Litton Bionetics, Inc. v. Glen Construction Co.

292 Md. 34 (1981) 437 A.2d 208 LITTON BIONETICS, INC. v. GLEN CONSTRUCTION COMPANY, INC. ET AL. [No. 5, September Term, 1981.] Court of Appeals of Maryland. Decided November 27, 1981. The cause was argued before MURPHY, C.J., and SMITH, DIGGES, ELDRIDGE, COLE, DAVIDSON and RODOWSKY, JJ.

Thomas C. Wheeler, with whom were Pettit & Martin, Gerard E. Mitchell and Stein, Mitchell & Mezines on the brief, for appellant. ³⁶ J. Richard Margulies, with whom were Braude, Margulies, Sacks & Rephan, Chartered on the brief, for appellee Glen Construction Company, Inc. Patrick J. Attridge and John A. King on the brief of other appellee A. Kent Dickey. RODOWSKY, J., delivered the opinion of the Court. SMITH, DIGGES and DAVIDSON, JJ., dissent. DAVIDSON, J., filed a dissenting opinion at page 57 infra, in which SMITH and DIGGES, JJ., concur.

The principal question presented in this case is whether a circuit court has the power to order that the arbitration of a dispute between the owner of a newly constructed building and the building's architect be consolidated with the arbitration of disputes between the owner and the building's general contractor. For reasons which follow, we shall hold that a circuit court is so empowered under the Maryland Uniform Arbitration Act, Md. Code (1974, 1980 Repl. Vol.), §§ 3-201 through 3-234 of the Courts and Judicial Proceedings Article. Appellant, Litton Bionetics, Inc. (Litton), is the owner of a toxicology laboratory building in Rockville, Maryland for which one of the appellees, Dickey & Dickey (Dickey) of Fairfax City, Virginia, was architect.

The architectural services agreement with Litton contains an arbitration provision which in relevant part reads: All claims, disputes and other matters in question arising out of, or relating to, this Agreement or the breach thereof shall be decided by arbitration in accordance with the Construction Industry Rules of the American Arbitration Association then obtaining unless the parties mutually agree otherwise. This agreement to arbitrate shall be specifically enforceable under the prevailing arbitration law. The other appellee, Glen Construction Company, Inc. (Glen), of Rockville, was the general contractor for the project. Its construction contract with Litton contains an arbitration ³⁷ provision which includes the same language as that quoted above. [1] Litton authored both agreements.

Completion of the building was in December 1978. On April 25, 1980, Glen filed with the American Arbitration Association (AAA) a demand for arbitration against Litton in which Glen claimed $163,989 for delay. Litton, on June 16, answered and counterclaimed for $1,178,570, the largest components of which related to epoxy coating on concrete floors, the HVAC system, and claims of energy losses, lost profits and unabsorbed overhead. On July 3, 1980, the AAA sent Glen and Litton a list of possible arbitrators "from which three shall be appointed," in accordance with § 13 of the AAA rules. [2] It appears that the AAA exercised its discretion in determining that the Litton-Glen arbitration would be before a panel of three. [3] ³⁸ Glen's July 22 reply to the Litton counterclaim was a five-page letter.

It referred in part to inspections of the epoxy coating and of the HVAC system by the architect's representatives. It contained a statement that Litton "should have specified a heavier duty class of supply and exhaust fans than the contract, in fact, specified." Thereafter Litton, on September 8, 1980, filed with the AAA a demand for arbitration against Dickey alleging negligence and seeking damages, net of retainage, of $56,761.28. In its covering letter to the AAA, Litton pointed out that its demand against Dickey involved the same construction project as that in the Glen-Litton arbitration and advised that Litton was "presently attempting to obtain the consent of the other parties to consolidate these actions for hearing in one proceeding." When Glen objected to the consolidation, the AAA on September 22 wrote to all parties stating that, "[a]bsent the agreement of all parties or applicable contractual provisions authorizing joint arbitrations, the Association must administer the cases separately." Selection of the three-person panel for the Glen-Litton arbitration was completed by October 9, 1980 as the result of the absence of any objection to a person selected by the AAA to replace a previously selected arbitrator who had withdrawn. Litton amended its demand for arbitration with Dickey on October 23, 1980 in order to claim $1,178,570, the amount of Litton's counterclaim in the Glen-Litton arbitration.

This amended claim was in the alternative and stated that it would be withdrawn to the extent that Litton obtained recovery against Glen. The amended demand quoted those portions of Glen's reply to Litton's counterclaim in which Glen had referred to inspections by the architect's representatives and to the specifications for the project. On the next day, October 24, 1980, Litton filed a petition against Glen and Dickey on the equity side of the Circuit Court for Montgomery County. The relief sought was a ³⁹ declaratory judgment that the Glen-Litton and Litton-Dickey arbitrations be consolidated and that a mandatory injunction be issued directing Glen and Dickey to consent to the consolidation.

The defendants were directed to show cause why the relief requested should not be granted at a hearing set for November 28, 1980. There is no record of what transpired at the hearing on November 28. No testimony was presented and no exhibits were formally marked into evidence. Rather, it appears that the parties argued to the court on the basis of their pleadings and from contracts and letters which had been attached to their pleadings and legal memoranda. [4] By a written order of December 5, 1980 the trial court denied Litton's petition.

That court gave no statement of the grounds for its decision as required by Md. Rule 18 b, and there is no record that any party requested one. Arbitration proceedings have been stayed, pending appeal, by order of the trial court. Litton's petition for certiorari and Glen's cross-petition were granted prior to consideration of Litton's appeal by the Court of Special Appeals. There are basically two issues on the merits: (1) whether the court below had power to order consolidation and, if so, (2) whether the failure to consolidate was an abuse of discretion in this case.

Litton contends that this power exists under both the Maryland Arbitration Act and under the Federal Arbitration Act, 9 U.S.C. §§ 1-14 , which it says applies here. Glen also moves to dismiss the appeal. I In support of its motion to dismiss Glen argues that the order appealed from is interlocutory because it in effect directs arbitration of two disputes which are to proceed separately. Glen relies on Maietta v. Greenfield, 267 Md. 287 , 297 A.2d 244 (1972), which held that an order directing ⁴⁰ arbitration is not appealable.

Maietta involved the application of the Maryland Uniform Arbitration Act as found in Code (1957, 1968 Repl. Vol.), Art. 7, Title, "Arbitration and Award." Section 18 of that Act specified six types of court orders involving arbitration from which an appeal could be taken. [5] These did not include an order to arbitrate. However, Article 7 was repealed with the adoption of the Courts and Judicial Proceedings Article as part of the Code revision project. Acts of 1973, 1st Sp.

Sess., ch. 2, § 2 at 388. The treatment of the provisions of former Art. 7, § 18 in the revision is an instance in which a substantive change was intentionally made. The change lies in Md. Code (1974, 1980 Repl. Vol.), § 12-301 of the Courts and Judicial Proceedings Article, which in relevant part reads: [A] party may appeal from a final judgment entered in a civil or criminal case by a circuit court.

The right of appeal exists from a final judgment entered by a court in the exercise of original, special, limited, statutory jurisdiction, unless in a particular case the right of appeal is expressly denied by law. [Emphasis added.] Prior to this enactment, the general rule with respect to appealability of judgments in civil cases was as described in Simpler v. State ex rel. Boyd, 223 Md. 456, 460-61 , 165 A.2d 464, 466 (1960): [W]here the lower court proceeds in the exercise of its usual and general jurisdiction, an appeal will lie ⁴¹ from any final judgment it may pronounce in a civil case. But to this general rule, there are certain exceptions, and one of these exceptions is that where a special or limited jurisdiction is conferred upon the circuit courts ... to be exercised in a particular mode, and not according to the ordinary course of the common law, no appeal will lie from their judgments, unless expressly provided for by statute. [Citation omitted.] The Revisor's Note to § 12-301 (1974 Vol.) makes plain that the rule requiring specific statutory authorization for an appeal to lie from judgments entered in actions where the court was exercising a special statutory jurisdiction was viewed as "something of a trap." The Note then says: It seems more reasonable to let the broad general language include appeals in such cases unless the legislature expressly decides to deny them. This approach will eliminate the necessity of deciding whether a given jurisdiction is common law or special, limited and statutory.

It will also permit the repeal of numerous special appeal provisions, such as Article 7, § 18....[ [6] ] [Citation omitted.] The rule applied in Maietta is no longer the law. The present Maryland Uniform Arbitration Act does not ⁴² expressly deny the right of appeal from a final judgment entered by a court in the exercise of jurisdiction under that statute. Thus, the question is simply whether the order appealed from constitutes a final judgment. Because the order denied all of the relief sought by Litton and completely terminated the action in the circuit court, it is an appealable, final judgment.

Department of Public Safety v. LeVan, 288 Md. 533 , 419 A.2d 1052 (1980). II A In this case there is no genuine dispute between the parties as to the material facts insofar as those facts relate to Litton invoking the Maryland Arbitration Act. [7] There was a justiciable controversy between the parties concerning the interpretation of the Maryland Arbitration Act and whether it empowered a court to order consolidation. That issue is a question of law. Under these circumstances, we may consider that the trial court in effect entered a summary declaratory judgment adverse to Litton, even though no formal motion for a summary judgment was made by any party.

A similar problem was presented in Hunt v. Montgomery County, 248 Md. 403 , 237 A.2d 35 (1968). There landowners, the zoning of whose properties had been upgraded by a "lame duck" county council, sought a declaratory judgment that the newly elected county council had no power to reconsider the reclassifications. Hearing in the trial court consisted of oral argument on the county's demurrer to the petition, following which the court entered a declaratory judgment interpreting the applicable statutory provisions adversely to the property owners. This Court affirmed.

We said that the trial court had "in effect granted a summary declaratory judgment" and that "[e]ven though no formal motion for summary judgment under the rules was made, there was before the court enough to justify its ⁴³ action in granting a summary declaratory judgment." Id. at 411 , 237 A.2d at 39 . The difficulty is that we cannot tell from the cryptic final order what the trial court's determination was on the question of its power. Rather than simply deny the petition, the trial court should have entered a decree which passed upon and adjudicated the power issue, to the end that the rights of the parties would be clearly delineated and that controversy terminated. Mauzy v. Hornbeck, 285 Md. 84 , 400 A.2d 1091 (1979); Robert T. Foley Co. v. W.S.S.C., 283 Md. 140 , 389 A.2d 350 (1978); Donnelly Advertising Corp. v. City of Baltimore, 279 Md. 660 , 370 A.2d 1127 (1977); Dart Drug Corp. v. Hechinger Co., 272 Md. 15 , 320 A.2d 266 (1974).

Since the trial court may never have exercised any discretion because it concluded that it had no power to exercise, we shall address initially the question of power. B Inasmuch as arbitration is a matter of agreement between the parties, the problem of power with which we are here concerned arises only when the parties have not provided in their agreements whether consolidation is or is not authorized. The problem arises when there is a common party to two or more agreements and there is a commonality of subject matter of the disputes under the different agreements. The question is whether a court can, in appropriate circumstances, direct that the arbitration between the common party and one adversary be heard at the same time as the arbitration between that common party and another adversary, in the absence of unanimous consent.

Litton's agreements with Glen and with Dickey do not expressly require or prohibit consolidation of arbitrations between the respective signatories with related arbitration proceedings. The Construction Industry Rules of the AAA, which form part of the contracts between the parties here, are similarly silent on the subject, although the policy of the AAA in administering arbitrations has been not to consolidate, absent unanimous consent. Decisions arising under ⁴⁴ state arbitration statutes and involving similar circumstances are divided as to whether consolidation may be compelled. See Annot., State Court's Power to Consolidate Arbitration Proceedings, 64 A.L.R.3d 528 (1975).

Those courts which find there is power to order consolidation view the statutorily conferred power to enforce an arbitration agreement as including the power to direct that the agreed arbitration be conducted in conjunction with a sufficiently related arbitration. These courts emphasize that such a procedure avoids the danger of inconsistent results which can arise if the common subject matter is arbitrated sequentially before different arbitrators. This line of cases points to the convenience and economy to parties and witnesses in resolving by one proceeding disputes which arise out of common facts and circumstances. Courts which have held there is no power under their state arbitration act to compel consolidation stress that a court cannot rewrite the agreement of the parties.

"Rewriting the agreement" is used in two senses in the cases. First, because the agreement is silent on consolidation, a court may be taking the position that it can do no more than enforce what the parties have expressed, or necessarily implied, in their agreement. This is the sense of "rewriting" with which the first level of our power analysis is concerned. The "rewriting" bar to consolidation is also applied in situations where court ordered consolidation could not be procedurally effected without conflicting with the rights of one or more of the parties under their contracts.

This problem primarily arises in the mechanics of meshing the arbitration procedure under one contract with the arbitration procedure provided under a related agreement. For example, one or more of the agreements involved may provide for arbitration before a panel composed of three persons, where each of the two parties to the particular agreement selects his own arbitrator and the two so chosen select the third member of the panel. We shall refer to this method of selection as a "2&1" procedure. M. Domke, Law and Practice of Commercial Arbitration 272, 274 (1968) states that "[t]he general rule is that a court ⁴⁵ may order consolidation of arbitration proceedings where the parties are not the same if the issues are substantially the same and if no substantial right is prejudiced." But he cautions that the "case may be wholly different when not a single agency administering arbitration is involved but the two agreements between the same parties provided for arbitration before different tribunals." (Emphasis in original.) New York is unquestionably the leading jurisdiction of those which find a power to consolidate.

Initially the New York decisions relied upon provisions of the former Civil Practice Act which deemed arbitration to be a special proceeding and which permitted consolidation of special proceedings whenever it could be done without prejudice to a substantial right. See In re Symphony Fabrics Corp. (Bernson Silk Mills, Inc. and Barbara Dance Frocks), 12 N.Y.2d 409 , 240 N.Y.S.2d 23 , 190 N.E.2d 418 (1963). In the 1962 adoption of the New York Civil Practice Law and Rules, classification of arbitration as a special proceeding was intentionally discarded. This led the Appellate Division to conclude that courts no longer had authority to consolidate arbitration proceedings.

See County of Sullivan v. Edward L. Nezelek, Inc., 42 N.Y.2d 123, 127 , 397 N.Y.S.2d 371, 374 , 366 N.E.2d 72, 74 (1977). The Court of Appeals of New York rejected this position in In re Chariot Textile Corp. (Wannalancit Textile Co. and Kute Kiddies Coats, Inc.), 18 N.Y.2d 793 , 275 N.Y.S.2d 382 , 221 N.E.2d 913 (1966), by adopting the dissenting opinion at the Appellate Division. That dissenting opinion advanced two grounds on which to found consolidation. The first was that the common party to the agreements there involved, by having moved in court for consolidation, made each of the arbitrations a special proceeding.

As to the second foundation, which is relevant here, the dissenting Appellate Division judge said: CPLR 7501 provides that a written agreement to arbitrate "confers jurisdiction on the courts of the state to enforce it." I would hold that jurisdiction to enforce contracts to arbitrate imports power to regulate the method of enforcement. Since the majority ⁴⁶ of the court tacitly admits that the instant case presents a proper basis for consolidation of the arbitrations, and rests its reversal solely on the ground of lack of power, I must dissent. [ 21 A.D.2d 762 , 763-64, 250 N.Y.S.2d 493, 495 (1964).] Although New York does not have the Uniform Arbitration Act, [8] the Maryland statute contains the same language as that relied upon by the Court of Appeals of New York. Section 3-202 of our Courts and Judicial Proceedings Article states that "[a]n agreement providing for arbitration under the law of the State confers jurisdiction on a court to enforce the agreement and enter judgment on an arbitration award." A rationale with a somewhat different emphasis was advanced in 1977 by the Court of Appeals of New York in County of Sullivan v. Nezelek, supra, 42 N.Y.2d at 128 , 397 N.Y.S.2d at 374 , 366 N.E.2d at 75 , where the court said: We recognize the fundamental principle that the resolution of disputes by arbitration is grounded in agreement of the parties. In that perspective, on principle it would have seemed preferable to premise orders directing consolidation in arbitration on express agreements of parties to that effect.

That was not, however, the basis for the development of the judicial power to consolidate. In recent times, given the decisions of our court and others, parties signing an agreement to arbitrate must be held to do so in contemplation of the announced authority of the courts in proper cases to direct consolidation. If it is now desired to avoid the possibility of consolidation, appropriate provisions to preclude or limit consolidation can be drafted for inclusion in the particular arbitration agreement. ⁴⁷ The Supreme Court of Minnesota has accepted the Chariot reasoning in interpreting that state's version of the Uniform Arbitration Act. Grover-Dimond Associates, Inc. v. American Arbitration Association, 297 Minn. 324 , 211 N.W.2d 787 (1973).

That case involved a demand for joint arbitration by the owners of a building against the general contractor and the architect, who objected. The court held ( id. at 329-30 , 211 N.W.2d at 790 ): In the case before us, the parties have already agreed to use the same arbitrators. To require that they hear the same evidence twice is to ascribe to the parties an intention not expressed in their agreements. If the arbitration agreements explicitly provided for joint or separate hearings, the agreements would, of course, govern.

In the absence of such language, and where there is no showing of prejudice, we hold that the order directing joint arbitration reflects the policy of our arbitration statute and furthers its purpose. It is obvious from an examination of claims made by the architect and the contractor that each will blame the other for incurring the expenses which the owners contend were unauthorized. This is not a case of requiring a party to join in a proceeding against a stranger. The architect and contractor are not obligated to arbitrate their dispute with one another. [Emphasis added.] The reasoning of Grover-Dimond was accepted and applied by the Supreme Court of Nevada in its interpretation of that state's Uniform Arbitration Act in a construction contract case.

Exber, Inc. v. Sletten Construction Co., 92 Nev. 721 , 558 P.2d 517 (1976). The case presents a conceptually more difficult problem for consolidation than that requested by Litton in the instant matter. There two subcontractors demanded arbitration with the general contractor and with the owner. The owner resisted on the ground that it had no contractual duty to arbitrate with the subs and that it would not be bound by any award rendered ⁴⁸ in the arbitration between the general and the subcontractors.

Arbitration provisions of the general contract incorporated the Construction Industry Rules of the AAA and each subcontract extended to the subcontractor the same right of arbitration granted the general contractor under his contract. Because the same evidence, witnesses and legal issues were involved in the owner-general dispute as in the general-subs dispute, and because the court did not view the case as one "requiring a party to join in a proceeding against a stranger," consolidation was ordered to "avoid the possibility of conflicting awards, as well as the additional time and expense of separate proceedings." Id. at 732 , 588 P.2d at 524. An intermediate appellate court in California refused consolidation in the case before it but declined flatly to hold that "consolidation of arbitration proceedings is never permitted where the agreement is silent in that regard." Atlas Plastering, Inc. v. Superior Court of Alameda County, 72 Cal. App.3d 63, 72 , 140 Cal.

Rptr. 59, 63-64 (1977). That case involved claims by four subcontractors against the general. Each subcontract provided for a 2&1 arbitration panel, but the trial court had ordered a consolidated arbitration in which one arbitrator would be selected by the general contractor and one arbitrator would be selected by the subcontractors collectively, with the third arbitrator selected by the two so chosen. Trial courts in New Jersey have reached different results under that state's arbitration statute, which is not the Uniform Arbitration Act.

In James Steward Polshek & Associates v. Bergen County Iron Works, 142 N.J. Super. 516 , 362 A.2d 63 (Ch. Div. 1976), the agreement between the owner and architect called for arbitration in accordance with the Construction Industry Arbitration Rules of the AAA and the contract between the owner and contractor contained a substantially identical clause. The contractor demanded arbitration with the owner and with the architect, who objected based on lack of privity with the contractor. The owner cross-claimed in arbitration against the architect.

It was held that the architect could not be compelled to ⁴⁹ arbitrate directly with the contractor but that the arbitration between contractor and owner could be consolidated with the arbitration of the claim of the owner against the architect. In so doing, the court declined to follow an earlier decision in the Chancery Division in Wm. C. Blanchard Co. v. Beach Concrete Co., 121 N.J. Super. 418 , 297 A.2d 587 (1972), which had denied consolidation on the ground that neither court rule nor statute authorized it. On this point the court in Polshek said ( id. at 528-29 , 362 A.2d at 69 ): An agreement to arbitrate confers jurisdiction upon the court to enforce it, and it follows that such jurisdiction imports power to regulate the method of enforcement.

Consequently this court respectfully disagrees with the view in Blanchard that consolidation is inconsistent with section one of our statute, providing that agreements to arbitrate "shall be valid, enforceable and irrevocable." Consolidation is merely a procedure controlling the manner of arbitration and does not affect the parties' contractual right to arbitration which remains "valid, enforceable and irrevocable." The court observed that there was no problem presented in that case concerning selection of arbitrators or