Allstate Insurance v. Stinebaugh

⁶³⁵ BATTAGLIA, Judge. In this appeal from the denial of a motion to compel arbitration, we must decide two issues. First, whether it is for courts, or for arbitrators, to determine if a particular dispute is for the courts or arbitrators to decide when parties enter into a general arbitration agreement, but subsequently bind themselves to a Consent Order that contemplates judicial resolution of a particular controversy. Second, what is the legal effect of an agreement that contemplates judicial resolution of a particular dispute, upon a prior, general arbitration agreement.

As to the first issue, we conclude that courts, not arbitrators, should decide whether a prior agreement to arbitrate disputes applies when a subsequent agreement calls for a judicial resolution of the particular controversy. With respect to the second issue, we conclude, under the facts of this case, that the subsequent Consent Order called for a judicial resolution of the dispute at issue and, therefore, discharged the prior arbitration agreement with reference to the liability issue in controversy. I. Background On May 19, 1996, Constance Lee was riding as a passenger in a vehicle operated by Charles Kirkpatrick, which was involved in an accident in Ocean City, Maryland. The Kirkpatrick vehicle was stopped at a traffic signal in a left turn lane on Coastal Highway.

A second vehicle, stopped directly behind the Kirkpatrick vehicle, was operated by John Stinebaugh, who was insured by Nationwide Mutual Insurance Company. A third vehicle, operated by an unknown person (hereinafter “phantom vehicle”), was stopped to the right of the Kirkpatrick vehicle in a second left turn lane. When the traffic light turned green, Kirkpatrick attempted to complete the left turn but was cut off by the phantom vehicle. Kirkpatrick applied his brakes to avoid hitting the phantom vehicle, but when he did so, his vehicle was struck from behind by the vehicle operated by Stinebaugh. ⁶³⁶ On April 26,1999, Lee filed a complaint in the Circuit Court for Worcester County against Kirkpatrick, Stinebaugh, and Allstate Insurance Company, Kirkpatrick’s uninsured motorist carrier, seeking damages for injuries allegedly arising out of the automobile accident.

Prior to trial, the parties reached an agreement which was memorialized in an April 10, 2001 Consent Order. That Order states that, “by agreement of all parties, Plaintiffs claim against all Defendants is hereby settled for the amount of Forty Thousand Dollars ($40,000.00), to be split evenly between Defendants Allstate Insurance Company and John Stinebaugh (Nationwide Mutual Insurance Company) . . . .” 1 With respect to each insurer’s rights against the other, however, the Consent Order states, “each insurer’s contribution towards the settlement shall be subject to reimbursement and indemnification from the other insurer pending final determination of liability of the Defendants pursuant [to] Fireman’s Fund Insurance Co. v. Bragg, 76 Md.App. 709 , 548 A.2d 151 (1988).... ” Specifically, the Order states that “the Cross-claims between Defendants shall remain at issue and subject to resolution on the currently scheduled trial date of May 17, 2001, or may be resolved by other means mutually agreed to by all Defendants.” Within three weeks after the Consent Order was filed, Allstate filed a Motion to Compel Arbitration, pursuant to Maryland Code, §§ 3-202, 3-206, and 3-207 of the Courts and Judicial Proceedings Article (1974, 1998 Repl.Vol.). 2 In that motion, Allstate stated that it was “the automobile liability carrier for Defendant Estate of Charles Kirkpatrick” and that ⁶³⁷ it was also “a party to the above-captioned case as a result of the uninsured motorist claims of Plaintiff, Constance Lee, which assert[s] that the automobile collision in the case at bar was caused by an unknown motorist” and that Nationwide and Allstate had “resolved claims filed by Plaintiff Constance Lee” by “each contributing 50% toward the settlement” of Lee’s claim, but asserted that they still “dispute[d] liability as between themselves pursuant to Fireman’s Fund v. Bragg, 76 Md.App. 709 , 548 A.2d 151 (1988).” Allstate further asserted that, “[c]urrently and since the date of the occurrence [of] this lawsuit, Nationwide and Allstate have been signatory members of Arbitration Forums Inc., a special Arbitration forum for disputes arising between automobile liability insurers who transact business in the State of Maryland.” According to Allstate, “[pursuant to the terms of the Arbitration Agreement signed by Nationwide and Allstate, Allstate and Nationwide agreed to submit all disputes arising between signatory members to arbitration,” but Nationwide, according to Allstate, refused to arbitrate, despite Allstate’s written demand to do so. Thus, Allstate requested the Circuit Court “to Order arbitration between Allstate and Nationwide in accordance with the terms of the Arbitration Agreement....” 3 ⁶³⁸ In opposition to the motion to compel arbitration, Stinebaugh argued, among other things, that the April 10, 2001 Consent Order required that the case remain in the Circuit Court unless all parties had mutually agreed otherwise, and that no such agreement had been made with respect to him. Initially, on May 7, 2001, Judge Groton of the Circuit Court granted Allstate’s Motion to Compel Arbitration.

Thereafter, however, Stinebaugh filed a motion for reconsideration, which Judge Groton granted on August 3, 2001, thereby rescinding his earlier order compelling arbitration, and ordering that the matter be set “for trial on the merits on the parties’ cross-claims.” In granting Stinebaugh’s motion for reconsideration, Judge Groton opined that because Stinebaugh was “the party to the suit” and because Stinebaugh had not himself signed the insurer’s arbitration agreement, Stinebaugh could not “be forced [in]to arbitration.” 4 Despite the Circuit Court’s ruling, Allstate initiated arbitration with Arbitration Forums, Inc., a company that Allstate and Nationwide had agreed to use for the arbitration. Over Nationwide’s objection, Arbitration Forums determined, notwithstanding Judge Groton’s order to the contrary, that it had ⁶³⁹ the authority to decide the merits of the case. Armed with that arbitrational determination, on March 13, 2002, Allstate filed a motion with the Circuit Court requesting that it reconsider its August 3, 2001 order granting Stinebaugh’s motion for reconsideration and denying its motion to compel arbitration. The Circuit Court denied Allstate’s motion for reconsideration on March 18, 2002, the same day that the jury trial commenced.

In denying Allstate’s motion, Judge Groton explained: There was also a motion for reconsideration for arbitration, and in chambers we discussed that matter. My ruling was based on the order that was passed April the 10th of 2001, in which the last paragraph of that particular order indicated that the cross claims between the Defendant shall remain at issue and subject to resolution on the currently scheduled trial date of May 17th, although the issue was brought up, in fact, that the trial date wasn’t conducted May 17th, the important wording in that particular part of the sentence is “trial date.” That, in fact, the order, the way I read it, contemplated that the matter would be resolved by a trial, or may be resolved by other means mutually agreed by all Defendants. There has been no mutual agreement by the Defendant subsequent to this agreement. [Allstate’s] position was that there was an agreement that was signed by both parties in general and prior to that date. My ruling is based on the fact that this order would take precedent over that because of the fact that it was signed subsequent to the agreement, and contained the phrase ‘may be resolved by other means mutually agreed to by all Defendants,’ meaning it would be subject to the agreement signed April the 10th.

The jury returned a special verdict on March 18, 2002, finding that the operator of the phantom vehicle was negligent and that Stinebaugh was not negligent. The Circuit Court entered judgment in the amount of $20,000 in favor of Stinebaugh and against Allstate. On July 14, 2002, Arbitration Forums reaffirmed its position that it had the power to decide ⁶⁴⁰ the merits of the dispute and determined that Stinebaugh had been negligent. Allstate appealed to the Court of Special Appeals, arguing that the Circuit Court erred in rendering judgment against it because the parties had agreed to have the dispute resolved in arbitration.

This Court, on its own initiative and prior to any proceedings in the Court of Special Appeals, issued a writ of certiorari, Allstate v. Stinebaugh, 371 Md. 613 , 810 A.2d 961 (2002). Before this Court, Allstate presents the following question: In light of the Consent Order of April 10, 2001, was jurisdiction to determine the liability between Co-Defendants Allstate Insurance Company and John Stinebaugh on their Cross-Claims vested in the Circuit Court for Worcester County, or with Arbitration Forums, Inc? For the reasons discussed herein, we hold that the Circuit Court did not err in addressing the issue of the effect the Consent Order had upon the prior arbitration agreement. We further hold that the Circuit Court correctly concluded that, pursuant to the Consent Order, the liability issue was to be resolved in court rather than in arbitration.

We shall, therefore, affirm.

II

Discussion Allstate contends that “the trial court erred by conducting an inquiry into whether the April 10, 2001 [Consent] Order took precedence over the arbitration agreement” because once the court acknowledged the existence of the insurance companies’ arbitration agreement, the issue of arbitrability “was within the exclusive province of the arbitrator.” In support of that contention, Allstate relies upon our decisions in Holmes v. Coverall North America, Inc., 336 Md. 534 , 649 A.2d 365 (1994), and Gold Coast Mall, Inc. v. Larmar Corp., 298 Md. 96 , 468 A.2d 91 (1983). Stinebaugh, on the other hand, contends that the Circuit Court “properly applied principles of contract interpretation” to find that the prior arbitration agreement “had been super- ⁶⁴¹ ceded by a later specific agreement between the parties to resolve the pending cross-claims” in court. In support of this contention, Stinebaugh asserts that the determination of whether an arbitration agreement exists is for the court, not the arbitrator, and further claims that the court correctly concluded that the Consent Order superseded the arbitration agreement because the Consent Order was more recent and specifically addressed the liability issue. For the reasons discussed below, we conclude that Allstate’s reliance on Holmes and Gold Coast Mall is misplaced and that its contention is without merit.

In Holmes, Gold Coast Mall, and other decisions, we have recognized that the Maryland Uniform Arbitration Act expresses the legislative policy favoring enforcement of agreements to arbitrate. Holmes , 336 Md. at 546 , 649 A.2d at 371 (recognizing “the legislative intent to favor arbitration”); Gold Coast Mall, 298 Md. at 103 , 468 A.2d at 95 (acknowledging that the Arbitration Act embodies a “legislative policy in favor of the enforcement of agreement to arbitrate); see also Crown Oil & Wax Co. v. Glen Constr. Co., 320 Md. 546, 558 , 578 A.2d 1184, 1189 (1990) (stating that “Maryland courts have consistently stated that the [Arbitration Act] embodies a legislative policy favoring the enforcement of executory agreements to arbitrate”); Charles J. Frank, Inc. v. Associated Jewish Charities, Inc., 294 Md. 443, 448 , 450 A.2d 1304, 1306 (1982)(reeognizing that the Arbitration Act “embodies a legislative policy favoring enforcement of executory agreements to arbitrate”). The original Arbitration Act was enacted in 1965, and at the time of the proceedings below, was found in Maryland Code, §§ 3-201 through 3-234 of the Courts and Judicial Proceedings Article (1974, 1998 Repl.Vol.).

Section 3-206(a) of the Arbitration Act provides that: A written agreement to submit any existing controversy to arbitration or a provision in a written contract to submit to arbitration any controversy arising between the parties in the future is valid and enforceable, and is irrevocable, ⁶⁴² except upon grounds that exist at law or in equity for the revocation of a contract. Section 3-207 applies when a party denies the existence of an arbitration agreement, and states: (a) Refusal to arbitrate. — If a party to an arbitration agreement described in § 3-202 refuses to arbitrate, the other party may file a petition with a court to order arbitration. (b) Denial of existence of arbitration agreement. — If the opposing party denies existence of an arbitration agreement, the court shall proceed expeditiously to determine if the agreement exists. (c) Determination by court. — If the court determines that the agreement exists, it shall order arbitration.

Otherwise it shall deny the petition. Section 3-210, which we have interpreted as prohibiting “the court from inquiring into the merits of a claim,” Crown Oil, 320 Md. at 557 , 578 A.2d at 1189 , states: An order for arbitration shall not be refused or an arbitration proceeding stayed: (1) On the ground that the claim in issue lacks merit or bona fides; or (2) Because a valid basis for the claim sought to be arbitrated has not been shown. We have held, therefore, that the role of the court in deciding a motion to compel arbitration is limited to determining one question: “[I]s there an agreement to arbitrate the subject matter of a particular dispute?” Gold Coast Mall, 298 Md. at 103-04 , 468 A.2d at 95 (stating that “The Act strictly confines the' function of the court in suits to compel arbitration to the resolution of a single issue — is there an agreement to arbitrate the subject matter of a particular dispute”); Holmes , 336 Md. at 546 , 649 A.2d at 370-71 (“The scope of the court’s involvement extends only to a determination of the existence of an arbitration agreement”); Crown Oil, 320 Md. at 557 , 578 A.2d at 1189 (recognizing that § 3-210 prohibits a court from inquiring into the merits of a claim, and that “under §§ 3-207 and 3-208 the sole question before the court is whether there exists an agreement to arbitrate”). ⁶⁴³ In Crown Oil, this Court interpreted Gold Coast Mall as laying down “the rules for determining whether court or arbitrator determines arbitrability where the arbitrability issue is the scope of the arbitration clause and its applicability to the dispute at hand.” 320 Md. at 559 , 578 A.2d at 1190 . First, in Gold Coast Mall, we declared that if an arbitration clause is clear, it is initially for the courts to determine whether the subject matter of a dispute falls within the scope of the arbitration clause. 298 Md. at 104 , 468 A.2d at 95 .

Second, we explained that in determining whether a dispute falls within the scope of an arbitration clause, arbitration should be compelled if the arbitration clause is broad and does not “expressly and specifically exclude[]” the dispute. Id. Third, we concluded that if an arbitration clause is unclear “as to whether the subject matter of the dispute falls within the scope of the arbitration agreement,” the question of arbitrability ordinarily should be left to the arbitrator. Id. 298 Md. at 107 , 468 A.2d at 97 .

The specific issue in Gold Coast Mall was whether a court or an arbitrator initially should determine whether a rental payment dispute arising from a lease agreement containing an arbitration clause was arbitrable. Id. at 99 , 468 A.2d at 93 . The lease agreement contained a clear, broad arbitration clause that required “both parties to arbitrate any and all disputes arising out of the agreement.” Id. at 107 , 468 A.2d at 97 . “No type of controversy [was] expressly or specifically excluded from the requirement to arbitrate.” Id. at 107-08 , 468 A.2d at 97 . Other provisions of the same agreement, however, provided the landlord with rights and remedies other than arbitration.

Id. at 108 , 468 A.2d at 97 . We determined that, although the broad arbitration provision was clear when standing alone, it became unclear when juxtaposed against the other clauses within the same lease agreement that provided rights and remedies other than arbitration so that the arbitrator was the appropriate decision-maker. Id. In Gold Coast Mall, there were conflicting clauses within the same contract — a broad arbitration clause required the ⁶⁴⁴ parties to arbitrate any disputes arising out of the contract, yet other clauses in the contract provided the landlord with rights and remedies other than arbitration.

It was because of these internally inconsistent clauses that we concluded the scope of the arbitration clause was unclear, and therefore for the arbitrator to initially decide. The present case is distinguishable because we are not faced with internally inconsistent clauses. To the contrary, here we have two wholly separate agreements: the former contains language that may or may not have required the liability dispute to be arbitrated; the latter contains language that clearly calls for a judicial resolution of the same dispute. Indeed, even if the arbitration agreement was broad, it is clear that the liability controversy was “expressly and specifically excluded” by the subsequent settlement agreement.

The arbitration agreement here clearly was limited