Gannett Fleming, Inc. v. Corman Const.

Gannett Fleming, Inc. v. Corman Construction, Inc., No. 2827, September Term 2018 Opinion by Kehoe, J. ALTERNATIVE DISPUTE RESOLUTION – PETITIONS TO COMPEL OR STAY ARBITRATION PROCEEDINGS – THE LIMITED ROLE OF THE COURT Courts confronted with petitions to compel or to stay arbitration are to consider one thing: Is there in existence an agreement to arbitrate the dispute sought to be arbitrated? But, depending upon the facts in a specific case, this one arbitrability or “existence” question can be multifaceted, requiring a court determine whether an agreement to arbitrate exists “in fact” and whether the controversy to be arbitrated falls within the substantive scope of a valid arbitration clause. ALTERNATIVE DISPUTE RESOLUTION – EXISTENCE OF AN AGREEMENT TO ARBITRATE “IN FACT” An agreement to arbitrate does not exist “in fact” if, applying basic state-law contract principles, a court finds no enforceable agreement to arbitrate ever existed. Similarly, an agreement to arbitrate may no longer exist “in fact” if a party, by subsequent act or omission, has waived a once-valid right to arbitration.

ALTERNATIVE DISPUTE RESOLUTION – WAIVER OF RIGHT TO ARBITRATE There are two ways in which a court may find a right to arbitration is waived for inappropriate delay in asserting the right. First, a party may fail to make a demand for arbitration within the time limits spelled out in the text of the agreement itself. Second, even when the arbitration agreement sets no demand deadlines, a right to arbitration may be waived if the party waits too long to assert the right and instead engages itself substantially in the judicial forum. ALTERNATIVE DISPUTE RESOLUTION – EXISTENCE AND VALIDITY OF AGREEMENT – STATUTES OF LIMITATIONS Under Maryland law, a demand for arbitration is not “untimely”—i.e., the right to arbitrate a dispute is not waived—simply because the same claim, if brought in the judicial forum, would be time-barred by Maryland’s three-year statute of limitations.

Rather, the expiration of a statutory limitations period renders a demand for arbitration untimely only if the parties provide for this in the arbitration agreement itself. Maryland’s general statute of limitations, by its terms, applies only to “civil action[s] at law.” And arbitration proceedings are not civil actions at law. Md. Code, Courts and Judicial Proceedings Article § 5-101. ALTERNATIVE DISPUTE RESOLUTION – EXISTENCE AND VALIDITY OF AGREEMENT – SUBSTANTIVE ARBITRABILITY Courts must find no arbitration agreement “exists” if the controversy sought to be arbitrated is not within the substantive scope of the arbitration clause of the contract.

Gold Coast Mall, Inc. v. Larmar Corp., 298 Md. 96, 106 (1983); Md. Code, Courts and Judicial Proceedings Article § 3-208. ALTERNATIVE DISPUTE RESOLUTION – EXISTENCE AND VALIDITY OF AGREEMENT – DISPUTES AND MATTERS ARBITRABLE UNDER AGREEMENT Courts should grant a petition to stay arbitration on the grounds of substantive arbitrability only if the dispute clearly lies beyond the scope of the arbitration clause at issue. Otherwise, the dispute—including the threshold-arbitrability determination—should be handed over to the arbitrator. Circuit Court for Anne Arundel County Case No. C-02-CV-17-003798 REPORTED IN THE COURT OF SPECIAL APPEALS OF MARYLAND No. 2827 September Term, 2018 _____________________________________ GANNETT FLEMING, INC. v. CORMAN CONSTRUCTION, INC. ____________________________________ Fader, C.J., Kehoe, Berger, JJ. _____________________________________ Opinion by Kehoe, J. _____________________________________ Filed: November 21, 2019 Pursuant to Maryland Uniform Electronic Legal Materials Act (§§ 10-1601 et seq. of the State Government Article) this document is authentic. 2019-11-21 10:56-05:00 Suzanne C. Johnson, Clerk This is an appeal from a judgment of the Circuit Court for Anne Arundel County that denied a petition to stay an arbitration proceeding governed by the Maryland Uniform Arbitration Act.

Our opinion addresses two issues. The first appears to be a question of first impression in Maryland: whether, in the absence of waiver or a specific deadline imposed by contract, a party forfeits the right to demand arbitration if the demand is not made within the limitations period which would apply if the claim were brought in an action at law. The second is whether the dispute in this case is substantively arbitrable, that is, whether it falls within the scope of the arbitration provision in one of two agreements between the parties. Because we answer no to the first question and yes to the second, we will affirm the judgment of the circuit court.

Background The Agreements Gannett Fleming, Inc. is a civil engineering firm. Among other activities, Corman Construction, Inc. builds and repairs roads and bridges. In 2011, the two companies agreed to work together to prepare bids for several highway construction projects in North Carolina. To be qualified to submit bids to the North Carolina Department of Transportation (“NCDOT”), the companies formalized their commitment to work together in a written contract (the “Teaming Agreement”).

Under the Teaming Agreement, signed November 7, 2011, Gannett Fleming agreed to provide quantity and pricing estimates for the building materials needed to complete the highway projects. Corman would act as the team’s general contractor, using Gannett Fleming’s estimates to prepare the bids that it ultimately submitted. The Teaming Agreement also set out what would happen if Corman’s bids for the highway projects were successful:1 In the event of contract award to Corman by NCDOT, the parties will enter into a subcontract agreement consistent with the terms of this Teaming Agreement, encompassing Gannett Fleming’s proposed services, and consistent with [Corman’s contract with NCDOT]. Such subcontract will also include ACG Document No. 420 “Standard Form of Agreement Between Design-Builder and Architect/Engineer for Design-Build Projects – as Modified by Corman” and is made a part hereof.

Any such form will contain the requirement that Gannett Fleming is to provide professional liability insurance in an amount not less than $2,000,000 in aggregate for each separate contract and will cover errors and omissions arising out of the performance of, or failure to perform, professional services. If the parties are unable to mutually agree on the terms of a subcontract after good faith efforts, then neither party will have any obligation to the other. Pricing and scope furnished by Gannett Fleming at time of Bid are considered firm and are to be incorporated into the subcontract agreement subject to any post award changes directed or allowed by NCDOT and/or Corman. Three other aspects of the Teaming Agreement are particularly relevant to the parties’ appellate contentions. 1 The agreements are inconsistent in how they refer to the parties—sometimes with acronyms, sometimes with generic terms (like “Engineer” and “Design-Builder”) and sometimes with full names.

For the convenience of the reader, we will substitute the parties’ names for all inconsistent references, without brackets, when quoting from the agreements in this opinion. We have also reformatted the excerpts in the interest of legibility. 2 First, the Teaming Agreement provided that, if Corman’s bid were not accepted by NCDOT, Gannett Fleming would receive as payment for its pre-bid services any stipend received from the department. This was promised to Gannett Fleming “[i]n recognition of the highly unusual effort required” in assisting with the bid preparation. Second, the Teaming Agreement limited Gannett Fleming’s liability for its provision of pre-bid services: Gannett Fleming’s liability for engineering services provided during the proposal preparation phase will be limited to the amount of stipend actually received by Gannett Fleming pursuant to Paragraph 7 of this Teaming Agreement.

This limitation of liability provision does not apply to work or services performed by either party after award of a contract to Corman by NCDOT and the subsequent execution of a subcontract between the parties. Third, the Teaming Agreement did not contain a provision for arbitration of disputes between the companies. Corman was a successful bidder and was awarded a contract to replace seven bridges and five culverts in North Carolina. In August 2012, Corman and Gannett Fleming entered into a subcontract agreement for the project (the “Design Subcontract”), as the Teaming Agreement required them to do.

The Design Subcontract provided that it was to be governed by Maryland law and laid out the parties’ duties as they worked together to complete the project. The relevant provisions are outlined below. Article 3 of the subcontract agreement defined Gannett Fleming’s post-bid responsibilities, including a provision for “Basic Services” (emphasis added): 3 3.2 BASIC SERVICES Gannett Fleming’s Basic Services consist of a review of the Project information furnished by Corman and the provision of the Preliminary Design Documents, Design Development Documents, Construction Documents, bidding or negotiation assistance, Construction Phase Services, and other basic services as may be provided in this agreement. . . . These services shall be performed in accordance with the schedule established by the Design-Builder pursuant to Article 5.

Any Basic Services provisions that are not required under this Agreement shall be stricken. Next, the Design Subcontract designated as “not applicable” several subsections normally reserved for some of these basic services—including “Preliminary Design Documents” and “bidding and negotiation assistance.” These pre-bid services were not required of Gannett Fleming under the Design Subcontract because they had already been performed under the terms of the Teaming Agreement. Article 5 of the Design Subcontract provided that Gannett Fleming “shall provide the Services required by this Agreement at such reasonable times as will enable Corman to complete its work in accordance with the schedules established by the Design-Builder.” It further stated (emphasis added): 5.1 DELAYS BY ENGINEER If the progress or completion of the Project is delayed by reason of any negligent act, error or omission of Gannett Fleming, Gannett Fleming shall compensate Corman for and indemnify it against costs, expenses, liabilities or damages which accrue as a result of such delay. . . . Article 6.1 provided that Corman would compensate Gannett Fleming for all “Basic” and “Additional Services” provided.

The stipulated fee of $1,236,703.16 covered both “Design” and “Post Design” services. Article 7.1.3 of the agreement also limited Gannett Fleming’s potential liability to $5 million. 4 Finally, Article 9 of the Design Subcontract provided a mechanism for resolving disputes between Gannett Fleming and Corman (emphasis added): 9.1 INITIAL DISPUTE RESOLUTION If a dispute arises out of or relates to this Agreement or its breach, the parties shall endeavor to settle the dispute first through direct discussions. If the dispute cannot be settled through direct discussions, the parties shall endeavor to settle the dispute by mediation under the Construction Industry Mediation Rules of the American Arbitration Association before recourse to the dispute resolution procedures contained in this agreement. Once a party files a request for mediation with the other party and with the American Arbitration Association, the parties agree to conclude such mediation within sixty (60) days of filing of the request. . . . * * * 9.4 DISPUTE BETWEEN DESIGN-BUILDER AND ENGINEER . . .

Any disputes not resolved by mediation shall be decided by arbitration under the Construction Industry Arbitration Rules of the American Arbitration Association. The Dispute The parties’ relationship began to sour when Corman came to believe that some of the pre-bid quantity estimates provided by Gannett Fleming were faulty.2 According to Corman, Gannett Fleming’s errors resulted in delays, cost overruns, and, ultimately, substantial financial losses. In March 2015, Corman invoked the three-phase dispute- 2 The parties disagree as to exactly when Corman discovered the problem—or, at least, the extent of it. The timing of Corman’s discovery of the problem might affect the viability of some of Corman’s claims.

But, as we will explain, Maryland’s statute of limitations does not affect the court’s arbitrability inquiry, and so resolving this dispute is a task for the arbitrator. 5 resolution procedure outlined in Article 9 of the Design Subcontract. Corman scheduled a meeting with Gannett Fleming to begin direct discussions to attempt to settle Corman’s claim against Gannett Fleming. In October 2016, while these direct discussions were still ongoing, Gannett Fleming and Corman entered into a tolling agreement. This allowed Corman to investigate claims against Gannett Fleming, “for loss, cost, expense, or damage, or any other matter, breach, act, error or omissions, arising from design information provided to Corman,” and to seek a settlement “without regard to the time constraints that exist because of any future expiration of any applicable statute of limitations, to the extent the Tolled Claims are within the applicable statute of limitations.” The companies agreed “not [to] file suit or commence an arbitration proceeding” until the tolling agreement expired on January 31, 2017 (emphasis added).

The parties extended the tolling period three times. While the tolling agreement was still in effect, the parties also engaged in mediation, as required by the terms of the Design Subcontract. Mediation proved unsuccessful, however, and on August 15, 2017, the day the third extension of the tolling agreement expired, Corman filed a demand for arbitration with the American Arbitration Association. The demand described the dispute to be arbitrated as a “[c]ontractual claim for additional 6 costs arising from respondent’s breach of professional standard of care.”3 The Petition to Stay In response to Corman’s arbitration demand, Gannett Fleming filed in the circuit court a petition to stay arbitration, pursuant to Md. Code, § 3-208 of the Courts and Judicial Proceedings Article (“CJP”).

Gannett Fleming presented two arguments to the circuit court. First, Gannett Fleming asserted that Corman had waived its right to arbitration because its demand for arbitration was made after Maryland’s three-year statute of limitations4 for filing negligence and breach-of-contract claims had expired. Second, Gannett Fleming argued that Corman’s claim was not arbitrable because it did not “arise[] out of or relate[] 3 The exact nature of Corman’s claim is disputed by the parties. Gannett Fleming argues in its brief that the amount of damages Corman was seeking equaled the losses incurred as a result of the bad price estimates alone.

Thus, per Gannett Fleming, the claim arises solely under the Teaming Agreement. Corman, in its brief, disputes such a limited focus: “At no point has Corman ever stated that the amount of damages Corman is due is solely attributable to GFI’s pre-bid services. . . . Corman was clear that its claims relate to quantity [sic] overruns in the completed designs performed under the Design Agreement and for GFI’s delays in completing its services under the Design Agreement.” Before the circuit court, Corman Vice President Arthur Cox testified that the damages figure contained “field overhead” and “acceleration costs” incurred by Corman “as a result of delays in getting the project completed.” Because resolving this disagreement would not affect our analysis, we will assume, arguendo, that Corman’s claims are narrower in scope, premised solely on a breach of the Teaming Agreement. 4 This statute, codified at CJP § 5-101, reads: A civil action at law shall be filed within three years from the date it accrues unless another provision of the Code provides a different period of time within which an action shall be commenced. 7 to” the performance or breach of the Design Subcontract (which contained an arbitration provision), but rather under the Teaming Agreement (which did not). After an evidentiary hearing, the circuit court denied Gannett Fleming’s petition.

Distinguishing between the timeliness of a demand for arbitration and the timeliness of the substantive claim to be arbitrated, the circuit court ruled that Corman’s demand was not untimely made. And relying on this Court’s opinion in Griggs v. Evans, 205 Md. App. 64 (2012), the court applied a “significant relationship” test to decide that the asserted claims fell within the scope of the design agreement’s arbitration clause. Contentions on Appeal Gannett Fleming presents two issues to this Court, which we have reworded: 1. Was Corman’s demand for arbitration barred because it was not brought within three years of the date that Corman discovered the alleged negligence giving rise to the claim? 2.

Did the circuit court err when it concluded that the claim asserted by Corman fell within the substantive scope of the arbitration provision in the Design Subcontract? Our answer to each of these questions is no. Corman’s right to arbitration was not time- barred by the statute of limitations set forth in CJP § 5-101, even if its demand for arbitration was made more than three years after discovering Gannett Fleming’s alleged negligence. And Corman’s claim, even if just for extra material costs incurred as a result of Gannett Fleming’s breach of the Teaming Agreement, falls within the substantive scope of the arbitration provision in the Design Subcontract. 8 Analysis Through arbitration agreements, parties forgo the judicial forum otherwise available to settle their disputes and commit to resolve the matter privately.

Gold Coast Mall, Inc. v. Larmar Corp., 298 Md. 96, 103 (1983). By contract, they determine what is subject to arbitration—the substantive scope of the arbitration clause—and also define the procedural rules to be followed when a dispute arises. In Maryland, arbitration is considered a “favored” alternative method of dispute resolution, for it often saves time and money for both the parties and the courts. Baltimore County Fraternal Order of Police Lodge No. 4 v. Baltimore County, 429 Md. 533, 549 (2012) (quoting Walther v. Sovereign Bank, 386 Md. 412, 425 (2005)).

In keeping with the public policy favoring arbitration, the Maryland Uniform Arbitration Act, codified at CJP §§ 3-201–3-234, limits the role of the courts in dispute resolution when a valid arbitration agreement controls. Holmes v. Coverall North America, Inc., 336 Md. 534, 546 (1994). Until an arbitration is concluded, the jurisdiction of Maryland courts generally may be invoked only to determine, as a threshold matter, whether a dispute is in fact arbitrable. Id.5 This arbitrability issue is brought before the courts through petitions to compel arbitration (when a party to an arbitration agreement 5 Courts may also be called upon to appoint an arbitrator when the arbitration agreement does not provide for appointments.

CJP § 3-211. A court’s jurisdiction may also be invoked after an arbitration award is made, to confirm the award, CJP § 3-227, to vacate it, CJP § 3-224, or to correct or modify it, CJP § 3-223. 9 refuses to arbitrate), see CJP § 3-207(a) (“If a party to an arbitration agreement . . . refuses to arbitrate, the other party may file a petition with a court to order arbitration.”), or by petitions to stay commenced or threatened arbitration proceedings, see CJP § 3-208(a) (“If a party denies existence of the arbitration agreement, he may petition a court to stay commenced or threatened arbitration proceedings.”). When confronted with a petition to compel or to stay arbitration, trial courts are to consider “but one thing—is there in existence an agreement to arbitrate the dispute sought to be arbitrated?” Stauffer Construction Co. v. Board of Education of Montgomery County, 54 Md. App. 658, 665 (1983); cf. CJP § 3-207(c) (“If the court determines that the agreement exists, it shall order arbitration. Otherwise it shall deny the petition.”); CJP § 3- 208(c) (“If the court determines that the existence of the arbitration agreement is in substantial and bona fide dispute, it shall try this issue promptly and order a stay if it finds for the petitioner.

If the court finds for the adverse party, it shall order the parties to proceed with arbitration.”). In granting or denying petitions to stay or compel arbitration, courts should not delve into the merits, bona fides or factual basis of the claim to be arbitrated. CJP § 3-210.6 6 CJP § 3-210 reads: 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 10 Writing for this Court in Stauffer Construction, Judge Wilner observed that the “seeming simplicity” of these statutory directives is “deceptive.” 54 Md. App. at 665 . Depending upon the facts in a specific case, a court’s inquiry can be multifaceted.

A dispute is not arbitrable, and arbitration proceedings should be stayed, “where no arbitration agreement exists, either in fact or because the controversy sought to be arbitrated is not within the scope of the arbitration clause of the contract.” Gold Coast Mall, 298 Md. at 106 (quoting Layne-Minnesota Co. v. Regents of the University of Minnesota, 123 N.W.2d 371, 376 (Minn. 1963)) (emphasis added). Gannett Fleming challenges the arbitrability of Corman’s claim on both fronts, arguing that no agreement to arbitrate exists “in fact” because Corman waived its right to arbitrate by not timely filing its demand for arbitration, and that, even if the arbitration provision in the Design Subcontract is still enforceable, the dispute at issue falls outside of its substantive scope. The role of appellate courts in these cases is well-settled. Generally, a trial court’s finding that a dispute is subject to arbitration is a conclusion of law, subject to review de novo by this court.

Walther, 386 Md. at 422 . However, a trial court’s finding that a party has waived his right to arbitrate a dispute can be more fact-bound. When the determination of waiver turns on a factual analysis, the trial court’s findings will not be disturbed on (2) Because a valid basis for the claim sought to be arbitrated has not been shown. 11 appeal unless it is clearly erroneous. Cain v. Midland Funding, LLC, 452 Md. 141, 150 (2017); see also Abramson v. Wildman, 184 Md. App. 189, 200 (2009).

When the waiver determination is instead based on conclusions of law, however, it is reviewed afresh by the appellate court. Cain, 452 Md. at 150 (citing Wholey v. Sears Roebuck, 370 Md. 38, 48 (2002)). A. Existence in Fact: Was Corman’s Demand Timely? Gannett Fleming’s first argument for why this dispute is not arbitrable is that Corman’s demand for arbitration was untimely.

Gannett Fleming contends that, because Maryland’s statute of limitations would have prevented Corman from bringing the same claim in a judicial forum, arbitration should be disallowed too. We are not persuaded. Gannett Fleming’s argument is inconsistent with the plain language of CJP § 5-101 and misunderstands the way in which that statute interacts with the arbitration regime established by Maryland’s Uniform Arbitration Act. As is noted above, a dispute may be considered nonarbitrable because no arbitration agreement “exists . . . in fact.” Gold Coast Mall, 298 Md. at 106 (cleaned up).

This may be because, applying basic state-law contract principles, a court finds no enforceable agreement to arbitrate ever existed. See Cheek v. United Healthcare of the Mid-Atl., Inc., 378 Md. 139, 147 (2003) (“The determination of whether there is an agreement to arbitrate, of course, depends on contract principles since arbitration is a matter of contract.”). For example, a promise to submit disputes to arbitration may be unenforceable for lack of 12 consideration, id., or because it is invalidated by a generally applicable contract defense, like fraud, duress or unconscionability. Walther v. Sovereign Bank, 386 Md. 412 , 425–26 (2005) (citing Doctor’s Associates v. Casarotto, 517 U.S. 681 (1996)).

Even if a valid agreement to arbitrate was once made, courts may also evaluate, under CJP § 3-208, the continued existence of the right to arbitrate. Stauffer Construction Co. v. Board of Education of Montgomery County, 54 Md. App. 658, 666 (1983). A party may, by a subsequent act or omission, waive its right to arbitration. Id. at 668 .

In this context, waiver is “the intentional relinquishment of a known right, or such conduct as warrants an inference of the relinquishment of such right, and may result from an express agreement or be inferred from circumstances.” Cain v. Midland Funding, LLC, 452 Md. 141, 161 (2017) (quoting Hovnanian Land Investment Group, LLC v. Annapolis Towne Center at Parole, LLC, 421 Md. 94 , 122–23 (2011)). An intention inconsistent with enforcement of the right to arbitration should be clearly established and should not be inferred from equivocal acts or language. Charles J. Frank, Inc. v. Associated Jewish Charities of Baltimore, Inc., 294 Md. 443, 449 (1982) (citing BarGale Industries, Inc. v. Robert Realty Co., 275 Md. 638 , 643–44 (1975)). If waived, the right to compel arbitration is “regarded as having been voluntarily relinquished and thus treated as though it had never existed.” Stauffer Construction, 54 Md. App. at 668 .

Failing to timely make a demand for arbitration is one way to waive the right. Stauffer Construction, 54 Md. App. at 666 (“[B]y failing to make a timely demand, the party had 13 waived his contractual right to resolve the dispute through arbitration.”) (discussing Frederick Contractors, Inc. v. Bel Pre Medical Center, Inc., 274 Md. 307 (1975)); see also Allstate Insurance Co. v. Stinebaugh, 374 Md. 631, 646 (2003) (“[A]n inappropriate delay in demanding arbitration acts as a relinquishment of the contractual right to compel such a proceeding.” (quoting Town of Chesapeake Beach v. Pessoa Construction Co., 330 Md. 744 (1993)). It is for this reason that courts, not arbitrators, evaluate the timeliness of a demand for arbitration, “insofar as [this] ‘requires a determination of whether an agreement to arbitrate still exists based on possible waiver[.]’” The Redemptorists v. Coulthard Services, Inc., 145 Md. App. 116, 141 (2002) (quoting Rosecroft Trotting & Pacing Ass’n v. Electronic Race Patrol, Inc., 69 Md. App. 405, 413 (1986)). Maryland appellate decisions have identified two ways in which a court may find a right to arbitration is waived for “inappropriate delay” in asserting the right.

First, a party may fail to make a demand for arbitration within the time limits spelled out in the text of the agreement itself. For example, in Frederick Contractors v. Bel-Pre Medical Center, the arbitration agreement provided: The demand for