard of Review..  FN4. The Court will not review the calculations just as it will not review the calculations of the amount awarded under the counterclaim.   These are issues of fact which the Arbitrators are empowered to make as noted in Standard of Review.

Rittenband, Richard M., J.T.R.